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BUSINESS STRATEGY

Course Code: 611 & 612


Dr. Subir Sen – Faculty Member, IBS
E-Mail: subir@ibsindia.org, 9830697368
1) Crafting & Executing Strategy – Thompson & Strickland.
2) Strategic Management – Pearce & Robinson.
3) Strategic Management – Fred. R. David.
4) Exploring Corporate Strategy – Johnson & Scholes.
5) Competitive Advantage – Michael E. Porter.
6) HBR – Articles.
7) HBR & ICMR - Case Studies. 1
INTRODUCTION

2
STRATEGY - DEFINITION

 Strategy is all about making trade-offs between what to


do and more importantly what not to do; consciously
choosing to differentiate. It reflects a congruence
between external opportunities and internal capabilities.
Types of strategies –
 Corporate Strategies – It is all about making choices
across various businesses and allocating resources
among them.
 Business Strategies – It is all about developing and
leveraging competitive advantage.
 Functional Strategies – It is all about finding newer ways
to perform existing processes, or better still adopting
new processes altogether. 3
STRATEGIC MANAGEMENT - DEFINITION

 Strategic management attempts to integrate the


traditional management functions and align the
organization as a whole with the broader environment to
make resource allocations in a way to achieve the
strategic intent of the organization.
 This alignment is called strategic fit.
 It serves as a road-map for the organization in its
growth trajectory. It provides the direction – extent –
pace – timing.
 It depends on the turbulence of the environment and
the aggressiveness of the organization.
It distinguishes the winners from the losers.
4

PILLARS OF STRATEGIC MANAGEMENT

 Differentiation – Differentiation of key inputs and


technologies helps a firm to consciously move away from
homogeneous to heterogeneous markets enabling them
to earn super-normal profits from normal profits.
 Integration – Whenever dealing with a complex task of
managing a business (i.e. involving a no. of variables
with cross linkages) it is in the interest of simplicity that
the task be broken up in smaller components. However,
for effective control, integration is essential.
 Alignment – Since differentiation is prone to replication,
it is in the interest of the firm to differentiate
continuously by aligning the resources with 5
environmental opportunities.
STRATEGIC MANAGEMENT - FRAMEWORK

Economical

Fit Strategic Fit

Technological
Finance

Management
Fit
Operation
Strategic
Political

Political

HR
Strategic
Fit Intent
Political
Marketing

Fit Management Fit


Social & Cultural 6
STRATEGIC MANAGEMENT - FEATURES

 It forms the core activity of the top management.


 It requires full commitment of the top management.
 It is long-term in nature.
 It is all about creativity and innovation.
 It is about adaptation and response to the same.
 It involves substantial resource outlay.
 It is irreversible.
 It is a holistic and integrated approach.
 It provides broad guidelines.
 It is a top to bottom process.
 It can make or destroy a company. 7
STRATEGIC MANAGEMENT – MYTHS

 It involves short-cuts.
 It is about forecasting.
 It is about a definite formula.
 It attempts to minimize risk.
 It brings instant success.
 It about mere data and facts.
 It involves nitty-gritty's.
 It a bundle of techniques or even tricks.
 It involves only the top management.
 It is fool-proof in nature.
 It is rocket science. 8
STRATEGIC MANAGEMENT - IMPERATIVES

 To be continuously alert.
 To assimilate change faster.
 To be future oriented.
 To tap markets across boundaries.
 To be insulated against environmental threats.
 To leverage size, scale and scope.
 To generate large resource pool.
 To gain expertise in technologies.
 To innovate, again and again …….
 To be proactive, rather than reactive.
 To develop core–competencies. 9
STRATEGY - ORIGIN

 The word strategy has its origin from the Greek word
strategia meaning Military Commander. In the ancient
days battles were fought over land. In contrast, today's
battles are fought over markets.
 In the ancient days battles were won not by virtue of
size of the army or armory; but by virtue of their
courage, obsession, and more importantly - strategies.
 Even in today’s markets, battles fought on the market
front are won by companies by virtue of their obsession
& strategies, whose origin can be traced to some of the
greatest battles fought in the ancient days.
 It is an old wine in a new bottle; but with a lot a rigour
and robustness.
10
SOME PARALLELS

 Japan’s attack on Pearl Harbour


– Strategy: Attack where it hurts the most.
– Toyota’s entry in the US, challenging GM and Ford.
 US attack of Morocco to capture Germany
– Strategy: Pin-hole strategy
– Wal-Mart challenging Sears by entering small towns.
 Allied Forces Vs Germany (WW-II)
– Strategy: Forging alliances.
– Yahoo and Microsoft challenging Google.
 Napoleon’s attack on Russia
– Strategy: Waiting for the right time.
– Reliance’s entry into telecom. 11
EVOLUTION OF MANAGEMENT

 As Peter Drucker refers to it, a radical change in the


business environment brings about discontinuity. The
things happening around the firm when totally
disconnected from the past leads to a paradigm shift.
 A paradigm is a dominant belief about how the
business and its environment operates.
 The first major discontinuity in the history of global
business environment was the - Industrial Revolution.
– Mass Production
– Complicated Processes Organization Size
– Complex Structures
 Evolving of an emerging paradigm – survival of the
fittest (Fayol & Taylor, 1910). 12
EVOLUTION OF STRATEGIC MANAGEMENT

 The second major discontinuity in the history of global


economic environment – World War II.
– Global market place.
– Affluence of the new customer (i.e. push to pull).
– Changes in the technology fore-front.
– Homogeneous to heterogeneous products.
 From uniform performance, performance across firms
became differentiated. The question of outperforming
the benchmark became the new buzzword.
 Survival of the most adaptable becomes a new
management paradigm (Ansoff, 1960). Efficiency and
effectiveness are no longer sufficient. 13
ENVIRONMENTAL CHANGE

Phase IV: Horizon of Scenarios Phase I: Extrapolation of the past


2
1 1

Prior to 1950
3 1990 onwards

Phase III: Range of Scenarios Phase II: Discrete Scenarios


1 2
1A
1
3 1B

2A

2 2B 1950 to 1970
1970 to 1990 14
APPROACHES TO STRATEGY

 Analytical Approach – Igor H. Ansoff (1960)


– Strategy can be segregated into certain mutually
exclusive and inter-related components aimed at
managing the growth of an organization.
– The choice of strategy is primarily concerned with
external ones rather than internal ones.
– The choice of product-market mix is based on
conscious evaluation of risk – return factors.
– Biases and prejudices has a very little role to play in
strategic choices pursued by managers. Learning
always begin on a clean sheet of paper.
– It is primarily the top management’s prerogative. 15
APPROACHES TO STRATEGY

 Design Approach – Alfred Chandler (1970)


– Structure follows strategy. The organization initially
decides which industry to enter, how it will compete,
who will be the top managers.
– The top managers then decide on the type of
organization structure & systems to be in place.
– Organization structure will precede and cause
changes in strategy. Successful organizations align
authority and responsibility of various departments in
way to reach overall objectives.
– Management control systems has a dominating role
in influencing firm performance. Once the control16
systems are in place, everything else follows.
APPROACHES TO STRATEGY

 Positioning Approach – Michael E. Porter (1980)


– Choose a consumer segment and position your
product accordingly.
– A firms performance is inversely related with the
bargaining power of environmental forces to which it
is exposed.
– The environmental forces comprises of – supplier,
customer, new entrant, substitutes, competitors.
– The organization will outperform the industry where
environmental forces are weak and vice-versa.
– An organization is seldom in a position to influence
the larger business environment. 17
APPROACHES TO STRATEGY

 Core Competence – C. K. Prahalad (1990)


– The key to superior performance is not doing the
same as other organizations, locating in most
attractive industries and pursuing the same strategy;
but exploiting the resource differences among them.
– Core competencies are a set of skills that are unique
and can be leveraged. They are complex resources
and undermines a firms competitive advantage.
– It enables a firm to deliver unimaginable value ahead
of time.
– Organizations can significantly alter the way an
industry functions. 18
STRATEGIC MANAGEMENT - PROCESS

 Strategic Intent
 Strategic Planning
Strategic Gap
– Environmental Scanning
– Internal Appraisal of the Firm
 Strategy Formulation
– Corporate Strategy
– Business Strategy Strategic Choices
– Functional Strategy
 Strategy Implementation
 Strategy Performance
 Strategy Evaluation & Control 19
TOP MANAGEMENT PERSPECTIVE

20
STRATEGIC INTENT

 If you cannot see the future, you cannot reach there.


 A strategic intent is a statement of purpose of
existence. It involves an obsession to be the best or
outperform the best. It is the cornerstone of an
organizations strategic architecture reflecting its
desired future state or its aspirations.
 It provides a sense of direction and destiny.
 It’s a philosophy that distinguishes it from its
competitors.
 It implies a significant stretch. A substantial gap
between its resources and aspirations. A gap that
consciously manages between stagnation and atrophy. 21
STRATEGIC INTENT - HIERARCHY

Vision
Integrative Single
Mission
Dominant
Objectives
Do
m
ina

Goals

ic
Many

g
Specific
nt

Lo
Plans
22
DOMINANT LOGIC

 A dominant logic can be defined as the way in which


the top management team conceptualizes its various
businesses and make critical resource allocation
decisions.
 To put it more simply, it can be perceived as a set of
working rules (similar to thumb rules) that enables the
top management to decide what can be done and more
importantly what cannot be done.
 It is core to the strategic intent of the firm.
 Dominant logic changes, when radical changes in the
internal and external environment (i.e. strategic
variety) is apparent.
23
VISION

 It is a dream (not a forecast) about what the company


wants to become in the foreseeable future. It provides an
unity of purpose amidst diversity of personal goals. It
ensures that the company does not wander off into
unrelated zones or fall into an activity trap. It enables the
top management to remain focused.
 It is a combination of three basic elements –
– An organizations fundamental reason for existence;
beyond just making money.
– It stands for the unchanging core values of the company.
– It represents the company’s audacious, but achievable
aspirations.
24
VISION - CHARACTERISTICS

 Reliance – Where growth is a way of life. In Reliance when


a new project becomes operational top managers hand
over charge to the SBU heads and move on to a new
project.
 Clarity – Vividly descriptive image of what the company
wants to be known for in the future.
 Reachable – It should be within a reasonable target in the
known future; not an utopian dream.
 Brevity – It should be short, clear, and memorizable.
 Empathy – It should reflect the company’s beliefs to which
it is sensitive.
 Sharing – The company across all hierarchies should have
faith in it. 25
VISION - ADVANTAGES

 To stay focused on the right track.


 To prevent the fall in a activity trap.
 It gives enlightment.
 It gives the impression of a forward-looking
organisation.
 It provides a holistic picture.
 It gives a shared platform.
 It fosters risk taking and experimentation.
 It lends integrity and genuineness.
 It makes strategic alignment easier.
 It facilitates development of skills & capabilities. 26
MISSION

 Mission defines the space that a business wants to


create for itself in a competitive terrain. It enables the
firm to define its business landscape and identify its
competitive forces.
 It is intuitive for managers to conceive their business in
terms of the customer needs they are serving -
– What business are we in?
– Which customer needs are we serving?
 It should be broad based and relevant to all stake-
holders. Although the purpose may change over time. A
broad mission statement helps in fending competitors.
 It serves as a road map to reach the vision; its reason
for existence.
27
MISSION – SOME IDEAS

 Reliance – We are in the business of integration. All


the businesses of the company are strongly integrated
with their main business, though some may seem
unrelated in nature. Some other examples -
– We do not offer shoes,
…………………. We offer comfort.
– We do not offer steel,
…………………. We offer strength.
– We do not offer software's,
…………………. We offer solutions.
– We do not offer insurance,
…………………. We offer security. 28
GOALS & OBJECTIVES

 Reliance – We want to become a Rs.100K crore


company by the year 2005. It is an end result
(quantifiable) something a firm aims and tries to reach
in a time bound frame. It provides a quantitative feel to
an abstract proposition.
– It lends direction – time frame in the medium term.
– It provides a benchmark for evaluation.
– It helps identifying key success factors.
– It is based on Management by Objectives (MBO).
– It adds legitimacy and motivation.
– It keeps the mid management pre-occupied.
– It prevents deviation. 29
PLANS

 Reliance – Desire to invest 25K crore in telecom


business by circa 2010. It is the process of garnering
necessary inputs, coordinating appropriate
technologies, and gaining access to desired markets to
achieve the desired goals and objectives. It is specific
to a particular business. The details of the plan
Reliance Telecom adopted were -
– Backward integrate process technologies.
– Compress project times.
– Leverage economies of size and scale.
– Use price-elasticity to break market barriers.
– Acquire a market share of indomitable position. 30
STRATEGIC DRIFT

 Due to top management commitment, past strategies


tend to have a bearing on future strategies. Historical
studies have shown that most organizations tend to
continue with their existing strategies. This tendency to
restore continuity is known as inertia (resistance to
change).
 When changes in the environment is incremental,
equilibrium is maintained. However, radical change may
lead to disequilibrium. This state of affairs is known as
strategic drift. It often leads to an organizational crisis.
 In such a context, strategies lose touch with the
emerging realities.
31
STRATEGIC DRIFT FRAMEWORK

Environmental Change
Radical Change
Strategic Change
Degree of change

Incremental Change

State of Flux Stage of Transformation


Continuity
Strategic Drift

Stage of Atrophy

Time 32
ORGANIZATIONAL POLITICS

 Strategic drift often leads to organizational politics.


Organizational politics involves intentional acts of
influence to enhance or protect the self-interest of
individuals or groups over organizational goals. Some
instances of organizational politics -
– Formation of powerful groups or coteries.
– Creating obligations of reciprocity.
– Hiding vulnerability.
– Using covert tactics to pursue self interests.
– Creating a favourable image.
– Developing a platform of support.
– Distorting information to gain mileage. 33
INTENDED & REALISED STRATEGIES

 An intended strategy is an expression of interest of a


desired strategic direction. A realized strategy is what
the top management actually translates into practice.
Usually there is wide gap between the two when
organizational politics is evident. Other causes –
– The plans are unworkable and utopian.
– The environment context has changed.
– Influential stake-holders back out.
– Persons responsible for strategy conceptualization
and implementation are divergent.
 An emergent strategy evolves over time and takes
shape with the changing environment. A lot of inter- 34
active learning takes place when strategies emerge.
LOGICAL INCREMENTALISM

 According to the incrementalism approach (contrary to


integrated approach) practitioners simply do not arrive
at goals and announce them in crafted and well
defined packages. They simply unfold the particulars
of the sub-system in stages, but the master scheme of
the rational comprehensive scheme is not apparent.
 However, this is not to be treated as “muddling”; but
as a defensible response to the complexities of a large
organization that mitigate against publicizing goals.
 Strategy formulation and implementation are linked
together in a continuous improvement cycle. Learning
is an integral part of logical incrementalism. 35
IMPLEMENTING INCREMENTALISM

 General Concern – A vaguely felt awareness of an issue


or opportunity.
 Macro Broadcasting – The broad idea is floated without
details to invite pros and cons leading to finer
refinements.
 Agent of Change – Formal ratification of a change plan
through MBO.
 Leveraging Crisis – A sudden crisis or an opportunity
should be used as a trigger to facilitate acceptance and
implementation of change. The broader objective should
serve the overall interest of the organization.
 Adaptation – As implementation progresses. 36
STRATEGIC TRANSFORMATION

 Strategic transformation (a complete overhauling of


the strategic architecture) becomes inevitable
whenever a strategic drift takes place. Tampering with
surface level factors often leads to atrophy.
 Dominant logic’s are the cornerstones of change when
strategic transformation is apparent.
 Dominant logic’s are very rigid and sticky and prone to
inertia. It creates blinders.
 Strategic transformation becomes smooth through a
change in top leadership. As it brings with it a
different dominant logic.
 A new mindset provides additional lenses for the top
37
managers look at existing problems.
LEARNING ORGANIZATION

 A learning organization is capable of continual regeneration


from knowledge, experience, and skills that fosters
experimentation and questioning and challenge around a
shared purpose. It helps prevent a strategic drift from
occurring at the first place. A learning organization must
continuously focus on unlearning as well. Factors that
fosters a learning organization -
– Pluralistic – An environment where different and even
conflicting ideas are welcome.
– Experimentation – Fosters a culture of risk taking.
– Informal Networks – Emerging of new ideas.
– Constructive Bargaining – Agree to disagree.
– Organisational Slack – Enough free space. 38
ENVIRONMENTAL CONDITIONS
Dynamic

Scenario Learning
Planning Organization
Static

Forecasting Decentralization

Simple Complex 39
ANALYZING
BUSINESS ENVIRONMENT

40
PLANNING & STRATEGIC PLANNING

 Formal planning is a function of extrapolating the past.


It is based on the assumption of incremental change. It
is reactive in nature.
 Strategic planning is a function of discounting the
future. It is based on the assumption of radical change.
It is pro-active in nature.
 Strategic gap basically points towards a vacuum of
where the organisation wants to be and where it is. It
requires a quantum leap (i.e. gap analysis).
 Competitive advantage provides the surest way to fulfill
the strategic gap. It points to a position of superiority
with relation to competition. 41
ENVIRONMENTAL SCANNING

 The environment is defined as the aggregate of


conditions, events, and influences that affect an
organizations way of doing things.
 Environmental scanning is very important component
of strategic planning. A manager has to continuously
scan the environment to ensure alignment of the
strategies with the radically changing environment.
 Environmental factors can be external as well as
internal to the organization. It is exploratory in nature;
not guided by any boundaries. The world is flat,
resources and ideas move unhindered.
 The segments of the environment a top manager scans
selectively depends upon his dominant logics.
42
PESTEL

 PESTEL attempts to provide a broad framework on how


the broader environmental forces affects an organization
and influences the way it practices strategy.
 It is not intended to be used as an exhaustive list.
 It is particularly important that PESTEL be used to look at
the future impact of environmental factors, which may be
different from the past impact.
 It is important not only to identify the structural drivers of
change, but also to analyze the complex linkages across
them.
 Understanding the composite effect is critical, for which a
holistic picture is required.
43
PESTEL FRAMEWORK

 Political – Government Stability, Government Attitude,


Economic Model, Central – State Co-alignment, Subsidies
& Protection, Licensing & Quotas.
 Economic – GDP, Fiscal Deficit, Savings & Investment,
Inflation & Interest Rates, Monsoon & Food Grains
Reserves, Economic Cycles, Capital Market & Forex
Reserves, Currency Stability, Infra-Structural
Investments, FDI Inflows.
 Social – Population Diversity, Religious Sentiments,
Literacy Levels, Income & Age Distribution, Language
Barriers, Social Values. 44
PESTEL FRAMEWORK

 Technological – Innovation, Obsolescence Rate,


Patents, Research & Development, ERP, Technological
Convergence.
 Environmental – Global Warming & CSR, Product
Design, Environmentally Preferable Purchasing,
Extended Producer Responsibility, Waste Disposal &
Emissions, Non-Fossil & Alternative Fuels, Carbon
Credits, Pollution Control Laws.
 Legal – Monopolies Legislation, Employment Laws,
Product Safety & Health Hazards, Direct & Indirect
Taxes, Patent Laws, Consumer Protection Laws. 45
ECONOMIC LIBERALISATION

 New Industrial Policy (NIP) – Liberalizing industrial


licensing, FERA Liberalization, MRTP Liberalization,
Curtailment of PSU’s, Encouraging FDI.
 Economic Reforms – Fiscal & Monetary Reforms,
Banking Sector Reforms, Capital Market Reforms.
 New Trade Policy (NTP) – Lowering import tariffs,
Abolition of import licenses, Encouraging exports,
Rupee convertibility.
 Structural Adjustments – Phasing out subsidies,
Dismantling price controls, PSU Disinvestments, Exit
Policy- VRS. 46
DISCONTINUITY

 Destabilization due to entrepreneurial freedom -


– Cocoon of protection disappears
– Diversification spree
– Existing notions of size shaken
– Industry structures change radically
– Economic Darwinism - Survival of the fittest
 MNC Onslaught
– Enhancing stakes – Power Equation
– Joint Ventures – Technological Alliances
– Take-over threat, Mergers & Acquisitions 47
DISCONTINUITY

 Hyper Competition
– MNC’s - Globalization
– Cheap Imports & Dumping
– Push to Pull Marketing
 Buyers exacting demands
– Shortage to surplus – Price competition
– Life-style changes
– Stress on quality, Consumerism
 Challenges on the technology front
– Competencies become technology based
– Investment in R&D become inescapable 48
DISCONTINUITY

 Compulsion to find export markets


– Identifying competitive advantage
– Technological gap
– Global presence
– Depreciating currency – Exports
 Corporate vulnerability
– It is no longer business as usual
– Capital inadequacy
– Lack of product clout and brand power
– One product syndrome
– Loss of monopoly 49
FIVE FORCES MODEL - PORTER

Threat of New Entrants

Bargaining
Bargaining Competition Bargaining
power of
power of from Existing power of
Suppliers
Suppliers Players Customers

Threat of Substitutes
50
FIVE FORCES MODEL - ASSUMPTIONS

 The model is to be used at the SBU level and not at


the industry level. It is even wiser to apply the same at
the product – market level.
 It depicts the attractiveness of an industry (i.e. profit
potential) per se.
 The model should not be used as a snapshot in time;
the forces are subject to changes, incremental or
otherwise.
 It should not only be used to understand the forces,
but also used to understand how they can be
countered and overcome.
 The five forces have strong cross-linkages. 51
PORTERS FIVE FORCES ANALYSIS

 Threat to Entry – Economies of size and scale, Product


differentiation through proprietary technology or
brand power, Capital requirements, Learning curve
advantages, Access to distribution channels,
Government policy, Resource profile & fear of
retaliation, High switching costs, Industry stagnation.
 Threat of Customers – Buyer concentration and
volumes, Undifferentiated product, Low relative
importance of the segment, Low margins & stagnancy,
Unimportance of product quality, Scope for backward
integration, Presence of substitutes or unorganized
sector, Low customer switching costs. 52
PORTERS FIVE FORCES ANALYSIS

 Threat of Suppliers – Supplier monopoly, Differentiated


inputs, Lack of substitute inputs, High customer
switching costs, Scope for forward integration, Low
relative importance of the segment.
 Threat of Substitutes – Improvement in price
-performance trade-off, Produced by industries
earning high profits, Buyer’s propensity to substitute.
 Jockeying for position – Fragmented market, Industry
stagnancy, Intermittent overcapacity, Low level of
differentiation, High exit barriers, Unorganised sector,
Piracy and counterfeits, Product perishability, Diversity
of players. 53
FIRM ENVIRONMENT

 Size and Scale of Operations – It is a very important


component of competitiveness in today's global context
(Bharti – MTN, Reliance).
 Business Scope – The intention whether the firm wants
to be in a single business, or related diversified or
unrelated diversified (Tata, Aditya Birla).
 Inertia – Excessive commitment to past strategies
prevents firms from tapping emerging opportunities.
 Cohesiveness – Degree of bonding existing across
affiliated firms.
 Resource Profile – It highlights the capabilities (business
specific or generic) or competencies of the firm. 54
EXPERIENCE CURVE

 The cost of performing an activity declines on per-unit


basis as a firm becomes more efficient; experience
teaches better and more effective way of doing things.
 With lower costs, it can price its products more
competitively, and with lower prices it can increase its
sales volume, which further reduces costs.
 Matured firms will always be positioned advantageously on
the E-Curve than new entrants.
 The E-Curve thus enables organisations to build entry
barriers, leverage it as a competitive advantage.
 Experience curve has strong linkages with performance.
However, an E-Curve can prove to be futile during
discontinuity. 55
EXPERIENCE CURVE

Decreases at an increasing rate


Cost per unit of output

Point of inflexion

Decreases at a constant rate

Decreases at a decreasing rate

Production / Volume 56
EXPERIENCE CURVE - TRADITIONAL VIEW

Efficiency = Lower Costs


2
1 3
Experience = Efficiency Lower Costs = Higher Sales

Entry Barrier = Better Performance 4


6 Higher Sales = Lower Costs
5
Lower Costs = Entry Barrier
57
EXPERIENCE CURVE - STRATEGIC VIEW

Inertia = Limited Growth 2

Experience = Inertia 3
1 Limited Growth = Diversification

Strategic Failure = Poor Performance


4
6
Diversification = New Experience
5
New Experience  Old Experience
58
VULNERABILITY ANALYSIS - SWOT

 The framework was originally conceptualized by Kenneth


Andrews in 1970. Acronym for Strengths – Weaknesses –
Opportunities – Threats. It helps an organisation to
capitalize on the opportunities by maximizing its strengths
and neutralizing the threats minimizing the weaknesses. It
is one of the earliest models in environmental scanning. A
SWOT audit involves –
 Company Records – Annual Reports, Websites, Press
Clippings & Interviews.
 Case Studies – Structured Questionnaires, Interviews,
Observation.
 Business Intelligence – Bankers, Suppliers, Customers,
Analysts, Competitors. 59
SWOT ANALYSIS - FRAMEWORK

Opportunities
Nullify weaknesses which
prevents you from Leverage strengths to make
exploiting opportunities use of opportunities

Weaknesses Threats Strengths

Minimize weaknesses which Utilise strengths to


prevents you from counter threats (?)
countering threats
60
SOURCES OF STRENGTH

 Strong brand identity – Eg. Tata.


 High quality products – Eg. Sony, Toyota, Honda.
 Excellent penetration – Eg. HUL, ITC.
 Strong R&D base – Eg. Dr. Reddy’s, Ranbaxy, Biocon.
 Economies of scale – Eg. Reliance.
 Good credit rating – Eg. Infosys, SBI.
 Motivated employees & cordial industrial relations –
Eg. Tata Steel, Infosys.
 Large resource pool – Eg. Aditya Birla, Reliance.
 Strong after sales & service network – Eg. Caterpillar.
 Engineering Skills – Eg. Volkswagen, Siemens. 61
SOURCES OF WEAKNESSES

 Outdated technology – Eg. Hindustan Motors.


 Strategic myopia – Eg. CESC.
 Excess manpower – Eg. SAIL.
 Single product syndrome – Eg. Procter & Gamble.
 Inefficient top management – Eg. Ballarpur Inds.
 Narrow business scope – Eg. Nirma.
 Excessive diversification – Eg. Tatas.
 Inertia – Eg. J. K. Group - Raymond.
 Lacking experimentation culture – Eg. B. K. Modi Group.
 Lack of product / brand clout – Eg. Bijoligrill.
 Organizational Politics – Eg. CMC (Tata Group) 62
SOURCES OF OPPORTUNITIES

 Delicensing of Industries – Eg. Telecom, Banking.


 Capital market reforms – Eg. Abolishing CCI.
 Abolishing MRTP – Eg. Maruti.
 Life style changes – Eg. Retailing.
 Growing population – Eg. Middle-class buying power.
 Globalization – Eg. GDR’s, ECB’s.
 Free pricing – Eg. Fertilizers, Insurance, Sugar.
 Exit Policy – Eg. VRS.
 Collaborations & Joint Ventures – Bharti & WalMart.
 Market driven Interest rates – Eg.Tata Motors.
 Market driven Pricing – Eg. Fertilizer, Sugar. 63
SOURCES OF THREATS

 Political instability – Eg. (1985–1990).


 Land acquisition - Social activism – Eg. Singur SEZ.
 Terrorist attacks – Eg. 11/9, 26/11.
 Import relaxation – Eg. Dumping from China.
 Foreign Direct Investment (FDI) – Eg. Onida.
 Economic recession – Eg. (2008).
 Natural disaster – Eg. Tsunami, Earth Quake.
 Nationalisation – Eg. Tata Steel.
 Hostile take-over – Eg. Bajoria – Bombay Dyeing.
 Group disintegration – Eg. Reliance.
 Lack of Corporate Governance – Eg. Satyam. 64
ETOP

 Acronym for Environment – Threat – Opportunity –


Profile. It represents a summary picture of the external
environmental factors and their likely impact on the
organization. Stages in ETOP analysis –
 List the aspects of the environment that has a bearing on
the organization.
 Assess the extent of impact of the factors.
 Holistic view – Prepare a complete overall picture.
 Forecasting – Predict the future (i.e. time series, Delphi's
technique, scenario analysis).
 Strategic responses (including adaptation) to
opportunities and threats is critical for survival and
success.
65
PROFIT IMPACT OF MARKET STRATEGY

 PIMS is a database model developed by GE and later


extended by HBS to examine the impact of a wide range
of strategy variables on business performance. It is also
a form of assessing vulnerability through longitudinal
analysis.
 An organization can draw upon the experience of its
peers in similar situations. Some key findings on major
performance drivers that explains 75% deviations in
performance –
 Product quality and relative market share.
 High investment intensity acts as a drag.
 Relative attractiveness of the market. 66
 Vertical integration is a powerful strategy; selectively.
PIMS - LIMITATIONS

 The analysis is based on historical data and it does not


take care of future challenges. Managers should be
particularly cautious while referring to such data during
times of discontinuity as it makes past patterns futile.
Authenticity of data is of prime importance -
– Contexts drawn across one organization may not be
applicable to another. As every organization is
unique in its own way.
– Contexts may vary over time, when radical changes
in the economy takes place.
– Contexts may vary across countries, therefore
validity may be a question.
67
KEY SUCCESS FACTORS (KSF)

 KSF relates to identification and putting concentrated


effort on a particular activity or process which forms the
very basis of competitive advantage. It enables the top
management to draw focus. KSF helps organizations
spot early opportunities and convert them into value
adding business propositions. It involves a three-stage
process –
 Identify KSF – What does it take to be successful in a
business?
 Drawing KSF – What should be the organizations
response to the same?
 Benchmarking KSF – How do we evaluate organization 68
success on this factor?
IDENTIFYING ALTERNATIVE
STRATEGIES

69
CORPORATE - GRAND STRATEGY

 It is concerned with the overall business (single, related,


unrelated) and geographical (local, national, global)
scope of a firm and deals with choices of allocating
resources across them.
 It provides broad direction to the groups vision and
mission.
 A corporate strategy identifies and fixes the strategic gap
it proposes to fill.
 It determines the locus a firm encounters with internal
and external environment.
 It indicates the quality of growth an organization is
looking for.
It reflects the customer needs it intends to satisfy.
70

CORPORATE STRATEGY MATRIX

Corporate Strategy

Stability
Stability Growth
Growth Combination Divestment

Intensification Diversification

Market Penetration Market Development Product Development

Related Unrelated

Vertical Horizontal 71
STABILITY

 It involves maintaining status-quo or growing in a slow


and selective manner. The scale and scope of present
operations remains almost intact. Stability however,
does not relate to do-nothing (Eg. Hindustan Motors).
Even during adverse times firms need to adopt a
strategy to sustain current performance levels. (Eg.
Citibank). The reasons for stability strategy –
– Lack of attractive opportunities.
– The firm may not be willing to take additional risk
associated with new projects.
– To stop for a while and assess past records.
– Why disturb the existing equilibrium set up?
72
– Limited resource position; erosion of capabilities.
GROWTH - ANSOFF’S MODEL

Existing Market New Market


Existing Product

Market Market
Penetration (+) Development
(++)
New Product

Product Diversification
Development (+ (+++)
+)

Note: (+) indicates degree of growth and risk involved. 73


MARKET PENETRATION

 It is a strategy where a firm directs its entire resources to


the growth of a single product or a closely knit product
set, within a well defined market segment. Market
penetration can be achieved by – increasing sales to
current customers, convert competitors customers, direct
non-users to users. (Eg. Nirma, Ujjala, Britannia).
– Suitable for industries where scope for technological
break-through is limited.
– Elongated product life-cycle.
– Helps firms which are not comfortable with unfamiliar
terrain.
– The company carries a risk of product obsolescence. 74
MARKET DEVELOPMENT

 It is a strategy where a firm tries to achieve growth by


finding new uses of existing products or its close variants
and tap a new potential customer base altogether. (Eg.
Du Pont – Nylon: parachutes, socks & stockings, fabrics,
tyres, upholstery, carpets,…… or Teflon: aircraft
technologies to cutlery to paints or Raytheon Corp –
Microwaves: radars to kitchen appliances).
– Creativity and innovation – thinking out of the box.
– Stretches product life cycles.
– Unconventional and flexible distribution channels.
– Moves across geographical boundaries.
– Immense customer reach & flexible advertising. 75
PRODUCT DEVELOPMENT

 It is a strategy where a firm tries to achieve growth


through a radical new product (Eg. Microsoft: DOS to
Windows) or a substantial improved version
(incremental) of an existing product to repeatedly enter
the same market (Eg. Close Up: Fluoride – Gel
toothpaste or VIP - Strolleys).
– Areas of product improvement – performance,
features, reliability, conformance, durability,
serviceability, aesthetics, perception.
– Deliverable through – redesigning or reengineering.
– Leverage on customer and brand loyalty.
– Leveraging through – innovation.
– Substitutes that serve the same needs (Eg. Refills)
76
DIVERSIFICATION

 It marks the entry of a firm into newer markets with


new products, thereby creating a new business. From
the traditional point of view, the new business is distinct
from the existing business in terms of – inputs –
technologies – markets. From the modern point of view
they are strategically dissimilar. Why do firms diversify
in the Indian context?
– Shift the growth trajectory or opportunistic.
– Risk reduction.
– High transaction costs and institutional gaps.
– Internal capital market.
– Permits: quotas, licenses (i.e. industrial embassies).
– Conglomerate or market power (i.e. dominance). 77
HOW DIVERSIFICATION REDUCES RISK?

Consider a hypothetical planet, in which a given year is


either under hot or cold wave, either of which is equally
likely to prevail. Let us assume that there are two
businesses constituting the entire market – coffee and
ice-cream. If the hot wave dominates the planet, the
ice-cream business would register a return of 30%,
while the coffee business would register a return of
10%. If on the other hand, cold wave dominates the
planet, ice-cream business would register a return of
10%, while the coffee business would register a return
of 30%. What would be your ideal diversification
strategy through optimization? 78
DIVERSIFICATION STRATEGY

If we diversified in either of the two businesses, our


expected return will be 20%, with a possible risk of
10%. If, we split our investment between the two
businesses in equal proportion, half of our investment
will earn a return of 30%, while the other half would
earn 10%, so our expected return would still be 20%.
But in the second instance there is no possibility of
deviation of returns (i.e. risk). Diversification results in
20% expected return with zero risk, whereas investing
in individual businesses was yielding an expected return
of 20% with a risk factor of 10%. The pivotal point is
that the two businesses are negatively correlated. 79
HORIZONTAL INTEGRATION

 It takes place when a company increases the breadth of


a firms business or geographical scope by getting into
product – market segments which compliments its
existing businesses (Eg. Reliance). Alternatively,
existing business may recreate new businesses, which
are distinct, but supplements its existing business (Eg.
Bajaj – scooters to motorcycles, Dove – soaps to
shampoo).
– It results in increased market power.
– Leveraging existing capabilities.
– Resources can be shared for mutual benefit.
– Reduces economic risk (i.e. business cycles).
– Enables brand or product line extension.
80
HORIZONTAL INTEGRATION

Reliance Capital

Reliance
Reliance Industries Reliance Ports
Infrastructure

Reliance Power
81
VERTICAL INTEGRATION

 It increases the depth of its business scope either in a


backward business process or in a forward one.
Backward integration occurs when the company starts
manufacturing its inputs or catalysts. In forward
integration a firm moves into marketing of its products
and services. Advantages of backward integration –
– Cost competitiveness – entry barrier.
– Better operational control – timely supplies, quality
control, coordination – JIT, savings in indirect taxes.
Disadvantages of backward integration –
– It may spark of a chain reaction - contagion effect.
– Long gestation & break even - investment in CAPEX. 82
VERTICAL INTEGRATION

Oil & Gas exploration

Naptha-cracking
Acetic Acid
Paraxylene (PX)
(PTA) (MEG)
Purified tetra-pthalic acid Mono-ethylene glycol

Polyester Filament Yarn Polyester Staple Fibre


(PFY) (PSF)
Textiles 83
DIVERSIFICATION SUCCESS ?

 While diversifying into new businesses, the scope of


relatedness or unrelatedness should not be judged from
the traditional static view, but from the modern dynamic
view which incorporates strategic factors like capabilities
and dominant logic. Countermanding reasons –
 Potential to reap economies of scope across SBU’s that
can share the same strategic asset.
 Potential to use an existing capability to help improve the
quality of a strategic asset in another business.
 Potential to use an existing capability to create a new
strategic asset in another business.
 Potential to expand the existing pool of capabilities. 84
 Dominant logic ensures timely & appropriate response.
QUASI & TAPERED INTEGRATION

 Full Integration - Where one firm has full ownership


and control over all the stages of a value-chain in the
manufacturing of a product (Eg. Reliance).
 Quasi-integration - A firm gets most of its requirements
from one or more outside suppliers that is under its
partial ownership and control (Eg. Ranbaxy, Dr.
Reddy’s).
 Tapered integration - A firm produces part of its own
requirements and buys the rest from outside suppliers
with a variable degree of ownership and control.
Usually the firm concentrates on its core activities, and
out-sources the non-core activities (Eg. Maruti – Sona
Steering). 85
A CASE OF TAPERED INTEGRATION

Ordinary Components
Very Critical Critical

Zero Ownership
Components Components

Full Ownership
Partial
Ownership

Transmission

Engine Design Electricals


Steering
Windscreen Seats & Carpets
86
CONGLOMERATE DIVERSIFICATION

 It relates to entry of firms into businesses which are


distinct in terms of – inputs – technologies – markets.
and are also strategically dissaimilar. Firms usually
engage in conglomerate diversification when emerging
opportunities are very attractive and offers potential
growth opportunities. Drawbacks of unrelated
diversification –
– Cost of failure (i.e. lack of strategic intent, myopia).
– Cost of ignorance (i.e. lack of knowledge of
competitive forces).
– Cost of neglect (i.e. core business).
– Cost of dysynergy (i.e. synergies pulling in opposite
directions). 87
CONGLOMERATE DIVERSIFICATION

Paper & Packaging

Edible Oils Tobacco Hotels

Food & Confectionary


88
DIVESTMENT

 Divestment is a defensive strategy involving the sale of


entire stake (Eg. ACC) in full to an independent entity. It
is usually taken into account when performance is
disappointing and survival is at stake and nor does the
firm have the resources to fend off competitive forces. It
may also involve a SBU (Eg. L&T-Cement Division to
Aditya Birla Group) technically known as divestiture. or a
product (Eg. Glaxo’s “Glucon-D” to Heinz). In strategy
there is no scope for sentimentality with divestment.
 It is may also be a pro-active strategy, where a company
simply exits because the business no longer contribute to
or fit its dominant logic. (Eg. Tatas sale of Goodlass
Nerolac, Tata Pharma, Tata Press).
89
DIVESTMENT - ROUTES

 Outright Sale – Popularly known as the asset route; where


100% of the assets (including intangibles) are valued and
paid for. (Eg. Sale of Diamond Beverages to Coca-Cola for
US $ 40 million).
 Leveraged Buy-Out (LBO) – Here the company’s
shareholders are bought out through a negotiated deal
using borrowed funds. (Eg. Tatas buy-out of Corus for US
$ 11.3 billion, involving 608 pence per share).
 Hive-Off – A hive off is the creation of a new entity
followed by transfer of assets; where the equity is allotted
amongst the existing shareholders on a pro-rata basis.
However, the Companies Act, 1956 does not permit this
mode. 90
COMBINATION STRATEGY

 It is a mixture of stability, growth, and divestment


strategies applied simultaneously or sequentially for a
portfolio of businesses.
 It is usually pursued by a business group with diverse
interests across multiple industries.
 There can be no ideal strategy for every business,
because every business has its own unique external and
internal environment.
 A combination strategy can be implemented through
green-field projects (i.e. developing facilities right from
the scratch) or through brown-field projects (i.e.
mergers and acquisition, joint ventures).
91
STRATEGY CHOICE
&
PORTFOLIO ANALYSIS

92
STRATEGIC CHOICE

 A strategic choice seeks to determine the alternative


courses of action available before top managers to
achieve its strategic intent. It attempts to answer the
following questions –
 How effective has the existing strategy been?
 How effective will that strategy be in the future?
 What will be the effectiveness of alternative strategies?
 It is impossible for a manager to assess all the
alternatives. Dominant logic enables top managers to
selectively scan the environment and make trade-offs.
In most cases the trade-off is between resources and
opportunities. What then is the magical number?
93
SELECTIVITY IS THE KEY

 The role of a top manager is not to solve a problem, nor


is to a define a problem for others to solve. The key
task before a top manager is to identify the right
problems. To identify the right problems, managers
need to ask the right questions.
 They must choose problems which will lead to the right
kind of opportunities; if addressed, will help the firm
achieve its intent. For an optimal choice the following
four issues need to be resolved –
 Is the strategy clearly identifiable?
 Is it consistent with the resources of the firm?
 Will it be able to exploit the opportunities in full?
Is it in tune with the values and beliefs of the firm?
94

BUSINESS GROUP - DEFINITION

 A business group is known by various names in various


countries – guanxique in China, keiretsus in Japan,
chaebols in Korea, business houses in India. Their roots
can be traced to a single family or clan and share broad
similarities.
 Their origins can be traced back to market imperfections
existing in an economy (MRTP Laws, Licenses & Quotas,
Managing Agency).
 Proximity to the corridors of power (i.e. embassies).
 High degree of centralized control (GEO, BRC).
 Resource sharing, formal and informal ties.
 Succession planning is critical to continuity. 95
 Does group affiliation enhance performance?
RESOURCE SHARING ACROSS FIRMS

Parent Company

Firm 1 Firm 5

Firm 3

Firm 2 Firm 4 96
STRATEGIC CHOICE – MACRO TIMING

Recession
(Stability)
Prosperity
(Diversification)

Depression
(Divestment)
Recovery
(Intensification)
97
STRATEGIC CHOICE – MICRO TIMING

Re-Engineering

Maturity - Stability
Growth (%)

Decline - Divestment

Growth - Diversification

Duration (Yrs)
Inception - Intensification
98
PORTFOLIO ANALYSIS

 Resource allocation across a portfolio of businesses is an


important strategic choice, next only to choice of business.
Why?
 Businesses are not about liquid assets; therefore, there are
high costs associated with entry and exit.
 Relatedness across resources are difficult to realize;
sometimes impossible.
 Investing in emerging businesses may not actually be so
simple as it appears to be. Rules of the game are different.
 Redeployment of resources upsets the established power
bases of a group. Power and resources often goes hand in
hand.
99
BCG GROWTH MODEL

Relative Market Share (%)

High Low
Industry Growth (%)

?
High

Stars Question Mark


Low

Cash Cow Dogs100


BUSINESS ANALYSIS – TATA GROUP

 Question Marks – They have potentials in the long


term, provided the company is able to build up on its
market-share (i.e. market penetration, market
development, product development), which remains a
big? These businesses are net users of resources, and
their risk profile is high (Eg. Trent, Tata Telecom, Tata-
AIG).
 Stars – They achievers in the near term, provided the
industry growth rate continues and the company is able
to maintain its growth (i.e. diversification). These
businesses are also net users of resources (Eg. TCS,
Tata Steel), but to larger extent than a question mark.
101
BUSINESS ANALYSIS – TATA GROUP

 Cash Cow – These are matured businesses, and the


company dominates the industry ahead of competition (i.e.
stability). Given that the growth potential in the business is
low, they are generators of resources. However, cash
cows may also need to invest provided the industry takes
an upswing (Eg. Tata Motors, Indian Hotels, Tata Tea,
Tata Chemicals).
 Dogs – They are a drag on the group, and they lack on
competencies to take on competition and are basically
cash traps (Eg. Nelco, Tata Pharma, Tata Press). Groups
prefer to dispose off such businesses (i.e. harvest, divest)
as achieving a dominant position in these businesses is a
difficult task. 102
BCG - LIMITATIONS

 It does not address the concerns of a business which is


in the average category (usually the majority); neither
in high or low.
 Certain businesses in the low market share category
may be the result of a conscious strategy (i.e. niche –
Rolex, Cartier, Mercedes Benz, Armani).
 Cash cows may actually need substantial investments
to retain their market position (Eg. HUL).
 The model does not provide specific solutions within a
particular category.
 The terminologies used are somewhat prohibitive.
 Data may be prohibitive; factors are limited. 103
GE - MATRIX

Distinctive Capabilities
Industry Attractiveness

Strong Medium Weak


High

Diversify (++) Intensify (+) Stability

Intensify(+) Stability Harvest (-)


Med
Low

Stability Harvest (-) Divest (- -)


104
ARTHUR’ D. LITTLE
Inception Growth Maturity Decline

Dominant Invest Consolidate Hold

Competitive Position
Strong Improve

Favourable Selective Harvest

Tenable Niche

Weak Abandon Divest

Industry Life-Cycle 105


SHELL – DIRECTIONAL POLICY MATRIX

Business Sector Prospects


Attractive Average Unattractive
Distinctive Capabilities

Market Generate
Strong Growth
Leadership Cash

Try Phased
Custodial
Average Harder Withdrawal

Double
Phased
Or Expand Divest
Withdrawal
Weak Quit
106
TERMINOLOGIES

 Harvest – It entails minimizing investments while trying


to maximize short-run profits and cash flow with the
intention to exit the business in the near future.
 Divest – Selling a part or the entire business at one go.
Disinvestment involves selling in phases.
 SBU – A business unit which is strategically different
from another and also shares a different SIC code.
 Portfolio – An organization is perceived as a portfolio of
businesses.
 BCG – Boston Consulting Group.
 Gap Analysis – It emphasizes what a firm wants to
achieve. 107
BUSINESS STRATEGY
&
COMPETITION

108
COMPETITIVE STRATEGY

 A competitive strategy deals with how a firm competes


in a particular business or product-market segment. The
principal focus is on meeting competition, building
market-share, and earning super-normal profits (i.e.
rent).
 The strength of a firm in a particular business usually
stems from its competitive advantage. Competitive
advantage refers to a firms resources or activities in
which it is way ahead of competition.
 Such resources or activities should be distinctive and
sustainable over time.
Competitive advantage is the back-bone of strategy.
109

BUSINESS STRATEGY - FRAMEWORKS

 How to be distinctive and yet sustainable –


 Differentiation – Understanding of the dynamics of
competition, identifying critical success factors,
developing competitive advantage (Porter).
 Resource Based View – Obsession with competence
building, involving harmonizing and integrating multiple
streams of technologies (Wernerfelt, Prahalad).
 Delta Lock In – Two dominant players co-opt to self-
reinforce and create or escalate an entry barrier,
preventing new entry and/or competition (Hax & Wilde).
 Blue Ocean – Consciously moving away from
overcrowded industries to uncharted territories and
making competition irrelevant (Kim & Mauborgne). 110
PORTERS – COST LEADERSHIP

 Cost Leadership – It is a strategy that focuses on making a


firm more competitive by producing its products more
cheaply than its competitors. The firm may retain the
benefits of cost advantage by enjoying higher margins
(Eg. Reliance) or may pass it to customers to increase
market-share (Eg. Nirma, Ayur, T-Series). Sources of cost
advantage are varied and depends on the structure of the
industry –
 Economies of size, backward integration, proprietary
technology, preferential access to raw materials.
 Compress project duration through crashing.
 Locational or early entry advantage.
 Steep experience curve effects. 111
PORTERS – PRODUCT DIFFERENTIATION

 Product Differentiation – It is a strategy that attempts


to provide products or services that are differentiated
from competitive products in terms of its value
proposition and uniqueness. It selects one or more
attributes that buyers perceive as important. Means of
product differentiation are peculiar to each industry.
Successful product differentiation is often followed by
premium pricing. (Eg. Intel, Sony, Rayban).
 Creativity, innovation and out of the box thinking.
 Culture of experimentation, and sufficient slack.
 Focus on brand loyalty, avoiding brand dilution,
undeterred attention to quality.
Feeling the pulse of the customer.
112

PORTERS NICHE OR FOCUS

 Focus / Niche – It is a variant strategy of cost


leadership or product differentiation targeting a
specific market or buyer sub-segment with the
exclusion of others (Eg. Rolex, Maybach, Mont-Blanc,
Cartier, Armani). A focuser seeks to achieve a
competitive advantage in its target segment, though it
may not possess an overall competitive advantage.
 The target segment must have unusual needs or the
delivery system catering to this segment must be
unique.
 They are poorly served by mainstream players.
 Sub optimization alone may not be a source of superior
performance; coupled with fear of structural erosion.
113
COMPETITIVE POSITIONS

Competitive Advantage
Cost Differentiation Product Differentiation
Competitive Scope

Product
Broad

Cost Leadership
Differentiation
(Toyota)
(General Motors)

Differentiation
Narrow

Cost Focus
Focus
(Hyundai)
(Mercedes)
114
HYBRID STRATEGY

 A hybrid strategy is the simultaneous pursuit of cost


leadership and differentiation, and usually outperforms
a stand alone generic strategy.
 Though cost leadership and differentiation are
inconsistent, in a hyper competitive context the two
strategies need not be mutually exclusive.
 Reducing cost does not always involve a sacrifice in
differentiation; similarly differentiation may not always
lead to rising costs.
 Firms focusing on a hybrid strategy typically aim at
shifting the productivity frontier and recreating a new
product-market segment altogether (Eg. Tata Nano). 115
STUCK IN THE MIDDLE

 A firm that engages in a hybrid strategy and fails to


achieve a competitive advantage because it was ill
conceived will be - stuck in the middle.
 It will have a competitive disadvantage vis-à-vis a
clearly positioned generic player.
 Industry maturity will usually widen the gap, unless
such a player is capable of discovering a profitable
segment.
 It is usually the result of a firm not willing to make
trade offs, leading to what is called – straddling. It tries
to compete through every means, but achieves none.
The positioning therefore gets – blurred. 116
EMERGING INDUSTRY

 Emerging Industry – An evolving industry characterized by


- radical environmental changes, changing customer needs,
technological innovations, ending in a differential cost
economics. Eg. Digital imaging, Data Storage, Artificial
intelligence). It is characterized by –
 High level of technological uncertainty, leading to a blurred
productivity frontier and steep learning curve.
 First-time buyers. Consumer behaviour pattern unstable
and evolving. Eg. Speech recognition software's.
 Excessive turbulence in the dynamics of the environment,
coupled with low penetration levels.
 Market segmentation not well defined. There is a lot of
scope to define the rules of competition. 117
GROWTH / FRAGMENTED INDUSTRY

 Growth Industry – An industry characterized by high


growth potential in the long run and where no firm has
a significant market share (an edge over another)
leading to clear fragmentation. It is characterized by –
 Low entry barriers, because of lack of economies of size
and scale. Eg. Consumer durables. High exit barriers
because of huge investment in CAPEX. Eg. Retail and
telecom.
 Government regulations in the form Eg. MRTP may also
cause fragmentation.
 Diverse customer needs. Eg. Air Conditioning, Paints.
 Scope for players to change the rules of the game. 118
MATURED INDUSTRY

 Matured Industry – An industry characterized by


saturation in growth rates, technological maturity,
established industry dynamics, well defined consumer
behavioral patterns and imperfect competition leading to
near monopoly.
 Cartel among existing players through collusion,
collaboration and cooption.
 Strong entry barriers, because of economies of size and
learning curve effects, distribution networks, early entry
and location advantages.
 Limited scope for innovation - technological maturity.
 Firms are rule takers in the segment as productivity
frontier is well defined.
119
DECLINING INDUSTRY

 Declining Industry – An industry which has outlived its


utility due to the entry of close substitutes and or radical
product innovations which results in a shift of the
productivity frontier, with little or no signs of recovery.
Eg. Typewriters, scooters, dot-matrix printers.
 Firms facing a declining phase are characterized by
inertia and slow to react to environmental changes.
 Learning abilities have been stunted and firms adverse to
investment in R&D and make fresh investments.
 Exit barriers are extremely high because of limited
prospective buyers, backed by corporate espionage, and
costly price wars.
Nature of competition extremely high.
120

COMPETITIVE STRATEGIES

 Emerging Industry – Set benchmarks, strictly product


differentiation and not standardization, premium
pricing, aggressive building of distribution networks,
branding and promotion.
 Fragmented Industry – Identify, assess and overcome
fragmentation. Locate a defendable position, focus
more on product differentiation or even a hybrid one.
 Matured Industry – Sophisticated cost analysis,
process innovation, increasing scope, mergers and
acquisition, strictly cost differentiation.
 Declining Industry – Redesign, reengineer,
regenerate, move beyond boundaries, recreate new121
markets, strike alliances, or else exit the segment.
RESOURCE BASED VIEW

 Differentiation based on cost or products saturates and


ceases to exist in the medium term. However, positions
based on resources which are unique and inimitable are
far more sustainable even in the long term. A firms
resources can be classified into –
 Tangible – These refer to real assets. They are a
standard in nature, hence very rarely confer competitive
advantage as can be easily acquired or replicated.
 Intangible – These refer to goodwill, patents, brands,
and complex learning experiences in integrating and
harmonizing technologies (distinctive capabilities) that
play an important role in delivering competitive
advantage through causal ambiguity. 122
CAPABILITIES & COPMPETENCIES

 These include a complex combinations of tangible and


intangible resources that organizations use to convert
inputs to outputs. Typically, they are woven around
technologies; but not necessarily. There is a high degree
of internal and external causal ambiguity involved in it.
Hence, differentiation based on capabilities can be
sustained even in the long run.
 They play a very critical role in shaping competitive
advantage. Therefore firms should concentrate on
developing complex resources that forms the very basis of
differentiation. Capabilities can be generic (i.e. can be
leveraged across businesses) or specific to a particular
business. 123
COMPETITIVE ADVANTAGE

124
COMPETITIVE ADVANTAGE

 A competitive advantage is a position of superiority


relative (i.e. not absolute) to competition.
 It results in a distinct differentiation advantage or a cost
advantage or hybrid as well.
 Strategy drives competitive advantage; competitive
advantage subsequently becomes the back bone for a
competitive strategy.
 It enlarges the scope of an organization, and results in
well springs of new business development.
 A portfolio of competitive advantage comprises strategic
advantage profile (SAP).
 Success of a strategy critically depends on SAP. 125
STRATEGIC ADVANTAGE PROFILE (SAP)

 Organizations have to systematically and continuously


conduct exercises to identify its SAP.
 In most cases SAP is hidden and dormant.
 Identification of SAP is critical for and stretching and
leveraging of resources.
 In today's world of discontinuity, SAP changes from time
to time.
 Internal strategic fit between its strategy and dominant
logics is essential for the top management to stretch and
leverage SAP.
 Most successful organizations around the world have a
well balanced SAP. 126
VALUE CHAIN ANALYSIS

 A value-chain segregates a firm into strategically relevant


activities to understand its individual behaviour. Inventory
Mgt to Logistics Mgt to Supply Chain Mgt. Today SCM is
integrated with greening the environment as CSR practices.
 A VC is often compared with a relay team; each of the
players need to be efficient backed by sufficient
coordination at the contact points (i.e. kaizen or internal
customer). Competitive advantage arises not from an
individual activity but a stream of inter-related activities.
 VC pay-offs: better product availability, faster product
launches, and enhanced customer tracking – higher market
share. Substantial cost reductions also follow.
127
THE VALUE CHAIN

Infrastructure
Support

Ma
Human Resource Management

rg
in
Technology Development
Procurement

Service
Out Logistics

Mktg & Sales


In Logistics

Operations
Primary

in
rg
Ma
128
STRATEGIC FIT – THE PORTER WAY

 The sustainability of the value chain depends on the


degree of fit between the activities. Fit is important
because discrete activities result in negative synergy and
can also be easily copied by competitors. Operational
effectiveness is not strategy.
– First order fit refers to simple consistency between
each activity and the overall strategy.
– Second order fit occurs when activities are reinforcing
amongst them.
– Third order fit refers to optimization of effort.
 A learning organization helps create strategic fit. A high
fit involving a complex chain of activities drives both
competitive advantage and its sustainability.
129
CORE COMPETENCE

 A core competence represents the collective learning's of


an organization around diverse streams of technologies.
It forms the very basis of competitive advantage. These
skills results in distinctive activities and processes. It
should satisfy the following conditions -
– Contributes significantly to customer benefits.
– Cannot be easily imitated or substituted.
– Can be leveraged across businesses.
– Can be sustained even in the long run.
 A core competence usually has its roots in technology,
but not necessarily.
 Core competence has a high degree of external and
internal causal ambiguity embedded in it.
130
CORE COMPETENCE

 A competitive advantage does not necessarily imply a


core competence; a core competence always implies a
competitive advantage.
 A competitive advantage may or may not lead to
superior performance, a core competence usually does.
 A competitive advantage manifests from a function; a
core competence has its roots in a set of skills.
 A competitive advantage is sustainable in the short-
medium term; a core competence is sustainable even in
the long-term.
 Majority of the firms have competitive advantage, only
leaders possess a core competence. 131
GAME THEORY

 The game theory was developed in 1944 by Oscar


Morgenstern. Subsequent work on game theory by John
Nash led him to win the Nobel prize in 1994.
 A game is a contest involving two or more players, each
of whom wants to win. In a game (similar to a business)
one players win is always another's loss. This is known as
a zero-sum game.
 Here the magnitude of gain offsets the magnitude of loss
equally.
 However, the stringent assumptions of game theory and
difficulty in ascertaining of pay-offs makes game theory
application difficult in business. In fact there are no.
illustrations depicting a win-win situation. 132
BIASED AND UNBIASED GAME

 A game is said to be biased when one of the players


have a disproportionate chance of winning. An
unbiased game is one where both the players have
equal chances of winning.
Firm Y’s Strategy
Use Radio Use Newspaper
Firm X’s Strategy

Use Radio +2 +7

Use Newspaper +6 -4

Firm X’s Pay-Off Matrix 133


PURE STRATEGY GAME

 The strategy each player follows will always be the


same regardless of the other players strategy. A
saddle point is a situation where both the players are
facing pure strategies.
Firm Y’s Strategy
Saddle Point
Use Radio Use Newspaper
Firm X’s Strategy

Use Radio +3 +7

Use Newspaper +1 -2

Firm X’s Pay-Off Matrix


134
TYPES OF GAMES

 Simultaneous Games – This is a situation where the


players have an option to choose to cooperate or not
through collusion, collaboration or cooption. It
represents the classical “prisoner’s dilemma”. However,
there is likely to be temptation by any of the players to
try to steal the advantage over the other by breaking
the rules of the game (E.g. Coke Vs Pepsi).
 Repeated Games – In this situation the players interact
repeatedly with each other sub-optimizing the outcome
possibilities. This is usually through learning by
“experience” (i.e. iteration) rather than through
collusion (E.g. Yahoo Vs Microsoft). 135
CHANGING THE RULES OF THE GAME

 In a situation where a player is unable to compete with


the existing rules of the game may attempt to change the
rules of the game altogether. It results in a shift in the
productivity frontier.
 In a market dominated by price-based differentiation one
may attempt to change the rules of the game by/when –
– Bases of differentiation dependent on clear
identification of what customer wants or value.
– Building incentives for customer loyalty.
– Making pricing more transparent.
 Game theory relies on the principle of rationality; but
players do not always behave rationally. 136
DELTA MODEL & LOCK-IN

 Its a systematic approach where-in two or more industry


majors, who by default has achieved a proprietary
position (Microsoft – Software / IBM – Computers) which
are not necessarily best-products in the industry, co-opt
to create a lock-in.
 A lock-in implies that other players has to conform or
relate to that standard in order to prosper.
 Becoming the industry standard requires – strong brand,
causal ambiguity, and close relationship with other
companies offering complimentary services.
 Lock-in is self reinforcing and escalating (i.e. accelerating
effect). 137
THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics
Market Dominance
Complementary Share

Enabled through
effective use
of technology

Total Customer Solutions Proprietary Product


Customer Economics Product Economics
Cooperation Rivalry
Customer Share Product Share 138
138
LOCK-IN PAYOFFS

 Bill Gates is the richest man in the world not necessarily


because he has developed the world’s best software's or
excels at customer satisfaction; but he has got an army
of people working for him who are not on his payroll –
all the application software providers who are writing
programs based on “Windows” compatible operating
platform.
 Once you create the lock-in it is sustainable because of
the “network effects”; which creates the proverbial
“virtuous cycle” – customers want to buy the computer
with largest set of applications and software developers
want to write programs for the computers with the
largest installed base.
LOCK-IN SUSTAINABILITY

 The proponents (Hax & Wilde) believe that every


organization has the ability to create and sustain a “lock-in”
positioning (though in varying degree).
 This “system lock-in” is referred to as “delta” – delta being
the Greek letter that stands for transformation and change
amongst the players.
 The lock-in once created becomes very difficult for a firm to
penetrate, and becomes a distinct entry barrier.
 The model is based on the belief that it compliments
Porter’s differentiation model and RBV framework instead of
contradicting them.
 In a lock-in strategy the performance outcomes are
dependent on the success of another.
STRATEGY
IMPLEMENTATION

141
STRATEGY IMPLEMENTATION

 It relates to translating strategy formulations into


practice. Performance realization of a strategy depends
on the implementation effort. Successful
implementation also depends on the appropriateness of
the strategy.
 Since strategy implementation is a time bound process,
alignment (i.e. strategic fit) is a key variable during
times of radical change. Some of the other levers of
successful strategy implementation are –
 Transformational leadership and motivating power.
 Resource allocation; its stretching and leveraging.
 Compatible organization structure & control systems.
 Inertia & resistance to change. 142
IMPORTANCE OF STRATEGIC FIT

 Strategic fit has a central role to play in strategic


management. While external strategic fit (strategy –
environment) is relevant for strategy formulation; internal
strategic fit (dominant logic – strategy) is critical to
strategy implementation. A high strategic fit (co
alignment) is useful because it enables –
– Appropriate and timely response.
– Unlearning & learning of new skill sets.
– Better strategic and operational control.
– Resource commitment from top management.
– Development of capabilities & competencies.
– Changing the rules of the game. 143
FORMULATION Vs IMPLEMENTATION

 Traditionally, strategy formulation and implementation


has been perceived to be distinct & independent.
 In such a situation, while control is very effective;
learning levels are very low.
 According to Mintzberg, effective strategies are better
crafted when there is a subtle overlapping between the
two.
 In such a situation, learning levels are very high; at the
cost of sacrificing a lesser degree of control. In fact,
formulation & implementation can occur simultaneously.
 Some of the key strategic learning's exists at the contact
point between the organization and its customer. 144
ROLE OF TOP MANAGEMENT

 To bring about change and to implement strategies


successfully, companies depend more on
transformational leaders than transactional leaders. A
transactional leader is usually confined to allocating tasks
& responsibilities and extracting performance. In
contrast, transformational leaders go one step beyond –
 Design a well crafted and designed strategic intent of the
organization. Install a system of shared beliefs and
values.
 Pragmatism is the ability to make things happen.
 He should be an agent of change; shift from compliance
to commitment; bring about transparency. 145
RESOURCE ALLOCATION

 Resources allocation includes tangible resources (Eg.


land, labour, machines) referred to as threshold
resources (i.e. minimum requirement). Intangible
resources (Eg. brands, patents), also includes distinctive
resources - capabilities and competencies. The various
methods of resource allocation includes -
 Historical Budget – The budgets framed by HQ for a
particular SBU keeping in mind past trends.
 Zero Based Budget – In this case the budget of a SBU
has to be worked out right from the scratch.
 Performance Budget – SBU managers need to justify the
distinctive resources in terms of the opportunity it is
pursuing yields the highest possible pay-offs. 146
CAPABILITIES & COMPETENCIES

 Technology and business are slowly becoming in –


separable. Moreover, convergence of multiple streams of
technologies at the product – market level is becoming
increasingly evident (Eg. Flat Screen Displays).
 Distinctive capabilities are complex set of skills woven
around technologies; though not necessarily in the case of
emerging markets.
 Distinctive capabilities helps in stretching and leveraging
resources thereby overcoming two major constraints
involved in strategy implementation – times & costs.
 Due to causal ambiguity (complexity), these capabilities
are sustainable even in the medium to long term. 147
STRATEGY & STRUCTURE

 It is a framework within which individual efforts are


coordinated to bring synergy. An appropriate
organization structure & adequate control systems are
essential to implement strategies and achieve stated
goals. The level of centralization and decentralization is
decisive. Once the structure is in place, processes
become people independent.
 A single product or a dominant business firm usually
employs a functional structure.
 A firm in several related businesses usually employs a
divisional structure.
 A firm in several unrelated businesses usually employs
148
a
SBU structure.
TYPES OF STRUCTURES

 Functional Structure – Activities grouped together by a


common function (Eg. Marketing, Finance).
 Divisional Structure – Units grouped together in terms of
products, processes, or geographical locations.
 SBU Structure – Businesses segregated in terms of strategic
dissimilarities (Eg. Inputs ,Technology, Output).
 Project / Matrix Structure – A group formed for the
completion of a particular project/crisis; with team members
having dual line of control; disbanded subsequently.
 Team Structure – An informal group formed for a crisis,
based on skills and competencies.
 Virtual Structure – A boundary less or hollow organization.
149
FACTORS INFLUENCING STRUCTURE

 Size – As an organizations size increases there is more


specialization and differentiation leading to the top
management moving away from operational issues and
control, leading to a tall structure.
 Technology – With more and more convergence of
technologies in business, structures are becoming flatter
and more simpler, as span is broader.
 Environment & People – Economic and political
conditions have a major bearing on structure coupled
with the attitude and aspirations of the people in the
organization. It includes the desire for independence,
assuming responsibility, facing challenges & crises. 150
INERTIA

 When a firm has been operating in a certain fashion for


a long time, there is a tendency to continue along the
same lines. Inertia is a characteristic of a firm that
endures status quo. Most firms undergo periods of
strategic continuity rather than strategic change.
 Inertia acts as an impediment in strategy
implementation. Changes in top management and
unlearning helps overcome inertia. Top managers resist
change, irrespective whether it is from worse to good or
good to worse. Common sources of inertia –
 Complacency with past successes.
 Commitment to past strategies; size and age.
151
 Beliefs & biases (i.e. dominant logic).
STRATEGY EVALUATION

 Strategy evaluation centers around assessment of


strategic fit. Since the internal and external environment
is in a state of continuous flux, strategies need to be
evaluated on an ongoing basis to prevent deviations of
fit.
 Deviation of fit is detrimental to performance and may
lead to strategic failure. However, certain authors
propose misfit as a source of superior performance.
 Firms should know how to learn, unlearn and relearn.
 To prevent deviation of fit, firms should move beyond
financial performance to strategic performance as
organization systems are becoming complex.
Continuous learning prevents trap of inertia.
152

STRATEGY CONTROL

 It is concerned with trafficking a strategy as it is being


implemented, detecting changes in the external and
internal environment and taking corrective action
wherever necessary. It attempts to answer the following
questions –
 Is the strategic intent appropriate to the changing
context?
 Are the organizations capabilities still holding good,
competitive advantages becoming disadvantages?
 Has the company acquired any new competency?
 Has the company been able to overcome the
environmental threats.
Are the strategic assumptions still valid?
153

STRATEGY CONTROL - IMPLEMENTATION

 It involves steering the company towards its original


growth trajectory & stated goals.
 Premise Control – Checking the validity of the
assumptions on which a strategy was based. However,
checking every premise is costly as well as difficult.
 Implementation Control – It aims at assessing whether
key activities are proceeding as per schedule. It involves
assessing – strategic thrusts and milestones.
 Special Alert Control – It intends to uncover
unanticipated information having critical impact on
strategies. It is open-ended as well as unfocussed. If
not tackled appropriately they may throw the entire154
strategy into hay-wire.
BARRIERS TO STRATEGY EXECUTION

 Vision and strategy not actionable – Utopian ideas,


difficult to translate into practice.
 Strategy intent not linked with goals and objectives –
Lack of coordination at lower levels leading to negative
synergy.
 Strategy not linked to resource allocation & capabilities
– Lacking commitment of top management, low
strategic fit.
 Performance measures are defective – What to
evaluate against? How to measure the construct? As a
saying goes, “If you cannot measure it, you cannot
improve it”.
155
7S FRAMEWORK OF Mc KINSEY

 The 7-S Framework of McKinsey is a management model


that describes 7 factors to organize a company in an
holistic and effective way . Together these factors
determine the way in which a corporation operates.
Managers should take into account all seven of these
factors, to be sure of successful implementation of a
strategy. Large or small, important or not they're all
interdependent, so if one fails to pay proper attention to
one of them, this may effect all others as well. On top of
that, the relative importance of each factor may vary over
time and context. Today it is considered one of the most
powerful tools for strategy implementation determining
success or failure. 156
BACKGROUND & ORIGIN

 The 7-S Framework was first mentioned in "The Art Of


Japanese Management" by Richard Pascale and Anthony
Athos in 1981. They had been investigating how
Japanese industry had been so successful. At around the
same time in the US Tom Peters and Robert Waterman
were exploring what made a company excellent. The 7-S
model was born at a meeting of these four authors in
1978. It appeared also in "In Search of Excellence" by
Peters and Waterman, and was taken up as a basic tool
by the global management consultancy company
McKinsey. Since then it is known as their 7-S model and
is extensively used by corporations worldwide to
implement their strategies. 157
THE 7’S

 Shared Values – It represents what the organization


stands for and what it believes in.
 Strategy – Trade-offs for the allocation of a firms scarce
resources, over time, to reach identified & stated goals.
 Structure – The way in which the organization's units
relate to each other in terms of their commonalities.
 Style – The way in which the top management
influences the functioning of an organization.
 Systems – The procedures, processes and routines that
characterize how work should be done.
 Staff – Human inter-relationships, formal & informal .
 Skills – An organizations capabilities and competencies.
158
STRATEGIC FIT

Strategy

Structure Systems

Shared Values

Skills Style

1st Order Fit


Staff
2nd Order Fit 159
3rd Order Fit
A CRITIC OF THE 7S MODEL

 While the hard S’s (strategy, structure, systems) are


comparatively easy to identify and influence. In contrast,
the soft S’s (skill, staff, style, shared values) are very
malleable and comparatively more difficult to identify &
influence, because most often they are culturally
embedded and often neglected during M&A.
 While the American co’s focuses on the hard S’s; their
Japanese counterparts focus more on the soft S’s for
their early success and sustainability.
 A choice of an alphabet often limits the scope and skews
the interpretation of a model. Consider the 4P’s of
marketing or 3R’s of SCM.
 Ineffective in case of a virtual company. 160
STRATEGY IMPLEMENTATION - ROUTES

Strategic Fit - High Organic Growth

Strategic Alliance

Joint Venture

Mergers & Acquisition

Strategic Fit - Low Take Overs


161
ORGANIC GROWTH

 Here a firm builds up its facilities right from the scratch


and continues to do so without any external
participation. The entire infra-structural facilities are set
up afresh having its own gestation and break-even, i.e.
green-field projects. (Eg. Reliance Industries).
 It has complete control over inputs, technologies, and
markets, i.e. the entire value chain.
 Govt. concessions are available for green-field projects.
(Eg. SEZ’s, tax holidays, soft loans, subsidized power).
 Long gestation leads to delayed market entry.
 Risk of cost and time overruns.
 Develop capabilities & competencies. 162
 Manage time as a source of competitive advantage.
STRATEGIC ALLIANCE

 It involves a pro-active collaboration between two or


more firms on a particular domain or function for mutual
gain. It touches upon a limited aspects of a firms value
chain. Alliances are usually in the areas of technologies
or markets (Eg. Tata Motors & Fiat). Alliances are usually
short-lived and disbanded once the purpose is achieved.
 There is no funding or equity participation from the
alliance partner & both the firms continue to operate
independently.
 It has limited intervention power and usually lacks
holistic commitment from the alliance partner.
 It is a form of competitive collaboration.
It paves the way for future associations.
163

JOINT VENTURES

 A joint venture involves an equivalent equity participation


between two firms usually of similar strategic intent and
comparable size to enter a particular market through a
newly formed entity. It is a win-win situation for both the
companies. (Eg. Tata – AIG, Hero - Honda).
 Dominant logic of both the companies should be
complimentary, leaving minimum scope of overlapping.
 Selecting the right partner is critical for success.
 A comprehensive MOU is essential. Degree and extent of
management control must be clearly laid down.
 Both the partners should have significant linkages in
value-chain to combine expertise.
164
 Usually has a longer tenure than an alliance.
MERGERS & ACQUISITION

 It refers to the fusion of two or more firms into a single


entity; with the individual firms ceasing to exist any more
(Eg. Brooke Bond & Lipton). Acquisition is an outright
purchase of a firm assets by another independent entity
(Eg. ITC - Tribeni Tissues, Coca Cola – Thums Up).
 Economies in scale leading to lowering of costs.
 Integrated distribution channel leads to better market
penetration and overall synergy.
 Integration of assets and other financial resources.
 Revival of a sick-unit through better management
practices is a major motive behind an acquisition strategy.
 Structural side should be handled properly; otherwise165it
can lead to failure (i.e. left alone syndrome).
TAKE OVERS

 It refers to the acquisition of significant management


control by buying out majority stake in a firm through
due diligence or hostility (Eg. Tata Steel - Corus).
 Integration of organization structure & cultures is
difficult, often the new firm is “left alone”.
 Instant access to capacities and markets. Larger geo-
graphical diversity. Consolidation in a fragmented
industry.
 Most countries have stringent laws that prevents hostile
take over.
 Inform SEBI / Stock Exchange after 5% stake is
acquired. Make a public offer of not less than 20% of
the balance equity after take-over.
166
MANAGEMENT TOOLS
IN STRATEGY

167
WHY MANAGEMENT TOOLS?

 Change is becoming pertinent in the business environment.


Radical change is superseding incremental change. The past
is ceasing to be an indication of the future. Change provides
enormous opportunities; it is also a source of potential
threat. Companies therefore need to ensure competitive
advantages doesn’t become competitive disadvantages.
Some tools to ensure that –
 Benchmarking – Adopt certain best practices, or better still
create next practices
 Reengineering – Redesigning work processes right from the
scratch.
 TQM – Doing the right thing the first time, every time.
 Balanced Scorecard – Tracking strategy 3600. 168
BENCHMARKING

 A best practice is defined as an activity performed by a


company in a particular domain or function which
distinguishes it from others and making them world-class.
 These exemplary practices involves the stakeholders of
the company and helps achieve its strategic intent.
 Best practices centers around looking at a different way
to satisfy various stakeholders.
 Benchmarking involves the identification, understanding
and adapting of certain best practices and implementing
them to enhance performance.
 Firms are moving towards next practices as best practices
make firms look more and more homogeneous.
169
SOME BEST PRACTICES

 Dell: Customized configuration of computers.


 Caterpillar: 48 hours delivery anywhere in the world.
 Citi Bank : Priority banking services.
 Maruti: Certified “true value” pre-owned cars.
 Microsoft: ESOP to employees.
 Infosys: Customized work-stations.
 TCS: Referencing potential new recruits.
 ITC: Shareholders factory visit.
 AmEx: Outsourcing data warehousing mining.
 MARG: Set-top box to study viewing patterns.
 Honda: CEO’s visit to dealers. 170
TYPES OF BENCHMARKING

 Functional – Used by companies to improve a particular


management activity. Eg. Motorola learnt delivery
scheduling from Domino’s.
 Process – Improving specific key processes and
operations from experiences in similar businesses. Eg.
Ford adopting assembly lay-out plan of Toyota.
 Competitive – It involves assessing the sources of
competitive advantage and imitating them. Eg. Samsung
leveraging miniaturization skills of Sony.
 Strategic – It involves assessing business models and
replicating them in a different market. Eg. Reliance
replicating AT&T business model.
171
HOW TO BENCHMARK?

 Phase 1: Planning
– What to benchmark? Whom to benchmark?
– Identify key performance indicators & Data source.
 Phase 2: Analysis
– Assessment of performance gaps.
– Predict future performance levels.
 Phase 3: Integration
– Communicate findings and gain acceptance.
– Establish functional goals and its implementation.
 Phase 4: Action
– Implement and monitor progress.
– Measure results against stakeholder wants and needs.
172
– Recalibrate or outperform benchmarks.
WHOM TO BENCHMARK?

 Selecting the benchmarking partner is critical to solving


the problem. Firms should generally avoid selecting the
industry leader, because it may not always adopt the
best practices for every process or activity. Benchmarking
partners may also be from different industries. Types –
– Internal – It involves benchmarking against its own
branches, divisions, SBU’s. Proximity to data and
cooperation is taken care of automatically.
– External – It involves benchmarking against firms that
succeeded on account of their best practices. It may
also involve benchmarking against world-class firms.
Friction may arise due to presence in competing 173
industries.
BENCHMARKING - ADVANTAGES

 Finding better ways of meeting stakeholder needs.


Organizational learning comes from internal as well as
external sources.
 Establishing goals based on formal assessment of external
conditions.
 Defining effective measure of indicators, facilitate
comparison, adopt from other organizations.
 Ensuring a continuous learning organization.
 Reducing competitive disadvantage.
 Organizational turnaround, especially effective in case of a
wide strategic drift when differentiation strategies fail to
work. 174
BENCHMARKING - LIMITATIONS

 More and more companies benchmark, the more similar


they end up looking. While strategy is all about
differentiation and not looking alike.
 Benchmarking is useful for bringing about operational
efficiency; but it cannot be used as a strategic decision
making tool. It can at best complement it.
 Strategy is more of creating best practices rather than
copying them.
 Benchmarking merely reorients profits in the hands of
few to profits in the hands in the hands of many (i.e.
clustering). It does not shifts the growth trajectory of
the industry as a whole. 175
RE-ENGINEERING

 Redesigning leads to identification of superfluous


activities or product features (i.e. process mapping) and
eliminating or improving them (E.g. Windows 95 to 97).
 Re-engineering attempts to radically change an
organizational products or process by challenging the
basic assumptions surrounding it, for achieving
performance improvement (E.g. DOS to Windows).
 Re-engineering involves complete reconstruction and
overhauling of job descriptions from the scratch (i.e.
clean sheet).
 The task demands a total change in organisational
culture and mindset.
176
REENGINEERING – KEY TENETS

Large scale improvement by questioning


Ambition
basic assumptions about how work is done

Micro Vs Macro
Focus
Business Processes Vs Organisational Processes

Starting right from the scratch


Attitude
Not historical

Enabler More IT driven, than people driven

Innovative Vs Traditional
Performance
Customer centric Vs Organisational centric
177
REENGINEERING - LEVELS

 Reengineering can be successfully leveraged at all levels


of an organization with varying degree of results. It can
be of the following types –
 Functional – It looks into the flow of operations (i.e.
products, structures, processes, etc) and supports the
organization for the present.
 Business – It looks into markets, customers and
suppliers and protects the organization from the future
(i.e. BPR).
 Strategic – It looks into the process of strategic
planning, resource allocation and prepares the
organization for the future through a reorientation of178
the entire strategic architecture. .
REVERSE ENGINEERING

 It is a process by which a product is dismantled and


analyzed in order to understand how the product was
designed and manufactured, with an intention to copy it
(Eg. Cheaper versions of Intel chips and mother-boards
manufactured in Taiwan, Indonesia).
 While traditional manufacturing is a bottom-up approach;
reverse engineering is a top-bottom approach .
 It generally acts as a threat to innovation. However,
protection can be had in the following ways –
– Patenting.
– Early entry advantages, learning curve advantage.
– High cost and time acts as a deterrent.
– Causal Ambiguity. 179
STAGES IN REVERSE ENGINEERING

 Awareness – Recognizing whether the product is found


to be worth the time, cost and effort necessary for the
purpose of reverse engineering. Inaccurate assessment
at this stage may lead to a failure of the entire project.
 Actualization – Obtaining and dismantling of the product
to assess how it functions.
 Implementation – Developing of a prototype, designing
facilities, machine tools to convert ideas into a
marketable product (i.e. nano-technology).
 Introduction – Launching the product in the market.
Usually in such cases segmentation and pricing is
different from the original innovator.
180
WHAT IS QUALITY?

 It involves the totality of a product or service in meeting


certain stated or implied needs. More and more companies
are moving towards meeting implied rather than stated
needs. It has eight dimensions (Eg. Car) –
– Performance – Mileage of 14 kms to a litre of fuel.
– Features – Anti-lock braking systems, Air bags.
– Reliability – Consistency in mileage.
– Conformance – Emission standards - Euro IV.
– Durability – 1980 manufactured cars still on road.
– Serviceability – Large no. of service stations.
– Aesthetics – Appeal in design.
– Perception – Customer notions. 181
TOTAL QUALITY MANAGEMENT

 Objective – Management of quality ensures conformance


to certain pre-set standards, zero defects, which ensures
good market standing.
 Management of quality was traditionally inspect it - fix it
in nature, touching upon a limited aspect of a value
chain. It had little impact on improving overall
productivity.
 TQM is a way of creating an organization culture
committed to the continuous improvement of work
processes – Deming.
 It is deeply embedded as an aspect of organisational life
& culture. 182
TQM – KEY TENETS

 Do it right, the first time – From reactively fixing error


in products to proactively preventing errors from
occurring at the first place (Juran).
 Be customer centric – Generate the concept of -
internal customer (Ishikawa).
 Kaizen – Make continuous improvement a way of life.
Looking at quality as an endless journey; not a final
destination.
 Empowerment – It takes place when employees are
properly trained, provided with all relevant information
and best possible tools, fully involved in decision-
making and fairly rewarded for results.
183
TQM - STRATEGIES

 Outsourcing – It is the process of self-contracting


services and operations which are routine and mundane,
enabling the firm to concentrate on core activities
essential to customer satisfaction.
 SQC – It is a process used to determine how many units
of a product should be inspected to calculate a probability
that the total no. of units meet preset standards (Eg. 6-
Sigma).
 Quality Circles – It a small group of shop-floor employees
who meet periodically to take decisions regarding
operational problems and crises, saving precious top
management time. It is based on the principles of MBO
(i.e. equal participation).
184
BALANCED SCORE CARD

 Some interesting comments .........


– Efficiency and effectiveness is passé, strategy
implementation has never been more important.
– Less than 10% of strategies effectively formulated
are effectively executed.
– In the majority of failures – we estimate 70% –
the real problem isn’t (bad strategy) ..... it’s bad
execution.

Source: Fortune Magazine


Why CEO’s fail?
185
BSC - CONCEPTUALISATION

 A company’s performance depends on how it measures


performance. Most managers tend to rely on traditional
measures of performance having its origin in finance as
they are well tried and tested.
 These measures worked well when organizational
systems were simple and unidirectional and more
importantly the environment was static.
 In today’s context when organizational systems have
become complex and multi-directional we need to have a
holistic view of performance to cut the lag effects.
 Organizations need to move from financial to strategic
performance. Focus more on causes, rather than effects.
186
BSC – KAPLAN & NORTON (1992)

 A BSC helps a manager to track and communicate the


different elements of company’s strategy. It has four
dimensions –
– How do customers see us?
– What must we excel at?
– Can we continue to improve and create value?
– How do we look to shareholders?
 Firms more often have problems, because they
have too many.
 The most critical element of a BSC is to measure
these four dimensions, and distinguish strategic
problems from operational ones.
187
CUSTOMER PERSPECTIVE

GOALS MEASURES

Relative market share (%)


Products
% of sales from new Vs proprietary products

Timely deliveries and service


Supply
Customer credit analysis (i.e. ageing schedule)

% of key customer transactions


Preference
Ranking of key customer accounts

No. of visits or calls made


Relationship
% of NPA’s
188
BUSINESS PERSPECTIVE

GOALS MEASURES

New capabilities and competencies


Skills
Implementation & gestation period

Bank and supplier credit limits & PLR


Excellence
Unit Costs / Conversion Ratio / Defect Ratio

Exposure No. of times covered in media

No. of new product launches Vs competition


Introduction
Product pricing Vs competition
189
LEARNING PERSPECTIVE

GOALS MEASURES

No. of new patents registered


Technology
Time to develop next generation products

Manufacturing Average and spread in operating cycle

Focus % of products that equal 2/3 sales

Timing No. of product innovations


190
FINANCIAL PERSPECTIVE

GOALS MEASURES

Survival Cash flows

Success Growth in Sales and Profits

Prosper EPS, Return on Investment

Divestment Market Capitalization / PE ratio


191
BSC - IMPLEMENTATION
1
2
Mobilize change through
Translate strategy into effective leadership
operational terms

STRATEGY Make strategy a


continual process

3 4
Align the organization Make strategy
to the strategy everyone’s job
192
BSC - ADVANTAGES

 Most often top managers face information overload. As


a result, they don’t know - what they don’t know.
Modern managers should be poised to ask the right
questions.
 The BSC brings together the different elements of a
company’s strategy at a glance.
 It helps translating strategy into practice (i.e. sharing of
vision).
 Shift from control to strategy (i.e. doing right things
instead of doing things right).
 Focus on cause not effects. Seek excellence,
performance will automatically follow.
193
EFFICIENCY Vs EFFECTIVENESS

Ineffective Effective
Inefficient

Goes out of
Business Survives
quickly
Efficient

Dies
Thrives
Slowly

194
EFFECTIVENESS + STRATEGY

 A company which is effective as well as strategic,


not only thrives, but also sustains it.
- Michael E. Porter

195
CORPORATE
RESTRUCTURING

196
CORPORATE RESTRUCTURING

 The only thing constant in today's business environment


is change. Radical change brings about strategic variety.
Strategic variety may be caused by changes in the as
external well as internal environment.
 Strategic variety brings paradigm shift, from survival of
the fittest ....... to survival of the most adaptable.
 To adapt to the changing environment, firms use
restructuring strategies.
 Restructuring involves consciously driving significant
changes in the way an organizations thinks and looks (Eg.
Tata Group).
 As Peter Drucker pointed out, “every organization must be
prepared to abandon everything it does.” 197
RESTRUCTURING – BASIC TENETS

 Customer Focus – Restructuring ideally begins and ends


with the customer. Company’s should go beyond just
asking what he expects. Instead, they should strive to
provide unimaginable value ahead of its time (Eg.
Walkman, Fax, ATM, etc). Internal customers should
also not be neglected.
 Core Business – Company’s should introspect – What
business are we in? Business evolved out of opportunism
or myopia should be divested, and dividing the core
businesses into SBU’s (i.e. down-scoping).
 Structural Changes – Conventional hierarchical
structures should be disbanded in favour of more flexible
ones (i.e. downsizing or rightsizing). 198
RESTRUCTURING – BASIC TENETS

 Cultural Changes – A culture represents the values and


beliefs of the people about the organization.
Restructuring also requires cultural reorientation. It is
created and institutionalized by the top management.
 During the times of JRD, the Tatas were considered a
benevolent and charitable organization, ..... Ratan Tata
now drives the point the group means business.)
 Reliance dismantled their industrial embassies .....
started focusing on their capabilities.)
 The Aditya Birla group typically relied on the “marwari”
community for key management positions ..... Kumar
Birla today is more dependent on professionals. 199
MOVING CLOSER TO THE CUSTOMER

 As companies evolve, they tend to move away from the


customer. Restructuring provides a platform to close this
gap.
 Communicating to the media about organization efforts
to deliver quality products.
 Getting feedback & addressing customer complaints.
 Organizing customer and supplier meets.
 Publicizing welfare projects to demonstrate CSR.
 Carry out PR campaigns.
 Use the reach of networking technologies.
 Honda’s ad says, “ … one reason our customers are
satisfied is that we aren’t.” 200
ASSET RESTRUCTURING

 Asset Restructuring – The asset composition of a firm


undergoes a major change, including its intangibles –
 Mergers – It may be vertical, horizontal, or conglo-
merate. Further, it may be smooth (Eg. Tata – Corus) or
hostile (Eg. Mittal – Arcelor) and can take various forms.
 Asset Swaps – It entails divesting and acquisition
simultaneously by two companies, where the difference
in valuation is settled off through cash or equity (Eg.
Glaxo – Heinz).
 Hive Off – It involves siphoning of assets under control.
It may include brands as well. It can have two forms;
spin-off and equity carve. Further spin-off can be
classified as split-off and split-up. 201
HIVE OFF

 Spin-Off – A spin off is the creation of a new entity; in


which the equity is allotted amongst the existing
shareholders on a pro-rata basis (Eg. Reliance Ent).
– Split-Off – In a split-off, the existing shareholders
receive equity in the subsidiary in exchange for the
stocks of the parent company.
– Split-Up – In a split-up, the entire parent company
loses its identity after being split into a number of
subsidiaries. Most of these practices are not in
consonance with Indian laws.
 Equity Carve – It involves selling a minority stake to a
third party while retaining control (Eg. Tata Industries
selling 20% stake to Jardine Matheson).
202
DIVESTITURE

 It involves the sale of a brand or a division of a


company to a third party, for a specified market or in
general with full management control. Generic motives
include –
– Raise working capital; repay long-term debts.
– Poor performance; strategic misfit.
 In 1995, Parle sold its Thums Up brand to Coke for $40
million apprehending fierce competition.
 In 2005, L&T sold its cements division to Aditya Birla
group, but retained its engineering division.
 A complete sell-out is known as divestment (TOMCO).
 Selling out in phases is called disinvestment (IPCL). 203
CAPITAL RESTRUCTURING

 Capital Restructuring - The internal & external liability


composition undergoes a major change –
 LBO – Acquiring control over a substantially larger
company through borrowed funds (Eg. Tatas take-over
of Corus for US $11.3 billion, involving 608 pence per
share).
 Share Buyback – It is a process of cancellation of shares
out of free reserves to the extent of 25% of paid-up
capital (Eg. Wipro). It provides greater leverage as well
as management control.
 Conversion – Replacing debt with equity or vice-versa or
costlier with cheaper debt or cross currency debt.
204
BUSINESS RESTRUCTURING – TATAS

Divestments Diversifications
Lakme – Rs. 256 cr Tata Motors – Rs. 1700 cr
ACC – Rs. 950 cr Trent – Rs. 120 cr
Merind - Rs. 42 cr Tata AIG – Rs. 250 cr
Tata Timken – Rs 120 cr Tata Telecom – Rs. 1170 cr
Voltas - Rs. 230 cr Tata Tetley – Rs. 1890 cr
Goodlass Nerolac – Rs. 99 cr Tata Power – Rs. 1860 cr
CMC – Rs. 150 cr
VSNL – Rs. 1439 cr

205
ORGANIZATIONAL RESTRUCTURING

 Organizational structure and systems calls for a change


when strategic variety is apparent. It can be carried out
in the following ways –
 Downsizing – It is a systematic one-time reduction in the
no. of a firm’s employees and sometimes in the no. of
operating units, usually as a result external turbulence,
keeping the composition of business intact (Jet Airways).
Survival is the primary motive.
 Rightsizing – It is phasing of excess and redundant
employees resulted out of faulty internal planning
(SAIL). Turnaround is the primary motive.
 Downscoping – It involves reducing the business and/or
geographical scope of a firm (Aditya Birla group). 206
STRATEGIC CHANGE

 One of the most difficult components of organization


restructuring is the mindset of the top management
represented through its dominant logic and its shared
values reflected in cultural orientation.
 The dominant logic represents the perceptions and
biases (i.e. thumb rules) of the top management.
 Dominant logic becomes deep-rooted in organizational
contexts depending on the period it is in place (tenure of
the CEO). The longer the period, the more difficult it
becomes to uproot the paradigm (i.e. inertia).
 Strategy change is unviable without a preceding change
in its dominant logics, as strategies are based on such
207
beliefs and biases.
FORCES AGAINST STRATEGIC CHANGE

 The problem with strategic change is that the whole


burden typically rests on few people (i.e. 20% of the
people carry out 80% of the changes).
 Companies achieve real agility only when people at
every level rise above the ordinary to face the
challenges – revitalization or transformation.
 In most organizations, the factor that stifled change &
performance was – culture.
 Successful transformation requires – incorporating
employees fully into the process – leading from a
different place so as to maintain employee involvement
– instill mental disciplines that will enable employees
208
to
behave differently.
SUCCESSFUL TRANSFORMATION

 Build an intricate understanding of the business model at


all levels of the organization.
 Encourage uncompromising straight talk.
 Manage from the future. The best way is to alter the
institutional point of view.
 Harness setbacks, it is not about winning but about
learning.
 Promote inventive accountability; process ownership.
 Understand and deliver the quid pro quo.
 Create relentless discomfort with the status quo.
Questioning every basic action of the organization, never
take no for an answer. 209
FORCE-FIELD ANALYSIS

 A force-field analysis provides an initial overview of


change problems that needs to tackled, by identifying
forces for and against change.
 Culture and style of management are two main
impediments in force-field analysis, also known as
cultural-web. It involves identifying –
 Aspects of current culture which needs to be reinforced.
 Aspects of current culture which needs to be overcome.
 Identify and implement facilitators of cultural change.
 It involves diagnosing a change situation – systems &
structures, that can be both enablers and blockages to
change and restructuring. 210
RESTRUCTURING - OUTCOMES

Short - Term Long - Term


Alternatives
Reduced labour Loss of
Organizational costs human capital

Reduced debt Lower


costs performance
Capital

Emphasis on Higher
strategic control performance
Business
High debt Higher
costs risk 211
NUMERATOR & DENOMINATOR MGT

 Most firms across emerging markets undergo strategic


discontinuity and as a result are forced to restructure
their businesses. In order to put back the company on
the right track they are resort to –
 Denominator – It assumes that turnover cannot be
increased, hence go in for downsizing, down-scoping or
asset stripping.
 Numerator – It assumes that turnover is not a barrier or
constraint; focuses on reengineering, reverse engineering
and regenerating.
 While the first strategy produces results instantaneously;
the second one is a more viable strategy and sustainable
option in the long run. 212
TURNAROUND
MANAGEMENT

213
WHY TURN AROUND MANAGEMENT?

 Some interesting insights .......


– Only seven of the first fifty Indian business groups
in 1947 were even in business by the turn of this
century, and that the thirty-two of the country’s
largest business groups in 1969 are no longer
among the top fifty today.
– Less than 10% of the Fortune 500 companies as
first published in 1955, still exist as on 2005.
 Why do firms atrophy?
Source:
(Business Today, January 1997).
(Govindarajan and Trimble, 2006).
214
TURN AROUND MANAGEMENT

 A turnaround is said to occur when a firm perseveres


through an existence threatening performance decline;
ends the threat with a combination of strategies, skills,
systems, and capabilities; and achieves sustainable
performance recovery. Both content (what) and process
(how) are equally important for a successful turnaround.
 While content focuses on endogenous and exogenous
variables; process focuses on –
 A logic to explain a causal relationship between
intervening variables.
 A category of underlying principles and concepts.
 As a sequence of events describing how things change
and why they change (i.e. Stage Theory). 215
TURNAROUND INDICATORS

 Most firms atrophy simply because they fail to diagnose


the indicators that acts as threat to organizational
existence. Some indicators -
 Continuous cash flow crises as a result of dwindling
market-share and profits.
 Substantial shifts in consumer preferences.
 Low employee morale leading to high employee attrition
at all levels, especially in key positions.
 Uncompetitive products or services, leading to lack of
acceptability from distributors and customers.
 Rising input costs, unavailability or radical lowering of
substitute costs or technological obsolescence.
 Low stakeholder confidence; suppliers and bankers.216
TURNAROUND ILLUSION

 The first step to a successful turnaround is the basic


acceptance of the fact that ….. “all is not well”, which
most top managers fail to appreciate. Hence, they adopt
surface level measures (disprin popping) which most
often fail. Common approaches adopted -
 Change in key positions, be more customer centric.
 Recalibrate prices, based on elasticity.
 Product redesigning or reengineering.
 Revamp product portfolio, focus on power brands,
consider extension, liquidating dead assets.
 Emphasis on advertising and market penetration.
Extending work hours, prune work-force.
217

TURNAROUND STAGE THEORY

Stage 1 Stage 2 Stage 3 Stage 4

Decline Response Transition Outcome

Success
Performance

Equilibrium Line

Failure
Nadir

Indeterminate
Time
218
DECLINE

 Decline is the first stage in the turnaround process. It


involves the identification of the theoretical perspectives
that explains performance decline –
 K-Extinction – It suggests that macro economic and
industry wide factors are responsible for decline. It has
its origin in “environment led fit” that subscribes to the
view that a firm has little control over external factors.
 R-Extinction – It suggests that organization factors,
primarily dwindling resources and capabilities are
responsible for decline. It has its origin in “resource led
stretch” and subscribes to the view that a firm has
substantial power to override the context. Identification
of the stimulus leads to the arrest of the downfall.
219
RESPONSE INITIATION

 Turnaround responses are typically categorized as


operating or strategic. Operating responses typically
focuses on the way the firm conducts business and
involves tactics geared towards – cost cutting and process
redesigning (BPR).
 Strategic responses focus on changing or adjusting the
business the firm is engaged in through long term moves
such as – integration, diversification, new market
initiatives, asset reduction.
 The response must match the cause of the decline. If the
decline stems from structural shifts, the response should
be strategic. If the underlying cause is internal efficiency,
the response should be operational. 220
RESPONSE DICHOTOMY

 The response initiation is somewhat dichotomous and


cannot be universally applicable. Untangling this
question brings into focus three events –
 Domain – Many of the strategic cures have limited
applicability for an affiliated firm. Similarly new market
initiatives is feasible only for multi-product firms.
 Scope – A diversified conglomerate may acquire a
distressed business to turn it around and gain valuable
synergies; which may be unavailable to a focused firm.
 Contour – It is easier to reverse decline in the earlier
stages through operational measures; when decline
deepens shifts in strategic position becomes essential.221
TRANSITION

 Transition usually reflects the first signs of recovery.


However, substantial amount of time usually passes
before results begin to show (i.e. lead – lag).
 Empirical studies show that average time is 7.7 years with
a range of (4-16) years. However, many a times early
signs of recovery fades out. Sustenance is the key factor
in this stage. Effective levers of transition.
 The top management has a key role to play through -
empowerment, transparency, role model, confidence
building measures, participative management (i.e.
consensus).
 Support from all the stake holders through resource
commitment. 222
OUTCOME

 Outcome is said to be successful when a firm breaches


the equilibrium performance level. Failure is an
indication that initial momentum was not sustainable
characterized by irreversibility.
 Instead of focusing on financial parameters alone, it
should adopt a holistic approach. Cut off points must be
unequivocal.
 Share price indications and media coverage.
 Regaining lost market share and distributor confidence.
 Revival of key customers and new product launches.
 Commanding a premium in the market.
Supplier and banker confidence.
223

COOPERATIVE STRATEGIES
&
ALLIANCES

224
COOPERATIVE STRATEGIES

 Cooperative strategies are a logical and timely response


to changes in business dynamics, technology, and
globalization . It can assume any of the following forms
– franchising, licensing, consortia, supply-chain
partnership, strategic alliance, or joint venture.
 Any cooperative strategy maybe between firms within
the same country or cross border as well.
 In the cooperative strategy continuum as firms move
up the value order, the commitment and the
involvement between the firms increases manifold.
 More and more companies worldwide are moving away
from competition to co-option to leverage their 225
resources and enhance bargaining power.
FRANCHISING

 Franchising – It is a contractual agreement between two


legally independent firms whereby the franchiser grants
the right to the franchisee to sell the franchisor’s product
or service or do business under its brand-name in a
given location for a specified period of time for a
consideration.
 It is an effective strategy to penetrate markets in a
shortest possible time at a minimum cost. Branding is
critical to franchising.
 Switz Foods, owners of the brand Monginis allows its
franchisees to sell its confectionary products.
 Titan Inds, owners of the brand Tanishq allows its
franchisees to sell its jewellery products. 226
LICENSING

 Licensing – It is a contractual agreement between two


legally independent firms whereby the licensor grants
the right to the licensee to manufacture the licensor’s
product and do business under its brand-name in a
given location for a specified period of time for a
consideration. Different levels of licensing -
 Manufacturing without embracing any technology
(CBU).
 Develop a product through its crude stage, refine
processes and adopt necessary technologies (SKD).
 Become a systems integrator (CKD), as in Tata Indica.
 HM manufacturing GM range of cars in India with a
buy-back arrangement is a perfect example of CBU.227
CONSORTIA

 Consortia – They are defined as large inter-locking


relationships & cross holdings between businesses in a
similar industry. It can be of the following types –
 Multipartner – Intends to share an underlying technology
or asset, leverage upon size to preempt competition by
escalating entry barriers (Eg. Airbus – Boeing).
 Cross Holdings – A maze of equity holdings through
centralised control to ensure earnings stability &
threshold resources for critical mass (Eg. Tata, Hyundai).
 Collusion – Few firms in a matured industry collude to
reduce industry output below the equilibrium level,
enabling them to increase prices (Eg. Coke – Pepsi).228
SUPPLY CHAIN PARTNERSHIP

 It is a pro-active & collaborative arrangement between


supplier and customer aimed at achieving better control
over the value chain (Eg. Tata Motors – IDEA).
 Companies in different industries with different but
complimentary skills, link their capabilities to create
value for end users.
 It usually provides a platform to sort out differences
between conceptualization and implementation to suit
local market needs.
 Continuous sharing of knowledge is critical to the
success of a supply chain partnership, otherwise it
becomes routine outsourcing. 229
STRATEGIC ALLIANCE

 It is an short to medium term understanding between


two or more firms to share knowledge and risk, to gain
knowledge and to obtain access to new markets (Eg.
Tata Motors – Fiat, Reliance – Du Pont).
 Despite their popularity (50-60)% of the alliances fail to
accomplish their stated objectives. Partner selection is
one of the critical success factors.
 Firm’s should undertake a long courtship with potential
partners, instead of hurrying into a relationship.
 Generic motives involved are - learning organization,
design next generation products, effective R&D
management, enhance credibility, preempt competition,
enter newer markets. 230
STRATEGIC ALLIANCE - TYPES

 Collusion – Tacit top management understanding to


neutralize price wars (Eg. Coke – Pepsi).
 Complementary Equals – Two firms mutually promoting
each others complimentary products (Eg. Whirlpool –
Tide, Bajaj – Castrol).
 Bootstrap – An alliance between a weak and a strong
company with an intention to acquire it.
 Alliances of the Weak – An alliance is entered into to
preempt competition (Eg. Airbus – Boeing).
 Backward – An alliance (quasi or tapered) with a
supplier of critical components seeking commitment
(Eg. Maruti).
231
PARTNER SELECTION CRITERIA

 It is likely that partners will not have complete consent


on alliance objectives because the institutional context
in which the alliance embedded varies from country to
country.
 Cultural orientation has been found to have a profound
effect on top management’s strategic orientation (Eg. –
Japan Vs US).
 Differences in level of economic development can
produce differences in alliances motives. Firms from
developed markets seek access to markets and firms
from emerging markets seeking access to technology.
Too much stress on financials & structure be avoided.
232

PARTNER CHARACTERISTICS

 Complimentarity of Capabilities – The degree to which


partners resources can be used in conjunction.
 Dominant Logic’s – Similarity in beliefs & biases.
 Unique Resources – Abilities or skills which cannot be
easily duplicated.
 Intangible Assets – Move beyond the financials of the
firm.
 Willingness to share knowledge and skills.
 Partner’s ability to acquire fresh skills.
 Experience related to previous alliances.
 Managerial capabilities, including ability to provide
quality products and services. 233
MANAGING ALLIANCES

 Alliances are more than just a deal; instead of focusing


controlling the relationship, partners should nurture it.
 Selection & Courtship – It involves self analyzing,
understanding the chemistry, degree of compatibility.
 Getting Engaged – It should incorporate a specific joint
activity; vows to include commitment to expand the
relationship; incorporating clear signs of continuing
independence for all partners.
 Setting up the housekeeping, the value chain.
 Learning to collaborate – strategic, operational & cultural
integration.
 Changing within; differences not anticipated earlier. 234
JOINT VENTURE

 A joint venture is a long term association between two


equal partners to create an independent firm (SPV) by
complementing their resources and capabilities to explore
newer businesses or markets for achieving a shared
vision, whilst the partners continue to operate
independently.
 Conceptually, a joint venture is a selection among modes
by which two or more firms can transact.
 It aims at creating new value (i.e. synergy) rather than
mere exchange (i.e. combining parts).
 There are substantial linkages in the value-chain.
 It lasts till the vision is reached; separation is very bitter.
235
JOINT VENTURE – GENERIC MOTIVES

 Transaction Cost – The situational characteristics best


suited for a JV are high performance uncertainty; in
addition to a high degree of asset specificity.
 The market fails as sellers are unwilling to reveal their
technology and buyers are unwilling to purchase in the
absence of inspection.
 Strategic Behaviour – Firms may override transaction
costs, though more profitable alternative to other
choices. It may also be linked to deterring entry or
eroding competitors position.
 Organizational Learning – It is a means through which a
firm learns or seeks to retain their capabilities. 236
OTHER MOTIVES

 Entry into newer markets.


– Eg. Yamaha – Escorts, Eli Lily – Ranbaxy.
 Learning new technologies.
– Eg. TVS – Suzuki (4-Stroke Engines)
 Fill gaps in existing product lines.
– Eg. Renault – Nissan (Minivans – Cars).
 Endorsement from government authorities.
– Eg. Maruti – Suzuki.
 Sharing of resources.
– Eg. Essar – Hutch (Vodafone).
 Define future industry standards.
– Eg. Daimler – Chrysler (Premium Cars) 237
RISKS INVOLVED

 Incompatibility – Differences in cultural background.


– Godrej – Procter & Gamble, Century - Enka.
 Risk of brain (i.e. technology) drain.
– Maruti – Suzuki.
 Risk of over dependence.
– Eg. LML – Piaggio
 Differences in size and resource base.
– Eg. Modi – Telstra
 What after exit (parenting disadvantage)?
– Eg. PAL – Fiat
 If the cost of continuing exceeds the exit costs?
– Eg. Tata – Aditya Birla in Idea Cellular 238
PRE-REQUISITES FOR SUCCESS

 Commitment – Mutual trust, respect, time sharing.


 Objectives – Shared vision.
 Partner – Avoid duplication of skills and capabilities.
 Agreement – Clarity on operational control.
 Flexibility – Sufficient space to breathe and adjust.
 Culture – Reconcile gaps.
 Inertia – Differences in age and evolution patterns.
 Incompatibility – Performance expectations.
 Equality – Lack of dominance.
 Focus – Avoid strategic myopia.
 Costs – Other modes of transaction becomes cheaper. 239
MERGERS
&
ACQUISITION

240
MERGERS & ACQUISITION

 A merger is a mutually beneficial consent between two or


more firms (usually of similar size) to form a newly
evolved entity by absolving their individual entities to
preempt competition (Eg. Brooke Bond – Lipton). The
larger objective is to leverage on size.
 An acquisition is the purchase of a firm by a firm (of
larger size, however, reverses are also taking place
through LBO) with a view to acquire conglomerate power
and induce synergy (Eg. HLL – Tomco).
 An acquisition is said be smooth if it is with the consent
of the management (Eg. Ranbaxy - Daichi) and hostile if
it is without the consent of the management (Eg. Mittal -
Arcelor).
 Most countries have stringent laws that prevents hostile
241
takeovers (Eg. SEBI Takeover Code, 2002).
SEBI TAKEOVER CODE, 2002

 Promoter – A person who has a clear control of atleast


51% of the voting rights of the company and confidence
of all the major stakeholders.
 Acquirer – Someone (individual or firm) who picks up an
atleast 5% stake without mandatory disclosure having an
intention to wrest management control (i.e. creeping
acquisition).
 Hike – An acquirer who has already picked up a 5% has
to make a mandatory disclosure for every additional 1%
stake that it acquires.
 Preferential – A preferential allottee ending up acquiring
5% stake also comes under its purview.
 Control – A special resolution of 75% of the share holders
approving the change of guard.
242
SEBI TAKEOVER CODE, 2002

 Pricing – Acquirers will have to offer minority shareholders


(at least 20%) the past 26 weeks or past 2 weeks
average price, whichever is higher as an exit route (Eg.
Grasim – L&T Cement, Gujarat Ambuja – ACC).
 Disclosure – All acquirers have to inform the respective
stock exchanges where it is listed and SEBI upon
acquiring the basic limit and upon every incremental limit
thereon.
 SEBI – In case of a hostile take over, the SEBI can
intervene and block share transfers if: the acquirer has
ulterior motives (i.e. asset stripping), credentials or track
record is at stake, and/or does not enjoy the confidence
of the different stake holders.
243
TYPES OF MERGERS

 A business is an activity that involves procuring of


desired inputs to transform it to an output by using
appropriate technologies and thereby creating value for
its stake holders in the process.
 The type of merger is depends on the degree of
relatedness (strategic) between the two businesses.
 Horizontal – It involves integration of two highly related
businesses (Eg. Electrolux - Kelvinator).
 Vertical – It involves complimentarily (partially related) in
terms of supply of inputs or marketing activities (Eg.
Godrej, Reliance).
 Conglomerate – It involves integration of two distinctly
unrelated businesses, usually opportunistic (Eg. ITC).244
MERGERS & ACQUISITION - MOTIVES

 Increased market / conglomerate power.


 Reduction in risk.
 Economies of size, scale and scope.
 Overcoming entry barriers (Eg. Tata Steel – Corus).
 Avoiding risk of new product development.
 Access to newer segments (Eg. Ranbaxy – Crosslands).
 Reduced gestation (i.e. quick access).
 Tax benefits (Eg. ITC Bhadrachalam).
 Acquiring assets or capabilities (Eg. ICICI –ITC Classic).
 Global image (Eg. Mittal – Arcelor).
 Ulterior motives – (Eg. Asset Stripping – Shaw Wallace).
 Coinsurance effect – Higher debt raising capability. 245
MERGERS & ACQUISITIONS - PITFALLS

 Cultural differences (Eg. Tata – Corus).


 Overvaluation of buying firms (Eg. When Tata Steel
started negotiations with Corus, their initial offer was
around 420 pence/share; while the ultimate acquisition
was made at 607 pence/share). Overvaluation is often
as a result of an ego drive and substantially affects
future returns.
 Merging of organisational structures.
 Inability to achieve synergy.
 Managing over-diversification.
 Managing size.
 Top management overtly focused on due diligence
exercise and negotiations; neglecting core business. 246
MERGER TYPE & PLC

 Introduction – A larger firm may acquire a newly formed


entity with an objective to preempt new competition or
acquire its license (Eg. Kingfisher – Air Deccan).
 Growth – This stage may witness parallel merger of two
firms of similar size; with an objective to reinforce its
growth trajectory or to take on the might of a
comparatively larger player (Eg. Brooke Bond – Lipton).
 Maturity – A larger firm acquires a smaller firm with an
objective to achieve economies of scale and experience
curve effects (Eg. Tata Steel – Corus).
 Decline – Horizontal mergers are undertaken to ensure
survival; vertical to save transactions costs. 247
INTERNATIONAL M&A - FRAMEWORK

 Positive contribution to the acquired company. An


acquisition just for the sake of it or reputation yields very
little value in the long term.
 A common shared vision. Strong differences may stifle
plans and its execution.
 A concern of respect and trust for the business of the
acquired company.
 Left alone syndrome; active top management intervention
in phases. Immediate attempts to super impose structure
and culture may cause bottle necks.
 Blanket promotions across entities and confidence
building exercises needs to be practiced. 248
INTEGRATION - BLUEPRINT

 Take the media into confidence. They can carry the


message to the various stake holders.
 Shift attention from business portfolio to people and
processes.
 Decide on the new hierarchy; promptly. It will enable
focus on customers and key people.
 Redefine responsibilities and authority.
 Decide upon management control systems.
 Integrating work processes.
 Determine business strategy.
 Do not ignore the “people factor”. 249
M&A - VALUATION

 The process of valuation is central to M&A. While under


valuation may be a significant opportunity; over valuation
can become a curse.
 Valuation decisions are arrived through a due diligence
process when the prospective acquirer gets access to the
books of accounts of acquiring company. The process
takes (6-12) months. Financial motives -
– Undervaluation relative to true value.
– Market for corporate control.
– Unstated reasons – Personal self interest and hubris.
– Synergy – Potential value gain from combining
operations (i.e. operational & financial). 250
VALUING OPERATIONAL SYNERGY

 Synergy – It refers to the potential value gain where the


whole is greater than the sum of the parts. Synergy can
be negative as well; when the “fit” between the two
entities is very poor. Sources of operational synergy -
– Horizontal Synergy – Gains come from economies of
scale which reduces costs; or from increased market
power which increases sales and margins.
– Vertical Synergy – Gains come from controlling the
supply-chain and savings in transaction costs.
– Conglomerate Synergy – Gains come when one firm
complements the resources or capabilities of another
(Eg. Innovative product – Good distribution network).
251
VALUING FINANCIAL SYNERGY

 Diversification – Reduce variability in earnings by


diversifying into unrelated industries. However,
shareholders can accomplish the same at a much lesser
cost, and without paying take-over premiums.
 Cash Slack – It reduces asymmetry between cash starved
firms with deserving projects and cash cows with no
investment opportunities. Synergy comes from projects
which would not have been undertaken if the two firms
stayed apart (Eg. Hotmail).
 Tax Benefits – Tax benefits may accrue from tax
entitlements and depreciation benefits unutilized by a
loss making firm, but availed after being merged with a
profitable firm (Eg. ITC – Bhadrachalam Paper). 252
VALUING FINANCIAL SYNERGY

 Co-Insurance Effect – If the cash flows of the two firms are less
than perfectly correlated, the cash flow the merged firm will be
less variable than the individual firms. This will induce higher
debt capacity, higher leverage, hence better performance.
 The likelihood of default decreases when two firms' assets and
liabilities are combined through a M&A compared to the
likelihood of default in the individual companies. It relates to
the concept of diversification, as risky debt is spread across the
new firm's operations.
– Default risk comes down and credit rating improves.
– Coupon rates may also be negotiated at lower rates.

253
VALUING CORPORATE CONTROL

 Premium of M&A are often justified to control the


management of the firm. The value of wrestling control
is inversely proportional to the perceived quality of that
management.
– Value of Control = Value of firm after restructuring
– Value of firm before restructuring.
 The value of control can be substantial for firms that are
operating well below optimal value, since a restructuring
can lead to significant increase in value.
 While value of corporate control is negligible for firms
that are operating close to their optimal value.
Assessment of perceived quality is critical.
254

LEVERAGE BUYOUT (LBO)

 The basic difference between a take-over and a LBO is


the high inherent leverage (i.e. debt component) at the
time of buyout and rapid changes in capital structure
over time.
 LBO facilitates a relatively smaller firm to bid for a
comparatively larger firm in the bid for management
control. Confidence of investment bankers and the
international financial community is essential.
 It is a very costly and risky proposition.
 The assets of the acquired company are used as
collateral for the borrowed capital, sometimes in
combination with the assets of the acquiring company. 255
TO GO PUBLIC OR NOT?

 However, off-late many publicly traded firms have gone


private keeping in mind the following –
– The fear of LBO.
– The need to satisfy analysts and shareholders.
– Separation of ownership from management.
– Increased information needs.
 A research study showed that 30% of the publicly listed
firms reported above average returns after going private.
The increased benefit showed in the following way –
reduced costs and increased revenue.
 However, the advantages of going public includes -
access to financial markets, liquidity, on-going valuation.
256
RATIONALE FOR HIGH LEVERAGE

 The high leverage in a LBO can be justified by –


– If the target firm has too little debt (relative to its
optimal capital structure).
– Managers cannot be trusted to invest free cash flows
wisely.
– It is a temporary phenomenon; which disappears once
assets are liquidated and significant portion of debt is
paid off.
– Debts repaid off from increased value after successful
restructuring and wresting management control.
– Cost of debt coming down (i.e. co-insurance effect).
– Cash trapped company unable to utilize opportunities. 257
EFFECT OF HIGH LEVERAGE

 Increases the riskiness of dividend flows to shareholders


by increasing the interest cost to debt holders. Therefore,
initial rise in leverage is anticipated.
 As the firm liquidates / pledges assets and pays off debt,
leverage is expected to decrease over time.
 Any discounting has to reflect these changing cost of
capital.
 Lack of sufficient cash flows to repay costly debts resulting
in a possible debt trap.
 A LBO has to pass two tests to be viable –
– Restructuring to pay-off increased debt.
– Increase equity valuation. 258
REVERSE MERGER

 Reverse Merger – The acquisition of a public company,


which has discontinued its operations (i.e. shell
company) by a private company, small in size but having
a promising business, allowing the private company to
bypass the usually lengthy and complex process of going
public. Objectives –
– Traditional route of filing prospectus and undergoing
an IPO is costly, time-barred, or costly.
– Prevents dilution of equity.
– Automatic listing in major exchanges.
– Tax shelter.
– Facilitates better valuation and forthcoming offerings.
259
EFFECT OF TAKE-OVER ANNOUNCEMENT

 The shareholders of target firms are the clear winners.


– Takeover announcements reported 30% excess
returns.
– Merger announcements reported 20% excess returns.
 Excess returns also vary across time periods. During
bearish periods excess returns were 19%; and 35%
during bullish periods.
 However, takeover failures have only initial negative
effects on stock prices. Most target firms are taken over
within (60-90) days.
 Initial anomaly in stock prices usually normalizes over a
period of time (6-12) months. 260
EFFECT OF TAKE-OVER ANNOUNCEMENT

 The effect of take-over announcement on bidder firm’s


stock prices are not clear cut.
– Most studies reported insignificant excess returns
around take-over offers or merger announcements.
– However, in the event of take-over failure negative
returns to the extent of 5% on bidder firm stock
prices is reflected.
– However, as stock markets become more and more
perfect such anomalies would reduce over time.
Source: Jensen and Ruback, 1983.
Bradley, Desai, and Kim, 1983.
261
Jarrel, Brickley, and Netter, 1988.
DEFENSIVE STRATEGIES

 Golden Parachute – An employment contract that


compensates top managers for loss of jobs as a result of
change in management control.
 Poison Put – Premature retirement of bonds at attractive
rates to pour surplus cash and make target investment
unattractive.
 Poison Pill – An offer to existing shareholders to buy
shares at a substantial discount to increase their voting
rights.
 Asset Stripping – The targeted company hives off its key
assets to another subsidiary, so that nothing is left for
the raider to strip off.. 262
DEFENSIVE STRATEGIES

 White Knight – It is the placing of stocks to a cash rich


investor and bargaining for protection in return. But
often the White Knight turns a betrayer himself (Eg.
Raasi Dement – Indian Cements – Reliance).
 Pac Man – The target company makes a counter bid to
take over the raider company, thus diverting the raider
company’s attention.
 Gray Knight – The target company takes the help of
friendly company to buy the shares of the raiding
company.
 Green Mail – The targeted company buys large blocks
from holders either through premium or through 263
pressure tactics (Eg. Shapoorji Pallonji).
COMPETING FOR
THE
FUTURE

264
GETTING OFF THE TREADMILL

 Canon overpowering Xerox; Honda overpowering


Volkswagen; Honda overpowering GM; Nokia
overpowering Motorola; Hitachi overpowering
Westinghouse; Wal-Mart overpowering Sears; Compaq
overpowering IBM; British Air overpowering Pan Am.
 Most companies were too preoccupied with the present
than the future? 99% of the companies overpowered,
were spending 99% of their precious time dealing with
present. The reverse was true for the companies
overpowering.
 What went wrong???? What were they doing with the
present? What were they pre-occupied with? 265
THE PAST OF COMPETITION

 Beyond Restructuring – When a competitiveness


become inescapable problem (stagnant growth,
declining margins, falling market share), CEO’s brutally
pick up the knife and ruthlessly carve away layers of
corporate flab (delayering, decluttering, downsizing).
 Not knowing when to stop; most often they ended up
cutting corporate muscle as well and became anorexic.
Thus efficiency was grievously hurt.
 These denominator based managers stuck to their
restructuring strategies (like building pyramids) and
didn't know what to do next?
Thus they became history? (like the pharaohs)
266

THE PRESENT OF COMPETITION

 Beyond Reengineering – Numerator based managers


(innovation) at least offers some hope. However,
incrementalism or nominal innovation has almost
reached a plateau; ensuring only survival of the
present; but not of the future.
 A poll in circa 2000 revealed that 80% of the U.S. top
managers believed that quality will be a source of
competitive advantage of the future. On the contrary
only 20% of Japanese managers believed that quality
will be a source of competitive advantage of the future.
 The future is not about catching up with competition;
but forging ahead in competition. 267
THE FUTURE OF COMPETITION

 Regenerating – Leaner, better, faster; as important as


these may be, they are not enough to get a company to
the future. Companies need to fundamentally reconcieve
itself; reinvent its industry; and regenerate its strategies
(breaking its – managerial frames).
 Creating the future requires industry foresight. It is
based on deep insights into trends in technology,
demographics and lifestyles. It involves -
 Dream about the company’s future; don’t predict.
 Create a potential gap; aspirations and resources.
 Transform the industry; not just the organization.
 Empower from bottom to top; not the other way. 268
ABOUT THE DREAM

Which customers will you be serving?


What will the potential customer look like?
Who will be your future competitors?
What will be the basis of your competitive advantage?
Where would your margins come from?
What will be your future competencies?
Which end product markets would you cater?
269
ABOUT THE TRANSFORMATION

 The future does not belong to those who take the


industry for granted. Successful companies have a
complete grip over the industry, hence do not fall sick
in the first place. Therefore, they do not need to
restructure.
 It is about deliberately creating a strategic misfit. It
drives a hunger and a passion to transform.
 Change in at least one fundamental way the rules of
engagement in an industry.
 Redraw the boundaries between industries, by
converging technologies complex.
 Create entirely new industries (i.e. blue oceans). 270
ABOUT THE EMPOWERMENT

 Bring about a revolution (a paradigm shift) in the


organization. More importantly, the revolution must
start at the bottom and spread in all directions of the
organization. A revolution that is thrust upon from the
top seldom sustains.
 Most successful revolutions (Gandhi to Mandela) rose
from the dispossessed.
 The middle management plays a strong moderating
role.
 Transformational leaders merely lead the way.
 Such a process is called institutionalization (from
people centric to organisational centric). 271
THE FUTURE OF STRATEGY

 A company must get to the future not only first but also
for less. What does it take to get to the future first?
 Understanding how competition for the future is different.
 A process for finding and gaining insight into tomorrows
opportunities (Eg. Toshiba – LCD; South West Airlines –
LCC, Apple – iphone). It requires a lot of common sense
and a little bit of out of the box thinking.
 An ability to energize the company.
 Get to the future first, without taking undue risk.
 Companies need to strategize (think ahead of times).
Apply the 40 – 30 – 20 principle.
272
HOW DOES THE FUTURE LOOK LIKE?

 There is no rule which says that for every leader there


will be a follower. As there is no one future; but
hundreds.
 We are in the midst of a 3600 vacuum; each point in
space represents a unique business opportunity. The
farther one can see in this endless space, the farther it
will be away from competition.
 Companies of the future will be not based so much on
the strength of their resources, as on their aspirations.
 What distinguishes a leader from a laggard; greatness
from mediocrity, is the ability to imagine in a different
way what the future could be. 273
THE EMERGING STRATEGY PARADIGM

Not Only But Also


The Competitive Challenge
Reengineering Processes Regenerating Strategy

Organizational Transformation Industry Transformation

Competing for Market Share Competing for Opportunity Share

Finding the Future


Strategy as Learning Strategy as Unlearning

Strategy as Positioning Strategy as Dream

Strategy as Engineering Strategy as Architecture 274


THE EMERGING STRATEGY PARADIGM

Not Only But Also


Mobilising for the Future
Strategic Fit Strategic Misfit

Resource Allocation Resource Stretch & Leverage

Getting to the Future First


Existing Industry Structure Future Industry Structure

Product Leadership Competency Leadership

Single Entity Dominant Coalitions / Co-option

Product Hits & Timing Market Learning & Preemption


275
LEARNING TO FORGET

P1: The degree of learning in current period is


directly proportional to the degree of unlearning in
the previous period.
Unlearning
Degree of Learning

Curve
P2: Unlearning in previous period does not
necessarily ensure learning in the current period.
Learning
Curve

t1 t2 t3 t4 t5
276
Time
CORE COMPETENCE

 A core competence relates to a bundle of skills (not an asset


or a business) that revolves around activities or processes
and critically underpins a firm’s competitive advantage. It
represents the collective learning's of an organization
centering around diverse streams of technologies. It is
characterized by the following –
 Unique – It provides unimaginable customer value ahead of
its times.
 Inimitable & Insubstitutable – A high degree causal ambiguity
between these skills yield sustainable competitive advantage.
It cannot be matched even by its closest competitors.
 Leverage – They are the gateways to future markets.
277
MORE ABOUT CORE COMPETENCE

 Sony – miniaturization; Honda – engines; Wal-Mart –


logistics; SKF – antifriction and precision, Coca Cola –
brand, Nike – designing; Canon – imaging; Intel –
nano-electronics; Toyota – lean manufacturing;
Toshiba – flat screen displays.
 Core competencies are the roots of the organization.
 Although a core competence may lose value over
time; it gets more refined and valuable through use.
 A core competency cannot be outsourced; it is deeply
embedded in the heart of the organization.
 Most companies around the world do not possess one; 278

leaders have one, at the most three to four.


ROOTS OF COMPETITIVENESS

End 1 2 3 4 5 6 7 8 9 10
Products

Core Core Core Core


Business Business Business Business
Core 1 2 3 4
Businesses

Core Product 2
Core
Products
Core Product 1

Core
Competence Competence Competence Competence
Competencies
1 2 3 4 279
RESOURCE STRETCH & LEVERAGE

 Initial resource position is a very poor indicator of future


performance. It leads to atrophy and stagnation.
Successful companies consciously create a potential gap
between aspirations and resources.
 Resource crunch is a common factor among firms that
faces a wealthy rival, and outperforms them. Leveraging
what a company already has, rather than allocating it is a
more creative response to scarcity.
– By concentrating existing resources.
– By accumulating existing resources.
– By complementing existing resources.
– By conserving existing resources.
– By recovering existing resources. 280
CONCENTRATING RESOURCES

 Concentrating – It involves effectively directing


portfolio of resources on key strategic goals in which
individual efforts converge over time. It is a balance
between individual mediocrity and collective brilliance.
It is achieved through –
 Converging – Redirecting multiple diverging (i.e.
fragmented) short term goals into one long term goal.
It is then resources can be stretched over time.
 Focusing – Making trade-offs and preventing dilution of
resources at a particular point of time.
 Targeting – Focusing on the right innovations that are
likely to have the biggest impact on customer value.281
ACCUMULATING RESOURCES

 Accumulating – Using existing reservoir of resources to


build new resources. Each and every individual is a rich
& potential source of learning, discover better ways of
doing things. It is achieved through -
 Mining – Extracting learning experiences from existing
body of each additional experience (i.e. success or
failure). It is an attitude that can be acquired, but
never learnt. It leads to a substantial jump in the
experience curve.
 Borrowing – Utilizing resources outside the firm through
licensing, alliances, joint ventures. A firms absorptive
capacity is as important as its inventive capacity. 282
COMPLEMENTING RESOURCES

 Complementing – Using resources of one type with


another that aligns smoothly to create higher order value.
In a way it produces an accelerating effect on each
individual resource. It is achieved through –
 Blending – Interweaving discrete capabilities to create
world class technologies (GM – Honda) through integration
and imagination. Different functional skills can also be
blended to create a world class end products (Yamaha –
Keyboard).
 Balancing – An ability to exploit excellence in one area is
never imperiled by mediocrity in another (GE acquiring the
CT scanning rights from EMI because of its inadequate
market reach). 283
CONSERVING RESOURCES

 Conserving – Sustaining competencies over time


through frequent usage. Resources are never
abandoned; they are always preserved for future use.
 Recycling – Increasing the velocity of use of a
competencies over time. As a result core competencies
can be leveraged across an array of products (Sony -
Betamax). It includes brand extensions as well.
 Co-Opting – Enticing resources of potential competitors
to exercise influence in an industry (Fujitsu – IBM).
 Shielding – It involves identifying competitors blind
spots and then attacking without having the fear of
retaliation.
284
RECOVERING RESOURCES

 Recovering - It is the process of reducing the elapsed


time between investing in resources and the recovery of
those resources in the form of revenues via the market.
 Speeding – Prior to the 1980’s Detroit’s majors took an
average of 8 years to develop an entirely new model;
the Japanese reduced it to less than 4.5 years, with
major new variants in 2 years. This envisaged Japanese
players in giving customers more opportunities to switch
allegiance and loyalty (Toyota).
 Protecting – It uses competitors strength to one’s own
advantage, by deflecting it, rather than absorbing it as
practiced in Judo. 285
INTERNATIONAL
BUSINESS ENVIRONMENT

286
EMERGING MARKETS

 Emerging markets (India, China, Korea, Chile)


provide a different context (i.e. high levels of market
imperfection). Therefore, strategies suited for the
developed markets may not be appropriate for
emerging markets.
 Emerging markets are characterised by
infrastructural bottlenecks, institutional gaps, and
high transaction costs. Therefore focused strategies
based on core competence may not be suitable for
emerging markets (Khanna & Palepu, 1997).
 Diversified groups in operating in emerging markets
therefore benefit from unrelated diversification. 287
DIVERSITY - PERFORMANCE (I)

Diversity attempts to measure the degree and extent of


diversification (Herfindahl, Concentric, Entropy).
Optimum level of diversification
Performance

Diversity is initially positively related


with performance, subsequently negatively
related across developed markets.

Synergy, Size & Scale, Experience

Strategic Fit

Diversity Palich, et al. (2000) 288


DIVERSITY - PERFORMANCE (II)

Diversity is initially negatively related


with performance, subsequently positively
related across emerging markets.
Performance

Huge initial investment, brand building

Risk diversification,
conglomerate power

Threshold level of diversification

Diversity (Khanna & Palepu, 2001) 289


INTERNATIONAL IDENTITY

 MNC’s consciously engage in FDI in different parts of


the globe to forge resource diversity as a distinct
competitive advantage. Characteristics –
 It should have a spread of affiliates or subsidiaries.
 It should have a spread of manufacturing facilities.
 It should have a spread of assets, revenues and profits.
 It should have a spread of interest groups / stake
holders.
 It should think globally; act locally (Eg. HSBC).

290
GLOBAL BUSINESS ENVIRONMENT

 Power Distance – It reflects the disparities in income


and intellectual development (Eg. low power distance in
developed markets and vice versa for emerging
markets).
 Feminity Index - It reflects the disparities in women in
workforce (Eg. high feminity index in developed
markets and vice versa for emerging markets).
 Risk Profile – It reflects the risk attitude of the top
management (Eg. low risk profile in developed markets
and vice versa for emerging markets).
 Group Scale - It reflects the relative role of team
building (Eg. low group scale in developed markets and
vice versa for emerging markets).
291
GLOBAL BUSINESS ENVIRONMENT

 Cultural Adaptability – It reflects the adaptive ability to


a changing environment - culture, way of life, attitude,
code of conduct, dress sense, customs, time value,
flexibility (Eg. high cultural adaptability in developed
markets and vice versa for emerging markets).
 Country Risk – It reflects the political and economic risk
(Eg. political stability, credit rating, currency, FOREX
reserves, inflation, interest rates, terrorism (9/11),
corruption, judiciary) of doing business in a particular
country (Eg. low country risk in developed markets and
vice versa for emerging markets).
292
GLOBAL BUSINESS ENVIRONMENT

 Time Sensitiveness – Developed country managers


regard time as precious, however, in most emerging
markets meetings are delayed and lasts unusually
long. Other factors – local celebrations, time-zones.
 Language Barriers – Developed country managers
expect foreign partners to communicate in their
languages; in most emerging markets use of an
interpreter may be a standard protocol.
 Ethnocentrism – Developed country managers tend to
regard their own culture as superior; and vice-versa.
High levels of ethnocentrism usually has a negative
effect on business. 293
GATT

 GATT was a bi-lateral treaty initiated between US and


some member countries in 1947 to promote free trade.
In 1995 (Uruguay Round) GATT was renamed to WTO.
It a multi-lateral treaty with 143 (as on 2002) member
countries to reduce tariff and non-tariff (quota)
barriers. It focused largely on TRIPS (patents,
copyrights, trademarks). It also initiated provisions on
anti-dumping.
 The 1999 (Seattle Round) saw a lot of protest amidst
bringing agriculture under the purview of TRIPS. It
also highlighted the nexus between US & WTO.
 The 2001 (Doha Round) focused on power blocks 294
(NAFTA, ASEAN, BRIC).
EURO – SINGLE CURRENCY

 In 1999 twelve member countries in Europe joined


hands to move over to a single currency (i.e. Euro);
three countries joined in 2002 increasing it to fifteen
members as of 2008. The notable exception was Great
Britain which still continues with its local currency (i.e.
Sterling - Pound).
 The Euro was significantly devalued against the Dollar
till 2002. However with current recession in the US
2002 onwards, the Euro slowly started outperforming
the Dollar.
 However, the Dollar still remains the most preferred
currency globally; primarily the OPEC countries. 295
SINGLE Vs MULTIPLE CURRENCY

 Transaction Costs – Though the initial cost of


introduction of a single currency is very complicated
and costly; it helps avoiding transaction costs
associated with a multiple currency.
 Rate Uncertainty – A single currency eliminates the risk
of competitive devaluations. However, a multiple
currency is preferable where the business cycles of
member nations are different.
 Transparency – A single currency is transparent and
competitive, but it may have spill-over effects.
 Trade Block – It will strengthen the EU identity which
would not have been possible otherwise.
296
FII Vs FDI INVESTMENT

 Classical economists believed that foreign investment


(in any form) is basically a zero sum game (i.e. the
gain of one country is loss of another). Neo classical
economists believe that foreign investment may in fact
be a win-win game.
– FDI (transfer of tangible resources) is slow but
steady for the purpose of economic growth. It is
long term with high levels of commitment.
– FII (transfer of intangible resources) is fast but may
have strong repercussions (i.e. hot money). It is
short-medium term with comparatively low levels of
commitment. 297
INTERNATION MARKETING

 Product – The various attributes of a product may


receive different degrees of emphasis depending on
differences in - culture (food habits), economic (middle
class buying power), technology (micro-chip).
 Pricing – It depends on the competitive structure (PLC
– Kellogg's), customer awareness (micro-waves), usage
(talk time), promotion (surrogate advertising).
 Distribution – It depends on the market characteristics
(fragmented – concentrated), buying patterns (spread),
lifestyle (petroleum outlets – departmental stores).

298
INTERNATION FINANCE

 Currency Risk – Many Indian IT companies (Rs) having


business in US (Dollar) are asking for quotes in (Euro)
or are shifting bases out of US to avoid risk of
devaluation of Dollar.
 Accounting Norms – The accounting norms of one
country (AS - India) may be different from that another
trading country (US – GAAP or IRS).
 Leverage – The leverage may vary across countries
depending upon money and capital market conditions
(Eg. debt is cheap in US; equity is cheap in India).
 Cost Structure – Companies in India need to investment
in fixed costs due to poor infra-structure compared to
299
developed markets.
INTERNATIONAL HR

 An uniform HR policy is idealistic to enable parity in


performance appraisal; however, in most cases it is
not desirable nor practiced.
 Recruitment – In local recruitment, skills are more
important that cultural fit and vice-versa.
 Compensation – Differential pay packages exists
because of differences in purchasing power, social
security, double taxation, labour laws.
 Training – It is a pre-requisite for international
business to reduce language, technology
(convergence, shortened life cycles), and cultural
barriers (language) vis-à-vis emerging markets.
300
INTERNATIONAL OPERATIONS

 Location Incentives – FDI in emerging markets should


explore options for SEZ’s to explore benefits (tax
holidays, reduce power costs) vis-à-vis infrastructural
bottlenecks.
 Technology – The cost to be evaluated in terms of latest
technology (Euro VI) vis-à-vis effective cost of
appropriate technology (Euro II).
 Outsourcing – A company having a core competence
may be the source of global outsourcing (Eg. Bosch
spark plugs are used by car manufacturers worldwide).
 SCM – Use of ERP to network the extended enterprise
across the globe. 301
CONTEMPORARY
TOPICS

302
INNOVATION

 An invention is the first occurrence of an idea for a new


product or process; innovation is the first attempt to carry
it out in practice.
 Innovations typically paves the way for more secured and
improved lifestyle for consumers in general.
 Innovation is the most preferred strategy today to
maintain competitive advantage in the present turbulent
business environment.
 Innovation is all about staying ahead of competition, but
has inherent risks involved as well.
 While innovation typically adds value for organizations; it
has destructive effects as well.
303
TYPES OF INNOVATION

 A key challenge is maintaining a balance between


process and product innovations.
 While product innovations are typically customer
driven; process innovations are organizational driven.
 Tangible impact of product innovation on performance
is significantly higher than process innovation.
However, process innovation is necessary to sustain
the competitive advantage of product innovation.
 Process innovation usually follows product innovation.
 Strategic innovation has the potential to change the
rules of the game. 304
BUSINESS MODEL

 It is a simplified description and representation of a


complex real world; about how an organization
makes money (i.e. putting an idea into practice).
 Innovations are the back-bone of successful
business models .
 Disruptive business models brings in a new frame of
reference (i.e. a paradigm shift). It leads to a shift in
the price – performance envelope.
 Telecom (CDMA Technology), Data Storage (Pen
Drives), Drug Development (Bio Chemicals), Medical
Surgery (Lasik), Processors (Pentium). 305
NINE BUILDING BLOCKS

 Value proposition offered to the market.


 The segment(s) of clients to be addressed.
 The channels to reach out to the clients.
 The proposed relationships established with clients.
 The key resources and capabilities required.
 The key activities / processes necessary for execution.
 The key partners involved in the activities.
 The cost structure resulting from the business model.
 The revenue streams generated by the activities. 306
BUSINESS MODEL FRAMEWORK

307
REVENUE MODEL

 Positioning is just not sufficient; innovative companies


to carve out unique business models to fend off
competition.
 With the rapid erosion of certain industries (IT,
Investment Banking, Real Estate) companies need to
untangle and understand the intricacies of their business
model.
 The revenue model described here are the means to
generate revenues. It is just one piece of the puzzle.
 It involves – Product Visualization – Product Prototype –
Product Test – Capacity – Pricing – Distribution. 308
HOW TO MAKE INNOVATIVE CO’S

 Innovative company’s are a matter of culture and


aspirations rather than tangible resources.
 A favourable intellectual property (IP) climate.
 Allow the workforce idiosyncrasies for their errors.
 Allow the management sufficient slack to be future
oriented.
 Have a lean and a flat organization structure.
 Promote the grape-vine.
 Provide reasonable incentives (not necessarily
monetary).
 Promote the culture of experimentation. 309
HOW TO PROTECT INNOVATION?

 Without adequate protection (external or otherwise)


the effects of innovation does not translate to
performance.
 In most emerging markets where the IP climate is not
so favorable, companies are increasingly relying on
internal protection to sustain innovation effects.
 The most preferred strategy of internal protection
includes imbibing “causal ambiguity” in the production
process to make reverse engineering difficult.
 Collusion with the judiciary is also another distinct
possibility in emerging markets, however that
possibility is slowly atrophying. 310
310
CORPORATE GOVERNANCE

 The basic theme of corporate governance is to ensure


that professional managers are identified and made
accountable in terms of clear business processes or
activities and held responsible through adequate
mechanisms & control systems for channelizing their
decisions for the benefit of stakeholders at large.
 Corporate governance aims to reduce the principal-
agent problem present in most professional managed
organizations through appropriate forms of
accountability and control mechanisms.
 In fact the principles of corporate governance implies
that managers go beyond in satisfying the stated and
unstated needs of the multiple stakeholders.
311
311
AGENCY THEORY

 The root of Corporate Governance goes back to the


Agency Theory; also known as the principal-agent
problem or agency dilemma.
 According to the agency theory top managers and
shareholders interests are usually conflicting in nature
and tend to pull in opposite directions.
 From the strategic point of view managers tend to
diversify into unrelated businesses as it provides higher
returns hence a more favourable appraisal. However,
shareholders can diversify their portfolio at a much
lesser risk and cost.
 This exposes the shareholders to additional risks and
higher costs, not present in portfolio diversifications.312
ORIGIN & CONTEXT

 Since the early 20th century since a large part of public


funds were held by publicly traded firms in the US,
various laws were enacted to ensure proper usage of
these funds.
 After the Enron downfall, the US government passed
the Sarbanes – Oxley Act, 2002 to restore public
confidence in corporate governance.
 SEBI Report – 2005, defines corporate governance
(headed by Kumar Mangalam Birla) as the acceptance
by management of the inalienable rights of shareholders
as the true owners of the corporation and of their own
role as trustees on behalf of the shareholders. 313
GOVERNANCE PRINCIPLES

 Rights and equitable treatment of shareholders: Help


shareholders exercise their rights by effectively
communicating information in transparent ways that is
understandable and accessible and encouraging
shareholders to participate in general meetings.
 Interests of other stakeholders: Recognize the legal and
other obligations of all legitimate stakeholders, including
the society at large.
 Role and responsibilities of the board: It deals with issues
about an appropriate mix of executive and non-executive
directors. The key roles of chairperson and CEO should
not be held by the same person and their offices be
clearly separated. 314
GOVERNANCE PRINCIPLES

 Integrity and ethical behaviour: Organizations should


develop a code of conduct for their top management
that promotes ethical and responsible decision making.
 Disclosure and transparency: Disclosure of information
should be timely and balanced to ensure that investors
have clear access to data and facts. They should also
implement systems to independently verify and
safeguard the integrity of the company's financial
reporting.
 Independence of the entity's auditors: Identification,
assessment and mitigation of risks and retirement by
rotation over a fixed period of time.. 315
315
GOVERNANCE STRATEGIES

 Monitoring by the board of directors: The board of


directors, with its legal authority to hire, fire and
compensate top management, safeguards invested
capital. Regular board meetings allow potential problems
to be identified, discussed and resolved.
 Balance of power: The simplest balance of power is very
common; a person benefitting from a decision should
abstain from it.
 Remuneration: Performance-based remuneration is
designed to relate some proportion of salary to
individual performance. However, they should provide
no mechanism or scope for opportunistic behaviour. 316
GOVERNANCE & PERFORMANCE

 In its “Global Investor Opinion Survey” of over 200


institutional investors in 2002, McKinsey found that
80% of the respondents would pay a premium for
well-governed companies. They defined a well-
governed company as one that had mostly out-side
directors, who had no management ties, undertook
formal evaluation of its directors, and was responsive
to investors' requests for information on governance
issues. The size of the premium varied by market, from
10% for companies where the regulatory backdrop
was least certain (those in Morocco, Egypt and Russia)
to around 40% for Canadian & European companies. 317
SHAREHODER – STAKE HOLDER THEORY

 Till the early part of the 20th the basic objective of


modern organizations was to provide goods and
services for public consumption for profit maximisation.
 Over a period of time, the short-term view of profit
maximisation gave way to a more broader and
medium-term view wealth maximisation of the
shareholders.
 However, today economic institutions are considered as
a major drivers of improvement in quality of life in
general and therefore needs to include multiple
stakeholders. The basic premise is that firms cannot
exist in vacuum. Therefore, corporate philanthropy 318
should be a part of every corporate mission.
CORPORATE SOCIAL RESPONSIBILITY

 As Peter Drucker rightly pointed out that, “a healthy


business cannot exist in a sick and impoverished
society”. Therefore, giving a very important message
that one cannot exist without the other.
 Therefore, economic and social responsibilities cannot
be mutually exclusive; in fact a large part of it is
significantly overlapping.
 CSR can be defined as, “an enterprises decisions and
actions being taken for reasons at least partially
beyond its immediate economic interests”.
 However, the debate on CRS still continues whether
firms should detract its focus from its business? 319
GROWING CONCERN FOR CSR

 Awareness due to education: With growing literacy,


people are becoming increasingly aware of their right to
a decent and healthy life.
 The role of media: The media and various consumer
organizations have come up in protecting consumer
rights and exposing mal-practices.
 Fear of government interference: Excessive quench for
profits may lead to build up of adverse public opinion
compelling the government to intervene (Eg. MRTP).
 Public image: Entrepreneurs are increasingly relying on
public image as a source of competitive advantage and
a higher financial discounting. 320
CSR STRATEGIES

 Green Supply Chain Management: It includes


environmentally preferable purchasing, eco efficiency,
designing eco-friendly products, and extended
producer responsibility (Eg. Cement - Paper packaging,
Refrigerators – CFC, Exide – Product take back).
 Health & Hygiene – Attending the health hazards due
to wastes and by-products to employees and society in
proximity (Eg. Tata Steel – Life Line Express).
 Education, Literacy & Training Programs – (Eg. Aditya
Birla Research Centre – LBS).
321
BOTTOM OF THE PYRAMID

 With the market across most developed markets including


the US getting saturated, C. K. Prahalad notes that future
markets exist collectively, across the world's billions of
poor people having immense untapped buying power.
 They represent an enormous opportunity for companies
who learn how to serve them. In turn companies by
serving these markets, they're helping millions of the
world's poorest people to escape poverty.
 Strategic innovations leading to disruptive business
models can show the way out.

322
BLUE OCEAN
STRATEGY

323
MARKETSPACE - TWO WORLDS

324
WHAT IS RED OCEAN?

 Companies have long engaged in head-to-head


competition in search of sustained, profitable growth.
They have fought for profits, battled over market-share,
and struggled for differentiation (cost or product).
 Yet in today’s overcrowded industries, competing head
on results in nothing but a bloody red ocean of rivals
fighting over a shrinking profit pool.
 In today’s red oceans, where most industries are
saturated, one companies gain is always at the cost of
another companies loss.
 This paradigm has its origin in military strategy where it
follows that you have to beat an enemy to win.
325
WHAT IS BLUE OCEAN?

 Tomorrow’s leading companies will succeed not by


battling in red oceans, but by creating blue oceans of
uncontested market space ripe for growth .
 Such strategic moves are possible through the pursuit of
product differentiation and low cost simultaneously. It
helps in creating powerful leaps in value for both the
firm and its buyers, rendering rivals obsolete and
unleashing new demand.
 Blue Ocean’s have existed in the past; it will exist in the
future as well. It is only the frames of the top managers
that prevents it from seeing it.
Constant updating of SIC is an indication this regard.
326

RED OCEAN Vs BLUE OCEAN

Compete in existing markets Compete in uncontested markets

Beat the competition Make the competition irrelevant

Exploit existing demand Create and capture demand

Make the value-cost trade off Break the value-cost trade off

Demand is the limiting factor Supply is the limiting factor


327
BLUE OCEAN STRATEGY - IMPERATIVES

 Prospects in most established market spaces – red


oceans – are shrinking steadily.
 Population shrinkage across a no. of European nations.
 As trade barriers between nations & regions fall,
information imperfections atrophy instantly.
 Niche markets & monopoly havens are continuing to
disappear.
 Demand across developed markets reaching a plateau.
 Technological advances have substantially improved
industrial productivity.
 Accelerated product life-cycles and obsolescence.
328
 Commoditization of most product – market segments.
CONCEPTUAL UNDERPINNINGS

 Blue oceans have existed in the past and will exist in the
future as well.
 History indicates that blue oceans exist in three basic
industries – automobiles (how people get to work) –
computers (what people use at work) – entertainment
(what people do after work).
 They are not necessarily about technology; the
underlying technology was often already in existence.
 Incumbents often create blue oceans within the ambit of
their core business.
 Company & industry are the wrong units of strategic
analysis; managerial moves are.
 It creates entry barriers through first mover advantages.
329
BLUE OCEAN - IMPLEMENTATION

Reduce
Which factors
to be reduced
below the industry
standard

Eliminate Create
Which of the industry
factors that the industry VI Which factors should be
created that the
takes for granted industry has not
should be eliminated offered

Raise
Which of the factors
should be raised above
the industry’s standard 330
IMPLEMENTATION SEQUENCE

Buyer Utility (1) Price (2)

Is there exceptional buyer Is your price easily accessible to


utility in your business idea? the mass of buyers?

Blue Ocean Strategy

Adoption (4) Cost (3)


What are the adoption hurdles in
actualizing your business idea? Can you attain your cost target
Are you addressing them up front? to profit at your strategic price?
331
SOME GLARING EXAMPLES

 In the last century authors Kim and Mauborgne have


documented the creation of more than 150 blue ocean
creations across 30 industries –
 Virgin Atlantic: Fractional jet ownership or travel to
space.
 Sony Play Station: Redefining machine-human interface
in entertainment and targeting an altogether new user
base.
 Southwest Airlines: Pioneering the concept of LCC.
 Citibank – Automated teller machines & credit cards.
 Tata Nano: Manufacturing a full fledged passenger car 332
at a price of Rs. 1 lac.
WHAT THEN IS THE HANDICAP?

 Most of the traditional views in strategy having its origin


in (Economic Theory) led to what is called the –
structuralist paradigm.
 According to this view, companies & managers are largely
at the mercy of economic forces, greater than themselves.
 Off late emerging views in strategy having its origin in
(Organization Theory) led to a paradigm shift to what is
called the – reconstructionist view.
 According to this view managers need not be constrained
to act within the confines of their industry. All they need
to do is change their managerial frames.
333

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