Diversification

Cases of Wipro & Bajaj

Scope of presentation

Why diversification
When to Diversify
Selecting the industry:
Related Diversification Strategies
Unrelated Diversification Strategies
Case study-Wipro Ltd
Case Study-Bajaj ltd

Why diversification

Identify When and Make moves to enter new

businesses

Initiate actions to boost combined performance of

businesses
Find ways to capture synergy among related business
units
Establish investment priorities, steering resources into
most attractive business units

When to Diversify?

When it makes sense to diversify depends on

Growth potential in present business
Attractiveness of opportunities to
transfer existing competencies to
new businesses
Potential cost-saving opportunities to
be realized by entering related businesses
Availability of adequate financial and organizational
resources
Managerial expertise to cope with complexity of
operating a multi-business enterprise

What Is Related Diversification?

Involves diversifying into businesses whose value chains

possess competitively valuable strategic fits with the value
chain(s) of the present business(es)

Capturing the strategic fits makes related diversification better

phenomenon to increase shareholder value

Common Approaches to Related Diversification

Sharing of sales force, advertising, or

distribution activities
Exploiting closely related technologies
Transferring know-how and expertise
from one business to another
Transferring brand name and
reputation to a new product/service
Acquiring new businesses to uniquely
help firms position in existing
businesses

What Is Unrelated Diversification?

Involves diversifying into businesses with

No strategic fit

Approach is to venture into any business

in which we think we can make a profit

Firms pursuing unrelated diversification

are often referred to as conglomerates

Appeal of Unrelated Diversification

Business risk scattered over different industries

Capital resources can be directed to those

industries offering best profit prospects

Stability of profits -- Hard times in one industry

may be offset by good times in another industry

If bargain-priced firms with big profit potential are

bought, shareholder wealth can be enhanced

Diversification and Shareholder Value

RELATED DIVERSIFICATION

A strategy-driven approach to creating shareholder value

UNRELATED DIVERSIFICATION

A finance-driven approach to creating shareholder value

Case study
Wipro Ltd
(Unrelated Diversification)

Wipro Ltd
The Company was Incorporated on 29th December
1945, at Mumbai.
The Company Manufacture vegetable ghee, vanaspati,
refined oils including salad oil, soap, waxs and tin
containers for packing, crushing and oil milling trading in
oils and oilseeds and manufacture of fluid power
products.
The Products trade names were "Kisan", "Sunflower"
and "Camel

Wipro @ 1967

Azim premji took over the control of Wipro

70 million cooking and baking fats Company
Called Western India Vegetable product Limited
Wipro Fluid Power was Wipros first diversification in
1975, to address the hydraulic equipment requirements
of mobile original equipment manufacturers in India

A Product Comparison
Wipro in 1967

Cooking fat
Soap
Wax
Tin container for packing
Trading I n oil
Trading in oilseed

Wipro in 1994

Vanaspati
Toilet soaps
Toiletries
Hydraulic cylinders
Computer hardware
Computer software
Lightening
Financial servics
Medical systems
Diagnostic systems
Leather exports

Wipro @ 1994

Called WIPRO Limited

7.24 billion diversified Wipro Limited
One of the top 100 publicly held companies in India
Market leader in traditional cooking fats business,
No:2 in information technology and medical system
Over the preceding ten years,sales(Cagr rate
26%),PAT(cagr rate 25%)
All the companies under one name-WIPRO Ltd

Wipro consumer products( WIPRO LTD)

Government policy of 9% advantage to a a new entrant
in a 4%margin business
Tax evasion is rampant in the case of unorganized player
Decline in margin of vanaspati operation
Entered into toilet soap market through bubbleand
Wipro shikakai(1985)
Followed by santoor when Mysore Sales International
was facing a mgmt.trobule(1986)
Baby soft range(J &J competitors-highly priced)-1990
Santoor talcum powder and Wipro Baby Soft Talcum
Powder introduced(1993)

Wipro InfoTech(WIPRO LTD )

Absence of any computer industry(exit of IBM)in 1977

Develop its own minicomputers
Unveiled the Wipro Series 86 in 1981
Importing PC in knocked down form and marketing them under
Genius Range of PC(1982)
1988,alliance with Sun Microsystems,USA for manufacture and
marketing of Sun workstation
Tie up with Seiko-Epson of Japan for manufacture of dot matrix
printer(1993)
End of 1993, strategic alliance with apple to market Macintosh range
of computers
1994-tie up with Nokia for installation,service and maintenance of
cellular network

1945
Wipro incorporated

2002
Related diversification

1967
No diversification

1994
Unrelated diversification

External environment @1994

WIPRO Vs unorganized player in consumer product

Change in Govts economic policies &resulting large scale entry of
MNC
Intense competitive environment totally different from past
support needed for each of its business with financial and
managerial investment

A new approach for balanced future

Revising the company's basic management approach

Split into eight separate mini companies
each with its own separate equity
International tie-up in business where partner brought technology
Access to global market

Organisational structure(1994)
Azim premji
chairman

Group Companies

Wipro
Consumer prd.
1947

Wipro fluid
Power
1975

P.S.Pai
President

M.S.Rao
President

Wipro
Infotech
1981

Wipro
Systems
1983

Wipro
Biomed
1989

Ashok Soota
Ashok Soota
VInod Wahi
Vice Chairman Vice Chairman Chief Executive

wiproGE
1990
VIvek Paul
President

Wipro
Lightening
1991

Wipro
Financial
Services
1992

Varun Nijhawan S.R.Gopalan

president
Chief Executive

products

Edible oils
soaps,
toiletries

Hydraulic
systems

Comps,
Commu.
IT sol.

Software
Dev.&
services

Medical
Analytical
Instrument

GE
Medical
Systems

Lamps
&
Luminaries

Corporate
Financial
services

Balancing the portfolio

Each business define its key result objective
Right balance between financial joint venture and those
without financial partnership
Joint venture partner only when products where product
success dependent on technological edge
Related diversification rather than unrelated
diversification-homogeneous portfolio

Balancing the growth

Ten year vision-to be among the top ten industrial group in India
Related diversification
More importance on profit after tax and cash flow
Setting up high targets

Balancing management

Values are common though the eight companies are different

Greater integration between the companies
Independent operation except financial assistance
Balanced compensation of employees in different organisation

Wipro @2002

First software company to get SEI Level 5 & also implemented Six
Sigma TQM practices
Appointment of T K Kurien as President of Wipro Health Science
Sales gone up to 34,667 crore with a net profit of 8,661crore
ISO 9002 certification for Network Management, Service
Implementation and Customer Relationship Management
Wipro Ltd has acquired a 45 per cent stake in the Internet service
provider Wipro Net Ltd, from Dutch telecommunications operator
KPN Telecom at Rs 108.8 crore
Wipro Net has entering into a strategic tie up with the US-based
Speedera Networks Inc.

A Comparison
Wipro in 1967

Cooking fat
Soap
Wax
Tin container for
packing
Trading I n oil
Trading in
oilseed

Wipro in 1994

Vanaspati
Toilet soaps
Toiletries
Hydraulic cylinders
Computer hardware
Computer software
Lightening
Financial servics
Medical systems
Diagnostic systems
Leather exports

Wipro in 2002

Vanaspati
Toilet soaps
Toiletries
Hydraulic cylinders
Computer hardware
Computer software
Lightening
Financial servics
Medical systems
Diagnostic systems
Leather exports
Software Consulting
Business Process
outsourcing
Internet service provider
Healthserices
Enterprise Solution
Six Sigma Consulting

milestones
1980:

Diversification into Information Technology

1990:

Incorporation of Wipro-GE medical systems

1992:

Going global with global IT services division

1993:

Business innovation award for offshore development

1995:
Wipro gets ISO 9001 quality certification, re-certified twice for mature
processes
1997:

Wipro gets SEI CMM level 3 certification, enterprise wide processes defined

1998:

Wipro first software services company in the world to get SEI CMM

1999:

Wipro's market capitalization is the highest in India

2000:

Start of the Six Sigma initiative, defects prevention practices initiated at project level

2001:

First Indian company to achieve the "TL9000 certification" for industry

quality standards

2001:

World's first PCMM Level 5 company

2001:

Ranked 87 among 100 best performing technology companies globally (Business Week,
June 2001)

2002:

Worlds first CMMi ver 1.1 Level 5 company

2002:
100,

Ranked the 7th software services company in the world by Business Week (InfoTech
November 2002)

level 5

specific

Case study
Bajaj Group of Companies
(Unrelated Diversification)

Bajaj group of Companies

Bajaj Auto is the flagship of the Bajaj Group of
Companies. The Group comprises of 26 companies
and was founded in the year 1926. The important
listed companies in the group are:

Bajaj Auto Ltd.

2&3 wheelers

Maharashtra Scooters

2 wheelers

Bajaj Auto Finance Ltd.

Finance company

Mukand Ltd.

Steel

Bajaj Hindustan Ltd.

alcohol

Sugar, Industrial

Bajaj Electrical Ltd.

Magnetos, Lamps,

Policies

They approach their responsibilities with

ambition and resourcefulness.
They organizes themselves for a transparent
and harmonious flow of work.
They respect sound theory and encourage
creative experimentation.
And they make their workplace a source of
pride.

SWOT Analysis:
Strength:
Technical expertise, in collaboration with Kawasaki
Heavy Industries, Japan.
Self reliance
Worlds lowest cost manufactures in the market
Extensive service and dealer networks
Higher labour productivity and greater automation
Global-scale production
Lined up a range of 17 twowheelers covering the
entire spectrum from motorcycles to scooters to stepthrus & scooterettes

Weaknesses:
In the late seventies there was skid in production due
to intermittent labour problems.
Underutilization of capacity
Not considered living with times

Opportunities:
Launching of new products and variants of existing
models backed up by appropriate marketing efforts.
Fuel efficiency which is much higher than competitors
Virtual zero maintenance among the products
Bajaj plans to offer CNG models with euro-II
compliant
Focusing more on motorcycles to capture the urban
market.

Threats:
Hero Honda's switch start automatic transmission
100cc scooter
Competition from MNC's
Government regulations
Dealers not adjusted with changing realities
Change in tastes of consumers
Increase of secondary or resale market for twowheelers