Methods and Frameworks used for

Frameworks :
Organizational Appraisal

• Barney’s VRIO Framework

• VRINE Model

• Michael Porter’s Value Chain

• SWOT & TOWS framework

• IFE (EFE + CPM )

• Company’s Core Competency

• Blue Ocean Strategy

• Benchmarking

• Learning Organizations

• Leadership and Culture

 Adapting to Change

Organizations should continually monitor internal and

external events and trends so that timely changes can be
made as needed
 Industry Transformation

• Industries in transformation passing through 3 stages

• 3 basic forms of trigger :

1. Change in technology

2. change in what customers want or need

3. change in the regulation

 Strategy Formulation vs. Implementation

Strategy Formulation Strategy Implementation

1.Positioning forces before the 1.Managing forces during the
action action

2.Focus on effectiveness 2.Focus on efficiency

3.Primarily intellectual 3.Primarily operational

4.Requires good intuitive and 4.Requires special motivation and

analytical skills leadership skills

5.Requires coordination among a 5.Requires coordination among

few people many people
 Various levels of Strategy

1. Corporate level ( at overall organization level covering all lines of

business of the company as a whole- which business to hold,
which one to divest, where to enter – Diversification, acquisition,
JV, strategic alliance etc)

2. Business level ( at the level of each line of business )

3. Functional level ( eg: R&D, Sales & Marketing, Customer Service,

Finance )

4. Operational level ( eg: Plants, distribution centers, purchasing

centers, brand management, internet sales, quality control )
Corporate Strategy
 Corporate Strategy

Corporate Strategy ( at overall organization level covering all

lines of business of the company as a whole)
1. which business to hold,
2. which one to divest,
3. where to enter – Diversification, acquisition, JV, strategic
alliance etc
Corporate Strategy 1:
M&A
Corporate Strategy 2:
Diversification
Corporate Strategy 3:

Growth through
Integration
Corporate Strategy 4:
Growth by
Cooperation Strategy
Corporate Strategy 5:
Global / International
Entry Strategy
 Corporate Strategy 6:
Restructuring , Turn Around &
Change Management
 Corporate Strategy 7:
Doing well by Doing Good
Business Sustainability Management and
CSR for gaining “Competitive Advantage”
Business Level Strategy
 Business-Level Strategies

Who will be
served?

Key Issues
in What needs will
Business-level be satisfied?
Strategy

How will those

needs be satisfied?
Igor Ansoff’s Product-Market
Expansion Grid

PRODUCT/
Existing New
MARKET

Existing Market Product

Penetration Development

New Market Diversification

Development
 BCG Matrix
Hi Cash Source Lo
Hi
Hi STAR ???

“Hold” “Build”
Market Growth rate

Cash Use
Cash Cow DOGS

“Harvest” “Divest”

Lo Lo
Hi Lo
Relative Market Share
 Business Strategy: Portfolio Analysis

The GE Business Screen is an improvement over the BCG

Matrix:

1. ‘Industry attractiveness’ is assessed more completely (than

just ‘growth rate’ in BCG): Market growth rate, Industry
profitability, Size, Pricing practices, Possible Opportunities
(& Threats)

2. ‘Business Strength/Competitive Position’ is determined by:

Market Share, distribution strengths, engineering
capabilities and other factors giving competitive edge.

But suffers from lacking ‘hard’ measures – many judgemental

elements for assessing the major parameters.
 GE Model

• Market Attractiveness:

1. Overall Market size

2. Annual Market growth rate
3. Historical profit margin
4. Competitive intensity
5. Technological requirements
6. Energy requirements
7. Inflationary vulnerability
8. Social/ political / legal
 G E MODEL
Business Strength

1. Market share
2. Share growth
3. Product quality
4. Brand reputation
5. Distribution network
6. Promotional effectiveness
7. Productive capacity
8. Productive efficiency
9. Unit costs
10. R & D performance
11. Managerial personnel
 Business Strength M
GE MODEL
A
Protect Position Invest to build Build Selectively
R
Specialize around
limited strengths K
Invest to grow Challenge for Seeks ways to
E
Concentrate leadership overcome weakness
effort on Build selectively Withdraw if T
High indications of sustain
maintaining Reinforce growth is lacking A
strength vulnerable areas T
Build Selectively Selectivity/Manage for Limited Expansion or T
earnings
Invest heavily in most Protect existing program Harvest R
Medium attractive segments Concentrate investments in Look for ways to
A
Build up ability to counter segments where expand without high
competition profitability is good and risk ,Otherwise C
Emphasize profitability by risks are relatively low minimize investment
raising productivity T
and rationalize
operations I
Low Protect and Refocus Manage for earnings Divest V

Sell at time that will E

Manage for current Protect position in
earnings most profitable maximize value N
Concentrate on segments Cut fixed costs and
attractive segments Upgrade product line avoid investment E
Defend strengths Minimize investment meanwhile S
S
Strong Medium Weak
 PORTER’S Competitive strategy
Generic Competitive Strategies:

1. Cost strategy
• Design, produce, market more cost efficiently than
competitors

2. Differentiation strategy
• Unique and superior value in terms of product quality,
features, service .

3.Target Market- Broad vs Niche( Focused)

Markets where business compete vs sources of competitive

advantage
PORTER’S Competitive strategy -
5 Generic Competitive Strategies
 Corporate- Level Strategies
• Are basically about decisions related to

1. allocating resources among the different businesses of a firm

2. transferring resources from one set of businesses to others and

3. managing and nurturing a portfolio of businesses in such a way that

the overall corporate objectives are achieved.

• Eg:?

• 3 S Strategy by Chandra
• “Simplify, synergize and Scale” of TATA group by Tata Sons
 4 distinct facets of Corporate level strategy

1. Picking new industries to enter and deciding the mode of entry.

2. Pursuing opportunities to leverage cross business value chain

relationship and strategic fit into competitive advantage

Eg: capitalizing on cross business opportunities - transferring skills or

technology from one business to another, reducing costs via sharing
common facilities and resources ,utilizing company’s well known brand
names and distribution muscle, encouraging knowledge sharing and
collaborative activities among various businesses.

3. Establishing investment priorities and steering corporate resources into the

most attractive business units

4. Initiating actions to boost the combined performance of the corporation’s

collections of businesses.
 4 Grand Corporate Strategies
• 1) Stability Strategies
• a) No- change Strategy
• b) Pause/proceed with caution
• c) Profit Strategies

• 2) Expansion Strategies/ Growth Strategies

• a) Intensive
• b) Integrative
• c) Diversification
• d) Cooperation (M&A, JV/Strategic Alliances/Collaboration)
• e) Entering Global market

• 3) Retrenchment Strategies
• a) Turnaround
• b) Divestment
• c) Liquidation

• 4) Combination
 Mergers and Acquisitions

1. 3 types of deal structure

▪ Asset sale
▪ equity sale /stock sale and
▪ mergers

2. Reasons for M&A:

• Seller side :
❖ They are sick, business does not look good anymore/ business is
becoming harder and more competitive/ future looks bleak

• Buyer side :
❖ buy vs build, get into new space- new customer groups- new markets- new
user group, speed of entry

3. Role of Business brokers and investment bankers and corporate lawyers, tax
advisors, integration consultants
 MERGER VS. ACQUISITION
A B C
The
consolidation or
Merger
combination
of one firm with
another

A B A
The purchase of
one firm by
Acquisition
another so that
ownership
transfers
 THE ACQUISITION PROCESS
A process perspective

Results

Acquisition
integration
Justification
due diligence,
negotiation

Idea

Decision-making Integration process problems

process problems
Source: Adapted from P.C. Haspeslagh and D.B. Jemison, Managing Acquisitions: Creating Value Through Corporate
Renewal (New York Free Press, 1991), 42
 Types of Acquisitions

1. Horizontal acquisitions: other firms in the same industry

2. Vertical acquisitions: suppliers or distributors of the acquiring firm

AND

1. Related acquisitions: firms in related industries

2. Acquisitions in unrelated industries

.
 7 Reasons for Acquisitions

Increased
market power
Learning and
Overcoming
developing
entry barriers
new capabilities

Reshaping firm’s Making an Cost of new

Acquisition product
competitive scope
development

Increased Increase speed

diversification Lower risk than to market
developing new
products

.
 Attributes of Successful Acquisitions

Attributes
1. Acquired firm has assets or resources that are complementary to the acquiring firm’s core
business
2. Acquisition is friendly
3. Acquiring firm conducts effective due diligence to select target firms and evaluate the target
firm’s health (financial, cultural, and human resources)
4. Acquiring firm has financial slack (cash or a favorable debt position)
5. Merged firm maintains low to moderate debt position
6. Acquiring firm has sustained and consistent emphasis on R&D and innovation
7. Acquiring firm manages change well and is flexible and adaptable

• Results
1. High probability of synergy and competitive advantage by maintaining strengths
2. Faster and more effective integration and possibly lower premiums
3. Firms with strongest complementarities are acquired and overpayment is avoided
4. Financing (debt or equity) is easier and less costly to obtain
5. Lower financing cost, lower risk (e.g., of bankruptcy), and avoidance of trade-offs that are
associated with high debt
6. Maintain long-term competitive advantage in markets
7. Faster and more effective integration facilitates achievement of synergy
 7 Problems in Achieving Acquisition
Success
Integration
difficulties
Inadequate
Too large
target evaluation

Problems
Managers with
overly focused on Acquisitions Extraordinary debt
acquisitions

Too much Inability to

diversification achieve synergy

.
 M&A :Conclusion

1. Right Valuation

2. Right Team

3. Right Strategic Fit with your priorities

 Corporate Strategy - Diversification

– Concentric Diversification
– Growth into related industry
– Search for relatedness

– Conglomerate Diversification
– Growth into unrelated industry
– Concerns of financial considerations
Expansion through Integration Strategy
• A firm can expand its scope of operations along 2 dimensions namely vertical
integration and horizontal integration.

• Example of Vertical integration:

• M & M expanding vertically into financing business

• A firm can increase its horizontal scope in one of two ways:

1. By moving from an industry market segment into another, related segment

• e.g. Coke and Pepsi expanding into bottled water business.

2. By moving from one industry into another (unlike vertical-scope expansion, the
movement here is into other industries not in the firm’s existing value chain of
activities)

• e.g. When Pepsi expanded into snack foods, it was clearly moving into a business
with a lesser degree of relatedness. Although the distribution channels for both
businesses are similar the technology for producing their products are fundamentally
different.
 Expansion Through Integration
• Horizontal Integration : Integration at the same level of
business Or sister concerns of the same company
combined into one entity :

• Eg: Air India and Indian Airlines ?

 Cooperation Strategy

• Used to gain competitive advantage within an industry by working with other firms

• ‘Friendly competition’ can raise the industry standard and provide a barrier for entry

• Collusion: Active cooperation of firms to reduce output and raise prices

• Strategic Alliance: Partnership of two or more corporations or business units to

achieve strategically significant objectives that are mutually beneficial.
 Cooperative Tactics

Obtain technology

Access to markets

Strategic
Alliance Reduce financial risk

Reduce political risk

Achieve competitive
advantage
 Joint Venture Strategies
Two or more companies form a partnership for a specified purpose.

Conditions for JV

• When an activity is uneconomical for a company to do alone.

• When the distinctive competence of two or more organizations can be

brought together.

• When the risk of business has to be shared.

Types of JV

• Between two firms in one industry

• Between two firms across different industries

• Between an Indian firm and a foreign firm

 Deciding Whether To Go Abroad

High Wholly Owned

Low Subsidiary

Joint Venture
Extent of Investment Risk

Strategic Alliance

Franchising

Licensing

Exporting

Low High
Degree of Ownership and Control
 Deciding Whether To Go Abroad
• Factors drawing companies into the international arena:

– Global firms offering better products or lower prices can

attack the company’s domestic market.

– The company discovers that some foreign markets present

higher profit opportunities than the domestic market.

– The company needs a larger customer base to achieve

economies of scale.

– The company wants to reduce its dependence

on any one market.

– The company’s customers are going abroad

and need servicing.
 Deciding Whether To Go Abroad
• Before going abroad, the company must weigh several risk:

– The company might not understand foreign customer

preferences and fail to offer a competitively attractive
product.

– The company might not understand the foreign country’s

business culture or know how to deal effectively with foreign
nationals.

– The company might underestimate foreign regulations and

incur unexpected costs.

– The company might realize that it lacks managers with

international experience.

– The foreign country might change its commercial laws,

devalue its currency, or undergo a political revolution and
expropriate property.