11

BUS!NESS STRATECY BUS!NESS STRATECY
Course Code: 611 S 612 Course Code: 611 S 612
Dr. Subir Sen Dr. Subir Sen -- Faculty Nember, !BS Faculty Nember, !BS
E E··Nail: Nail: subir@ibsindia.org, 3830637368 subir@ibsindia.org, 3830637368
1) Crafting S Executing Strategy 1) Crafting S Executing Strategy -- Thompson S Strickland. Thompson S Strickland.
2) Strategic Nanagement 2) Strategic Nanagement -- Pearce S Robinson. Pearce S Robinson.
3) Strategic Nanagement 3) Strategic Nanagement -- Fred. R. David. Fred. R. David.
4) Exploring Corporate Strategy 4) Exploring Corporate Strategy -- ]ohnson S Scholes. ]ohnson S Scholes.
S) Competitive Advantage S) Competitive Advantage -- Nichael E. Porter. Nichael E. Porter.
6) HBR 6) HBR -- Articles. Articles.
7) HBR S !CNR 7) HBR S !CNR ·· Case Studies. Case Studies.
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!NTRODUCT!ON !NTRODUCT!ON
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STRATECY STRATECY · · DEF!N!T!ON DEF!N!T!ON
Strategy Strategy is all about making trade is all about making trade··offs between offs between what to what to
do do and more importantly and more importantly what not to do what not to do, consciously , consciously
choosing to choosing to differentiate differentiate. !t reflects a congruence . !t reflects a congruence
between external opportunities and internal capabilities. between external opportunities and internal capabilities.
Types of strategies Types of strategies --
Corporate Strategies Corporate Strategies -- !t is all about making choices !t is all about making choices
across various businesses and allocating resources across various businesses and allocating resources
among them. among them.
Business Strategies Business Strategies -- !t is all about developing and !t is all about developing and
leveraging competitive advantage. leveraging competitive advantage.
Functional Strategies Functional Strategies -- !t is all about finding newer !t is all about finding newer
ways to perform existing processes, or better still ways to perform existing processes, or better still
adopting new processes altogether. adopting new processes altogether.
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STRATEC!C NANACENENT STRATEC!C NANACENENT · · DEF!N!T!ON DEF!N!T!ON
Strategic management Strategic management attempts to attempts to integrate integrate the the
traditional management functions and traditional management functions and align align the the
organization as a whole with the broader environment to organization as a whole with the broader environment to
make resource allocations in a way to achieve the make resource allocations in a way to achieve the
strategic intent strategic intent of the organization. of the organization.
This alignment is called This alignment is called strategic fit strategic fit. .
!t serves as a !t serves as a road road··map map for the organization in its for the organization in its
growth trajectory. !t provides the growth trajectory. !t provides the direction direction -- extent extent --
pace pace -- timing timing. .
!t depends on the !t depends on the turbulence turbulence of the environment and the of the environment and the
aggressiveness aggressiveness of the organization. of the organization.
!t distinguishes the !t distinguishes the winners winners from the from the losers losers. .
#!LLARS OF STRATEC!C NANACENENT #!LLARS OF STRATEC!C NANACENENT
Differentiation Differentiation -- Differentiation of key inputs and Differentiation of key inputs and
technologies helps a firm to consciously move away from technologies helps a firm to consciously move away from
homogeneous to heterogeneous markets enabling them homogeneous to heterogeneous markets enabling them
to earn super to earn super··normal profits from normal profits. normal profits from normal profits.
!ntegration !ntegration -- Whenever dealing with a complex task of Whenever dealing with a complex task of
managing a business (i.e. involving a no. of variables managing a business (i.e. involving a no. of variables
with cross linkages) it is in the interest of simplicity that with cross linkages) it is in the interest of simplicity that
the task be broken up in smaller components. However, the task be broken up in smaller components. However,
for effective control, integration is essential. for effective control, integration is essential.
Alignment Alignment -- Since differentiation is prone to replication, Since differentiation is prone to replication,
it is in the interest of the firm to differentiate it is in the interest of the firm to differentiate
continuously by aligning the resources with continuously by aligning the resources with
environmental opportunities. environmental opportunities.
SS
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Fit
Fit
STRATEC!C NANACENENT STRATEC!C NANACENENT · · FRANEWORK FRANEWORK
Fit
Political
Political
Strategic !ntent
Strategic
Nanagement
Finance
Narketing
Economical
Social S Cultural
Fit
Fit
Fit
Fit
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STRATEC!C NANACENENT STRATEC!C NANACENENT · · FEATURES FEATURES
!t forms the core activity of the top management. !t forms the core activity of the top management.
!t requires full commitment of the top management. !t requires full commitment of the top management.
!t is long !t is long··term in nature. term in nature.
!t is all about creativity and innovation. !t is all about creativity and innovation.
!t is about adaptation and response to the same. !t is about adaptation and response to the same.
!t involves substantial resource outlay. !t involves substantial resource outlay.
!t is irreversible. !t is irreversible.
!t is a holistic and integrated approach. !t is a holistic and integrated approach.
!t provides broad guidelines. !t provides broad guidelines.
!t is a top to bottom process. !t is a top to bottom process.
!t can make or destroy a company. !t can make or destroy a company.
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STRATEC!C NANACENENT STRATEC!C NANACENENT -- NYTHS NYTHS
!t involves short !t involves short··cuts. cuts.
!t is about forecasting. !t is about forecasting.
!t is about a definite formula. !t is about a definite formula.
!t attempts to minimize risk. !t attempts to minimize risk.
!t brings instant success. !t brings instant success.
!t about mere data and facts. !t about mere data and facts.
!t involves nitty !t involves nitty··gritty's. gritty's.
!t a bundle of !t a bundle of techniques techniques or even or even tricks tricks. .
!t involves only the top management. !t involves only the top management.
!t is fool !t is fool··proof in nature. proof in nature.
!t is rocket science. !t is rocket science.
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STRATEC!C NANACENENT STRATEC!C NANACENENT · · !N#ERAT!vES !N#ERAT!vES
To be continuously alert. To be continuously alert.
To assimilate change faster. To assimilate change faster.
To be future oriented. To be future oriented.
To tap markets across boundaries. To tap markets across boundaries.
To be insulated against environmental threats. To be insulated against environmental threats.
To leverage size, scale and scope. To leverage size, scale and scope.
To generate large resource pool. To generate large resource pool.
To gain expertise in technologies. To gain expertise in technologies.
To innovate, again and again ... To innovate, again and again ...
To be proactive, rather than reactive. To be proactive, rather than reactive.
To develop core To develop core--competencies. competencies.
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STRATECY STRATECY · · OR!C!N OR!C!N
The word The word strategy strategy has its origin from the Creek word has its origin from the Creek word
strategia strategia meaning Nilitary Commander. !n the ancient meaning Nilitary Commander. !n the ancient
days battles were fought over days battles were fought over land land. !n contrast, today's . !n contrast, today's
battles are fought over battles are fought over markets markets. .
!n the ancient days battles were won not by virtue of !n the ancient days battles were won not by virtue of
size of the army or armory, but by virtue of their size of the army or armory, but by virtue of their
courage, obsession, and more importantly courage, obsession, and more importantly ·· strategies. strategies.
Even in today's markets, battles fought on the market Even in today's markets, battles fought on the market
front are won by companies by virtue of their obsession front are won by companies by virtue of their obsession
S strategies, whose origin can be traced to some of the S strategies, whose origin can be traced to some of the
greatest battles fought in the ancient days. greatest battles fought in the ancient days.
!t is an old wine in a new bottle, but with a lot a rigour !t is an old wine in a new bottle, but with a lot a rigour
and robustness. and robustness.
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SONE #ARALLELS SONE #ARALLELS
]apan's attack on Pearl Harbour ]apan's attack on Pearl Harbour
-- Strategy: Attack where it hurts the most. Strategy: Attack where it hurts the most.
-- Toyota's entry in the US, challenging CN and Ford. Toyota's entry in the US, challenging CN and Ford.
US attack of Norocco to capture Cermany US attack of Norocco to capture Cermany
-- Strategy: Pin Strategy: Pin··hole strategy hole strategy
-- Wal Wal··Nart challenging Sears by entering small towns. Nart challenging Sears by entering small towns.
Allied Forces vs Cermany (WW Allied Forces vs Cermany (WW··!!) !!)
-- Strategy: Forging alliances. Strategy: Forging alliances.
-- Yahoo and Nicrosoft challenging Coogle. Yahoo and Nicrosoft challenging Coogle.
Napoleon's attack on Russia Napoleon's attack on Russia
-- Strategy: Waiting for the right time. Strategy: Waiting for the right time.
-- Reliance's entry into telecom. Reliance's entry into telecom.
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EvOLUT!ON OF NANACENENT EvOLUT!ON OF NANACENENT
As Peter Drucker refers to it, a As Peter Drucker refers to it, a radical change radical change in the in the
business environment brings about business environment brings about discontinuity discontinuity. The . The
things happening around the firm when totally things happening around the firm when totally
disconnected from the past leads to a disconnected from the past leads to a paradigm shift paradigm shift. .
A paradigm is a dominant belief about how the A paradigm is a dominant belief about how the
business and its environment operates. business and its environment operates.
The first major discontinuity in the history of global The first major discontinuity in the history of global
business environment was the business environment was the ·· !ndustrial Revolution !ndustrial Revolution. .
-- Nass Production Nass Production
-- Complicated Processes Complicated Processes Organization Size
-- Complex Structures Complex Structures
Evolving of an emerging paradigm Evolving of an emerging paradigm -- survival of the survival of the
fittest fittest (Fayol S Taylor, 1310). (Fayol S Taylor, 1310).
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EvOLUT!ON OF STRATEC!C NANACENENT EvOLUT!ON OF STRATEC!C NANACENENT
The second major discontinuity in the history of global The second major discontinuity in the history of global
economic environment economic environment -- World War !! World War !!. .
-- Clobal market place. Clobal market place.
-- Affluence of the new customer (i.e. push to pull). Affluence of the new customer (i.e. push to pull).
-- Changes in the technology fore Changes in the technology fore··front. front.
-- Homogeneous to heterogeneous products. Homogeneous to heterogeneous products.
From uniform performance, performance across firms From uniform performance, performance across firms
became differentiated. The question of became differentiated. The question of outperforming outperforming
the benchmark the benchmark became the new buzzword. became the new buzzword.
Survival of the most adaptable Survival of the most adaptable becomes a new becomes a new
management paradigm (Ansoff, 1360). Efficiency and management paradigm (Ansoff, 1360). Efficiency and
effectiveness are no longer sufficient. effectiveness are no longer sufficient.
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ENv!RONNENTAL CHANCE ENv!RONNENTAL CHANCE
Phase !: Extrapolation of the past
Phase !!: Discrete Scenarios Phase !!!: Range of Scenarios
Phase !v: Horizon of Scenarios
1
2
1B
1A
2A
2B
1
3
2 1
Prior to 13S0
13S0 to 1370
1370 to 1330
1330 onwards
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1S 1S
A##ROACHES TO STRATECY A##ROACHES TO STRATECY
Analytical Approach Analytical Approach -- !gor H. Ansoff (1360) !gor H. Ansoff (1360)
-- Strategy can be segregated into certain mutually Strategy can be segregated into certain mutually
exclusive and inter exclusive and inter··related components aimed at related components aimed at
managing the growth of an organization. managing the growth of an organization.
-- The choice of strategy is primarily concerned with The choice of strategy is primarily concerned with
external ones rather than internal ones. external ones rather than internal ones.
-- The choice of product The choice of product··market mix is based on market mix is based on
conscious evaluation of risk conscious evaluation of risk -- return factors. return factors.
-- Biases and prejudices has a very little role to play in Biases and prejudices has a very little role to play in
strategic choices pursued by managers. Learning strategic choices pursued by managers. Learning
always begin on a clean sheet of paper. always begin on a clean sheet of paper.
-- !t is primarily the top management's prerogative. !t is primarily the top management's prerogative.
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A##ROACHES TO STRATECY A##ROACHES TO STRATECY
Design Approach Design Approach -- Alfred Chandler (1370) Alfred Chandler (1370)
-- Structure follows strategy. The organization initially Structure follows strategy. The organization initially
decides which industry to enter, how it will compete, decides which industry to enter, how it will compete,
who will be the top managers. who will be the top managers.
-- The top managers then decide on the type of The top managers then decide on the type of
organization structure S systems to be in place. organization structure S systems to be in place.
-- Organization structure will precede and cause Organization structure will precede and cause
changes in strategy. Successful organizations align changes in strategy. Successful organizations align
authority and responsibility of various departments in authority and responsibility of various departments in
way to reach overall objectives. way to reach overall objectives.
-- Nanagement control systems has a dominating role Nanagement control systems has a dominating role
in influencing firm performance. Once the control in influencing firm performance. Once the control
systems are in place, everything else follows. systems are in place, everything else follows.
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A##ROACHES TO STRATECY A##ROACHES TO STRATECY
Positioning Approach Positioning Approach -- Nichael E. Porter (1380) Nichael E. Porter (1380)
-- Choose a consumer segment and position your Choose a consumer segment and position your
product accordingly. product accordingly.
-- A firms performance is inversely related with the A firms performance is inversely related with the
bargaining power of environmental forces to which it bargaining power of environmental forces to which it
is exposed. is exposed.
-- The environmental forces comprises of The environmental forces comprises of -- supplier, supplier,
customer, new entrant, substitutes, competitors. customer, new entrant, substitutes, competitors.
-- The organization will outperform the industry where The organization will outperform the industry where
environmental forces are weak and vice environmental forces are weak and vice··versa. versa.
-- An organization is seldom in a position to influence An organization is seldom in a position to influence
the larger business environment. the larger business environment.
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A##ROACHES TO STRATECY A##ROACHES TO STRATECY
Core Competence Core Competence -- C. K. Prahalad (1330) C. K. Prahalad (1330)
-- The key to superior performance is not doing the The key to superior performance is not doing the
same as other organizations, locating in most same as other organizations, locating in most
attractive industries and pursuing the same strategy, attractive industries and pursuing the same strategy,
but exploiting the resource differences among them. but exploiting the resource differences among them.
-- Core competencies are a set of skills that are unique Core competencies are a set of skills that are unique
and can be leveraged. They are complex resources and can be leveraged. They are complex resources
and undermines a firms competitive advantage. and undermines a firms competitive advantage.
-- !t enables a firm to deliver unimaginable value ahead !t enables a firm to deliver unimaginable value ahead
of time. of time.
-- Organizations can significantly alter the way an Organizations can significantly alter the way an
industry functions. industry functions.
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STRATEC!C NANACENENT STRATEC!C NANACENENT · · #ROCESS #ROCESS
Strategic !ntent Strategic !ntent
Strategic Planning Strategic Planning
-- Environmental Scanning Environmental Scanning
-- !nternal Appraisal of the Firm !nternal Appraisal of the Firm
Strategy Formulation Strategy Formulation
-- Corporate Strategy Corporate Strategy
-- Business Strategy Business Strategy
-- Functional Strategy Functional Strategy
Strategy !mplementation Strategy !mplementation
Strategy Performance Strategy Performance
Strategy Evaluation S Control Strategy Evaluation S Control
Strategic Cap
Strategic Choices
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TOP NANACENENT PERSPECT!vE TOP NANACENENT PERSPECT!vE
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STRATEC!C !NTENT STRATEC!C !NTENT
!f you cannot see the future, you cannot reach there. !f you cannot see the future, you cannot reach there.
A strategic intent is a statement of purpose of A strategic intent is a statement of purpose of
existence. !t involves an obsession to be the best or existence. !t involves an obsession to be the best or
outperform the best. !t is the cornerstone of an outperform the best. !t is the cornerstone of an
organizations strategic architecture reflecting its organizations strategic architecture reflecting its
desired future state or its aspirations. desired future state or its aspirations.
!t provides a sense of direction and destiny. !t provides a sense of direction and destiny.
!t's a philosophy that distinguishes it from its !t's a philosophy that distinguishes it from its
competitors. competitors.
!t implies a significant stretch. A substantial gap !t implies a significant stretch. A substantial gap
between its resources and aspirations. A gap that between its resources and aspirations. A gap that
consciously manages between stagnation and atrophy. consciously manages between stagnation and atrophy.
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Dominant
STRATEC!C !NTENT STRATEC!C !NTENT · · H!ERARCHY H!ERARCHY
vision
Nission
Objectives
Coals
Plans
!ntegrative
Specific
Single
Nany
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DON!NANT LOC!C DON!NANT LOC!C
A dominant logic can be defined as the way in which A dominant logic can be defined as the way in which
the top management team the top management team conceptualizes its various conceptualizes its various
businesses businesses and make and make critical resource allocation critical resource allocation
decisions. decisions.
To put it more simply, it can be perceived as a set of To put it more simply, it can be perceived as a set of
working rules working rules (similar to thumb rules) (similar to thumb rules) that enables the that enables the
top management to decide top management to decide what can be done what can be done and more and more
importantly importantly what cannot be done what cannot be done. .
!t is !t is core core to the strategic intent of the firm. to the strategic intent of the firm.
Dominant logic changes, when radical changes in the Dominant logic changes, when radical changes in the
internal and external environment internal and external environment (i.e. strategic (i.e. strategic
variety) variety) is apparent. is apparent.
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v!S!ON v!S!ON
!t is a dream !t is a dream (not a forecast) (not a forecast) about what the company about what the company
wants to become in the foreseeable future. wants to become in the foreseeable future. !t provides !t provides
an unity of purpose amidst diversity of personal goals. an unity of purpose amidst diversity of personal goals.
!t ensures that the company does not wander off into !t ensures that the company does not wander off into
unrelated zones unrelated zones or fall into an or fall into an activity trap activity trap. !t enables . !t enables
the top management to remain focused. the top management to remain focused.
!t is a combination of three basic elements !t is a combination of three basic elements --
-- An organizations fundamental reason for existence, An organizations fundamental reason for existence,
beyond just making money. beyond just making money.
-- !t stands for the unchanging core values of the !t stands for the unchanging core values of the
company. company.
-- !t represents the company's audacious, but !t represents the company's audacious, but
achievable aspirations. achievable aspirations.
2S 2S
v!S!ON v!S!ON · · CHARACTER!ST!CS CHARACTER!ST!CS
Reliance Reliance -- Where growth is a way of life. !n Reliance Where growth is a way of life. !n Reliance
when a new project becomes operational top managers when a new project becomes operational top managers
hand over charge to the SBU heads and move on to a hand over charge to the SBU heads and move on to a
new project. new project.
Clarity Clarity -- vividly descriptive image of what the company vividly descriptive image of what the company
wants to be known for in the future. wants to be known for in the future.
Reachable Reachable -- !t should be within a reasonable target in !t should be within a reasonable target in
the known future, not an utopian dream. the known future, not an utopian dream.
Brevity Brevity -- !t should be short, clear, and memorizable. !t should be short, clear, and memorizable.
Empathy Empathy -- !t should reflect the company's beliefs to !t should reflect the company's beliefs to
which it is sensitive. which it is sensitive.
Sharing Sharing -- The company across all hierarchies should The company across all hierarchies should
have faith in it. have faith in it.
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v!S!ON v!S!ON · · ADvANTACES ADvANTACES
To stay focused on the right track. To stay focused on the right track.
To prevent the fall in a activity trap. To prevent the fall in a activity trap.
!t gives enlightment. !t gives enlightment.
!t gives the impression of a forward !t gives the impression of a forward··looking looking
organisation. organisation.
!t provides a holistic picture. !t provides a holistic picture.
!t gives a shared platform. !t gives a shared platform.
!t fosters risk taking and experimentation. !t fosters risk taking and experimentation.
!t lends integrity and genuineness. !t lends integrity and genuineness.
!t makes strategic alignment easier. !t makes strategic alignment easier.
!t facilitates development of skills S capabilities. !t facilitates development of skills S capabilities.
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N!SS!ON N!SS!ON
Nission defines the space that a business wants to Nission defines the space that a business wants to
create for itself in a competitive terrain. !t enables the create for itself in a competitive terrain. !t enables the
firm to define its business landscape and identify its firm to define its business landscape and identify its
competitive forces. competitive forces.
!t is intuitive for managers to conceive their business in !t is intuitive for managers to conceive their business in
terms of the customer needs they are serving terms of the customer needs they are serving ··
-- What business are we in? What business are we in?
-- Which customer needs are we serving? Which customer needs are we serving?
!t should be !t should be broad based broad based and and relevant relevant to all stake to all stake··
holders. Although the purpose may change over time. A holders. Although the purpose may change over time. A
broad mission statement helps in fending competitors. broad mission statement helps in fending competitors.
!t serves as a road map to reach the vision, its reason !t serves as a road map to reach the vision, its reason
for existence. for existence.
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N!SS!ON N!SS!ON -- SONE !DEAS SONE !DEAS
Reliance Reliance -- We are in the business of integration. All We are in the business of integration. All
the businesses of the company are strongly integrated the businesses of the company are strongly integrated
with their main business, though some may seem with their main business, though some may seem
unrelated in nature. unrelated in nature. Some other examples Some other examples ··
-- We do not offer shoes, We do not offer shoes,
........ We offer comfort. ........ We offer comfort.
-- We do not offer steel, We do not offer steel,
........ We offer strength. ........ We offer strength.
-- We do not offer software's, We do not offer software's,
........ We offer solutions. ........ We offer solutions.
-- We do not offer insurance, We do not offer insurance,
........ We offer security. ........ We offer security.
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COALS S OB]ECT!vES COALS S OB]ECT!vES
Reliance Reliance -- We want to become a Rs.100K crore We want to become a Rs.100K crore
company by the year 200S. company by the year 200S. !t is an end result !t is an end result
(quantifiable) something a firm aims and tries to reach (quantifiable) something a firm aims and tries to reach
in a time bound frame. !t provides a quantitative feel to in a time bound frame. !t provides a quantitative feel to
an abstract proposition. an abstract proposition.
-- !t lends direction !t lends direction -- time frame in the medium term. time frame in the medium term.
-- !t provides a benchmark for evaluation. !t provides a benchmark for evaluation.
-- !t helps identifying key success factors. !t helps identifying key success factors.
-- !t is based on Nanagement by Objectives (NBO). !t is based on Nanagement by Objectives (NBO).
-- !t adds legitimacy and motivation. !t adds legitimacy and motivation.
-- !t keeps the mid management pre !t keeps the mid management pre··occupied. occupied.
-- !t prevents deviation. !t prevents deviation.
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#LANS #LANS
Reliance Reliance -- Desire to invest 2SK crore in telecom Desire to invest 2SK crore in telecom
business by circa 2010. business by circa 2010. !t is the process of garnering !t is the process of garnering
necessary inputs, coordinating appropriate necessary inputs, coordinating appropriate
technologies, and gaining access to desired markets technologies, and gaining access to desired markets
to achieve the desired goals and objectives. !t is to achieve the desired goals and objectives. !t is
specific to a particular business. The details of the specific to a particular business. The details of the
plan Reliance Telecom adopted were plan Reliance Telecom adopted were ··
-- Backward integrate process technologies. Backward integrate process technologies.
-- Compress project times. Compress project times.
-- Leverage economies of size and scale. Leverage economies of size and scale.
-- Use price Use price··elasticity to break market barriers. elasticity to break market barriers.
-- Acquire a market share of indomitable position. Acquire a market share of indomitable position.
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STRATEC!C DR!FT STRATEC!C DR!FT
Due to top management commitment, past strategies Due to top management commitment, past strategies
tend to have a bearing on future strategies. Historical tend to have a bearing on future strategies. Historical
studies have shown that most organizations tend to studies have shown that most organizations tend to
continue with their existing strategies. continue with their existing strategies. This tendency This tendency
to restore continuity is known as inertia (resistance to to restore continuity is known as inertia (resistance to
change). change).
When changes in the environment is When changes in the environment is incremental incremental, ,
equilibrium is maintained. However, equilibrium is maintained. However, radical radical change change
may lead to disequilibrium. may lead to disequilibrium. This state of affairs is This state of affairs is
known as strategic drift. !t often leads to an known as strategic drift. !t often leads to an
organizational crisis. organizational crisis.
!n such a context, strategies lose touch with the !n such a context, strategies lose touch with the
emerging realities. emerging realities.
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STRATEC!C DR!FT FRANEWORK STRATEC!C DR!FT FRANEWORK
D
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Time
Continuity
!ncremental Change
State of Flux
Radical Change
Stage of Atrophy
Environmental Change
Strategic Change
Strategic Drift
Stage of Transformation
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ORCAN!ZAT!ONAL #OL!T!CS ORCAN!ZAT!ONAL #OL!T!CS
Strategic drift often leads to organizational politics. Strategic drift often leads to organizational politics.
Organizational politics involves intentional acts of Organizational politics involves intentional acts of
influence to enhance or protect the self influence to enhance or protect the self··interest of interest of
individuals or groups over organizational goals individuals or groups over organizational goals. . Some Some
instances of organizational politics instances of organizational politics ··
-- Formation of powerful groups or coteries. Formation of powerful groups or coteries.
-- Creating obligations of reciprocity. Creating obligations of reciprocity.
-- Hiding vulnerability. Hiding vulnerability.
-- Using covert tactics to pursue self interests. Using covert tactics to pursue self interests.
-- Creating a favourable image. Creating a favourable image.
-- Developing a platform of support. Developing a platform of support.
-- Distorting information to gain mileage. Distorting information to gain mileage.
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!NTENDED S REAL!SED STRATEC!ES !NTENDED S REAL!SED STRATEC!ES
An intended strategy is an expression of interest of a An intended strategy is an expression of interest of a
desired strategic direction. A realized strategy is what desired strategic direction. A realized strategy is what
the top management actually translates into practice. the top management actually translates into practice.
Usually there is wide gap between the two when Usually there is wide gap between the two when
organizational politics is evident. Other causes organizational politics is evident. Other causes --
-- The plans are unworkable and utopian. The plans are unworkable and utopian.
-- The environment context has changed. The environment context has changed.
-- !nfluential stake !nfluential stake··holders back out. holders back out.
-- Persons responsible for strategy conceptualization Persons responsible for strategy conceptualization
and implementation are divergent. and implementation are divergent.
An An emergent strategy emergent strategy evolves over time and takes evolves over time and takes
shape with the changing environment. A lot of inter shape with the changing environment. A lot of inter··
active learning takes place when strategies emerge. active learning takes place when strategies emerge.
3S 3S
LOC!CAL !NCRENENTAL!SN LOC!CAL !NCRENENTAL!SN
According to the According to the incrementalism approach incrementalism approach (contrary to (contrary to
integrated approach integrated approach) practitioners simply do not arrive ) practitioners simply do not arrive
at goals and announce them in crafted and well at goals and announce them in crafted and well
defined packages. They simply unfold the particulars defined packages. They simply unfold the particulars
of the of the sub sub··system in stages system in stages, , but the master scheme of but the master scheme of
the rational comprehensive scheme is not apparent the rational comprehensive scheme is not apparent. .
However, this is not to be treated as However, this is not to be treated as ¨muddling" ¨muddling", but , but
as a defensible response to the complexities of a large as a defensible response to the complexities of a large
organization that organization that mitigate against publicizing goals mitigate against publicizing goals. .
Strategy formulation and implementation are linked Strategy formulation and implementation are linked
together in a continuous improvement cycle. Learning together in a continuous improvement cycle. Learning
is an integral part of logical incrementalism. is an integral part of logical incrementalism.
36 36
!N#LENENT!NC !NCRENENTAL!SN !N#LENENT!NC !NCRENENTAL!SN
Ceneral Concern Ceneral Concern -- A vaguely felt awareness of an A vaguely felt awareness of an
issue or opportunity issue or opportunity. .
Nacro Broadcasting Nacro Broadcasting -- The broad idea is floated The broad idea is floated
without details to invite pros and cons leading to finer without details to invite pros and cons leading to finer
refinements refinements. .
Agent of Change Agent of Change -- Formal ratification of a change plan Formal ratification of a change plan
through NBO through NBO. .
Leveraging Crisis Leveraging Crisis -- A sudden crisis or an opportunity A sudden crisis or an opportunity
should be used as a trigger to facilitate acceptance should be used as a trigger to facilitate acceptance
and implementation of change. The broader objective and implementation of change. The broader objective
should serve the overall interest of the organization. should serve the overall interest of the organization.
Adaptation Adaptation -- As implementation progresses As implementation progresses. .
37 37 37 37
STRATEC!C TRANSFORNAT!ON STRATEC!C TRANSFORNAT!ON
Strategic transformation (a complete overhauling of Strategic transformation (a complete overhauling of
the strategic architecture) becomes inevitable the strategic architecture) becomes inevitable
whenever a strategic drift takes place. Tampering with whenever a strategic drift takes place. Tampering with
surface level factors often leads to atrophy. surface level factors often leads to atrophy.
Dominant logic's are the cornerstones of change when Dominant logic's are the cornerstones of change when
strategic transformation is apparent. strategic transformation is apparent.
Dominant logic's are very rigid and sticky and prone to Dominant logic's are very rigid and sticky and prone to
inertia. !t creates blinders. inertia. !t creates blinders.
Strategic transformation becomes smooth through a Strategic transformation becomes smooth through a
change in top leadership. As it brings with it a change in top leadership. As it brings with it a
different dominant logic. different dominant logic.
A new mindset provides additional lenses for the top A new mindset provides additional lenses for the top
managers look at existing problems. managers look at existing problems.
38 38
LEARN!NC ORCAN!ZAT!ON LEARN!NC ORCAN!ZAT!ON
A learning organization is capable of continual A learning organization is capable of continual
regeneration from knowledge, experience, and skills that regeneration from knowledge, experience, and skills that
fosters experimentation and questioning and challenge fosters experimentation and questioning and challenge
around a shared purpose. !t helps prevent a strategic around a shared purpose. !t helps prevent a strategic
drift from occurring at the first place. A learning drift from occurring at the first place. A learning
organization must continuously focus on unlearning as organization must continuously focus on unlearning as
well. well. Factors that fosters a learning organization Factors that fosters a learning organization ··
-- Pluralistic Pluralistic -- An environment where different and even An environment where different and even
conflicting ideas are welcome. conflicting ideas are welcome.
-- Experimentation Experimentation -- Fosters a culture of risk taking. Fosters a culture of risk taking.
-- !nformal Networks !nformal Networks -- Emerging of new ideas. Emerging of new ideas.
-- Constructive Bargaining Constructive Bargaining -- Agree to disagree. Agree to disagree.
-- Organisational Slack Organisational Slack -- Enough free space. Enough free space.
33 33 33 33 33 33
ENv!RONNENTAL COND!T!ONS ENv!RONNENTAL COND!T!ONS
Simple Complex
S
t
a
t
i
c
D
y
n
a
m
i
c
Forecasting
Scenario
Planning
Decentralization
Learning
Organization
40 40
ANALYZ!NC ANALYZ!NC
BUS!NESS ENv!RONNENT BUS!NESS ENv!RONNENT
41 41
#LANN!NC S STRATEC!C #LANN!NC #LANN!NC S STRATEC!C #LANN!NC
Formal planning is a function of extrapolating the past. Formal planning is a function of extrapolating the past.
!t is based on the assumption of incremental change. !t is based on the assumption of incremental change.
!t is reactive in nature. !t is reactive in nature.
Strategic planning is a function of discounting the Strategic planning is a function of discounting the
future. !t is based on the assumption of radical future. !t is based on the assumption of radical
change. !t is pro change. !t is pro··active in nature. active in nature.
Strategic gap basically points towards a vacuum of Strategic gap basically points towards a vacuum of
where the organisation wants to be and where it is. !t where the organisation wants to be and where it is. !t
requires a quantum leap requires a quantum leap (i.e. gap analysis) (i.e. gap analysis). .
Competitive advantage provides the surest way to Competitive advantage provides the surest way to
fulfill the strategic gap. !t points to a position of fulfill the strategic gap. !t points to a position of
superiority with relation to competition. superiority with relation to competition.
42 42
ENv!RONNENTAL SCANN!NC ENv!RONNENTAL SCANN!NC
The environment is defined as the aggregate of The environment is defined as the aggregate of
conditions, events, and influences that affect an conditions, events, and influences that affect an
organizations way of doing things. organizations way of doing things.
Environmental scanning is very important component Environmental scanning is very important component
of strategic planning. A manager has to continuously of strategic planning. A manager has to continuously
scan the environment to ensure alignment of the scan the environment to ensure alignment of the
strategies with the radically changing environment strategies with the radically changing environment. .
Environmental factors can be external as well as Environmental factors can be external as well as
internal to the organization. !t is exploratory in nature, internal to the organization. !t is exploratory in nature,
not guided by any boundaries. The world is flat, not guided by any boundaries. The world is flat,
resources and ideas move unhindered. resources and ideas move unhindered.
The segments of the environment a top manager The segments of the environment a top manager
scans selectively depends upon his dominant logics. scans selectively depends upon his dominant logics.
#ESTEL #ESTEL
PESTEL attempts to provide a broad framework on how PESTEL attempts to provide a broad framework on how
the broader environmental forces affects an the broader environmental forces affects an
organization and influences the way it practices organization and influences the way it practices
strategy. strategy.
!t is not intended to be used as an exhaustive list. !t is not intended to be used as an exhaustive list.
!t is particularly important that PESTEL be used to look !t is particularly important that PESTEL be used to look
at the future impact of environmental factors, which at the future impact of environmental factors, which
may be different from the past impact. may be different from the past impact.
!t is important not only to identify the structural drivers !t is important not only to identify the structural drivers
of change, but also to analyze the complex linkages of change, but also to analyze the complex linkages
across them. across them.
Understanding the composite effect is critical, for which Understanding the composite effect is critical, for which
a holistic picture is required. a holistic picture is required.
43 43
44 44
#ESTEL FRANEWORK #ESTEL FRANEWORK
Political Political -- Covernment Stability, Covernment Attitude, Covernment Stability, Covernment Attitude,
Economic Nodel, Central Economic Nodel, Central -- State Co State Co··alignment, alignment,
Subsidies S Protection, Licensing S Ouotas. Subsidies S Protection, Licensing S Ouotas.
Economic Economic -- CDP, Fiscal Deficit, Savings S !nvestment, CDP, Fiscal Deficit, Savings S !nvestment,
!nflation S !nterest Rates, Nonsoon S Food Crains !nflation S !nterest Rates, Nonsoon S Food Crains
Reserves, Economic Cycles, Capital Narket S Forex Reserves, Economic Cycles, Capital Narket S Forex
Reserves, Currency Stability, !nfra Reserves, Currency Stability, !nfra··Structural Structural
!nvestments, FD! !nflows. !nvestments, FD! !nflows.
Social Social -- Population Diversity, Religious Sentiments, Population Diversity, Religious Sentiments,
Literacy Levels, !ncome S Age Distribution, Language Literacy Levels, !ncome S Age Distribution, Language
Barriers, Social values. Barriers, Social values.
4S 4S
#ESTEL FRANEWORK #ESTEL FRANEWORK
Technological Technological -- !nnovation, !nnovation, Obsolescence Rate, Obsolescence Rate,
Patents, Research S Development, ERP, Technological Patents, Research S Development, ERP, Technological
Convergence. Convergence.
Environmental Environmental -- Clobal Warming S CSR, Product Clobal Warming S CSR, Product
Design, Environmentally Preferable Purchasing, Design, Environmentally Preferable Purchasing,
Extended Producer Responsibility, Waste Disposal S Extended Producer Responsibility, Waste Disposal S
Emissions, Non Emissions, Non··Fossil S Alternative Fuels, Carbon Fossil S Alternative Fuels, Carbon
Credits, Pollution Control Laws. Credits, Pollution Control Laws.
Legal Legal -- Nonopolies Legislation, Employment Laws, Nonopolies Legislation, Employment Laws,
Product Safety S Health Hazards, Direct S !ndirect Product Safety S Health Hazards, Direct S !ndirect
Taxes, Patent Laws, Consumer Protection Laws. Taxes, Patent Laws, Consumer Protection Laws.
46 46
ECONON!C L!BERAL!SAT!ON ECONON!C L!BERAL!SAT!ON
New !ndustrial Policy (N!P) New !ndustrial Policy (N!P) -- Liberalizing industrial Liberalizing industrial
licensing, FERA Liberalization, NRTP Liberalization, licensing, FERA Liberalization, NRTP Liberalization,
Curtailment of PSU's, Encouraging FD!. Curtailment of PSU's, Encouraging FD!.
Economic Reforms Economic Reforms -- Fiscal S Nonetary Reforms, Fiscal S Nonetary Reforms,
Banking Sector Reforms, Capital Narket Reforms. Banking Sector Reforms, Capital Narket Reforms.
New Trade Policy (NTP) New Trade Policy (NTP) -- Lowering import tariffs, Lowering import tariffs,
Abolition of import licenses, Encouraging exports, Abolition of import licenses, Encouraging exports,
Rupee convertibility. Rupee convertibility.
Structural Adjustments Structural Adjustments -- Phasing out subsidies, Phasing out subsidies,
Dismantling price controls, PSU Disinvestments, Exit Dismantling price controls, PSU Disinvestments, Exit
Policy Policy·· vRS. vRS.
47 47
D!SCONT!NU!TY D!SCONT!NU!TY
Destabilization due to entrepreneurial freedom Destabilization due to entrepreneurial freedom ··
-- Cocoon of protection disappears Cocoon of protection disappears
-- Diversification spree Diversification spree
-- Existing notions of size shaken Existing notions of size shaken
-- !ndustry structures change radically !ndustry structures change radically
-- Economic Darwinism Economic Darwinism ·· Survival of the fittest Survival of the fittest
NNC Onslaught NNC Onslaught
-- Enhancing stakes Enhancing stakes -- Power Equation Power Equation
-- ]oint ventures ]oint ventures -- Technological Alliances Technological Alliances
-- Take Take··over threat, Nergers S Acquisitions over threat, Nergers S Acquisitions
48 48
D!SCONT!NU!TY D!SCONT!NU!TY
Hyper Competition Hyper Competition
-- NNC's NNC's ·· Clobalization Clobalization
-- Cheap !mports S Dumping Cheap !mports S Dumping
-- Push to Pull Narketing Push to Pull Narketing
Buyers exacting demands Buyers exacting demands
-- Shortage to surplus Shortage to surplus -- Price competition Price competition
-- Life Life··style changes style changes
-- Stress on quality, Consumerism Stress on quality, Consumerism
Challenges on the technology front Challenges on the technology front
-- Competencies become technology based Competencies become technology based
-- !nvestment in RSD become inescapable !nvestment in RSD become inescapable
43 43
D!SCONT!NU!TY D!SCONT!NU!TY
Compulsion to find export markets Compulsion to find export markets
-- !dentifying competitive advantage !dentifying competitive advantage
-- Technological gap Technological gap
-- Clobal presence Clobal presence
-- Depreciating currency Depreciating currency -- Exports Exports
Corporate vulnerability Corporate vulnerability
-- !t is no longer business as usual !t is no longer business as usual
-- Capital inadequacy Capital inadequacy
-- Lack of product clout and brand power Lack of product clout and brand power
-- One product syndrome One product syndrome
-- Loss of monopoly Loss of monopoly
S0 S0
F!vE FORCES NODEL F!vE FORCES NODEL · · #ORTER #ORTER
Threat of New Entrants
Threat of Substitutes
Bargaining
power of
Suppliers
Bargaining
power of
Suppliers
Bargaining
power of
Customers
Competition from
Existing Players
F!vE FORCES NODEL F!vE FORCES NODEL · · ASSUN#T!ONS ASSUN#T!ONS
The model is to be used at the SBU level and not at The model is to be used at the SBU level and not at
the industry level. !t is even wiser to apply the same the industry level. !t is even wiser to apply the same
at the product at the product -- market level. market level.
!t depicts the attractiveness of an industry (i.e. profit !t depicts the attractiveness of an industry (i.e. profit
potential) per se. potential) per se.
The model should not be used as a snapshot in time, The model should not be used as a snapshot in time,
the forces are subject to changes, incremental or the forces are subject to changes, incremental or
otherwise. otherwise.
!t should not only be used to understand the forces, !t should not only be used to understand the forces,
but also used to understand how they can be but also used to understand how they can be
countered and overcome. countered and overcome.
The five forces have strong cross The five forces have strong cross··linkages. linkages.
S1 S1
S2 S2
#ORTERS F!vE FORCES ANALYS!S #ORTERS F!vE FORCES ANALYS!S
Threat to Entry Threat to Entry -- Economies of size and scale, Product Economies of size and scale, Product
differentiation through proprietary technology or brand differentiation through proprietary technology or brand
power, Capital requirements, Learning curve power, Capital requirements, Learning curve
advantages, Access to distribution channels, advantages, Access to distribution channels,
Covernment policy, Resource profile S fear of Covernment policy, Resource profile S fear of
retaliation, High switching costs, !ndustry stagnation. retaliation, High switching costs, !ndustry stagnation.
Threat of Customers Threat of Customers -- Buyer concentration and Buyer concentration and
volumes, Undifferentiated product, Low relative volumes, Undifferentiated product, Low relative
importance of the segment, Low margins S stagnancy, importance of the segment, Low margins S stagnancy,
Unimportance of product quality, Scope for backward Unimportance of product quality, Scope for backward
integration, Presence of substitutes or unorganized integration, Presence of substitutes or unorganized
sector, Low customer switching costs. sector, Low customer switching costs.
S3 S3
#ORTERS F!vE FORCES ANALYS!S #ORTERS F!vE FORCES ANALYS!S
Threat of Suppliers Threat of Suppliers -- Supplier monopoly, Supplier monopoly,
Differentiated inputs, Lack of substitute inputs, High Differentiated inputs, Lack of substitute inputs, High
customer switching costs, Scope for forward customer switching costs, Scope for forward
integration, Low relative importance of the segment. integration, Low relative importance of the segment.
Threat of Substitutes Threat of Substitutes -- !mprovement in price !mprovement in price ··
performance trade performance trade··off, Produced by industries off, Produced by industries
earning high profits, Buyer's propensity to substitute. earning high profits, Buyer's propensity to substitute.
]ockeying for position ]ockeying for position -- Fragmented market, !ndustry Fragmented market, !ndustry
stagnancy, !ntermittent overcapacity, Low level of stagnancy, !ntermittent overcapacity, Low level of
differentiation, High exit barriers, Unorganised sector, differentiation, High exit barriers, Unorganised sector,
Piracy and counterfeits, Product perishability, Diversity Piracy and counterfeits, Product perishability, Diversity
of players. of players.
S4 S4
F!RN ENv!RONNENT F!RN ENv!RONNENT
Size and Scale of Operations Size and Scale of Operations -- !t is a very important !t is a very important
component of competitiveness in today's global context component of competitiveness in today's global context
(Bharti (Bharti -- NTN, Reliance). NTN, Reliance).
Business Scope Business Scope -- The intention whether the firm wants The intention whether the firm wants
to be in a single business, or related diversified or to be in a single business, or related diversified or
unrelated diversified (Tata, Aditya Birla). unrelated diversified (Tata, Aditya Birla).
!nertia !nertia -- Excessive commitment to past strategies Excessive commitment to past strategies
prevents firms from tapping emerging opportunities. prevents firms from tapping emerging opportunities.
Cohesiveness Cohesiveness -- Degree of bonding existing across Degree of bonding existing across
affiliated firms. affiliated firms.
Resource Profile Resource Profile -- !t highlights the capabilities (business !t highlights the capabilities (business
specific or generic) or competencies of the firm. specific or generic) or competencies of the firm.
SS SS
EX#ER!ENCE CURvE EX#ER!ENCE CURvE
The cost of performing an activity declines on per The cost of performing an activity declines on per· ·unit unit
basis as a firm becomes more efficient, experience basis as a firm becomes more efficient, experience
teaches better and more effective way of doing things. teaches better and more effective way of doing things.
With lower costs, it can price its products more With lower costs, it can price its products more
competitively, and with lower prices it can increase its competitively, and with lower prices it can increase its
sales volume, which further reduces costs. sales volume, which further reduces costs.
Natured firms will always be positioned advantageously Natured firms will always be positioned advantageously
on the E on the E··Curve than new entrants. Curve than new entrants.
The E The E··Curve thus enables organisations to build entry Curve thus enables organisations to build entry
barriers, leverage it as a competitive advantage. barriers, leverage it as a competitive advantage.
Experience curve has strong linkages with performance. Experience curve has strong linkages with performance.
However, an E However, an E··Curve can prove to be futile during Curve can prove to be futile during
discontinuity. discontinuity.
S6 S6
EX#ER!ENCE CURvE EX#ER!ENCE CURvE
Production / volume
C
o
s
t

p
e
r

u
n
i
t

o
f

o
u
t
p
u
t
Decreases at an increasing rate
Decreases at a constant rate
Decreases at a decreasing rate
Point of inflexion
S7 S7
EX#ER!ENCE CURvE EX#ER!ENCE CURvE · · TRAD!T!ONAL v!EW TRAD!T!ONAL v!EW
Experience = Efficiency
Efficiency = Lower Costs
Lower Costs = Higher Sales
Higher Sales = Lower Costs
Lower Costs = Entry Barrier
Entry Barrier = Better #erformance
1
2
3
4
S
6
S8 S8
EX#ER!ENCE CURvE EX#ER!ENCE CURvE · · STRATEC!C v!EW STRATEC!C v!EW
Experience = !nertia
!nertia = Limited Crowth
Limited Crowth = Diversification
Diversification = New Experience
New Experience Old Experience
Strategic Failure = #oor #erformance
1
2
3
4
S
6
S3 S3
vULNERAB!L!TY ANALYS!S vULNERAB!L!TY ANALYS!S · · SWOT SWOT
The framework was originally conceptualized by Kenneth The framework was originally conceptualized by Kenneth
Andrews in 1370. Andrews in 1370. Acronym for Acronym for Strengths Strengths -- Weaknesses Weaknesses
-- Opportunities Opportunities -- Threats. Threats. !t helps an organisation to !t helps an organisation to
capitalize on the opportunities by maximizing its capitalize on the opportunities by maximizing its
strengths and neutralizing the threats minimizing the strengths and neutralizing the threats minimizing the
weaknesses. !t is one of the earliest models in weaknesses. !t is one of the earliest models in
environmental scanning. A SWOT audit involves environmental scanning. A SWOT audit involves --
Company Records Company Records -- Annual Reports, Websites, Press Annual Reports, Websites, Press
Clippings S !nterviews. Clippings S !nterviews.
Case Studies Case Studies -- Structured Ouestionnaires, !nterviews, Structured Ouestionnaires, !nterviews,
Observation. Observation.
Business !ntelligence Business !ntelligence -- Bankers, Suppliers, Customers, Bankers, Suppliers, Customers,
Analysts, Competitors. Analysts, Competitors.
60 60
SWOT ANALYS!S SWOT ANALYS!S · · FRANEWORK FRANEWORK
Strengths Weaknesses
O
p
p
o
r
t
u
n
i
t
i
e
s
T
h
r
e
a
t
s
Leverage strengths to make
use of opportunities
Utilise strengths to
counter threats (?)
Ninimize weaknesses which
prevents you from
countering threats
Nullify weaknesses which
prevents you from
exploiting opportunities
61 61
SOURCES OF STRENCTH SOURCES OF STRENCTH
Strong brand identity Strong brand identity -- Eg. Tata. Eg. Tata.
High quality products High quality products -- Eg. Sony, Toyota, Honda. Eg. Sony, Toyota, Honda.
Excellent penetration Excellent penetration -- Eg. HUL, !TC. Eg. HUL, !TC.
Strong RSD base Strong RSD base -- Eg. Dr. Reddy's, Ranbaxy, Biocon. Eg. Dr. Reddy's, Ranbaxy, Biocon.
Economies of scale Economies of scale -- Eg. Reliance. Eg. Reliance.
Cood credit rating Cood credit rating -- Eg. !nfosys, SB!. Eg. !nfosys, SB!.
Notivated employees S cordial industrial relations Notivated employees S cordial industrial relations --
Eg. Tata Steel, !nfosys. Eg. Tata Steel, !nfosys.
Large resource pool Large resource pool -- Eg. Aditya Birla, Reliance. Eg. Aditya Birla, Reliance.
Strong after sales S service network Strong after sales S service network -- Eg. Caterpillar. Eg. Caterpillar.
Engineering Skills Engineering Skills -- Eg. volkswagen, Siemens. Eg. volkswagen, Siemens.
62 62
SOURCES OF WEAKNESSES SOURCES OF WEAKNESSES
Outdated technology Outdated technology -- Eg. Hindustan Notors. Eg. Hindustan Notors.
Strategic myopia Strategic myopia -- Eg. CESC. Eg. CESC.
Excess manpower Excess manpower -- Eg. SA!L. Eg. SA!L.
Single product syndrome Single product syndrome -- Eg. Procter S Camble. Eg. Procter S Camble.
!nefficient top management !nefficient top management -- Eg. Ballarpur !nds. Eg. Ballarpur !nds.
Narrow business scope Narrow business scope -- Eg. Nirma. Eg. Nirma.
Excessive diversification Excessive diversification -- Eg. Tatas. Eg. Tatas.
!nertia !nertia -- Eg. ]. K. Croup Eg. ]. K. Croup ·· Raymond. Raymond.
Lacking experimentation culture Lacking experimentation culture -- Eg. B. K. Nodi Croup. Eg. B. K. Nodi Croup.
Lack of product / brand clout Lack of product / brand clout -- Eg. Bijoligrill. Eg. Bijoligrill.
Organizational Politics Organizational Politics -- Eg. CNC (Tata Croup) Eg. CNC (Tata Croup)
63 63
SOURCES OF O##ORTUN!T!ES SOURCES OF O##ORTUN!T!ES
Delicensing of !ndustries Delicensing of !ndustries -- Eg. Telecom, Banking. Eg. Telecom, Banking.
Capital market reforms Capital market reforms -- Eg. Abolishing CC!. Eg. Abolishing CC!.
Abolishing NRTP Abolishing NRTP -- Eg. Naruti. Eg. Naruti.
Life style changes Life style changes -- Eg. Retailing. Eg. Retailing.
Crowing population Crowing population -- Eg. Niddle Eg. Niddle··class buying power. class buying power.
Clobalization Clobalization -- Eg. CDR's, ECB's. Eg. CDR's, ECB's.
Free pricing Free pricing -- Eg. Fertilizers, !nsurance, Sugar. Eg. Fertilizers, !nsurance, Sugar.
Exit Policy Exit Policy -- Eg. vRS. Eg. vRS.
Collaborations S ]oint ventures Collaborations S ]oint ventures -- Bharti S WalNart. Bharti S WalNart.
Narket driven !nterest rates Narket driven !nterest rates -- Eg.Tata Notors. Eg.Tata Notors.
Narket driven Pricing Narket driven Pricing -- Eg. Fertilizer, Sugar. Eg. Fertilizer, Sugar.
64 64
SOURCES OF THREATS SOURCES OF THREATS
Political instability Political instability -- Eg. (138S Eg. (138S--1330). 1330).
Land acquisition Land acquisition ·· Social activism Social activism -- Eg. Singur SEZ. Eg. Singur SEZ.
Terrorist attacks Terrorist attacks -- Eg. 11/3, 26/11. Eg. 11/3, 26/11.
!mport relaxation !mport relaxation -- Eg. Dumping from China. Eg. Dumping from China.
Foreign Direct !nvestment (FD!) Foreign Direct !nvestment (FD!) -- Eg. Onida. Eg. Onida.
Economic recession Economic recession -- Eg. (2008). Eg. (2008).
Natural disaster Natural disaster -- Eg. Tsunami, Earth Ouake. Eg. Tsunami, Earth Ouake.
Nationalisation Nationalisation -- Eg. Tata Steel. Eg. Tata Steel.
Hostile take Hostile take··over over -- Eg. Bajoria Eg. Bajoria -- Bombay Dyeing. Bombay Dyeing.
Croup disintegration Croup disintegration -- Eg. Reliance. Eg. Reliance.
Lack of Corporate Covernance Lack of Corporate Covernance -- Eg. Satyam. Eg. Satyam.
6S 6S
ETO# ETO#
Acronym for Environment Acronym for Environment -- Threat Threat -- Opportunity Opportunity --
Profile. Profile. !t represents a summary picture of the external !t represents a summary picture of the external
environmental factors and their likely impact on the environmental factors and their likely impact on the
organization. Stages in organization. Stages in ETOP ETOP analysis analysis --
List the aspects of the environment that has a bearing List the aspects of the environment that has a bearing
on the organization. on the organization.
Assess the extent of impact of the factors. Assess the extent of impact of the factors.
Holistic view Holistic view -- Prepare a complete overall picture. Prepare a complete overall picture.
Forecasting Forecasting -- Predict the future (i.e. time series, Delphi's Predict the future (i.e. time series, Delphi's
technique, scenario analysis). technique, scenario analysis).
Strategic responses (including adaptation) to Strategic responses (including adaptation) to
opportunities and threats is critical for survival and opportunities and threats is critical for survival and
success. success.
66 66
#ROF!T !N#ACT OF NARKET STRATECY #ROF!T !N#ACT OF NARKET STRATECY
P!NS P!NS is a database model developed by is a database model developed by CE CE and later and later
extended by extended by HBS HBS to examine the impact of a wide range to examine the impact of a wide range
of strategy variables on business performance. !t is also of strategy variables on business performance. !t is also
a form of assessing vulnerability through longitudinal a form of assessing vulnerability through longitudinal
analysis. analysis.
An organization can draw upon the experience of its An organization can draw upon the experience of its
peers in similar situations. Some key findings on major peers in similar situations. Some key findings on major
performance drivers performance drivers that explains 7S% deviations in that explains 7S% deviations in
performance performance --
Product quality and relative market share. Product quality and relative market share.
High investment intensity acts as a drag. High investment intensity acts as a drag.
Relative attractiveness of the market. Relative attractiveness of the market.
vertical integration is a powerful strategy, selectively. vertical integration is a powerful strategy, selectively.
67 67
#!NS #!NS · · L!N!TAT!ONS L!N!TAT!ONS
The analysis is based on The analysis is based on historical data historical data and it does not and it does not
take care of take care of future challenges future challenges. Nanagers should be . Nanagers should be
particularly cautious while referring to such data during particularly cautious while referring to such data during
times of times of discontinuity discontinuity as it makes past patterns futile. as it makes past patterns futile.
Authenticity of data is of prime importance Authenticity of data is of prime importance ··
-- Contexts drawn across one organization may not be Contexts drawn across one organization may not be
applicable to another. As every organization is applicable to another. As every organization is
unique in its own way. unique in its own way.
-- Contexts may vary over time, when radical changes Contexts may vary over time, when radical changes
in the economy takes place. in the economy takes place.
-- Contexts may vary across countries, therefore Contexts may vary across countries, therefore
validity may be a question. validity may be a question.
68 68
KEY SUCCESS FACTORS (KSF) KEY SUCCESS FACTORS (KSF)
KSF KSF relates to identification and putting concentrated relates to identification and putting concentrated
effort on a particular activity or process which forms the effort on a particular activity or process which forms the
very basis of competitive advantage. !t enables the top very basis of competitive advantage. !t enables the top
management to draw focus. management to draw focus. KSF KSF helps organizations helps organizations
spot early opportunities and convert them into value spot early opportunities and convert them into value
adding business propositions. !t involves a three adding business propositions. !t involves a three··stage stage
process process --
!dentify KSF !dentify KSF -- What does it take to be successful in a What does it take to be successful in a
business? business?
Drawing KSF Drawing KSF -- What should be the organizations What should be the organizations
response to the same? response to the same?
Benchmarking KSF Benchmarking KSF -- How do we evaluate organization How do we evaluate organization
success on this factor? success on this factor?
63 63
!DENT!FY!NC ALTERNAT!vE !DENT!FY!NC ALTERNAT!vE
STRATEC!ES STRATEC!ES
70 70
COR#ORATE COR#ORATE · · CRAND STRATECY CRAND STRATECY
!t is concerned with the overall business (single, related, !t is concerned with the overall business (single, related,
unrelated) and geographical (local, national, global) unrelated) and geographical (local, national, global)
scope of a firm and deals with choices of allocating scope of a firm and deals with choices of allocating
resources across them. resources across them.
!t provides broad direction !t provides broad direction to the groups vision and to the groups vision and
mission. mission.
A corporate strategy identifies and fixes the strategic A corporate strategy identifies and fixes the strategic
gap it proposes to fill. gap it proposes to fill.
!t determines the locus a firm encounters with internal !t determines the locus a firm encounters with internal
and external environment. and external environment.
!t indicates the quality of growth an organization is !t indicates the quality of growth an organization is
looking for. looking for.
!t reflects the customer needs it intends to satisfy. !t reflects the customer needs it intends to satisfy.
71 71
Related
COR#ORATE STRATECY NATR!X COR#ORATE STRATECY NATR!X
Crowth Stability
vertical
Narket Penetration
Horizontal
Unrelated
Corporate Strategy
Stability Crowth Divestment Combination
!ntensification Diversification
Narket Development Product Development
72 72
STAB!L!TY STAB!L!TY
!t involves maintaining !t involves maintaining status status··quo or growing in a slow quo or growing in a slow
and selective manner and selective manner. The scale and scope of present . The scale and scope of present
operations remains almost intact. Stability however, does operations remains almost intact. Stability however, does
not relate to not relate to do do··nothing (Eg. Hindustan Notors). nothing (Eg. Hindustan Notors). Even Even
during adverse times firms need to adopt a strategy to during adverse times firms need to adopt a strategy to
sustain current performance levels. sustain current performance levels. (Eg. Citibank). (Eg. Citibank). The The
reasons for stability strategy reasons for stability strategy --
-- Lack of attractive opportunities. Lack of attractive opportunities.
-- The firm may not be willing to take additional risk The firm may not be willing to take additional risk
associated with new projects. associated with new projects.
-- To stop for a while and assess past records. To stop for a while and assess past records.
-- Why disturb the existing equilibrium set up? Why disturb the existing equilibrium set up?
-- Limited resource position, erosion of capabilities. Limited resource position, erosion of capabilities.
73 73
CROWTH CROWTH · · ANSOFF'S NODEL ANSOFF'S NODEL
Existing Narket New Narket
E
x
i
s
t
i
n
g

P
r
o
d
u
c
t
N
e
w

P
r
o
d
u
c
t
Narket
Penetration (+)
Narket
Development
(++)
Product
Development
(++)
Diversification
(+++)
Note: (+) indicates degree of growth and risk involved.
74 74
NARKET #ENETRAT!ON NARKET #ENETRAT!ON
!t is a strategy where a firm directs its entire resources to !t is a strategy where a firm directs its entire resources to
the growth of a single product or a closely knit product the growth of a single product or a closely knit product
set, within a well defined market segment. Narket set, within a well defined market segment. Narket
penetration can be achieved by penetration can be achieved by -- increasing sales to increasing sales to
current customers, convert competitors customers, direct current customers, convert competitors customers, direct
non non··users to users. users to users. (Eg. Nirma, Ujjala, Britannia). (Eg. Nirma, Ujjala, Britannia).
-- Suitable for industries where scope for technological Suitable for industries where scope for technological
break break··through is limited. through is limited.
-- Elongated product life Elongated product life··cycle. cycle.
-- Helps firms which are not comfortable with unfamiliar Helps firms which are not comfortable with unfamiliar
terrain. terrain.
-- The company carries a risk of product obsolescence. The company carries a risk of product obsolescence.
7S 7S
NARKET DEvELO#NENT NARKET DEvELO#NENT
!t is a strategy where a firm tries to achieve growth by !t is a strategy where a firm tries to achieve growth by
finding new uses of existing products or its close variants finding new uses of existing products or its close variants
and tap a new potential customer base altogether. and tap a new potential customer base altogether. (Eg. (Eg.
Du Pont Du Pont -- Nylon: parachutes, socks S stockings, fabrics, Nylon: parachutes, socks S stockings, fabrics,
tyres, upholstery, carpets,.. or Teflon: aircraft tyres, upholstery, carpets,.. or Teflon: aircraft
technologies to cutlery to paints or Raytheon Corp technologies to cutlery to paints or Raytheon Corp --
Nicrowaves: radars to kitchen appliances). Nicrowaves: radars to kitchen appliances).
-- Creativity and innovation Creativity and innovation -- thinking out of the box. thinking out of the box.
-- Stretches product life cycles. Stretches product life cycles.
-- Unconventional and flexible distribution channels. Unconventional and flexible distribution channels.
-- Noves across geographical boundaries. Noves across geographical boundaries.
-- !mmense customer reach S flexible advertising. !mmense customer reach S flexible advertising.
76 76
#RODUCT DEvELO#NENT #RODUCT DEvELO#NENT
!t is a strategy where a firm tries to achieve growth !t is a strategy where a firm tries to achieve growth
through a radical new product through a radical new product (Eg. Nicrosoft: DOS to (Eg. Nicrosoft: DOS to
Windows) Windows) or a substantial improved version or a substantial improved version
(incremental) of an existing product to repeatedly enter (incremental) of an existing product to repeatedly enter
the same market the same market (Eg. Close Up: Fluoride (Eg. Close Up: Fluoride -- Cel Cel
toothpaste or v!P toothpaste or v!P ·· Strolleys) Strolleys). .
-- Areas of product improvement Areas of product improvement -- performance, performance,
features, reliability, conformance, durability, features, reliability, conformance, durability,
serviceability, aesthetics, perception. serviceability, aesthetics, perception.
-- Deliverable through Deliverable through -- redesigning or reengineering. redesigning or reengineering.
-- Leverage on customer and brand loyalty. Leverage on customer and brand loyalty.
-- Leveraging through Leveraging through -- innovation. innovation.
-- Substitutes that serve the same needs (Eg. Refills) Substitutes that serve the same needs (Eg. Refills)
77 77
D!vERS!F!CAT!ON D!vERS!F!CAT!ON
!t marks the entry of a firm into newer markets with !t marks the entry of a firm into newer markets with
new products, thereby creating a new business. From new products, thereby creating a new business. From
the traditional point of view, the new business is distinct the traditional point of view, the new business is distinct
from the existing business in terms of from the existing business in terms of -- inputs inputs --
technologies technologies -- markets. From the modern point of view markets. From the modern point of view
they are strategically dissimilar. Why do firms diversify they are strategically dissimilar. Why do firms diversify
in the !ndian context? in the !ndian context?
-- Shift the growth trajectory or opportunistic. Shift the growth trajectory or opportunistic.
-- Risk reduction. Risk reduction.
-- High transaction costs and institutional gaps. High transaction costs and institutional gaps.
-- !nternal capital market. !nternal capital market.
-- Permits: quotas, licenses (i.e. industrial embassies). Permits: quotas, licenses (i.e. industrial embassies).
-- Conglomerate or market power (i.e. dominance). Conglomerate or market power (i.e. dominance).
78 78
HOW D!vERS!F!CAT!ON REDUCES R!SK? HOW D!vERS!F!CAT!ON REDUCES R!SK?
Consider a hypothetical planet, in which a given year is Consider a hypothetical planet, in which a given year is
either under hot or cold wave, either of which is equally either under hot or cold wave, either of which is equally
likely to prevail. Let us assume that there are two likely to prevail. Let us assume that there are two
businesses constituting the entire market businesses constituting the entire market -- coffee and coffee and
ice ice··cream. !f the hot wave dominates the planet, the cream. !f the hot wave dominates the planet, the
ice ice··cream business would register a return of cream business would register a return of 30%, 30%,
while the coffee business would register a return of while the coffee business would register a return of
10%. 10%. !f on the other hand, cold wave dominates the !f on the other hand, cold wave dominates the
planet, ice planet, ice··cream business would register a return of cream business would register a return of
10%, 10%, while the coffee business would register a return while the coffee business would register a return
of of 30%. 30%. What would be your ideal diversification What would be your ideal diversification
strategy through optimization? strategy through optimization?
73 73
D!vERS!F!CAT!ON STRATECY D!vERS!F!CAT!ON STRATECY
!f we diversified in either of the two businesses, our !f we diversified in either of the two businesses, our
expected return will be expected return will be 20%, 20%, with a possible risk of with a possible risk of
10%. 10%. !f, we split our investment between the two !f, we split our investment between the two
businesses in equal proportion, half of our investment businesses in equal proportion, half of our investment
will earn a return of will earn a return of 30%, 30%, while the other half would while the other half would
earn earn 10%, 10%, so our expected return would still be so our expected return would still be 20%. 20%.
But in the second instance there is no possibility of But in the second instance there is no possibility of
deviation of returns (i.e. risk). Diversification results in deviation of returns (i.e. risk). Diversification results in
20% 20% expected return with zero risk, whereas investing expected return with zero risk, whereas investing
in individual businesses was yielding an expected return in individual businesses was yielding an expected return
of of 20% 20% with a risk factor of with a risk factor of 10%. 10%. The pivotal point is The pivotal point is
that the two businesses are negatively correlated. that the two businesses are negatively correlated.
80 80
HOR!ZONTAL !NTECRAT!ON HOR!ZONTAL !NTECRAT!ON
!t takes place when a company increases the breadth !t takes place when a company increases the breadth
of a firms business or geographical scope by getting of a firms business or geographical scope by getting
into product into product -- market segments which compliments its market segments which compliments its
existing businesses existing businesses (Eg. Reliance). (Eg. Reliance). Alternatively, Alternatively,
existing business may recreate new businesses, which existing business may recreate new businesses, which
are distinct, but supplements its existing business are distinct, but supplements its existing business (Eg. (Eg.
Bajaj Bajaj -- scooters to motorcycles, Dove scooters to motorcycles, Dove -- soaps to soaps to
shampoo). shampoo).
-- !t results in increased market power. !t results in increased market power.
-- Leveraging existing capabilities. Leveraging existing capabilities.
-- Resources can be shared for mutual benefit. Resources can be shared for mutual benefit.
-- Reduces economic risk (i.e. business cycles). Reduces economic risk (i.e. business cycles).
-- Enables brand or product line extension. Enables brand or product line extension.
81 81
HOR!ZONTAL !NTECRAT!ON HOR!ZONTAL !NTECRAT!ON
Reliance !ndustries
Reliance Capital
Reliance Power
Reliance
!nfrastructure
Reliance Ports
82 82
vERT!CAL !NTECRAT!ON vERT!CAL !NTECRAT!ON
!t increases the depth of its business scope either in a !t increases the depth of its business scope either in a
backward business process or in a forward one. backward business process or in a forward one.
Backward integration occurs when the company starts Backward integration occurs when the company starts
manufacturing its inputs or catalysts. manufacturing its inputs or catalysts. !n forward !n forward
integration a firm moves into marketing of its products integration a firm moves into marketing of its products
and services. and services. Advantages of backward integration Advantages of backward integration --
-- Cost competitiveness Cost competitiveness -- entry barrier. entry barrier.
-- Better operational control Better operational control -- timely supplies, quality timely supplies, quality
control, coordination control, coordination -- ]!T, savings in indirect taxes. ]!T, savings in indirect taxes.
Disadvantages of backward integration Disadvantages of backward integration --
-- !t may spark of a chain reaction !t may spark of a chain reaction ·· contagion effect. contagion effect.
-- Long gestation S break even Long gestation S break even ·· investment in CAPEX. investment in CAPEX.
83 83
vERT!CAL !NTECRAT!ON vERT!CAL !NTECRAT!ON
Textiles
Polyester Filament Yarn Polyester Staple Fibre
Purified tetra·pthalic acid Nono·ethylene glycol
Paraxylene
Naptha·cracking
Oil S Cas exploration
(PFY) (PSF)
(PTA)
(NEC)
(PX)
Acetic Acid
84 84
D!vERS!F!CAT!ON SUCCESS ? D!vERS!F!CAT!ON SUCCESS ?
While diversifying into new businesses, the scope of While diversifying into new businesses, the scope of
relatedness or unrelatedness should not be judged from relatedness or unrelatedness should not be judged from
the traditional static view, but from the modern dynamic the traditional static view, but from the modern dynamic
view which incorporates strategic factors like capabilities view which incorporates strategic factors like capabilities
and dominant logic. Countermanding reasons and dominant logic. Countermanding reasons --
Potential to reap economies of scope across SBU's that Potential to reap economies of scope across SBU's that
can share the same strategic asset. can share the same strategic asset.
Potential to use an existing capability to help improve the Potential to use an existing capability to help improve the
quality of a strategic asset in another business. quality of a strategic asset in another business.
Potential to use an existing capability to create a new Potential to use an existing capability to create a new
strategic asset in another business. strategic asset in another business.
Potential to expand the existing pool of capabilities. Potential to expand the existing pool of capabilities.
Dominant logic ensures timely S appropriate response Dominant logic ensures timely S appropriate response. .
8S 8S
$UAS! S TA#ERED !NTECRAT!ON $UAS! S TA#ERED !NTECRAT!ON
Full !ntegration Full !ntegration ·· Where one firm has full ownership Where one firm has full ownership
and control over all the stages of a value and control over all the stages of a value··chain in the chain in the
manufacturing of a product manufacturing of a product (Eg. Reliance) (Eg. Reliance). .
Ouasi Ouasi··integration integration ·· A firm gets most of its A firm gets most of its
requirements from one or more outside suppliers that requirements from one or more outside suppliers that
is under its partial ownership and control is under its partial ownership and control (Eg. (Eg.
Ranbaxy, Dr. Reddy's). Ranbaxy, Dr. Reddy's).
Tapered integration Tapered integration ·· A firm produces part of its own A firm produces part of its own
requirements and buys the rest from outside requirements and buys the rest from outside
suppliers with a variable degree of ownership and suppliers with a variable degree of ownership and
control. Usually the firm concentrates on its core control. Usually the firm concentrates on its core
activities, and out activities, and out··sources the non sources the non··core activities core activities (Eg. (Eg.
Naruti Naruti -- Sona Steering). Sona Steering).
86 86
A CASE OF TA#ERED !NTECRAT!ON A CASE OF TA#ERED !NTECRAT!ON
very Critical
Components
Full Ownership
Critical
Components
Partial
Ownership
O
r
d
i
n
a
r
y

C
o
m
p
o
n
e
n
t
s
Z
e
r
o

O
w
n
e
r
s
h
i
p
Engine
Transmission
Design
Steering
Electricals
Windscreen
Seats S Carpets
87 87
CONCLONERATE D!vERS!F!CAT!ON CONCLONERATE D!vERS!F!CAT!ON
!t relates to entry of firms into businesses which are !t relates to entry of firms into businesses which are
distinct in terms of distinct in terms of -- inputs inputs -- technologies technologies -- markets. markets.
and are also strategically and are also strategically dissaimilar dissaimilar. Firms usually . Firms usually
engage in conglomerate diversification when emerging engage in conglomerate diversification when emerging
opportunities are very attractive and offers potential opportunities are very attractive and offers potential
growth opportunities. Drawbacks of unrelated growth opportunities. Drawbacks of unrelated
diversification diversification --
-- Cost of failure (i.e. lack of strategic intent, myopia). Cost of failure (i.e. lack of strategic intent, myopia).
-- Cost of ignorance (i.e. lack of knowledge of Cost of ignorance (i.e. lack of knowledge of
competitive forces). competitive forces).
-- Cost of neglect (i.e. core business). Cost of neglect (i.e. core business).
-- Cost of dysynergy (i.e. synergies pulling in opposite Cost of dysynergy (i.e. synergies pulling in opposite
directions). directions).
88 88
CONCLONERATE D!vERS!F!CAT!ON CONCLONERATE D!vERS!F!CAT!ON
Tobacco
Paper S Packaging
Food S Confectionary
Edible Oils Hotels
83 83
D!vESTNENT D!vESTNENT
Divestment is a Divestment is a defensive strategy defensive strategy involving the sale of involving the sale of
entire stake entire stake (Eg. ACC) (Eg. ACC) in full to an independent entity. !t in full to an independent entity. !t
is usually taken into account when performance is is usually taken into account when performance is
disappointing and survival is at stake and nor does the disappointing and survival is at stake and nor does the
firm have the resources to fend off competitive forces. !t firm have the resources to fend off competitive forces. !t
may also involve a SBU may also involve a SBU (Eg. LST (Eg. LST··Cement Division to Cement Division to
Aditya Birla Croup) Aditya Birla Croup) technically known as technically known as divestiture divestiture. or a . or a
product product (Eg. Claxo's ¨Clucon (Eg. Claxo's ¨Clucon··D" to Heinz) D" to Heinz). !n strategy . !n strategy
there is no scope for sentimentality with divestment. there is no scope for sentimentality with divestment.
!t is may also be a !t is may also be a pro pro··active strategy active strategy, where a company , where a company
simply exits because the business no longer contribute to simply exits because the business no longer contribute to
or fit its dominant logic. or fit its dominant logic. (Eg. Tatas sale of Coodlass (Eg. Tatas sale of Coodlass
Nerolac, Tata Pharma, Tata Press). Nerolac, Tata Pharma, Tata Press).
30 30
D!vESTNENT D!vESTNENT · · ROUTES ROUTES
Outright Sale Outright Sale -- Popularly known as the asset route, Popularly known as the asset route,
where 100% of the assets (including intangibles) are where 100% of the assets (including intangibles) are
valued and paid for. (Eg. Sale of Diamond Beverages to valued and paid for. (Eg. Sale of Diamond Beverages to
Coca Coca··Cola for US $ 40 million). Cola for US $ 40 million).
Leveraged Buy Leveraged Buy··Out (LBO) Out (LBO) -- Here the company's Here the company's
shareholders are bought out through a negotiated deal shareholders are bought out through a negotiated deal
using borrowed funds. (Eg. Tatas buy using borrowed funds. (Eg. Tatas buy··out of Corus for out of Corus for
US $ 11.3 billion, involving 608 pence per share). US $ 11.3 billion, involving 608 pence per share).
Hive Hive··Off Off -- A hive off is the creation of a new entity A hive off is the creation of a new entity
followed by transfer of assets, where the equity is followed by transfer of assets, where the equity is
allotted amongst the existing shareholders on a pro allotted amongst the existing shareholders on a pro··rata rata
basis. However, the Companies Act, 13S6 does not basis. However, the Companies Act, 13S6 does not
permit this mode. permit this mode.
31 31
CONB!NAT!ON STRATECY CONB!NAT!ON STRATECY
!t is a mixture of stability, growth, and divestment !t is a mixture of stability, growth, and divestment
strategies applied simultaneously or sequentially for a strategies applied simultaneously or sequentially for a
portfolio of businesses. portfolio of businesses.
!t is usually pursued by a business group with diverse !t is usually pursued by a business group with diverse
interests across multiple industries. interests across multiple industries.
There can be no ideal strategy for every business, There can be no ideal strategy for every business,
because every business has its own unique external and because every business has its own unique external and
internal environment. internal environment.
A combination strategy can be implemented through A combination strategy can be implemented through
green green··field projects (i.e. developing facilities right from field projects (i.e. developing facilities right from
the scratch) or through brown the scratch) or through brown··field projects (i.e. field projects (i.e.
mergers and acquisition, joint ventures). mergers and acquisition, joint ventures).
32 32
STRATECY CHO!CE STRATECY CHO!CE
SS
PORTFOL!O ANALYS!S PORTFOL!O ANALYS!S
STRATEC!C CHO!CE STRATEC!C CHO!CE
A strategic choice seeks to determine the alternative A strategic choice seeks to determine the alternative
courses of action available before top managers to courses of action available before top managers to
achieve its strategic intent. !t attempts to answer the achieve its strategic intent. !t attempts to answer the
following questions following questions --
How effective has the existing strategy been? How effective has the existing strategy been?
How effective will that strategy be in the future? How effective will that strategy be in the future?
What will be the effectiveness of alternative What will be the effectiveness of alternative
strategies? strategies?
!t is impossible for a manager to assess all the !t is impossible for a manager to assess all the
alternatives. Dominant logic enables top managers to alternatives. Dominant logic enables top managers to
selectively scan the environment and make trade selectively scan the environment and make trade··offs. offs.
!n most cases the trade !n most cases the trade··off is between resources and off is between resources and
opportunities. What then is the magical number? opportunities. What then is the magical number?
33 33
SELECT!v!TY !S THE KEY SELECT!v!TY !S THE KEY
The role of a top manager is not to solve a problem, 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 nor is to a define a problem for others to solve. The key
task before a top manager is to identify the right task before a top manager is to identify the right
problems. To identify the right problems, managers problems. To identify the right problems, managers
need to ask the right questions. need to ask the right questions.
They must choose problems which will lead to the right They must choose problems which will lead to the right
kind of opportunities, if addressed, will help the firm kind of opportunities, if addressed, will help the firm
achieve its intent. For an optimal choice the following achieve its intent. For an optimal choice the following
four issues need to be resolved four issues need to be resolved --
!s the strategy clearly identifiable? !s the strategy clearly identifiable?
!s it consistent with the resources of the firm? !s it consistent with the resources of the firm?
Will it be able to exploit the opportunities in full? Will it be able to exploit the opportunities in full?
!s it in tune with the values and beliefs of the firm? !s it in tune with the values and beliefs of the firm?
34 34
3S 3S 3S 3S
BUS!NESS CROU# BUS!NESS CROU# · · DEF!N!T!ON DEF!N!T!ON
A business group is known by various names in various A business group is known by various names in various
countries countries -- guanxique guanxique in China, in China, keiretsus keiretsus in ]apan, in ]apan,
chaebols chaebols in Korea, in Korea, business houses business houses in !ndia. Their in !ndia. Their roots roots
can be traced to a single family or clan and share broad can be traced to a single family or clan and share broad
similarities. similarities.
Their origins can be traced back to market imperfections Their origins can be traced back to market imperfections
existing in an economy (NRTP Laws, Licenses S Ouotas, existing in an economy (NRTP Laws, Licenses S Ouotas,
Nanaging Agency). Nanaging Agency).
Proximity to the corridors of power (i.e. embassies). Proximity to the corridors of power (i.e. embassies).
High degree of centralized control (CEO, BRC). High degree of centralized control (CEO, BRC).
Resource sharing, formal and informal ties. Resource sharing, formal and informal ties.
Succession planning is critical to continuity. Succession planning is critical to continuity.
Does group affiliation enhance performance? Does group affiliation enhance performance?
36 36 36 36 36 36
RESOURCE SHAR!NC ACROSS F!RNS RESOURCE SHAR!NC ACROSS F!RNS
Parent Company
Firm 1
Firm 2
Firm 3
Firm 4
Firm 5
37 37
STRATEC!C CHO!CE STRATEC!C CHO!CE -- NACRO T!N!NC NACRO T!N!NC
Depression
(Divestment)
Recovery
(!ntensification)
Prosperity
(Diversification)
Recession
(Stability)
38 38
STRATEC!C CHO!CE STRATEC!C CHO!CE -- N!CRO T!N!NC N!CRO T!N!NC
Naturity · Stability
!nception · !ntensification
Crowth · Diversification
Decline · Divestment
Duration (Yrs)
Re·Engineering
#ORTFOL!O ANALYS!S #ORTFOL!O ANALYS!S
Resource allocation across a portfolio of businesses is Resource allocation across a portfolio of businesses is
an important strategic choice, next only to choice of an important strategic choice, next only to choice of
business. Why? business. Why?
Businesses are not about liquid assets, therefore, there Businesses are not about liquid assets, therefore, there
are high costs associated with entry and exit. are high costs associated with entry and exit.
Relatedness across resources are difficult to realize, Relatedness across resources are difficult to realize,
sometimes impossible. sometimes impossible.
!nvesting in emerging businesses may not actually be !nvesting in emerging businesses may not actually be
so simple as it appears to be. Rules of the game are so simple as it appears to be. Rules of the game are
different. different.
Redeployment of resources upsets the established Redeployment of resources upsets the established
power bases of a group. Power and resources often power bases of a group. Power and resources often
goes hand in hand. goes hand in hand.
33 33
100 100
BCC CROWTH NODEL BCC CROWTH NODEL
Relative Narket Share (%)
?
High
Low
Stars
Ouestion Nark
Cash Cow Dogs
L
o
w
101 101
BUS!NESS ANALYS!S BUS!NESS ANALYS!S -- TATA CROU# TATA CROU#
Ouestion Narks Ouestion Narks -- They have potentials in the long They have potentials in the long
term, provided the company is able to build up on its term, provided the company is able to build up on its
market market··share share (i.e. market penetration, market (i.e. market penetration, market
development, product development), development, product development), which remains a which remains a
big? These businesses are net users of resources, and big? These businesses are net users of resources, and
their risk profile is high their risk profile is high (Eg. Trent, Tata Telecom, Tata (Eg. Trent, Tata Telecom, Tata··
A!C). A!C).
Stars Stars -- They achievers in the near term, provided the They achievers in the near term, provided the
industry growth rate continues and the company is able industry growth rate continues and the company is able
to maintain its growth to maintain its growth (i.e. diversification). (i.e. diversification). These These
businesses are also net users of resources businesses are also net users of resources (Eg. TCS, (Eg. TCS,
Tata Steel), Tata Steel), but to larger extent than a question mark. but to larger extent than a question mark.
102 102
BUS!NESS ANALYS!S BUS!NESS ANALYS!S -- TATA CROU# TATA CROU#
Cash Cow Cash Cow -- These are matured businesses, and the These are matured businesses, and the
company dominates the industry ahead of competition company dominates the industry ahead of competition
(i.e. stability). (i.e. stability). Civen that the growth potential in the Civen that the growth potential in the
business is low, they are generators of resources. business is low, they are generators of resources.
However, cash cows may also need to invest provided However, cash cows may also need to invest provided
the industry takes an upswing the industry takes an upswing (Eg. Tata Notors, !ndian (Eg. Tata Notors, !ndian
Hotels, Tata Tea, Tata Chemicals). Hotels, Tata Tea, Tata Chemicals).
Dogs Dogs -- They are a drag on the group, and they lack on They are a drag on the group, and they lack on
competencies to take on competition and are basically competencies to take on competition and are basically
cash traps (Eg. Nelco, Tata Pharma, Tata Press). cash traps (Eg. Nelco, Tata Pharma, Tata Press).
Croups prefer to dispose off such businesses Croups prefer to dispose off such businesses (i.e. (i.e.
harvest, divest) harvest, divest) as achieving a dominant position in as achieving a dominant position in
these businesses is a difficult task. these businesses is a difficult task.
BCC BCC · · L!N!TAT!ONS L!N!TAT!ONS
!t does not address the concerns of a business which !t does not address the concerns of a business which
is in the average category (usually the majority), is in the average category (usually the majority),
neither in high or low. neither in high or low.
Certain businesses in the low market share category Certain businesses in the low market share category
may be the result of a conscious strategy (i.e. niche may be the result of a conscious strategy (i.e. niche --
Rolex, Cartier, Nercedes Benz, Armani). Rolex, Cartier, Nercedes Benz, Armani).
Cash cows may actually need substantial investments Cash cows may actually need substantial investments
to retain their market position (Eg. HUL). to retain their market position (Eg. HUL).
The model does not provide specific solutions within a The model does not provide specific solutions within a
particular category. particular category.
The terminologies used are somewhat prohibitive. The terminologies used are somewhat prohibitive.
Data may be prohibitive, factors are limited. Data may be prohibitive, factors are limited.
103 103
104 104
CE CE · · NATR!X NATR!X
Distinctive Capabilities
Strong Nedium Weak
Diversify (++) !ntensify (+)
!ntensify(+)
Stability Harvest (·) Divest (· ·)
Stability
Stability
Harvest (·)
10S 10S
ARTHUR' D. L!TTLE ARTHUR' D. L!TTLE
!nvest Consolidate
!ndustry Life·Cycle
Crowth !nception Naturity Decline
Dominant
Strong
Favourable
Tenable
Weak
Selective
Abandon
Niche
Divest
Harvest
Hold
!mprove
106 106
SHELL SHELL -- D!RECT!ONAL #OL!CY NATR!X D!RECT!ONAL #OL!CY NATR!X
Business Sector Prospects
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Strong
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Double
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Crowth
Custodial
Expand Divest
#hased
Withdrawal
Cenerate
Cash
#hased
Withdrawal
TERN!NOLOC!ES TERN!NOLOC!ES
Harvest Harvest -- !t entails minimizing investments while !t entails minimizing investments while
trying to maximize short trying to maximize short··run profits and cash flow with run profits and cash flow with
the intention to exit the business in the near future. the intention to exit the business in the near future.
Divest Divest -- Selling a part or the entire business at one Selling a part or the entire business at one
go. Disinvestment involves selling in phases. go. Disinvestment involves selling in phases.
SBU SBU -- A business unit which is strategically different A business unit which is strategically different
from another and also shares a different S!C code. from another and also shares a different S!C code.
Portfolio Portfolio -- An organization is perceived as a portfolio An organization is perceived as a portfolio
of businesses. of businesses.
BCC BCC -- Boston Consulting Croup. Boston Consulting Croup.
Cap Analysis Cap Analysis -- !t emphasizes what a firm wants to !t emphasizes what a firm wants to
achieve. achieve.
107 107
108 108
BUS!NESS STRATECY BUS!NESS STRATECY
SS
CONPET!T!ON CONPET!T!ON
103 103
CON#ET!T!vE STRATECY CON#ET!T!vE STRATECY
A competitive strategy deals with how a firm competes A competitive strategy deals with how a firm competes
in a particular business or product in a particular business or product··market segment. The market segment. The
principal focus is on meeting competition, building principal focus is on meeting competition, building
market market··share, and earning super share, and earning super··normal profits (i.e. normal profits (i.e.
rent). rent).
The strength of a firm in a particular business usually The strength of a firm in a particular business usually
stems from its competitive advantage. Competitive stems from its competitive advantage. Competitive
advantage refers to a firms resources or activities in advantage refers to a firms resources or activities in
which it is way ahead of competition. which it is way ahead of competition.
Such resources or activities should be distinctive and Such resources or activities should be distinctive and
sustainable over time. sustainable over time.
Competitive advantage is the back Competitive advantage is the back··bone of strategy. bone of strategy.
110 110
BUS!NESS STRATECY BUS!NESS STRATECY · · FRANEWORKS FRANEWORKS
How to be distinctive and yet sustainable How to be distinctive and yet sustainable --
Differentiation Differentiation -- Understanding of the dynamics of Understanding of the dynamics of
competition, identifying critical success factors, competition, identifying critical success factors,
developing competitive advantage developing competitive advantage (Porter). (Porter).
Resource Based view Resource Based view -- Obsession with competence Obsession with competence
building, involving harmonizing and integrating multiple building, involving harmonizing and integrating multiple
streams of technologies streams of technologies (Wernerfelt, Prahalad). (Wernerfelt, Prahalad).
Delta Lock !n Delta Lock !n -- Two dominant players co Two dominant players co··opt to self opt to self··
reinforce and create or escalate an entry barrier, reinforce and create or escalate an entry barrier,
preventing new entry and/or competition preventing new entry and/or competition (Hax S Wilde). (Hax S Wilde).
Blue Ocean Blue Ocean -- Consciously moving away from Consciously moving away from
overcrowded industries to uncharted territories and overcrowded industries to uncharted territories and
making competition irrelevant making competition irrelevant (Kim S Nauborgne). (Kim S Nauborgne).
111 111
#ORTERS #ORTERS -- COST LEADERSH!# COST LEADERSH!#
Cost Leadership Cost Leadership -- !t is a strategy that focuses on making !t is a strategy that focuses on making
a firm more competitive by producing its products more a firm more competitive by producing its products more
cheaply than its competitors. The firm may retain the cheaply than its competitors. The firm may retain the
benefits of cost advantage by enjoying higher margins benefits of cost advantage by enjoying higher margins
(Eg. Reliance) (Eg. Reliance) or may pass it to customers to increase or may pass it to customers to increase
market market··share share (Eg. Nirma, Ayur, T (Eg. Nirma, Ayur, T··Series). Series). Sources of Sources of
cost advantage are varied and depends on the structure cost advantage are varied and depends on the structure
of the industry of the industry --
Economies of size, backward integration, proprietary Economies of size, backward integration, proprietary
technology, preferential access to raw materials. technology, preferential access to raw materials.
Compress project duration through crashing. Compress project duration through crashing.
Locational or early entry advantage. Locational or early entry advantage.
Steep experience curve effects. Steep experience curve effects.
112 112
#ORTERS #ORTERS -- #RODUCT D!FFERENT!AT!ON #RODUCT D!FFERENT!AT!ON
Product Differentiation Product Differentiation -- !t is a strategy that attempts to !t is a strategy that attempts to
provide products or services that are differentiated from provide products or services that are differentiated from
competitive products in terms of its value proposition competitive products in terms of its value proposition
and uniqueness. !t selects one or more attributes that and uniqueness. !t selects one or more attributes that
buyers perceive as important. Neans of product buyers perceive as important. Neans of product
differentiation are peculiar to each industry. Successful differentiation are peculiar to each industry. Successful
product differentiation is often followed by premium product differentiation is often followed by premium
pricing. pricing. (Eg. !ntel, Sony, Rayban) (Eg. !ntel, Sony, Rayban). .
Creativity, innovation and out of the box thinking. Creativity, innovation and out of the box thinking.
Culture of experimentation, and sufficient slack. Culture of experimentation, and sufficient slack.
Focus on brand loyalty, avoiding brand dilution, Focus on brand loyalty, avoiding brand dilution,
undeterred attention to quality. undeterred attention to quality.
Feeling the pulse of the customer. Feeling the pulse of the customer.
113 113
#ORTERS N!CHE OR FOCUS #ORTERS N!CHE OR FOCUS
Focus / Niche Focus / Niche -- !t is a variant strategy of cost !t is a variant strategy of cost
leadership or product differentiation targeting a specific leadership or product differentiation targeting a specific
market or buyer sub market or buyer sub··segment with the exclusion of segment with the exclusion of
others others (Eg. Rolex, Naybach, Nont (Eg. Rolex, Naybach, Nont··Blanc, Cartier, Blanc, Cartier,
Armani). Armani). A focuser seeks to achieve a competitive A focuser seeks to achieve a competitive
advantage in its target segment, though it may not advantage in its target segment, though it may not
possess an overall competitive advantage. possess an overall competitive advantage.
The target segment must have unusual needs or the The target segment must have unusual needs or the
delivery system catering to this segment must be delivery system catering to this segment must be
unique. unique.
They are poorly served by mainstream players. They are poorly served by mainstream players.
Sub optimization alone may not be a source of superior Sub optimization alone may not be a source of superior
performance, coupled with fear of structural erosion. performance, coupled with fear of structural erosion.
114 114
CON#ET!T!vE #OS!T!ONS CON#ET!T!vE #OS!T!ONS
Competitive Advantage
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Cost Differentiation #roduct Differentiation
Cost Leadership
(Toyota)
Differentiation
Focus
(Nercedes)
Cost Focus
(Hyundai)
Product
Differentiation
(Ceneral Notors)
HYBR!D STRATECY HYBR!D STRATECY
A hybrid strategy is the simultaneous pursuit of cost A hybrid strategy is the simultaneous pursuit of cost
leadership and differentiation, and usually outperforms leadership and differentiation, and usually outperforms
a stand alone generic strategy. a stand alone generic strategy.
Though cost leadership and differentiation are Though cost leadership and differentiation are
inconsistent, in a hyper competitive context the two inconsistent, in a hyper competitive context the two
strategies need not be mutually exclusive. strategies need not be mutually exclusive.
Reducing cost does not always involve a sacrifice in Reducing cost does not always involve a sacrifice in
differentiation, similarly differentiation may not always differentiation, similarly differentiation may not always
lead to rising costs. lead to rising costs.
Firms Firms focusing on a hybrid strategy typically aim at focusing on a hybrid strategy typically aim at
shifting the productivity frontier and recreating a new shifting the productivity frontier and recreating a new
product product··market segment altogether (Eg. Tata Nano). market segment altogether (Eg. Tata Nano).
11S 11S
STUCK !N THE N!DDLE STUCK !N THE N!DDLE
A firm that engages in a hybrid strategy and fails to A firm that engages in a hybrid strategy and fails to
achieve a competitive advantage because it was ill achieve a competitive advantage because it was ill
conceived will be conceived will be ·· stuck in the middle. stuck in the middle.
!t will have a competitive disadvantage vis !t will have a competitive disadvantage vis··aa··vis a vis a
clearly positioned generic player. clearly positioned generic player.
!ndustry maturity will usually widen the gap, unless !ndustry maturity will usually widen the gap, unless
such a player is capable of discovering a profitable such a player is capable of discovering a profitable
segment. segment.
!t is usually the result of a firm not willing to make !t is usually the result of a firm not willing to make
trade offs, leading to what is called trade offs, leading to what is called -- straddling. !t straddling. !t
tries to compete through every means, but achieves tries to compete through every means, but achieves
none. none. The positioning therefore gets The positioning therefore gets -- blurred. blurred.
116 116
117 117
ENERC!NC !NDUSTRY ENERC!NC !NDUSTRY
Emerging !ndustry Emerging !ndustry -- An evolving industry characterized An evolving industry characterized
by by ·· radical environmental changes, changing customer radical environmental changes, changing customer
needs, technological innovations, ending in a differential needs, technological innovations, ending in a differential
cost economics. cost economics. Eg. Digital imaging, Data Storage, Eg. Digital imaging, Data Storage,
Artificial intelligence). Artificial intelligence). !t is characterized by !t is characterized by --
High level of technological uncertainty, leading to a High level of technological uncertainty, leading to a
blurred productivity frontier and steep learning curve. blurred productivity frontier and steep learning curve.
First First··time buyers. Consumer behaviour pattern unstable time buyers. Consumer behaviour pattern unstable
and evolving. Eg. Speech recognition software's. and evolving. Eg. Speech recognition software's.
Excessive turbulence in the dynamics of the Excessive turbulence in the dynamics of the
environment, coupled with low penetration levels. environment, coupled with low penetration levels.
Narket segmentation not well defined. There is a lot of Narket segmentation not well defined. There is a lot of
scope to define the rules of competition. scope to define the rules of competition.
118 118
CROWTH / FRACNENTED !NDUSTRY CROWTH / FRACNENTED !NDUSTRY
Crowth !ndustry Crowth !ndustry -- An industry characterized by high An industry characterized by high
growth potential in the long run and where no firm has growth potential in the long run and where no firm has
a significant market share (an edge over another) a significant market share (an edge over another)
leading to clear fragmentation. !t is characterized by leading to clear fragmentation. !t is characterized by --
Low entry barriers, because of lack of economies of size Low entry barriers, because of lack of economies of size
and scale. and scale. Eg. Consumer durables. High exit barriers Eg. Consumer durables. High exit barriers
because of huge investment in CAPEX. Eg. Retail and because of huge investment in CAPEX. Eg. Retail and
telecom. telecom.
Covernment regulations in the form Eg. NRTP may also Covernment regulations in the form Eg. NRTP may also
cause fragmentation. cause fragmentation.
Diverse customer needs. Diverse customer needs. Eg. Air Conditioning, Paints. Eg. Air Conditioning, Paints.
Scope for players to change the rules of the game. Scope for players to change the rules of the game.
113 113
NATURED !NDUSTRY NATURED !NDUSTRY
Natured !ndustry Natured !ndustry -- An industry characterized by An industry characterized by
saturation in growth rates, technological maturity, saturation in growth rates, technological maturity,
established industry dynamics, well defined consumer established industry dynamics, well defined consumer
behavioral patterns and imperfect competition leading to behavioral patterns and imperfect competition leading to
near monopoly. near monopoly.
Cartel among existing players through collusion, Cartel among existing players through collusion,
collaboration and cooption. collaboration and cooption.
Strong entry barriers, because of economies of size and Strong entry barriers, because of economies of size and
learning curve effects, distribution networks, early entry learning curve effects, distribution networks, early entry
and location advantages. and location advantages.
Limited scope for innovation Limited scope for innovation ·· technological maturity. technological maturity.
Firms are rule takers in the segment as productivity Firms are rule takers in the segment as productivity
frontier is well defined. frontier is well defined.
120 120
DECL!N!NC !NDUSTRY DECL!N!NC !NDUSTRY
Declining !ndustry Declining !ndustry -- An industry which has outlived its An industry which has outlived its
utility due to the entry of close substitutes and or radical utility due to the entry of close substitutes and or radical
product innovations which results in a shift of the product innovations which results in a shift of the
productivity frontier, with little or no signs of recovery. productivity frontier, with little or no signs of recovery.
Eg. Typewriters, scooters, dot Eg. Typewriters, scooters, dot··matrix printers. matrix printers.
Firms facing a declining phase are characterized by Firms facing a declining phase are characterized by
inertia and slow to react to environmental changes. inertia and slow to react to environmental changes.
Learning abilities have been stunted and firms adverse Learning abilities have been stunted and firms adverse
to investment in RSD and make fresh investments. to investment in RSD and make fresh investments.
Exit barriers are extremely high because of limited Exit barriers are extremely high because of limited
prospective buyers, backed by corporate espionage, and prospective buyers, backed by corporate espionage, and
costly price wars. costly price wars.
Nature of competition extremely high. Nature of competition extremely high.
121 121
CON#ET!T!vE STRATEC!ES CON#ET!T!vE STRATEC!ES
Emerging !ndustry Emerging !ndustry -- Set benchmarks, strictly product Set benchmarks, strictly product
differentiation and not standardization, premium differentiation and not standardization, premium
pricing, aggressive building of distribution networks, pricing, aggressive building of distribution networks,
branding and promotion. branding and promotion.
Fragmented !ndustry Fragmented !ndustry -- !dentify, assess and overcome !dentify, assess and overcome
fragmentation. Locate a defendable position, focus fragmentation. Locate a defendable position, focus
more on product differentiation or even a hybrid one. more on product differentiation or even a hybrid one.
Natured !ndustry Natured !ndustry -- Sophisticated cost analysis, Sophisticated cost analysis,
process innovation, increasing scope, mergers and process innovation, increasing scope, mergers and
acquisition, strictly cost differentiation. acquisition, strictly cost differentiation.
Declining !ndustry Declining !ndustry -- Redesign, reengineer, regenerate, Redesign, reengineer, regenerate,
move beyond boundaries, recreate new markets, move beyond boundaries, recreate new markets,
strike alliances, or else exit the segment. strike alliances, or else exit the segment.
122 122
RESOURCE BASED v!EW RESOURCE BASED v!EW
Differentiation based on cost or products saturates and Differentiation based on cost or products saturates and
ceases to exist in the medium term. However, positions ceases to exist in the medium term. However, positions
based on resources which are unique and inimitable are based on resources which are unique and inimitable are
far more sustainable even in the long term. A firms far more sustainable even in the long term. A firms
resources can be classified into resources can be classified into --
Tangible Tangible -- These refer to real assets. They are a These refer to real assets. They are a
standard in nature, hence very rarely confer competitive standard in nature, hence very rarely confer competitive
advantage as can be easily acquired or replicated. advantage as can be easily acquired or replicated.
!ntangible !ntangible -- These refer to goodwill, patents, brands, These refer to goodwill, patents, brands,
and complex learning experiences in integrating and and complex learning experiences in integrating and
harmonizing technologies harmonizing technologies (distinctive capabilities) (distinctive capabilities) that that
play an important role in delivering competitive play an important role in delivering competitive
advantage through causal ambiguity. advantage through causal ambiguity.
123 123
CA#AB!L!T!ES S CO#N#ETENC!ES CA#AB!L!T!ES S CO#N#ETENC!ES
These include a complex combinations of tangible and These include a complex combinations of tangible and
intangible resources that organizations use to convert intangible resources that organizations use to convert
inputs to outputs. Typically, they are woven around inputs to outputs. Typically, they are woven around
technologies, but not necessarily. technologies, but not necessarily. There is a high degree There is a high degree
of internal and external causal ambiguity involved in it. of internal and external causal ambiguity involved in it.
Hence, differentiation based on capabilities can be Hence, differentiation based on capabilities can be
sustained even in the long run. sustained even in the long run.
They play a very critical role in shaping competitive They play a very critical role in shaping competitive
advantage. Therefore firms should concentrate on advantage. Therefore firms should concentrate on
developing complex resources that forms the very basis of developing complex resources that forms the very basis of
differentiation. Capabilities can be generic (i.e. can be differentiation. Capabilities can be generic (i.e. can be
leveraged across businesses) or specific to a particular leveraged across businesses) or specific to a particular
business. business.
124 124
CONPET!T!vE ADvANTACE CONPET!T!vE ADvANTACE
12S 12S
CON#ET!T!vE ADvANTACE CON#ET!T!vE ADvANTACE
A competitive advantage is a position of superiority A competitive advantage is a position of superiority
relative (i.e. not absolute) to competition. relative (i.e. not absolute) to competition.
!t results in a distinct differentiation advantage or a !t results in a distinct differentiation advantage or a
cost advantage or hybrid as well. cost advantage or hybrid as well.
Strategy drives competitive advantage, competitive Strategy drives competitive advantage, competitive
advantage subsequently becomes the back bone for a advantage subsequently becomes the back bone for a
competitive strategy. competitive strategy.
!t enlarges the scope of an organization, and results in !t enlarges the scope of an organization, and results in
well springs of new business development. well springs of new business development.
A portfolio of competitive advantage comprises A portfolio of competitive advantage comprises
strategic advantage profile (SAP). strategic advantage profile (SAP).
Success of a strategy critically depends on SAP. Success of a strategy critically depends on SAP.
126 126
STRATEC!C ADvANTACE #ROF!LE (SA#) STRATEC!C ADvANTACE #ROF!LE (SA#)
Organizations have to systematically and continuously Organizations have to systematically and continuously
conduct exercises to identify its SAP. conduct exercises to identify its SAP.
!n most cases SAP is hidden and dormant. !n most cases SAP is hidden and dormant.
!dentification of SAP is critical for and stretching and !dentification of SAP is critical for and stretching and
leveraging of resources. leveraging of resources.
!n today's world of discontinuity, SAP changes from time !n today's world of discontinuity, SAP changes from time
to time. to time.
!nternal strategic fit between its strategy and dominant !nternal strategic fit between its strategy and dominant
logics is essential for the top management to stretch logics is essential for the top management to stretch
and leverage SAP. and leverage SAP.
Nost successful organizations around the world have a Nost successful organizations around the world have a
well balanced SAP. well balanced SAP.
127 127
vALUE CHA!N ANALYS!S vALUE CHA!N ANALYS!S
A value A value··chain segregates a firm into strategically chain segregates a firm into strategically
relevant activities to understand its individual behaviour. relevant activities to understand its individual behaviour.
!nventory Ngt to Logistics Ngt to Supply Chain Ngt. !nventory Ngt to Logistics Ngt to Supply Chain Ngt.
Today SCN is integrated with greening the environment Today SCN is integrated with greening the environment
as CSR practices. as CSR practices.
A vC is often compared with a relay team, each of the A vC is often compared with a relay team, each of the
players need to be efficient backed by sufficient players need to be efficient backed by sufficient
coordination at the contact points (i.e. kaizen or internal coordination at the contact points (i.e. kaizen or internal
customer). Competitive advantage arises not from an customer). Competitive advantage arises not from an
individual activity but a stream of inter individual activity but a stream of inter··related activities. related activities.
vC pay vC pay··offs: better product availability, faster product offs: better product availability, faster product
launches, and enhanced customer tracking launches, and enhanced customer tracking -- higher higher
market share. Substantial cost reductions also follow. market share. Substantial cost reductions also follow.
128 128
Human Resource Nanagement
!nfrastructure
Technology Development
Procurement
THE vALUE CHA!N THE vALUE CHA!N
123 123
STRATEC!C F!T STRATEC!C F!T -- THE #ORTER WAY THE #ORTER WAY
The sustainability of the value chain depends on the The sustainability of the value chain depends on the
degree of fit between the activities. degree of fit between the activities. Fit is important Fit is important
because discrete activities result in negative synergy and because discrete activities result in negative synergy and
can also be easily copied by competitors. Operational can also be easily copied by competitors. Operational
effectiveness is not strategy. effectiveness is not strategy.
-- First order fit refers to simple consistency between First order fit refers to simple consistency between
each activity and the overall strategy. each activity and the overall strategy.
-- Second order fit occurs when activities are reinforcing Second order fit occurs when activities are reinforcing
amongst them. amongst them.
-- Third order fit refers to optimization of effort. Third order fit refers to optimization of effort.
A learning organization helps create strategic fit. A high A learning organization helps create strategic fit. A high
fit involving a complex chain of activities drives both fit involving a complex chain of activities drives both
competitive advantage and its sustainability. competitive advantage and its sustainability.
130 130
CORE CON#ETENCE CORE CON#ETENCE
A core competence represents the collective learning's of A core competence represents the collective learning's of
an organization around diverse streams of technologies. an organization around diverse streams of technologies.
!t forms the very basis of competitive advantage. These !t forms the very basis of competitive advantage. These
skills results in distinctive activities and processes. !t skills results in distinctive activities and processes. !t
should satisfy the following conditions should satisfy the following conditions ··
-- Contributes significantly to customer benefits. Contributes significantly to customer benefits.
-- Cannot be easily imitated or substituted. Cannot be easily imitated or substituted.
-- Can be leveraged across businesses. Can be leveraged across businesses.
-- Can be sustained even in the long run. Can be sustained even in the long run.
A core competence usually has its roots in technology, A core competence usually has its roots in technology,
but not necessarily. but not necessarily.
Core competence has a high degree of external and Core competence has a high degree of external and
internal causal ambiguity embedded in it. internal causal ambiguity embedded in it.
131 131
CORE CON#ETENCE CORE CON#ETENCE
A competitive advantage does not necessarily imply a A competitive advantage does not necessarily imply a
core competence, a core competence always implies a core competence, a core competence always implies a
competitive advantage. competitive advantage.
A competitive advantage may or may not lead to A competitive advantage may or may not lead to
superior performance, a core competence usually does. superior performance, a core competence usually does.
A competitive advantage manifests from a function, a A competitive advantage manifests from a function, a
core competence has its roots in a set of skills. core competence has its roots in a set of skills.
A competitive advantage is sustainable in the short A competitive advantage is sustainable in the short··
medium term, a core competence is sustainable even in medium term, a core competence is sustainable even in
the long the long··term. term.
Najority of the firms have competitive advantage, only Najority of the firms have competitive advantage, only
leaders possess a core competence. leaders possess a core competence.
132 132
CANE THEORY CANE THEORY
The game theory was developed in 1344 by Oscar The game theory was developed in 1344 by Oscar
Norgenstern. Subsequent work on game theory by ]ohn Norgenstern. Subsequent work on game theory by ]ohn
Nash led him to win the Nobel prize in 1334. Nash led him to win the Nobel prize in 1334.
A game is a contest involving two or more players, each A game is a contest involving two or more players, each
of whom wants to win. !n a game (similar to a business) of whom wants to win. !n a game (similar to a business)
one players win is always another's loss. This is known one players win is always another's loss. This is known
as a zero as a zero··sum game. sum game.
Here the magnitude of gain offsets the magnitude of Here the magnitude of gain offsets the magnitude of
loss equally. loss equally.
However, the stringent assumptions of game theory and However, the stringent assumptions of game theory and
difficulty in ascertaining of pay difficulty in ascertaining of pay··offs makes game theory offs makes game theory
application difficult in business. !n fact there are no. application difficult in business. !n fact there are no.
illustrations depicting a win illustrations depicting a win··win situation. win situation.
133 133
B!ASED AND UNB!ASED CANE B!ASED AND UNB!ASED CANE
A game is said to be biased when one of the players A game is said to be biased when one of the players
have a disproportionate chance of winning. An have a disproportionate chance of winning. An
unbiased game is one where both the players have unbiased game is one where both the players have
equal chances of winning. equal chances of winning.
Use Radio +2
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134 134
#URE STRATECY CANE #URE STRATECY CANE
The strategy each player follows will always be the The strategy each player follows will always be the
same regardless of the other players strategy. A same regardless of the other players strategy. A
saddle point is a situation where both the players are saddle point is a situation where both the players are
facing pure strategies. facing pure strategies.
Use Radio Use Newspaper
Firm Y's Strategy
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TY#ES OF CANES TY#ES OF CANES
Simultaneous Cames Simultaneous Cames -- This is a situation where the This is a situation where the
players have an option to choose to cooperate or not players have an option to choose to cooperate or not
through collusion, collaboration or cooption. !t through collusion, collaboration or cooption. !t
represents the classical represents the classical ¨prisoner's dilemma" ¨prisoner's dilemma". However, . However,
there is likely to be temptation by any of the players to there is likely to be temptation by any of the players to
try to steal the advantage over the other by breaking try to steal the advantage over the other by breaking
the rules of the game the rules of the game (E.g. Coke vs Pepsi) (E.g. Coke vs Pepsi). .
Repeated Cames Repeated Cames -- !n this situation the players interact !n this situation the players interact
repeatedly with each other sub repeatedly with each other sub··optimizing the outcome optimizing the outcome
possibilities. This is usually through learning by possibilities. This is usually through learning by
¨experience" ¨experience" (i.e. iteration) rather than through (i.e. iteration) rather than through
collusion collusion (E.g. Yahoo vs Nicrosoft). (E.g. Yahoo vs Nicrosoft). 13S 13S
CHANC!NC THE RULES OF THE CANE CHANC!NC THE RULES OF THE CANE
!n a situation where a player is unable to compete with !n a situation where a player is unable to compete with
the existing rules of the game may attempt to change the the existing rules of the game may attempt to change the
rules of the game altogether. !t results in a shift in the rules of the game altogether. !t results in a shift in the
productivity frontier. productivity frontier.
!n a market dominated by price !n a market dominated by price··based differentiation one based differentiation one
may attempt to change the rules of the game by/when may attempt to change the rules of the game by/when --
-- Bases of differentiation dependent on clear Bases of differentiation dependent on clear
identification of what customer wants or value. identification of what customer wants or value.
-- Building incentives for customer loyalty. Building incentives for customer loyalty.
-- Naking pricing more transparent. Naking pricing more transparent.
Came theory relies on the principle of rationality, but Came theory relies on the principle of rationality, but
players do not always behave rationally. players do not always behave rationally.
136 136
137 137
DELTA NODEL S LOCK DELTA NODEL S LOCK· ·!N !N
!ts a systematic approach where !ts a systematic approach where··in two or more industry in two or more industry
majors, who by default has achieved a proprietary majors, who by default has achieved a proprietary
position position (Nicrosoft (Nicrosoft -- Software / !BN Software / !BN -- Computers) Computers) which which
are not necessarily best are not necessarily best··products in the industry, co products in the industry, co··opt opt
to create a lock to create a lock··in. in.
A lock A lock··in implies that other players has to conform or in implies that other players has to conform or
relate to that standard in order to prosper. relate to that standard in order to prosper.
Becoming the industry standard requires Becoming the industry standard requires -- strong brand, strong brand,
causal ambiguity, and close relationship with other causal ambiguity, and close relationship with other
companies offering complimentary services. companies offering complimentary services.
Lock Lock··in is self reinforcing and escalating (i.e. in is self reinforcing and escalating (i.e.
accelerating effect). accelerating effect).
138 138
THE THREE STRATEC!C #OS!T!ONS THE THREE STRATEC!C #OS!T!ONS
Enabled through
effective use
of technology
System Lock·!n
System Economics
Narket Dominance
Complementary Share
Proprietary Product
Product Economics
Rivalry
Product Share
Total Customer Solutions
Customer Economics
Cooperation
Customer Share
LOCK·!N #AYOFFS
Bill Cates 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·!N SUSTA!NAB!L!TY
The proponents (Hax S 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 Creek 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.
!n a lock·in strategy the performance outcomes are
dependent on the success of another.
141 141
STRATECY STRATECY
!NPLENENTAT!ON !NPLENENTAT!ON
142 142
STRATECY !N#LENENTAT!ON STRATECY !N#LENENTAT!ON
!t relates to translating strategy formulations into !t relates to translating strategy formulations into
practice. Performance realization of a strategy depends practice. Performance realization of a strategy depends
on the implementation effort. Successful on the implementation effort. Successful
implementation also depends on the appropriateness of implementation also depends on the appropriateness of
the strategy. the strategy.
Since strategy implementation is a time bound process, Since strategy implementation is a time bound process,
alignment (i.e. strategic fit) alignment (i.e. strategic fit) is a key variable during is a key variable during
times of radical change. Some of the other levers of times of radical change. Some of the other levers of
successful strategy implementation are successful strategy implementation are --
Transformational leadership and motivating power. Transformational leadership and motivating power.
Resource allocation, its stretching and leveraging. Resource allocation, its stretching and leveraging.
Compatible organization structure S control systems. Compatible organization structure S control systems.
!nertia S resistance to change. !nertia S resistance to change.
!N#ORTANCE OF STRATEC!C F!T !N#ORTANCE OF STRATEC!C F!T
Strategic fit has a central role to play in strategic Strategic fit has a central role to play in strategic
management. While external strategic fit (strategy management. While external strategic fit (strategy --
environment) is relevant for strategy formulation, environment) is relevant for strategy formulation,
internal strategic fit (dominant logic internal strategic fit (dominant logic -- strategy) is critical strategy) is critical
to strategy implementation. A high strategic fit (co to strategy implementation. A high strategic fit (co
alignment) is useful because it enables alignment) is useful because it enables --
-- Appropriate and timely response. Appropriate and timely response.
-- Unlearning S learning of new skill sets. Unlearning S learning of new skill sets.
-- Better strategic and operational control. Better strategic and operational control.
-- Resource commitment from top management. Resource commitment from top management.
-- Development of capabilities S competencies. Development of capabilities S competencies.
-- Changing the rules of the game. Changing the rules of the game.
143 143
FORNULAT!ON FORNULAT!ON vs vs !N#LENENTAT!ON !N#LENENTAT!ON
Traditionally, strategy formulation and implementation Traditionally, strategy formulation and implementation
has been perceived to be distinct S independent. has been perceived to be distinct S independent.
!n such a situation, while control is very effective, !n such a situation, while control is very effective,
learning levels are very low. learning levels are very low.
According to Nintzberg, effective strategies are better According to Nintzberg, effective strategies are better
crafted when there is a subtle overlapping between the crafted when there is a subtle overlapping between the
two. two.
!n such a situation, learning levels are very high, at the !n such a situation, learning levels are very high, at the
cost of sacrificing a lesser degree of control. !n fact, cost of sacrificing a lesser degree of control. !n fact,
formulation S implementation can occur simultaneously. formulation S implementation can occur simultaneously.
Some of the key strategic learning's exists at the contact Some of the key strategic learning's exists at the contact
point between the organization and its customer. point between the organization and its customer.
144 144
ROLE OF TO# NANACENENT ROLE OF TO# NANACENENT
To bring about change and to implement strategies To bring about change and to implement strategies
successfully, companies depend more on successfully, companies depend more on
transformational leaders transformational leaders than than transactional leaders. transactional leaders. A A
transactional leader is usually confined to allocating transactional leader is usually confined to allocating
tasks S responsibilities and extracting performance. tasks S responsibilities and extracting performance. !n !n
contrast, transformational leaders go one step beyond contrast, transformational leaders go one step beyond --
Design a well crafted and designed strategic intent of Design a well crafted and designed strategic intent of
the organization. !nstall a system of shared beliefs and the organization. !nstall a system of shared beliefs and
values. values.
Pragmatism is the ability to make things happen. Pragmatism is the ability to make things happen.
He should be an agent of change, shift from compliance He should be an agent of change, shift from compliance
to commitment, bring about transparency. to commitment, bring about transparency.
14S 14S
146 146
RESOURCE ALLOCAT!ON RESOURCE ALLOCAT!ON
Resources allocation includes tangible resources (Eg. Resources allocation includes tangible resources (Eg.
land, labour, machines) referred to as land, labour, machines) referred to as threshold threshold
resources resources (i.e. minimum requirement). !ntangible (i.e. minimum requirement). !ntangible
resources (Eg. brands, patents), also includes resources (Eg. brands, patents), also includes distinctive distinctive
resources resources ·· capabilities capabilities and and competencies competencies. The various . The various
methods of resource allocation includes methods of resource allocation includes ··
Historical Budget Historical Budget -- The budgets framed by HO for a The budgets framed by HO for a
particular SBU keeping in mind past trends. particular SBU keeping in mind past trends.
Zero Based Budget Zero Based Budget -- !n this case the budget of a SBU !n this case the budget of a SBU
has to be worked out right from the scratch. has to be worked out right from the scratch.
Performance Budget Performance Budget -- SBU managers need to justify the SBU managers need to justify the
distinctive resources in terms of the opportunity it is distinctive resources in terms of the opportunity it is
pursuing yields the highest possible pay pursuing yields the highest possible pay··offs. offs.
CA#AB!L!T!ES S CON#ETENC!ES CA#AB!L!T!ES S CON#ETENC!ES
Technology and business are slowly becoming in Technology and business are slowly becoming in --
separable. Noreover, convergence of multiple streams of separable. Noreover, convergence of multiple streams of
technologies at the product technologies at the product -- market level is becoming market level is becoming
increasingly evident (Eg. Flat Screen Displays). increasingly evident (Eg. Flat Screen Displays).
Distinctive capabilities are complex set of skills woven Distinctive capabilities are complex set of skills woven
around technologies, though not necessarily in the case around technologies, though not necessarily in the case
of emerging markets. of emerging markets.
Distinctive capabilities helps in stretching and leveraging Distinctive capabilities helps in stretching and leveraging
resources thereby overcoming two major constraints resources thereby overcoming two major constraints
involved in strategy implementation involved in strategy implementation -- times S costs. times S costs.
Due to causal ambiguity (complexity), these capabilities Due to causal ambiguity (complexity), these capabilities
are sustainable even in the medium to long term. are sustainable even in the medium to long term.
147 147
148 148
STRATECY S STRUCTURE STRATECY S STRUCTURE
!t is a framework within which individual efforts are !t is a framework within which individual efforts are
coordinated to bring synergy. coordinated to bring synergy. An appropriate An appropriate
organization structure S adequate control systems are organization structure S adequate control systems are
essential to implement strategies and achieve stated essential to implement strategies and achieve stated
goals. The level of goals. The level of centralization centralization and and decentralization decentralization is is
decisive. decisive. Once the structure is in place, processes Once the structure is in place, processes
become people independent become people independent. .
A single product or a dominant business firm usually A single product or a dominant business firm usually
employs a functional structure. employs a functional structure.
A firm in several related businesses usually employs a A firm in several related businesses usually employs a
divisional structure. divisional structure.
A firm in several unrelated businesses usually employs a A firm in several unrelated businesses usually employs a
SBU structure. SBU structure.
143 143
TY#ES OF STRUCTURES TY#ES OF STRUCTURES
Functional Structure Functional Structure -- Activities grouped together by a Activities grouped together by a
common function (Eg. Narketing, Finance). common function (Eg. Narketing, Finance).
Divisional Structure Divisional Structure -- Units grouped together in terms of Units grouped together in terms of
products, processes, or geographical locations. products, processes, or geographical locations.
SBU Structure SBU Structure -- Businesses segregated in terms of Businesses segregated in terms of
strategic dissimilarities (Eg. !nputs ,Technology, Output). strategic dissimilarities (Eg. !nputs ,Technology, Output).
Project / Natrix Structure Project / Natrix Structure -- A group formed for the A group formed for the
completion of a particular project/crisis, with team completion of a particular project/crisis, with team
members having dual line of control, disbanded members having dual line of control, disbanded
subsequently. subsequently.
Team Structure Team Structure -- An informal group formed for a crisis, An informal group formed for a crisis,
based on skills and competencies. based on skills and competencies.
virtual Structure virtual Structure -- A boundary less or hollow organization. A boundary less or hollow organization.
FACTORS !NFLUENC!NC STRUCTURE FACTORS !NFLUENC!NC STRUCTURE
Size Size -- As an organizations size increases there is more As an organizations size increases there is more
specialization and differentiation leading to the top specialization and differentiation leading to the top
management moving away from operational issues and management moving away from operational issues and
control, leading to a tall structure. control, leading to a tall structure.
Technology Technology -- With more and more convergence of With more and more convergence of
technologies in business, structures are becoming flatter technologies in business, structures are becoming flatter
and more simpler, as span is broader. and more simpler, as span is broader.
Environment S People Environment S People -- Economic and political Economic and political
conditions have a major bearing on structure coupled conditions have a major bearing on structure coupled
with the attitude and aspirations of the people in the with the attitude and aspirations of the people in the
organization. !t includes the desire for independence, organization. !t includes the desire for independence,
assuming responsibility, facing challenges S crises. assuming responsibility, facing challenges S crises.
1S0 1S0
1S1 1S1 1S1 1S1
!NERT!A !NERT!A
When a firm has been operating in a certain fashion for When a firm has been operating in a certain fashion for
a long time, there is a tendency to continue along the a long time, there is a tendency to continue along the
same lines. same lines. !nertia is a characteristic of a firm that !nertia is a characteristic of a firm that
endures status quo. endures status quo. Nost firms undergo periods of Nost firms undergo periods of
strategic continuity strategic continuity rather than rather than strategic change strategic change. .
!nertia acts as an impediment in strategy !nertia acts as an impediment in strategy
implementation. Changes in top management implementation. Changes in top management and and
unlearning unlearning helps overcome inertia. Top managers resist helps overcome inertia. Top managers resist
change, irrespective whether it is from worse to good or change, irrespective whether it is from worse to good or
good to worse. Common sources of inertia good to worse. Common sources of inertia --
Complacency with past successes. Complacency with past successes.
Commitment to past strategies, size and age. Commitment to past strategies, size and age.
Beliefs S biases (i.e. dominant logic). Beliefs S biases (i.e. dominant logic).
1S2 1S2 1S2 1S2
STRATECY EvALUAT!ON STRATECY EvALUAT!ON
Strategy evaluation centers around assessment of Strategy evaluation centers around assessment of
strategic fit. strategic fit. Since the internal and external environment Since the internal and external environment
is in a state of continuous flux, strategies need to be is in a state of continuous flux, strategies need to be
evaluated on an ongoing basis to prevent deviations of evaluated on an ongoing basis to prevent deviations of
fit. fit.
Deviation of fit is detrimental to performance and may Deviation of fit is detrimental to performance and may
lead to strategic failure. However, certain authors lead to strategic failure. However, certain authors
propose misfit as a source of superior performance. propose misfit as a source of superior performance.
Firms should know Firms should know how to learn, unlearn and relearn. how to learn, unlearn and relearn.
To prevent deviation of fit, firms should move beyond To prevent deviation of fit, firms should move beyond
financial performance financial performance to to strategic performance as strategic performance as
organization systems are becoming complex. organization systems are becoming complex.
Continuous learning prevents trap of inertia. Continuous learning prevents trap of inertia.
1S3 1S3 1S3 1S3
STRATECY CONTROL STRATECY CONTROL
!t is concerned with trafficking a strategy as it is being !t is concerned with trafficking a strategy as it is being
implemented, detecting changes in the external and implemented, detecting changes in the external and
internal environment and taking corrective action internal environment and taking corrective action
wherever necessary wherever necessary. . !t attempts to answer the following !t attempts to answer the following
questions questions --
!s the strategic intent appropriate to the changing !s the strategic intent appropriate to the changing
context? context?
Are the organizations capabilities still holding good, Are the organizations capabilities still holding good,
competitive advantages becoming disadvantages? competitive advantages becoming disadvantages?
Has the company acquired any new competency? Has the company acquired any new competency?
Has the company been able to overcome the Has the company been able to overcome the
environmental threats. environmental threats.
Are the strategic assumptions still valid? Are the strategic assumptions still valid?
1S4 1S4 1S4 1S4
STRATECY CONTROL STRATECY CONTROL · · !N#LENENTAT!ON !N#LENENTAT!ON
!t involves !t involves steering steering the company towards its original the company towards its original
growth trajectory S stated goals. growth trajectory S stated goals.
Premise Control Premise Control -- Checking the validity of the Checking the validity of the
assumptions on which a strategy was based. However, assumptions on which a strategy was based. However,
checking every premise is costly as well as difficult. checking every premise is costly as well as difficult.
!mplementation Control !mplementation Control -- !t aims at assessing whether !t aims at assessing whether
key activities are proceeding as per schedule. !t involves key activities are proceeding as per schedule. !t involves
assessing assessing -- strategic thrusts and milestones. strategic thrusts and milestones.
Special Alert Control Special Alert Control -- !t intends to uncover !t intends to uncover
unanticipated information having critical impact on unanticipated information having critical impact on
strategies. !t is open strategies. !t is open··ended as well as unfocussed. !f ended as well as unfocussed. !f
not tackled appropriately they may throw the entire not tackled appropriately they may throw the entire
strategy into hay strategy into hay··wire. wire.
1SS 1SS 1SS 1SS
BARR!ERS TO STRATECY EXECUT!ON BARR!ERS TO STRATECY EXECUT!ON
vision and strategy not actionable vision and strategy not actionable -- Utopian ideas, Utopian ideas,
difficult to translate into practice. difficult to translate into practice.
Strategy intent not linked with goals and objectives Strategy intent not linked with goals and objectives --
Lack of coordination at lower levels leading to negative Lack of coordination at lower levels leading to negative
synergy. synergy.
Strategy not linked to resource allocation S capabilities Strategy not linked to resource allocation S capabilities
-- Lacking commitment of top management, low Lacking commitment of top management, low
strategic fit. strategic fit.
Performance measures are defective Performance measures are defective -- What to What to
evaluate against? How to measure the construct? As a evaluate against? How to measure the construct? As a
saying goes, ¨!f you cannot measure it, you cannot saying goes, ¨!f you cannot measure it, you cannot
improve it". improve it".
S FRANEWORK OF Nc K!NSEY S FRANEWORK OF Nc K!NSEY
The The 77··S Framework of NcKinsey S Framework of NcKinsey is a management model is a management model
that describes 7 factors that describes 7 factors to organize a company in an to organize a company in an
holistic and effective way holistic and effective way. Together these factors . Together these factors
determine the way in which a corporation operates. determine the way in which a corporation operates.
Nanagers should take into account all seven of these Nanagers should take into account all seven of these
factors, to be sure of factors, to be sure of successful implementation of a successful implementation of a
strategy strategy. Large or small, important or not . Large or small, important or not they're all they're all
interdependent interdependent, so if one fails to pay proper attention to , so if one fails to pay proper attention to
one of them, this may effect all others as well. On top of one of them, this may effect all others as well. On top of
that, the relative importance of each factor may vary that, the relative importance of each factor may vary
over time and context. over time and context. Today it is considered one of the Today it is considered one of the
most powerful tools for strategy implementation most powerful tools for strategy implementation
determining success or failure. determining success or failure.
1S6 1S6
BACKCROUND S OR!C!N BACKCROUND S OR!C!N
The 7 The 7··S Framework was first mentioned in S Framework was first mentioned in "The Art Of "The Art Of
]apanese Nanagement" ]apanese Nanagement" by by Richard Pascale Richard Pascale and and Anthony Anthony
Athos Athos in in 1381 1381. They had been investigating how . They had been investigating how
]apanese industry had been so successful. At around ]apanese industry had been so successful. At around
the same time in the US the same time in the US Tom Peters Tom Peters and and Robert Robert
Waterman Waterman were exploring what made a company were exploring what made a company
excellent. The 7 excellent. The 7··S model was born at a meeting of S model was born at a meeting of
these four authors in these four authors in 1378 1378. !t appeared also in . !t appeared also in "!n "!n
Search of Excellence" Search of Excellence" by Peters and Waterman, by Peters and Waterman, and was and was
taken up as a basic tool by the global management taken up as a basic tool by the global management
consultancy company NcKinsey. consultancy company NcKinsey. Since then it is known Since then it is known
as their 7 as their 7··S model and is extensively used by S model and is extensively used by
corporations worldwide to implement their strategies. corporations worldwide to implement their strategies.
1S7 1S7
1S8 1S8
THE 'S THE 'S
Shared values Shared values -- !t represents what the organization !t represents what the organization
stands for and what it believes in. stands for and what it believes in.
Strategy Strategy -- Trade Trade··offs for the allocation of a firms scarce offs for the allocation of a firms scarce
resources, over time, to reach identified S stated goals. resources, over time, to reach identified S stated goals.
Structure Structure -- The way in which the organization's units The way in which the organization's units
relate to each other in terms of their commonalities. relate to each other in terms of their commonalities.
Style Style -- The way in which the top management The way in which the top management
influences the functioning of an organization. influences the functioning of an organization.
Systems Systems -- The procedures, processes and routines that The procedures, processes and routines that
characterize how work should be done. characterize how work should be done.
Staff Staff -- Human inter Human inter··relationships, formal S informal . relationships, formal S informal .
Skills Skills -- An organizations capabilities and competencies. An organizations capabilities and competencies.
1S3 1S3
1
st
Order Fit
2
nd
Order Fit
3
rd
Order Fit
STRATEC!C F!T STRATEC!C F!T
Shared values
Skills
Structure
Strategy
Systems
Staff
Style
A CR!T!C OF THE S NODEL A CR!T!C OF THE S NODEL
While the While the hard S's (strategy, structure, systems) hard S's (strategy, structure, systems) are are
comparatively easy to identify and influence. !n comparatively easy to identify and influence. !n
contrast, the contrast, the soft S's (skill, staff, style, shared values) soft S's (skill, staff, style, shared values)
are very malleable and comparatively more difficult to are very malleable and comparatively more difficult to
identify S influence, identify S influence, because most often they are because most often they are
culturally embedded culturally embedded and often neglected during NSA. and often neglected during NSA.
While the American co's focuses on the While the American co's focuses on the hard S's, hard S's, their their
]apanese counterparts focus more on the ]apanese counterparts focus more on the soft S's soft S's for for
their early success and sustainability. their early success and sustainability.
A choice of an alphabet often limits the scope and A choice of an alphabet often limits the scope and
skews the interpretation of a model. Consider the 4P's skews the interpretation of a model. Consider the 4P's
of marketing or 3R's of SCN. of marketing or 3R's of SCN.
!neffective in case of a virtual company. !neffective in case of a virtual company.
160 160
161 161 161 161
STRATECY !N#LENENTAT!ON STRATECY !N#LENENTAT!ON · · ROUTES ROUTES
Organic Crowth
Nergers S Acquisition
Take Overs
]oint venture
Strategic Alliance
Strategic Fit · High
Strategic Fit · Low
162 162 162 162
ORCAN!C CROWTH ORCAN!C CROWTH
Here a firm builds up its facilities right from the scratch Here a firm builds up its facilities right from the scratch
and continues to do so without any external and continues to do so without any external
participation. The entire infra participation. The entire infra··structural facilities are set structural facilities are set
up afresh having its own gestation and break up afresh having its own gestation and break··even, i.e. even, i.e.
green green··field projects. field projects. (Eg. Reliance !ndustries). (Eg. Reliance !ndustries).
!t has complete control over inputs, technologies, and !t has complete control over inputs, technologies, and
markets, i.e. the entire value chain. markets, i.e. the entire value chain.
Covt. concessions are available for green Covt. concessions are available for green··field projects. field projects.
(Eg. SEZ's, tax holidays, soft loans, subsidized power). (Eg. SEZ's, tax holidays, soft loans, subsidized power).
Long gestation leads to delayed market entry. Long gestation leads to delayed market entry.
Risk of cost and time overruns. Risk of cost and time overruns.
Develop capabilities S competencies. Develop capabilities S competencies.
Nanage time as a source of competitive advantage. Nanage time as a source of competitive advantage.
163 163 163 163
STRATEC!C ALL!ANCE STRATEC!C ALL!ANCE
!t involves a !t involves a pro pro··active active collaboration between two or collaboration between two or
more firms on a particular domain or function for mutual more firms on a particular domain or function for mutual
gain. !t touches upon a limited aspects of a firms value gain. !t touches upon a limited aspects of a firms value
chain. Alliances are usually in the areas of technologies chain. Alliances are usually in the areas of technologies
or markets or markets ((Eg. Tata Notors S Fiat Eg. Tata Notors S Fiat). Alliances are usually ). Alliances are usually
short short··lived and disbanded once the purpose is achieved. lived and disbanded once the purpose is achieved.
There is no funding or equity participation from the There is no funding or equity participation from the
alliance partner S both the firms continue to operate alliance partner S both the firms continue to operate
independently. independently.
!t has limited intervention power and usually lacks !t has limited intervention power and usually lacks
holistic commitment from the alliance partner. holistic commitment from the alliance partner.
!t is a form of competitive collaboration. !t is a form of competitive collaboration.
!t paves the way for future associations. !t paves the way for future associations.
164 164 164 164
]O!NT vENTURES ]O!NT vENTURES
A joint venture involves an equivalent equity participation A joint venture involves an equivalent equity participation
between two firms usually of similar strategic intent and between two firms usually of similar strategic intent and
comparable size to enter a particular market through a comparable size to enter a particular market through a
newly formed entity. !t is a win newly formed entity. !t is a win··win situation for both the win situation for both the
companies. companies. (Eg. Tata (Eg. Tata -- A!C, Hero A!C, Hero ·· Honda). Honda).
Dominant logic of both the companies should be Dominant logic of both the companies should be
complimentary, leaving minimum scope of overlapping. complimentary, leaving minimum scope of overlapping.
Selecting the right partner is critical for success. Selecting the right partner is critical for success.
A comprehensive NOU is essential. Degree and extent of A comprehensive NOU is essential. Degree and extent of
management control must be clearly laid down. management control must be clearly laid down.
Both the partners should have significant linkages in Both the partners should have significant linkages in
value value··chain to combine expertise. chain to combine expertise.
Usually has a longer tenure than an alliance. Usually has a longer tenure than an alliance.
16S 16S 16S 16S
NERCERS S AC$U!S!T!ON NERCERS S AC$U!S!T!ON
!t refers to the fusion of two or more firms into a single !t refers to the fusion of two or more firms into a single
entity, with the individual firms ceasing to exist any more entity, with the individual firms ceasing to exist any more
(Eg. Brooke Bond S Lipton) (Eg. Brooke Bond S Lipton). Acquisition is an outright . Acquisition is an outright
purchase of a firm assets by another independent entity purchase of a firm assets by another independent entity
(Eg. !TC (Eg. !TC ·· Tribeni Tissues, Coca Cola Tribeni Tissues, Coca Cola -- Thums Up) Thums Up). .
Economies in scale leading to lowering of costs. Economies in scale leading to lowering of costs.
!ntegrated distribution channel leads to better market !ntegrated distribution channel leads to better market
penetration penetration and overall and overall synergy. synergy.
!ntegration of assets and other financial resources. !ntegration of assets and other financial resources.
Revival of a sick Revival of a sick··unit through better management unit through better management
practices is a major motive behind an acquisition strategy. practices is a major motive behind an acquisition strategy.
Structural side should be handled properly, otherwise it Structural side should be handled properly, otherwise it
can lead to failure (i.e. left alone syndrome). can lead to failure (i.e. left alone syndrome).
166 166 166 166
TAKE OvERS TAKE OvERS
!t refers to the acquisition of significant management !t refers to the acquisition of significant management
control by buying out majority stake in a firm through control by buying out majority stake in a firm through
due diligence or hostility due diligence or hostility (Eg. Tata Steel (Eg. Tata Steel ·· Corus). Corus).
!ntegration of organization structure S cultures is !ntegration of organization structure S cultures is
difficult, often the new firm is ¨left alone". difficult, often the new firm is ¨left alone".
!nstant access to capacities and markets. Larger geo !nstant access to capacities and markets. Larger geo··
graphical diversity. Consolidation in a fragmented graphical diversity. Consolidation in a fragmented
industry. industry.
Nost countries have stringent laws that prevents hostile Nost countries have stringent laws that prevents hostile
take over. take over.
!nform SEB! / Stock Exchange after S% stake is !nform SEB! / Stock Exchange after S% stake is
acquired. acquired. Nake a public offer of not less than 20% of Nake a public offer of not less than 20% of
the balance equity after take the balance equity after take··over. over.
167 167
NANACENENT TOOLS NANACENENT TOOLS
!N STRATECY !N STRATECY
168 168
WHY NANACENENT TOOLS? WHY NANACENENT TOOLS?
Change is becoming pertinent in the business Change is becoming pertinent in the business
environment. environment. Radical change Radical change is superseding is superseding incremental incremental
change change. The past is ceasing to be an indication of the . The past is ceasing to be an indication of the
future. future. Change provides enormous opportunities, it is Change provides enormous opportunities, it is
also a source of potential threat. also a source of potential threat. Companies therefore Companies therefore
need to ensure need to ensure competitive advantages competitive advantages doesn't become doesn't become
competitive disadvantages competitive disadvantages. Some tools to ensure that . Some tools to ensure that --
Benchmarking Benchmarking -- Adopt certain best practices, or better Adopt certain best practices, or better
still create next practices still create next practices
Reengineering Reengineering -- Redesigning work processes right from Redesigning work processes right from
the scratch. the scratch.
TON TON -- Doing the right thing the first time, every time. Doing the right thing the first time, every time.
Balanced Scorecard Balanced Scorecard -- Tracking strategy 360 Tracking strategy 360
00
. .
163 163
BENCHNARK!NC BENCHNARK!NC
A A best practice best practice is defined as an activity performed by a is defined as an activity performed by a
company in a particular domain or function which company in a particular domain or function which
distinguishes it from others and making them world distinguishes it from others and making them world· ·
class. class.
These exemplary practices involves the stakeholders of These exemplary practices involves the stakeholders of
the company and helps achieve its strategic intent. the company and helps achieve its strategic intent.
Best practices centers around looking at a different way Best practices centers around looking at a different way
to satisfy various stakeholders. to satisfy various stakeholders.
Benchmarking involves the Benchmarking involves the identification identification, , understanding understanding
and and adapting adapting of certain best practices and implementing of certain best practices and implementing
them to enhance performance. them to enhance performance.
Firms are moving towards Firms are moving towards next practices next practices as as best best
practices practices make firms look more and more make firms look more and more homogeneous homogeneous. .
170 170
SONE BEST #RACT!CES SONE BEST #RACT!CES
Dell: Customized configuration of computers. Dell: Customized configuration of computers.
Caterpillar: 48 hours delivery anywhere in the world. Caterpillar: 48 hours delivery anywhere in the world.
Citi Bank : Priority banking services. Citi Bank : Priority banking services.
Naruti: Certified ¨true value" pre Naruti: Certified ¨true value" pre··owned cars. owned cars.
Nicrosoft: ESOP to employees. Nicrosoft: ESOP to employees.
!nfosys: Customized work !nfosys: Customized work··stations. stations.
TCS: Referencing potential new recruits. TCS: Referencing potential new recruits.
!TC: Shareholders factory visit. !TC: Shareholders factory visit.
AmEx: Outsourcing data warehousing mining. AmEx: Outsourcing data warehousing mining.
NARC: Set NARC: Set··top box to study viewing patterns. top box to study viewing patterns.
Honda: CEO's visit to dealers. Honda: CEO's visit to dealers.
171 171
TY#ES OF BENCHNARK!NC TY#ES OF BENCHNARK!NC
Functional Functional -- Used by companies to improve a particular Used by companies to improve a particular
management activity. management activity. Eg. Notorola learnt delivery Eg. Notorola learnt delivery
scheduling from Domino's. scheduling from Domino's.
Process Process -- !mproving specific key processes and !mproving specific key processes and
operations from experiences in similar businesses. operations from experiences in similar businesses. Eg. Eg.
Ford adopting assembly lay Ford adopting assembly lay··out plan of Toyota. out plan of Toyota.
Competitive Competitive -- !t involves !t involves assessing the sources of assessing the sources of
competitive advantage and imitating them. competitive advantage and imitating them. Eg. Samsung Eg. Samsung
leveraging miniaturization skills of Sony. leveraging miniaturization skills of Sony.
Strategic Strategic -- !t involves assessing business models and !t involves assessing business models and
replicating them in a different market. replicating them in a different market. Eg. Reliance Eg. Reliance
replicating ATST business model. replicating ATST business model.
172 172
HOW TO BENCHNARK? HOW TO BENCHNARK?
Phase 1: Planning Phase 1: Planning
-- What to benchmark? Whom to benchmark? What to benchmark? Whom to benchmark?
-- !dentify key performance indicators S Data source. !dentify key performance indicators S Data source.
Phase 2: Analysis Phase 2: Analysis
-- Assessment of performance gaps. Assessment of performance gaps.
-- Predict future performance levels. Predict future performance levels.
Phase 3: !ntegration Phase 3: !ntegration
-- Communicate findings and gain acceptance. Communicate findings and gain acceptance.
-- Establish functional goals and its implementation. Establish functional goals and its implementation.
Phase 4: Action Phase 4: Action
-- !mplement and monitor progress. !mplement and monitor progress.
-- Neasure results against stakeholder wants and needs. Neasure results against stakeholder wants and needs.
-- Recalibrate or outperform benchmarks. Recalibrate or outperform benchmarks.
173 173
WHON TO BENCHNARK? WHON TO BENCHNARK?
Selecting the benchmarking partner is critical to solving Selecting the benchmarking partner is critical to solving
the problem. the problem. Firms should generally avoid selecting the Firms should generally avoid selecting the
industry leader industry leader, because it may not always adopt the , because it may not always adopt the
best practices for every process or activity. Benchmarking best practices for every process or activity. Benchmarking
partners may also be from different industries. Types partners may also be from different industries. Types --
-- !nternal !nternal -- !t involves benchmarking against its own !t involves benchmarking against its own
branches, divisions, SBU's. Proximity to data and branches, divisions, SBU's. Proximity to data and
cooperation is taken care of automatically. cooperation is taken care of automatically.
-- External External -- !t involves benchmarking against firms that !t involves benchmarking against firms that
succeeded on account of their best practices. !t may succeeded on account of their best practices. !t may
also involve benchmarking against world also involve benchmarking against world··class firms. class firms.
Friction may arise due to presence in competing Friction may arise due to presence in competing
industries. industries.
174 174
BENCHNARK!NC BENCHNARK!NC · · ADvANTACES ADvANTACES
Finding better ways of meeting stakeholder needs. Finding better ways of meeting stakeholder needs.
Organizational learning comes from internal as well as Organizational learning comes from internal as well as
external sources. external sources.
Establishing goals based on formal assessment of Establishing goals based on formal assessment of
external conditions. external conditions.
Defining effective measure of indicators, facilitate Defining effective measure of indicators, facilitate
comparison, adopt from other organizations. comparison, adopt from other organizations.
Ensuring a continuous learning organization. Ensuring a continuous learning organization.
Reducing competitive disadvantage. Reducing competitive disadvantage.
Organizational turnaround, especially effective in case Organizational turnaround, especially effective in case
of a wide strategic drift when differentiation strategies of a wide strategic drift when differentiation strategies
fail to work. fail to work.
17S 17S
BENCHNARK!NC BENCHNARK!NC · · L!N!TAT!ONS L!N!TAT!ONS
Nore and more companies benchmark, the more similar Nore and more companies benchmark, the more similar
they end up looking. While strategy is all about they end up looking. While strategy is all about
differentiation and not looking alike. differentiation and not looking alike.
Benchmarking is useful for bringing about operational Benchmarking is useful for bringing about operational
efficiency, but it cannot be used as a strategic decision efficiency, but it cannot be used as a strategic decision
making tool. !t can at best complement it. making tool. !t can at best complement it.
Strategy is more of creating best practices rather than Strategy is more of creating best practices rather than
copying them. copying them.
Benchmarking merely reorients profits in the hands of Benchmarking merely reorients profits in the hands of
few to profits in the hands in the hands of many few to profits in the hands in the hands of many (i.e. (i.e.
clustering) clustering). . !t does not shifts the growth trajectory of !t does not shifts the growth trajectory of
the industry as a whole. the industry as a whole.
176 176
RE RE· ·ENC!NEER!NC ENC!NEER!NC
Redesigning leads to identification of superfluous Redesigning leads to identification of superfluous
activities or product features activities or product features (i.e. process mapping) (i.e. process mapping) and and
eliminating or improving them eliminating or improving them (E.g. Windows 3S to 37). (E.g. Windows 3S to 37).
Re Re··engineering attempts to radically change an engineering attempts to radically change an
organizational products or process by challenging the organizational products or process by challenging the
basic assumptions surrounding it, for achieving basic assumptions surrounding it, for achieving
performance improvement performance improvement (E.g. DOS to Windows). (E.g. DOS to Windows).
Re Re··engineering involves complete reconstruction and engineering involves complete reconstruction and
overhauling of job descriptions from the scratch (i.e. overhauling of job descriptions from the scratch (i.e.
clean sheet). clean sheet).
The task demands a total change in organisational The task demands a total change in organisational
culture and mindset. culture and mindset.
177 177
REENC!NEER!NC REENC!NEER!NC -- KEY TENETS KEY TENETS
Ambition
Focus
Attitude
Enabler
Performance
Large scale improvement by questioning
basic assumptions about how work is done
Nicro vs Nacro
Business Processes vs Organisational Processes
Starting right from the scratch
Not historical
Nore !T driven, than people driven
!nnovative vs Traditional
Customer centric vs Organisational centric
178 178
REENC!NEER!NC REENC!NEER!NC · · LEvELS LEvELS
Reengineering can be successfully leveraged at all levels Reengineering can be successfully leveraged at all levels
of an organization with varying degree of results. !t can of an organization with varying degree of results. !t can
be of the following types be of the following types --
Functional Functional -- !t looks into the flow of operations !t looks into the flow of operations (i.e. (i.e.
products, structures, processes, etc) products, structures, processes, etc) and supports the and supports the
organization for the present. organization for the present.
Business Business -- !t looks into markets, customers and !t looks into markets, customers and
suppliers and protects the organization from the future suppliers and protects the organization from the future
(i.e. BPR) (i.e. BPR). .
Strategic Strategic -- !t looks into the process of strategic !t looks into the process of strategic
planning, resource allocation and prepares the planning, resource allocation and prepares the
organization for the future through a reorientation of organization for the future through a reorientation of
the entire strategic architecture. . the entire strategic architecture. .
173 173
REvERSE ENC!NEER!NC REvERSE ENC!NEER!NC
!t is a process by which a product is dismantled and !t is a process by which a product is dismantled and
analyzed in order to understand how the product was analyzed in order to understand how the product was
designed and manufactured, with an intention to copy it designed and manufactured, with an intention to copy it
(Eg. Cheaper versions of !ntel chips and mother (Eg. Cheaper versions of !ntel chips and mother··boards boards
manufactured in Taiwan, !ndonesia). manufactured in Taiwan, !ndonesia).
While traditional manufacturing is a bottom While traditional manufacturing is a bottom··up up
approach, reverse engineering is a top approach, reverse engineering is a top··bottom approach bottom approach. .
!t generally acts as a threat to innovation. However, !t generally acts as a threat to innovation. However,
protection can be had in the following ways protection can be had in the following ways --
-- Patenting. Patenting.
-- Early entry advantages, learning curve advantage. Early entry advantages, learning curve advantage.
-- High cost and time acts as a deterrent. High cost and time acts as a deterrent.
-- Causal Ambiguity. Causal Ambiguity.
180 180
STACES !N REvERSE ENC!NEER!NC STACES !N REvERSE ENC!NEER!NC
Awareness Awareness -- Recognizing whether the product is found Recognizing whether the product is found
to be worth the time, cost and effort necessary for the to be worth the time, cost and effort necessary for the
purpose of reverse engineering. !naccurate assessment purpose of reverse engineering. !naccurate assessment
at this stage may lead to a failure of the entire project. at this stage may lead to a failure of the entire project.
Actualization Actualization -- Obtaining and dismantling of the product Obtaining and dismantling of the product
to assess how it functions. to assess how it functions.
!mplementation !mplementation -- Developing of a prototype, designing Developing of a prototype, designing
facilities, machine tools to convert ideas into a facilities, machine tools to convert ideas into a
marketable product marketable product (i.e. nano (i.e. nano··technology). technology).
!ntroduction !ntroduction -- Launching the product in the market. Launching the product in the market.
Usually in such cases segmentation and pricing is Usually in such cases segmentation and pricing is
different from the original innovator. different from the original innovator.
181 181
WHAT !S $UAL!TY? WHAT !S $UAL!TY?
!t involves the totality of a product or service in meeting !t involves the totality of a product or service in meeting
certain stated or implied needs. certain stated or implied needs. Nore and more Nore and more
companies are moving towards meeting implied rather companies are moving towards meeting implied rather
than stated needs. !t has eight dimensions (Eg. Car) than stated needs. !t has eight dimensions (Eg. Car) --
-- Performance Performance -- Nileage of 14 kms to a litre of fuel. Nileage of 14 kms to a litre of fuel.
-- Features Features -- Anti Anti··lock braking systems, Air bags. lock braking systems, Air bags.
-- Reliability Reliability -- Consistency in mileage. Consistency in mileage.
-- Conformance Conformance -- Emission standards Emission standards ·· Euro !v. Euro !v.
-- Durability Durability -- 1380 manufactured cars still on road. 1380 manufactured cars still on road.
-- Serviceability Serviceability -- Large no. of service stations. Large no. of service stations.
-- Aesthetics Aesthetics -- Appeal in design. Appeal in design.
-- Perception Perception -- Customer notions. Customer notions.
182 182
TOTAL $UAL!TY NANACENENT TOTAL $UAL!TY NANACENENT
Objective Objective -- Nanagement of quality ensures conformance Nanagement of quality ensures conformance
to certain to certain pre pre··set standards set standards, , zero defects zero defects, which ensures , which ensures
good good market standing. market standing.
Nanagement of quality was traditionally Nanagement of quality was traditionally inspect it inspect it ·· fix it fix it
in nature, touching upon a in nature, touching upon a limited aspect limited aspect of a value of a value
chain. !t had little impact on improving overall chain. !t had little impact on improving overall
productivity. productivity.
TON is a way of creating an organization culture TON is a way of creating an organization culture
committed to the continuous improvement of work committed to the continuous improvement of work
processes processes -- Deming Deming. .
!t is deeply embedded as an aspect of organisational life !t is deeply embedded as an aspect of organisational life
S culture. S culture.
183 183
T$N T$N -- KEY TENETS KEY TENETS
Do it right, the first time Do it right, the first time -- From reactively fixing error From reactively fixing error
in products to proactively preventing errors from in products to proactively preventing errors from
occurring at the first place occurring at the first place (]uran) (]uran). .
Be customer centric Be customer centric -- Cenerate the concept of Cenerate the concept of ··
internal customer internal customer (!shikawa) (!shikawa). .
Kaizen Kaizen -- Nake continuous improvement a way of life. Nake continuous improvement a way of life.
Looking at quality as an endless journey, not a final Looking at quality as an endless journey, not a final
destination. destination.
Empowerment Empowerment -- !t takes place when employees are !t takes place when employees are
properly trained, provided with all relevant information properly trained, provided with all relevant information
and best possible tools, fully involved in decision and best possible tools, fully involved in decision··
making and fairly rewarded for results. making and fairly rewarded for results.
184 184
T$N T$N · · STRATEC!ES STRATEC!ES
Outsourcing Outsourcing -- !t is the process of self !t is the process of self··contracting contracting
services and operations which are routine and mundane, services and operations which are routine and mundane,
enabling the firm to concentrate on core activities enabling the firm to concentrate on core activities
essential to customer satisfaction. essential to customer satisfaction.
SOC SOC -- !t is a process used to determine how many units !t is a process used to determine how many units
of a product should be inspected to calculate a of a product should be inspected to calculate a
probability that the total no. of units meet preset probability that the total no. of units meet preset
standards standards (Eg. 6 (Eg. 6··Sigma). Sigma).
Ouality Circles Ouality Circles -- !t a small group of shop !t a small group of shop··floor floor
employees who meet periodically to take decisions employees who meet periodically to take decisions
regarding operational problems and crises, saving regarding operational problems and crises, saving
precious top management time. !t is based on the precious top management time. !t is based on the
principles of NBO (i.e. equal participation). principles of NBO (i.e. equal participation).
18S 18S
BALANCED SCORE CARD BALANCED SCORE CARD
Some interesting comments Some interesting comments ......... .........
-- Efficiency and effectiveness is passé, Efficiency and effectiveness is passé, strategy strategy
implementation has never been more important. implementation has never been more important.
-- Less than 10% of strategies effectively formulated Less than 10% of strategies effectively formulated
are effectively executed. are effectively executed.
-- !n the majority of failures !n the majority of failures -- we estimate 70% we estimate 70% --
the real problem isn't (bad strategy) ..... it's bad the real problem isn't (bad strategy) ..... it's bad
execution. execution.
Source: Fortune Nagazine
Why CEO's fail?
BSC BSC · · CONCE#TUAL!SAT!ON CONCE#TUAL!SAT!ON
A company's performance depends on how it measures A company's performance depends on how it measures
performance. performance. Nost managers tend to rely on traditional Nost managers tend to rely on traditional
measures of performance having its origin in finance as measures of performance having its origin in finance as
they are well tried and tested. they are well tried and tested.
These measures worked well when organizational These measures worked well when organizational
systems were simple and unidirectional and more systems were simple and unidirectional and more
importantly the environment was static. importantly the environment was static.
!n today's context when organizational systems have !n today's context when organizational systems have
become complex and multi become complex and multi··directional we need to have a directional we need to have a
holistic view of performance to cut the lag effects. holistic view of performance to cut the lag effects.
Organizations need to move from financial to strategic Organizations need to move from financial to strategic
performance. performance. Focus more on causes, rather than effects. Focus more on causes, rather than effects.
186 186
187 187
BSC BSC -- KA#LAN S NORTON (1332) KA#LAN S NORTON (1332)
A A BSC BSC helps a manager to helps a manager to track track and and communicate communicate the the
different elements of company's strategy. !t has four different elements of company's strategy. !t has four
dimensions dimensions --
-- How do customers see us? How do customers see us?
-- What must we excel at? What must we excel at?
-- Can we continue to improve and create value? Can we continue to improve and create value?
-- How do we look to shareholders? How do we look to shareholders?
Firms more often have problems, because they have Firms more often have problems, because they have
too many. too many.
The most critical element of a BSC is to measure these The most critical element of a BSC is to measure these
four dimensions, and distinguish strategic problems four dimensions, and distinguish strategic problems
from operational ones. from operational ones.
188 188
CUSTONER #ERS#ECT!vE CUSTONER #ERS#ECT!vE
COALS
Products
Supply
Preference
Relationship
NEASURES
Relative market share (%)
% of sales from new vs proprietary products
Timely deliveries and service
Customer credit analysis (i.e. ageing schedule)
% of key customer transactions
Ranking of key customer accounts
No. of visits or calls made
% of NPA's
183 183
BUS!NESS #ERS#ECT!vE BUS!NESS #ERS#ECT!vE
COALS
Skills
Excellence
Exposure
!ntroduction
NEASURES
New capabilities and competencies
!mplementation S gestation period
Bank and supplier credit limits S PLR
Unit Costs / Conversion Ratio / Defect Ratio
No. of times covered in media
No. of new product launches vs competition
Product pricing vs competition
130 130
LEARN!NC #ERS#ECT!vE LEARN!NC #ERS#ECT!vE
COALS
Technology
Nanufacturing
Focus
Timing
NEASURES
No. of new patents registered
Time to develop next generation products
Average and spread in operating cycle
% of products that equal 2/3 sales
No. of product innovations
131 131
F!NANC!AL #ERS#ECT!vE F!NANC!AL #ERS#ECT!vE
COALS
Survival
Success
Prosper
Divestment
NEASURES
Cash flows
Crowth in Sales and Profits
EPS, Return on !nvestment
Narket Capitalization / PE ratio
132 132
BSC BSC · · !N#LENENTAT!ON !N#LENENTAT!ON
STRATECY
Nobilize change through
effective leadership
Translate strategy into
operational terms
Align the organization
to the strategy
Nake strategy
everyone's job
Nake strategy a
continual process
1
2
3
4
S
133 133
BSC BSC · · ADvANTACES ADvANTACES
Nost often top managers face information overload. Nost often top managers face information overload. As As
a result, they don't know a result, they don't know ·· what they don't know. what they don't know.
Nodern managers should be poised to ask the right Nodern managers should be poised to ask the right
questions. questions.
The The BSC BSC brings together the different elements of a brings together the different elements of a
company's strategy at a glance. company's strategy at a glance.
!t helps translating strategy into practice !t helps translating strategy into practice (i.e. sharing of (i.e. sharing of
vision). vision).
Shift from control to strategy Shift from control to strategy (i.e. doing right things (i.e. doing right things
instead of doing things right). instead of doing things right).
Focus on Focus on cause cause not not effects effects. Seek excellence, . Seek excellence,
performance will automatically follow. performance will automatically follow.
134 134
EFF!C!ENCY vs EFFECT!vENESS EFF!C!ENCY vs EFFECT!vENESS
!neffective
Coes out of
Business
quickly
Survives
Dies
Slowly
Thrives
!
n
e
f
f
i
c
i
e
n
t
E
f
f
i
c
i
e
n
t
Effective
EFFECT!vENESS + STRATECY EFFECT!vENESS + STRATECY
A company which is effective as well as strategic, A company which is effective as well as strategic,
not only thrives, but also sustains it. not only thrives, but also sustains it.
·· Nichael E. Porter Nichael E. Porter
13S 13S
136 136
CORPORATE CORPORATE
RESTRUCTUR!NC RESTRUCTUR!NC
137 137
COR#ORATE RESTRUCTUR!NC COR#ORATE RESTRUCTUR!NC
The only thing constant in today's business environment The only thing constant in today's business environment
is change. Radical change brings about strategic variety. is change. Radical change brings about strategic variety.
Strategic variety may be caused by changes in the as Strategic variety may be caused by changes in the as
external well as internal environment. external well as internal environment.
Strategic variety brings paradigm shift, from survival of Strategic variety brings paradigm shift, from survival of
the fittest the fittest ....... to survival of the most adaptable. ....... to survival of the most adaptable.
To adapt to the changing environment, firms use To adapt to the changing environment, firms use
restructuring strategies. restructuring strategies.
Restructuring involves Restructuring involves consciously consciously driving driving significant significant
changes in the way an organizations changes in the way an organizations thinks thinks and and looks looks
(Eg. Tata Croup). (Eg. Tata Croup).
As Peter Drucker pointed out, As Peter Drucker pointed out, ¨every organization must ¨every organization must
be prepared to abandon everything it does." be prepared to abandon everything it does."
138 138
RESTRUCTUR!NC RESTRUCTUR!NC -- BAS!C TENETS BAS!C TENETS
Customer Focus Customer Focus -- Restructuring ideally begins and ends Restructuring ideally begins and ends
with the customer. Company's should go beyond just with the customer. Company's should go beyond just
asking what he expects. !nstead, they should strive to asking what he expects. !nstead, they should strive to
provide unimaginable value ahead of its time provide unimaginable value ahead of its time (Eg. (Eg.
Walkman, Fax, ATN, etc). Walkman, Fax, ATN, etc). !nternal customers should !nternal customers should
also not be neglected. also not be neglected.
Core Business Core Business -- Company's should introspect Company's should introspect -- What What
business are we in? Business evolved out of opportunism business are we in? Business evolved out of opportunism
or myopia should be divested, and dividing the core or myopia should be divested, and dividing the core
businesses into SBU's businesses into SBU's (i.e. down (i.e. down··scoping). scoping).
Structural Changes Structural Changes -- Conventional hierarchical structures Conventional hierarchical structures
should be disbanded in favour of more flexible ones should be disbanded in favour of more flexible ones (i.e. (i.e.
downsizing or rightsizing). downsizing or rightsizing).
133 133
RESTRUCTUR!NC RESTRUCTUR!NC -- BAS!C TENETS BAS!C TENETS
Cultural Changes Cultural Changes -- A culture represents the values and A culture represents the values and
beliefs of the people about the organization. beliefs of the people about the organization.
Restructuring also requires cultural reorientation. !t is Restructuring also requires cultural reorientation. !t is
created and institutionalized by the top management. created and institutionalized by the top management.
During the times of During the times of ]RD, the Tatas ]RD, the Tatas were considered a were considered a
benevolent and charitable organization, benevolent and charitable organization, ..... ..... Ratan Tata Ratan Tata
now drives the point the group means business.) now drives the point the group means business.)
Reliance Reliance dismantled their industrial embassies dismantled their industrial embassies ..... .....
started focusing on their capabilities.) started focusing on their capabilities.)
The The Aditya Birla Aditya Birla group typically relied on the ¨marwari" group typically relied on the ¨marwari"
community for key management positions community for key management positions ..... ..... Kumar Kumar
Birla today is more dependent on professionals. Birla today is more dependent on professionals.
NOv!NC CLOSER TO THE CUSTONER NOv!NC CLOSER TO THE CUSTONER
As companies evolve, they tend to move away from the As companies evolve, they tend to move away from the
customer. Restructuring provides a platform to close customer. Restructuring provides a platform to close
this gap. this gap.
Communicating to the media about organization efforts Communicating to the media about organization efforts
to deliver quality products. to deliver quality products.
Cetting feedback S addressing customer complaints. Cetting feedback S addressing customer complaints.
Organizing customer and supplier meets. Organizing customer and supplier meets.
Publicizing welfare projects to demonstrate CSR. Publicizing welfare projects to demonstrate CSR.
Carry out PR campaigns. Carry out PR campaigns.
Use the reach of networking technologies. Use the reach of networking technologies.
Honda's ad says, ¨ . one reason our customers are Honda's ad says, ¨ . one reason our customers are
satisfied is that we aren't." satisfied is that we aren't."
200 200
201 201
ASSET RESTRUCTUR!NC ASSET RESTRUCTUR!NC
Asset Restructuring Asset Restructuring -- The asset composition of a firm The asset composition of a firm
undergoes a major change, including its intangibles undergoes a major change, including its intangibles --
Nergers Nergers -- !t may be vertical, horizontal, or conglo !t may be vertical, horizontal, or conglo··
merate. Further, it may be smooth merate. Further, it may be smooth (Eg. Tata (Eg. Tata -- Corus) Corus) or or
hostile hostile (Eg. Nittal (Eg. Nittal -- Arcelor) Arcelor) and can take various forms. and can take various forms.
Asset Swaps Asset Swaps -- !t entails divesting and acquisition !t entails divesting and acquisition
simultaneously by two companies, where the difference simultaneously by two companies, where the difference
in valuation is settled off through cash or equity in valuation is settled off through cash or equity (Eg. (Eg.
Claxo Claxo -- Heinz). Heinz).
Hive Off Hive Off -- !t involves siphoning of assets under control. !t involves siphoning of assets under control.
!t may include brands as well. !t can have two forms, !t may include brands as well. !t can have two forms,
spin spin··off off and and equity carve equity carve. Further spin . Further spin··off can be off can be
classified as classified as split split··off off and and split split··up up. .
202 202
H!vE OFF H!vE OFF
Spin Spin··Off Off -- A spin off is the creation of a new entity, in A spin off is the creation of a new entity, in
which the equity is allotted amongst the existing which the equity is allotted amongst the existing
shareholders on a pro shareholders on a pro··rata basis rata basis (Eg. Reliance Ent). (Eg. Reliance Ent).
-- Split Split··Off Off -- !n a split !n a split··off, the existing shareholders off, the existing shareholders
receive equity in the subsidiary in exchange for the receive equity in the subsidiary in exchange for the
stocks of the parent company. stocks of the parent company.
-- Split Split··Up Up -- !n a split !n a split··up, the entire parent company up, the entire parent company
loses its identity after being split into a number of loses its identity after being split into a number of
subsidiaries. Nost of these practices are not in subsidiaries. Nost of these practices are not in
consonance with !ndian laws. consonance with !ndian laws.
Equity Carve Equity Carve -- !t involves selling a minority stake to a !t involves selling a minority stake to a
third party while retaining control third party while retaining control (Eg. Tata !ndustries (Eg. Tata !ndustries
selling 20% stake to ]ardine Natheson). selling 20% stake to ]ardine Natheson).
203 203
D!vEST!TURE D!vEST!TURE
!t involves the sale of a brand or a division of a !t involves the sale of a brand or a division of a
company to a third party, for a specified market or in company to a third party, for a specified market or in
general with full management control. Ceneric motives general with full management control. Ceneric motives
include include --
-- Raise working capital, repay long Raise working capital, repay long··term debts. term debts.
-- Poor performance, strategic misfit. Poor performance, strategic misfit.
!n 133S, Parle sold its !n 133S, Parle sold its Thums Up Thums Up brand to Coke for $40 brand to Coke for $40
million apprehending fierce competition. million apprehending fierce competition.
!n 200S, !n 200S, LST LST sold its cements division to Aditya Birla sold its cements division to Aditya Birla
group, but retained its engineering division. group, but retained its engineering division.
A complete sell A complete sell··out is known as divestment (TONCO). out is known as divestment (TONCO).
Selling out in phases is called disinvestment (!PCL). Selling out in phases is called disinvestment (!PCL).
204 204
CA#!TAL RESTRUCTUR!NC CA#!TAL RESTRUCTUR!NC
Capital Restructuring Capital Restructuring ·· The internal S external liability The internal S external liability
composition undergoes a major change composition undergoes a major change --
LBO LBO -- Acquiring control over a substantially larger Acquiring control over a substantially larger
company through borrowed funds company through borrowed funds (Eg. Tatas take (Eg. Tatas take··over over
of Corus for US $11.3 billion, involving 608 pence per of Corus for US $11.3 billion, involving 608 pence per
share). share).
Share Buyback Share Buyback -- !t is a process of cancellation of shares !t is a process of cancellation of shares
out of free reserves to the extent of out of free reserves to the extent of 2S% 2S% of paid of paid··up up
capital capital (Eg. Wipro). !t provides greater leverage as well (Eg. Wipro). !t provides greater leverage as well
as management control. as management control.
Conversion Conversion -- Replacing debt with equity or vice Replacing debt with equity or vice··versa or versa or
costlier with cheaper debt or cross currency debt. costlier with cheaper debt or cross currency debt.
20S 20S
BUS!NESS RESTRUCTUR!NC BUS!NESS RESTRUCTUR!NC -- TATAS TATAS
Divestments Diversifications
Lakme - Rs. 2S6 cr
ACC - Rs. 3S0 cr
Nerind · Rs. 42 cr
Tata Timken - Rs 120 cr
voltas · Rs. 230 cr
Coodlass Nerolac - Rs. 33 cr
Tata Notors - Rs. 1700 cr
Trent - Rs. 120 cr
Tata A!C - Rs. 2S0 cr
Tata Telecom - Rs. 1170 cr
vSNL - Rs. 1433 cr
Tata Tetley - Rs. 1830 cr
Tata Power - Rs. 1860 cr
CNC - Rs. 1S0 cr
ORCAN!ZAT!ONAL RESTRUCTUR!NC ORCAN!ZAT!ONAL RESTRUCTUR!NC
Organizational structure and systems calls for a change Organizational structure and systems calls for a change
when strategic variety is apparent. !t can be carried out when strategic variety is apparent. !t can be carried out
in the following ways in the following ways --
Downsizing Downsizing -- !t is a systematic one !t is a systematic one··time reduction in the time reduction in the
no. of a firm's employees and sometimes in the no. of no. of a firm's employees and sometimes in the no. of
operating units, usually as a result external turbulence, operating units, usually as a result external turbulence,
keeping the composition of business intact keeping the composition of business intact (]et Airways) (]et Airways). .
Survival is the primary motive. Survival is the primary motive.
Rightsizing Rightsizing -- !t is phasing of excess and redundant !t is phasing of excess and redundant
employees resulted out of faulty internal planning employees resulted out of faulty internal planning
(SA!L) (SA!L). . Turnaround is the primary motive. Turnaround is the primary motive.
Downscoping Downscoping -- !t involves reducing the business and/or !t involves reducing the business and/or
geographical scope of a firm geographical scope of a firm (Aditya Birla group) (Aditya Birla group). .
206 206
STRATEC!C CHANCE STRATEC!C CHANCE
One of the most difficult components of organization One of the most difficult components of organization
restructuring is the mindset of the top management restructuring is the mindset of the top management
represented through its dominant logic and its shared represented through its dominant logic and its shared
values reflected in cultural orientation. values reflected in cultural orientation.
The dominant logic represents the perceptions and The dominant logic represents the perceptions and
biases biases (i.e. thumb rules) (i.e. thumb rules) of the top management. of the top management.
Dominant logic becomes deep Dominant logic becomes deep··rooted in organizational rooted in organizational
contexts depending on the period it is in place contexts depending on the period it is in place (tenure of (tenure of
the CEO) the CEO). The longer the period, the more difficult it . The longer the period, the more difficult it
becomes to uproot the paradigm becomes to uproot the paradigm (i.e. inertia) (i.e. inertia). .
Strategy change is unviable without a preceding change Strategy change is unviable without a preceding change
in its dominant logics, as strategies are based on such in its dominant logics, as strategies are based on such
beliefs and biases. beliefs and biases.
207 207
FORCES ACA!NST STRATEC!C CHANCE FORCES ACA!NST STRATEC!C CHANCE
The problem with strategic change is that the whole The problem with strategic change is that the whole
burden typically rests on few people (i.e. 20% of the burden typically rests on few people (i.e. 20% of the
people carry out 80% of the changes). people carry out 80% of the changes).
Companies achieve real agility only when people at Companies achieve real agility only when people at
every level rise above the ordinary to face the every level rise above the ordinary to face the
challenges challenges -- revitalization or transformation. revitalization or transformation.
!n most organizations, the factor that stifled change S !n most organizations, the factor that stifled change S
performance was performance was -- culture. culture.
Successful transformation requires Successful transformation requires -- incorporating incorporating
employees fully into the process employees fully into the process -- leading from a leading from a
different place so as to maintain employee involvement different place so as to maintain employee involvement
-- instill mental disciplines that will enable employees to instill mental disciplines that will enable employees to
behave differently behave differently. .
208 208
SUCCESSFUL TRANSFORNAT!ON SUCCESSFUL TRANSFORNAT!ON
Build an intricate understanding of the business model Build an intricate understanding of the business model
at all levels of the organization. at all levels of the organization.
Encourage uncompromising straight talk. Encourage uncompromising straight talk.
Nanage from the future. The best way is to alter the Nanage from the future. The best way is to alter the
institutional point of view. institutional point of view.
Harness setbacks, it is not about winning but about Harness setbacks, it is not about winning but about
learning. learning.
Promote inventive accountability, process ownership. Promote inventive accountability, process ownership.
Understand and deliver the quid pro quo. Understand and deliver the quid pro quo.
Create relentless discomfort with the status quo. Create relentless discomfort with the status quo.
Ouestioning every basic action of the organization, Ouestioning every basic action of the organization,
never take no for an answer. never take no for an answer.
203 203
FORCE FORCE· ·F!ELD ANALYS!S F!ELD ANALYS!S
A force A force··field analysis provides an initial overview of field analysis provides an initial overview of
change problems that needs to tackled, by identifying change problems that needs to tackled, by identifying
forces for and against change. forces for and against change.
Culture and style of management are two main Culture and style of management are two main
impediments in force impediments in force··field analysis, also known as field analysis, also known as
cultural cultural··web. !t involves identifying web. !t involves identifying --
Aspects of current culture which needs to be reinforced. Aspects of current culture which needs to be reinforced.
Aspects of current culture which needs to be overcome. Aspects of current culture which needs to be overcome.
!dentify and implement facilitators of cultural change. !dentify and implement facilitators of cultural change.
!t involves diagnosing a change situation !t involves diagnosing a change situation -- systems S systems S
structures, that can be both enablers and blockages to structures, that can be both enablers and blockages to
change and restructuring. change and restructuring.
210 210
211 211
RESTRUCTUR!NC RESTRUCTUR!NC · · OUTCONES OUTCONES
Organizational
Business
Capital
Reduced labour
costs
Alternatives
Short · Term Long · Term
Reduced debt
costs
Emphasis on
strategic control
High debt
costs
Loss of
human capital
Lower
performance
Higher
performance
Higher
risk
212 212
NUNERATOR S DENON!NATOR NCT NUNERATOR S DENON!NATOR NCT
Nost firms across emerging markets undergo strategic Nost firms across emerging markets undergo strategic
discontinuity and as a result are forced to restructure discontinuity and as a result are forced to restructure
their businesses. !n order to put back the company on their businesses. !n order to put back the company on
the right track they are resort to the right track they are resort to --
Denominator Denominator -- !t assumes that turnover cannot be !t assumes that turnover cannot be
increased, hence go in for downsizing, down increased, hence go in for downsizing, down··scoping or scoping or
asset stripping. asset stripping.
Numerator Numerator -- !t assumes that turnover is not a barrier or !t assumes that turnover is not a barrier or
constraint, focuses on reengineering, reverse constraint, focuses on reengineering, reverse
engineering and regenerating. engineering and regenerating.
While the first strategy produces results instantaneously, While the first strategy produces results instantaneously,
the second one is a more viable strategy and sustainable the second one is a more viable strategy and sustainable
option in the long run. option in the long run.
213 213
TURNAROUND TURNAROUND
NANACENENT NANACENENT
214 214
WHY TURN AROUND NANACENENT? WHY TURN AROUND NANACENENT?
Some interesting insights ....... Some interesting insights .......
-- Only seven of the first fifty !ndian business groups Only seven of the first fifty !ndian business groups
in 1347 were even in business by the turn of this in 1347 were even in business by the turn of this
century, and that the thirty century, and that the thirty··two of the country's two of the country's
largest business groups in 1363 are no longer largest business groups in 1363 are no longer
among the top fifty today. among the top fifty today.
-- Less than 10% of the Fortune S00 companies as Less than 10% of the Fortune S00 companies as
first published in 13SS, still exist as on 200S. first published in 13SS, still exist as on 200S.
Why do firms atrophy? Why do firms atrophy?
Source:
(Business Today, ]anuary 1337).
(Covindarajan and Trimble, 2006).
21S 21S
TURN AROUND NANACENENT TURN AROUND NANACENENT
A turnaround is said to occur when a firm perseveres A turnaround is said to occur when a firm perseveres
through an existence threatening performance decline, through an existence threatening performance decline,
ends the threat with a combination of strategies, skills, ends the threat with a combination of strategies, skills,
systems, and capabilities, and achieves sustainable systems, and capabilities, and achieves sustainable
performance recovery. performance recovery. Both content Both content (what) (what) and process and process
(how) (how) are equally important for a successful turnaround. are equally important for a successful turnaround.
While content focuses on endogenous and exogenous While content focuses on endogenous and exogenous
variables, process focuses on variables, process focuses on --
A logic to explain a causal relationship between A logic to explain a causal relationship between
intervening variables. intervening variables.
A category of underlying principles and concepts. A category of underlying principles and concepts.
As a sequence of events describing how things change As a sequence of events describing how things change
and why they change and why they change (i.e. Stage Theory). (i.e. Stage Theory).
TURNAROUND !ND!CATORS TURNAROUND !ND!CATORS
Nost firms atrophy simply because they fail to diagnose Nost firms atrophy simply because they fail to diagnose
the indicators that acts as threat to organizational the indicators that acts as threat to organizational
existence. existence. Some indicators Some indicators ··
Continuous cash flow crises as a result of dwindling Continuous cash flow crises as a result of dwindling
market market··share and profits. share and profits.
Substantial shifts in consumer preferences. Substantial shifts in consumer preferences.
Low employee morale leading to high employee attrition Low employee morale leading to high employee attrition
at all levels, especially in key positions. at all levels, especially in key positions.
Uncompetitive products or services, leading to lack of Uncompetitive products or services, leading to lack of
acceptability from distributors and customers. acceptability from distributors and customers.
Rising input costs, unavailability or radical lowering of Rising input costs, unavailability or radical lowering of
substitute costs or technological obsolescence. substitute costs or technological obsolescence.
Low stakeholder confidence, suppliers and bankers. Low stakeholder confidence, suppliers and bankers.
216 216
217 217
TURNAROUND !LLUS!ON TURNAROUND !LLUS!ON
The first step to a successful turnaround is the basic The first step to a successful turnaround is the basic
acceptance of the fact that ... ¨all is not well", which acceptance of the fact that ... ¨all is not well", which
most top managers fail to appreciate. Hence, they adopt most top managers fail to appreciate. Hence, they adopt
surface level measures surface level measures (disprin popping) (disprin popping) which most which most
often fail. often fail. Common approaches adopted Common approaches adopted ··
Change in key positions, Change in key positions, be more customer centric. be more customer centric.
Recalibrate prices, based on elasticity. Recalibrate prices, based on elasticity.
Product redesigning or reengineering. Product redesigning or reengineering.
Revamp product portfolio, Revamp product portfolio, focus on power brands, focus on power brands,
consider extension, consider extension, liquidating dead assets. liquidating dead assets.
Emphasis on advertising and market penetration. Emphasis on advertising and market penetration.
Extending work hours, Extending work hours, prune work prune work··force. force.
218 218
TURNAROUND STACE THEORY TURNAROUND STACE THEORY
P
e
r
f
o
r
m
a
n
c
e
Time
Decline
Stage 1 Stage 2 Stage 3 Stage 4
Response Transition Outcome
Nadir
Equilibrium Line
Success
Failure
!ndeterminate
213 213
DECL!NE DECL!NE
Decline is the first stage in the turnaround process. !t Decline is the first stage in the turnaround process. !t
involves the identification of the theoretical perspectives involves the identification of the theoretical perspectives
that explains performance decline that explains performance decline --
KK··Extinction Extinction -- !t suggests that macro economic and !t suggests that macro economic and
industry wide factors are responsible for decline. industry wide factors are responsible for decline. !t has !t has
its origin in its origin in ¨environment led fit" ¨environment led fit" that subscribes to the that subscribes to the
view that a firm has little control over external factors. view that a firm has little control over external factors.
R R··Extinction Extinction -- !t suggests that organization factors, !t suggests that organization factors,
primarily dwindling resources and capabilities are primarily dwindling resources and capabilities are
responsible for decline. responsible for decline. !t has its origin in !t has its origin in ¨resource led ¨resource led
stretch" stretch" and subscribes to the view that a firm has and subscribes to the view that a firm has
substantial power to override the context. !dentification substantial power to override the context. !dentification
of the stimulus leads to the arrest of the downfall. of the stimulus leads to the arrest of the downfall.
220 220
RES#ONSE !N!T!AT!ON RES#ONSE !N!T!AT!ON
Turnaround responses are typically categorized as Turnaround responses are typically categorized as
operating or strategic. Operating responses operating or strategic. Operating responses typically typically
focuses on the way the firm conducts business and focuses on the way the firm conducts business and
involves tactics geared towards involves tactics geared towards -- cost cutting and cost cutting and
process redesigning (BPR). process redesigning (BPR).
Strategic responses Strategic responses focus on changing or adjusting the focus on changing or adjusting the
business the firm is engaged in through long term business the firm is engaged in through long term
moves such as moves such as -- integration, diversification, new integration, diversification, new
market initiatives, asset reduction. market initiatives, asset reduction.
The response must match the cause of the decline. !f The response must match the cause of the decline. !f
the decline stems from structural shifts, the response the decline stems from structural shifts, the response
should be strategic. should be strategic. !f the underlying cause is internal !f the underlying cause is internal
efficiency, the response should be operational. efficiency, the response should be operational.
RES#ONSE D!CHOTONY RES#ONSE D!CHOTONY
The response initiation is somewhat dichotomous and The response initiation is somewhat dichotomous and
cannot be universally applicable. Untangling this cannot be universally applicable. Untangling this
question brings into focus three events question brings into focus three events --
Domain Domain -- Nany of the strategic cures have limited Nany of the strategic cures have limited
applicability for an affiliated firm. Similarly new market applicability for an affiliated firm. Similarly new market
initiatives is feasible only for multi initiatives is feasible only for multi··product firms. product firms.
Scope Scope -- A diversified conglomerate may acquire a A diversified conglomerate may acquire a
distressed business to turn it around and gain valuable distressed business to turn it around and gain valuable
synergies, which may be unavailable to a focused firm. synergies, which may be unavailable to a focused firm.
Contour Contour -- !t is easier to reverse decline in the earlier !t is easier to reverse decline in the earlier
stages through operational measures, when decline stages through operational measures, when decline
deepens shifts in strategic position becomes essential. deepens shifts in strategic position becomes essential.
221 221
222 222
TRANS!T!ON TRANS!T!ON
Transition usually reflects the first signs of recovery. Transition usually reflects the first signs of recovery.
However, substantial amount of time usually passes However, substantial amount of time usually passes
before results begin to show before results begin to show (i.e. lead (i.e. lead -- lag) lag). .
Empirical studies show that average time is Empirical studies show that average time is 7.7 years 7.7 years
with a range of with a range of (4 (4··16) years 16) years. However, many a times . However, many a times
early signs of recovery fades out. Sustenance is the key early signs of recovery fades out. Sustenance is the key
factor in this stage. Effective levers of transition. factor in this stage. Effective levers of transition.
The top management has a key role to play through The top management has a key role to play through · ·
empowerment, transparency, role model, confidence empowerment, transparency, role model, confidence
building measures, participative management (i.e. building measures, participative management (i.e.
consensus). consensus).
Support from all the stake holders through resource Support from all the stake holders through resource
commitment. commitment.
223 223
OUTCONE OUTCONE
Outcome is said to be successful when a firm breaches Outcome is said to be successful when a firm breaches
the equilibrium performance level. Failure is an the equilibrium performance level. Failure is an
indication that initial momentum was not sustainable indication that initial momentum was not sustainable
characterized by irreversibility. characterized by irreversibility.
!nstead of focusing on financial parameters alone, it !nstead of focusing on financial parameters alone, it
should adopt a holistic approach. Cut off points must be should adopt a holistic approach. Cut off points must be
unequivocal. unequivocal.
Share price indications and media coverage. Share price indications and media coverage.
Regaining lost market share and distributor confidence. Regaining lost market share and distributor confidence.
Revival of key customers and new product launches. Revival of key customers and new product launches.
Commanding a premium in the market. Commanding a premium in the market.
Supplier and banker confidence. Supplier and banker confidence.
224 224
COOPERAT!vE STRATEC!ES COOPERAT!vE STRATEC!ES
SS
ALL!ANCES ALL!ANCES
22S 22S
COO#ERAT!vE STRATEC!ES COO#ERAT!vE STRATEC!ES
Cooperative strategies are a logical and timely response Cooperative strategies are a logical and timely response
to changes in business dynamics, technology, and to changes in business dynamics, technology, and
globalization . !t can assume any of the following forms globalization . !t can assume any of the following forms
-- franchising, licensing, consortia, supply franchising, licensing, consortia, supply··chain chain
partnership, strategic alliance, or joint venture. partnership, strategic alliance, or joint venture.
Any cooperative strategy maybe between firms within Any cooperative strategy maybe between firms within
the same country or cross border as well. the same country or cross border as well.
!n the cooperative strategy continuum as firms move !n the cooperative strategy continuum as firms move
up the value order, the commitment and the up the value order, the commitment and the
involvement between the firms increases manifold. involvement between the firms increases manifold.
Nore and more companies worldwide are moving away Nore and more companies worldwide are moving away
from competition to co from competition to co··option to leverage their option to leverage their
resources and enhance bargaining power. resources and enhance bargaining power.
226 226
FRANCH!S!NC FRANCH!S!NC
Franchising Franchising -- !t is a contractual agreement between !t is a contractual agreement between
two legally independent firms whereby the franchiser two legally independent firms whereby the franchiser
grants the right to the franchisee to grants the right to the franchisee to sell sell the the
franchisor's product or service or do business under its franchisor's product or service or do business under its
brand brand··name name in a given in a given location location for a specified period of for a specified period of
time time for a for a consideration. consideration.
!t is an effective strategy to !t is an effective strategy to penetrate markets penetrate markets in a in a
shortest possible time shortest possible time at a at a minimum cost minimum cost. Branding is . Branding is
critical to franchising. critical to franchising.
Switz Foods Switz Foods, owners of the brand , owners of the brand Nonginis Nonginis allows its allows its
franchisees to sell its confectionary products. franchisees to sell its confectionary products.
Titan !nds Titan !nds, owners of the brand , owners of the brand Tanishq Tanishq allows its allows its
franchisees to sell its jewellery products. franchisees to sell its jewellery products.
227 227
L!CENS!NC L!CENS!NC
Licensing Licensing -- !t is a contractual agreement between two !t is a contractual agreement between two
legally independent firms whereby the licensor grants legally independent firms whereby the licensor grants
the right to the licensee to the right to the licensee to manufacture manufacture the licensor's the licensor's
product and do business under its product and do business under its brand brand··name name in a in a
given given location location for a specified period of for a specified period of time time for a for a
consideration. consideration. Different levels of licensing Different levels of licensing ··
Nanufacturing without embracing any technology Nanufacturing without embracing any technology
(CBU). (CBU).
Develop a product through its crude stage, refine Develop a product through its crude stage, refine
processes and adopt necessary technologies processes and adopt necessary technologies (SKD). (SKD).
Become a systems integrator Become a systems integrator (CKD), as in (CKD), as in Tata !ndica Tata !ndica. .
HN manufacturing CN range of cars in !ndia with a HN manufacturing CN range of cars in !ndia with a
buy buy··back arrangement is a perfect example of CBU. back arrangement is a perfect example of CBU.
228 228
CONSORT!A CONSORT!A
Consortia Consortia -- They are defined as large They are defined as large inter inter··locking locking
relationships relationships S S cross holdings cross holdings between businesses in a between businesses in a
similar industry. !t can be of the following types similar industry. !t can be of the following types --
Nultipartner Nultipartner -- !ntends to share an underlying technology !ntends to share an underlying technology
or asset, leverage upon size to preempt competition by or asset, leverage upon size to preempt competition by
escalating entry barriers escalating entry barriers (Eg. Airbus (Eg. Airbus -- Boeing). Boeing).
Cross Holdings Cross Holdings -- A maze of equity holdings through A maze of equity holdings through
centralised control to ensure earnings stability centralised control to ensure earnings stability S S
threshold resources for critical mass threshold resources for critical mass (Eg. Tata, Hyundai). (Eg. Tata, Hyundai).
Collusion Collusion -- Few firms in a matured industry collude to Few firms in a matured industry collude to
reduce industry output below the equilibrium level, reduce industry output below the equilibrium level,
enabling them to increase prices enabling them to increase prices (Eg. Coke (Eg. Coke -- Pepsi). Pepsi).
SU##LY CHA!N #ARTNERSH!# SU##LY CHA!N #ARTNERSH!#
!t is a pro !t is a pro··active S collaborative arrangement between active S collaborative arrangement between
supplier and customer aimed at achieving better supplier and customer aimed at achieving better
control over the value chain (Eg. Tata Notors control over the value chain (Eg. Tata Notors -- !DEA). !DEA).
Companies in different industries with different but Companies in different industries with different but
complimentary skills, link their capabilities to create complimentary skills, link their capabilities to create
value for end users. value for end users.
!t usually provides a platform to sort out differences !t usually provides a platform to sort out differences
between conceptualization and implementation to suit between conceptualization and implementation to suit
local market needs. local market needs.
Continuous sharing of knowledge is critical to the Continuous sharing of knowledge is critical to the
success of a supply chain partnership, otherwise it success of a supply chain partnership, otherwise it
becomes routine outsourcing. becomes routine outsourcing.
223 223
230 230
STRATEC!C ALL!ANCE STRATEC!C ALL!ANCE
!t is an short to medium term understanding between !t is an short to medium term understanding between
two or more firms to share knowledge and risk, to gain two or more firms to share knowledge and risk, to gain
knowledge and to obtain access to new markets knowledge and to obtain access to new markets (Eg. (Eg.
Tata Notors Tata Notors -- Fiat, Reliance Fiat, Reliance -- Du Pont). Du Pont).
Despite their popularity (S0 Despite their popularity (S0··60)% of the alliances fail to 60)% of the alliances fail to
accomplish their stated objectives. Partner selection is accomplish their stated objectives. Partner selection is
one of the critical success factors. one of the critical success factors.
Firm's should undertake a long courtship with potential Firm's should undertake a long courtship with potential
partners, instead of hurrying into a relationship. partners, instead of hurrying into a relationship.
Ceneric motives involved are Ceneric motives involved are ·· learning organization, learning organization,
design next generation products, effective RSD design next generation products, effective RSD
management, enhance credibility, preempt competition, management, enhance credibility, preempt competition,
enter newer markets. enter newer markets.
231 231
STRATEC!C ALL!ANCE STRATEC!C ALL!ANCE · · TY#ES TY#ES
Collusion Collusion -- Tacit top management understanding to Tacit top management understanding to
neutralize price wars neutralize price wars (Eg. Coke (Eg. Coke -- Pepsi). Pepsi).
Complementary Equals Complementary Equals -- Two firms mutually promoting Two firms mutually promoting
each others complimentary products each others complimentary products (Eg. Whirlpool (Eg. Whirlpool --
Tide, Bajaj Tide, Bajaj -- Castrol). Castrol).
Bootstrap Bootstrap -- An alliance between a weak and a strong An alliance between a weak and a strong
company with an intention to acquire it. company with an intention to acquire it.
Alliances of the Weak Alliances of the Weak -- An alliance is entered into to An alliance is entered into to
preempt competition preempt competition (Eg. Airbus (Eg. Airbus -- Boeing). Boeing).
Backward Backward -- An alliance (quasi or tapered) with a An alliance (quasi or tapered) with a
supplier of critical components seeking commitment supplier of critical components seeking commitment
(Eg. Naruti). (Eg. Naruti).
#ARTNER SELECT!ON CR!TER!A #ARTNER SELECT!ON CR!TER!A
!t is likely that partners will not have complete consent !t is likely that partners will not have complete consent
on alliance objectives because the institutional context on alliance objectives because the institutional context
in which the alliance embedded varies from country to in which the alliance embedded varies from country to
country. country.
Cultural orientation has been found to have a profound Cultural orientation has been found to have a profound
effect on top management's strategic orientation effect on top management's strategic orientation (Eg. (Eg. --
]apan vs US). ]apan vs US).
Differences in level of economic development can Differences in level of economic development can
produce differences in alliances motives. Firms from produce differences in alliances motives. Firms from
developed markets seek access to markets and firms developed markets seek access to markets and firms
from emerging markets seeking access to technology. from emerging markets seeking access to technology.
Too much stress on financials S structure be avoided. Too much stress on financials S structure be avoided.
232 232
#ARTNER CHARACTER!ST!CS #ARTNER CHARACTER!ST!CS
Complimentarity of Capabilities Complimentarity of Capabilities -- The degree to which The degree to which
partners resources can be used in conjunction. partners resources can be used in conjunction.
Dominant Logic's Dominant Logic's -- Similarity in beliefs S biases. Similarity in beliefs S biases.
Unique Resources Unique Resources -- Abilities or skills which cannot be Abilities or skills which cannot be
easily duplicated. easily duplicated.
!ntangible Assets !ntangible Assets -- Nove beyond the financials of the Nove beyond the financials of the
firm. firm.
Willingness to share knowledge and skills. Willingness to share knowledge and skills.
Partner's ability to acquire fresh skills. Partner's ability to acquire fresh skills.
Experience related to previous alliances. Experience related to previous alliances.
Nanagerial capabilities, including ability to provide Nanagerial capabilities, including ability to provide
quality products and services. quality products and services.
233 233
NANAC!NC ALL!ANCES NANAC!NC ALL!ANCES
Alliances are more than just a deal, instead of focusing Alliances are more than just a deal, instead of focusing
controlling the relationship, partners should nurture it. controlling the relationship, partners should nurture it.
Selection S Courtship Selection S Courtship -- !t involves self analyzing, !t involves self analyzing,
understanding the chemistry, degree of compatibility. understanding the chemistry, degree of compatibility.
Cetting Engaged Cetting Engaged -- !t should incorporate a specific joint !t should incorporate a specific joint
activity, vows to include commitment to expand the activity, vows to include commitment to expand the
relationship, incorporating clear signs of continuing relationship, incorporating clear signs of continuing
independence for all partners. independence for all partners.
Setting up the housekeeping, the value chain. Setting up the housekeeping, the value chain.
Learning to collaborate Learning to collaborate -- strategic, operational S strategic, operational S
cultural integration. cultural integration.
Changing within, differences not anticipated earlier. Changing within, differences not anticipated earlier.
234 234
23S 23S
]O!NT vENTURE ]O!NT vENTURE
A joint venture is a A joint venture is a long term long term association between two association between two
equal partners to create an equal partners to create an independent independent firm firm (SPv) (SPv) by by
complementing their complementing their resources resources and and capabilities capabilities to explore to explore
newer businesses newer businesses or or markets markets for achieving a shared for achieving a shared
vision, vision, whilst the partners continue to operate whilst the partners continue to operate
independently independently. .
Conceptually, a joint venture is a selection among modes Conceptually, a joint venture is a selection among modes
by which two or more firms can transact. by which two or more firms can transact.
!t aims at creating new value (i.e. synergy) rather than !t aims at creating new value (i.e. synergy) rather than
mere exchange (i.e. combining parts). mere exchange (i.e. combining parts).
There are substantial linkages in the value There are substantial linkages in the value··chain. chain.
!t lasts till the vision is reached, separation is very bitter. !t lasts till the vision is reached, separation is very bitter.
]O!NT vENTURE ]O!NT vENTURE -- CENER!C NOT!vES CENER!C NOT!vES
Transaction Cost Transaction Cost -- The situational characteristics best The situational characteristics best
suited for a ]v are high performance uncertainty, in suited for a ]v are high performance uncertainty, in
addition to a high degree of asset specificity. addition to a high degree of asset specificity.
The market fails as sellers are unwilling to reveal their The market fails as sellers are unwilling to reveal their
technology and buyers are unwilling to purchase in the technology and buyers are unwilling to purchase in the
absence of inspection. absence of inspection.
Strategic Behaviour Strategic Behaviour -- Firms may override transaction Firms may override transaction
costs, though more profitable alternative to other costs, though more profitable alternative to other
choices. !t may also be linked to deterring entry or choices. !t may also be linked to deterring entry or
eroding competitors position. eroding competitors position.
Organizational Learning Organizational Learning -- !t is a means through which a !t is a means through which a
firm learns or seeks to retain their capabilities. firm learns or seeks to retain their capabilities.
236 236
237 237
OTHER NOT!vES OTHER NOT!vES
Entry into newer markets. Entry into newer markets.
-- Eg. Yamaha Eg. Yamaha -- Escorts, Eli Lily Escorts, Eli Lily -- Ranbaxy. Ranbaxy.
Learning new technologies. Learning new technologies.
-- Eg. TvS Eg. TvS -- Suzuki (4 Suzuki (4··Stroke Engines) Stroke Engines)
Fill gaps in existing product lines. Fill gaps in existing product lines.
-- Eg. Renault Eg. Renault -- Nissan (Ninivans Nissan (Ninivans -- Cars). Cars).
Endorsement from government authorities. Endorsement from government authorities.
-- Eg. Naruti Eg. Naruti -- Suzuki. Suzuki.
Sharing of resources. Sharing of resources.
-- Eg. Essar Eg. Essar -- Hutch (vodafone). Hutch (vodafone).
Define future industry standards. Define future industry standards.
-- Eg. Daimler Eg. Daimler -- Chrysler (Premium Cars) Chrysler (Premium Cars)
238 238
R!SKS !NvOLvED R!SKS !NvOLvED
!ncompatibility !ncompatibility -- Differences in cultural background. Differences in cultural background.
-- Codrej Codrej -- Procter S Camble, Century Procter S Camble, Century ·· Enka. Enka.
Risk of brain (i.e. technology) drain. Risk of brain (i.e. technology) drain.
-- Naruti Naruti -- Suzuki. Suzuki.
Risk of over dependence. Risk of over dependence.
-- Eg. LNL Eg. LNL -- Piaggio Piaggio
Differences in size and resource base. Differences in size and resource base.
-- Eg. Nodi Eg. Nodi -- Telstra Telstra
What after exit (parenting disadvantage)? What after exit (parenting disadvantage)?
-- Eg. PAL Eg. PAL -- Fiat Fiat
!f the cost of continuing exceeds the exit costs? !f the cost of continuing exceeds the exit costs?
-- Eg. Tata Eg. Tata -- Aditya Birla in !dea Cellular Aditya Birla in !dea Cellular
233 233
#RE #RE· ·RE$U!S!TES FOR SUCCESS RE$U!S!TES FOR SUCCESS
Commitment Commitment -- Nutual trust, respect, time sharing. Nutual trust, respect, time sharing.
Objectives Objectives -- Shared vision. Shared vision.
Partner Partner -- Avoid duplication of skills and capabilities. Avoid duplication of skills and capabilities.
Agreement Agreement -- Clarity on operational control. Clarity on operational control.
Flexibility Flexibility -- Sufficient space to breathe and adjust. Sufficient space to breathe and adjust.
Culture Culture -- Reconcile gaps. Reconcile gaps.
!nertia !nertia -- Differences in age and evolution patterns. Differences in age and evolution patterns.
!ncompatibility !ncompatibility -- Performance expectations. Performance expectations.
Equality Equality -- Lack of dominance. Lack of dominance.
Focus Focus -- Avoid strategic myopia. Avoid strategic myopia.
Costs Costs -- Other modes of transaction becomes cheaper. Other modes of transaction becomes cheaper.
240 240
NERCERS NERCERS
SS
ACOU!S!T!ON ACOU!S!T!ON
241 241
NERCERS S AC$U!S!T!ON NERCERS S AC$U!S!T!ON
A merger is a mutually beneficial consent between two or A merger is a mutually beneficial consent between two or
more firms more firms (usually of similar size) (usually of similar size) to form a newly to form a newly
evolved entity by absolving their individual entities to evolved entity by absolving their individual entities to
preempt competition preempt competition (Eg. Brooke Bond (Eg. Brooke Bond -- Lipton). Lipton). The The
larger objective is to leverage on size. larger objective is to leverage on size.
An acquisition is the purchase of a firm by a firm An acquisition is the purchase of a firm by a firm (of (of
larger size, however, reverses are also taking place larger size, however, reverses are also taking place
through LBO) through LBO) with a view to acquire conglomerate power with a view to acquire conglomerate power
and induce synergy and induce synergy (Eg. HLL (Eg. HLL -- Tomco). Tomco).
An acquisition is said be smooth if it is with the consent An acquisition is said be smooth if it is with the consent
of the management of the management (Eg. Ranbaxy (Eg. Ranbaxy ·· Daichi) Daichi) and hostile if and hostile if
it is without the consent of the management it is without the consent of the management (Eg. Nittal (Eg. Nittal ··
Arcelor). Arcelor).
Nost countries have stringent laws that prevents hostile Nost countries have stringent laws that prevents hostile
takeovers takeovers (Eg. SEB! Takeover Code, 2002). (Eg. SEB! Takeover Code, 2002).
242 242
SEB! TAKEOvER CODE, 2002 SEB! TAKEOvER CODE, 2002
Promoter Promoter -- A person who has a clear control of atleast A person who has a clear control of atleast
S1% S1% of the voting rights of the company and confidence of the voting rights of the company and confidence
of all the major stakeholders. of all the major stakeholders.
Acquirer Acquirer -- Someone (individual or firm) who picks up an Someone (individual or firm) who picks up an
atleast atleast S% S% stake without mandatory disclosure having an stake without mandatory disclosure having an
intention to wrest management control intention to wrest management control (i.e. creeping (i.e. creeping
acquisition). acquisition).
Hike Hike -- An acquirer who has already picked up a An acquirer who has already picked up a S% S% has has
to make a mandatory disclosure for every additional to make a mandatory disclosure for every additional 1% 1%
stake that it acquires. stake that it acquires.
Preferential Preferential -- A preferential allottee ending up acquiring A preferential allottee ending up acquiring
S% S% stake also comes under its purview. stake also comes under its purview.
Control Control -- A special resolution of A special resolution of 7S% 7S% of the share of the share
holders approving the change of guard. holders approving the change of guard.
243 243
SEB! TAKEOvER CODE, 2002 SEB! TAKEOvER CODE, 2002
Pricing Pricing -- Acquirers will have to offer minority Acquirers will have to offer minority
shareholders ( shareholders (at least 20%) at least 20%) the past the past 26 26 weeks or past weeks or past 22
weeks average price, whichever is higher as an exit route weeks average price, whichever is higher as an exit route
(Eg. Crasim (Eg. Crasim -- LST Cement, Cujarat Ambuja LST Cement, Cujarat Ambuja -- ACC). ACC).
Disclosure Disclosure -- All acquirers have to inform the respective All acquirers have to inform the respective
stock exchanges where it is listed and SEB! upon stock exchanges where it is listed and SEB! upon
acquiring the basic limit and upon every incremental limit acquiring the basic limit and upon every incremental limit
thereon. thereon.
SEB! SEB! -- !n case of a hostile take over, the SEB! can !n case of a hostile take over, the SEB! can
intervene and block share transfers if: the acquirer has intervene and block share transfers if: the acquirer has
ulterior motives ulterior motives (i.e. asset stripping) (i.e. asset stripping), credentials or track , credentials or track
record is at stake, and/or does not enjoy the confidence record is at stake, and/or does not enjoy the confidence
of the different stake holders. of the different stake holders.
244 244
TY#ES OF NERCERS TY#ES OF NERCERS
A A business business is an activity that involves procuring of is an activity that involves procuring of
desired desired inputs inputs to transform it to an to transform it to an output output by using by using
appropriate appropriate technologies technologies and thereby creating value for and thereby creating value for
its stake holders in the process. its stake holders in the process.
The type of merger is depends on the degree of The type of merger is depends on the degree of
relatedness relatedness (strategic) between the two businesses. (strategic) between the two businesses.
Horizontal Horizontal -- !t involves integration of two highly related !t involves integration of two highly related
businesses businesses (Eg. Electrolux (Eg. Electrolux ·· Kelvinator). Kelvinator).
vertical vertical -- !t involves complimentarily (partially related) in !t involves complimentarily (partially related) in
terms of supply of inputs or marketing activities terms of supply of inputs or marketing activities (Eg. (Eg.
Codrej, Reliance). Codrej, Reliance).
Conglomerate Conglomerate -- !t involves integration of two distinctly !t involves integration of two distinctly
unrelated businesses, usually opportunistic unrelated businesses, usually opportunistic (Eg. !TC). (Eg. !TC).
24S 24S
NERCERS S AC$U!S!T!ON NERCERS S AC$U!S!T!ON · · NOT!vES NOT!vES
!ncreased market / conglomerate power. !ncreased market / conglomerate power.
Reduction in risk. Reduction in risk.
Economies of size, scale and scope. Economies of size, scale and scope.
Overcoming entry barriers (Eg. Tata Steel Overcoming entry barriers (Eg. Tata Steel -- Corus). Corus).
Avoiding risk of new product development. Avoiding risk of new product development.
Access to newer segments (Eg. Ranbaxy Access to newer segments (Eg. Ranbaxy -- Crosslands). Crosslands).
Reduced gestation (i.e. quick access). Reduced gestation (i.e. quick access).
Tax benefits (Eg. !TC Bhadrachalam). Tax benefits (Eg. !TC Bhadrachalam).
Acquiring assets or capabilities (Eg. !C!C! Acquiring assets or capabilities (Eg. !C!C! --!TC Classic). !TC Classic).
Clobal image (Eg. Nittal Clobal image (Eg. Nittal -- Arcelor). Arcelor).
Ulterior motives Ulterior motives -- (Eg. Asset Stripping (Eg. Asset Stripping -- Shaw Wallace). Shaw Wallace).
Coinsurance effect Coinsurance effect -- Higher debt raising capability. Higher debt raising capability.
246 246
NERCERS S AC$U!S!T!ONS NERCERS S AC$U!S!T!ONS · · #!TFALLS #!TFALLS
Cultural differences (Eg. Tata Cultural differences (Eg. Tata -- Corus). Corus).
Overvaluation of buying firms Overvaluation of buying firms (Eg. When Tata Steel (Eg. When Tata Steel
started negotiations with Corus, their initial offer was started negotiations with Corus, their initial offer was
around around 420 pence/share 420 pence/share, while the ultimate , while the ultimate
acquisition was made at acquisition was made at 607 pence/share 607 pence/share). ).
Overvaluation is often as a result of an ego drive and Overvaluation is often as a result of an ego drive and
substantially affects future returns. substantially affects future returns.
Nerging of organisational structures. Nerging of organisational structures.
!nability to achieve synergy. !nability to achieve synergy.
Nanaging over Nanaging over··diversification. diversification.
Nanaging size. Nanaging size.
Top management overtly focused on Top management overtly focused on due diligence due diligence
exercise exercise and negotiations, neglecting core business. and negotiations, neglecting core business.
247 247
NERCER TY#E S #LC NERCER TY#E S #LC
!ntroduction !ntroduction -- A larger firm may acquire a newly formed A larger firm may acquire a newly formed
entity with an objective to preempt new competition or entity with an objective to preempt new competition or
acquire its license acquire its license (Eg. Kingfisher (Eg. Kingfisher -- Air Deccan) Air Deccan). .
Crowth Crowth -- This stage may witness parallel merger of two This stage may witness parallel merger of two
firms of similar size, with an objective to reinforce its firms of similar size, with an objective to reinforce its
growth trajectory or to take on the might of a growth trajectory or to take on the might of a
comparatively larger player comparatively larger player (Eg. Brooke Bond (Eg. Brooke Bond -- Lipton) Lipton). .
Naturity Naturity -- A larger firm acquires a smaller firm with an A larger firm acquires a smaller firm with an
objective to achieve economies of scale and experience objective to achieve economies of scale and experience
curve effects curve effects (Eg. Tata Steel (Eg. Tata Steel -- Corus). Corus).
Decline Decline -- Horizontal mergers are undertaken to ensure Horizontal mergers are undertaken to ensure
survival, vertical to save transactions costs. survival, vertical to save transactions costs.
248 248
!NTERNAT!ONAL NSA !NTERNAT!ONAL NSA · · FRANEWORK FRANEWORK
Positive contribution to the acquired company. An Positive contribution to the acquired company. An
acquisition just for the sake of it or reputation yields very acquisition just for the sake of it or reputation yields very
little value in the long term. little value in the long term.
A common shared vision. Strong differences may stifle A common shared vision. Strong differences may stifle
plans and its execution. plans and its execution.
A concern of respect and trust for the business of the A concern of respect and trust for the business of the
acquired company. acquired company.
Left alone syndrome, active top management Left alone syndrome, active top management
intervention in phases. !mmediate attempts to super intervention in phases. !mmediate attempts to super
impose structure and culture may cause bottle necks. impose structure and culture may cause bottle necks.
Blanket promotions across entities and confidence Blanket promotions across entities and confidence
building exercises needs to be practiced. building exercises needs to be practiced.
243 243
!NTECRAT!ON !NTECRAT!ON · · BLUE#R!NT BLUE#R!NT
Take the media into confidence. They can carry the Take the media into confidence. They can carry the
message to the various stake holders. message to the various stake holders.
Shift attention from business portfolio to people and Shift attention from business portfolio to people and
processes. processes.
Decide on the new hierarchy, promptly. !t will enable Decide on the new hierarchy, promptly. !t will enable
focus on customers and key people. focus on customers and key people.
Redefine responsibilities and authority. Redefine responsibilities and authority.
Decide upon management control systems. Decide upon management control systems.
!ntegrating work processes. !ntegrating work processes.
Determine business strategy. Determine business strategy.
Do not ignore the ¨people factor". Do not ignore the ¨people factor".
2S0 2S0
NSA NSA · · vALUAT!ON vALUAT!ON
The process of valuation is central to NSA. While under The process of valuation is central to NSA. While under
valuation may be a significant opportunity, over valuation may be a significant opportunity, over
valuation can become a curse. valuation can become a curse.
valuation decisions are arrived through a due diligence valuation decisions are arrived through a due diligence
process when the prospective acquirer gets access to process when the prospective acquirer gets access to
the books of accounts of acquiring company. The the books of accounts of acquiring company. The
process takes (6 process takes (6··12) months. Financial motives 12) months. Financial motives ··
-- Undervaluation relative to true value. Undervaluation relative to true value.
-- Narket for corporate control. Narket for corporate control.
-- Unstated reasons Unstated reasons -- Personal self interest and hubris. Personal self interest and hubris.
-- Synergy Synergy -- Potential value gain from combining Potential value gain from combining
operations (i.e. operational S financial). operations (i.e. operational S financial).
2S1 2S1
vALU!NC O#ERAT!ONAL SYNERCY vALU!NC O#ERAT!ONAL SYNERCY
Synergy Synergy -- !t refers to the potential value gain where the !t refers to the potential value gain where the
whole is greater than the sum of the parts. Synergy can whole is greater than the sum of the parts. Synergy can
be negative as well, when the ¨fit" between the two be negative as well, when the ¨fit" between the two
entities is very poor. Sources of operational synergy entities is very poor. Sources of operational synergy ··
-- Horizontal Synergy Horizontal Synergy -- Cains come from economies of Cains come from economies of
scale which reduces costs, or from increased market scale which reduces costs, or from increased market
power which increases sales and margins. power which increases sales and margins.
-- vertical Synergy vertical Synergy -- Cains come from controlling the Cains come from controlling the
supply supply··chain and savings in transaction costs. chain and savings in transaction costs.
-- Conglomerate Synergy Conglomerate Synergy -- Cains come when one firm Cains come when one firm
complements the resources or capabilities of another complements the resources or capabilities of another
(Eg. !nnovative product (Eg. !nnovative product -- Cood distribution network). Cood distribution network).
2S2 2S2
vALU!NC F!NANC!AL SYNERCY vALU!NC F!NANC!AL SYNERCY
Diversification Diversification -- Reduce variability in earnings by Reduce variability in earnings by
diversifying into unrelated industries. However, diversifying into unrelated industries. However,
shareholders can accomplish the same at a much lesser shareholders can accomplish the same at a much lesser
cost, and without paying take cost, and without paying take··over premiums. over premiums.
Cash Slack Cash Slack -- !t reduces asymmetry between cash starved !t reduces asymmetry between cash starved
firms with deserving projects and cash cows with no firms with deserving projects and cash cows with no
investment opportunities. Synergy comes from projects investment opportunities. Synergy comes from projects
which would not have been undertaken if the two firms which would not have been undertaken if the two firms
stayed apart stayed apart (Eg. Hotmail). (Eg. Hotmail).
Tax Benefits Tax Benefits -- Tax benefits may accrue from tax Tax benefits may accrue from tax
entitlements and depreciation benefits unutilized by a entitlements and depreciation benefits unutilized by a
loss making firm, but availed after being merged with a loss making firm, but availed after being merged with a
profitable firm profitable firm (Eg. !TC (Eg. !TC -- Bhadrachalam Paper). Bhadrachalam Paper).
2S3 2S3
vALU!NC F!NANC!AL SYNERCY vALU!NC F!NANC!AL SYNERCY
Co Co··!nsurance Effect !nsurance Effect -- !f the cash flows of the two firms !f the cash flows of the two firms
are less than perfectly correlated, the cash flow the are less than perfectly correlated, the cash flow the
merged firm will be less variable than the individual merged firm will be less variable than the individual
firms. This will induce higher debt capacity, higher firms. This will induce higher debt capacity, higher
leverage, hence better performance. leverage, hence better performance.
The The likelihood of default decreases likelihood of default decreases when two firms' when two firms'
assets and liabilities assets and liabilities are combined through a NSA are combined through a NSA
compared to the likelihood of default in the individual compared to the likelihood of default in the individual
companies. !t relates to the concept of diversification, as companies. !t relates to the concept of diversification, as
risky debt is spread across the new firm's operations. risky debt is spread across the new firm's operations.
-- Default risk comes down and credit rating improves. Default risk comes down and credit rating improves.
-- Coupon rates may also be negotiated at lower rates. Coupon rates may also be negotiated at lower rates.
2S4 2S4
vALU!NC COR#ORATE CONTROL vALU!NC COR#ORATE CONTROL
Premium of NSA are often justified to control the Premium of NSA are often justified to control the
management of the firm. The value of wrestling control management of the firm. The value of wrestling control
is is inversely proportional inversely proportional to the perceived quality of that to the perceived quality of that
management. management.
-- value of Control = value of firm after restructuring value of Control = value of firm after restructuring
-- value of firm before restructuring. value of firm before restructuring.
The value of control can be The value of control can be substantial substantial for firms that are for firms that are
operating well below optimal value, since a restructuring operating well below optimal value, since a restructuring
can lead to significant increase in value. can lead to significant increase in value.
While value of corporate control is While value of corporate control is negligible negligible for firms for firms
that are operating close to their optimal value. that are operating close to their optimal value.
Assessment of perceived quality is critical. Assessment of perceived quality is critical.
2SS 2SS
LEvERACE BUYOUT (LBO) LEvERACE BUYOUT (LBO)
The basic difference between a take The basic difference between a take··over and a LBO is over and a LBO is
the high inherent leverage (i.e. debt component) at the the high inherent leverage (i.e. debt component) at the
time of buyout and rapid changes in capital structure time of buyout and rapid changes in capital structure
over time. over time.
LBO facilitates a relatively smaller firm to bid for a LBO facilitates a relatively smaller firm to bid for a
comparatively larger firm in the bid for management comparatively larger firm in the bid for management
control. Confidence of investment bankers and the control. Confidence of investment bankers and the
international financial community is essential. international financial community is essential.
!t is a very costly and risky proposition. !t is a very costly and risky proposition.
The assets of the acquired company are used as The assets of the acquired company are used as
collateral for the borrowed capital, sometimes in collateral for the borrowed capital, sometimes in
combination with the assets of the acquiring company. combination with the assets of the acquiring company.
2S6 2S6
TO CO #UBL!C OR NOT? TO CO #UBL!C OR NOT?
However, off However, off··late many publicly traded firms have gone late many publicly traded firms have gone
private keeping in mind the following private keeping in mind the following --
-- The fear of LBO. The fear of LBO.
-- The need to satisfy analysts and shareholders. The need to satisfy analysts and shareholders.
-- Separation of ownership from management. Separation of ownership from management.
-- !ncreased information needs. !ncreased information needs.
A research study showed that A research study showed that 30% 30% of the publicly listed of the publicly listed
firms reported above average returns after going private. firms reported above average returns after going private.
The increased benefit showed in the following way The increased benefit showed in the following way --
reduced costs and increased revenue. reduced costs and increased revenue.
However, the advantages of going public includes However, the advantages of going public includes ··
access to financial markets, liquidity, on access to financial markets, liquidity, on··going valuation. going valuation.
2S7 2S7
RAT!ONALE FOR H!CH LEvERACE RAT!ONALE FOR H!CH LEvERACE
The high leverage in a LBO can be justified by The high leverage in a LBO can be justified by --
-- !f the target firm has too little debt !f the target firm has too little debt (relative to its (relative to its
optimal capital structure). optimal capital structure).
-- Nanagers cannot be trusted to invest free cash flows Nanagers cannot be trusted to invest free cash flows
wisely. wisely.
-- !t is a temporary phenomenon, which disappears once !t is a temporary phenomenon, which disappears once
assets are liquidated and significant portion of debt is assets are liquidated and significant portion of debt is
paid off. paid off.
-- Debts repaid off from increased value after successful Debts repaid off from increased value after successful
restructuring and wresting management control. restructuring and wresting management control.
-- Cost of debt coming down Cost of debt coming down (i.e. co (i.e. co··insurance effect). insurance effect).
-- Cash trapped company unable to utilize opportunities. Cash trapped company unable to utilize opportunities.
2S8 2S8
EFFECT OF H!CH LEvERACE EFFECT OF H!CH LEvERACE
!ncreases the riskiness of dividend flows to shareholders !ncreases the riskiness of dividend flows to shareholders
by increasing the interest cost to debt holders. Therefore, by increasing the interest cost to debt holders. Therefore,
initial rise in leverage is anticipated. initial rise in leverage is anticipated.
As the firm liquidates / pledges assets and pays off debt, As the firm liquidates / pledges assets and pays off debt,
leverage is expected to decrease over time. leverage is expected to decrease over time.
Any discounting has to reflect these changing cost of Any discounting has to reflect these changing cost of
capital. capital.
Lack of sufficient cash flows to repay costly debts Lack of sufficient cash flows to repay costly debts
resulting in a possible debt trap. resulting in a possible debt trap.
A LBO has to pass two tests to be viable A LBO has to pass two tests to be viable --
-- Restructuring to pay Restructuring to pay··off increased debt. off increased debt.
-- !ncrease equity valuation. !ncrease equity valuation.
2S3 2S3
REvERSE NERCER REvERSE NERCER
Reverse Nerger Reverse Nerger -- The acquisition of a public company, The acquisition of a public company,
which has discontinued its operations which has discontinued its operations (i.e. shell (i.e. shell
company) company) by a private company, small in size but having by a private company, small in size but having
a promising business, allowing the private company to a promising business, allowing the private company to
bypass the usually lengthy and complex process of going bypass the usually lengthy and complex process of going
public. Objectives public. Objectives --
-- Traditional route of filing prospectus and undergoing Traditional route of filing prospectus and undergoing
an !PO is costly, time an !PO is costly, time··barred, or costly. barred, or costly.
-- Prevents dilution of equity. Prevents dilution of equity.
-- Automatic listing in major exchanges. Automatic listing in major exchanges.
-- Tax shelter. Tax shelter.
-- Facilitates better valuation and forthcoming offerings. Facilitates better valuation and forthcoming offerings.
260 260
EFFECT OF TAKE EFFECT OF TAKE· ·OvER ANNOUNCENENT OvER ANNOUNCENENT
The shareholders of target firms are the clear winners. The shareholders of target firms are the clear winners.
-- Takeover announcements reported 30% excess Takeover announcements reported 30% excess
returns. returns.
-- Nerger announcements reported 20% excess returns. Nerger announcements reported 20% excess returns.
Excess returns also vary across time periods. During Excess returns also vary across time periods. During
bearish periods excess returns were bearish periods excess returns were 13%, 13%, and and 3S% 3S%
during bullish periods. during bullish periods.
However, takeover failures have only initial negative However, takeover failures have only initial negative
effects on stock prices. Nost target firms are taken over effects on stock prices. Nost target firms are taken over
within within (60 (60··30) 30) days. days.
!nitial anomaly in stock prices usually normalizes over a !nitial anomaly in stock prices usually normalizes over a
period of time period of time (6 (6··12) 12) months. months.
261 261
EFFECT OF TAKE EFFECT OF TAKE· ·OvER ANNOUNCENENT OvER ANNOUNCENENT
The effect of take The effect of take··over announcement on bidder firm's over announcement on bidder firm's
stock prices are not clear cut. stock prices are not clear cut.
-- Nost studies reported insignificant excess returns Nost studies reported insignificant excess returns
around take around take··over offers or merger announcements. over offers or merger announcements.
-- However, in the event of take However, in the event of take··over failure negative over failure negative
returns to the extent of returns to the extent of S% S% on bidder firm stock on bidder firm stock
prices is reflected. prices is reflected.
-- However, as stock markets become more and more However, as stock markets become more and more
perfect such anomalies would reduce over time. perfect such anomalies would reduce over time.
Source: ]ensen and Ruback, 1383.
Bradley, Desai, and Kim, 1383.
]arrel, Brickley, and Netter, 1388.
262 262
DEFENS!vE STRATEC!ES DEFENS!vE STRATEC!ES
Colden Parachute Colden Parachute -- An employment contract that An employment contract that
compensates top managers for loss of jobs as a result of compensates top managers for loss of jobs as a result of
change in management control. change in management control.
Poison Put Poison Put -- Premature retirement of bonds at attractive Premature retirement of bonds at attractive
rates to pour surplus cash and make target investment rates to pour surplus cash and make target investment
unattractive. unattractive.
Poison Pill Poison Pill -- An offer to existing shareholders to buy An offer to existing shareholders to buy
shares at a substantial discount to increase their voting shares at a substantial discount to increase their voting
rights. rights.
Asset Stripping Asset Stripping -- The targeted company hives off its key The targeted company hives off its key
assets to another subsidiary, so that nothing is left for assets to another subsidiary, so that nothing is left for
the raider to strip off.. the raider to strip off..
263 263
DEFENS!vE STRATEC!ES DEFENS!vE STRATEC!ES
White Knight White Knight -- !t is the placing of stocks to a cash rich !t is the placing of stocks to a cash rich
investor and bargaining for protection in return. But often investor and bargaining for protection in return. But often
the White Knight turns a betrayer himself the White Knight turns a betrayer himself (Eg. Raasi (Eg. Raasi
Dement Dement -- !ndian Cements !ndian Cements -- Reliance). Reliance).
Pac Nan Pac Nan -- The target company makes a counter bid to The target company makes a counter bid to
take over the raider company, thus diverting the raider take over the raider company, thus diverting the raider
company's attention. company's attention.
Cray Knight Cray Knight -- The target company takes the help of The target company takes the help of
friendly company to buy the shares of the raiding friendly company to buy the shares of the raiding
company. company.
Creen Nail Creen Nail -- The targeted company buys large blocks The targeted company buys large blocks
from holders either through premium or through pressure from holders either through premium or through pressure
tactics tactics (Eg. Shapoorji Pallonji). (Eg. Shapoorji Pallonji).
264 264
CONPET!NC FOR CONPET!NC FOR
THE THE
FUTURE FUTURE
26S 26S
CETT!NC OFF THE TREADN!LL CETT!NC OFF THE TREADN!LL
Canon Canon overpowering overpowering Xerox, Honda Xerox, Honda overpowering overpowering
volkswagen, Honda volkswagen, Honda overpowering overpowering CN CN, , Nokia Nokia
overpowering overpowering Notorola, Hitachi Notorola, Hitachi overpowering overpowering
Westinghouse, Wal Westinghouse, Wal··Nart Nart overpowering overpowering Sears, Compaq Sears, Compaq
overpowering overpowering !BN, British Air !BN, British Air overpowering overpowering Pan Am. Pan Am.
Nost companies were too preoccupied with the present Nost companies were too preoccupied with the present
than the future? than the future? 33% 33% of the companies overpowered, of the companies overpowered,
were spending were spending 33% 33% of their precious time dealing with of their precious time dealing with
present. present. The reverse was true for the companies The reverse was true for the companies
overpowering. overpowering.
What went wrong???? What were they doing with the What went wrong???? What were they doing with the
present? What were they pre present? What were they pre··occupied with? occupied with?
266 266
THE #AST OF CON#ET!T!ON THE #AST OF CON#ET!T!ON
Beyond Restructuring Beyond Restructuring -- When a competitiveness When a competitiveness
become inescapable problem become inescapable problem (stagnant growth, (stagnant growth,
declining margins, falling market share) declining margins, falling market share), CEO's brutally , CEO's brutally
pick up the knife and ruthlessly carve away layers of pick up the knife and ruthlessly carve away layers of
corporate flab corporate flab (delayering, decluttering, downsizing). (delayering, decluttering, downsizing).
Not knowing when to stop, most often they ended up Not knowing when to stop, most often they ended up
cutting cutting corporate muscle corporate muscle as well and became as well and became anorexic. anorexic.
Thus Thus efficiency efficiency was grievously hurt. was grievously hurt.
These denominator based managers stuck to their These denominator based managers stuck to their
restructuring strategies restructuring strategies (like building pyramids) (like building pyramids) and and
didn't know what to do next? didn't know what to do next?
Thus they became history? (like the pharaohs) Thus they became history? (like the pharaohs)
267 267
THE #RESENT OF CON#ET!T!ON THE #RESENT OF CON#ET!T!ON
Beyond Reengineering Beyond Reengineering -- Numerator based managers Numerator based managers
(innovation) (innovation) at least offers some hope. However, at least offers some hope. However,
incrementalism or incrementalism or nominal innovation nominal innovation has almost has almost
reached a plateau, reached a plateau, ensuring only survival of the ensuring only survival of the
present, but not of the future. present, but not of the future.
A poll in A poll in circa 2000 circa 2000 revealed that revealed that 80% 80% of the of the U.S. top U.S. top
managers managers believed that believed that quality quality will be a source of will be a source of
competitive advantage of the future. On the contrary competitive advantage of the future. On the contrary
only only 20% 20% of of ]apanese managers ]apanese managers believed that quality believed that quality
will be a source of competitive advantage of the future. will be a source of competitive advantage of the future.
The future is not about catching up with competition, The future is not about catching up with competition,
but forging ahead in competition. but forging ahead in competition.
268 268
THE FUTURE OF CON#ET!T!ON THE FUTURE OF CON#ET!T!ON
Regenerating Regenerating -- Leaner, better, faster Leaner, better, faster, as important as , as important as
these may be, they are not enough to get a company these may be, they are not enough to get a company
to the future. Companies need to fundamentally to the future. Companies need to fundamentally
reconcieve itself, reinvent its industry, reconcieve itself, reinvent its industry, and and regenerate regenerate
its strategies its strategies (breaking its (breaking its -- managerial frames). managerial frames).
Creating the future requires industry foresight. !t is Creating the future requires industry foresight. !t is
based on deep insights into trends in technology, based on deep insights into trends in technology,
demographics and lifestyles demographics and lifestyles. !t involves . !t involves ··
Dream about the company's future, don't predict. Dream about the company's future, don't predict.
Create a potential gap, aspirations and resources. Create a potential gap, aspirations and resources.
Transform the industry, not just the organization. Transform the industry, not just the organization.
Empower from bottom to top, not the other way. Empower from bottom to top, not the other way.
263 263
ABOUT THE DREAN ABOUT THE DREAN
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?
270 270
ABOUT THE TRANSFORNAT!ON ABOUT THE TRANSFORNAT!ON
The future does not belong to those who take the The future does not belong to those who take the
industry for granted. industry for granted. Successful companies have a Successful companies have a
complete grip over the industry, hence do not fall sick complete grip over the industry, hence do not fall sick
in the first place. Therefore, they do not need to in the first place. Therefore, they do not need to
restructure. restructure.
!t is about deliberately creating a !t is about deliberately creating a strategic misfit. strategic misfit. !t !t
drives a hunger and a passion to transform. drives a hunger and a passion to transform.
Change in at least one fundamental way the rules of Change in at least one fundamental way the rules of
engagement in an industry. engagement in an industry.
Redraw the boundaries between industries, by Redraw the boundaries between industries, by
converging technologies complex. converging technologies complex.
Create entirely new industries (i.e. blue oceans). Create entirely new industries (i.e. blue oceans).
271 271
ABOUT THE EN#OWERNENT ABOUT THE EN#OWERNENT
Bring about a revolution Bring about a revolution (a paradigm shift) (a paradigm shift) in the in the
organization. Nore importantly, the revolution must organization. Nore importantly, the revolution must
start at the bottom and spread in all directions of the start at the bottom and spread in all directions of the
organization. A revolution that is thrust upon from the organization. A revolution that is thrust upon from the
top seldom sustains. top seldom sustains.
Nost successful revolutions Nost successful revolutions (Candhi to Nandela) (Candhi to Nandela) rose rose
from the dispossessed. from the dispossessed.
The The middle management middle management plays a strong moderating plays a strong moderating
role. role.
Transformational leaders Transformational leaders merely lead the way. merely lead the way.
Such a process is called Such a process is called institutionalization institutionalization (from people (from people
centric to organisational centric). centric to organisational centric).
272 272
THE FUTURE OF STRATECY THE FUTURE OF STRATECY
A company must get to the future not only first but also A company must get to the future not only first but also
for less. What does it take to get to the future first? for less. What does it take to get to the future first?
Understanding how Understanding how competition competition for the future is for the future is
different. different.
A process for finding and gaining insight into tomorrows A process for finding and gaining insight into tomorrows
opportunities opportunities (Eg. Toshiba (Eg. Toshiba -- LCD, South West Airlines LCD, South West Airlines --
LCC, Apple LCC, Apple -- iphone). iphone). !t requires a lot of !t requires a lot of common common
sense sense and a little bit of and a little bit of out of the box thinking. out of the box thinking.
An ability to An ability to energize energize the company. the company.
Cet to the Cet to the future first future first, without taking , without taking undue risk. undue risk.
Companies need to Companies need to strategize strategize (think ahead of times). (think ahead of times).
Apply the Apply the 40 40 -- 30 30 -- 20 20 principle. principle.
273 273
HOW DOES THE FUTURE LOOK L!KE? HOW DOES THE FUTURE LOOK L!KE?
There is no rule which says that for every leader there There is no rule which says that for every leader there
will be a follower. As there is no one future, but will be a follower. As there is no one future, but
hundreds. hundreds.
We are in the midst of a We are in the midst of a 360 360
0 0
vacuum vacuum, each point in , each point in
space represents a unique business opportunity. The space represents a unique business opportunity. The
farther one can see in this endless space, the farther it farther one can see in this endless space, the farther it
will be away from competition. will be away from competition.
Companies of the future will be not based so much on Companies of the future will be not based so much on
the strength of their resources, as on their aspirations. the strength of their resources, as on their aspirations.
What distinguishes a leader from a laggard, greatness What distinguishes a leader from a laggard, greatness
from mediocrity, is the ability to imagine in a different from mediocrity, is the ability to imagine in a different
way what the future could be. way what the future could be.
274 274
Reengineering Processes
Organizational Transformation
Competing for Narket Share
Strategy as Learning
Strategy as Positioning
Regenerating Strategy
!ndustry Transformation
Competing for Opportunity Share
Strategy as Unlearning
Strategy as Dream
Not Only But Also
The Competitive Challenge
Finding the Future
Strategy as Engineering Strategy as Architecture
THE ENERC!NC STRATECY #ARAD!CN THE ENERC!NC STRATECY #ARAD!CN
27S 27S
Strategic Fit
Resource Allocation
Product Leadership
Single Entity
Strategic Nisfit
Resource Stretch S Leverage
Competency Leadership
Dominant Coalitions / Co·option
Not Only But Also
Nobilising for the Future
Cetting to the Future First
Product Hits S Timing
Narket Learning S Preemption
Existing !ndustry Structure Future !ndustry Structure
THE ENERC!NC STRATECY #ARAD!CN THE ENERC!NC STRATECY #ARAD!CN
276 276
Time
D
e
g
r
e
e

o
f

L
e
a
r
n
i
n
g
Unlearning
Curve
Learning
Curve
P1: The degree of learning in current period is
directly proportional to the degree of unlearning in
the previous period.
P2: Unlearning in previous period does not
necessarily ensure learning in the current period.
t
2
t
3
t
4
t
1
t
S
LEARN!NC TO FORCET LEARN!NC TO FORCET
277 277
CORE CON#ETENCE CORE CON#ETENCE
A core competence relates to a bundle of skills A core competence relates to a bundle of skills (not an (not an
asset or a business) asset or a business) that revolves around activities or that revolves around activities or
processes and critically underpins a firm's competitive processes and critically underpins a firm's competitive
advantage. advantage. !t represents the collective learning's of an !t represents the collective learning's of an
organization centering around diverse streams of organization centering around diverse streams of
technologies. technologies. !t is characterized by the following !t is characterized by the following --
Unique Unique -- !t provides unimaginable customer value !t provides unimaginable customer value
ahead of its times. ahead of its times.
!nimitable S !nsubstitutable !nimitable S !nsubstitutable -- A high degree causal A high degree causal
ambiguity between these skills yield sustainable ambiguity between these skills yield sustainable
competitive advantage. !t cannot be matched even by competitive advantage. !t cannot be matched even by
its closest competitors. its closest competitors.
Leverage Leverage -- They are the gateways to future markets. They are the gateways to future markets.
278 278
NORE ABOUT CORE CON#ETENCE NORE ABOUT CORE CON#ETENCE
Sony Sony -- miniaturization, miniaturization, Honda Honda -- engines, engines, Wal Wal··Nart Nart --
logistics, logistics, SKF SKF -- antifriction and precision, antifriction and precision, Coca Cola Coca Cola --
brand, brand, Nike Nike -- designing, designing, Canon Canon -- imaging, imaging, !ntel !ntel --
nano nano··electronics, electronics, Toyota Toyota -- lean manufacturing, lean manufacturing,
Toshiba Toshiba -- flat screen displays. flat screen displays.
Core competencies are the roots of the organization. Core competencies are the roots of the organization.
Although a core competence may lose value over Although a core competence may lose value over
time, time, it gets more refined and valuable through use. it gets more refined and valuable through use.
A core competency cannot be outsourced A core competency cannot be outsourced, it is deeply , it is deeply
embedded in the heart of the organization. embedded in the heart of the organization.
Nost companies around the world do not possess one, Nost companies around the world do not possess one,
leaders have one, at the most three to four. leaders have one, at the most three to four.
273 273
ROOTS OF CON#ET!T!vENESS ROOTS OF CON#ET!T!vENESS
Core Product 1
Competence
1
End
Products
Core
Businesses
Core
Products
Core
Competencies
Competence
2
Competence
3
Competence
4
Core Product 2
Core
Business
1
Core
Business
2
Core
Business
3
Core
Business
4
1 2 3 4 S 6 8 7 3 10
280 280
RESOURCE STRETCH S LEvERACE RESOURCE STRETCH S LEvERACE
!nitial resource position is a very poor indicator of future !nitial resource position is a very poor indicator of future
performance. !t leads to atrophy and stagnation. performance. !t leads to atrophy and stagnation.
Successful companies consciously create a potential gap Successful companies consciously create a potential gap
between aspirations and resources. between aspirations and resources.
Resource crunch is a common factor among firms that Resource crunch is a common factor among firms that
faces a wealthy rival, and outperforms them. Leveraging faces a wealthy rival, and outperforms them. Leveraging
what a company already has, rather than allocating it is what a company already has, rather than allocating it is
a more creative response to scarcity. a more creative response to scarcity.
-- By By concentrating concentrating existing resources. existing resources.
-- By By accumulating accumulating existing resources. existing resources.
-- By By complementing complementing existing resources. existing resources.
-- By By conserving conserving existing resources. existing resources.
-- By By recovering recovering existing resources. existing resources.
281 281
CONCENTRAT!NC RESOURCES CONCENTRAT!NC RESOURCES
Concentrating Concentrating -- !t involves effectively directing !t involves effectively directing
portfolio of resources on key strategic goals in which portfolio of resources on key strategic goals in which
individual efforts converge over time. individual efforts converge over time. !t is a balance !t is a balance
between between individual mediocrity individual mediocrity and and collective brilliance. collective brilliance.
!t is achieved through !t is achieved through --
Converging Converging -- Redirecting multiple diverging Redirecting multiple diverging (i.e. (i.e.
fragmented) fragmented) short term goals into one long term goal. short term goals into one long term goal.
!t is then resources can be stretched over time. !t is then resources can be stretched over time.
Focusing Focusing -- Naking Naking trade trade··offs offs and preventing dilution of and preventing dilution of
resources at a particular point of time. resources at a particular point of time.
Targeting Targeting -- Focusing on the Focusing on the right innovations right innovations that are that are
likely to have the biggest impact on customer value. likely to have the biggest impact on customer value.
282 282
ACCUNULAT!NC RESOURCES ACCUNULAT!NC RESOURCES
Accumulating Accumulating -- Using existing reservoir of resources to Using existing reservoir of resources to
build new resources. Each and every individual is a rich build new resources. Each and every individual is a rich
S potential source of learning, discover better ways of S potential source of learning, discover better ways of
doing things. doing things. !t is achieved through !t is achieved through ··
Nining Nining -- Extracting learning experiences from existing Extracting learning experiences from existing
body of each additional experience body of each additional experience (i.e. success or (i.e. success or
failure). failure). !t is an attitude that can be acquired, but never !t is an attitude that can be acquired, but never
learnt. !t leads to a substantial jump in the experience learnt. !t leads to a substantial jump in the experience
curve. curve.
Borrowing Borrowing -- Utilizing resources outside the firm through Utilizing resources outside the firm through
licensing, alliances, joint ventures. A firms absorptive licensing, alliances, joint ventures. A firms absorptive
capacity is as important as its inventive capacity. capacity is as important as its inventive capacity.
283 283
CON#LENENT!NC RESOURCES CON#LENENT!NC RESOURCES
Complementing Complementing -- Using resources of one type with Using resources of one type with
another that aligns smoothly to create higher order another that aligns smoothly to create higher order
value. !n a way it produces an accelerating effect on value. !n a way it produces an accelerating effect on
each individual resource. each individual resource. !t is achieved through !t is achieved through --
Blending Blending -- !nterweaving discrete capabilities to create !nterweaving discrete capabilities to create
world class technologies world class technologies (CN (CN -- Honda) Honda) through through
integration and imagination. Different functional skills can integration and imagination. Different functional skills can
also be blended to create a world class end products also be blended to create a world class end products
(Yamaha (Yamaha -- Keyboard). Keyboard).
Balancing Balancing -- An ability to exploit excellence in one area is An ability to exploit excellence in one area is
never imperiled by mediocrity in another never imperiled by mediocrity in another (CE acquiring (CE acquiring
the CT scanning rights from EN! because of its the CT scanning rights from EN! because of its
inadequate market reach). inadequate market reach).
284 284
CONSERv!NC RESOURCES CONSERv!NC RESOURCES
Conserving Conserving -- Sustaining competencies over time Sustaining competencies over time
through frequent usage. Resources are never through frequent usage. Resources are never
abandoned, they are always preserved for future use. abandoned, they are always preserved for future use.
Recycling Recycling -- !ncreasing the velocity of use of a !ncreasing the velocity of use of a
competencies over time. As a result core competencies competencies over time. As a result core competencies
can be leveraged across an array of products can be leveraged across an array of products (Sony (Sony ··
Betamax Betamax). ). !t includes brand extensions as well. !t includes brand extensions as well.
Co Co··Opting Opting -- Enticing resources of potential competitors Enticing resources of potential competitors
to exercise influence in an industry to exercise influence in an industry (Fujitsu (Fujitsu -- !BN). !BN).
Shielding Shielding -- !t involves identifying competitors blind !t involves identifying competitors blind
spots and then attacking without having the fear of spots and then attacking without having the fear of
retaliation. retaliation.
28S 28S
RECOvER!NC RESOURCES RECOvER!NC RESOURCES
Recovering Recovering ·· !t is the process of reducing the elapsed !t is the process of reducing the elapsed
time between investing in resources and the recovery of time between investing in resources and the recovery of
those resources in the form of revenues via the market. those resources in the form of revenues via the market.
Speeding Speeding -- Prior to the 1380's Detroit's majors took an Prior to the 1380's Detroit's majors took an
average of 8 years to develop an entirely new model, average of 8 years to develop an entirely new model,
the ]apanese reduced it to less than 4.S years, with the ]apanese reduced it to less than 4.S years, with
major new variants in 2 years. This envisaged ]apanese major new variants in 2 years. This envisaged ]apanese
players in giving customers more opportunities to switch players in giving customers more opportunities to switch
allegiance and loyalty allegiance and loyalty (Toyota) (Toyota). .
Protecting Protecting -- !t uses competitors strength to one's own !t uses competitors strength to one's own
advantage, by deflecting it, rather than absorbing it as advantage, by deflecting it, rather than absorbing it as
practiced in ]udo. practiced in ]udo.
286 286
!NTERNAT!ONAL !NTERNAT!ONAL
BUS!NESS ENv!RONNENT BUS!NESS ENv!RONNENT
287 287
ENERC!NC NARKETS ENERC!NC NARKETS
Emerging markets Emerging markets (!ndia, China, Korea, Chile) (!ndia, China, Korea, Chile)
provide a different context provide a different context (i.e. high levels of market (i.e. high levels of market
imperfection). imperfection). Therefore, strategies suited for the Therefore, strategies suited for the
developed markets may not be appropriate for developed markets may not be appropriate for
emerging markets. emerging markets.
Emerging markets are characterised by Emerging markets are characterised by infrastructural infrastructural
bottlenecks, institutional gaps, bottlenecks, institutional gaps, and and high transaction high transaction
costs. costs. Therefore focused strategies based on core Therefore focused strategies based on core
competence may not be suitable for emerging competence may not be suitable for emerging
markets markets (Khanna S Palepu, 1337). (Khanna S Palepu, 1337).
Diversified groups in operating in emerging markets Diversified groups in operating in emerging markets
therefore benefit from therefore benefit from unrelated unrelated diversification. diversification.
288 288
D!vERS!TY D!vERS!TY · · #ERFORNANCE (!) #ERFORNANCE (!)
Diversity
P
e
r
f
o
r
m
a
n
c
e
Diversity attempts to measure the degree and extent of
diversification (Herfindahl, Concentric, Entropy).
Diversity is initially positively related
with performance, subsequently negatively
related across developed markets.
Synergy, Size S Scale, Experience
Strategic Fit
Optimum level of diversification
Palich, et al. (2000)
283 283
D!vERS!TY D!vERS!TY · · #ERFORNANCE (!!) #ERFORNANCE (!!)
Diversity
P
e
r
f
o
r
m
a
n
c
e
Diversity is initially negatively related
with performance, subsequently positively
related across emerging markets.
Threshold level of diversification
Huge initial investment, brand building
Risk diversification,
conglomerate power
(Khanna S Palepu, 2001)
230 230
!NTERNAT!ONAL !DENT!TY !NTERNAT!ONAL !DENT!TY
NNC's NNC's consciously engage in consciously engage in FD! FD! in different parts of in different parts of
the globe to forge resource diversity as a distinct the globe to forge resource diversity as a distinct
competitive advantage. Characteristics competitive advantage. Characteristics --
!t should have a spread of affiliates or subsidiaries. !t should have a spread of affiliates or subsidiaries.
!t should have a spread of manufacturing facilities. !t should have a spread of manufacturing facilities.
!t should have a spread of assets, revenues and profits. !t should have a spread of assets, revenues and profits.
!t should have a spread of interest groups / stake !t should have a spread of interest groups / stake
holders. holders.
!t should think globally, act locally !t should think globally, act locally (Eg. HSBC). (Eg. HSBC).
231 231
CLOBAL BUS!NESS ENv!RONNENT CLOBAL BUS!NESS ENv!RONNENT
Power Distance Power Distance -- !t reflects the disparities in income !t reflects the disparities in income
and intellectual development and intellectual development (Eg. low power distance (Eg. low power distance
in developed markets and vice versa for emerging in developed markets and vice versa for emerging
markets). markets).
Feminity !ndex Feminity !ndex ·· !t reflects the disparities in women in !t reflects the disparities in women in
workforce workforce (Eg. high feminity index in developed (Eg. high feminity index in developed
markets and vice versa for emerging markets). markets and vice versa for emerging markets).
Risk Profile Risk Profile -- !t reflects the risk attitude of the top !t reflects the risk attitude of the top
management management (Eg. low risk profile in developed markets (Eg. low risk profile in developed markets
and vice versa for emerging markets). and vice versa for emerging markets).
Croup Scale Croup Scale ·· !t reflects the relative role of team !t reflects the relative role of team
building building (Eg. low group scale in developed markets (Eg. low group scale in developed markets
and vice versa for emerging markets). and vice versa for emerging markets).
232 232
CLOBAL BUS!NESS ENv!RONNENT CLOBAL BUS!NESS ENv!RONNENT
Cultural Adaptability Cultural Adaptability -- !t reflects the adaptive ability to !t reflects the adaptive ability to
a changing environment a changing environment ·· culture, way of life, attitude, culture, way of life, attitude,
code of conduct, dress sense, customs, time value, code of conduct, dress sense, customs, time value,
flexibility flexibility (Eg. high cultural adaptability in developed (Eg. high cultural adaptability in developed
markets and vice versa for emerging markets). markets and vice versa for emerging markets).
Country Risk Country Risk -- !t reflects the political and economic risk !t reflects the political and economic risk
(Eg. political stability, credit rating, currency, FOREX (Eg. political stability, credit rating, currency, FOREX
reserves, inflation, interest rates, terrorism (3/11), reserves, inflation, interest rates, terrorism (3/11),
corruption, judiciary) corruption, judiciary) of doing business in a particular of doing business in a particular
country country (Eg. low country risk in developed markets and (Eg. low country risk in developed markets and
vice versa for emerging markets). vice versa for emerging markets).
233 233
CLOBAL BUS!NESS ENv!RONNENT CLOBAL BUS!NESS ENv!RONNENT
Time Sensitiveness Time Sensitiveness -- Developed country managers Developed country managers
regard time as precious, however, in most emerging regard time as precious, however, in most emerging
markets meetings are delayed and lasts unusually long. markets meetings are delayed and lasts unusually long.
Other factors Other factors -- local celebrations, time local celebrations, time··zones. zones.
Language Barriers Language Barriers -- Developed country managers Developed country managers
expect foreign partners to communicate in their expect foreign partners to communicate in their
languages, in most emerging markets use of an languages, in most emerging markets use of an
interpreter may be a standard protocol. interpreter may be a standard protocol.
Ethnocentrism Ethnocentrism -- Developed country managers tend to Developed country managers tend to
regard their own culture as superior, and vice regard their own culture as superior, and vice··versa. versa.
High levels of ethnocentrism usually has a negative High levels of ethnocentrism usually has a negative
effect on business. effect on business.
234 234
CATT CATT
CATT CATT was a bi was a bi··lateral treaty initiated between lateral treaty initiated between US US and and
some member countries in some member countries in 1347 1347 to promote free trade. to promote free trade.
!n !n 133S (Uruguay Round) CATT 133S (Uruguay Round) CATT was renamed to was renamed to WTO WTO. .
!t a multi !t a multi··lateral treaty with lateral treaty with 143 (as on 2002) 143 (as on 2002) member member
countries to reduce tariff and non countries to reduce tariff and non··tariff tariff (quota) (quota)
barriers. !t focused largely on barriers. !t focused largely on TR!PS TR!PS (patents, (patents,
copyrights, trademarks). !t also initiated provisions on copyrights, trademarks). !t also initiated provisions on
anti anti··dumping. dumping.
The The 1333 (Seattle Round) 1333 (Seattle Round) saw a lot of protest amidst saw a lot of protest amidst
bringing agriculture under the purview of TR!PS. !t also bringing agriculture under the purview of TR!PS. !t also
highlighted the nexus between US S WTO. highlighted the nexus between US S WTO.
The The 2001 (Doha Round) 2001 (Doha Round) focused on power blocks focused on power blocks
(NAFTA, ASEAN, BR!C). (NAFTA, ASEAN, BR!C).
23S 23S
EURO EURO -- S!NCLE CURRENCY S!NCLE CURRENCY
!n !n 1333 twelve 1333 twelve member countries in Europe joined member countries in Europe joined
hands to move over to a single currency hands to move over to a single currency (i.e. Euro), (i.e. Euro),
three countries joined in three countries joined in 2002 2002 increasing it to increasing it to fifteen fifteen
members as of 2008. The notable exception was Creat members as of 2008. The notable exception was Creat
Britain which still continues with its local currency Britain which still continues with its local currency (i.e. (i.e.
Sterling Sterling ·· Pound). Pound).
The Euro was significantly devalued against the Dollar The Euro was significantly devalued against the Dollar
till till 2002. 2002. However with current recession in the US However with current recession in the US
2002 onwards, 2002 onwards, the Euro slowly started outperforming the Euro slowly started outperforming
the Dollar. the Dollar.
However, the However, the Dollar Dollar still remains the most preferred still remains the most preferred
currency globally, primarily the currency globally, primarily the OPEC OPEC countries. countries.
236 236
S!NCLE vs NULT!#LE CURRENCY S!NCLE vs NULT!#LE CURRENCY
Transaction Costs Transaction Costs -- Though the initial cost of Though the initial cost of
introduction of a single currency is very introduction of a single currency is very complicated complicated
and costly and costly, it helps avoiding , it helps avoiding transaction costs transaction costs
associated with a multiple currency. associated with a multiple currency.
Rate Uncertainty Rate Uncertainty -- A single currency eliminates the risk A single currency eliminates the risk
of of competitive devaluations. competitive devaluations. However, a multiple However, a multiple
currency is preferable where the currency is preferable where the business cycles business cycles of of
member nations are different. member nations are different.
Transparency Transparency -- A single currency is transparent and A single currency is transparent and
competitive, but it may have competitive, but it may have spill spill··over effects. over effects.
Trade Block Trade Block -- !t will strengthen the !t will strengthen the EU identity EU identity which which
would not have been possible otherwise. would not have been possible otherwise.
237 237
F!! vs FD! !NvESTNENT F!! vs FD! !NvESTNENT
Classical economists believed that foreign investment Classical economists believed that foreign investment
(in any form) (in any form) is basically a zero sum game is basically a zero sum game (i.e. the gain (i.e. the gain
of one country is loss of another). of one country is loss of another). Neo classical Neo classical
economists believe that foreign investment may in fact economists believe that foreign investment may in fact
be a be a win win··win win game. game.
-- FD! (transfer of tangible resources) FD! (transfer of tangible resources) is slow but is slow but
steady for the purpose of economic growth. !t is steady for the purpose of economic growth. !t is
long term with high levels of commitment. long term with high levels of commitment.
-- F!! (transfer of intangible resources) F!! (transfer of intangible resources) is fast but may is fast but may
have strong repercussions have strong repercussions (i.e. hot money). (i.e. hot money). !t is !t is
short short··medium term with comparatively low levels of medium term with comparatively low levels of
commitment. commitment.
238 238
!NTERNAT!ON NARKET!NC !NTERNAT!ON NARKET!NC
Product Product -- The various attributes of a product may The various attributes of a product may
receive different degrees of emphasis depending on receive different degrees of emphasis depending on
differences in differences in ·· culture culture (food habits), (food habits), economic economic (middle (middle
class buying power), class buying power), technology technology (micro (micro··chip). chip).
Pricing Pricing -- !t depends on the !t depends on the competitive structure competitive structure (PLC (PLC
-- Kellogg's), Kellogg's), customer awareness customer awareness (micro (micro··waves), waves), usage usage
(talk time), (talk time), promotion promotion (surrogate advertising). (surrogate advertising).
Distribution Distribution -- !t depends on the !t depends on the market characteristics market characteristics
(fragmented (fragmented -- concentrated), concentrated), buying patterns buying patterns (spread), (spread),
lifestyle lifestyle (petroleum outlets (petroleum outlets -- departmental stores). departmental stores).
233 233
!NTERNAT!ON F!NANCE !NTERNAT!ON F!NANCE
Currency Risk Currency Risk -- Nany !ndian !T companies Nany !ndian !T companies (Rs) (Rs) having having
business in business in US (Dollar) US (Dollar) are asking for quotes in are asking for quotes in (Euro) (Euro)
or are shifting bases out of US to avoid risk of or are shifting bases out of US to avoid risk of
devaluation of Dollar. devaluation of Dollar.
Accounting Norms Accounting Norms -- The accounting norms of one The accounting norms of one
country country (AS (AS ·· !ndia) !ndia) may be different from that another may be different from that another
trading country trading country (US (US -- CAAP or !RS). CAAP or !RS).
Leverage Leverage -- The leverage may vary across countries The leverage may vary across countries
depending upon money and capital market conditions depending upon money and capital market conditions
(Eg. debt is cheap in US, equity is cheap in !ndia). (Eg. debt is cheap in US, equity is cheap in !ndia).
Cost Structure Cost Structure -- Companies in !ndia need to investment Companies in !ndia need to investment
in in fixed costs fixed costs due to poor due to poor infra infra··structure structure compared to compared to
developed markets. developed markets.
300 300
!NTERNAT!ONAL HR !NTERNAT!ONAL HR
An An uniform HR uniform HR policy is idealistic to enable parity in policy is idealistic to enable parity in
performance appraisal, however, in most cases it is performance appraisal, however, in most cases it is
not desirable nor practiced. not desirable nor practiced.
Recruitment Recruitment -- !n local recruitment, skills are more !n local recruitment, skills are more
important that cultural fit and vice important that cultural fit and vice··versa. versa.
Compensation Compensation -- Differential pay packages exists Differential pay packages exists
because of differences in purchasing power, social because of differences in purchasing power, social
security, double taxation, labour laws. security, double taxation, labour laws.
Training Training -- !t is a pre !t is a pre··requisite for international requisite for international
business to reduce language, technology business to reduce language, technology
(convergence, shortened life cycles), (convergence, shortened life cycles), and cultural and cultural
barriers barriers (language) (language) vis vis··aa··vis emerging markets. vis emerging markets.
301 301
!NTERNAT!ONAL O#ERAT!ONS !NTERNAT!ONAL O#ERAT!ONS
Location !ncentives Location !ncentives -- FD! in emerging markets should FD! in emerging markets should
explore options for explore options for SEZ's SEZ's to explore benefits to explore benefits (tax (tax
holidays, reduce power costs) holidays, reduce power costs) vis vis··aa··vis vis infrastructural infrastructural
bottlenecks. bottlenecks.
Technology Technology -- The cost to be evaluated in terms of The cost to be evaluated in terms of
latest technology latest technology (Euro v!) (Euro v!) vis vis··aa··vis effective cost of vis effective cost of
appropriate technology appropriate technology (Euro !!). (Euro !!).
Outsourcing Outsourcing -- A company having a core competence A company having a core competence
may be the source of global outsourcing may be the source of global outsourcing (Eg. Bosch (Eg. Bosch
spark plugs are used by car manufacturers worldwide). spark plugs are used by car manufacturers worldwide).
SCN SCN -- Use of Use of ERP ERP to network the extended enterprise to network the extended enterprise
across the globe. across the globe.
CONTENPORARY CONTENPORARY
TOP!CS TOP!CS
302 302
!NNOvAT!ON !NNOvAT!ON
An invention is the first occurrence of an idea for a An invention is the first occurrence of an idea for a
new product or process, innovation is the first new product or process, innovation is the first
attempt to carry it out in practice. attempt to carry it out in practice.
!nnovations typically paves the way for more secured !nnovations typically paves the way for more secured
and improved lifestyle for consumers in general. and improved lifestyle for consumers in general.
!nnovation is the most preferred strategy today to !nnovation is the most preferred strategy today to
maintain competitive advantage in the present maintain competitive advantage in the present
turbulent business environment. turbulent business environment.
!nnovation is all about staying ahead of competition, !nnovation is all about staying ahead of competition,
but has inherent risks involved as well. but has inherent risks involved as well.
While innovation typically adds value for While innovation typically adds value for
organizations, it has destructive effects as well. organizations, it has destructive effects as well. 303 303
TY#ES OF !NNOvAT!ON TY#ES OF !NNOvAT!ON
A key challenge is maintaining a balance between A key challenge is maintaining a balance between
process and product innovations. process and product innovations.
While product innovations are typically customer While product innovations are typically customer
driven, process innovations are organizational driven. driven, process innovations are organizational driven.
Tangible impact of product innovation on performance Tangible impact of product innovation on performance
is significantly higher than process innovation. is significantly higher than process innovation.
However, process innovation is necessary to sustain However, process innovation is necessary to sustain
the competitive advantage of product innovation. the competitive advantage of product innovation.
Process innovation usually follows product innovation. Process innovation usually follows product innovation.
Strategic innovation has the potential to change the Strategic innovation has the potential to change the
rules of the game. rules of the game.
304 304
BUS!NESS NODEL BUS!NESS NODEL
!t is a simplified description and representation of a !t is a simplified description and representation of a
complex real world, about how an organization complex real world, about how an organization
makes money (i.e. putting an idea into practice). makes money (i.e. putting an idea into practice).
!nnovations are the back !nnovations are the back··bone of successful bone of successful
business models . business models .
Disruptive business models brings in a new frame of Disruptive business models brings in a new frame of
reference (i.e. a paradigm shift). !t leads to a shift in reference (i.e. a paradigm shift). !t leads to a shift in
the price the price -- performance envelope. performance envelope.
Telecom (CDNA Technology), Data Storage (Pen Telecom (CDNA Technology), Data Storage (Pen
Drives), Drug Development (Bio Chemicals), Nedical Drives), Drug Development (Bio Chemicals), Nedical
Surgery (Lasik), Processors (Pentium). Surgery (Lasik), Processors (Pentium).
30S 30S
N!NE BU!LD!NC BLOCKS N!NE BU!LD!NC BLOCKS
value proposition offered to the market. value proposition offered to the market.
The segment(s) of clients to be addressed. The segment(s) of clients to be addressed.
The channels to reach out to the clients. The channels to reach out to the clients.
The proposed relationships established with clients. The proposed relationships established with clients.
The key resources and capabilities required. The key resources and capabilities required.
The key activities / processes necessary for execution. The key activities / processes necessary for execution.
The key partners involved in the activities. The key partners involved in the activities.
The cost structure resulting from the business model. The cost structure resulting from the business model.
The revenue streams generated by the activities. The revenue streams generated by the activities.
306 306
BUS!NESS NODEL FRANEWORK BUS!NESS NODEL FRANEWORK
307 307
REvENUE NODEL REvENUE NODEL
Positioning is just not sufficient, innovative companies Positioning is just not sufficient, innovative companies
to carve out unique business models to fend off to carve out unique business models to fend off
competition. competition.
With the rapid erosion of certain industries With the rapid erosion of certain industries (!T, (!T,
!nvestment Banking, Real Estate) !nvestment Banking, Real Estate) companies need to companies need to
untangle and understand the intricacies of their untangle and understand the intricacies of their
business model. business model.
The revenue model described here are the means to The revenue model described here are the means to
generate revenues. !t is just one piece of the puzzle. generate revenues. !t is just one piece of the puzzle.
!t involves !t involves -- Product visualization Product visualization -- Product Prototype Product Prototype
-- Product Test Product Test -- Capacity Capacity -- Pricing Pricing -- Distribution. Distribution.
308 308
HOW TO NAKE !NNOvAT!vE CO'S HOW TO NAKE !NNOvAT!vE CO'S
!nnovative company's are a matter of culture and !nnovative company's are a matter of culture and
aspirations rather than tangible resources. aspirations rather than tangible resources.
A favourable intellectual property (!P) climate. A favourable intellectual property (!P) climate.
Allow the workforce idiosyncrasies for their errors. Allow the workforce idiosyncrasies for their errors.
Allow the management sufficient slack to be future Allow the management sufficient slack to be future
oriented. oriented.
Have a lean and a flat organization structure. Have a lean and a flat organization structure.
Promote the grape Promote the grape··vine. vine.
Provide reasonable incentives (not necessarily Provide reasonable incentives (not necessarily
monetary). monetary).
Promote the culture of experimentation. Promote the culture of experimentation.
303 303
310 310
HOW TO #ROTECT !NNOvAT!ON? HOW TO #ROTECT !NNOvAT!ON?
Without adequate protection (external or otherwise) Without adequate protection (external or otherwise)
the effects of innovation does not translate to the effects of innovation does not translate to
performance. performance.
!n most emerging markets where the !P climate is not !n most emerging markets where the !P climate is not
so favorable, companies are increasingly relying on so favorable, companies are increasingly relying on
internal protection to sustain innovation effects. internal protection to sustain innovation effects.
The most preferred strategy of internal protection The most preferred strategy of internal protection
includes imbibing ¨causal ambiguity" in the production includes imbibing ¨causal ambiguity" in the production
process to make reverse engineering difficult. process to make reverse engineering difficult.
Collusion with the judiciary is also another distinct Collusion with the judiciary is also another distinct
possibility in emerging markets, however that possibility in emerging markets, however that
possibility is slowly atrophying. possibility is slowly atrophying. 310 310
311 311
COR#ORATE COvERNANCE COR#ORATE COvERNANCE
The basic theme of corporate governance is to ensure The basic theme of corporate governance is to ensure
that professional managers are identified and made that professional managers are identified and made
accountable in terms of clear business processes or accountable in terms of clear business processes or
activities and held responsible through adequate activities and held responsible through adequate
mechanisms S control systems for channelizing their mechanisms S control systems for channelizing their
decisions for the benefit of stakeholders at large. decisions for the benefit of stakeholders at large.
Corporate governance aims to reduce the principal Corporate governance aims to reduce the principal··
agent problem present in most professional managed agent problem present in most professional managed
organizations through appropriate forms of organizations through appropriate forms of
accountability and control mechanisms. accountability and control mechanisms.
!n fact the principles of corporate governance implies !n fact the principles of corporate governance implies
that managers go beyond in satisfying the stated and that managers go beyond in satisfying the stated and
unstated needs of the multiple stakeholders. unstated needs of the multiple stakeholders.
311 311
ACENCY THEORY ACENCY THEORY
The root of The root of Corporate Covernance Corporate Covernance goes back to the goes back to the
Agency Theory Agency Theory, also known as the principal , also known as the principal··agent agent
problem or agency dilemma. problem or agency dilemma.
According to the agency theory top managers and According to the agency theory top managers and
shareholders interests are usually conflicting in nature shareholders interests are usually conflicting in nature
and tend to pull in opposite directions. and tend to pull in opposite directions.
From the strategic point of view managers tend to From the strategic point of view managers tend to
diversify into unrelated businesses as it provides diversify into unrelated businesses as it provides
higher returns hence a more favourable appraisal. higher returns hence a more favourable appraisal.
However, shareholders can diversify their portfolio at However, shareholders can diversify their portfolio at
a much lesser risk and cost. a much lesser risk and cost.
This exposes the shareholders to additional risks and This exposes the shareholders to additional risks and
higher costs, not present in portfolio diversifications. higher costs, not present in portfolio diversifications.
312 312
OR!C!N S CONTEXT OR!C!N S CONTEXT
Since the early 20th century since a large part of public Since the early 20th century since a large part of public
funds were held by publicly traded firms in the US, funds were held by publicly traded firms in the US,
various laws were enacted to ensure proper usage of various laws were enacted to ensure proper usage of
these funds. these funds.
After the Enron downfall, the US government passed the After the Enron downfall, the US government passed the
Sarbanes Sarbanes -- Oxley Act, 2002 to restore public confidence Oxley Act, 2002 to restore public confidence
in corporate governance. in corporate governance.
SEB! Report SEB! Report -- 200S, defines corporate governance 200S, defines corporate governance
(headed by Kumar Nangalam Birla) (headed by Kumar Nangalam Birla) as the acceptance as the acceptance
by management of the inalienable rights of shareholders by management of the inalienable rights of shareholders
as the true owners of the corporation and of their own as the true owners of the corporation and of their own
role as trustees on behalf of the shareholders. role as trustees on behalf of the shareholders.
313 313
COvERNANCE #R!NC!#LES COvERNANCE #R!NC!#LES
Rights and equitable treatment of shareholders: Rights and equitable treatment of shareholders: Help Help
shareholders exercise their rights by effectively shareholders exercise their rights by effectively
communicating information in transparent ways that is communicating information in transparent ways that is
understandable and accessible and encouraging understandable and accessible and encouraging
shareholders to participate in general meetings. shareholders to participate in general meetings.
!nterests of other stakeholders: !nterests of other stakeholders: Recognize the legal Recognize the legal
and other obligations of all legitimate stakeholders, and other obligations of all legitimate stakeholders,
including the society at large. including the society at large.
Role and responsibilities of the board: Role and responsibilities of the board: !t deals with !t deals with
issues about an appropriate mix of executive and non issues about an appropriate mix of executive and non··
executive directors. The key roles of chairperson and executive directors. The key roles of chairperson and
CEO should not be held by the same person and their CEO should not be held by the same person and their
offices be clearly separated. offices be clearly separated.
314 314
31S 31S
COvERNANCE #R!NC!#LES COvERNANCE #R!NC!#LES
!ntegrity and ethical behaviour: !ntegrity and ethical behaviour: Organizations should Organizations should
develop a code of conduct for their top management develop a code of conduct for their top management
that promotes ethical and responsible decision making. that promotes ethical and responsible decision making.
Disclosure and transparency: Disclosure and transparency: Disclosure of information Disclosure of information
should be timely and balanced to ensure that investors should be timely and balanced to ensure that investors
have clear access to data and facts. They should also have clear access to data and facts. They should also
implement systems to independently verify and implement systems to independently verify and
safeguard the integrity of the company's financial safeguard the integrity of the company's financial
reporting. reporting.
!ndependence of the entity's auditors: !ndependence of the entity's auditors: !dentification, !dentification,
assessment and mitigation of risks and retirement by assessment and mitigation of risks and retirement by
rotation over a fixed period of time.. rotation over a fixed period of time.. 31S 31S
COvERNANCE STRATEC!ES COvERNANCE STRATEC!ES
Nonitoring by the board of directors: Nonitoring by the board of directors: The board of The board of
directors, with its legal authority to hire, fire and directors, with its legal authority to hire, fire and
compensate top management, safeguards invested compensate top management, safeguards invested
capital. Regular board meetings allow potential problems capital. Regular board meetings allow potential problems
to be identified, discussed and resolved. to be identified, discussed and resolved.
Balance of power: Balance of power: The simplest balance of power is very The simplest balance of power is very
common, a person benefitting from a decision should common, a person benefitting from a decision should
abstain from it. abstain from it.
Remuneration: Remuneration: Performance Performance··based remuneration is based remuneration is
designed to relate some proportion of salary to individual designed to relate some proportion of salary to individual
performance. However, they should provide no performance. However, they should provide no
mechanism or scope for opportunistic behaviour. mechanism or scope for opportunistic behaviour.
316 316
COvERNANCE S #ERFORNANCE COvERNANCE S #ERFORNANCE
!n its ¨Clobal !nvestor Opinion Survey" of over 200 !n its ¨Clobal !nvestor Opinion Survey" of over 200
institutional investors in 2002, NcKinsey found that institutional investors in 2002, NcKinsey found that
80% of the respondents would pay a premium for well 80% of the respondents would pay a premium for well··
governed companies. They defined a well governed companies. They defined a well··governed governed
company as one that had mostly out company as one that had mostly out··side directors, side directors,
who had no management ties, undertook formal who had no management ties, undertook formal
evaluation of its directors, and was responsive to evaluation of its directors, and was responsive to
investors' requests for information on governance investors' requests for information on governance
issues. The size of the premium varied by market, from issues. The size of the premium varied by market, from
10% for companies where the regulatory backdrop 10% for companies where the regulatory backdrop
was least certain (those in Norocco, Egypt and Russia) was least certain (those in Norocco, Egypt and Russia)
to around 40% for Canadian S European companies. to around 40% for Canadian S European companies. 317 317
SHAREHODER SHAREHODER -- STAKE HOLDER THEORY STAKE HOLDER THEORY
Till the early part of the 20th the basic objective of Till the early part of the 20th the basic objective of
modern organizations was to provide goods and modern organizations was to provide goods and
services for public consumption for profit maximisation. services for public consumption for profit maximisation.
Over a period of time, the short Over a period of time, the short··term view of profit term view of profit
maximisation gave way to a more broader and maximisation gave way to a more broader and
medium medium··term view wealth maximisation of the term view wealth maximisation of the
shareholders. shareholders.
However, today economic institutions are considered as However, today economic institutions are considered as
a major drivers of improvement in quality of life in a major drivers of improvement in quality of life in
general and therefore needs to include multiple general and therefore needs to include multiple
stakeholders. The basic premise is that firms cannot stakeholders. The basic premise is that firms cannot
exist in vacuum. Therefore, corporate philanthropy exist in vacuum. Therefore, corporate philanthropy
should be a part of every corporate mission. should be a part of every corporate mission.
318 318
COR#ORATE SOC!AL RES#ONS!B!L!TY COR#ORATE SOC!AL RES#ONS!B!L!TY
As Peter Drucker rightly pointed out that, As Peter Drucker rightly pointed out that, ¨a healthy ¨a healthy
business cannot exist in a sick and impoverished business cannot exist in a sick and impoverished
society". society". Therefore, giving a very important message Therefore, giving a very important message
that one cannot exist without the other. that one cannot exist without the other.
Therefore, economic and social responsibilities cannot Therefore, economic and social responsibilities cannot
be mutually exclusive, in fact a large part of it is be mutually exclusive, in fact a large part of it is
significantly overlapping. significantly overlapping.
CSR can be defined as, CSR can be defined as, ¨an enterprises decisions and ¨an enterprises decisions and
actions being taken for reasons at least partially actions being taken for reasons at least partially
beyond its immediate economic interests". beyond its immediate economic interests".
However, the debate on CRS still continues whether However, the debate on CRS still continues whether
firms should detract its focus from its business? firms should detract its focus from its business?
313 313
CROW!NC CONCERN FOR CSR CROW!NC CONCERN FOR CSR
Awareness due to education: Awareness due to education: With growing literacy, With growing literacy,
people are becoming increasingly aware of their right people are becoming increasingly aware of their right
to a decent and healthy life. to a decent and healthy life.
The role of media: The role of media: The media and various consumer The media and various consumer
organizations have come up in protecting consumer organizations have come up in protecting consumer
rights and exposing mal rights and exposing mal··practices. practices.
Fear of government interference: Fear of government interference: Excessive quench for Excessive quench for
profits may lead to build up of adverse public opinion profits may lead to build up of adverse public opinion
compelling the government to intervene (Eg. NRTP). compelling the government to intervene (Eg. NRTP).
Public image: Public image: Entrepreneurs are increasingly relying Entrepreneurs are increasingly relying
on public image as a source of competitive advantage on public image as a source of competitive advantage
and a higher financial discounting. and a higher financial discounting.
320 320
CSR STRATEC!ES CSR STRATEC!ES
Creen Supply Chain Nanagement: Creen Supply Chain Nanagement: !t includes !t includes
environmentally preferable purchasing, eco efficiency, environmentally preferable purchasing, eco efficiency,
designing eco designing eco··friendly products, and extended friendly products, and extended
producer responsibility producer responsibility (Eg. Cement (Eg. Cement ·· Paper Paper
packaging, Refrigerators packaging, Refrigerators -- CFC, Exide CFC, Exide -- Product take Product take
back). back).
Health S Hygiene Health S Hygiene -- Attending the health hazards due Attending the health hazards due
to wastes and by to wastes and by··products to employees and society products to employees and society
in proximity in proximity (Eg. Tata Steel (Eg. Tata Steel -- Life Line Express). Life Line Express).
Education, Literacy S Training Programs Education, Literacy S Training Programs -- (Eg. Aditya (Eg. Aditya
Birla Research Centre Birla Research Centre -- LBS). LBS).
321 321
BOTTON OF THE #YRAN!D BOTTON OF THE #YRAN!D
With the market across most developed markets With the market across most developed markets
including the US getting saturated, C. K. Prahalad including the US getting saturated, C. K. Prahalad
notes that future markets exist collectively, across the notes that future markets exist collectively, across the
world's billions of poor people having immense world's billions of poor people having immense
untapped buying power. untapped buying power.
They represent an enormous opportunity for They represent an enormous opportunity for
companies who learn how to serve them. !n turn companies who learn how to serve them. !n turn
companies by serving these markets, they're helping companies by serving these markets, they're helping
millions of the world's poorest people to escape millions of the world's poorest people to escape
poverty. poverty.
Strategic innovations leading to disruptive business Strategic innovations leading to disruptive business
models can show the way out. models can show the way out.
322 322
BLUE OCEAN BLUE OCEAN
STRATECY STRATECY
323 323
324 324 324 324
NARKETS#ACE · TWO WORLDS
32S 32S 32S 32S
WHAT !S RED OCEAN? WHAT !S RED OCEAN?
Companies have long engaged in Companies have long engaged in head head··to to··head head
competition competition in search of sustained, profitable growth. in search of sustained, profitable growth.
They have fought for profits, battled over market They have fought for profits, battled over market··share, share,
and struggled for and struggled for differentiation (cost or product) differentiation (cost or product). .
Yet in today's overcrowded industries, competing head Yet in today's overcrowded industries, competing head
on results in nothing but a bloody red ocean of rivals on results in nothing but a bloody red ocean of rivals
fighting over a shrinking profit pool. fighting over a shrinking profit pool.
!n today's red oceans, where most industries are !n today's red oceans, where most industries are
saturated, one companies gain is always at the cost of saturated, one companies gain is always at the cost of
another companies loss. another companies loss.
This paradigm has its origin in military strategy where it This paradigm has its origin in military strategy where it
follows that you have to beat an enemy to win. follows that you have to beat an enemy to win.
326 326 326 326
WHAT !S BLUE OCEAN? WHAT !S BLUE OCEAN?
Tomorrow's leading companies will succeed not by Tomorrow's leading companies will succeed not by
battling in battling in red oceans red oceans, but by creating , but by creating blue oceans blue oceans of of
uncontested market space ripe for growth . uncontested market space ripe for growth .
Such strategic moves are possible through the Such strategic moves are possible through the pursuit of pursuit of
product differentiation and low cost simultaneously product differentiation and low cost simultaneously. !t . !t
helps in creating powerful leaps in value for both the helps in creating powerful leaps in value for both the
firm and its buyers, rendering rivals obsolete and firm and its buyers, rendering rivals obsolete and
unleashing new demand. unleashing new demand.
Blue Ocean's have existed in the past, it will exist in the Blue Ocean's have existed in the past, it will exist in the
future as well. !t is only the frames of the top managers future as well. !t is only the frames of the top managers
that prevents it from seeing it. that prevents it from seeing it.
Constant updating of S!C is an indication this regard. Constant updating of S!C is an indication this regard.
327 327 327 327
RED OCEAN vs BLUE OCEAN RED OCEAN vs BLUE OCEAN
Compete in existing markets
Beat the competition
Exploit existing demand
Nake the value·cost trade off
Demand is the limiting factor
Compete in uncontested markets
Nake the competition irrelevant
Create and capture demand
Break the value·cost trade off
Supply is the limiting factor
328 328 328 328
BLUE OCEAN STRATECY BLUE OCEAN STRATECY · · !N#ERAT!vES !N#ERAT!vES
Prospects in most established market spaces Prospects in most established market spaces -- red red
oceans oceans -- are shrinking steadily. are shrinking steadily.
Population shrinkage across a no. of European nations. Population shrinkage across a no. of European nations.
As trade barriers between nations S regions fall, As trade barriers between nations S regions fall,
information imperfections atrophy instantly. information imperfections atrophy instantly.
Niche markets S monopoly havens are continuing to Niche markets S monopoly havens are continuing to
disappear. disappear.
Demand across developed markets reaching a plateau. Demand across developed markets reaching a plateau.
Technological advances have substantially improved Technological advances have substantially improved
industrial productivity. industrial productivity.
Accelerated product life Accelerated product life··cycles and obsolescence. cycles and obsolescence.
Commoditization of most product Commoditization of most product -- market segments. market segments.
323 323 323 323
CONCE#TUAL UNDER#!NN!NCS CONCE#TUAL UNDER#!NN!NCS
Blue oceans have existed in the past and will exist in the Blue oceans have existed in the past and will exist in the
future as well. future as well.
History indicates that blue oceans exist in three basic History indicates that blue oceans exist in three basic
industries industries -- automobiles automobiles (how people get to work) (how people get to work) --
computers computers (what people use at work) (what people use at work) -- entertainment entertainment
(what people do after work). (what people do after work).
They are not necessarily about technology, the They are not necessarily about technology, the
underlying technology was often already in existence. underlying technology was often already in existence.
!ncumbents often create blue oceans within the ambit of !ncumbents often create blue oceans within the ambit of
their core business. their core business.
Company S industry are the wrong units of strategic Company S industry are the wrong units of strategic
analysis, managerial moves are. analysis, managerial moves are.
!t creates entry barriers through first mover advantages. !t creates entry barriers through first mover advantages.
330 330 330 330
BLUE OCEAN BLUE OCEAN · · !N#LENENTAT!ON !N#LENENTAT!ON
v!
Reduce
Eliminate
Create
Raise
Which factors
to be reduced
below the industry
standard
Which of the industry
factors that the industry
takes for granted
should be eliminated
Which of the factors
should be raised above
the industry's standard
Which factors should be
created that the
industry has not
offered
331 331 331 331
!N#LENENTAT!ON SE$UENCE !N#LENENTAT!ON SE$UENCE
Buyer Utility (1)
!s there exceptional buyer
utility in your business idea?
Price (2)
!s your price easily accessible to
the mass of buyers?
Cost (3)
Can you attain your cost target
to profit at your strategic price?
Adoption (4)
What are the adoption hurdles in
actualizing your business idea?
Are you addressing them up front?
Blue Ocean Strategy
332 332 332 332
SONE CLAR!NC EXAN#LES SONE CLAR!NC EXAN#LES
!n the last century authors Kim and Nauborgne have !n the last century authors Kim and Nauborgne have
documented the creation of more than 1S0 blue ocean documented the creation of more than 1S0 blue ocean
creations across 30 industries creations across 30 industries --
virgin Atlantic: virgin Atlantic: Fractional jet ownership or travel to Fractional jet ownership or travel to
space. space.
Sony Play Station: Sony Play Station: Redefining machine Redefining machine··human interface human interface
in entertainment and targeting an altogether new user in entertainment and targeting an altogether new user
base. base.
Southwest Airlines: Southwest Airlines: Pioneering the concept of LCC. Pioneering the concept of LCC.
Citibank Citibank -- Automated teller machines S credit cards. Automated teller machines S credit cards.
Tata Nano: Tata Nano: Nanufacturing a full fledged passenger car Nanufacturing a full fledged passenger car
at a price of Rs. 1 lac. at a price of Rs. 1 lac.
--
WHAT THEN !S THE HAND!CA#? WHAT THEN !S THE HAND!CA#?
Nost of the traditional views in strategy having its Nost of the traditional views in strategy having its
origin in (Economic Theory) led to what is called the origin in (Economic Theory) led to what is called the --
structuralist paradigm. structuralist paradigm.
According to this view, companies S managers are According to this view, companies S managers are
largely at the mercy of economic forces, greater than largely at the mercy of economic forces, greater than
themselves. themselves.
Off late emerging views in strategy having its origin in Off late emerging views in strategy having its origin in
(Organization Theory) led to a paradigm shift to what (Organization Theory) led to a paradigm shift to what
is called the is called the -- reconstructionist view. reconstructionist view.
According to this view managers need not be According to this view managers need not be
constrained to act within the confines of their industry. constrained to act within the confines of their industry.
All they need to do is change their managerial frames. All they need to do is change their managerial frames.
333 333

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