BUSINESS STRATEGY

Course Code: 611 & 612 Dr. Subir Sen – Faculty Member, IBS
E-Mail: subir@ibsindia.org, 9830697368 1) Crafting & Executing Strategy – Thompson & Strickland. 2) Strategic Management – Pearce & Robinson. 3) Strategic Management – Fred. R. David. 4) Exploring Corporate Strategy – Johnson & Scholes. 5) Competitive Advantage – Michael E. Porter. 6) HBR – Articles & Case Studies.
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INTRODUCTION

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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Economic al Strategic Finance Fit Political Strategic Intent Fit Political Marketin g Manageme nt Social & Cultural

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Management

Technological

Strategic

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Political

HR

It is all about creativity and innovation. It is a holistic and integrated approach. It is irreversible. It is about adaptation and response to the same. It provides broad guidelines. It is long-term in nature. It requires full commitment of the top management. It involves substantial resource outlay.STRATEGIC MANAGEMENT .FEATURES It forms the core activity of the top management.          7 .

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

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

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

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

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

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

ENVIRONMENTAL CHANGE Phase IV: Horizon of Scenarios 2 1 Phase I: Extrapolation of the past 1 3 1990 onwards 1 2 1 3 1A 1B 2A Prior to 1950 Phase II: Discrete Scenarios Phase III: Range of Scenarios 1970 to 1990 2 2B 1950 to 1970 14 .

– Biases and prejudices has a very little role to play in strategic choices pursued by managers. Learning always begin on a clean sheet of paper. – The choice of strategy is primarily concerned with external ones rather than internal ones. – It is primarily the top management’s prerogative. Ansoff (1960) – Strategy can be segregated into certain mutually exclusive and inter-related components aimed at managing the growth of an organization.APPROACHES TO STRATEGY  Analytical Approach – Igor H. – The choice of product-market mix is based on conscious evaluation of risk – return factors. 15 .

Once the control systems are in place. – Organization structure will precede and cause changes in strategy. – Management control systems has a dominating role in influencing firm performance. how it will compete.APPROACHES TO STRATEGY  Design Approach – Alfred Chandler (1970) – Structure follows strategy. 16 . – The top managers then decide on the type of organization structure & systems to be in place. The organization initially decides which industry to enter. Successful organizations align authority and responsibility of various departments in way to reach overall objectives. who will be the top managers. everything else follows.

APPROACHES TO STRATEGY  Positioning Approach – Michael E. – The environmental forces comprises of – supplier. customer. competitors. 17 . – An organization is seldom in a position to influence the larger business environment. substitutes. Porter (1980) – Choose a consumer segment and position your product accordingly. new entrant. – The organization will outperform the industry where environmental forces are weak and vice-versa. – A firms performance is inversely related with the bargaining power of environmental forces to which it is exposed.

– Core competencies are a set of skills that are unique and can be leveraged. K. 18 . Prahalad (1990) – The key to superior performance is not doing the same as other organizations. but exploiting the resource differences among them. They are complex resources and undermines a firms competitive advantage.APPROACHES TO STRATEGY  Core Competence – C. – Organizations can significantly alter the way an industry functions. – It enables a firm to deliver unimaginable value ahead of time. locating in most attractive industries and pursuing the same strategy.

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

TOP MANAGEMENT PERSPECTIVE 20 .

21 . A gap that consciously manages between stagnation and atrophy. A strategic intent is a statement of purpose of existence. It involves an obsession to be the best or outperform the best.STRATEGIC INTENT      If you cannot see the future. It’s a philosophy that distinguishes it from its competitors. It provides a sense of direction and destiny. you cannot reach there. A substantial gap between its resources and aspirations. It is the cornerstone of an organizations strategic architecture reflecting its desired future state or its aspirations. It implies a significant stretch.

STRATEGIC INTENT .HIERARCHY Integrativ e m Do an in Visio n Mission Dominant Objective s Goal s Plans Lo g ic Single Specifi c Man y 22 t .

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

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

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

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

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

…………………. We offer security. …………………. – We do not offer insurance. – We do not offer steel. 28 . We offer solutions. …………………. All the businesses of the company are strongly integrated with their main business. We offer comfort. Some other examples – We do not offer shoes.MISSION – SOME IDEAS  Reliance – We are in the business of integration. …………………. though some may seem unrelated in nature. We offer strength. – We do not offer software's.

– It prevents deviation. – It lends direction – time frame in the medium term. – It provides a benchmark for evaluation.100K crore company by the year 2005.GOALS & OBJECTIVES  Reliance – We want to become a Rs. It provides a quantitative feel to an abstract proposition. 29 . – It keeps the mid management pre-occupied. – It is based on Management by Objectives (MBO). – It helps identifying key success factors. It is an end result (quantifiable) something a firm aims and tries to reach in a time bound frame. – It adds legitimacy and motivation.

It is the process of garnering necessary inputs. coordinating appropriate technologies.PLANS Reliance – Desire to invest 25K crore in telecom business by circa 2010.  30 . and gaining access to desired markets to achieve the desired goals and objectives. – Leverage economies of size and scale. The details of the plan Reliance Telecom adopted were – Backward integrate process technologies. It is specific to a particular business. – Compress project times. – Use price-elasticity to break market barriers. – Acquire a market share of indomitable position.

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

STRATEGIC DRIFT FRAMEWORK Environmental Change Degree of change Strategic Change Radical Change Incremental Change State of Flux Continuity Stage of Transformation Strategic Drift Stage of Atrophy Time 32 .

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

. – Persons responsible for strategy conceptualization and implementation are34 divergent. – The environment context has changed. A realized strategy is what the top management actually translates into practice. Usually there is wide gap between the two when organizational politics is evident.INTENDED & REALISED STRATEGIES  An intended strategy is an expression of interest of a desired strategic direction. – Influential stake-holders back out. Other causes – – The plans are unworkable and utopian.

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

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

STRATEGIC TRANSFORMATION     Strategic transformation (a complete overhauling of the strategic architecture) becomes inevitable whenever a strategic drift takes place. As it brings 37 with it a different dominant logic. It creates blinders. Tampering with surface level factors often leads to atrophy. . Dominant logic’s are the cornerstones of change when strategic transformation is apparent. Dominant logic’s are very rigid and sticky and prone to inertia. Strategic transformation becomes smooth through a change in top leadership.

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

ENVIRONMENTAL CONDITIONS Dynamic Scenario Planning Learning Organization Static Forecasting Decentralization Simple Complex 39 .

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

DISCONTINUITY   Compulsion to find export markets – Identifying competitive advantage – Technological gap – Global presence – Depreciating currency – Exports Corporate vulnerability – It is no longer business as usual – Capital inadequacy – Lack of product clout and brand power – One product syndrome – Loss of monopoly 49 .

PORTER Threat of New Entrants Bargainin g power of Suppliers Competition from Existing Players Bargainin gBargainin power g of power of Suppliers Customer s Threat of Substitutes 50 .FIVE FORCES MODEL .

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

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

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

FIRM ENVIRONMENT      Size and Scale of Operations – It is a very important component of competitiveness in today's global context (Bharti – MTN. Inertia – Excessive commitment to past strategies prevents firms from tapping emerging opportunities. 54 . Reliance). Resource Profile – It highlights the capabilities (generic) or competencies (business specific) of the firm. Business Scope – The intention whether the firm wants to be in a single. Tata). dominant or related diversified or unrelated diversified businesses (Infosys. Cohesiveness – Degree of bonding existing across affiliated firms.

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

EXPERIENCE CURVE Cost per unit of output Decreases at an increasing rate Point of inflexion Decreases at a constant rate Decreases at a decreasing rate Production / Volume 56 .

EXPERIENCE CURVE .TRADITIONAL VIEW Efficiency = Lower Costs 2 3 1 Experience = Efficiency Lower Costs = Higher Sales Entry Barrier = Better Performance 4 6 5 Higher Sales = Lower Costs Lower Costs = Entry Barrier 57 .

STRATEGIC VIEW Inertia = Limited Growth Experience = Inertia 2 3 1 Limited Growth = Diversification Strategic Failure = Poor Performance 6 5 4 Diversification = New Experience New Experience ≠ Old Experience 58 .EXPERIENCE CURVE .

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

FRAMEWORK Opportunities Nullify weaknesses which prevents you from exploiting opportunities Leverage strengths to make use of opportunities Weaknesses Minimize weaknesses which prevents you from countering threats Strengths Threats Utilise strengths to counter threats (?) 60 .SWOT ANALYSIS .

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

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

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

Earth Quake. Terrorist attacks – Eg. Import relaxation – Eg. 64 . (2008). 26/11. Foreign Direct Investment (FDI) – Eg. Hostile take-over – Eg. (1985–1990). Land acquisition . Onida. Singur SEZ. Reliance. 11/9. Economic recession – Eg. Dumping from China. Lack of Corporate Governance – Eg.Social activism – Eg. Natural disaster – Eg. Nationalisation – Eg. Tsunami. Bajoria – Bombay Dyeing. Group disintegration – Eg.SOURCES OF THREATS            Political instability – Eg. Tata Steel. Satyam.

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

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

PIMS . therefore 67 validity may be a question. – Contexts may vary across countries. – Contexts may vary over time. Managers should be particularly cautious while referring to such data during times of discontinuity as it makes past patterns futile. As every organization is unique in its own way. . when radical changes in the economy takes place. Authenticity of data is of prime importance – Contexts drawn across one organization may not be applicable to another.LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges.

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

CORPORATE STRATEGY MATRIX Corporate Strategy Stability Stability Growth Growth Combination Diversification Divestment Intensification Market Penetration Related Vertical Market Development Product Development Unrelated Horizontal 71 .

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

ANSOFF’S MODEL New Product Existing Product Existing Market Market Penetration (+) Product Development (++) New Market Market Development (++) Diversificatio n (+++) Note: (+) indicates degree of growth and risk involved.GROWTH . 73 .

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

VERTICAL INTEGRATION
Oil & Gas exploration Naptha-cracking Acetic Acid Paraxylene (PX)
(PTA) (MEG)

Purified tetra-pthalic acid

Mono-ethylene glycol

Polyester Filament Polyester Staple Fibre (PSF) Yarn (PFY) Textiles 83

DIVERSIFICATION SUCCESS ?

    

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

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

A CASE OF TAPERED INTEGRATION Partial Ownershi p Transmission Engine Design Electricals Steering 86 Seats & Carpets Windscreen Ordinary Components Zero Ownership Very Critical Component s Full Ownership Critical Component s .

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

CONGLOMERATE DIVERSIFICATION Paper & Packaging Edible Oils Tobacco Hotels Food & Confectionary 88 .

L&TCement Division to Aditya Birla Group) technically known as divestiture or a product (Eg. Tata Pharma. 89 . Tata Press).e. (Eg. reactive) and survival is at stake and the firm does not have resources to fend off competitive forces. Glaxo’s “Glucon-D” to Heinz). Tatas sale of Goodlass Nerolac. It may also involve a SBU (Eg. In strategy there is no scope for sentimentality with divestment. It taken into account when performance is disappointing (i. ACC) in full to an independent entity. It is may also be a pro-active strategy. where a company simply exits because the business no longer contribute to or fit its dominant logic.DIVESTMENT   Divestment is a defensive strategy involving the sale of entire stake (Eg.

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

To identify the right problems.SELECTIVITY IS THE KEY       The role of a top manager is not to solve a problem. nor is to a define a problem for others to solve. if addressed. managers need to ask the right questions. They must choose problems which will lead to the right kind of opportunities. will help the firm achieve its intent. The key task before a top manager is to identify the right problems. For an optimal choice the following four issues need to be resolved – Is the strategy clearly identifiable? Is it consistent with the resources of the firm? Will it be able to exploit the opportunities in full? Is it in tune with the values and beliefs of the firm? 94 .

e. BRC). Proximity to the corridors of power (i. keiretsus in Japan. formal and informal ties. .DEFINITION       A business group is known by various names in various countries – guanxique in China. chaebols in Korea. Managing Agency). 95 Succession planning is critical to continuity. Their origins can be traced back to market imperfections existing in an economy (MRTP Laws. business houses in India.BUSINESS GROUP . embassies). Licenses & Quotas. Resource sharing. Their roots can be traced to a single family or clan and share broad similarities. High degree of centralized control (GEO.

RESOURCE SHARING ACROSS FIRMS Parent Company Firm 1 Firm 5 Firm 3 Firm 2 Firm 4 96 .

STRATEGIC CHOICE – MACRO TIMING Recession (Stability) Prosperity (Diversificatio n) Depression (Divestmen t) Recovery (Intensification ) 97 .

Divestment Duration (Yrs) Inception Intensification 98 .STRATEGIC CHOICE – MICRO TIMING ReEngineering Growth (%) Maturity Stability Growth Diversification Decline .

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

BCG GROWTH MODEL Relative Market Share (%) Industry Growth (%) Low High High Low Stars Question Mark ? Cash Cow Dogs 100 .

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

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

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

MATRIX Distinctive Capabilities Strong High Medium Weak Stability Industry Attractiveness Diversify (++) Intensify (+) Med Intensify(+) Stability Harvest (-) Low Stability Harvest (-) Divest (.-) 104 .GE .

ARTHUR’ D. LITTLE Inception Dominant Strong Favourable Tenable Weak Growth Maturity Decline Improve Selective Niche Abandon Industry Life-Cycle Divest Harvest 105 Competitive Position Invest Consolidate Hold .

SHELL – DIRECTIONAL POLICY MATRIX Business Sector Prospects Attractive Average Unattractive Generate Cash Phased Withdrawal Distinctive Capabilities Strong Market Leadership Try Harder Double Or Quit Growth Average Custodial Weak Phased Expand Withdrawal Divest 106 .

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

COMPETITIVE POSITIONS Competitive Advantage Cost Differentiation Product Differentiation Competitive Scope Broad Cost Leadership (Toyota) Product Differentiation (General Motors) Narrow Cost Focus (Hyundai) Differentiation Focus (Mercedes) 114 .

Tata Nano). similarly differentiation may not always lead to rising costs (i. 115 . in a hyper competitive context the two strategies need not be mutually exclusive. Though cost leadership and differentiation are inconsistent.e. Reducing cost does not always involve a sacrifice in differentiation.HYBRID STRATEGY     A hybrid strategy is the simultaneous pursuit of cost leadership and differentiation. jugaad or frugal engineering). and usually outperforms a stand alone generic strategy. Firms focusing on a hybrid strategy typically aim at shifting the productivity frontier and recreating a new product-market segment altogether (Eg.

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

Nano technology. Speech recognition software's. technological innovations.) Excessive turbulence in the dynamics of the environment.radical environmental changes. 3D imaging. coupled with low penetration levels. 117 . It is characterized by – High level of technological uncertainty. leading to a blurred productivity frontier and steep learning curve. Eg. Market segmentation not well defined. ending in a differential cost economics. Consumer behaviour pattern unstable and evolving.EMERGING INDUSTRY      Emerging Industry – An evolving industry characterized by . Artificial intelligence). There is a lot of scope to define the rules of competition. First-time buyers. changing customer needs. (Eg.

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

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

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

Fragmented Industry – Identify. aggressive building of distribution networks. move beyond boundaries. or else exit the segment. branding and promotion. Locate a defendable position. Declining Industry – Redesign.COMPETITIVE STRATEGIES     Emerging Industry – Set benchmarks. mergers and acquisition. strike alliances. premium pricing. reengineer. strictly product differentiation and not standardization. process innovation. strictly cost differentiation. increasing scope. Matured Industry – Sophisticated cost analysis. assess and overcome fragmentation. recreate new markets. focus more on product differentiation or even a hybrid one. 121 . regenerate.

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

THE VALUE CHAIN Support Infrastructure n gi ar M Human Resource Management Technology Development Procurement Out Logistics Mktg & Sales In Logistics Operations Primary Service M ar gi n 128 .

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

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

a core competence is sustainable even in the long-term. a core competence has its roots in a set of skills. Majority of the firms have competitive advantage.CORE COMPETENCE A competitive advantage does not necessarily imply a core competence. A competitive advantage is sustainable in the shortmedium term. only global leaders possess a core competence. 131      . a core competence usually does. A competitive advantage manifests from a function. a core competence always implies a competitive advantage. A competitive advantage may or may not lead to superior performance.

A game is a contest involving two or more players.GAME THEORY     The game theory was developed in 1944 by Oscar Morgenstern. Subsequent work on game theory by John Nash led him to win the Nobel prize in 1994. However. each of whom wants to win. the stringent assumptions of game theory and difficulty in ascertaining of pay-offs makes game theory application difficult in business. This is known as a zero-sum game. In a game (similar to a business) one players win is always another's loss. In fact there are no. 132 . illustrations depicting a win-win situation. Here the magnitude of gain offsets the magnitude of loss equally.

BIASED AND UNBIASED GAME  A game is said to be biased when one of the players have a disproportionate chance of winning. Firm Y’s Strategy Use Radio Use Radio +2 +6 Use Newspaper +7 -4 133 Firm X’s Strategy Use Newspaper Firm X’s Pay-Off Matrix . An unbiased game is one where both the players have equal chances of winning.

Firm Y’s Strategy Use Radio +3 +1 Use Newspaper +7 -2 134 Firm X’s Strategy Saddle Point Use Radio Use Newspaper Firm X’s Pay-Off Matrix . A saddle point is a situation where both the players are facing pure strategies.PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy.

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

but 136 players do not always behave rationally. In a market dominated by price-based differentiation one may attempt to change the rules of the game by/when – – Bases of differentiation dependent on clear identification of what customer wants or value.CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. . – Making pricing more transparent. Game theory relies on the principle of rationality. – Building incentives for customer loyalty. It results in a shift in the productivity frontier.

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

– Changing the rules of the game. 143 . – Better strategic and operational control. While external strategic fit (strategy – environment) is relevant for strategy formulation.IMPORTANCE OF STRATEGIC FIT  Strategic fit has a central role to play in strategic management. internal strategic fit (strategy – dominant logic) is critical to strategy implementation. – Unlearning & learning of new skill sets. – Resource commitment from top management. A high strategic fit (co alignment) is useful because it enables – – Appropriate and timely response. – Development of capabilities & competencies.

In such a situation. formulation & implementation can occur simultaneously. while control is very effective. Some of the key strategic learning's exists at the contact point between the organization and its customer. learning levels are very low. learning levels are very high. In fact. strategy formulation and implementation has been perceived to be distinct & independent. In such a situation. According to Mintzberg. emergent strategy vis-à-vis intended & realized). at the cost of sacrificing a lesser degree of control.FORMULATION Vs IMPLEMENTATION      Traditionally. effective strategies are better crafted when there is a subtle overlapping between the two (i.e. 144 .

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

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

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

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

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

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

Changes in top management and unlearning helps overcome inertia. Common sources of 151 inertia – complacency with past successes.  . co0ntinuity).e.INERTIA  When a firm has been operating in a certain fashion for a long time. Most firms undergo periods of strategic continuity rather than strategic discontinuity. there is a tendency to continue along the same lines. Inertia acts as an impediment in strategy implementation. Top managers resist change. irrespective whether it is from worse to good or good to worse. Inertia is a characteristic of a firm that endures status quo (i.

strategies need to be evaluated on an ongoing basis to prevent deviations of fit. certain authors propose misfit as a source of superior 152 performance. Since the internal and external environment is in a state of continuous flux. firms should move beyond financial performance to strategic performance as organization systems are becoming complex. However.STRATEGY EVALUATION    Strategy evaluation centers around assessment of strategic fit.  . Deviation of fit is detrimental to performance and may lead to strategic failure. To prevent deviation of fit.

It attempts to answer the following questions – Is the strategic intent appropriate to the changing context? Are the organizations capabilities still holding good.STRATEGY CONTROL      It is concerned with trafficking a strategy as it is being implemented. . detecting changes in the external and internal environment and taking corrective action wherever necessary. competitive advantages becoming disadvantages? Has the company acquired any new competency? Has the company been able to overcome the 153 environmental threats.

Special Alert Control – It intends to uncover unanticipated information having critical impact 154 on strategies. It is open-ended as well as . Implementation Control – It aims at assessing whether key activities are proceeding as per schedule. checking every premise is costly as well as difficult. However. Premise Control – Checking the validity of the assumptions on which a strategy was based.STRATEGY CONTROL IMPLEMENTATION     It involves steering the company towards its original growth trajectory & stated goals. It involves assessing – strategic thrusts and milestones.

Performance measures are defective – What to evaluate against? How to measure the 155 construct? As a saying goes. Strategy not linked to resource allocation & capabilities – Lacking commitment of top management. low strategic fit due to consultants intervention. difficult to translate into practice. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy. “If you cannot .BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas.

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

Since then it is known as their 7-S model and is extensively used by corporations worldwide to implement their strategies. They had been investigating how Japanese industry had been so successful. and was taken up as a basic tool by the global management consultancy company McKinsey.BACKGROUND & ORIGIN  The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony Athos in 1981. At around the same time in the US Tom Peters and Robert Waterman were exploring what made a company excellent. 157 . The 7-S model was born at a meeting of these four authors in 1982. It appeared also in "In Search of Excellence" by Peters and Waterman.

to reach identified & stated goals. Skills – An organizations capabilities and competencies. Strategy – Trade-offs for the allocation of a firms scarce resources. formal & informal . Systems – The procedures. Staff – Human inter-relationships. Style – The way in which the top management influences the functioning of an organization. processes and routines that characterize how work should be done.THE 7’S        Shared Values – It represents what the organization stands for and what the top management believes in. over time. Structure – The way in which the organization's units relate to each other in terms of their commonalities. 158 .

STRATEGIC FIT Strategy Structure Shared Values Systems Skills Staff Style 1st Order Fit 2nd Order Fit 3rd Order Fit 159 .

systems) are comparatively easy to identify and influence. the soft S’s (skill. In contrast. structure. A choice of an alphabet often limits the scope and skews the interpretation of a model. Ineffective in case of a virtual company. Consider the 4P’s of marketing or 3R’s of SCM. staff. their Japanese counterparts focus more on the soft S’s for their early success and sustainability.A CRITIC OF THE 7S MODEL     While the hard S’s (strategy. 160 . style. While the American co’s focuses on the hard S’s. because most often they are culturally embedded and often neglected. shared values) are very malleable and comparatively more difficult to identify & influence.

STRATEGY IMPLEMENTATION ROUTES Strategic Fit .Low Take Overs 161 .High Organic Growth Strategic Alliance Joint Venture Mergers & Acquisition Strategic Fit .

The entire infra-structural facilities are set up afresh having its own gestation and break-even. green-field projects. SEZ’s.e. Long gestation leads to delayed market entry. Govt. the entire value chain. concessions are available for green-field projects. Reliance Industries). 162 Risk of cost and time overruns. subsidized power). It has complete control over inputs. i. . (Eg. soft loans. tax holidays. (Eg. technologies. and markets.e.ORGANIC GROWTH      Here a firm builds up its facilities right from the scratch and continues to do so without any external participation. i.

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

(Eg. Tata – AIG. Degree and extent of management control must be clearly 164 laid down. Selecting the right partner is critical for success.JOINT VENTURES     A joint venture involves an equivalent equity participation between two firms usually of similar strategic intent and comparable size to enter a particular market through a newly formed entity. leaving minimum scope of overlapping. . Hero . It is a win-win situation for both the companies. A comprehensive MOU is essential.Honda). Dominant logic of both the companies should be complimentary.

Acquisition is an outright purchase of a firm assets by another independent entity (Eg. Integrated distribution channel leads to better market penetration and overall synergy. Coca Cola – Thums Up). with the individual firms ceasing to exist any more (Eg. .MERGERS & ACQUISITION      It refers to the fusion of two or more firms into a single entity. ITC Tribeni Tissues. Brooke Bond & Lipton). Revival of a sick-unit through better management practices is a major motive behind an acquisition 165 strategy. Integration of assets and other financial resources. Economies in scale leading to lowering of costs.

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

SOME BEST PRACTICES
          

Dell: Customized configuration of computers. Caterpillar: 48 hours delivery anywhere in the world. Citi Bank : Priority banking services. Maruti: Certified “true value” pre-owned cars. Microsoft: ESOP to employees. Infosys: Customized work-stations. TCS: Referencing potential new recruits. ITC: Shareholders factory visit. AmEx: Outsourcing data warehousing mining. MARG: Set-top box to study viewing patterns. Honda: CEO’s visit to dealers.
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TYPES OF BENCHMARKING
Functional – Used by companies to improve a particular management activity. Eg. Motorola learnt delivery scheduling from Domino’s. Process – Improving specific key processes and operations from experiences in similar businesses. Eg. Ford adopting assembly lay-out plan of Toyota. Competitive – It involves assessing the sources of competitive advantage and imitating them. Eg. Samsung leveraging miniaturization skills of Sony. Strategic – It involves assessing business models and replicating them in a different market. Eg. Reliance replicating AT&T business model.
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HOW TO BENCHMARK?

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

than people driven Innovative Vs Traditional Customer centric Vs Organisational centric 177 .REENGINEERING – KEY TENETS Ambition Focus Attitude Enabler Performance Large scale improvement by questioning basic assumptions about how work is done Micro Vs Macro Business Processes Vs Organisational Processes Starting right from the scratch Not historical More IT driven.

It can be of the following types – Functional – It looks into the flow of operations (i. structures.REENGINEERING . etc) and supports the organization for the present.e. customers and suppliers and protects the organization from the future (i.e. resource allocation and prepares the organization for the future through a reorientation of the entire strategic architecture. 178 . Business – It looks into markets. BPR). Strategic – It looks into the process of strategic planning. products. processes. .LEVELS     Reengineering can be successfully leveraged at all levels of an organization with varying degree of results.

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

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

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

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

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

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

– Less than 10% of strategies effectively formulated are effectively executed... – Efficiency and effectiveness is passé..BALANCED SCORE CARD  Some interesting comments ... strategy implementation has never been more important.... it’s bad execution... Source: Fortune Magazine Why CEO’s fail? 185 . – In the majority of failures – we estimate 70% – the real problem isn’t (bad strategy) ...

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

and distinguish strategic problems from operational ones.  The most critical element of a BSC is to measure these four dimensions. 187 .BSC – KAPLAN & NORTON (1992)  A BSC helps a manager to track and communicate the different elements of company’s strategy. It has four dimensions – – How do customers see us? – What must we excel at? – Can we continue to improve and create value? – How do we look to shareholders?  Firms more often have problems. because they have too many.

CUSTOMER PERSPECTIVE GOALS Products Supply Preference Relationship MEASURES Relative market share (%) % of sales from new Vs proprietary products Timely deliveries and service Customer credit analysis (i. ageing schedule) % of key customer transactions Ranking of key customer accounts No.e. of visits or calls made % of NPA’s 188 .

of times covered in media No. of new product launches Vs competition Product pricing Vs competition 189 .BUSINESS PERSPECTIVE GOALS Skills Excellence Exposure Introduction MEASURES New capabilities and competencies Implementation & gestation period Bank and supplier credit limits & PLR Unit Costs / Conversion Ratio / Defect Ratio 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.LEARNING PERSPECTIVE GOALS Technology Manufacturing Focus Timing MEASURES No. of product innovations 190 .

FINANCIAL PERSPECTIVE GOALS Survival Success Prosper Divestment MEASURES Cash flows Growth in Sales and Profits EPS. Return on Investment Market Capitalization / PE ratio 191 .

STRATEGY MAPPING 192 .

IMPLEMENTATION 2 Translate strategy into operational terms 1 Mobilize change through effective leadership 5 STRATEGY Make strategy a continual process 3 Align the organization to the strategy 4 Make strategy everyone’s job 193 .BSC .

sharing of vision). The BSC brings together the different elements of a company’s strategy at a glance. 194 performance will automatically follow. . It helps translating strategy into practice (i.e.BSC . Seek excellence. Modern managers should be poised to ask the right questions. As a result.e.ADVANTAGES      Most often top managers face information overload. doing right things instead of doing things right). they don’t know . Focus on cause not effects.what they don’t know. Shift from control to strategy (i.

EFFICIENCY Vs EFFECTIVENESS Ineffective Effective Inefficient Goes out of Business quickly Survives Efficient Dies Slowly Thrives 195 .

Michael E. not only thrives. but also sustains it. Porter 196 . .EFFECTIVENESS + STRATEGY  A company which is effective as well as strategic.

CORPORATE RESTRUCTURING 197 .

.. Strategic variety brings paradigm shift..” 198 .. Restructuring involves consciously driving significant changes in the way an organizations thinks and looks (Eg. to survival of the most adaptable. Radical change brings about strategic variety. To adapt to the changing environment. Strategic variety may be caused by changes in the as external well as internal environment. Tata Group). from survival of the fittest . firms use restructuring strategies.CORPORATE RESTRUCTURING      The only thing constant in today's business environment is change... “every organization must be prepared to abandon everything it does. As Peter Drucker pointed out.

and dividing the core businesses into SBU’s (i.RESTRUCTURING – BASIC TENETS    Customer Focus – Restructuring ideally begins and ends with the customer. Instead. Structural Changes – Conventional hierarchical structures should be disbanded in favour of more 199 flexible ones (i. Core Business – Company’s should introspect – What business are we in? Business evolved out of opportunism or myopia should be divested.e.e. Company’s should go beyond just asking what he expects. they should strive to provide unimaginable value ahead of its time (Eg. ATM. downsizing or rightsizing). downscoping). Fax. . Internal customers should also not be neglected. etc). Walkman.

.. Kumar Birla today is more dependent on professionals. During the times of JRD.... 200 .. Ratan Tata now drives the point the group means business..RESTRUCTURING – BASIC TENETS     Cultural Changes – A culture represents the values and beliefs of the people about the organization..) Reliance dismantled their industrial embassies ..) The Aditya Birla group typically relied on the “marwari” community for key management positions . Restructuring also requires cultural reorientation. the Tatas were considered a benevolent and charitable organization... It is created and institutionalized by the top management.. . started focusing on their capabilities.

Getting feedback & addressing customer complaints. Organizing customer and supplier meets. Publicizing welfare projects to demonstrate CSR. “ … one reason our customers are satisfied is that we aren’t. Honda’s ad says. Communicating to the media about organization efforts to deliver quality products.MOVING CLOSER TO THE CUSTOMER         As companies evolve. Carry out PR campaigns.” 201 . Use the reach of networking technologies. they tend to move away from the customer. Restructuring provides a platform to close this gap.

Asset Swaps – It entails divesting and acquisition simultaneously by two companies. Mittal – Arcelor) and can take various forms. horizontal. where the difference in valuation is settled off through cash or equity (Eg. or conglo-merate.ASSET RESTRUCTURING     Asset Restructuring – The asset composition of a firm undergoes a major change. 202 . It may include brands as well. spin-off and equity carve. Tata – Corus) or hostile (Eg. including its intangibles – Mergers – It may be vertical. Further spin-off can be classified as split-off and split-up. Hive Off – It involves siphoning of assets under control. Further. It can have two forms. it may be smooth (Eg. Glaxo – Heinz).

– Split-Up – In a split-up.HIVE OFF   Spin-Off – A spin off is the creation of a new entity. Reliance Ent). Equity Carve – It involves selling a minority stake to a third party while retaining control (Eg. – Split-Off – In a split-off. 203 . in which the equity is allotted amongst the existing shareholders on a pro-rata basis (Eg. the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company. the entire parent company loses its identity after being split into a number of subsidiaries. Most of these practices are not in consonance with Indian laws. Tata Industries selling 20% stake to Jardine Matheson).

but retained its engineering division. In 2005. – Poor performance. Generic motives include – – Raise working capital.DIVESTITURE      It involves the sale of a brand or a division of a company to a third party. repay long-term debts. L&T sold its cements division to Aditya Birla group. In 1995. 204 . Parle sold its Thums Up brand to Coke for $40 million apprehending fierce competition. Selling out in phases is called disinvestment (IPCL). strategic misfit. A complete sell-out is known as divestment (TOMCO). for a specified market or in general with full management control.

Wipro).CAPITAL RESTRUCTURING     Capital Restructuring .The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. Tatas take-over of Corus for US $11. 205 . Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg. involving 608 pence per share). Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt. It provides greater leverage as well as management control.3 billion.

1439 cr 206 Tata Timken – Rs 120 cr Tata Telecom – Rs. 230 cr Diversifications Tata Motors – Rs. 250 cr Tata Tetley – Rs. 256 cr ACC – Rs. 150 cr VSNL – Rs. 950 cr Merind . 99 cr Tata Power – Rs. 1700 cr Trent – Rs.Rs. 42 cr Voltas .Rs. 1860 cr . 1170 cr Goodlass Nerolac – Rs.BUSINESS RESTRUCTURING – TATAS Divestments Lakme – Rs. 1890 cr CMC – Rs. 120 cr Tata AIG – Rs.

Rightsizing – It is phasing of excess and redundant employees resulted out of faulty internal planning (SAIL). 207 .ORGANIZATIONAL RESTRUCTURING     Organizational structure and systems calls for a change when strategic variety is apparent. usually as a result external turbulence. of a firm’s employees and sometimes in the no. It can be carried out in the following ways – Downsizing – It is a systematic one-time reduction in the no. of operating units. Turnaround is the primary motive. keeping the composition of business intact (Jet Airways). Downscoping – It involves reducing the business and/or geographical scope of a firm (Aditya Birla group). Survival is the primary motive.

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

20% of the people carry out 80% of the changes). In most organizations.e.FORCES AGAINST STRATEGIC CHANGE     The problem with strategic change is that the whole burden typically rests on few people (i. 209 . Successful transformation requires – incorporating employees fully into the process – leading from a different place so as to maintain employee involvement – instill mental disciplines that will enable employees to behave differently. the factor that stifled change & performance was – culture. Companies achieve real agility only when people at every level rise above the ordinary to face the challenges – revitalization or transformation.

Questioning every basic action of the organization.SUCCESSFUL TRANSFORMATION        Build an intricate understanding of the business model at all levels of the organization. process ownership. Promote inventive accountability. Understand and deliver the quid pro quo. Manage from the future. Encourage uncompromising straight talk. never take no for an answer. Create relentless discomfort with the status quo. 210 . it is not about winning but about learning. Harness setbacks. The best way is to alter the institutional point of view.

It involves identifying – Aspects of current culture which needs to be reinforced. It involves diagnosing a change situation – systems & structures. by identifying forces for and against change. Culture and style of management are two main impediments in force-field analysis. that can be both enablers and blockages to change and restructuring.FORCE-FIELD ANALYSIS       A force-field analysis provides an initial overview of change problems that needs to tackled. Identify and implement facilitators of cultural change. Aspects of current culture which needs to be overcome. also known as cultural-web. 211 .

Term Loss of human capital Lower performance Higher performance Capital .OUTCOMES Alternatives Organizational Short .RESTRUCTURING .Term Reduced labour costs Reduced debt costs Emphasis on strategic control Business High debt costs Higher risk 212 Long .

down-scoping or asset stripping. While the first strategy produces results instantaneously.NUMERATOR & DENOMINATOR MGT     Most firms across emerging markets undergo strategic discontinuity and as a result are forced to restructure their businesses. 213 . reverse engineering and regenerating. In order to put back the company on the right track they are resort to – Denominator – It assumes that turnover cannot be increased. hence go in for downsizing. Numerator – It assumes that turnover is not a barrier or constraint. the second one is a more viable strategy and sustainable option in the long run. focuses on reengineering.

TURNAROUND MANAGEMENT 214 .

still exist as on 2005. and that the thirty-two of the country’s largest business groups in 1969 are no longer among the top fifty today. 215 (Govindarajan and Trimble. – Less than 10% of the Fortune 500 companies as first published in 1955. – Only seven of the first fifty Indian business groups in 1947 were even in business by the turn of this century. January 1997)..WHY TURN AROUND MANAGEMENT?  Some interesting insights . . Source:  Why do firms atrophy? (Business Today......

systems. Both content (what) and process (how) are equally important for a successful turnaround. and achieves sustainable performance recovery. skills.e. 216 . As a sequence of events describing how things change and why they change (i. Stage Theory). process focuses on – A logic to explain a causal relationship between intervening variables. While content focuses on endogenous and exogenous variables. and capabilities.TURN AROUND MANAGEMENT      A turnaround is said to occur when a firm perseveres through an existence threatening performance decline. ends the threat with a combination of strategies. A category of underlying principles and concepts.

especially in key positions. Substantial shifts in consumer preferences. leading to lack of acceptability from distributors and customers. Rising input costs.TURNAROUND INDICATORS        Most firms atrophy simply because they fail to diagnose the indicators that acts as threat to organizational existence. Some indicators Continuous cash flow crises as a result of dwindling market-share and profits. Uncompetitive products or services. suppliers and bankers. unavailability or radical lowering of substitute costs or technological obsolescence. 217 . Low employee morale leading to high employee attrition at all levels. Low stakeholder confidence.

TURNAROUND ILLUSION        The first step to a successful turnaround is the basic acceptance of the fact that …. Recalibrate prices. focus on power brands.. they adopt surface level measures (disprin popping) which most often fail. 218 . be more customer centric. Revamp product portfolio. based on elasticity. Common approaches adopted Change in key positions. Hence. “all is not well”. Emphasis on advertising and market penetration. consider extension. liquidating dead assets. prune work-force. Product redesigning or reengineering. which most top managers fail to appreciate. Extending work hours.

TURNAROUND STAGE THEORY Stage 1 Decline Stage 2 Stage 3 Stage 4 Outcome Response Transition Performance Equilibrium Line Success Failure Indeterminate Nadir Time 219 .

It has its origin in “environment led fit” that subscribes to the view that a firm has little control over external factors. 220 .DECLINE    Decline is the first stage in the turnaround process. It has its origin in “resource led stretch” and subscribes to the view that a firm has substantial power to override the context. It involves the identification of the theoretical perspectives that explains performance decline – K-Extinction – It suggests that macro economic and industry wide factors are responsible for decline. R-Extinction – It suggests that organization factors. primarily dwindling resources and capabilities are responsible for decline. Identification of the stimulus leads to the arrest of the downfall.

asset reduction.RESPONSE INITIATION    Turnaround responses are typically categorized as operating or strategic. 221 . the response should be operational. the response should be strategic. new market initiatives. Operating responses typically focuses on the way the firm conducts business and involves tactics geared towards – cost cutting and process redesigning (BPR). If the underlying cause is internal efficiency. If the decline stems from structural shifts. diversification. The response must match the cause of the decline. Strategic responses focus on changing or adjusting the business the firm is engaged in through long term moves such as – integration.

which may be unavailable to a focused firm. Scope – A diversified conglomerate may acquire a distressed business to turn it around and gain valuable synergies. 222 .RESPONSE DICHOTOMY     The response initiation is somewhat dichotomous and cannot be universally applicable. Contour – It is easier to reverse decline in the earlier stages through operational measures. Similarly new market initiatives is feasible only for multi-product firms. Untangling this question brings into focus three events – Domain – Many of the strategic cures have limited applicability for an affiliated firm. when decline deepens shifts in strategic position becomes essential.

Support from all the stake holders through resource commitment. confidence building measures. However. many a times early signs of recovery fades out. However. Effective levers of transition. role model.e. lead – lag). substantial amount of time usually passes before results begin to show (i. participative management (i.e. consensus). The top management has a key role to play through empowerment. transparency. 223 . Sustenance is the key factor in this stage. Empirical studies show that average time is 7.7 years with a range of (4-16) years.TRANSITION     Transition usually reflects the first signs of recovery.

OUTCOME        Outcome is said to be successful when a firm breaches the equilibrium performance level. Revival of key customers and new product launches. Failure is an indication that initial momentum was not sustainable characterized by irreversibility. Supplier and banker confidence. Share price indications and media coverage. Regaining lost market share and distributor confidence. Commanding a premium in the market. Cut off points must be unequivocal. 224 . Instead of focusing on financial parameters alone. it should adopt a holistic approach.

COOPERATIVE STRATEGIES & ALLIANCES 225 .

or joint venture. licensing. 226 . It can assume any of the following forms – franchising. the commitment and the involvement between the firms increases manifold. technology. consortia. More and more companies worldwide are moving away from competition to co-option to leverage their resources and enhance bargaining power. supply-chain partnership. and globalization . In the cooperative strategy continuum as firms move up the value order. Any cooperative strategy maybe between firms within the same country or cross border as well. strategic alliance.COOPERATIVE STRATEGIES     Cooperative strategies are a logical and timely response to changes in business dynamics.

FRANCHISING     Franchising – It is a contractual agreement between two legally independent firms whereby the franchiser grants the right to the franchisee to sell the franchisor’s product or service or do business under its brand-name in a given location for a specified period of time for a consideration. owners of the brand Monginis allows its franchisees to sell its confectionary products. 227 . Branding is critical to franchising. It is an effective strategy to penetrate markets in a shortest possible time at a minimum cost. owners of the brand Tanishq allows its franchisees to sell its jewellery products. Titan Inds. Switz Foods.

refine processes and adopt necessary technologies (SKD).LICENSING      Licensing – It is a contractual agreement between two legally independent firms whereby the licensor grants the right to the licensee to manufacture the licensor’s product and do business under its brand-name in a given location for a specified period of time for a consideration. Develop a product through its crude stage. Different levels of licensing Manufacturing without embracing any technology (CBU). HM manufacturing GM range of cars in India with a buy-back arrangement is a perfect example of CBU. 228 . Become a systems integrator (CKD). as in Tata Indica.

It can be of the following types – Multipartner – Intends to share an underlying technology or asset. Hyundai). leverage upon size to preempt competition by escalating entry barriers (Eg.CONSORTIA     Consortia – They are defined as large inter-locking relationships & cross holdings between businesses in a similar industry. Airbus – Boeing). Cross Holdings – A maze of equity holdings through centralised control to ensure earnings stability & threshold resources for critical mass (Eg. Collusion – Few firms in a matured industry collude to reduce industry output below the equilibrium level. enabling them to increase prices (Eg. 229 . Coke – Pepsi). Tata.

Tata Motors – IDEA).SUPPLY CHAIN PARTNERSHIP     It is a pro-active & collaborative arrangement between supplier and customer aimed at achieving better control over the value chain (Eg. otherwise it 230 becomes routine outsourcing. link their capabilities to create value for end users. Companies in different industries with different but complimentary skills. . It usually provides a platform to sort out differences between conceptualization and implementation to suit local market needs. Continuous sharing of knowledge is critical to the success of a supply chain partnership.

Firm’s should undertake a long courtship with potential partners. Despite their popularity (50-60)% of the alliances fail to accomplish their stated objectives.learning organization. enhance credibility. instead of hurrying into a relationship. enter newer markets. Partner selection is one of the critical success factors. to gain knowledge and to obtain access to new markets (Eg. preempt competition.STRATEGIC ALLIANCE     It is an short to medium term understanding between two or more firms to share knowledge and risk. effective R&D management. Reliance – Du Pont). 231 . Generic motives involved are . design next generation products. Tata Motors – Fiat.

Airbus – Boeing). Bootstrap – An alliance between a weak and a strong company with an intention to acquire it. Complementary Equals – Two firms mutually promoting each others complimentary products (Eg. Alliances of the Weak – An alliance is entered into to preempt competition (Eg.TYPES      Collusion – Tacit top management understanding to neutralize price wars (Eg. Bajaj – Castrol). Coke – Pepsi). Maruti).STRATEGIC ALLIANCE . 232 . Whirlpool – Tide. Backward – An alliance (quasi or tapered) with a supplier of critical components seeking commitment (Eg.

Too much stress on financials & structure be avoided. 233 . Cultural orientation has been found to have a profound effect on top management’s strategic orientation (Eg. Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology.PARTNER SELECTION CRITERIA     It is likely that partners will not have complete consent on alliance objectives because the institutional context in which the alliance embedded varies from country to country. – Japan Vs US). Differences in level of economic development can produce differences in alliances motives.

Experience related to previous alliances. Willingness to share knowledge and skills. Managerial capabilities. 234 . Unique Resources – Abilities or skills which cannot be easily duplicated. Partner’s ability to acquire fresh skills.PARTNER CHARACTERISTICS         Complimentarity of Capabilities – The degree to which partners resources can be used in conjunction. including ability to provide quality products and services. Dominant Logic’s – Similarity in beliefs & biases. Intangible Assets – Move beyond the financials of the firm.

Getting Engaged – It should incorporate a specific joint activity. Selection & Courtship – It involves self analyzing. the value chain. 235 . vows to include commitment to expand the relationship. incorporating clear signs of continuing independence for all partners. degree of compatibility. differences not anticipated earlier. Changing within. understanding the chemistry. instead of focusing controlling the relationship. Setting up the housekeeping. Learning to collaborate – strategic. operational & cultural integration. partners should nurture it.MANAGING ALLIANCES       Alliances are more than just a deal.

whilst the partners continue to operate independently.JOINT VENTURE      A joint venture is a long term association between two equal partners to create an independent firm (SPV) by complementing their resources and capabilities to explore newer businesses or markets for achieving a shared vision. a joint venture is a selection among modes by which two or more firms can transact. It lasts till the vision is reached. . combining parts).e. separation is very 236 bitter. Conceptually. There are substantial linkages in the value-chain. It aims at creating new value (i. synergy) rather than mere exchange (i.e.

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

TVS – Suzuki (4-Stroke Engines) Fill gaps in existing product lines. – Eg. Endorsement from government authorities. – Eg.OTHER MOTIVES       Entry into newer markets. Essar – Hutch (Vodafone). Define future industry standards. Maruti – Suzuki. Yamaha – Escorts. Sharing of resources. – Eg. – Eg. Daimler – Chrysler (Premium Cars) 238 . – Eg. Eli Lily – Ranbaxy. – Eg. Renault – Nissan (Minivans – Cars). Learning new technologies.

Tata – Aditya Birla in Idea Cellular 239 . – Godrej – Procter & Gamble. LML – Piaggio Differences in size and resource base. Risk of over dependence. – Maruti – Suzuki. PAL – Fiat If the cost of continuing exceeds the exit costs? – Eg. Century .Enka. technology) drain. Modi – Telstra What after exit (parenting disadvantage)? – Eg. – Eg.RISKS INVOLVED       Incompatibility – Differences in cultural background. Risk of brain (i. – Eg.e.

Partner – Avoid duplication of skills and capabilities. Flexibility – Sufficient space to breathe and adjust. Agreement – Clarity on operational control. respect. Objectives – Shared vision. time sharing. 240 . Equality – Lack of dominance. Focus – Avoid strategic myopia.PRE-REQUISITES FOR SUCCESS            Commitment – Mutual trust. Inertia – Differences in age and evolution patterns. Incompatibility – Performance expectations. Costs – Other modes of transaction becomes cheaper. Culture – Reconcile gaps.

MERGERS & ACQUISITION 241 .

Brooke Bond – Lipton). SEBI Takeover Code.MERGERS & ACQUISITION     A merger is a mutually beneficial consent between two or more firms (usually of similar size) to form a newly evolved entity by absolving their individual entities to preempt competition (Eg. The larger objective is to leverage on size. 242 . Ranbaxy . reverses are also taking place through LBO) with a view to acquire conglomerate power and induce synergy (Eg. Mittal Arcelor). however. Most countries have stringent laws that prevents hostile takeovers (Eg. An acquisition is said be smooth if it is with the consent of the management (Eg. An acquisition is the purchase of a firm by a firm (of larger size. HLL – Tomco). 2002).Daichi) and hostile if it is without the consent of the management (Eg.

SEBI TAKEOVER CODE. Acquirer – Someone (individual or firm) who picks up an atleast 5% stake without mandatory disclosure having an intention to wrest management control (i. . Control – A special resolution of 75% of the share 243 holders approving the change of guard. creeping acquisition). Hike – An acquirer who has already picked up a 5% has to make a mandatory disclosure for every additional 1% stake that it acquires. 2002      Promoter – A person who has a clear control of atleast 51% of the voting rights of the company and confidence of all the major stakeholders.e. Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview.

Disclosure – All acquirers have to inform the respective stock exchanges where it is listed and SEBI upon acquiring the basic limit and upon every incremental limit thereon. 2002    Pricing – Acquirers will have to offer minority shareholders (at least 20%) the past 26 weeks or past 2 weeks average price. SEBI – In case of a hostile take over. Grasim – L&T Cement. and/or does not enjoy the confidence of the different stake holders. the SEBI can intervene and block share transfers if: the acquirer has ulterior motives (i. credentials or track record is at stake. Gujarat Ambuja – ACC).e. whichever is higher as an exit route (Eg. asset stripping). 244 .SEBI TAKEOVER CODE.

ITC).TYPES OF MERGERS      A business is an activity that involves procuring of desired inputs to transform it to an output by using appropriate technologies and thereby creating value for its stake holders in the process. Godrej. The type of merger is depends on the degree of relatedness (strategic) between the two businesses. 245 . Electrolux .Kelvinator). Conglomerate – It involves integration of two distinctly unrelated businesses. Reliance). usually opportunistic (Eg. Horizontal – It involves integration of two highly related businesses (Eg. Vertical – It involves complimentarily (partially related) in terms of supply of inputs or marketing activities (Eg.

Economies of size. quick access).e. scale and scope. Ulterior motives – (Eg. Avoiding risk of new product development. Mittal – Arcelor). Asset Stripping – Shaw Wallace). Tax benefits (Eg. Reduced gestation (i. Access to newer segments (Eg.MOTIVES             Increased market / conglomerate power. Global image (Eg. Overcoming entry barriers (Eg.MERGERS & ACQUISITION . Tata Steel – Corus). ITC Bhadrachalam). Reduction in risk. Acquiring assets or capabilities (Eg. 246 . Ranbaxy – Crosslands). ICICI –ITC Classic). Coinsurance effect – Higher debt raising capability.

MERGERS & ACQUISITIONS PITFALLS        Cultural differences (Eg. Merging of organisational structures. Managing size. Top management overtly focused on due diligence exercise and negotiations. while the ultimate acquisition was made at 607 pence/share). Overvaluation is often as a result of an ego drive and substantially affects future returns. Overvaluation of buying firms (Eg. Inability to achieve synergy. their initial offer was around 420 pence/share. Managing over-diversification. 247 . neglecting core business. When Tata Steel started negotiations with Corus. Tata – Corus).

with an objective to reinforce its growth trajectory or to take on the might of a comparatively larger player (Eg. Maturity – A larger firm acquires a smaller firm with an objective to achieve economies of scale and experience curve effects (Eg.MERGER TYPE & PLC     Introduction – A larger firm may acquire a newly formed entity with an objective to preempt new competition or acquire its license (Eg. Brooke Bond – Lipton). vertical to save transactions costs. Decline – Horizontal mergers are undertaken to ensure survival. Tata Steel – Corus). Growth – This stage may witness parallel merger of two firms of similar size. 248 . Kingfisher – Air Deccan).

Left alone syndrome. Immediate attempts to super impose structure and culture may cause bottle necks. A common shared vision. 249 .INTERNATIONAL M&A . active top management intervention in phases. Strong differences may stifle plans and its execution. An acquisition just for the sake of it or reputation yields very little value in the long term.FRAMEWORK      Positive contribution to the acquired company. Blanket promotions across entities and confidence building exercises needs to be practiced. A concern of respect and trust for the business of the acquired company.

promptly. . Integrating work processes. Decide on the new hierarchy.INTEGRATION . Shift attention from business portfolio to people and processes. 250 Do not ignore the “people factor”. It will enable focus on customers and key people.BLUEPRINT         Take the media into confidence. Decide upon management control systems. They can carry the message to the various stake holders. Redefine responsibilities and authority. Determine business strategy.

e. Financial motives – Undervaluation relative to true value.VALUATION   The process of valuation is central to M&A. 251 . The process takes (6-12) months. Valuation decisions are arrived through a due diligence process when the prospective acquirer gets access to the books of accounts of acquiring company. over valuation can become a curse. – Synergy – Potential value gain from combining operations (i. – Market for corporate control. operational & financial). – Unstated reasons – Personal self interest and hubris.M&A . While under valuation may be a significant opportunity.

– Conglomerate Synergy – Gains come when one firm complements the resources or capabilities of another (Eg. Sources of operational synergy – Horizontal Synergy – Gains come from economies of scale which reduces costs. or from increased market power which increases sales and margins. Innovative product – Good distribution network).VALUING OPERATIONAL SYNERGY  Synergy – It refers to the potential value gain where the whole is greater than the sum of the parts. Synergy can be negative as well. when the “fit” between the two entities is very poor. – Vertical Synergy – Gains come from controlling the supplychain and savings in transaction costs. 252 .

ITC – Bhadrachalam Paper). and without paying take-over premiums. shareholders can accomplish the same at a much lesser cost. However.VALUING FINANCIAL SYNERGY    Diversification – Reduce variability in earnings by diversifying into unrelated industries. Tax Benefits – Tax benefits may accrue from tax entitlements and depreciation benefits unutilized by a loss making firm. Hotmail). 253 . Synergy comes from projects which would not have been undertaken if the two firms stayed apart (Eg. but availed after being merged with a profitable firm (Eg. Cash Slack – It reduces asymmetry between cash starved firms with deserving projects and cash cows with no investment opportunities.

– Default risk comes down and credit rating improves. as risky debt is spread across the new firm's operations. 254 . – Coupon rates may also be negotiated at lower rates. higher leverage. hence better performance.VALUING FINANCIAL SYNERGY   Co-Insurance Effect – If the cash flows of the two firms are less than perfectly correlated. the cash flow the merged firm will be less variable than the individual firms. It relates to the concept of diversification. The likelihood of default decreases when two firms' assets and liabilities are combined through a M&A compared to the likelihood of default in the individual companies. This will induce higher debt capacity.

Assessment of perceived quality is critical. The value of wrestling control is inversely proportional to the perceived quality of that management. – – Value of Control = Value of firm after restructuring Value of firm before restructuring. While value of corporate control is negligible for firms that are operating close to their optimal value. 255 .VALUING CORPORATE CONTROL     Premium of M&A are often justified to control the management of the firm. since a restructuring can lead to significant increase in value. The value of control can be substantial for firms that are operating well below optimal value.

The assets of the acquired company are used as collateral for the borrowed capital. debt component) at the time of buyout and rapid changes in capital structure over time. It is a very costly and risky proposition. 256 .LEVERAGE BUYOUT (LBO)     The basic difference between a take-over and a LBO is the high inherent leverage (i. Confidence of investment bankers and the international financial community is essential. LBO facilitates a relatively smaller firm to bid for a comparatively larger firm in the bid for management control. sometimes in combination with the assets of the acquiring company.e.

 However. The increased benefit showed in the following way – reduced costs and increased revenue. A research study showed that 30% of the publicly listed firms reported above average returns after going private. liquidity. 257 .TO GO PUBLIC OR NOT?   However. – The need to satisfy analysts and shareholders. – Separation of ownership from management. on-going valuation. the advantages of going public includes . off-late many publicly traded firms have gone private keeping in mind the following – – The fear of LBO.access to financial markets. – Increased information needs.

which disappears once assets are liquidated and significant portion of debt is paid off.e. – It is a temporary phenomenon. – Managers cannot be trusted to invest free cash flows wisely. – Debts repaid off from increased value after successful restructuring and wresting management control. co-insurance effect). – Cost of debt coming down (i.RATIONALE FOR HIGH LEVERAGE  The high leverage in a LBO can be justified by – – If the target firm has too little debt (relative to its optimal capital structure). 258 . – Cash trapped company unable to utilize opportunities.

Any discounting has to reflect these changing cost of capital. initial rise in leverage is anticipated. As the firm liquidates / pledges assets and pays off debt. 259 . A LBO has to pass two tests to be viable – – Restructuring to pay-off increased debt.EFFECT OF HIGH LEVERAGE      Increases the riskiness of dividend flows to shareholders by increasing the interest cost to debt holders. Lack of sufficient cash flows to repay costly debts resulting in a possible debt trap. Therefore. – Increase equity valuation. leverage is expected to decrease over time.

REVERSE MERGER  Reverse Merger – The acquisition of a public company. allowing the private company to bypass the usually lengthy and complex process of going public. 260 . time-barred. – Prevents dilution of equity. small in size but having a promising business. which has discontinued its operations (i.e. shell company) by a private company. – Facilitates better valuation and forthcoming offerings. Objectives – – Traditional route of filing prospectus and undergoing an IPO is costly. – Automatic listing in major exchanges. – Tax shelter. or costly.

261 . and 35% during bullish periods. – Merger announcements reported 20% excess returns. Initial anomaly in stock prices usually normalizes over a period of time (6-12) months. Excess returns also vary across time periods. However. During bearish periods excess returns were 19%. takeover failures have only initial negative effects on stock prices.EFFECT OF TAKE-OVER ANNOUNCEMENT     The shareholders of target firms are the clear winners. – Takeover announcements reported 30% excess returns. Most target firms are taken over within (6090) days.

in the event of take-over failure negative returns to the extent of 5% on bidder firm stock prices is reflected.EFFECT OF TAKE-OVER ANNOUNCEMENT  The effect of take-over announcement on bidder firm’s stock prices are not clear cut. Desai. 262 Jarrel. Brickley. over time. – Most studies reported insignificant excess returns around take-over offers or merger announcements. and Netter. as stock markets become more and more perfect such anomalies would reduce Source: Jensen and Ruback. – However. 1988 . and Kim. 1983. Bradley. 1983. – However.

Rights). so that nothing is left for the raider to strip off. 263 . Poison Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive. Asset Stripping – The targeted company hives off its key assets to another subsidiary. Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg.DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control.

Shapoorji Pallonji). 264 . Pac Man – The target company makes a counter bid to take over the raider company. Gray Knight – The target company takes the help of friendly company to buy the shares of the raiding company. But often the White Knight turns a betrayer himself (Eg.DEFENSIVE STRATEGIES     White Knight – It is the placing of stocks to a cash rich investor and bargaining for protection in return. Green Mail – The targeted company buys large blocks from holders either through premium or through pressure tactics (Eg. East India Hotels – Reliance Industries – ITC). thus thwarting the raider company’s attention.

COMPETING FOR THE FUTURE 265 .

Hitachi overpowering Westinghouse. Honda overpowering GM. were spending 99% of their precious time dealing with present. Nokia overpowering Motorola. Honda overpowering Volkswagen. What went wrong???? What were they doing with the present? What were they pre-occupied with? 266 . Most companies were too preoccupied with the present than the future? 99% of the companies overpowered. Wal-Mart overpowering Sears. The reverse was true for the companies overpowering. Compaq overpowering IBM.GETTING OFF THE TREADMILL    Canon overpowering Xerox. British Air overpowering Pan Am.

Thus efficiency was grievously hurt.THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. decluttering. Not knowing when to stop. most often they ended up cutting corporate muscle as well and became anorexic. declining margins. downsizing). These denominator based managers stuck to their restructuring strategies (like building pyramids) and didn't know what to do next? Thus they became history? (like the pharaohs) 267 . falling market share).

but forging ahead in competition.THE PRESENT OF COMPETITION    Beyond Reengineering – Numerator based managers (innovation) at least offers some hope. but not of the future.S. On the contrary only 20% of Japanese managers believed that quality will be a source of competitive advantage of the future. A poll in circa 2000 revealed that 80% of the U. incrementalism or nominal innovation has almost reached a plateau. 268 . top managers believed that quality will be a source of competitive advantage of the future. ensuring only survival of the present. However. The future is not about catching up with competition.

not the other way. demographics and lifestyles. aspirations and resources. Companies need to fundamentally reconcieve itself. better.THE FUTURE OF COMPETITION       Regenerating – Leaner. not just the organization. 269 . It is based on deep insights into trends in technology. and regenerate its strategies (breaking its – managerial frames). they are not enough to get a company to the future. reinvent its industry. faster. don’t predict. as important as these may be. Creating the future requires industry foresight. It involves Dream about the company’s future. Transform the industry. Empower from bottom to top. Create a potential gap.

ABOUT THE DREAM Which customers will you be serving? What will the potential customer look like? Who will be your future competitors? What will be the basis of your competitive advantage? Where would your margins come from? What will be your future competencies? Which end product markets would you cater? 270 .

Change in at least one fundamental way the rules of engagement in an industry. Therefore. Create entirely new industries (i.ABOUT THE TRANSFORMATION The future does not belong to those who take the industry for granted. blue oceans). Successful companies have a complete grip over the industry. by converging technologies complex. 271      . It drives a hunger and a passion to transform.e. It is about deliberately creating a strategic misfit. Redraw the boundaries between industries. hence do not fall sick in the first place. they do not need to restructure.

the revolution must start at the bottom and spread in all directions of the organization.ABOUT THE EMPOWERMENT      Bring about a revolution (a paradigm shift) in the organization. More importantly. Transformational leaders merely lead the way. 272 . Such a process is called institutionalization (from people centric to organisational centric). The middle management plays a strong moderating role. Most successful revolutions (Gandhi to Mandela) rose from the dispossessed. A revolution that is thrust upon from the top seldom sustains.

A process for finding and gaining insight into tomorrows opportunities (Eg. Get to the future first. 273 . Apple – iphone). without taking undue risk. Apply the 40 – 30 – 20 principle. An ability to energize the company. South West Airlines – LCC. It requires a lot of common sense and a little bit of out of the box thinking. Companies need to strategize (think ahead of times). Toshiba – LCD. What does it take to get to the future first? Understanding how competition for the future is different.THE FUTURE OF STRATEGY       A company must get to the future not only first but also for less.

the farther it will be away from competition. each point in space represents a unique business opportunity. Companies of the future will be not based so much on the strength of their resources.HOW DOES THE FUTURE LOOK LIKE?     There is no rule which says that for every leader there will be a follower. greatness from mediocrity. As there is no one future. is the ability to imagine in a different way what the future could be. as on their aspirations. What distinguishes a leader from a laggard. The farther one can see in this endless space. but hundreds. 274 . We are in the midst of a 3600 vacuum.

THE EMERGING STRATEGY PARADIGM Not Only Reengineering Processes But Also Regenerating Strategy The Competitive Challenge Organizational Transformation Industry Transformation Competing for Market Share Competing for Opportunity Share Finding the Future Strategy as Learning Strategy as Positioning Strategy as Engineering Strategy as Unlearning Strategy as Dream Strategy as Architecture 275 .

THE EMERGING STRATEGY PARADIGM Not Only But Also Mobilising for the Future Strategic Fit Resource Allocation Strategic Misfit Resource Stretch & Leverage Getting to the Future First Existing Industry Structure Product Leadership Single Entity Product Hits & Timing Future Industry Structure Competency Leadership Dominant Coalitions / Co-option Market Learning & Preemption 276 .

Degree of Learning Unlearning Curve P2: Unlearning in previous period does not necessarily ensure learning in the current period. Learning Curve t1 t2 t3 Time t4 t5 277 .LEARNING TO FORGET P1: The degree of learning in current period is directly proportional to the degree of unlearning in the previous period.

Leverage – They are the gateways to future markets. It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times. It represents the collective learning's of an organization centering around diverse streams of technologies. Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage. 278 . It cannot be matched even by its closest competitors.CORE COMPETENCE     A core competence relates to a bundle of skills (not an asset or a business) that revolves around activities or processes and critically underpins a firm’s competitive advantage.

Core competencies are the roots of the organization. it is deeply embedded in the heart of the organization. Although a core competence may lose value over time. Most companies around the world do not possess one. Wal-Mart – logistics. Coca Cola – brand. Toshiba – flat screen displays. SKF – antifriction and precision. Nike – designing.MORE ABOUT CORE COMPETENCE      Sony – miniaturization. Honda – engines. leaders have one. it gets more refined and valuable through use. A core competency cannot be outsourced. 279 . Toyota – lean manufacturing. at the most three to four. Intel – nano-electronics. Canon – imaging.

ROOTS OF COMPETITIVENESS End Products 1 2 3 4 5 6 7 8 9 10 Core Businesses Core Business 1 Core Business 2 Core Business 3 Core Business 4 Core Product 2 Core Products Core Competencies Core Product 1 Competence 1 Competence 2 Competence 3 Competence 4 280 .

RESOURCE STRETCH & LEVERAGE

Initial resource position is a very poor indicator of future performance. It leads to atrophy and stagnation. Successful companies consciously create a potential gap between aspirations and resources. Resource crunch is a common factor among firms that faces a wealthy rival, and outperforms them. Leveraging what a company already has, rather than allocating it is a more creative response to scarcity. – By concentrating existing resources. – By accumulating existing resources. – By complementing existing resources. – By conserving existing resources. – By recovering existing resources.
281

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

Recovering - It is the process of reducing the elapsed time between investing in resources and the recovery of those resources in the form of revenues via the market. Speeding – Prior to the 1980’s Detroit’s majors took an average of 8 years to develop an entirely new model; the Japanese reduced it to less than 4.5 years, with major new variants in 2 years. This envisaged Japanese players in giving customers more opportunities to switch allegiance and loyalty (Toyota). Protecting – It uses competitors strength to one’s own advantage, by deflecting it, rather than absorbing it as practiced in Judo.
286

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

1997). institutional gaps. 288 . high levels of market imperfection). Therefore. Emerging markets are characterised by infrastructural bottlenecks. Therefore focused strategies based on core competence may not be suitable for emerging markets (Khanna & Palepu. Chile) provide a different context (i. strategies suited for the developed markets may not be appropriate for emerging markets. Korea. and high transaction costs.e.EMERGING MARKETS    Emerging markets (India. Diversified groups in operating in emerging markets therefore benefit from unrelated diversification. China.

Experience Strategic Fit Diversity Palich. et al. Synergy. Optimum level of diversification Performance Diversity is initially positively related with performance. subsequently negatively related across developed markets. Size & Scale. Entropy). Concentric.PERFORMANCE (I) Diversity attempts to measure the degree and extent of diversification (Herfindahl.DIVERSITY . (2000) 289 .

Huge initial investment. brand building Risk diversification. subsequently positively related across emerging markets.PERFORMANCE (II) Diversity is initially negatively related with performance. conglomerate power Threshold level of diversification Performance Diversity (Khanna & Palepu. 2001) 290 .DIVERSITY .

It should have a spread of manufacturing facilities. It should have a spread of interest groups / stake holders. It should think globally. Characteristics – It should have a spread of affiliates or subsidiaries.INTERNATIONAL IDENTITY       MNC’s consciously engage in FDI in different parts of the globe to forge resource diversity as a distinct competitive advantage. act locally (Eg. 291 . It should have a spread of assets. HSBC). revenues and profits.

Group Scale . Feminity Index .It reflects the disparities in women in workforce (Eg. 292 .GLOBAL BUSINESS ENVIRONMENT     Power Distance – It reflects the disparities in income and intellectual development (Eg. Risk Profile – It reflects the risk attitude of the top management (Eg.It reflects the relative role of team building (Eg. low group scale in developed markets and vice versa for emerging markets). low power distance in developed markets and vice versa for emerging markets). high feminity index in developed markets and vice versa for emerging markets). low risk profile in developed markets and vice versa for emerging markets).

culture. code of conduct. 293 . dress sense. judiciary) of doing business in a particular country (Eg. interest rates. terrorism (9/11). customs. corruption. attitude.GLOBAL BUSINESS ENVIRONMENT   Cultural Adaptability – It reflects the adaptive ability to a changing environment . time value. low country risk in developed markets and vice versa for emerging markets). high cultural adaptability in developed markets and vice versa for emerging markets). currency. inflation. flexibility (Eg. credit rating. Country Risk – It reflects the political and economic risk (Eg. way of life. FOREX reserves. political stability.

time-zones. in most emerging markets meetings are delayed and lasts unusually long. in most emerging markets use of an interpreter may be a standard protocol. Language Barriers – Developed country managers expect foreign partners to communicate in their languages. however. 294 . Ethnocentrism – Developed country managers tend to regard their own culture as superior. Other factors – local celebrations. High levels of ethnocentrism usually has a negative effect on business.GLOBAL BUSINESS ENVIRONMENT    Time Sensitiveness – Developed country managers regard time as precious. and vice-versa.

It also highlighted the nexus between US & WTO. copyrights. ASEAN. It a multi-lateral treaty with 143 (as on 2002) member countries to reduce tariff and non-tariff (quota) barriers. The 1999 (Seattle Round) saw a lot of protest amidst bringing agriculture under the purview of TRIPS. It also initiated provisions on anti-dumping. BRIC). In 1995 (Uruguay Round) GATT was renamed to WTO. The 2001 (Doha Round) focused on power blocks (NAFTA. It focused largely on TRIPS (patents.GATT    GATT was a bi-lateral treaty initiated between US and some member countries in 1947 to promote free trade. 295 . trademarks).

However with current recession in the US 2002 onwards. Sterling . The notable exception was Great Britain which still continues with its local currency (i.Pound).e. the Euro slowly started outperforming the Dollar. primarily the OPEC countries. Euro). The Euro was significantly devalued against the Dollar till 2002.e. three countries joined in 2002 increasing it to fifteen members as of 2008. the Dollar still remains the most preferred currency globally.EURO – SINGLE CURRENCY    In 1999 twelve member countries in Europe joined hands to move over to a single currency (i. 296 . However.

However. but it may have spill-over effects. Rate Uncertainty – A single currency eliminates the risk of competitive devaluations. Transparency – A single currency is transparent and competitive.SINGLE Vs MULTIPLE CURRENCY     Transaction Costs – Though the initial cost of introduction of a single currency is very complicated and costly. it helps avoiding transaction costs associated with a multiple currency. a multiple currency is preferable where the business cycles of member nations are different. Trade Block – It will strengthen the EU identity which would not have been possible otherwise. 297 .

e. – FDI (transfer of tangible resources) is slow but steady for the purpose of economic growth. the gain of one country is loss of another). It is short-medium term with comparatively low levels of commitment.FII Vs FDI INVESTMENT  Classical economists believed that foreign investment (in any form) is basically a zero sum game (i. – FII (transfer of intangible resources) is fast but may have strong repercussions (i.e. 298 . Neo classical economists believe that foreign investment may in fact be a win-win game. It is long term with high levels of commitment. hot money).

Distribution – It depends on the market characteristics (fragmented – concentrated). lifestyle (petroleum 299 outlets – departmental stores). technology (microchip). . promotion (surrogate advertising). usage (talk time).culture (food habits). buying patterns (spread). Pricing – It depends on the competitive structure (PLC – Kellogg's). economic (middle class buying power).INTERNATION MARKETING    Product – The various attributes of a product may receive different degrees of emphasis depending on differences in . customer awareness (microwaves).

debt is cheap in US. equity is cheap in India). Cost Structure – Companies in India need to investment in fixed costs due to poor infra-structure 300 compared to developed markets. Accounting Norms – The accounting norms of one country (AS . . Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg.INTERNATION FINANCE     Currency Risk – Many Indian IT companies (Rs) having business in US (Dollar) are asking for quotes in (Euro) or are shifting bases out of US to avoid risk of devaluation of Dollar.India) may be different from that another trading country (US – GAAP or IRS).

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

SCM – Use of ERP to network the extended enterprise 302 across the globe. . Outsourcing – A company having a core competence may be the source of global outsourcing (Eg.INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays. Bosch spark plugs are used by car manufacturers worldwide). reduce power costs) vis-à-vis infrastructural bottlenecks. Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II).

CONTEMPORARY TOPICS 303 .

innovation is the first attempt to carry it out in practice. but has inherent risks involved as well. Innovation is all about staying ahead of competition.INNOVATION      An invention is the first occurrence of an idea for a new product or process. Innovations typically paves the way for more secured and improved lifestyle for consumers in general. Innovation is the most preferred strategy today to maintain competitive advantage in the present turbulent business environment. While innovation typically adds value for organizations. it has destructive effects as well. 304 .

Strategic innovation has the potential to change the rules of the game. Process innovation usually follows product innovation. Tangible impact of product innovation on performance is significantly higher than process innovation.TYPES OF INNOVATION A key challenge is maintaining a balance between process and product innovations. While product innovations are typically customer driven. process innovation is necessary to sustain the competitive advantage of product innovation. process innovations are organizational driven.      305 . However.

e.  306 . a paradigm shift).e. Telecom (CDMA Technology). Medical Surgery (Lasik).BUSINESS MODEL    It is a simplified description and representation of a complex real world. Drug Development (Bio Chemicals). Innovations are the back-bone of successful business models . Data Storage (Pen Drives). Processors (Pentium). about how an organization makes money (i. putting an idea into practice). Disruptive business models brings in a new frame of reference (i. It leads to a shift in the price – performance envelope.

The segment(s) of clients to be addressed. The proposed relationships established with clients. 307 . The revenue streams generated by the activities. The key partners involved in the activities. The key resources and capabilities required.NINE BUILDING BLOCKS          Value proposition offered to the market. The key activities / processes necessary for execution. The channels to reach out to the clients. The cost structure resulting from the business model.

BUSINESS MODEL FRAMEWORK 308 .

It involves – Product Visualization – Product Prototype – Product Test – Capacity – Pricing – Distribution. Real Estate) companies need to untangle and understand the intricacies of their business model. Investment Banking. The revenue model described here are the means to generate revenues.REVENUE MODEL     Positioning is just not sufficient. It is just one piece of the puzzle. innovative companies to carve out unique business models to fend off competition. With the rapid erosion of certain industries (IT. 309 .

Promote the grape-vine. Promote the culture of experimentation. Have a lean and a flat organization structure.HOW TO MAKE INNOVATIVE CO’S         Innovative company’s are a matter of culture and aspirations rather than tangible resources. Allow the management sufficient slack to be future oriented. Provide reasonable incentives (not necessarily monetary). 310 . A favourable intellectual property (IP) climate. Allow the workforce idiosyncrasies for their errors.

companies are increasingly relying on internal protection to sustain innovation effects. The most preferred strategy of internal protection includes imbibing “causal ambiguity” in the production process to make reverse engineering difficult. Collusion with the judiciary is also another distinct possibility in emerging markets.HOW TO PROTECT INNOVATION?     Without adequate protection (external or otherwise) the effects of innovation does not translate to performance. however that possibility is slowly atrophying. In most emerging markets where the IP climate is not so favorable. 311 311 .

Corporate governance aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms.CORPORATE GOVERNANCE    The basic theme of corporate governance is to ensure that professional managers are identified and made accountable in terms of clear business processes or activities and held responsible through adequate mechanisms & control systems for channelizing their decisions for the benefit of stakeholders at large. 312 312 . In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders.

also known as the principal-agent problem or agency dilemma. 313 . not present in portfolio diversifications. According to the agency theory top managers and shareholders interests are usually conflicting in nature and tend to pull in opposite directions.AGENCY THEORY     The root of Corporate Governance goes back to the Agency Theory. However. shareholders can diversify their portfolio at a much lesser risk and cost. This exposes the shareholders to additional risks and higher costs. From the strategic point of view managers tend to diversify into unrelated businesses as it provides higher returns hence a more favourable appraisal.

defines corporate governance (headed by Kumar Mangalam Birla) as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the 314 shareholders.ORIGIN & CONTEXT    Since the early 20th century since a large part of public funds were held by publicly traded firms in the US. After the Enron downfall. SEBI Report – 2005. various laws were enacted to ensure proper usage of these funds. . the US government passed the Sarbanes – Oxley Act. 2002 to restore public confidence in corporate governance.

including the society at large. Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors. Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders. 315 .GOVERNANCE PRINCIPLES    Rights and equitable treatment of shareholders: Help shareholders exercise their rights by effectively communicating information in transparent ways that is understandable and accessible and encouraging shareholders to participate in general meetings. The key roles of chairperson and CEO should not be held by the same person and their offices be clearly separated.

.GOVERNANCE PRINCIPLES    Integrity and ethical behaviour: Organizations should develop a code of conduct for their top management that promotes ethical and responsible decision making. They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting. Independence of the entity's auditors: Identification. assessment and mitigation of risks and retirement by rotation over a fixed period of time. Disclosure and transparency: Disclosure of information should be timely and balanced to ensure that investors have clear access to data and facts. 316 316 .

Regular board meetings allow potential problems to be identified. discussed and resolved. a person benefitting from a decision should abstain from it. they should provide no mechanism or scope for opportunistic behaviour. safeguards invested capital. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. fire and compensate top management. with its legal authority to hire. Balance of power: The simplest balance of power is very common.GOVERNANCE STRATEGIES    Monitoring by the board of directors: The board of directors. 317 . However.

Egypt and Russia) to around 40% for Canadian & European companies. and was responsive to investors' requests for information on governance issues. The size of the premium varied by market. McKinsey found that 80% of the respondents would pay a premium for wellgoverned companies. They defined a well-governed company as one that had mostly out-side directors.GOVERNANCE & PERFORMANCE In its “Global Investor Opinion Survey” of over 200 institutional investors in 2002. from 10% for companies where the regulatory backdrop was least certain (those in Morocco. who had no management ties. undertook formal evaluation of its directors. 318  .

today economic institutions are considered as a major drivers of improvement in quality of life in general and therefore needs to include multiple stakeholders. The basic premise is that firms cannot exist in vacuum. However. Therefore. Over a period of time. the short-term view of profit maximisation gave way to a more broader and mediumterm view wealth maximisation of the shareholders. 319 . corporate philanthropy should be a part of every corporate mission.SHAREHODER – STAKE HOLDER THEORY    Till the early part of the 20th the basic objective of modern organizations was to provide goods and services for public consumption for profit maximisation.

Therefore. However. giving a very important message that one cannot exist without the other. CSR can be defined as. Therefore. the debate on CRS still continues whether firms should detract its focus from its business? 320 . “an enterprises decisions and actions being taken for reasons at least partially beyond its immediate economic interests”. “a healthy business cannot exist in a sick and impoverished society”.CORPORATE SOCIAL RESPONSIBILITY     As Peter Drucker rightly pointed out that. in fact a large part of it is significantly overlapping. economic and social responsibilities cannot be mutually exclusive.

GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy. MRTP). Fear of government interference: Excessive quench for profits may lead to build up of adverse public opinion compelling the government to intervene (Eg. Public image: Entrepreneurs are increasingly relying on public image as a source of competitive advantage and a higher financial discounting. people are becoming increasingly aware of their right to a decent and healthy life. 321 . The role of media: The media and various consumer organizations have come up in protecting consumer rights and exposing mal-practices.

Exide – Product take back). designing eco-friendly products.Paper packaging.CSR STRATEGIES  Green Supply Chain Management: It includes environmentally preferable purchasing. and extended producer responsibility (Eg. Aditya Birla Research Centre – LBS). Education. Cement . Tata Steel – Life Line Express). Refrigerators – CFC. Health & Hygiene – Attending the health hazards due to wastes and by-products to employees and society in proximity (Eg. eco efficiency.   322 . Literacy & Training Programs – (Eg.

Prahalad notes that future markets exist collectively. they're helping millions of the world's poorest people to escape poverty. across the world's billions of poor people having immense untapped buying power. In turn companies by serving these markets. 323 . C. They represent an enormous opportunity for companies who learn how to serve them.BOTTOM OF THE PYRAMID    With the market across most developed markets including the US getting saturated. Strategic innovations leading to disruptive business models can show the way out. K.

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

. and struggled for differentiation (cost or product). They have fought for profits. competing head on results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool. profitable growth. battled over market-share.WHAT IS RED OCEAN?    Companies have long engaged in head-to-head competition in search of sustained. where most industries are saturated. one companies gain is always at the 326 cost of another companies loss. Yet in today’s overcrowded industries. In today’s red oceans.

It helps in creating powerful leaps in value for both the firm and its buyers.WHAT IS BLUE OCEAN?    Tomorrow’s leading companies will succeed not by battling in red oceans. Blue Ocean’s have existed in the past. rendering rivals obsolete and unleashing new demand. Such strategic moves are possible through the pursuit of product differentiation and low cost simultaneously. It is only the frames of the . it will exist 327 in the future as well. but by creating blue oceans of uncontested market space ripe for growth .

RED OCEAN Vs BLUE OCEAN Compete in existing markets Compete in uncontested markets Beat the competition Exploit existing demand Make the competition irrelevant Create and capture demand Make the value-cost trade off Break the value-cost trade off Demand is the limiting factor Supply is the limiting factor 328 .

information imperfections atrophy instantly. As trade barriers between nations & regions fall. Population shrinkage across a no. . Demand across developed markets reaching a plateau.BLUE OCEAN STRATEGY IMPERATIVES       Prospects in most established market spaces – red oceans – are shrinking steadily. Technological advances have substantially 329 improved industrial productivity. Niche markets & monopoly havens are continuing to disappear. of European nations.

Incumbents often create blue oceans within the ambit of their core business. They are not necessarily about technology. managerial moves are. . History indicates that blue oceans exist in three basic industries – automobiles (how people get to work) – computers (what people use at work) – entertainment (what people do after work). the underlying technology was often already in existence.CONCEPTUAL UNDERPINNINGS       Blue oceans have existed in the past and will exist in the future as well. Company & industry are the wrong units of 330 strategic analysis.

BLUE OCEAN .IMPLEMENTATION Reduce Which factors to be reduced below the industry standard Eliminate Which of the industry factors that the industry takes for granted should be eliminated Create VI Which factors should be created that the industry has not offered Raise Which of the factors should be raised above the industry’s standard 331 .

IMPLEMENTATION SEQUENCE Buyer Utility (1) Is there exceptional buyer utility in your business idea? Price (2) Is your price easily accessible to the mass of buyers? Blue Ocean Strategy Adoption (4) What are the adoption hurdles in actualizing your business idea? Are you addressing them up front? Cost (3) Can you attain your cost target to profit at your strategic price? 332 .

Sony Play Station: Redefining machine-human interface in entertainment and targeting an altogether new user base. . Citibank – Automated teller machines & credit 333 cards. Southwest Airlines: Pioneering the concept of LCC.SOME GLARING EXAMPLES      In the last century authors Kim and Mauborgne have documented the creation of more than 150 blue ocean creations across 30 industries – Virgin Atlantic: Fractional jet ownership or travel to space.

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