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

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

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

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

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

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

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

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

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 .

– It is primarily the top management’s prerogative. – The choice of strategy is primarily concerned with external ones rather than internal ones. – The choice of product-market mix is based on conscious evaluation of risk – return factors. Learning always begin on a clean sheet of paper. – Biases and prejudices has a very little role to play in strategic choices pursued by managers. 15 . 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.

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

– A firms performance is inversely related with the bargaining power of environmental forces to which it is exposed. 17 .APPROACHES TO STRATEGY  Positioning Approach – Michael E. new entrant. – The environmental forces comprises of – supplier. competitors. customer. – 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. – The organization will outperform the industry where environmental forces are weak and vice-versa.

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

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 .

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

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 .STRATEGIC INTENT .

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. Dominant logic changes.e. To put it more simply. strategic variety) is apparent. It is core to the strategic intent of the firm. when radical changes in the internal and external environment (i. 23 .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.

beyond just making money. It provides an unity of purpose amidst diversity of personal goals.  24 . – It represents the company’s audacious.  It is a combination of three basic elements – – An organizations fundamental reason for existence. but achievable aspirations. – It stands for the unchanging core values of the company.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 enables the top management to remain focused.

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

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

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

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

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

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

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

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

– The environment context has changed. – Persons responsible for strategy conceptualization and implementation are34 divergent. 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. Other causes – – The plans are unworkable and utopian. A realized strategy is what the top management actually translates into practice. – Influential stake-holders back out.

this is not to be treated as “muddling”. However.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. but as a defensible response to the complexities of a large organization that mitigate against publicizing goals. 35 . but the master scheme of the rational comprehensive scheme is not apparent. They simply unfold the particulars of the sub-system in stages. Learning is an integral part of logical incrementalism. Strategy formulation and implementation are linked together in a continuous improvement cycle.

Leveraging Crisis – A sudden crisis or an opportunity should be used as a trigger to facilitate acceptance and implementation of change. Adaptation – As implementation progresses.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. 36 . Agent of Change – Formal ratification of a change plan through MBO. The broader objective should serve the overall interest of the organization.

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

42 . It is exploratory in nature. Environmental scanning is very important component of strategic planning. resources and ideas move unhindered. not guided by any boundaries. The segments of the environment a top manager scans selectively depends upon his dominant logics. The world is flat. events.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. and influences that affect an organizations way of doing things. Environmental factors can be external as well as internal to the organization.

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

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

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

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

Survival of the fittest MNC Onslaught – Enhancing stakes – Power Equation – Joint Ventures – Technological Alliances – Take-over threat. 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 .

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

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

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

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

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

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

Tata). 54 . dominant or related diversified or unrelated diversified businesses (Infosys. Reliance). Cohesiveness – Degree of bonding existing across affiliated firms. Inertia – Excessive commitment to past strategies prevents firms from tapping emerging opportunities. 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.FIRM ENVIRONMENT      Size and Scale of Operations – It is a very important component of competitiveness in today's global context (Bharti – MTN.

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

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 .

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 .EXPERIENCE CURVE .

EXPERIENCE CURVE .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 .

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

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 .

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

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

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

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

Stages in ETOP analysis – List the aspects of the environment that has a bearing on the organization. scenario analysis). Strategic responses (including adaptation) to opportunities and threats is critical for survival and success. 65 .e. 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. time series.ETOP       Acronym for Environment – Threat – Opportunity – Profile. Forecasting – Predict the future (i. Assess the extent of impact of the factors.

selectively. . An organization can draw upon the experience of its peers in similar situations. 66 Vertical integration is a powerful strategy. Some key findings on major performance drivers that explains 75% deviations in performance – Product quality and relative market share. High investment intensity acts as a drag. It is also a form of assessing vulnerability through longitudinal analysis. Relative attractiveness of the market.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.

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

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 .

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

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

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

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. 73 .GROWTH .

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

– Stretches product life cycles. – Moves across geographical boundaries. – Unconventional and flexible distribution channels. Du Pont – Nylon: parachutes. upholstery. (Eg. socks & stockings. fabrics.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.…… or Teflon: aircraft technologies to cutlery to paints or Raytheon Corp – Microwaves: radars to kitchen appliances). 75 . – Immense customer reach & flexible advertising. tyres. – Creativity and innovation – thinking out of the box. carpets.

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

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

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

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

A firm produces part of its own requirements and buys the rest from outside suppliers with a variable degree of ownership and control. and out-sources the noncore activities (Eg.A firm gets most of its requirements from one or more outside suppliers that is under its partial control through value chain partnerships (Eg. Quasi-integration . Maruti – Sona Steering). 85 . Dr. Reliance). Tapered integration . Usually the firm concentrates on its core activities.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. Ranbaxy. Reddy’s).

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 .

e. – Cost of dysynergy (i. myopia). and are also strategically dissimilar.e. synergies pulling in opposite directions). core business). – Cost of neglect (i. Firms usually engage in conglomerate diversification when emerging opportunities are very attractive and offers potential growth opportunities. – Cost of ignorance (i. lack of strategic intent. 87 . 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.e. Drawbacks of unrelated diversification – – Cost of failure (i.

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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 .

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

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

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

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

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

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

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

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 .ARTHUR’ D.

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 .

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

BUSINESS STRATEGY & COMPETITION 108 .

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

involving harmonizing and integrating multiple streams of technologies. leveraging (Prahalad). Delta Lock In – Two dominant players co-opt to selfreinforce and create or escalate an entry barrier. developing competitive advantage (Porter). identifying critical success factors. Resource Based View – Obsession with competence building. 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. Blue Ocean – Consciously moving away from overcrowded industries to uncharted territories and making competition irrelevant (Kim & Mauborgne).

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

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

A focuser seeks to achieve a competitive advantage in its target segment.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. Mont-Blanc. Armani). though it may not possess an overall competitive advantage. Cartier. The target segment must have unusual needs or the delivery system catering to this segment must be unique. Sub optimization alone may not be a source of superior performance. Rolex. Maybach. coupled with fear of structural erosion. 113 . They are poorly served by mainstream players.

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 .

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

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

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

Eg. Air Conditioning. Consumer durables. Government regulations in the form Eg. Scope for players to change the rules of the game. MRTP may also cause fragmentation. High exit barriers because of huge investment in CAPEX. Paints. leading to clear fragmentation. Eg. because of lack of economies of size and scale. Diverse customer needs. Eg.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). 118 . It is characterized by – Low entry barriers. Retail and telecom. IT.

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

scooters. Nature of competition extremely high. Firms facing a declining phase are characterized by inertia and slow to react to environmental changes. dot-matrix printers). 120 . backed by corporate espionage. Learning abilities have been stunted and firms adverse to investment in R&D and make fresh investments. (Eg. Exit barriers are extremely high because of limited prospective buyers. with little or no signs of recovery. and costly price wars. Typewriters.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.

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

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”. However. Intangible – These refer to goodwill. They are a standard in nature. brands. 122 . positions based on resources which are unique and inimitable are far more sustainable even in the long term. A firms resources can be classified into – Tangible – These refer to real assets. patents.RESOURCE BASED VIEW    Differentiation based on cost or products saturates and ceases to exist beyond the medium term.

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

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

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

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

An unbiased game is one where both the players have equal chances 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 .BIASED AND UNBIASED GAME  A game is said to be biased when one of the players have a disproportionate chance of winning.

PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy. A saddle point is a situation where both the players are facing pure strategies. Firm Y’s Strategy 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 .

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

– Building incentives for customer loyalty.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. 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. but 136 players do not always behave rationally. . It results in a shift in the productivity frontier. Game theory relies on the principle of rationality.

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

while control is very effective. at the cost of sacrificing a lesser degree of control. formulation & implementation can occur simultaneously. learning levels are very low. Some of the key strategic learning's exists at the contact point between the organization and its customer. In such a situation.e. 144 . effective strategies are better crafted when there is a subtle overlapping between the two (i.FORMULATION Vs IMPLEMENTATION      Traditionally. 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). learning levels are very high.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

because most often they are culturally embedded and often neglected. the soft S’s (skill. structure. While the American co’s focuses on the hard S’s. Consider the 4P’s of marketing or 3R’s of SCM. systems) are comparatively easy to identify and influence. shared values) are very malleable and comparatively more difficult to identify & influence. A choice of an alphabet often limits the scope and skews the interpretation of a model. Ineffective in case of a virtual company. staff. In contrast. 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.

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

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

.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. There is no funding or equity participation from the alliance partner & both the firms continue to operate independently. 163 It is a form of competitive collaboration. It has limited intervention power and usually lacks holistic commitment from the alliance partner. Alliances are usually in the areas of technologies or markets (Eg. Tata Motors & Fiat). Alliances are usually short-lived and disbanded once the purpose is achieved.

A comprehensive MOU is essential. Selecting the right partner is critical for success. Degree and extent of management control must be clearly 164 laid down. leaving minimum scope of overlapping. It is a win-win situation for both the companies.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. Tata – AIG.Honda). (Eg. Dominant logic of both the companies should be complimentary. Hero . .

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

Corus). Instant access to capacities and markets. Most countries have stringent laws that prevents hostile take over. Larger geo-graphical diversity. Consolidation in a fragmented industry.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. Inform SEBI / Stock Exchange after 5% stake is 166 acquired. Tata Steel . often the new firm is “left alone”. Make a public offer of not less than . Integration of organization structure & cultures is difficult.

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

TYPES OF BENCHMARKING
Functional – Used by companies to improve a particular management activity. Eg. Motorola learnt delivery scheduling from Domino’s. Process – Improving specific key processes and operations from experiences in similar businesses. Eg. Ford adopting assembly lay-out plan of Toyota. Competitive – It involves assessing the sources of competitive advantage and imitating them. Eg. Samsung leveraging miniaturization skills of Sony. Strategic – It involves assessing business models and replicating them in a different market. Eg. Reliance replicating AT&T business model.
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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.
172

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

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.LIMITATIONS     More and more companies benchmark.BENCHMARKING . It does not shifts the growth 175 trajectory of the industry as a whole.e. clustering). It can at best complement it. . the more similar they end up looking. Benchmarking is useful for bringing about operational efficiency. While strategy is all about differentiation and not looking alike. Strategy is more of creating best practices rather than copying them.

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

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

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

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

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

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

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

TQM . 184 .STRATEGIES    Outsourcing – It is the process of self-contracting services and operations which are routine and mundane. enabling the firm to concentrate on core activities essential to customer satisfaction. saving precious top management time.e. 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. equal participation). 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. It is based on the principles of MBO (i. 6-Sigma).

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

CONCEPTUALISATION     A company’s performance depends on how it measures performance. 186 . rather than effects. 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.BSC . These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static. 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. Organizations need to move from financial to strategic performance.

because they have too many. 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. 187 .  The most critical element of a BSC is to measure these four dimensions.BSC – KAPLAN & NORTON (1992)  A BSC helps a manager to track and communicate the different elements of company’s strategy. and distinguish strategic problems from operational ones.

e.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. of visits or calls made % of NPA’s 188 . ageing schedule) % of key customer transactions Ranking of key customer accounts 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 times covered in media No.

of product innovations 190 . 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.

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

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 .

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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.CAPITAL RESTRUCTURING     Capital Restructuring .3 billion. Tatas take-over of Corus for US $11.The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. involving 608 pence per share). Wipro). 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.

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

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

208 . thumb rules) of the top management. The dominant logic represents the perceptions and biases (i. Strategy change is unviable without a preceding change in its dominant logics.e. The longer the period.e. as strategies are based on such beliefs and biases. Dominant logic becomes deep-rooted in organizational contexts depending on the period it is in place (tenure of the CEO). the more difficult it becomes to uproot the paradigm (i. inertia).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.

e. In most organizations. 20% of the people carry out 80% of the changes). 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. Companies achieve real agility only when people at every level rise above the ordinary to face the challenges – revitalization or transformation. 209 .FORCES AGAINST STRATEGIC CHANGE     The problem with strategic change is that the whole burden typically rests on few people (i. the factor that stifled change & performance was – culture.

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

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

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 .

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. While the first strategy produces results instantaneously. down-scoping or asset stripping. 213 . 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. reverse engineering and regenerating.NUMERATOR & DENOMINATOR MGT     Most firms across emerging markets undergo strategic discontinuity and as a result are forced to restructure their businesses.

TURNAROUND MANAGEMENT 214 .

. January 1997).. – Only seven of the first fifty Indian business groups in 1947 were even in business by the turn of this century.. still exist as on 2005. – Less than 10% of the Fortune 500 companies as first published in 1955. 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...WHY TURN AROUND MANAGEMENT?  Some interesting insights . Source:  Why do firms atrophy? (Business Today..

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

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

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

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

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

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

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

TRANSITION     Transition usually reflects the first signs of recovery. lead – lag).e. participative management (i. role model. Sustenance is the key factor in this stage. substantial amount of time usually passes before results begin to show (i. 223 .7 years with a range of (4-16) years. However. Effective levers of transition. However. Support from all the stake holders through resource commitment. consensus). The top management has a key role to play through empowerment. Empirical studies show that average time is 7. many a times early signs of recovery fades out. confidence building measures. transparency.e.

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

Switz Foods. Titan Inds. owners of the brand Monginis allows its franchisees to sell its confectionary products. 227 . It is an effective strategy to penetrate markets in a shortest possible time at a minimum cost. Branding is critical to franchising.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 Tanishq allows its franchisees to sell its jewellery products.

Become a systems integrator (CKD). refine processes and adopt necessary technologies (SKD). 228 . as in Tata Indica. 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. Develop a product through its crude stage.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.

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

otherwise it 230 becomes routine outsourcing. Continuous sharing of knowledge is critical to the success of a supply chain partnership. 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. . 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. link their capabilities to create value for end users.

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

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

Differences in level of economic development can produce differences in alliances motives. 233 . – Japan Vs US). Too much stress on financials & structure be avoided. 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. Cultural orientation has been found to have a profound effect on top management’s strategic orientation (Eg.

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

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

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

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. It may also be linked to deterring entry or eroding competitors position. in addition to a high degree of asset specificity. Organizational Learning – It is a means through which a firm learns or seeks to retain their capabilities. 237 .JOINT VENTURE – GENERIC MOTIVES     Transaction Cost – The situational characteristics best suited for a JV are high performance uncertainty. Strategic Behaviour – Firms may override transaction costs.

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

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

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

MERGERS & ACQUISITION 241 .

242 .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. Ranbaxy . 2002). Most countries have stringent laws that prevents hostile takeovers (Eg. Brooke Bond – Lipton).Daichi) and hostile if it is without the consent of the management (Eg. reverses are also taking place through LBO) with a view to acquire conglomerate power and induce synergy (Eg. HLL – Tomco). Mittal Arcelor). however. An acquisition is the purchase of a firm by a firm (of larger size. The larger objective is to leverage on size. SEBI Takeover Code. An acquisition is said be smooth if it is with the consent of the management (Eg.

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

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

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.Kelvinator). Godrej. Conglomerate – It involves integration of two distinctly unrelated businesses. Electrolux . Reliance). The type of merger is depends on the degree of relatedness (strategic) between the two businesses. usually opportunistic (Eg. Horizontal – It involves integration of two highly related businesses (Eg. 245 . ITC). Vertical – It involves complimentarily (partially related) in terms of supply of inputs or marketing activities (Eg.

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

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

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

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

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

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

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. – Vertical Synergy – Gains come from controlling the supplychain and savings in transaction costs. – Conglomerate Synergy – Gains come when one firm complements the resources or capabilities of another (Eg. Synergy can be negative as well. or from increased market power which increases sales and margins. when the “fit” between the two entities is very poor. Sources of operational synergy – Horizontal Synergy – Gains come from economies of scale which reduces costs. 252 .

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

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

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

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

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

which disappears once assets are liquidated and significant portion of debt is paid off. – Cost of debt coming down (i. – It is a temporary phenomenon. co-insurance effect). – Managers cannot be trusted to invest free cash flows wisely. – Cash trapped company unable to utilize opportunities. – Debts repaid off from increased value after successful restructuring and wresting management control. 258 .e.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).

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

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

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

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

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

East India Hotels – Reliance Industries – ITC). thus thwarting the raider company’s attention. Green Mail – The targeted company buys large blocks from holders either through premium or through pressure tactics (Eg. 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. Shapoorji Pallonji). 264 . 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.

COMPETING FOR THE FUTURE 265 .

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

declining margins. most often they ended up cutting corporate muscle as well and became anorexic.THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. falling market share). decluttering. 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 . Thus efficiency was grievously hurt. Not knowing when to stop. downsizing). CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering.

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

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

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 .

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

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

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

We are in the midst of a 3600 vacuum. is the ability to imagine in a different way what the future could be. as on their aspirations. As there is no one future. The farther one can see in this endless space. but hundreds. the farther it will be away from competition. 274 . each point in space represents a unique business opportunity. What distinguishes a leader from a laggard. 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.

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 .

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

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

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

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 .

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

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

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

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

low group scale in developed markets and vice versa for emerging markets). high feminity index in developed markets and vice versa for emerging markets).It reflects the disparities in women in workforce (Eg. low risk profile in developed markets and vice versa for emerging markets). low power distance in developed markets and vice versa for emerging markets). 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. Group Scale .It reflects the relative role of team building (Eg. Feminity Index .

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

however.GLOBAL BUSINESS ENVIRONMENT    Time Sensitiveness – Developed country managers regard time as precious. High levels of ethnocentrism usually has a negative effect on business. Other factors – local celebrations. and vice-versa. Ethnocentrism – Developed country managers tend to regard their own culture as superior. 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. in most emerging markets meetings are delayed and lasts unusually long. time-zones. 294 .

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

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

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

the gain of one country is loss of another). It is short-medium term with comparatively low levels of commitment. 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.e.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. hot money). – FDI (transfer of tangible resources) is slow but steady for the purpose of economic growth.

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

debt is cheap in US. .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. 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 . equity is cheap in India).India) may be different from that another trading country (US – GAAP or IRS). Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg.

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

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

CONTEMPORARY TOPICS 303 .

Innovation is the most preferred strategy today to maintain competitive advantage in the present turbulent business environment. Innovation is all about staying ahead of competition. innovation is the first attempt to carry it out in practice. While innovation typically adds value for organizations. it has destructive effects as well. 304 . but has inherent risks involved as well.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.

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

SEBI Report – 2005. the US government passed the Sarbanes – Oxley Act.ORIGIN & CONTEXT    Since the early 20th century since a large part of public funds were held by publicly traded firms in the US. various laws were enacted to ensure proper usage of these funds. After the Enron downfall. 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. . 2002 to restore public confidence in corporate governance.

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

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

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

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. The size of the premium varied by market. Egypt and Russia) to around 40% for Canadian & European companies. undertook formal evaluation of its directors. and was responsive to investors' requests for information on governance issues.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. 318  .

Therefore. Over a period of time. 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. However. 319 . the short-term view of profit maximisation gave way to a more broader and mediumterm view wealth maximisation of the shareholders. The basic premise is that firms cannot exist in vacuum. today economic institutions are considered as a major drivers of improvement in quality of life in general and therefore needs to include multiple stakeholders.

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

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

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

323 . C. They represent an enormous opportunity for companies who learn how to serve them. Prahalad notes that future markets exist collectively. In turn companies by serving these markets.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. across the world's billions of poor people having immense untapped buying power. K. they're helping millions of the world's poorest people to escape poverty.

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

. Company & industry are the wrong units of 330 strategic analysis. History indicates that blue oceans exist in three basic industries – automobiles (how people get to work) – computers (what people use at work) – entertainment (what people do after work). They are not necessarily about technology. Incumbents often create blue oceans within the ambit of their core business. managerial moves are. 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.

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 .BLUE OCEAN .

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 .

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

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