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

Fit

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

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

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

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

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

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

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

18 . K. – It enables a firm to deliver unimaginable value ahead of time. 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. – Core competencies are a set of skills that are unique and can be leveraged.APPROACHES TO STRATEGY  Core Competence – C. – Organizations can significantly alter the way an industry functions. but exploiting the resource differences among them. locating in most attractive industries and pursuing the same strategy.

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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 .

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

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

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

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

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

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

– It adds legitimacy and motivation. – It lends direction – time frame in the medium term. It provides a quantitative feel to an abstract proposition. – It keeps the mid management pre-occupied. 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 prevents deviation.100K crore company by the year 2005. – It provides a benchmark for evaluation. – It is based on Management by Objectives (MBO). – It helps identifying key success factors. 29 .

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

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

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 .

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

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

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

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

. Strategic transformation becomes smooth through a change in top leadership.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. Tampering with surface level factors often leads to atrophy. Dominant logic’s are very rigid and sticky and prone to inertia. As it brings 37 with it a different dominant logic. It creates blinders.

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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 .

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 . Consumerism Challenges on the technology front – Competencies become technology based – Investment in R&D become inescapable 48 .

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

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 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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. It enables the top management to draw focus. KSF helps organizations spot early opportunities and convert them into value adding business propositions.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

GROWTH .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 .

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

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

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

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

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

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

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

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 .

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

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

DIVESTMENT   Divestment is a defensive strategy involving the sale of entire stake (Eg. It may also involve a SBU (Eg.e. Tata Press). Tatas sale of Goodlass Nerolac. Tata Pharma. It taken into account when performance is disappointing (i. It is may also be a pro-active strategy. In strategy there is no scope for sentimentality with divestment. 89 . ACC) in full to an independent entity. (Eg. Glaxo’s “Glucon-D” to Heinz). L&TCement Division to Aditya Birla Group) technically known as divestiture or a product (Eg. 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.

Tatas buy-out of Corus for US $ 11.3 billion. (Eg. the Companies Act. where 100% of the assets (including intangibles) are valued and paid for. However. 1956 does not permit this mode. 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. (Eg.DIVESTMENT .ROUTES    Outright Sale – Popularly known as the asset route. Sale of Diamond Beverages to Coca-Cola for US $ 40 million). involving 608 pence per share). 90 . Leveraged Buy-Out (LBO) – Here the company’s shareholders are bought out through a negotiated deal using borrowed funds.

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

In most cases the trade-off is between resources and opportunities. 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 .STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent. Dominant logic enables top managers to selectively scan the environment and make trade-offs.

To identify the right problems. The key task before a top manager is to identify the right problems. will help the firm achieve its intent. nor is to a define a problem for others to solve. They must choose problems which will lead to the right kind of opportunities. managers need to ask the right questions.SELECTIVITY IS THE KEY       The role of a top manager is not to solve a problem. 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 . if addressed.

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

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

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

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

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

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

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

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

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

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

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

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

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. Gap Analysis – It emphasizes what a firm wants to achieve. BCG – Boston Consulting Group. Disinvestment involves selling in phases. Portfolio – An organization is perceived as a portfolio of businesses. 107 . SBU – A business unit which is strategically different from another and also shares a different SIC code.

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

– Third order fit refers to optimization of effort. 129 . Fit is important because discrete activities result in negative synergy and can also be easily copied by competitors. 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. – Second order fit occurs when activities are reinforcing amongst them. – First order fit refers to simple consistency between each activity and the overall strategy. A high fit involving a complex chain of activities drives both competitive advantage and its sustainability. Operational effectiveness is not strategy.

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

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

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

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

Firm Y’s Strategy Use Radio +3 +1 Use Newspaper +7 -2 134 Firm X’s Strategy Saddle Point Use Radio Use Newspaper Firm X’s Pay-Off Matrix .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.

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

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.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. – Building incentives for customer loyalty. 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. . – Making pricing more transparent.

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

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. – Unlearning & learning of new skill sets. 143 . – Better strategic and operational control. – Changing the rules of the game. – Development of capabilities & competencies. – Resource commitment from top management. internal strategic fit (strategy – dominant logic) is critical to strategy implementation. A high strategic fit (co alignment) is useful because it enables – – Appropriate and timely response.

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

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

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

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

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

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

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 . 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. It includes the desire for independence. as span is broader. leading to a tall structure. Technology – With more and more convergence of technologies in business. assuming responsibility. structures are becoming flatter and more simpler.

Common sources of 151 inertia – complacency with past successes. there is a tendency to continue along the same lines. Changes in top management and unlearning helps overcome inertia.INERTIA  When a firm has been operating in a certain fashion for a long time. 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. Top managers resist change.e. Most firms undergo periods of strategic continuity rather than strategic discontinuity. Inertia acts as an impediment in strategy implementation.

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

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

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

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

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

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

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

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

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

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

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

It has limited intervention power and usually lacks holistic commitment from the alliance partner.STRATEGIC ALLIANCE     It involves a pro-active collaboration between two or more firms on a particular domain or function for mutual gain. Alliances are usually short-lived and disbanded once the purpose is achieved. Tata Motors & Fiat). Alliances are usually in the areas of technologies or markets (Eg. 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.

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

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

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

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. than people driven Innovative Vs Traditional Customer centric Vs Organisational centric 177 .

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

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

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

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

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

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

STRATEGIES    Outsourcing – It is the process of self-contracting services and operations which are routine and mundane. of units meet preset standards (Eg. 6-Sigma). 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. 184 .TQM .e. It is based on the principles of MBO (i. equal participation). Quality Circles – It a small group of shop-floor employees who meet periodically to take decisions regarding operational problems and crises. enabling the firm to concentrate on core activities essential to customer satisfaction. saving precious top management time.

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

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

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 .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.  The most critical element of a BSC is to measure these four dimensions. because they have too many.

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

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.

LEARNING PERSPECTIVE GOALS Technology Manufacturing Focus Timing MEASURES No. of new patents registered Time to develop next generation products Average and spread in operating cycle % of products that equal 2/3 sales No. of product innovations 190 .

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 .

BSC .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 .

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company. Equity Carve – It involves selling a minority stake to a third party while retaining control (Eg. – Split-Up – In a split-up. 203 . 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. – Split-Off – In a split-off.HIVE OFF   Spin-Off – A spin off is the creation of a new entity. in which the equity is allotted amongst the existing shareholders on a pro-rata basis (Eg. Reliance Ent). Tata Industries selling 20% stake to Jardine Matheson).

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

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

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

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

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

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

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

Identify and implement facilitators of cultural change. 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. also known as cultural-web. that can be both enablers and blockages to change and restructuring. It involves diagnosing a change situation – systems & structures. Culture and style of management are two main impediments in force-field analysis. 211 . Aspects of current culture which needs to be overcome.

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

If the decline stems from structural shifts. If the underlying cause is internal efficiency.RESPONSE INITIATION    Turnaround responses are typically categorized as operating or 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. asset reduction. the response should be operational. 221 . the response should be strategic. The response must match the cause of the decline. Strategic responses focus on changing or adjusting the business the firm is engaged in through long term moves such as – integration. diversification.

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

228 .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. as in Tata Indica. HM manufacturing GM range of cars in India with a buy-back arrangement is a perfect example of CBU. Different levels of licensing Manufacturing without embracing any technology (CBU). Become a systems integrator (CKD). refine processes and adopt necessary technologies (SKD). Develop a product through its crude stage.

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

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

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

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

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

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

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

e. It aims at creating new value (i. There are substantial linkages in the value-chain.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. . a joint venture is a selection among modes by which two or more firms can transact. It lasts till the vision is reached. separation is very 236 bitter. synergy) rather than mere exchange (i. Conceptually.e. combining parts).

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

255 . While value of corporate control is negligible for firms that are operating close to their optimal value. 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. Assessment of perceived quality is critical. The value of wrestling control is inversely proportional to the perceived quality of that management. – – Value of Control = Value of firm after restructuring Value of firm before restructuring. since a restructuring can lead to significant increase in value.

sometimes in combination with the assets of the acquiring company. LBO facilitates a relatively smaller firm to bid for a comparatively larger firm in the bid for management control. It is a very costly and risky proposition.e.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. 256 . Confidence of investment bankers and the international financial community is essential. The assets of the acquired company are used as collateral for the borrowed capital.

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

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

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

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

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

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

Poison Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive. 263 . 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.DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control. Rights). Asset Stripping – The targeted company hives off its key assets to another subsidiary.

DEFENSIVE STRATEGIES     White Knight – It is the placing of stocks to a cash rich investor and bargaining for protection in return. Gray Knight – The target company takes the help of friendly company to buy the shares of the raiding company. East India Hotels – Reliance Industries – ITC). But often the White Knight turns a betrayer himself (Eg. Shapoorji Pallonji). 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. 264 . Pac Man – The target company makes a counter bid to take over the raider company.

COMPETING FOR THE FUTURE 265 .

Wal-Mart overpowering Sears. The reverse was true for the companies overpowering. Nokia overpowering Motorola. Hitachi overpowering Westinghouse. Compaq overpowering IBM. Honda overpowering GM.GETTING OFF THE TREADMILL    Canon overpowering Xerox. British Air overpowering Pan Am. What went wrong???? What were they doing with the present? What were they pre-occupied with? 266 . Honda overpowering Volkswagen. 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. downsizing). Thus efficiency was grievously hurt. Not knowing when to stop. CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. decluttering. falling market share). 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. 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 .

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

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

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 .

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

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

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

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

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

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

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

278 . It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times. It represents the collective learning's of an organization centering around diverse streams of technologies. Leverage – They are the gateways to future markets.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. Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage. It cannot be matched even by its closest competitors.

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

Accounting Norms – The accounting norms of one country (AS .India) may be different from that another trading country (US – GAAP or IRS). Cost Structure – Companies in India need to investment in fixed costs due to poor infra-structure 300 compared to developed markets. equity is cheap in India).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. . debt is cheap in US. Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg.

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

Collusion with the judiciary is also another distinct possibility in emerging markets. companies are increasingly relying on internal protection to sustain innovation effects. however that possibility is slowly atrophying. 311 311 .HOW TO PROTECT INNOVATION?     Without adequate protection (external or otherwise) the effects of innovation does not translate to performance. 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.

In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders. 312 312 .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.

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

. 2002 to restore public confidence in corporate governance.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. 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. After the Enron downfall. the US government passed the Sarbanes – Oxley Act. SEBI Report – 2005.

315 . including the society at large. 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. The key roles of chairperson and CEO should not be held by the same person and their offices be clearly separated. 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. 316 316 . assessment and mitigation of risks and retirement by rotation over a fixed period of time. Independence of the entity's auditors: Identification..GOVERNANCE PRINCIPLES    Integrity and ethical behaviour: Organizations should develop a code of conduct for their top management that promotes ethical and responsible decision making. They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting.

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

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

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

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

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

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

C. In turn companies by serving these markets. They represent an enormous opportunity for companies who learn how to serve them.BOTTOM OF THE PYRAMID    With the market across most developed markets including the US getting saturated. Prahalad notes that future markets exist collectively. 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. 323 .

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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 .

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

managerial moves are.CONCEPTUAL UNDERPINNINGS       Blue oceans have existed in the past and will exist in the future as well. . Incumbents often create blue oceans within the ambit of their core business. Company & industry are the wrong units of 330 strategic analysis. the underlying technology was often already in existence. They are not necessarily about technology. 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).

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. Citibank – Automated teller machines & credit 333 cards. Southwest Airlines: Pioneering the concept of LCC. Sony Play Station: Redefining machine-human interface in entertainment and targeting an altogether new user base.

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

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