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.
1

INTRODUCTION

2

STRATEGY - DEFINITION

 

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

 

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.
4

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.
5

STRATEGIC MANAGEMENT FRAMEWORK

Fit

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

Fit

Fit

Fit
6

Management

Technological

Strategic

Operatio n

Political

HR

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

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

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

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

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

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

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

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 .

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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 .

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. To put it more simply. strategic variety) is apparent. 23 .e. it can be perceived as a set of working rules (similar to thumb rules) that enables the top management to decide what can be done and more importantly what cannot be done. Dominant logic changes. It is core to the strategic intent of the firm. when radical changes in the internal and external environment (i.

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

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

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

It enables the firm to define its business landscape and identify its competitive forces. Although the purpose may change over time. A broad mission statement helps in fending competitors. its reason for existence.MISSION Mission defines the space that a business wants to create for itself in a competitive terrain.  27 .  It serves as a road map to reach the vision.  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.

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

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

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

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

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 .

– Using covert tactics to pursue self interests. – Creating a favourable image. – Distorting information to gain mileage. 33 .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. – Hiding vulnerability. – Developing a platform of support. Some instances of organizational politics – Formation of powerful groups or coteries. – Creating obligations of reciprocity.

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

but also to analyze the complex linkages across them.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 not intended to be used as an exhaustive list. It is important not only to identify the structural drivers of change. which may be different from the past impact. for which a holistic picture is required. 43 . It is particularly important that PESTEL be used to look at the future impact of environmental factors. Understanding the composite effect is critical.

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It enables the top management to draw focus. 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 . KSF helps organizations spot early opportunities and convert them into value adding business propositions.KEY SUCCESS FACTORS (KSF)     KSF relates to identification and putting concentrated effort on a particular activity or process which forms the very basis of competitive advantage.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

GROWTH . 73 .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.

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

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

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

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

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

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

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

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

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

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

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

where 100% of the assets (including intangibles) are valued and paid for.ROUTES    Outright Sale – Popularly known as the asset route. 90 . where the equity is allotted amongst the existing shareholders on a pro-rata basis. (Eg. (Eg. 1956 does not permit this mode. Sale of Diamond Beverages to Coca-Cola for US $ 40 million). Hive-Off – A hive off is the creation of a new entity followed by transfer of assets. However.3 billion. the Companies Act. Leveraged Buy-Out (LBO) – Here the company’s shareholders are bought out through a negotiated deal using borrowed funds.DIVESTMENT . involving 608 pence per share). Tatas buy-out of Corus for US $ 11.

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent. What then is the magical number? 93 . 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. Dominant logic enables top managers to selectively scan the environment and make trade-offs. In most cases the trade-off is between resources and opportunities.

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

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

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 .

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

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

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

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

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

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

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 .

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

111 . preferential access to raw materials. backward integration. Nirma. 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. Steep experience curve effects. Compress project duration through crashing. The firm may retain the benefits of cost advantage by enjoying higher margins (Eg. proprietary technology. Locational or early entry advantage. Ayur.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. T-Series).

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

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

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 .

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

116 .stuck in the middle. It will have a competitive disadvantage vis-à-vis a clearly positioned generic player. It tries to compete through every means. leading to what is called – straddling. unless such a player is capable of discovering a profitable segment. Industry maturity will usually widen the gap.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 . The positioning therefore gets – blurred. but achieves none. It is usually the result of a firm not willing to make trade offs.

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

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

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

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

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

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

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

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. . 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. but 136 players do not always behave rationally. – Building incentives for customer loyalty. It results in a shift in the productivity frontier.

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

In such a situation. In such a situation. learning levels are very high. emergent strategy vis-à-vis intended & realized).FORMULATION Vs IMPLEMENTATION      Traditionally. learning levels are very low. formulation & implementation can occur simultaneously.e. strategy formulation and implementation has been perceived to be distinct & independent. while control is very effective. In fact. effective strategies are better crafted when there is a subtle overlapping between the two (i. 144 . 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. According to Mintzberg.

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

146 . minimum requirement). machines) referred to as threshold resources (i.RESOURCE ALLOCATION     Resources allocation includes tangible resources (Eg. Intangible resources (Eg. skills) also includes complex resources like capabilities and competencies. land. patents. Performance Budget – SBU managers need to justify the distinctive resources in terms of the opportunity it is pursuing yields the highest possible pay-offs. 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.e. brands. labour.

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

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

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

leading to a tall structure.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. facing challenges & crises. It includes the desire for independence. 150 . structures are becoming flatter and more simpler. Technology – With more and more convergence of technologies in business. Environment & People – Economic and political conditions have a major bearing on structure coupled with the attitude and aspirations of the people in the organization. assuming responsibility. as span is broader.

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

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

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. detecting changes in the external and internal environment and taking corrective action wherever necessary. . competitive advantages becoming disadvantages? Has the company acquired any new competency? Has the company been able to overcome the 153 environmental threats.

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

Performance measures are defective – What to evaluate against? How to measure the 155 construct? As a saying goes. low strategic fit due to consultants intervention. “If you cannot . difficult to translate into practice. Strategy not linked to resource allocation & capabilities – Lacking commitment of top management.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.

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

BACKGROUND & ORIGIN  The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony Athos in 1981. 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. At around the same time in the US Tom Peters and Robert Waterman were exploring what made a company excellent. The 7-S model was born at a meeting of these four authors in 1982. and was taken up as a basic tool by the global management consultancy company McKinsey. 157 . It appeared also in "In Search of Excellence" by Peters and Waterman.

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

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

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

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

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

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

leaving minimum scope of overlapping. . (Eg. Selecting the right partner is critical for success. It is a win-win situation for both the companies. Dominant logic of both the companies should be complimentary.Honda). Tata – AIG. Hero . A comprehensive MOU is essential. 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.

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

TYPES OF BENCHMARKING
Functional – Used by companies to improve a particular management activity. Eg. Motorola learnt delivery scheduling from Domino’s. Process – Improving specific key processes and operations from experiences in similar businesses. Eg. Ford adopting assembly lay-out plan of Toyota. Competitive – It involves assessing the sources of competitive advantage and imitating them. Eg. Samsung leveraging miniaturization skills of Sony. Strategic – It involves assessing business models and replicating them in a different market. Eg. Reliance replicating AT&T business model.
171

HOW TO BENCHMARK?

Phase 1: Planning – What to benchmark? Whom to benchmark? – Identify key performance indicators & Data source. Phase 2: Analysis – Assessment of performance gaps. – Predict future performance levels. Phase 3: Integration – Communicate findings and gain acceptance. – Establish functional goals and its implementation. Phase 4: Action – Implement and monitor progress. – Measure results against stakeholder wants and needs. – Recalibrate or outperform benchmarks.
172

WHOM TO BENCHMARK?

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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

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

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

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

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

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

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

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

186 . In today’s context when organizational systems have become complex and multi-directional we need to have a holistic view of performance to cut the lag effects.BSC . These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static. Organizations need to move from financial to strategic performance. Focus more on causes. rather than effects. Most managers tend to rely on traditional measures of performance having its origin in finance as they are well tried and tested.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.  The most critical element of a BSC is to measure these four dimensions.BSC – KAPLAN & NORTON (1992)  A BSC helps a manager to track and communicate the different elements of company’s strategy. 187 . because they have too many. and distinguish strategic problems from operational ones.

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

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

of product innovations 190 .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.

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

STRATEGY MAPPING 192 .

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 .

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

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. . but also sustains it. not only thrives. Porter 196 .Michael E.

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg.The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. 205 . Tatas take-over of Corus for US $11.3 billion. Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt. Wipro).CAPITAL RESTRUCTURING     Capital Restructuring . involving 608 pence per share). It provides greater leverage as well as management control.

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

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

the more difficult it becomes to uproot the paradigm (i. thumb rules) of the top management. 208 . The longer the period. as strategies are based on such beliefs and biases.e. The dominant logic represents the perceptions and biases (i. inertia).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. Dominant logic becomes deep-rooted in organizational contexts depending on the period it is in place (tenure of the CEO).

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

e. Hike – An acquirer who has already picked up a 5% has to make a mandatory disclosure for every additional 1% stake that it acquires. 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.SEBI TAKEOVER CODE. 2002      Promoter – A person who has a clear control of atleast 51% of the voting rights of the company and confidence of all the major stakeholders. 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    Pricing – Acquirers will have to offer minority shareholders (at least 20%) the past 26 weeks or past 2 weeks average price. the SEBI can intervene and block share transfers if: the acquirer has ulterior motives (i. whichever is higher as an exit route (Eg. credentials or track record is at stake. 244 . Gujarat Ambuja – ACC). and/or does not enjoy the confidence of the different stake holders.SEBI TAKEOVER CODE. SEBI – In case of a hostile take over.e. asset stripping). 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. Grasim – L&T Cement.

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

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

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

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

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

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

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

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

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

254 . – Coupon rates may also be negotiated at lower rates. It relates to the concept of diversification. as risky debt is spread across the new firm's operations. hence better performance. higher leverage. the cash flow the merged firm will be less variable than the individual firms. – Default risk comes down and credit rating improves. 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.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.

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

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

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

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

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. – Increase equity valuation. A LBO has to pass two tests to be viable – – Restructuring to pay-off increased debt. leverage is expected to decrease over time. initial rise in leverage is anticipated. 259 . As the firm liquidates / pledges assets and pays off debt.EFFECT OF HIGH LEVERAGE      Increases the riskiness of dividend flows to shareholders by increasing the interest cost to debt holders.

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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

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

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

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

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

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

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

LEARNING TO FORGET P1: The degree of learning in current period is directly proportional to the degree of unlearning in the previous period. 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 .

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

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

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 .

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

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

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

HSBC). It should think globally. It should have a spread of assets. Characteristics – It should have a spread of affiliates or subsidiaries. revenues and profits. 291 . act locally (Eg.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 manufacturing facilities. It should have a spread of interest groups / stake holders.

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

process innovation is necessary to sustain the competitive advantage of product innovation.      305 . However. 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. process innovations are organizational driven.TYPES OF INNOVATION A key challenge is maintaining a balance between process and product innovations. Process innovation usually follows product innovation. While product innovations are typically customer driven.

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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. 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 aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms.

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

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

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. Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors. including the society at large. The key roles of chairperson and CEO should not be held by the same person and their offices be clearly separated. 315 . Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders.

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

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

Egypt and Russia) to around 40% for Canadian & European companies. McKinsey found that 80% of the respondents would pay a premium for wellgoverned companies. from 10% for companies where the regulatory backdrop was least certain (those in Morocco. who had no management ties. and was responsive to investors' requests for information on governance issues. undertook formal evaluation of its directors. The size of the premium varied by market. 318  .GOVERNANCE & PERFORMANCE In its “Global Investor Opinion Survey” of over 200 institutional investors in 2002. 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. However. Over a period of time. 319 . The basic premise is that firms cannot exist in vacuum.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. Therefore.

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

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

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

they're helping millions of the world's poorest people to escape poverty. Prahalad notes that future markets exist collectively. C. In turn companies by serving these markets. across the world's billions of poor people having immense untapped buying power. K. Strategic innovations leading to disruptive business models can show the way out. 323 . 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.

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

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

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

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

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

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

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

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