BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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. 11 . Allied Forces Vs Germany (WW-II) – Strategy: Forging alliances. – Toyota’s entry in the US. Napoleon’s attack on Russia – Strategy: Waiting for the right time. – Yahoo and Microsoft challenging Google. – Reliance’s entry into telecom.

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

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

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

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

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

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

APPROACHES TO STRATEGY  Core Competence – C. – Organizations can significantly alter the way an industry functions. locating in most attractive industries and pursuing the same strategy. – Core competencies are a set of skills that are unique and can be leveraged. 18 . Prahalad (1990) – The key to superior performance is not doing the same as other organizations. K. They are complex resources and undermines a firms competitive advantage. – It enables a firm to deliver unimaginable value ahead of time. 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 involves an obsession to be the best or outperform the best. It provides a sense of direction and destiny. A gap that consciously manages between stagnation and atrophy. A substantial gap between its resources and aspirations. A strategic intent is a statement of purpose of existence. you cannot reach there. It is the cornerstone of an organizations strategic architecture reflecting its desired future state or its aspirations. It implies a significant stretch.STRATEGIC INTENT      If you cannot see the future. 21 . It’s a philosophy that distinguishes it from its competitors.

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

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

– It stands for the unchanging core values of the company. It ensures that the company does not wander off into unrelated zones or fall into an activity trap. – It represents the company’s audacious.  24 . but achievable aspirations.VISION It is a dream (not a forecast) about what the company wants to become in the foreseeable future.  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. It enables the top management to remain focused. beyond just making money.

clear. not an utopian dream. and memorizable. 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.VISION . Sharing – The company across all hierarchies should have faith in it.CHARACTERISTICS       Reliance – Where growth is a way of life. Brevity – It should be short. 25 . 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.

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

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

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

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

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

STRATEGIC DRIFT    Due to top management commitment. radical change may lead to disequilibrium. This state of affairs is known as strategic drift. However. equilibrium is maintained. This tendency to restore continuity is known as inertia (resistance to change). past strategies tend to have a bearing on future strategies. In such a context. 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. It often leads to an organizational crisis. 31 .

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

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

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

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

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. Agent of Change – Formal ratification of a change plan through MBO.IMPLEMENTING INCREMENTALISM      General Concern – A vaguely felt awareness of an issue or opportunity. Adaptation – As implementation progresses. 36 . Leveraging Crisis – A sudden crisis or an opportunity should be used as a trigger to facilitate acceptance and implementation of change.

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

It involves a three-stage process – Identify KSF – What does it take to be successful in a business? Drawing KSF – What should be the organizations response to the same? Benchmarking KSF – How do we evaluate organization success on this factor? 68 . It enables the top management to draw focus.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. KSF helps organizations spot early opportunities and convert them into value adding business propositions.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

Inventory Mgt to Logistics Mgt to Supply Chain Mgt (SCM). and enhanced customer tracking – higher market share. VC pay-offs: better product availability. 127 .e. Substantial cost reductions also follow. A VC is often compared with a relay team. Competitive advantage arises not from an individual activity but a stream of inter-related activities. faster product launches. kaizen or internal customer). each of the players need to be efficient backed by sufficient coordination at the contact points (i. 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.

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 .

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

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

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

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

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

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.

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

– Making pricing more transparent. – Building incentives for customer loyalty.CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. but 136 players do not always behave rationally. It results in a shift in the productivity frontier. . Game theory relies on the principle of rationality. 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.

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

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

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

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

machines) referred to as threshold resources (i. skills) also includes complex resources like capabilities and competencies.RESOURCE ALLOCATION     Resources allocation includes tangible resources (Eg. The various methods of resource allocation includes Historical Budget – The budgets framed by HQ for a particular SBU keeping in mind past trends. labour. 146 .e. minimum requirement). Zero Based Budget – In this case the budget of a SBU has to be worked out right from the scratch. Intangible resources (Eg. brands. 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

e. 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. of visits or calls made % of NPA’s 188 .

of times covered in media No.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 .

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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. by identifying forces for and against change. Aspects of current culture which needs to be overcome. Culture and style of management are two main impediments in force-field analysis. also known as cultural-web. It involves identifying – Aspects of current culture which needs to be reinforced. It involves diagnosing a change situation – systems & structures. 211 . Identify and implement facilitators of cultural change.

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

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

TURNAROUND MANAGEMENT 214 .

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.WHY TURN AROUND MANAGEMENT?  Some interesting insights . 215 (Govindarajan and Trimble. – 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... January 1997).

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

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. Some indicators Continuous cash flow crises as a result of dwindling market-share and profits. especially in key positions. leading to lack of acceptability from distributors and customers. Substantial shifts in consumer preferences. Rising input costs. Low stakeholder confidence. 217 . Low employee morale leading to high employee attrition at all levels. suppliers and bankers. Uncompetitive products or services.

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

Companies in different industries with different but complimentary skills. Tata Motors – IDEA). . It usually provides a platform to sort out differences between conceptualization and implementation to suit local market needs.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. Continuous sharing of knowledge is critical to the success of a supply chain partnership. otherwise it 230 becomes routine outsourcing.

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

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

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

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

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

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

237 . Strategic Behaviour – Firms may override transaction costs. though more profitable alternative to other choices.JOINT VENTURE – GENERIC MOTIVES     Transaction Cost – The situational characteristics best suited for a JV are high performance uncertainty. in addition to a high degree of asset specificity. 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. It may also be linked to deterring entry or eroding competitors position.

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

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

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

MERGERS & ACQUISITION 241 .

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

Control – A special resolution of 75% of the share 243 holders approving the change of guard. . 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).SEBI TAKEOVER CODE. Acquirer – Someone (individual or firm) who picks up an atleast 5% stake without mandatory disclosure having an intention to wrest management control (i. 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. Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview.e.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

East India Hotels – Reliance Industries – ITC). 264 . Pac Man – The target company makes a counter bid to take over the raider company. But often the White Knight turns a betrayer himself (Eg. Green Mail – The targeted company buys large blocks from holders either through premium or through pressure tactics (Eg. Shapoorji Pallonji). thus thwarting the raider company’s attention. 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.

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

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

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

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

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 .

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

Feminity Index .It reflects the relative role of team building (Eg. Group Scale . low risk profile in developed markets and vice versa for emerging markets). 292 . low power distance 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. low group scale in developed markets and vice versa for emerging markets).It reflects the disparities in women in workforce (Eg. high feminity index in developed markets and vice versa for emerging markets).

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

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

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

Balance of power: The simplest balance of power is very common. discussed and resolved. with its legal authority to hire. However. safeguards invested capital.GOVERNANCE STRATEGIES    Monitoring by the board of directors: The board of directors. 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. 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.

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

it will exist 327 in the future as well. Blue Ocean’s have existed in the past.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 . rendering rivals obsolete and unleashing new demand. It is only the frames of the . It helps in creating powerful leaps in value for both the firm and its buyers. Such strategic moves are possible through the pursuit of product differentiation and low cost simultaneously.

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 .

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

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

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

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

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

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

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