BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

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

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

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

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

. As it brings 37 with it a different dominant logic. Dominant logic’s are very rigid and sticky and prone to inertia. Strategic transformation becomes smooth through a change in top leadership. Dominant logic’s are the cornerstones of change when strategic transformation is apparent. 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.

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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 . Mergers & Acquisitions 47   .

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

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

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

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

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

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

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

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

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 .

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

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 .

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

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

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

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

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

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

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

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. 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.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

dominant. It reflects the customer needs it intends to satisfy. 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. unrelated) and geographical scope (local. It provides broad direction to the groups vision and mission. related.GRAND STRATEGY       It is concerned with the overall business scope (single.CORPORATE . national. 70 . It determines the locus a firm encounters with internal and external environment.

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

The key task before a top manager is to identify the right problems. nor is to a define a problem for others to solve. 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. will help the firm achieve its intent. To identify the right problems. For an optimal choice the following four issues need to be resolved – Is the strategy clearly identifiable? Is it consistent with the resources of the firm? Will it be able to exploit the opportunities in full? Is it in tune with the values and beliefs of the firm? 94 . if addressed. managers need to ask the right questions.

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

A focuser seeks to achieve a competitive advantage in its target segment. Maybach. coupled with fear of structural erosion. Mont-Blanc. 113 . Armani). They are poorly served by mainstream players.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. though it may not possess an overall competitive advantage. 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. Rolex. Cartier.

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 .

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

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

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

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

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

with little or no signs of recovery. 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. Exit barriers are extremely high because of limited prospective buyers. and costly price wars.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. Typewriters. 120 . (Eg. Nature of competition extremely high. backed by corporate espionage. dot-matrix printers).

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

brands.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. However. and complex learning experiences in integrating and harmonizing technologies (distinctive capabilities) that play an important role in delivering competitive advantage through “causal ambiguity”. They are a standard in nature. Intangible – These refer to goodwill. patents. hence very rarely confer competitive advantage as can be easily acquired or replicated. positions based on resources which are unique and inimitable are far more sustainable even in the long term. 122 .

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

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

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

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

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

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

– Making pricing more transparent. It results in a shift in the productivity frontier. but 136 players do not always behave rationally. Game theory relies on the principle of rationality. – 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. 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

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

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

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

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

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

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

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

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

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

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

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

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

low strategic fit due to consultants intervention. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy.BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas. “If you cannot . difficult to translate into practice. 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.

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

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

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

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

because most often they are culturally embedded and often neglected. Consider the 4P’s of marketing or 3R’s of SCM. A choice of an alphabet often limits the scope and skews the interpretation of a model. structure. shared values) are very malleable and comparatively more difficult to identify & influence. style. systems) are comparatively easy to identify and influence. staff. In contrast. 160 . While the American co’s focuses on the hard S’s.A CRITIC OF THE 7S MODEL     While the hard S’s (strategy. the soft S’s (skill. Ineffective in case of a virtual company. 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 .Low Take Overs 161 .STRATEGY IMPLEMENTATION ROUTES Strategic Fit .

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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

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

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

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

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

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

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

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

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

Focus more on causes.CONCEPTUALISATION     A company’s performance depends on how it measures performance. In today’s context when organizational systems have become complex and multi-directional we need to have a holistic view of performance to cut the lag effects. 186 . 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. Organizations need to move from financial to strategic performance.BSC . These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static.

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

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

of new product launches Vs competition Product pricing Vs competition 189 . 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 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 .LEARNING PERSPECTIVE GOALS Technology Manufacturing Focus Timing MEASURES No.

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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

Successful transformation requires – incorporating employees fully into the process – leading from a different place so as to maintain employee involvement – instill mental disciplines that will enable employees to behave differently. In most organizations.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.e. 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.

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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. – Japan Vs US). Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology. 233 . Too much stress on financials & structure be avoided. Differences in level of economic development can produce differences in alliances motives.

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

Conglomerate – It involves integration of two distinctly unrelated businesses. Electrolux . usually opportunistic (Eg. The type of merger is depends on the degree of relatedness (strategic) between the two businesses.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. Reliance). ITC). 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. 245 .Kelvinator).

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

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

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

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

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

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

when the “fit” between the two entities is very poor. – 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 .VALUING OPERATIONAL SYNERGY  Synergy – It refers to the potential value gain where the whole is greater than the sum of the parts. Sources of operational synergy – Horizontal Synergy – Gains come from economies of scale which reduces costs. Innovative product – Good distribution network). Synergy can be negative as well. or from increased market power which increases sales and margins.

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

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

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

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

 However.access to financial markets. – Increased information needs.TO GO PUBLIC OR NOT?   However. 257 . on-going valuation. – Separation of ownership from management. A research study showed that 30% of the publicly listed firms reported above average returns after going private. the advantages of going public includes . liquidity. – The need to satisfy analysts and shareholders. 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.

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

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

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

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

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

Rights). 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. Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg. 263 . so that nothing is left for the raider to strip off. Asset Stripping – The targeted company hives off its key assets to another subsidiary.

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

Rate Uncertainty – A single currency eliminates the risk of competitive devaluations. 297 .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. Trade Block – It will strengthen the EU identity which would not have been possible otherwise. but it may have spill-over effects. However. a multiple currency is preferable where the business cycles of member nations are different. Transparency – A single currency is transparent and competitive.

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

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

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

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

Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II). Bosch spark plugs are used by car manufacturers worldwide). 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. Outsourcing – A company having a core competence may be the source of global outsourcing (Eg. reduce power costs) vis-à-vis infrastructural bottlenecks.

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

In most emerging markets where the IP climate is not so favorable. 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. The most preferred strategy of internal protection includes imbibing “causal ambiguity” in the production process to make reverse engineering difficult. companies are increasingly relying on internal protection to sustain innovation effects. 311 311 . Collusion with the judiciary is also another distinct possibility in emerging markets.

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

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

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. 2002 to restore public confidence in corporate governance. SEBI Report – 2005. defines corporate governance (headed by Kumar Mangalam Birla) as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the 314 shareholders. . After the Enron downfall.

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

They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting. Independence of the entity's auditors: Identification. assessment and mitigation of risks and retirement by rotation over a fixed period of time.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. 316 316 ..

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

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

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

economic and social responsibilities cannot be mutually exclusive. Therefore. the debate on CRS still continues whether firms should detract its focus from its business? 320 . However. “an enterprises decisions and actions being taken for reasons at least partially beyond its immediate economic interests”. giving a very important message that one cannot exist without the other. Therefore. 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. “a healthy business cannot exist in a sick and impoverished society”.

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

and extended producer responsibility (Eg. Exide – Product take back).Paper packaging. Aditya Birla Research Centre – LBS).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. Cement . Refrigerators – CFC.   322 . Education. designing eco-friendly products. Tata Steel – Life Line Express). Literacy & Training Programs – (Eg.

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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 .

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

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

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

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

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

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

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