Course Code: 611 & 612 Dr. Subir Sen – Faculty Member, IBS
E-Mail:, 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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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.


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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.


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.



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







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

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

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

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

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

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

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

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

– It is primarily the top management’s prerogative.APPROACHES TO STRATEGY  Analytical Approach – Igor H. – 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. 15 . Ansoff (1960) – Strategy can be segregated into certain mutually exclusive and inter-related components aimed at managing the growth of an organization. Learning always begin on a clean sheet of paper. – Biases and prejudices has a very little role to play in strategic choices pursued by managers.

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

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

but exploiting the resource differences among them. 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. They are complex resources and undermines a firms competitive advantage.APPROACHES TO STRATEGY  Core Competence – C. – It enables a firm to deliver unimaginable value ahead of time. 18 . Prahalad (1990) – The key to superior performance is not doing the same as other organizations. K.

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 .


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

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

23 . Dominant logic changes. 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. when radical changes in the internal and external environment (i.DOMINANT LOGIC     A dominant logic can be defined as the way in which the top management team conceptualizes its various businesses and make critical resource allocation decisions. To put it more simply. It is core to the strategic intent of the firm.e. strategic variety) is apparent.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

. – Contexts may vary over time. – 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.LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges. therefore 67 validity may be a question. when radical changes in the economy takes place. Authenticity of data is of prime importance – Contexts drawn across one organization may not be applicable to another.PIMS . As every organization is unique in its own way.

It enables the top management to draw focus. It involves a three-stage process – Identify KSF – What does it take to be successful in a business? Drawing KSF – What should be the organizations response to the same? Benchmarking KSF – How do we evaluate organization success on this factor? 68 .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.


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

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

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

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

(Eg. Ujjala. Nirma.MARKET PENETRATION  It is a strategy where a firm directs its entire resources to the growth of a single product or a closely knit product set. 74 . convert competitors customers. direct non-users to users. – The company carries a risk of product obsolescence. – Elongated product life-cycle. Britannia). – Helps firms which are not comfortable with unfamiliar terrain. Market penetration can be achieved by – increasing sales to current customers. – Suitable for industries where scope for technological breakthrough is limited. within a well defined market segment.

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

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

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

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

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


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.



Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power


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.

Oil & Gas exploration Naptha-cracking Acetic Acid Paraxylene (PX)

Purified tetra-pthalic acid

Mono-ethylene glycol

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


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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.

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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 .

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

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

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

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

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

Typewriters. Firms facing a declining phase are characterized by inertia and slow to react to environmental changes. 120 . backed by corporate espionage. Exit barriers are extremely high because of limited prospective buyers. (Eg. with little or no signs of recovery.DECLINING INDUSTRY      Declining Industry – An industry which has outlived its utility due to the entry of close substitutes and or radical product innovations which results in a shift of the productivity frontier. dot-matrix printers). Learning abilities have been stunted and firms adverse to investment in R&D and make fresh investments. Nature of competition extremely high. scooters. and costly price wars.

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

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

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


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

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

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

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

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

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

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

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

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

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

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

Game theory relies on the principle of rationality.CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. In a market dominated by price-based differentiation one may attempt to change the rules of the game by/when – – Bases of differentiation dependent on clear identification of what customer wants or value. – Making pricing more transparent. but 136 players do not always behave rationally. – Building incentives for customer loyalty. It results in a shift in the productivity frontier. .


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).


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



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.


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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.




   

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.


– Unlearning & learning of new skill sets. – Resource commitment from top management. 143 .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. – Better strategic and operational control. – Changing the rules of the game. internal strategic fit (strategy – dominant logic) is critical to strategy implementation. While external strategic fit (strategy – environment) is relevant for strategy formulation.

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

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

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

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

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

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

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

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

However. To prevent deviation of fit. Deviation of fit is detrimental to performance and may lead to strategic failure. Since the internal and external environment is in a state of continuous flux.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. certain authors propose misfit as a source of superior 152 performance.  .

STRATEGY CONTROL      It is concerned with trafficking a strategy as it is being implemented. competitive advantages becoming disadvantages? Has the company acquired any new competency? Has the company been able to overcome the 153 environmental threats. 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.

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

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

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

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

over time. 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. to reach identified & stated goals. Systems – The procedures. Style – The way in which the top management influences the functioning of an organization. Skills – An organizations capabilities and competencies. processes and routines that characterize how work should be done. 158 .THE 7’S        Shared Values – It represents what the organization stands for and what the top management believes in. Staff – Human inter-relationships. formal & informal .

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

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

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

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

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

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

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

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


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


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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.


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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.

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.


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.


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


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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

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

g. DOS to Windows). The task demands a total change in organisational 176 culture and mindset. process mapping) and eliminating or improving them (E.RE-ENGINEERING     Redesigning leads to identification of superfluous activities or product features (i. Windows 95 to 97).e. .e. for achieving performance improvement (E. clean sheet). Re-engineering involves complete reconstruction and overhauling of job descriptions from the scratch (i. Re-engineering attempts to radically change an organizational products or process by challenging the basic assumptions surrounding it.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. structures. 178 . processes.REENGINEERING . etc) and supports the organization for the present. .LEVELS     Reengineering can be successfully leveraged at all levels of an organization with varying degree of results. customers and suppliers and protects the organization from the future (i. resource allocation and prepares the organization for the future through a reorientation of the entire strategic architecture. products. Business – It looks into markets. It can be of the following types – Functional – It looks into the flow of operations (i. BPR).e. Strategic – It looks into the process of strategic planning.

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

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

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

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

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

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

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

186 . In today’s context when organizational systems have become complex and multi-directional we need to have a holistic view of performance to cut the lag effects. Organizations need to move from financial to strategic performance. Focus more on causes.CONCEPTUALISATION     A company’s performance depends on how it measures performance.BSC . Most managers tend to rely on traditional measures of performance having its origin in finance as they are well tried and tested. rather than effects. These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static.

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

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

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

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

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


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 .

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

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

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


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

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

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

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

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

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

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

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.CAPITAL RESTRUCTURING     Capital Restructuring .3 billion. Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg. involving 608 pence per share). 205 . Wipro).The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. It provides greater leverage as well as management control.

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

Contour – It is easier to reverse decline in the earlier stages through operational measures. 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.RESPONSE DICHOTOMY     The response initiation is somewhat dichotomous and cannot be universally applicable. Untangling this question brings into focus three events – Domain – Many of the strategic cures have limited applicability for an affiliated firm. Similarly new market initiatives is feasible only for multi-product firms.

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

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


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

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

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

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

link their capabilities to create value for end users. Tata Motors – IDEA). . Continuous sharing of knowledge is critical to the success of a supply chain partnership. It usually provides a platform to sort out differences between conceptualization and implementation to suit local market needs. 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. Companies in different industries with different but complimentary skills.

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

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

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

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

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

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

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 . Strategic Behaviour – Firms may override transaction costs. It may also be linked to deterring entry or eroding competitors position. in addition to a high degree of asset specificity. The market fails as sellers are unwilling to reveal their technology and buyers are unwilling to purchase in the absence of inspection. Organizational Learning – It is a means through which a firm learns or seeks to retain their capabilities.

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

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

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


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

2002      Promoter – A person who has a clear control of atleast 51% of the voting rights of the company and confidence of all the major stakeholders. Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview. creeping acquisition).e.SEBI TAKEOVER CODE. 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .


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.


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.



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.



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).



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.



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.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

not present in portfolio diversifications. This exposes the shareholders to additional risks and higher costs. From the strategic point of view managers tend to diversify into unrelated businesses as it provides higher returns hence a more favourable appraisal. 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 . However. shareholders can diversify their portfolio at a much lesser risk and cost. also known as the principal-agent problem or agency dilemma.

2002 to restore public confidence in corporate governance. defines corporate governance (headed by Kumar Mangalam Birla) as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the 314 shareholders. After the Enron downfall. the US government passed the Sarbanes – Oxley Act.ORIGIN & CONTEXT    Since the early 20th century since a large part of public funds were held by publicly traded firms in the US. SEBI Report – 2005. various laws were enacted to ensure proper usage of these funds. .

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

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

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

who had no management ties. They defined a well-governed company as one that had mostly out-side directors. The size of the premium varied by market. McKinsey found that 80% of the respondents would pay a premium for wellgoverned companies. and was responsive to investors' requests for information on governance issues. 318  . from 10% for companies where the regulatory backdrop was least certain (those in Morocco. undertook formal evaluation of its directors.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.

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

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

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

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

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



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

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

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. Demand across developed markets reaching a plateau. Niche markets & monopoly havens are continuing to disappear. Technological advances have substantially 329 improved industrial productivity. As trade barriers between nations & regions fall. . information imperfections atrophy instantly. of European nations.BLUE OCEAN STRATEGY IMPERATIVES       Prospects in most established market spaces – red oceans – are shrinking steadily.

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

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

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

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

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

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