BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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

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

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 .

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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

– Developing a platform of support. – Hiding vulnerability. – Distorting information to gain mileage. 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. – Creating obligations of reciprocity. – Creating a favourable image.ORGANIZATIONAL POLITICS  Strategic drift often leads to organizational politics. – Using covert tactics to pursue self interests. 33 .

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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

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

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

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

54 . 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. Resource Profile – It highlights the capabilities (generic) or competencies (business specific) of the firm. Tata). Cohesiveness – Degree of bonding existing across affiliated firms.FIRM ENVIRONMENT      Size and Scale of Operations – It is a very important component of competitiveness in today's global context (Bharti – MTN. Reliance). dominant or related diversified or unrelated diversified businesses (Infosys.

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

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 .

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

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

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

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

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

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

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

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

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

KEY SUCCESS FACTORS (KSF)     KSF relates to identification and putting concentrated effort on a particular activity or process which forms the very basis of competitive advantage. It involves a three-stage process – Identify KSF – What does it take to be successful in a business? Drawing KSF – What should be the organizations response to the same? Benchmarking KSF – How do we evaluate organization success on this factor? 68 . It enables the top management to draw focus. KSF helps organizations spot early opportunities and convert them into value adding business propositions.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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. – Second order fit occurs when activities are reinforcing amongst them. – Third order fit refers to optimization of effort. 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. A learning organization helps create strategic fit. – First order fit refers to simple consistency between each activity and the overall strategy. Fit is important because discrete activities result in negative synergy and can also be easily copied by competitors. 129 .

but not necessarily. It should satisfy the following conditions – Contributes significantly to customer benefits. It forms the very basis of competitive advantage. Core competence has a high degree of external and 130 internal causal ambiguity embedded in it. – Can be sustained even in the long run.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. – Cannot be easily imitated or substituted. – Can be leveraged across businesses. A core competence usually has its roots in technology. .

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

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

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 .

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

RESOURCE ALLOCATION     Resources allocation includes tangible resources (Eg. 146 . land. machines) referred to as threshold resources (i. brands. patents.e. The various methods of resource allocation includes Historical Budget – The budgets framed by HQ for a particular SBU keeping in mind past trends. skills) also includes complex resources like capabilities and competencies. minimum requirement). Intangible resources (Eg. labour. 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.

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

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

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

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

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

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

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.STRATEGY CONTROL      It is concerned with trafficking a strategy as it is being implemented.

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

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. “If you cannot . Strategy not linked to resource allocation & capabilities – Lacking commitment of top management. difficult to translate into practice. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy.

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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 .

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

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

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

– Features – Anti-lock braking systems. 181 .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. – Durability – 1980 manufactured cars still on road. – Perception – Customer notions. – Reliability – Consistency in mileage. Car) – – Performance – Mileage of 14 kms to a litre of fuel. – Conformance – Emission standards .Euro IV. More and more companies are moving towards meeting implied rather than stated needs. – Aesthetics – Appeal in design. Air bags. – Serviceability – Large no.

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

not a final destination. Be customer centric – Generate the concept of internal customer (Ishikawa). Empowerment – It takes place when employees are properly trained. 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. Kaizen – Make continuous improvement a way of life. fully involved in decision-making and fairly rewarded for results. provided with all relevant information and best possible tools.TQM – KEY TENETS     Do it right.

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

it’s bad execution.. – 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) . Source: Fortune Magazine Why CEO’s fail? 185 ... – Efficiency and effectiveness is passé.. strategy implementation has never been more important.......BALANCED SCORE CARD  Some interesting comments ...

rather than effects. 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. Focus more on causes. 186 .BSC .CONCEPTUALISATION     A company’s performance depends on how it measures performance. Most managers tend to rely on traditional measures of performance having its origin in finance as they are well tried and tested. These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static. Organizations need to move from financial to strategic performance.

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

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

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

LEARNING PERSPECTIVE GOALS Technology Manufacturing Focus Timing MEASURES No. of 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.

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

“every organization must be prepared to abandon everything it does.. To adapt to the changing environment. to survival of the most adaptable.. Tata Group). As Peter Drucker pointed out. Restructuring involves consciously driving significant changes in the way an organizations thinks and looks (Eg.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.. Radical change brings about strategic variety. from survival of the fittest .” 198 .... firms use restructuring strategies.

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

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

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

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

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

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

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

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

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

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. The longer the period. the more difficult it becomes to uproot the paradigm (i. thumb rules) of the top management. Strategy change is unviable without a preceding change in its dominant logics. inertia).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. as strategies are based on such beliefs and biases.

209 .FORCES AGAINST STRATEGIC CHANGE     The problem with strategic change is that the whole burden typically rests on few people (i.e. Successful transformation requires – incorporating employees fully into the process – leading from a different place so as to maintain employee involvement – instill mental disciplines that will enable employees to behave differently. Companies achieve real agility only when people at every level rise above the ordinary to face the challenges – revitalization or transformation. 20% of the people carry out 80% of the changes). the factor that stifled change & performance was – culture. In most organizations.

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

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

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

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

TURNAROUND MANAGEMENT 214 .

215 (Govindarajan and Trimble. Source:  Why do firms atrophy? (Business Today.. still exist as on 2005. January 1997)... and that the thirty-two of the country’s largest business groups in 1969 are no longer among the top fifty today. – 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. .WHY TURN AROUND MANAGEMENT?  Some interesting insights .

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

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

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

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

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

the response should be strategic. Operating responses typically focuses on the way the firm conducts business and involves tactics geared towards – cost cutting and process redesigning (BPR). The response must match the cause of the decline. If the decline stems from structural shifts. diversification. new market initiatives.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. asset reduction. 221 . If the underlying cause is internal efficiency.

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

– Japan Vs US). 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. Differences in level of economic development can produce differences in alliances motives. 233 .PARTNER SELECTION CRITERIA     It is likely that partners will not have complete consent on alliance objectives because the institutional context in which the alliance embedded varies from country to country. Too much stress on financials & structure be avoided.

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

asset stripping). SEBI – In case of a hostile take over. Grasim – L&T Cement. 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. whichever is higher as an exit route (Eg. credentials or track record is at stake. Disclosure – All acquirers have to inform the respective stock exchanges where it is listed and SEBI upon acquiring the basic limit and upon every incremental limit thereon. 244 .SEBI TAKEOVER CODE. and/or does not enjoy the confidence of the different stake holders.e.

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

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

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

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

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

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

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

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

Tax Benefits – Tax benefits may accrue from tax entitlements and depreciation benefits unutilized by a loss making firm. and without paying take-over premiums. Synergy comes from projects which would not have been undertaken if the two firms stayed apart (Eg. However. ITC – Bhadrachalam Paper). Hotmail). but availed after being merged with a profitable firm (Eg. shareholders can accomplish the same at a much lesser cost. 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. 253 .

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

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

Confidence of investment bankers and the international financial community is essential. sometimes in combination with the assets of the acquiring company. debt component) at the time of buyout and rapid changes in capital structure over time. 256 .LEVERAGE BUYOUT (LBO)     The basic difference between a take-over and a LBO is the high inherent leverage (i. 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.e. The assets of the acquired company are used as collateral for the borrowed capital.

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

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

– Increase equity valuation. 259 .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. As the firm liquidates / pledges assets and pays off debt. initial rise in leverage is anticipated. A LBO has to pass two tests to be viable – – Restructuring to pay-off increased debt. Lack of sufficient cash flows to repay costly debts resulting in a possible debt trap. Therefore. leverage is expected to decrease over time.

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

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

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

Asset Stripping – The targeted company hives off its key assets to another subsidiary. Rights). 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. Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg.

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

272 . Most successful revolutions (Gandhi to Mandela) rose from the dispossessed. Transformational leaders merely lead the way.ABOUT THE EMPOWERMENT      Bring about a revolution (a paradigm shift) in the organization. More importantly. Such a process is called institutionalization (from people centric to organisational centric). the revolution must start at the bottom and spread in all directions of the organization. A revolution that is thrust upon from the top seldom sustains. 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. Apple – iphone). Companies need to strategize (think ahead of times). Toshiba – LCD. A process for finding and gaining insight into tomorrows opportunities (Eg. What does it take to get to the future first? Understanding how competition for the future is different. 273 . Apply the 40 – 30 – 20 principle. Get to the future first. South West Airlines – LCC. It requires a lot of common sense and a little bit of out of the box thinking. An ability to energize the company. without taking undue risk.

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

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

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

Learning Curve t1 t2 t3 Time t4 t5 277 .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.

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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.GLOBAL BUSINESS ENVIRONMENT    Time Sensitiveness – Developed country managers regard time as precious. however. in most emerging markets meetings are delayed and lasts unusually long. and vice-versa. High levels of ethnocentrism usually has a negative effect on business. 294 . Other factors – local celebrations. time-zones.

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. BRIC). ASEAN. 295 . It a multi-lateral treaty with 143 (as on 2002) member countries to reduce tariff and non-tariff (quota) barriers. The 2001 (Doha Round) focused on power blocks (NAFTA. copyrights. In 1995 (Uruguay Round) GATT was renamed to WTO. trademarks). 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. It focused largely on TRIPS (patents.

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

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

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

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

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

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

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. reduce power costs) vis-à-vis infrastructural bottlenecks. Bosch spark plugs are used by car manufacturers worldwide). . SCM – Use of ERP to network the extended enterprise 302 across the globe.INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays.

CONTEMPORARY TOPICS 303 .

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

Strategic innovation has the potential to change the rules of the game. While product innovations are typically customer driven.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. Tangible impact of product innovation on performance is significantly higher than process innovation. process innovations are organizational driven. Process innovation usually follows product innovation. However.      305 .

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

315 . Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders.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. Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors.

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

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

RED OCEAN Vs BLUE OCEAN Compete in existing markets Compete in uncontested markets Beat the competition Exploit existing demand Make the competition irrelevant Create and capture demand Make the value-cost trade off Break the value-cost trade off Demand is the limiting factor Supply is the limiting factor 328 .

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

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

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.

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

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