BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

SOME PARALLELS     Japan’s attack on Pearl Harbour – Strategy: Attack where it hurts the most. 11 . Allied Forces Vs Germany (WW-II) – Strategy: Forging alliances. – Reliance’s entry into telecom. challenging GM and Ford. – Toyota’s entry in the US. – Yahoo and Microsoft challenging Google. Napoleon’s attack on Russia – Strategy: Waiting for the right time. 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. – Mass Production Organization Size – Complicated Processes – Complex Structures Evolving of an emerging paradigm – survival of the fittest (Fayol & Taylor. A paradigm is a dominant belief about how the business and its environment operates.Industrial Revolution. 1910). The first major discontinuity in the history of global business environment was the .EVOLUTION OF MANAGEMENT     As Peter Drucker refers to it.

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

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 .

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. – The choice of product-market mix is based on conscious evaluation of risk – return factors.APPROACHES TO STRATEGY  Analytical Approach – Igor H. – Biases and prejudices has a very little role to play in strategic choices pursued by managers. – It is primarily the top management’s prerogative. Learning always begin on a clean sheet of paper. 15 .

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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    Hyper Competition – MNC’s .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

Data may be prohibitive. Mercedes Benz. 103 . HUL). Cash cows may actually need substantial investments to retain their market position (Eg. Certain businesses in the low market share category may be the result of a conscious strategy (i. Armani). The terminologies used are somewhat prohibitive. niche – Rolex. neither in high or low. Cartier. 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). factors are limited.BCG .e.

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

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

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

BCG – Boston Consulting Group. Portfolio – An organization is perceived as a portfolio of businesses. 107 .TERMINOLOGIES       Harvest – It entails minimizing investments while trying to maximize short-run profits and cash flow with the intention to exit the business in the near future. Disinvestment involves selling in phases. Divest – Selling a part or the entire business at one go. 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.

BUSINESS STRATEGY & COMPETITION 108 .

and earning super-normal profits (i. Such resources or activities should be distinctive and sustainable over time. 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. rent).e. Competitive advantage refers to a firms resources or activities in which it is way ahead of competition. The principal focus is on meeting competition. building market-share. 109 . Competitive advantage is the back-bone of strategy.

developing competitive advantage (Porter). identifying critical success factors. leveraging (Prahalad). Resource Based View – Obsession with competence building. Blue Ocean – Consciously moving away from overcrowded industries to uncharted territories and making competition irrelevant (Kim & Mauborgne). 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. 110 .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).

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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

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 .

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

but 136 players do not always behave rationally. . – Making pricing more transparent. It results in a shift in the productivity frontier.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. Game theory relies on the principle of rationality. – Building incentives for customer loyalty. In a market dominated by price-based differentiation one may attempt to change the rules of the game by/when – – Bases of differentiation dependent on clear identification of what customer wants or value.

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

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

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

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

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

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

Implementation Control – It aims at assessing whether key activities are proceeding as per schedule. It is open-ended as well as . 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. It involves assessing – strategic thrusts and milestones. checking every premise is costly as well as difficult.STRATEGY CONTROL IMPLEMENTATION     It involves steering the company towards its original growth trajectory & stated goals. However.

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

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

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

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

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

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

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

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

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

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. Degree and extent of management control must be clearly 164 laid down.Honda). . Tata – AIG. It is a win-win situation for both the companies. Selecting the right partner is critical for success. leaving minimum scope of overlapping. Hero . Dominant logic of both the companies should be complimentary. (Eg.

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 times covered in media No. of new product launches Vs competition Product pricing Vs competition 189 .

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

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 .

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

Tatas take-over of Corus for US $11. 205 .CAPITAL RESTRUCTURING     Capital Restructuring .The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. Wipro). It provides greater leverage as well as 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.3 billion. Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt. involving 608 pence per share).

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

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

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

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

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

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

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 .

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

– Japan Vs US).PARTNER SELECTION CRITERIA     It is likely that partners will not have complete consent on alliance objectives because the institutional context in which the alliance embedded varies from country to country. Too much stress on financials & structure be avoided. Cultural orientation has been found to have a profound effect on top management’s strategic orientation (Eg. Differences in level of economic development can produce differences in alliances motives. Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology. 233 .

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

e. 2002      Promoter – A person who has a clear control of atleast 51% of the voting rights of the company and confidence of all the major stakeholders. .SEBI TAKEOVER CODE. Control – A special resolution of 75% of the share 243 holders approving the change of guard. creeping acquisition). Hike – An acquirer who has already picked up a 5% has to make a mandatory disclosure for every additional 1% stake that it acquires. Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview. Acquirer – Someone (individual or firm) who picks up an atleast 5% stake without mandatory disclosure having an intention to wrest management control (i.

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

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

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

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

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

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

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

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

Synergy can be negative as well. 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. when the “fit” between the two entities is very poor. Innovative product – Good distribution network). – Vertical Synergy – Gains come from controlling the supplychain and savings in transaction costs. 252 .VALUING OPERATIONAL SYNERGY  Synergy – It refers to the potential value gain where the whole is greater than the sum of the parts.

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

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

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

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

but has inherent risks involved as well. Innovation is all about staying ahead of competition. Innovation is the most preferred strategy today to maintain competitive advantage in the present turbulent business environment. While innovation typically adds value for organizations. 304 .INNOVATION      An invention is the first occurrence of an idea for a new product or process. it has destructive effects as well. 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.

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

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.GOVERNANCE PRINCIPLES    Rights and equitable treatment of shareholders: Help shareholders exercise their rights by effectively communicating information in transparent ways that is understandable and accessible and encouraging shareholders to participate in general meetings. 315 . Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders. Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors.

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

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

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

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

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

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

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

BOTTOM OF THE PYRAMID    With the market across most developed markets including the US getting saturated. 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. Strategic innovations leading to disruptive business models can show the way out. C. In turn companies by serving these markets. Prahalad notes that future markets exist collectively. 323 . K. They represent an enormous opportunity for companies who learn how to serve them.

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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

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

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

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

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