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

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

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

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

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

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

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

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

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

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

It enables the top management to remain focused.  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. but achievable aspirations. beyond just making money. It provides an unity of purpose amidst diversity of personal goals.VISION It is a dream (not a forecast) about what the company wants to become in the foreseeable future. – It stands for the unchanging core values of the company.  24 .

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

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

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

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

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

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

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

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

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

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

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

Macro Broadcasting – The broad idea is floated without details to invite pros and cons leading to finer refinements. 36 . Adaptation – As implementation progresses. The broader objective should serve the overall interest of the organization.IMPLEMENTING INCREMENTALISM      General Concern – A vaguely felt awareness of an issue or opportunity. 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.

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

It is important not only to identify the structural drivers of change. which may be different from the past impact. Understanding the composite effect is critical. It is particularly important that PESTEL be used to look at the future impact of environmental factors. It is not intended to be used as an exhaustive list.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. 43 . for which a holistic picture is required.

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

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

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

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 .DISCONTINUITY    Hyper Competition – MNC’s .Globalization – Cheap Imports & Dumping – Push to Pull Marketing Buyers exacting demands – Shortage to surplus – Price competition – Life-style changes – Stress on quality.

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

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 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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 . KSF helps organizations spot early opportunities and convert them into value adding business propositions.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. 70 . It indicates the quality of growth an organization is looking for. national. related. It provides broad direction to the groups vision and mission. unrelated) and geographical scope (local.GRAND STRATEGY       It is concerned with the overall business scope (single. dominant. It determines the locus a firm encounters with internal and external environment. It reflects the customer needs it intends to satisfy.CORPORATE . A corporate strategy identifies and fixes the strategic gap it proposes to fill.

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

– Why disturb the existing equilibrium set up? – Limited resource position. does not relate to do-nothing (Eg. erosion of capabilities. Citibank). (Eg. – To stop for a while and assess past records. – The firm may not be willing to take additional risk associated with new projects. Even during adverse times firms need to adopt a strategy to sustain current performance levels.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. Stability however. 72 . Hindustan Motors).

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

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

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

– Areas of product improvement – performance. durability. features. – Leverage on customer and brand loyalty. conformance. Close Up: Fluoride – Gel toothpaste or VIP . reliability. serviceability. perception.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. Refills) 76 . – Substitutes that serve the same needs (Eg. – Leveraging through – innovation.Strolleys). – Deliverable through – redesigning or reengineering. aesthetics.

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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 . 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.

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 .PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Strategy not linked to resource allocation & capabilities – Lacking commitment of top management. difficult to translate into practice. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy.BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas. “If you cannot . 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.

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

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

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

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

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

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

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

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. . There is no funding or equity participation from the alliance partner & both the firms continue to operate independently.STRATEGIC ALLIANCE     It involves a pro-active collaboration between two or more firms on a particular domain or function for mutual gain. It touches upon a limited aspects of a firms value chain. 163 It is a form of competitive collaboration. It has limited intervention power and usually lacks holistic commitment from the alliance partner.

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

  

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

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

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

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

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

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

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

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

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

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

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

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

186 . rather than effects. Focus more on causes.BSC . In today’s context when organizational systems have become complex and multi-directional we need to have a holistic view of performance to cut the lag effects. Organizations need to move from financial to strategic performance. 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.CONCEPTUALISATION     A company’s performance depends on how it measures performance.

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Asset Stripping – The targeted company hives off its key assets to another subsidiary. 263 .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. Rights). Poison Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive. Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg.

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

COMPETING FOR THE FUTURE 265 .

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

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. downsizing). most often they ended up cutting corporate muscle as well and became anorexic. declining margins. falling market share). Thus efficiency was grievously hurt. Not knowing when to stop. These denominator based managers stuck to their restructuring strategies (like building pyramids) and didn't know what to do next? Thus they became history? (like the pharaohs) 267 . decluttering.

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

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

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 .

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

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

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

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

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

and cultural barriers (language) vis-à-vis emerging markets. double taxation. labour laws. in most cases it is not desirable nor practiced. Compensation – Differential pay packages exists because of differences in purchasing power. 301 . social security. technology (convergence. Recruitment – In local recruitment. however. Training – It is a pre-requisite for international business to reduce language. skills are more important that cultural fit and vice-versa.INTERNATIONAL HR     An uniform HR policy is idealistic to enable parity in performance appraisal. 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. Bosch spark plugs are used by car manufacturers worldwide). Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II). SCM – Use of ERP to network the extended enterprise 302 across the globe. .INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays.

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

315 . 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. including the society at large. 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.

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

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

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

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

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

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

Southwest Airlines: Pioneering the concept of LCC. . Citibank – Automated teller machines & credit 333 cards.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. Sony Play Station: Redefining machine-human interface in entertainment and targeting an altogether new user base.

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

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