BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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

13 . – Homogeneous to heterogeneous products. – Changes in the technology fore-front. Survival of the most adaptable becomes a new management paradigm (Ansoff. – Affluence of the new customer (i. From uniform performance. Efficiency and effectiveness are no longer sufficient. 1960). push to pull). – Global market place.e. performance across firms became differentiated. The question of outperforming the benchmark became the new buzzword.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 .

– 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. Ansoff (1960) – Strategy can be segregated into certain mutually exclusive and inter-related components aimed at managing the growth of an organization. – The choice of product-market mix is based on conscious evaluation of risk – return factors. – Biases and prejudices has a very little role to play in strategic choices pursued by managers. 15 .

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

e.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. 23 . when radical changes in the internal and external environment (i. It is core to the strategic intent of the firm. 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. Dominant logic changes. To put it more simply. strategic variety) is apparent.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

It is reactive in nature. It is based on the assumption of radical change.PLANNING & STRATEGIC PLANNING     Formal planning is a function of extrapolating the past. Competitive advantage provides the surest way to fulfill the strategic gap. 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. 41 . It is based on the assumption of incremental change. gap analysis). It is pro-active in nature. Strategic planning is a function of discounting the future.e. It requires a quantum leap (i.

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

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

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

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

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

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. Mergers & Acquisitions 47   .

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 .

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

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

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

Cohesiveness – Degree of bonding existing across affiliated firms. dominant or related diversified or unrelated diversified businesses (Infosys. 54 . Business Scope – The intention whether the firm wants to be in a single. Tata).FIRM ENVIRONMENT      Size and Scale of Operations – It is a very important component of competitiveness in today's global context (Bharti – MTN. 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.

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

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

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

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

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

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

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

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

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

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

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

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. It is also a form of assessing vulnerability through longitudinal analysis. . High investment intensity acts as a drag. 66 Vertical integration is a powerful strategy. Relative attractiveness of the market.PROFIT IMPACT OF MARKET STRATEGY       PIMS is a database model developed by GE and later extended by HBS to examine the impact of a wide range of strategy variables on business performance. selectively.

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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 .

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

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

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

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

If the hot wave dominates the planet. ice-cream business would register a return of 10%. cold wave dominates the planet. the ice-cream business would register a return of 30%.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. while the coffee business would register a return of 30%. Let us assume that there are two businesses constituting the entire market – coffee and icecream. either of which is equally likely to prevail. If on the other hand. while the coffee business would register a return of 10%.

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

Nirma. backward integration. Reliance) or may pass it to customers to increase market-share (Eg. Sources of cost advantage are varied and depends on the structure of the industry – Economies of size. Ayur. The firm may retain the benefits of cost advantage by enjoying higher margins (Eg. Locational or early entry advantage. preferential access to raw materials. proprietary technology. 111 .PORTERS – COST LEADERSHIP      Cost Leadership – It is a strategy that focuses on making a firm more competitive by producing its products more cheaply than its competitors. Steep experience curve effects. T-Series). Compress project duration through crashing.

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

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

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 .

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

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

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

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

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

backed by corporate espionage. Typewriters.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. (Eg. Learning abilities have been stunted and firms adverse to investment in R&D and make fresh investments. and costly price wars. scooters. Firms facing a declining phase are characterized by inertia and slow to react to environmental changes. Nature of competition extremely high. Exit barriers are extremely high because of limited prospective buyers. 120 .

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

In most cases SAP is hidden and dormant. 126 . Internal strategic fit between its strategy and dominant logics is essential for the top management to stretch and leverage SAP. 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. SAP changes from time to time. Identification of SAP is critical for and stretching and leveraging of resources. In today's world of discontinuity.

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

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

STRATEGIC FIT – THE PORTER WAY   The sustainability of the value chain depends on the degree of fit between the activities. – Third order fit refers to optimization of effort. – Second order fit occurs when activities are reinforcing amongst them. A high fit involving a complex chain of activities drives both competitive advantage and its sustainability. 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. 129 . A learning organization helps create strategic fit. Operational effectiveness is not strategy.

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

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

each of whom wants to win. 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. 132 .GAME THEORY     The game theory was developed in 1944 by Oscar Morgenstern. In a game (similar to a business) one players win is always another's loss. illustrations depicting a win-win situation. 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. Here the magnitude of gain offsets the magnitude of loss equally. However. In fact there are no.

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

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

Repeated Games – In this situation the players interact repeatedly with each other sub-optimizing the outcome possibilities. there is likely to be temptation by any of the players to try to steal the advantage over the other by breaking the rules of the game (Eg. However. iteration) rather than through collusion (E.e. Coke Vs Pepsi). This is usually through learning by “experience or observation” (i. It represents the classical “prisoner’s dilemma”.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. 135 .g. Yahoo Vs Microsoft).

– Making pricing more transparent. – Building incentives for customer loyalty. 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. 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. but 136 players do not always behave rationally.

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

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 . – Resource commitment from top management.IMPORTANCE OF STRATEGIC FIT  Strategic fit has a central role to play in strategic management. – Development of capabilities & competencies. – Unlearning & learning of new skill sets. – Changing the rules of the game. – Better strategic and operational control. While external strategic fit (strategy – environment) is relevant for strategy formulation.

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

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

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

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

148 . 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. Once the structure is in place. A firm in several related businesses usually employs a divisional structure. The level of centralization and decentralization is decisive. A single product or a dominant business firm usually employs a functional structure. processes become people independent.STRATEGY & STRUCTURE     It is a framework within which individual efforts are coordinated to bring synergy.

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

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

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

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.  . Deviation of fit is detrimental to performance and may lead to strategic failure. Since the internal and external environment is in a state of continuous flux. To prevent deviation of fit.STRATEGY EVALUATION    Strategy evaluation centers around assessment of strategic fit. firms should move beyond financial performance to strategic performance as organization systems are becoming complex. However.

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

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

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

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

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

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

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

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

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

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

Alliances are usually short-lived and disbanded once the purpose is achieved. It has limited intervention power and usually lacks holistic commitment from the alliance partner. .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. Alliances are usually in the areas of technologies or markets (Eg. Tata Motors & Fiat). 163 It is a form of competitive collaboration. There is no funding or equity participation from the alliance partner & both the firms continue to operate independently.

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

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

Inform SEBI / Stock Exchange after 5% stake is 166 acquired. Consolidation in a fragmented industry.Corus). Make a public offer of not less than .TAKE OVERS      It refers to the acquisition of significant management control by buying out majority stake in a firm through due diligence or hostility (Eg. Most countries have stringent laws that prevents hostile take over. Tata Steel . often the new firm is “left alone”. Integration of organization structure & cultures is difficult. Larger geo-graphical diversity. Instant access to capacities and markets.

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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. the entire parent company loses its identity after being split into a number of subsidiaries. the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company. – Split-Off – In a split-off. Reliance Ent). Most of these practices are not in consonance with Indian laws.HIVE OFF   Spin-Off – A spin off is the creation of a new entity. – Split-Up – In a split-up. 203 . Tata Industries selling 20% stake to Jardine Matheson).

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

involving 608 pence per share). Wipro).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. Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt.3 billion. 205 .CAPITAL RESTRUCTURING     Capital Restructuring . It provides greater leverage as well as management control. Tatas take-over of Corus for US $11.

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

It can be of the following types – Multipartner – Intends to share an underlying technology or asset. 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.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. Collusion – Few firms in a matured industry collude to reduce industry output below the equilibrium level. Hyundai). Airbus – Boeing). Coke – Pepsi). Tata.

SUPPLY CHAIN PARTNERSHIP     It is a pro-active & collaborative arrangement between supplier and customer aimed at achieving better control over the value chain (Eg. . Companies in different industries with different but complimentary skills. 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. Tata Motors – IDEA). otherwise it 230 becomes routine outsourcing. link their capabilities to create value for end users.

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

242 . reverses are also taking place through LBO) with a view to acquire conglomerate power and induce synergy (Eg.Daichi) and hostile if it is without the consent of the management (Eg. HLL – Tomco). Mittal Arcelor). 2002). An acquisition is said be smooth if it is with the consent of the management (Eg. SEBI Takeover Code.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. The larger objective is to leverage on size. Ranbaxy . Brooke Bond – Lipton). Most countries have stringent laws that prevents hostile takeovers (Eg. An acquisition is the purchase of a firm by a firm (of larger size. however.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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. Rights). so that nothing is left for the raider to strip off.DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control. 263 . Asset Stripping – The targeted company hives off its key assets to another subsidiary.

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

COMPETING FOR THE FUTURE 265 .

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

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 . CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. decluttering. downsizing). falling market share).THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. most often they ended up cutting corporate muscle as well and became anorexic. Thus efficiency was grievously hurt. declining margins.

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

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

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

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

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

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

We are in the midst of a 3600 vacuum. as on their aspirations. What distinguishes a leader from a laggard. each point in space represents a unique business opportunity. greatness from mediocrity. is the ability to imagine in a different way what the future could be. but hundreds. As there is no one future. the farther it will be away from competition. 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.HOW DOES THE FUTURE LOOK LIKE?     There is no rule which says that for every leader there will be a follower. 274 .

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

. customer awareness (microwaves).culture (food habits). technology (microchip). promotion (surrogate advertising). buying patterns (spread). Distribution – It depends on the market characteristics (fragmented – concentrated). usage (talk time). economic (middle class buying power). Pricing – It depends on the competitive structure (PLC – Kellogg's). 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 .

India) may be different from that another trading country (US – GAAP or IRS).INTERNATION FINANCE     Currency Risk – Many Indian IT companies (Rs) having business in US (Dollar) are asking for quotes in (Euro) or are shifting bases out of US to avoid risk of devaluation of Dollar. 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. equity is cheap in India). Accounting Norms – The accounting norms of one country (AS . . debt is cheap in US.

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

Outsourcing – A company having a core competence may be the source of global outsourcing (Eg. SCM – Use of ERP to network the extended enterprise 302 across the globe. reduce power costs) vis-à-vis infrastructural bottlenecks. 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). .INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays.

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

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

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

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

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

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

giving a very important message that one cannot exist without the other.CORPORATE SOCIAL RESPONSIBILITY     As Peter Drucker rightly pointed out that. in fact a large part of it is significantly overlapping. 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”. Therefore. economic and social responsibilities cannot be mutually exclusive. Therefore. CSR can be defined as. “a healthy business cannot exist in a sick and impoverished society”. However.

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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. of European nations. As trade barriers between nations & regions fall. Population shrinkage across a no. Niche markets & monopoly havens are continuing to disappear. information imperfections atrophy instantly. Demand across developed markets reaching a plateau. Technological advances have substantially 329 improved industrial productivity.

managerial moves are. . the underlying technology was often already in existence. 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. They are not necessarily about technology. Incumbents often create blue oceans within the ambit of their core business. History indicates that blue oceans exist in three basic industries – automobiles (how people get to work) – computers (what people use at work) – entertainment (what people do after work).

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 .BLUE OCEAN .

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 .

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

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

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