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.
1

INTRODUCTION

2

STRATEGY - DEFINITION

 

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

 

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.
4

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.
5

STRATEGIC MANAGEMENT FRAMEWORK

Fit

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

Fit

Fit

Fit
6

Management

Technological

Strategic

Operatio n

Political

HR

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

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

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

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

challenging GM and Ford. 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. – Reliance’s entry into telecom. 11 .SOME PARALLELS     Japan’s attack on Pearl Harbour – Strategy: Attack where it hurts the most. – Yahoo and Microsoft challenging Google. Napoleon’s attack on Russia – Strategy: Waiting for the right time. – Toyota’s entry in the US.

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

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

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 .

– Biases and prejudices has a very little role to play in strategic choices pursued by managers. – The choice of strategy is primarily concerned with external ones rather than internal ones. – It is primarily the top management’s prerogative.APPROACHES TO STRATEGY  Analytical Approach – Igor H. Learning always begin on a clean sheet of paper. 15 . 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.

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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 .

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

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

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

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

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

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

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 .

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

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

(Eg. ACC) in full to an independent entity.e. In strategy there is no scope for sentimentality with divestment. Tatas sale of Goodlass Nerolac. 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. It is may also be a pro-active strategy. It taken into account when performance is disappointing (i. reactive) and survival is at stake and the firm does not have resources to fend off competitive forces. It may also involve a SBU (Eg. Glaxo’s “Glucon-D” to Heinz). 89 . Tata Press).DIVESTMENT   Divestment is a defensive strategy involving the sale of entire stake (Eg. Tata Pharma.

1956 does not permit this mode.DIVESTMENT . However. 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. involving 608 pence per share). where the equity is allotted amongst the existing shareholders on a pro-rata basis. 90 . (Eg.3 billion. the Companies Act. (Eg. Hive-Off – A hive off is the creation of a new entity followed by transfer of assets. where 100% of the assets (including intangibles) are valued and paid for. Sale of Diamond Beverages to Coca-Cola for US $ 40 million).ROUTES    Outright Sale – Popularly known as the asset route.

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent. What then is the magical number? 93 . It attempts to answer the following questions – How effective has the existing strategy been? How effective will that strategy be in the future? What will be the effectiveness of alternative strategies? It is impossible for a manager to assess all the alternatives. 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.

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

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

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 .

Relatedness across resources are difficult to realize. therefore. Redeployment of resources upsets the established power bases of a group. next only to choice of business. 99 . Rules of the game are different.PORTFOLIO ANALYSIS      Resource allocation across a portfolio of businesses is an important strategic choice. there are high costs associated with entry and exit. sometimes impossible. Investing in emerging businesses may not actually be so simple as it appears to be. Why? Businesses are not about liquid assets. 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. Stars – They achievers in the near term. provided the company is able to build up on its market-share (i. market development. Tata Steel). Tata-AIG). product development). but to larger extent than a question mark. TCS. 101 . which remains a big? These businesses are net users of resources. These businesses are also net users of resources (Eg.e. Trent. provided the industry growth rate continues and the company is able to maintain its growth (i. Tata Telecom.e.BUSINESS ANALYSIS – TATA GROUP   Question Marks – They have potentials in the long term. and their risk profile is high (Eg. diversification).

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

Though cost leadership and differentiation are inconsistent. 115 .e. and usually outperforms a stand alone generic strategy. similarly differentiation may not always lead to rising costs (i.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. in a hyper competitive context the two strategies need not be mutually exclusive. Reducing cost does not always involve a sacrifice in differentiation. jugaad or frugal engineering). Tata Nano).

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

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

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

irrespective whether it is from worse to good or good to worse.INERTIA  When a firm has been operating in a certain fashion for a long time. Common sources of 151 inertia – complacency with past successes. co0ntinuity).  . 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. there is a tendency to continue along the same lines.e. Top managers resist change.

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

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

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

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

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

It appeared also in "In Search of Excellence" by Peters and Waterman. Since then it is known as their 7-S model and is extensively used by corporations worldwide to implement their strategies. The 7-S 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. They had been investigating how Japanese industry had been so successful. and was taken up as a basic tool by the global management consultancy company McKinsey.BACKGROUND & ORIGIN  The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony Athos in 1981. 157 .

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. to reach identified & stated goals. 158 . Structure – The way in which the organization's units relate to each other in terms of their commonalities. Systems – The procedures. over time. Strategy – Trade-offs for the allocation of a firms scarce resources. processes and routines that characterize how work should be done. Skills – An organizations capabilities and competencies. formal & informal . Staff – Human inter-relationships.

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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.
171

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.
172

WHOM TO BENCHMARK?

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

of new 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. of product innovations 190 .

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

STRATEGY MAPPING 192 .

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

what they don’t know.ADVANTAGES      Most often top managers face information overload.e. doing right things instead of doing things right). they don’t know . Shift from control to strategy (i.e. Focus on cause not effects. Seek excellence. 194 performance will automatically follow. It helps translating strategy into practice (i. As a result.BSC . sharing of vision). . 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.

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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. focuses on reengineering. Numerator – It assumes that turnover is not a barrier or constraint. reverse engineering and regenerating. 213 . In order to put back the company on the right track they are resort to – Denominator – It assumes that turnover cannot be increased.NUMERATOR & DENOMINATOR MGT     Most firms across emerging markets undergo strategic discontinuity and as a result are forced to restructure their businesses. hence go in for downsizing.

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

Switz Foods. Titan Inds. 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. 227 .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. owners of the brand Tanishq allows its franchisees to sell its jewellery products. Branding is critical to franchising.

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

Decline – Horizontal mergers are undertaken to ensure survival. Brooke Bond – Lipton). 248 . Kingfisher – Air Deccan). 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. 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. Tata Steel – Corus). Maturity – A larger firm acquires a smaller firm with an objective to achieve economies of scale and experience curve effects (Eg.

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

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

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

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

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

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

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. 255 . The value of control can be substantial for firms that are operating well below optimal value. The value of wrestling control is inversely proportional to the perceived quality of that management. Assessment of perceived quality is critical. – – Value of Control = Value of firm after restructuring Value of firm before restructuring. While value of corporate control is negligible for firms that are operating close to their optimal value.

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

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

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

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

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

261 . Most target firms are taken over within (6090) days. – Takeover announcements reported 30% excess returns. Excess returns also vary across time periods.EFFECT OF TAKE-OVER ANNOUNCEMENT     The shareholders of target firms are the clear winners. However. 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. takeover failures have only initial negative effects on stock prices. and 35% during bullish periods.

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

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

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

COMPETING FOR THE FUTURE 265 .

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

Not knowing when to stop. CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. downsizing). These denominator based managers stuck to their restructuring strategies (like building pyramids) and didn't know what to do next? Thus they became history? (like the pharaohs) 267 . decluttering. declining margins.THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. Thus efficiency was grievously hurt. most often they ended up cutting corporate muscle as well and became anorexic. falling market share).

However. 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. The future is not about catching up with competition. ensuring only survival of the present. incrementalism or nominal innovation has almost reached a plateau. 268 .S. A poll in circa 2000 revealed that 80% of the U. but forging ahead in competition. but not of the future. top managers believed that quality will be a source of competitive advantage of the future.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

GLOBAL BUSINESS ENVIRONMENT    Time Sensitiveness – Developed country managers regard time as precious. Other factors – local celebrations. 294 . time-zones. Ethnocentrism – Developed country managers tend to regard their own culture as superior. in most emerging markets meetings are delayed and lasts unusually long. 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. and vice-versa. in most emerging markets use of an interpreter may be a standard protocol.

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

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

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

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

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

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

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

Bosch spark plugs are used by car manufacturers worldwide). 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.INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays. Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II). reduce power costs) vis-à-vis infrastructural bottlenecks. .

CONTEMPORARY TOPICS 303 .

INNOVATION      An invention is the first occurrence of an idea for a new product or process. 304 . but has inherent risks involved as well. Innovations typically paves the way for more secured and improved lifestyle for consumers in general. Innovation is all about staying ahead of competition. it has destructive effects as well. 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 is the first attempt to carry it out in practice.

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

The most preferred strategy of internal protection includes imbibing “causal ambiguity” in the production process to make reverse engineering difficult. 311 311 . companies are increasingly relying on internal protection to sustain innovation effects. however that possibility is slowly atrophying. In most emerging markets where the IP climate is not so favorable.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 fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders. 312 312 . Corporate governance aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms.CORPORATE GOVERNANCE    The basic theme of corporate governance is to ensure that professional managers are identified and made accountable in terms of clear business processes or activities and held responsible through adequate mechanisms & control systems for channelizing their decisions for the benefit of stakeholders at large.

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

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

GOVERNANCE PRINCIPLES    Rights and equitable treatment of shareholders: Help shareholders exercise their rights by effectively communicating information in transparent ways that is understandable and accessible and encouraging shareholders to participate in general meetings. including the society at large. 315 . Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders. Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors. The key roles of chairperson and CEO should not be held by the same person and their offices be clearly separated.

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

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

Egypt and Russia) to around 40% for Canadian & European 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. who had no management ties.GOVERNANCE & PERFORMANCE In its “Global Investor Opinion Survey” of over 200 institutional investors in 2002. The size of the premium varied by market. 318  . undertook formal evaluation of its directors. McKinsey found that 80% of the respondents would pay a premium for wellgoverned companies. and was responsive to investors' requests for information on governance issues.

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

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

MRTP).GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy. 321 . Fear of government interference: Excessive quench for profits may lead to build up of adverse public opinion compelling the government to intervene (Eg. 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.

Literacy & Training Programs – (Eg. Education. 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). designing eco-friendly products.CSR STRATEGIES  Green Supply Chain Management: It includes environmentally preferable purchasing. Refrigerators – CFC.   322 . Tata Steel – Life Line Express). and extended producer responsibility (Eg. Cement .Paper packaging. Aditya Birla Research Centre – LBS).

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

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

History indicates that blue oceans exist in three basic industries – automobiles (how people get to work) – computers (what people use at work) – entertainment (what people do after work).CONCEPTUAL UNDERPINNINGS       Blue oceans have existed in the past and will exist in the future as well. Company & industry are the wrong units of 330 strategic analysis. the underlying technology was often already in existence. Incumbents often create blue oceans within the ambit of their core business. . managerial moves are. They are not necessarily about technology.

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. . Sony Play Station: Redefining machine-human interface in entertainment and targeting an altogether new user base. Southwest Airlines: Pioneering the concept of LCC.

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

Sign up to vote on this title
UsefulNot useful