BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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

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

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

. It creates blinders. 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. Dominant logic’s are very rigid and sticky and prone to inertia. As it brings 37 with it a different dominant logic.STRATEGIC TRANSFORMATION     Strategic transformation (a complete overhauling of the strategic architecture) becomes inevitable whenever a strategic drift takes place.

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

when radical changes in the economy takes place. Authenticity of data is of prime importance – Contexts drawn across one organization may not be applicable to another. – Contexts may vary over time. As every organization is unique in its own way. – 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.PIMS .LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges. therefore 67 validity may be a question.

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

GROWTH . 73 .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.

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

but achieves none. It is usually the result of a firm not willing to make trade offs.stuck in the middle. 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 . 116 . leading to what is called – straddling. The positioning therefore gets – blurred. Industry maturity will usually widen the gap. unless such a player is capable of discovering a profitable segment.

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

GROWTH / FRAGMENTED INDUSTRY      Growth Industry – An industry characterized by high growth potential in the long run and where no firm has a significant market share (an edge over another). Eg. IT. Scope for players to change the rules of the game. Air Conditioning. because of lack of economies of size and scale. Retail and telecom. It is characterized by – Low entry barriers. Paints. 118 . MRTP may also cause fragmentation. Eg. Eg. Government regulations in the form Eg. High exit barriers because of huge investment in CAPEX. leading to clear fragmentation. Consumer durables. Diverse customer needs.

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

Substantial cost reductions also follow. 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. 127 . A VC is often compared with a relay team. faster product launches. Inventory Mgt to Logistics Mgt to Supply Chain Mgt (SCM).e. and enhanced customer tracking – higher market share.VALUE CHAIN ANALYSIS    A value-chain segregates a firm into strategically relevant activities to understand its composite behaviour. VC pay-offs: better product availability. kaizen or internal customer). each of the players need to be efficient backed by sufficient coordination at the contact points (i.

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 .

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

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

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

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

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

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

It results in a shift in the productivity frontier. In a market dominated by price-based differentiation one may attempt to change the rules of the game by/when – – Bases of differentiation dependent on clear identification of what customer wants or value. – Building incentives for customer loyalty. but 136 players do not always behave rationally. – Making pricing more transparent. .CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. Game theory relies on the principle of rationality.

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

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

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

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

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

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

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

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

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

there is a tendency to continue along the same lines. 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.  . Inertia is a characteristic of a firm that endures status quo (i. co0ntinuity). Inertia acts as an impediment in strategy implementation. Changes in top management and unlearning helps overcome inertia. Common sources of 151 inertia – complacency with past successes.e. Most firms undergo periods of strategic continuity rather than strategic discontinuity. Top managers resist change.

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

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

checking every premise is costly as well as difficult.STRATEGY CONTROL IMPLEMENTATION     It involves steering the company towards its original growth trajectory & stated goals. Special Alert Control – It intends to uncover unanticipated information having critical impact 154 on strategies. It is open-ended as well as . However. It involves assessing – strategic thrusts and milestones. 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.

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

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

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

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

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

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

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

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

163 It is a form of competitive collaboration. Tata Motors & Fiat). It has limited intervention power and usually lacks holistic commitment from the alliance partner. 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. It touches upon a limited aspects of a firms value chain.STRATEGIC ALLIANCE     It involves a pro-active collaboration between two or more firms on a particular domain or function for mutual gain. Alliances are usually in the areas of technologies or markets (Eg. .

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

the more similar they end up looking. Strategy is more of creating best practices rather than copying them. It can at best complement it.BENCHMARKING . 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. but it cannot be used as a strategic decision making tool.LIMITATIONS     More and more companies benchmark. While strategy is all about differentiation and not looking alike. clustering).e. It does not shifts the growth 175 trajectory of the industry as a whole.

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

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 .

structures. etc) and supports the organization for the present. Strategic – It looks into the process of strategic planning. .e.e. customers and suppliers and protects the organization from the future (i. Business – It looks into markets. 178 . products. 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.LEVELS     Reengineering can be successfully leveraged at all levels of an organization with varying degree of results. processes.REENGINEERING . BPR).

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

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

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

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

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

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

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

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

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.  The most critical element of a BSC is to measure these four dimensions. because they have too many. 187 . 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.

e. 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. ageing schedule) % of key customer transactions Ranking of key customer accounts 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 times covered in media No. of new product launches Vs competition Product pricing Vs competition 189 .

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

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 .

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

Survival is the primary motive. Turnaround is the primary motive. 207 .ORGANIZATIONAL RESTRUCTURING     Organizational structure and systems calls for a change when strategic variety is apparent. of operating units. usually as a result external turbulence. keeping the composition of business intact (Jet Airways). Downscoping – It involves reducing the business and/or geographical scope of a firm (Aditya Birla group). 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. Rightsizing – It is phasing of excess and redundant employees resulted out of faulty internal planning (SAIL).

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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. Contour – It is easier to reverse decline in the earlier stages through operational measures. which may be unavailable to a focused firm. 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. Similarly new market initiatives is feasible only for multi-product firms. 222 .

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

design next generation products. 231 . Firm’s should undertake a long courtship with potential partners. effective R&D management. Generic motives involved are . to gain knowledge and to obtain access to new markets (Eg. Partner selection is one of the critical success factors.learning organization. Reliance – Du Pont). Tata Motors – Fiat. instead of hurrying into a relationship.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. enhance credibility. preempt competition. enter newer markets.

Coke – Pepsi). Complementary Equals – Two firms mutually promoting each others complimentary products (Eg. Bajaj – Castrol). Bootstrap – An alliance between a weak and a strong company with an intention to acquire it.STRATEGIC ALLIANCE . 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.TYPES      Collusion – Tacit top management understanding to neutralize price wars (Eg. Maruti). Whirlpool – Tide. 232 . Airbus – Boeing).

– Japan Vs US). 233 . Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology. Differences in level of economic development can produce differences in alliances motives. Cultural orientation has been found to have a profound effect on top management’s strategic orientation (Eg.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.

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

. Outsourcing – A company having a core competence may be the source of global outsourcing (Eg. Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II). Bosch spark plugs are used by car manufacturers worldwide).INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays. SCM – Use of ERP to network the extended enterprise 302 across the globe. 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 . Innovations typically paves the way for more secured and improved lifestyle for consumers in general. 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 all about staying ahead of competition. it has destructive effects as well. but has inherent risks involved as well. innovation is the first attempt to carry it out in practice.

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

REVENUE MODEL     Positioning is just not sufficient. Investment Banking. 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. It involves – Product Visualization – Product Prototype – Product Test – Capacity – Pricing – Distribution. With the rapid erosion of certain industries (IT. It is just one piece of the puzzle. The revenue model described here are the means to generate revenues.

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

companies are increasingly relying on internal protection to sustain innovation effects. In most emerging markets where the IP climate is not so favorable. 311 311 .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. however that possibility is slowly atrophying. The most preferred strategy of internal protection includes imbibing “causal ambiguity” in the production process to make reverse engineering difficult.

CORPORATE GOVERNANCE    The basic theme of corporate governance is to ensure that professional managers are identified and made accountable in terms of clear business processes or activities and held responsible through adequate mechanisms & control systems for channelizing their decisions for the benefit of stakeholders at large. In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders. 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.

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

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

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

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

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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

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

Incumbents often create blue oceans within the ambit of their core business. Company & industry are the wrong units of 330 strategic analysis. . the underlying technology was often already in existence. managerial moves are. 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. 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 .

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

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

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