BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

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

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

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

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

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

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

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. 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. A strategic intent is a statement of purpose of existence.STRATEGIC INTENT      If you cannot see the future. It’s a philosophy that distinguishes it from its competitors. It implies a significant stretch. It provides a sense of direction and destiny. 21 . you cannot reach there. A gap that consciously manages between stagnation and atrophy.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

DISCONTINUITY   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 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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. It enables the top management to draw focus. It involves a three-stage process – Identify KSF – What does it take to be successful in a business? Drawing KSF – What should be the organizations response to the same? Benchmarking KSF – How do we evaluate organization success on this factor? 68 .

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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 .

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

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

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

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

joint ventures). growth.e. and divestment strategies applied simultaneously or sequentially for a portfolio of businesses. mergers and acquisition. There can be no ideal strategy for every business. A combination strategy can be implemented through green-field projects (i. because every business has its own unique external and internal environment. developing facilities right from the scratch) or through brown-field projects (i. It is usually pursued by a business group with diverse interests across multiple industries.e.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. Dominant logic enables top managers to selectively scan the environment and make trade-offs. It attempts to answer the following questions – How effective has the existing strategy been? How effective will that strategy be in the future? What will be the effectiveness of alternative strategies? It is impossible for a manager to assess all the alternatives. What then is the magical number? 93 .STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent.

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

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

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

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

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

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

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

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

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

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

ARTHUR’ D. 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 .

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 .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. BCG – Boston Consulting Group. 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. Portfolio – An organization is perceived as a portfolio of businesses. Divest – Selling a part or the entire business at one go. Disinvestment involves selling in phases.

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

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

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

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

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

A saddle point is a situation where both the players are facing pure strategies.PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy. 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 .

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

processes. SBU Structure – Businesses segregated in terms of strategic dissimilarities (Eg. disbanded subsequently. Output). Team Structure – An informal group formed for a crisis. based on skills and competencies.TYPES OF STRUCTURES       Functional Structure – Activities grouped together by a common function (Eg. Finance). or geographical locations. Virtual Structure – A boundary less or hollow organization. Marketing. 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.Technology. 149 . with team members having dual line of control.

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

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

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

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. It attempts to answer the following questions – Is the strategic intent appropriate to the changing context? Are the organizations capabilities still holding good. .STRATEGY CONTROL      It is concerned with trafficking a strategy as it is being implemented.

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

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

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

BACKGROUND & ORIGIN  The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony Athos in 1981. 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. 157 . 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. They had been investigating how Japanese industry had been so successful. and was taken up as a basic tool by the global management consultancy company McKinsey.

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

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

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

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

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

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

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

Acquisition is an outright purchase of a firm assets by another independent entity (Eg. ITC Tribeni Tissues. with the individual firms ceasing to exist any more (Eg. Coca Cola – Thums Up). Brooke Bond & Lipton). .MERGERS & ACQUISITION      It refers to the fusion of two or more firms into a single entity. Integrated distribution channel leads to better market penetration and overall synergy. Economies in scale leading to lowering of costs. 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.

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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

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

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

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

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

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

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

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

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

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

equal participation). SQC – It is a process used to determine how many units of a product should be inspected to calculate a probability that the total no.e.STRATEGIES    Outsourcing – It is the process of self-contracting services and operations which are routine and mundane. 6-Sigma). It is based on the principles of MBO (i.TQM . saving precious top management time. 184 . Quality Circles – It a small group of shop-floor employees who meet periodically to take decisions regarding operational problems and crises. enabling the firm to concentrate on core activities essential to customer satisfaction. of units meet preset standards (Eg.

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

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

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

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

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

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

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 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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. but retained its engineering division. repay long-term debts. Generic motives include – – Raise working capital. Parle sold its Thums Up brand to Coke for $40 million apprehending fierce competition. strategic misfit.DIVESTITURE      It involves the sale of a brand or a division of a company to a third party. Selling out in phases is called disinvestment (IPCL). 204 . In 1995. In 2005.

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

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

. . 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.. – Only seven of the first fifty Indian business groups in 1947 were even in business by the turn of this century. – Less than 10% of the Fortune 500 companies as first published in 1955.WHY TURN AROUND MANAGEMENT?  Some interesting insights . January 1997).... Source:  Why do firms atrophy? (Business Today.

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

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

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

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

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

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

Untangling this question brings into focus three events – Domain – Many of the strategic cures have limited applicability for an affiliated firm. Contour – It is easier to reverse decline in the earlier stages through operational measures. 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. which may be unavailable to a focused firm. Similarly new market initiatives is feasible only for multi-product firms. 222 .RESPONSE DICHOTOMY     The response initiation is somewhat dichotomous and cannot be universally applicable.

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

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. Strategic Behaviour – Firms may override transaction costs. 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. It may also be linked to deterring entry or eroding competitors position. though more profitable alternative to other choices.

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

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

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

MERGERS & ACQUISITION 241 .

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

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

Disclosure – All acquirers have to inform the respective stock exchanges where it is listed and SEBI upon acquiring the basic limit and upon every incremental limit thereon.SEBI TAKEOVER CODE. SEBI – In case of a hostile take over. Grasim – L&T Cement. whichever is higher as an exit route (Eg. asset stripping). the SEBI can intervene and block share transfers if: the acquirer has ulterior motives (i. credentials or track record is at stake. 244 . 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).e. and/or does not enjoy the confidence of the different stake holders.

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

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

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

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

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

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

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

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

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

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

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

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

– Increased information needs.  However. liquidity. – The need to satisfy analysts and shareholders. – Separation of ownership from management. The increased benefit showed in the following way – reduced costs and increased revenue.TO GO PUBLIC OR NOT?   However.access to financial markets. the advantages of going public includes . 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. 257 . on-going valuation.

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

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

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

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

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

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

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.

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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. 297 . However. Rate Uncertainty – A single currency eliminates the risk of competitive devaluations. Transparency – A single currency is transparent and competitive. a multiple currency is preferable where the business cycles of member nations are different. but it may have spill-over effects.SINGLE Vs MULTIPLE CURRENCY     Transaction Costs – Though the initial cost of introduction of a single currency is very complicated and costly.

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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. Corporate governance aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms. 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 .

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

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

Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders. 315 . including the society at large. 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.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.

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

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

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

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

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

321 . 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. people are becoming increasingly aware of their right to a decent and healthy life. MRTP).GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy.

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

rendering rivals obsolete and unleashing new demand. It helps in creating powerful leaps in value for both the firm and its buyers. it will exist 327 in the future as well. It is only the frames of the . Blue Ocean’s have existed in the past. 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.

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

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

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

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

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

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

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