Course Code: 611 & 612 Dr. Subir Sen – Faculty Member, IBS
E-Mail:, 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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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.


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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.


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.



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







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

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

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

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

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. – Yahoo and Microsoft challenging Google. – Toyota’s entry in the US. 11 . US attack of Morocco to capture Germany – Strategy: Pin-hole strategy – Wal-Mart challenging Sears by entering small towns. – Reliance’s entry into telecom. challenging GM and Ford. Allied Forces Vs Germany (WW-II) – Strategy: Forging alliances.

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

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

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 .

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

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

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

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

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 .


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

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.e. 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. 23 . when radical changes in the internal and external environment (i. 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. To put it more simply.

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

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

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

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

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

– It provides a benchmark for evaluation. – It prevents deviation. – It lends direction – time frame in the medium term. 29 .100K crore company by the year 2005. – It helps identifying key success factors. It is an end result (quantifiable) something a firm aims and tries to reach in a time bound frame. – It adds legitimacy and motivation.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 keeps the mid management pre-occupied.

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

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

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 .

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

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

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

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

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

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

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


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

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

It is important not only to identify the structural drivers of change. It is particularly important that PESTEL be used to look at the future impact of environmental factors. Understanding the composite effect is critical. 43 . which may be different from the past impact. 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. for which a holistic picture is required. but also to analyze the complex linkages across them.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


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.



Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power


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.

Oil & Gas exploration Naptha-cracking Acetic Acid Paraxylene (PX)

Purified tetra-pthalic acid

Mono-ethylene glycol

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


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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.

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

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

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

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

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

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

A combination strategy can be implemented through green-field projects (i. There can be no ideal strategy for every business. mergers and acquisition. 91 . 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. growth.e. joint ventures). and divestment strategies applied simultaneously or sequentially for a portfolio of businesses.


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. 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.

The key task before a top manager is to identify the right problems. nor is to a define a problem for others to solve. managers need to ask the right questions. To identify the right problems. 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. will help the firm achieve its intent. if addressed. 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 .

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

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

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

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

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

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

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

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

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

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

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 .

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


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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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


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

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

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

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 .

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

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

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

132 . Here the magnitude of gain offsets the magnitude of loss equally.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. each of whom wants to win. In fact there are no. In a game (similar to a business) one players win is always another's loss. illustrations depicting a win-win situation. This is known as a zero-sum game. Subsequent work on game theory by John Nash led him to win the Nobel prize in 1994. However. 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.

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 . 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.

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

CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. . It results in a shift in the productivity frontier. – Making pricing more transparent. 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.


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).


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



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.


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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.




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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.


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

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

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

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

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. Due to causal ambiguity (complexity). 147 . Moreover. though not necessarily in the case of emerging markets. Distinctive capabilities helps in stretching and leveraging resources thereby overcoming two major constraints involved in strategy implementation – times & costs. Mobiles).CAPABILITIES & COMPETENCIES     Technology and business are slowly becoming in – separable. these capabilities are sustainable even in the medium to long term. Flat Screen Displays.

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

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

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

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

certain authors propose misfit as a source of superior 152 performance. 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. firms should move beyond financial performance to strategic performance as organization systems are becoming complex. To prevent deviation of fit. Since the internal and external environment is in a state of continuous flux.  . However.STRATEGY EVALUATION    Strategy evaluation centers around assessment of strategic fit.

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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


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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.


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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.

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.


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.


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


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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

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

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

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

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

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

180 . designing facilities. Actualization – Obtaining and dismantling of the product to assess how it functions. Usually in such cases segmentation and pricing is different from the original innovator. nano-technology). cost and effort necessary for the purpose of reverse engineering. machine tools to convert ideas into a marketable product (i. 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. Inaccurate assessment at this stage may lead to a failure of the entire project.

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

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

fully involved in decision-making and fairly rewarded for results. provided with all relevant information and best possible tools. 183 . Be customer centric – Generate the concept of internal customer (Ishikawa). Looking at quality as an endless journey. not a final destination. Kaizen – Make continuous improvement a way of life.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). Empowerment – It takes place when employees are properly trained.

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

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

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

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

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

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

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

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


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

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

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

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


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

Company’s should go beyond just asking what he expects. 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. downscoping). ATM.e. Walkman. .e. they should strive to provide unimaginable value ahead of its time (Eg. Fax. downsizing or rightsizing). Structural Changes – Conventional hierarchical structures should be disbanded in favour of more 199 flexible ones (i. Internal customers should also not be neglected. Instead.RESTRUCTURING – BASIC TENETS    Customer Focus – Restructuring ideally begins and ends with the customer. etc).

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

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

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

the entire parent company loses its identity after being split into a number of subsidiaries. Most of these practices are not in consonance with Indian laws. the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company. 203 . Reliance Ent). – Split-Up – In a split-up.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. Tata Industries selling 20% stake to Jardine Matheson). – Split-Off – In a split-off. Equity Carve – It involves selling a minority stake to a third party while retaining control (Eg.

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

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

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

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

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. inertia). The longer the period. the more difficult it becomes to uproot the paradigm (i.e. 208 . 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. The dominant logic represents the perceptions and biases (i. Strategy change is unviable without a preceding change in its dominant logics.e. thumb rules) of the top management.

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

e. co-insurance effect).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. – Cash trapped company unable to utilize opportunities. – Debts repaid off from increased value after successful restructuring and wresting management control. 258 . – It is a temporary phenomenon. which disappears once assets are liquidated and significant portion of debt is paid off. – Cost of debt coming down (i.

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

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

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

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

Poison Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive. so that nothing is left for the raider to strip off. Rights).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. Asset Stripping – The targeted company hives off its key assets to another subsidiary. 263 .

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


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

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

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

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

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 .

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

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

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

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

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

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

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

278 . It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times. 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. Leverage – They are the gateways to future markets.CORE COMPETENCE     A core competence relates to a bundle of skills (not an asset or a business) that revolves around activities or processes and critically underpins a firm’s competitive advantage.

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

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


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.


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.



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.



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).



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.



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.


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

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

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

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

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

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

in most emerging markets use of an interpreter may be a standard protocol. Other factors – local celebrations. in most emerging markets meetings are delayed and lasts unusually long.GLOBAL BUSINESS ENVIRONMENT    Time Sensitiveness – Developed country managers regard time as precious. however. High levels of ethnocentrism usually has a negative effect on business. time-zones. 294 . 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.

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

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

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

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

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

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

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

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


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

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

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

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


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

Promote the culture of experimentation. 310 . Have a lean and a flat organization structure. Promote the grape-vine.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). Allow the management sufficient slack to be future oriented. Allow the workforce idiosyncrasies for their errors. A favourable intellectual property (IP) climate.

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

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

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

2002 to restore public confidence in corporate governance. various laws were enacted to ensure proper usage of these funds. SEBI Report – 2005. . the US government passed the Sarbanes – Oxley Act.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.

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. 315 .GOVERNANCE PRINCIPLES    Rights and equitable treatment of shareholders: Help shareholders exercise their rights by effectively communicating information in transparent ways that is understandable and accessible and encouraging shareholders to participate in general meetings. Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders.

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

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

undertook formal evaluation of its directors. 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. The size of the premium varied by market. and was responsive to investors' requests for information on governance issues.GOVERNANCE & PERFORMANCE In its “Global Investor Opinion Survey” of over 200 institutional investors in 2002. who had no management ties. 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.

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. Therefore. 319 . The basic premise is that firms cannot exist in vacuum. However. corporate philanthropy should be a part of every corporate mission. Over a period of time.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.

CORPORATE SOCIAL RESPONSIBILITY     As Peter Drucker rightly pointed out that. Therefore. Therefore. 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 . CSR can be defined as. economic and social responsibilities cannot be mutually exclusive. “a healthy business cannot exist in a sick and impoverished society”. “an enterprises decisions and actions being taken for reasons at least partially beyond its immediate economic interests”. in fact a large part of it is significantly overlapping. However.

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

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

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



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

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. It helps in creating powerful leaps in value for both the firm and its buyers.WHAT IS BLUE OCEAN?    Tomorrow’s leading companies will succeed not by battling in red oceans. It is only the frames of the . rendering rivals obsolete and unleashing new demand. it will exist 327 in the future as well. Blue Ocean’s have existed in the past.

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 .

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

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

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

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

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. Southwest Airlines: Pioneering the concept of LCC.

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

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