BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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. 1910). a radical change in the business environment brings about discontinuity. The first major discontinuity in the history of global business environment was the .Industrial Revolution. – 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. 12 .

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

ENVIRONMENTAL CHANGE Phase IV: Horizon of Scenarios 2 1 Phase I: Extrapolation of the past 1 3 1990 onwards 1 2 1 3 1A 1B 2A Prior to 1950 Phase II: Discrete Scenarios Phase III: Range of Scenarios 1970 to 1990 2 2B 1950 to 1970 14 .

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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. Leveraging Crisis – A sudden crisis or an opportunity should be used as a trigger to facilitate acceptance and implementation of change. Agent of Change – Formal ratification of a change plan through MBO. 36 . The broader objective should serve the overall interest of the organization. Adaptation – As implementation progresses.

Dominant logic’s are the cornerstones of change when strategic transformation is apparent. As it brings 37 with it a different dominant logic. Dominant logic’s are very rigid and sticky and prone to inertia.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. . It creates blinders. Strategic transformation becomes smooth through a change in top leadership.

– 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.LEARNING ORGANIZATION  A learning organization is capable of continual regeneration from knowledge. – Constructive Bargaining – Agree to disagree. and skills that fosters experimentation and questioning and challenge around a shared purpose. It helps prevent a strategic drift from occurring at the first place. experience. A learning organization must continuously focus on unlearning as well. 38 . – Informal Networks – Emerging of new ideas.

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

events. A manager has to continuously scan the environment to ensure alignment of the strategies with the radically changing environment. Environmental scanning is very important component of strategic planning. Environmental factors can be external as well as internal to the organization. resources and ideas move unhindered. 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. 42 . The world is flat.ENVIRONMENTAL SCANNING     The environment is defined as the aggregate of conditions. not guided by any boundaries. It is exploratory in nature.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

within a well defined market segment. Ujjala. Britannia).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. 74 . (Eg. – Elongated product life-cycle. Market penetration can be achieved by – increasing sales to current customers. convert competitors customers. – Suitable for industries where scope for technological breakthrough is limited. Nirma. – Helps firms which are not comfortable with unfamiliar terrain. – The company carries a risk of product obsolescence. direct non-users to users.

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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.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. What then is the magical number? 93 . Dominant logic enables top managers to selectively scan the environment and make trade-offs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

Firm Y’s Strategy Use Radio Use Radio +2 +6 Use Newspaper +7 -4 133 Firm X’s Strategy Use Newspaper Firm X’s Pay-Off Matrix .BIASED AND UNBIASED GAME  A game is said to be biased when one of the players have a disproportionate chance of winning. 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 .PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy. A saddle point is a situation where both the players are facing pure strategies.

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

– Building incentives for customer loyalty. . Game theory relies on the principle of rationality. 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. It results in a shift in the productivity frontier. – Making pricing more transparent.CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. but 136 players do not always behave rationally.

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

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

assuming responsibility. leading to a tall structure. as span is broader. It includes the desire for independence. Environment & People – Economic and political conditions have a major bearing on structure coupled with the attitude and aspirations of the people in the organization. Technology – With more and more convergence of technologies in business. facing challenges & crises. 150 .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. structures are becoming flatter and more simpler.

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

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

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. . 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

Dell: Customized configuration of computers. Caterpillar: 48 hours delivery anywhere in the world. Citi Bank : Priority banking services. Maruti: Certified “true value” pre-owned cars. Microsoft: ESOP to employees. Infosys: Customized work-stations. TCS: Referencing potential new recruits. ITC: Shareholders factory visit. AmEx: Outsourcing data warehousing mining. MARG: Set-top box to study viewing patterns. Honda: CEO’s visit to dealers.
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TYPES OF BENCHMARKING
Functional – Used by companies to improve a particular management activity. Eg. Motorola learnt delivery scheduling from Domino’s. Process – Improving specific key processes and operations from experiences in similar businesses. Eg. Ford adopting assembly lay-out plan of Toyota. Competitive – It involves assessing the sources of competitive advantage and imitating them. Eg. Samsung leveraging miniaturization skills of Sony. Strategic – It involves assessing business models and replicating them in a different market. Eg. Reliance replicating AT&T business model.
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HOW TO BENCHMARK?

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

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

BENCHMARKING - ADVANTAGES

  

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

Strategy is more of creating best practices rather than copying them. . It can at best complement it.BENCHMARKING .e. clustering). the more similar they end up looking. Benchmarking is useful for bringing about operational efficiency.LIMITATIONS     More and more companies benchmark. While strategy is all about differentiation and not looking alike. 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.

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

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

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

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

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

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

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

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

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

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

Organizations need to move from financial to strategic performance. Most managers tend to rely on traditional measures of performance having its origin in finance as they are well tried and tested. 186 . 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 . 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.

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

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

of times covered in media No. of new product launches Vs competition Product pricing Vs competition 189 .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 product innovations 190 . of new patents registered Time to develop next generation products Average and spread in operating cycle % of products that equal 2/3 sales No.LEARNING PERSPECTIVE GOALS Technology Manufacturing Focus Timing MEASURES No.

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

STRATEGY MAPPING 192 .

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt.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. Tatas take-over of Corus for US $11. involving 608 pence per share).The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. It provides greater leverage as well as management control.3 billion. Wipro). 205 .

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

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

e.STRATEGIC CHANGE     One of the most difficult components of organization restructuring is the mindset of the top management represented through its dominant logic and its shared values reflected in cultural orientation. the more difficult it becomes to uproot the paradigm (i. thumb rules) of the top management. The dominant logic represents the perceptions and biases (i.e. 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. 208 . Strategy change is unviable without a preceding change in its dominant logics. The longer the period. inertia).

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

.WHY TURN AROUND MANAGEMENT?  Some interesting insights .. . January 1997). 215 (Govindarajan and Trimble... – Only seven of the first fifty Indian business groups in 1947 were even in business by the turn of this century.. 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. still exist as on 2005.. Source:  Why do firms atrophy? (Business Today.

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

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

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

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

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

The response must match the cause of the decline. asset reduction. the response should be operational. the response should be strategic. 221 . 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). Strategic responses focus on changing or adjusting the business the firm is engaged in through long term moves such as – integration.RESPONSE INITIATION    Turnaround responses are typically categorized as operating or strategic. If the underlying cause is internal efficiency. new market initiatives. diversification.

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

Synergy comes from projects which would not have been undertaken if the two firms stayed apart (Eg. However. Hotmail). shareholders can accomplish the same at a much lesser cost.VALUING FINANCIAL SYNERGY    Diversification – Reduce variability in earnings by diversifying into unrelated industries. 253 . 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. ITC – Bhadrachalam Paper). and without paying take-over premiums. Tax Benefits – Tax benefits may accrue from tax entitlements and depreciation benefits unutilized by a loss making firm.

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

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

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

downsizing). declining margins. decluttering. Thus efficiency was grievously hurt. most often they ended up cutting corporate muscle as well and became anorexic.THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. falling market share). Not knowing when to stop. CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. 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 future is not about catching up with competition. However. On the contrary only 20% of Japanese managers believed that quality will be a source of competitive advantage of the future.S. 268 .THE PRESENT OF COMPETITION    Beyond Reengineering – Numerator based managers (innovation) at least offers some hope. but not of the future. top managers believed that quality will be a source of competitive advantage of the future. ensuring only survival of the present. but forging ahead in competition. incrementalism or nominal innovation has almost reached a plateau. A poll in circa 2000 revealed that 80% of the U.

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

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 .

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

Such a process is called institutionalization (from people centric to organisational centric). 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. More importantly.ABOUT THE EMPOWERMENT      Bring about a revolution (a paradigm shift) in the organization. 272 . Transformational leaders merely lead the way. the revolution must start at the bottom and spread in all directions of the organization.

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

The farther one can see in this endless space. each point in space represents a unique business opportunity.HOW DOES THE FUTURE LOOK LIKE?     There is no rule which says that for every leader there will be a follower. 274 . We are in the midst of a 3600 vacuum. 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. but hundreds. as on their aspirations. greatness from mediocrity. the farther it will be away from competition.

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

Rate Uncertainty – A single currency eliminates the risk of competitive devaluations. Trade Block – It will strengthen the EU identity which would not have been possible otherwise. but it may have spill-over effects. 297 . it helps avoiding transaction costs associated with a multiple currency. Transparency – A single currency is transparent and competitive. 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. However.

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

.culture (food habits). Distribution – It depends on the market characteristics (fragmented – concentrated). lifestyle (petroleum 299 outlets – departmental stores). promotion (surrogate advertising). usage (talk time). 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 . technology (microchip). Pricing – It depends on the competitive structure (PLC – Kellogg's). buying patterns (spread).

Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg. . equity is cheap in India). 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). Accounting Norms – The accounting norms of one country (AS .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. debt is cheap in US.

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

Outsourcing – A company having a core competence may be the source of global outsourcing (Eg.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). reduce power costs) vis-à-vis infrastructural bottlenecks. . SCM – Use of ERP to network the extended enterprise 302 across the globe.

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

311 311 . 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.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.

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. 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.

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

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

The key roles of chairperson and CEO should not be held by the same person and their offices be clearly separated. Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders.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. 315 . including the society at large. Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors.

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

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

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

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

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

Public image: Entrepreneurs are increasingly relying on public image as a source of competitive advantage and a higher financial discounting. 321 . 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. Fear of government interference: Excessive quench for profits may lead to build up of adverse public opinion compelling the government to intervene (Eg. MRTP).GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy.

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

It helps in creating powerful leaps in value for both the firm and its buyers. it will exist 327 in the future as well. rendering rivals obsolete and unleashing new demand.WHAT IS BLUE OCEAN?    Tomorrow’s leading companies will succeed not by battling in red oceans. It is only the frames of the . 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. 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.BLUE OCEAN STRATEGY IMPERATIVES       Prospects in most established market spaces – red oceans – are shrinking steadily. . Population shrinkage across a no. information imperfections atrophy instantly. As trade barriers between nations & regions fall. Niche markets & monopoly havens are continuing to disappear. Technological advances have substantially 329 improved industrial productivity. of European nations.

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

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

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

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

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

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