BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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

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

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

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

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

competitors. 17 . – The organization will outperform the industry where environmental forces are weak and vice-versa.APPROACHES TO STRATEGY  Positioning Approach – Michael E. new entrant. 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. – The environmental forces comprises of – supplier. – An organization is seldom in a position to influence the larger business environment. substitutes.

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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 .

when radical changes in the internal and external environment (i.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. Dominant logic changes. To put it more simply. 23 . It is core to the strategic intent of the firm.e. 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. strategic variety) is apparent.

– It stands for the unchanging core values of the company.  24 . 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 ensures that the company does not wander off into unrelated zones or fall into an activity trap. – It represents the company’s audacious. but achievable aspirations. It enables the top management to remain focused.VISION It is a dream (not a forecast) about what the company wants to become in the foreseeable future.

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

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

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

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

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

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

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

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 .

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

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

but the master scheme of the rational comprehensive scheme is not apparent. Strategy formulation and implementation are linked together in a continuous improvement cycle. 35 . 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.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. Learning is an integral part of logical incrementalism. this is not to be treated as “muddling”.

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

43 . which may be different from the past impact. It is particularly important that PESTEL be used to look at the future impact of environmental factors. 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. 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. It is not intended to be used as an exhaustive list.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent. In most cases the trade-off is between resources and opportunities. Dominant logic enables top managers to selectively scan the environment and make trade-offs. What then is the magical number? 93 . It attempts to answer the following questions – How effective has the existing strategy been? How effective will that strategy be in the future? What will be the effectiveness of alternative strategies? It is impossible for a manager to assess all the alternatives.

if addressed. For an optimal choice the following four issues need to be resolved – Is the strategy clearly identifiable? Is it consistent with the resources of the firm? Will it be able to exploit the opportunities in full? Is it in tune with the values and beliefs of the firm? 94 . The key task before a top manager is to identify the right problems. They must choose problems which will lead to the right kind of opportunities. To identify the right problems.SELECTIVITY IS THE KEY       The role of a top manager is not to solve a problem. nor is to a define a problem for others to solve. will help the firm achieve its intent. managers need to ask the right questions.

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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. Delta Lock In – Two dominant players co-opt to selfreinforce and create or escalate an entry barrier. 110 . Resource Based View – Obsession with competence building. involving harmonizing and integrating multiple streams of technologies. developing competitive advantage (Porter). preventing new entry and/or competition (Hax & Wilde). identifying critical success factors. leveraging (Prahalad).

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

127 . each of the players need to be efficient backed by sufficient coordination at the contact points (i. VC pay-offs: better product availability. kaizen or internal customer). Today SCM is integrated with greening the environment as CSR practices. Competitive advantage arises not from an individual activity but a stream of inter-related activities. Inventory Mgt to Logistics Mgt to Supply Chain Mgt (SCM). faster product launches.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.e. Substantial cost reductions also follow. A VC is often compared with a relay team.

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 .

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

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

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

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

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

PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy. Firm Y’s Strategy Use Radio +3 +1 Use Newspaper +7 -2 134 Firm X’s Strategy Saddle Point Use Radio Use Newspaper Firm X’s Pay-Off Matrix . 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. Coke Vs Pepsi). iteration) rather than through collusion (E. Yahoo Vs Microsoft). It represents the classical “prisoner’s dilemma”. there is likely to be temptation by any of the players to try to steal the advantage over the other by breaking the rules of the game (Eg. However. 135 .g. collaboration or cooption. Repeated Games – In this situation the players interact repeatedly with each other sub-optimizing the outcome possibilities. This is usually through learning by “experience or observation” (i.e.

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. 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. Game theory relies on the principle of rationality. – Making pricing more transparent. . – Building incentives for customer loyalty. 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

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

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

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

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

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

A firm in several unrelated businesses usually employs a SBU structure. An appropriate organization structure & adequate control systems are essential to implement strategies and achieve stated goals. processes become people independent.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. 148 . Once the structure is in place. A single product or a dominant business firm usually employs a functional structure.

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

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

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

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

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. It attempts to answer the following questions – Is the strategic intent appropriate to the changing context? Are the organizations capabilities still holding good.

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

  

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

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

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

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

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

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

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

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

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

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

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

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

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

187 . and distinguish strategic problems from operational ones. 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.BSC – KAPLAN & NORTON (1992)  A BSC helps a manager to track and communicate the different elements of company’s strategy.  The most critical element of a BSC is to measure these four dimensions.

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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). 208 .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 longer the period. inertia). Strategy change is unviable without a preceding change in its dominant logics. thumb rules) of the top management. the more difficult it becomes to uproot the paradigm (i. as strategies are based on such beliefs and biases.

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

Create relentless discomfort with the status quo. Promote inventive accountability. process ownership. never take no for an answer. 210 . Encourage uncompromising straight talk. Questioning every basic action of the organization. it is not about winning but about learning. Understand and deliver the quid pro quo. Manage from the future. 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. Harness setbacks.

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

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

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

TURNAROUND MANAGEMENT 214 .

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

A category of underlying principles and concepts. process focuses on – A logic to explain a causal relationship between intervening variables. systems. 216 . and capabilities. and achieves sustainable performance recovery. While content focuses on endogenous and exogenous variables. As a sequence of events describing how things change and why they change (i.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. Stage Theory). Both content (what) and process (how) are equally important for a successful turnaround.e. skills.

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

LICENSING      Licensing – It is a contractual agreement between two legally independent firms whereby the licensor grants the right to the licensee to manufacture the licensor’s product and do business under its brand-name in a given location for a specified period of time for a consideration. refine processes and adopt necessary technologies (SKD). as in Tata Indica. Develop a product through its crude stage. 228 . 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).

Tata. Airbus – Boeing). It can be of the following types – Multipartner – Intends to share an underlying technology or asset.CONSORTIA     Consortia – They are defined as large inter-locking relationships & cross holdings between businesses in a similar industry. 229 . Collusion – Few firms in a matured industry collude to reduce industry output below the equilibrium level. leverage upon size to preempt competition by escalating entry barriers (Eg. Hyundai). 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. Coke – Pepsi).

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

enhance credibility. instead of hurrying into a relationship.learning organization. Partner selection is one of the critical success factors. preempt competition. 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. 231 . effective R&D management. design next generation products. Tata Motors – Fiat. Generic motives involved are .STRATEGIC ALLIANCE     It is an short to medium term understanding between two or more firms to share knowledge and risk. to gain knowledge and to obtain access to new markets (Eg.

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

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. 233 . Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology. Cultural orientation has been found to have a profound effect on top management’s strategic orientation (Eg. – Japan Vs US).

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

usually opportunistic (Eg. Vertical – It involves complimentarily (partially related) in terms of supply of inputs or marketing activities (Eg. Electrolux .Kelvinator). Godrej. ITC). Horizontal – It involves integration of two highly related businesses (Eg.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. 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. Reliance). 245 .

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

while the ultimate acquisition was made at 607 pence/share). Managing over-diversification. 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.MERGERS & ACQUISITIONS PITFALLS        Cultural differences (Eg. Overvaluation of buying firms (Eg. Top management overtly focused on due diligence exercise and negotiations. Inability to achieve synergy. neglecting core business. When Tata Steel started negotiations with Corus. 247 . Tata – Corus). Managing size.

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

A common shared vision. Blanket promotions across entities and confidence building exercises needs to be practiced. Immediate attempts to super impose structure and culture may cause bottle necks. active top management intervention in phases. 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.FRAMEWORK      Positive contribution to the acquired company.INTERNATIONAL M&A . 249 . Strong differences may stifle plans and its execution. Left alone syndrome.

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

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

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

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

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

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

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

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

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

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

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

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

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

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. Rights). so that nothing is left for the raider to strip off.DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control. Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg. 263 .

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

e. It is short-medium term with comparatively low levels of commitment.e. Neo classical economists believe that foreign investment may in fact be a win-win game. – FII (transfer of intangible resources) is fast but may have strong repercussions (i. hot money). 298 . 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. It is long term with high levels of commitment. – FDI (transfer of tangible resources) is slow but steady for the purpose of economic growth.

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

Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg. debt is cheap in US. . 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. 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). equity is cheap in India).

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

companies are increasingly relying on internal protection to sustain innovation effects. however that possibility is slowly atrophying.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. The most preferred strategy of internal protection includes imbibing “causal ambiguity” in the production process to make reverse engineering difficult. 311 311 . 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. 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. Corporate governance aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms.

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

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

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

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

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

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

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

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

Public image: Entrepreneurs are increasingly relying on public image as a source of competitive advantage and a higher financial discounting. people are becoming increasingly aware of their right to a decent and healthy life. 321 . 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.

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

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

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

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

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

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

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