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




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


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


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



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







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

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

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

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

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

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

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

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 .

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

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

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

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

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


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

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

Dominant logic changes.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. strategic variety) is apparent. 23 . when radical changes in the internal and external environment (i. To put it more simply. 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

– 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. experience. – Constructive Bargaining – Agree to disagree. 38 . and skills that fosters experimentation and questioning and challenge around a shared purpose. A learning organization must continuously focus on unlearning as well. – Experimentation – Fosters a culture of risk taking.LEARNING ORGANIZATION  A learning organization is capable of continual regeneration from knowledge. – Informal Networks – Emerging of new ideas.

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


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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


national. It reflects the customer needs it intends to satisfy. 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. dominant. 70 . related. It indicates the quality of growth an organization is looking for. unrelated) and geographical scope (local. It determines the locus a firm encounters with internal and external environment.GRAND STRATEGY       It is concerned with the overall business scope (single. It provides broad direction to the groups vision and mission.CORPORATE .

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

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

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

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

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

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

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

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

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


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



Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power


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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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


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

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

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

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

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

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

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

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


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.STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent.

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

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

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 .

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

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

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

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

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

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

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

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

Disinvestment involves selling in phases. Divest – Selling a part or the entire business at one go. Portfolio – An organization is perceived as a portfolio of businesses. BCG – Boston Consulting Group. SBU – A business unit which is strategically different from another and also shares a different SIC code. Gap Analysis – It emphasizes what a firm wants to achieve.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. 107 .


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

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

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

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

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

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 .

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

It tries to compete through every means.stuck in the middle. 116 . It will have a competitive disadvantage vis-à-vis a clearly positioned generic player. unless such a player is capable of discovering a profitable segment. It is usually the result of a firm not willing to make trade offs.STUCK IN THE MIDDLE     A firm that engages in a hybrid strategy and fails to achieve a competitive advantage because it was ill conceived will be . but achieves none. Industry maturity will usually widen the gap. The positioning therefore gets – blurred. leading to what is called – straddling.

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

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

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

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

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

brands. 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. positions based on resources which are unique and inimitable are far more sustainable even in the long term. However. Intangible – These refer to goodwill. They are a standard in nature. A firms resources can be classified into – Tangible – These refer to real assets. and complex learning experiences in integrating and harmonizing technologies (distinctive capabilities) that play an important role in delivering competitive advantage through “causal ambiguity”. patents. 122 .

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


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

In today's world of discontinuity.STRATEGIC ADVANTAGE PROFILE (SAP)       Organizations have to systematically and continuously conduct exercises to identify its SAP. 126 . Identification of SAP is critical for and stretching and leveraging of resources. In most cases SAP is hidden and dormant. Internal strategic fit between its strategy and dominant logics is essential for the top management to stretch and leverage SAP. SAP changes from time to time. 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.VALUE CHAIN ANALYSIS    A value-chain segregates a firm into strategically relevant activities to understand its composite behaviour. Substantial cost reductions also follow. Today SCM is integrated with greening the environment as CSR practices. Competitive advantage arises not from an individual activity but a stream of inter-related activities. and enhanced customer tracking – higher market share. A VC is often compared with a relay team. VC pay-offs: better product availability. Inventory Mgt to Logistics Mgt to Supply Chain Mgt (SCM).e. kaizen or internal customer). faster product launches.

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 .

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

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

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

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

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.

Firm Y’s Strategy Use Radio +3 +1 Use Newspaper +7 -2 134 Firm X’s Strategy Saddle Point Use Radio Use Newspaper Firm X’s Pay-Off Matrix . A saddle point is a situation where both the players are facing pure strategies.PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy.

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). However. collaboration or cooption. It represents the classical “prisoner’s dilemma”.g. iteration) rather than through collusion (E. 135 . 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. This is usually through learning by “experience or observation” (i. Repeated Games – In this situation the players interact repeatedly with each other sub-optimizing the outcome possibilities. Yahoo Vs Microsoft).e.

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


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


System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138



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


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




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


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

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

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

Performance Budget – SBU managers need to justify the distinctive resources in terms of the opportunity it is pursuing yields the highest possible pay-offs. Zero Based Budget – In this case the budget of a SBU has to be worked out right from the scratch. 146 .RESOURCE ALLOCATION     Resources allocation includes tangible resources (Eg. skills) also includes complex resources like capabilities and competencies.e. brands. Intangible resources (Eg. minimum requirement). 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. patents. land. labour.

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

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

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

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

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

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

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

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

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

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

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

158 . Skills – An organizations capabilities and competencies. over time. Systems – The procedures. 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. Structure – The way in which the organization's units relate to each other in terms of their commonalities. Staff – Human inter-relationships. to reach identified & stated goals. formal & informal . Style – The way in which the top management influences the functioning of an organization. processes and routines that characterize how work should be done.

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

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

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

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

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

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

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

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


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


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


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

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


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


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


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

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

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

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

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

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

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

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

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

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

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

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

Most managers tend to rely on traditional measures of performance having its origin in finance as they are well tried and tested.CONCEPTUALISATION     A company’s performance depends on how it measures performance. 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. 186 . rather than effects. Organizations need to move from financial to strategic performance.BSC . These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static.

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

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

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

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

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


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

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

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

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


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

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

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

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

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

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

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

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

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

Turnaround is the primary motive. 207 . Downscoping – It involves reducing the business and/or geographical scope of a firm (Aditya Birla group). of operating units. 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. Survival is the primary motive. keeping the composition of business intact (Jet Airways). of a firm’s employees and sometimes in the no. 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.

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview.e. creeping acquisition). Hike – An acquirer who has already picked up a 5% has to make a mandatory disclosure for every additional 1% stake that it acquires.SEBI TAKEOVER CODE. . Acquirer – Someone (individual or firm) who picks up an atleast 5% stake without mandatory disclosure having an intention to wrest management control (i. 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. Not knowing when to stop. falling market share). decluttering. downsizing). declining margins. Thus efficiency was grievously hurt. 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. 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 .

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

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

ABOUT THE DREAM Which customers will you be serving? What will the potential customer look like? Who will be your future competitors? What will be the basis of your competitive advantage? Where would your margins come from? What will be your future competencies? Which end product markets would you cater? 270 .

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

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

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

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

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 Curve t1 t2 t3 Time t4 t5 277 .LEARNING TO FORGET P1: The degree of learning in current period is directly proportional to the degree of unlearning in the previous period.

It represents the collective learning's of an organization centering around diverse streams of technologies. Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage. It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times. Leverage – They are the gateways to future markets. 278 . 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.

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

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


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


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



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



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



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



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


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

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

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

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

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

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

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

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

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

However. a multiple currency is preferable where the business cycles of member nations are different. 297 . but it may have spill-over effects. Transparency – A single currency is transparent and competitive. 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. it helps avoiding transaction costs associated with a multiple currency. Trade Block – It will strengthen the EU identity which would not have been possible otherwise.

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

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

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

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

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


Innovations typically paves the way for more secured and improved lifestyle for consumers in general. While innovation typically adds value for organizations. 304 . 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. innovation is the first attempt to carry it out in practice. but has inherent risks involved as well.INNOVATION      An invention is the first occurrence of an idea for a new product or process. it has destructive effects as well.

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

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

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


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

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

however that possibility is slowly atrophying. 311 311 . In most emerging markets where the IP climate is not so favorable.HOW TO PROTECT INNOVATION?     Without adequate protection (external or otherwise) the effects of innovation does not translate to performance. companies are increasingly relying on internal protection to sustain innovation effects. 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.

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

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

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

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

316 316 . Independence of the entity's auditors: Identification.. assessment and mitigation of risks and retirement by rotation over a fixed period of time. They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting. 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.

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

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

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

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

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

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

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



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

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

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

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

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

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 .

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

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

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