BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Fit

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Management

Technological

Strategic

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Political

HR

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

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

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

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

11 . Allied Forces Vs Germany (WW-II) – Strategy: Forging alliances. – Toyota’s entry in the US. – Yahoo and Microsoft challenging Google. – Reliance’s entry into telecom. challenging GM and Ford.SOME PARALLELS     Japan’s attack on Pearl Harbour – Strategy: Attack where it hurts the most. 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.

1910). A paradigm is a dominant belief about how the business and its environment operates. 12 . – 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 things happening around the firm when totally disconnected from the past leads to a paradigm shift. The first major discontinuity in the history of global business environment was the .Industrial Revolution. a radical change in the business environment brings about discontinuity.

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

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 .

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

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

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

– Organizations can significantly alter the way an industry functions. K. but exploiting the resource differences among them. 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. 18 . They are complex resources and undermines a firms competitive advantage. – It enables a firm to deliver unimaginable value ahead of time.APPROACHES TO STRATEGY  Core Competence – C. locating in most attractive industries and pursuing the same strategy.

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

e. Dominant logic changes. 23 .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. when radical changes in the internal and external environment (i. It is core to the strategic intent of the firm. To put it more simply. 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 represents the company’s audacious.  24 .VISION It is a dream (not a forecast) about what the company wants to become in the foreseeable future. It provides an unity of purpose amidst diversity of personal goals. – It stands for the unchanging core values of the company. It enables the top management to remain focused. beyond just making money. It ensures that the company does not wander off into unrelated zones or fall into an activity trap. but achievable aspirations.  It is a combination of three basic elements – – An organizations fundamental reason for existence.

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

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

its reason for existence. It enables the firm to define its business landscape and identify its competitive forces.  27 . Although the purpose may change over time. A broad mission statement helps in fending competitors.  It serves as a road map to reach the vision.MISSION Mission defines the space that a business wants to create for itself in a competitive terrain.  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.

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

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

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

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

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 .

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

Survival of the fittest MNC Onslaught – Enhancing stakes – Power Equation – Joint Ventures – Technological Alliances – Take-over threat. 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 .

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

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

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

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

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

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

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. Business Scope – The intention whether the firm wants to be in a single. Resource Profile – It highlights the capabilities (generic) or competencies (business specific) of the firm. Tata). dominant or related diversified or unrelated diversified businesses (Infosys. Reliance). 54 . Inertia – Excessive commitment to past strategies prevents firms from tapping emerging opportunities.

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

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

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

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

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

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

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

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

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

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

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

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. Relative attractiveness of the market. An organization can draw upon the experience of its peers in similar situations. selectively. High investment intensity acts as a drag. 66 Vertical integration is a powerful strategy.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. .

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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. jugaad or frugal engineering).HYBRID STRATEGY     A hybrid strategy is the simultaneous pursuit of cost leadership and differentiation. in a hyper competitive context the two strategies need not be mutually exclusive.e. and usually outperforms a stand alone generic strategy. Reducing cost does not always involve a sacrifice in differentiation. 115 . Though cost leadership and differentiation are inconsistent. Tata Nano). similarly differentiation may not always lead to rising costs (i.

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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. Operational effectiveness is not strategy. – First order fit refers to simple consistency between each activity and the overall strategy. 129 . – Second order fit occurs when activities are reinforcing amongst them. A learning organization helps create strategic fit. A high fit involving a complex chain of activities drives both competitive advantage and its sustainability. – Third order fit refers to optimization of effort.

but not necessarily. It should satisfy the following conditions – Contributes significantly to customer benefits. – Can be sustained even in the long run. These skills results in distinctive activities and processes. – Cannot be easily imitated or substituted. Core competence has a high degree of external and 130 internal causal ambiguity embedded in it. 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. . A core competence usually has its roots in technology. – Can be leveraged across businesses.

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

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

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

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

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

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

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

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

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

It attempts to answer the following questions – Is the strategic intent appropriate to the changing context? Are the organizations capabilities still holding good. . competitive advantages becoming disadvantages? Has the company acquired any new competency? Has the company been able to overcome the 153 environmental threats.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.

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

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

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

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

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

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

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

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

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

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

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

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

often the new firm is “left alone”. Larger geo-graphical diversity. Consolidation in a fragmented industry.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 . Integration of organization structure & cultures is difficult.Corus). Tata Steel . Most countries have stringent laws that prevents hostile take over. Inform SEBI / Stock Exchange after 5% stake is 166 acquired. Instant access to capacities and markets.

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

  

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

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

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

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.

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

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

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

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

touching upon a limited aspect of a value chain. zero defects. Management of quality was traditionally inspect it .fix it in nature. 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. It is deeply embedded as an aspect of 182 organisational life & culture.TOTAL QUALITY MANAGEMENT     Objective – Management of quality ensures conformance to certain pre-set standards. . which ensures good market standing.

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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. 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). Tatas take-over of Corus for US $11.3 billion. Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt. Wipro).CAPITAL RESTRUCTURING     Capital Restructuring . 205 .

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

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. usually as a result external turbulence. of a firm’s employees and sometimes in the no. of operating units. Turnaround is the primary motive. Survival is the primary motive. Downscoping – It involves reducing the business and/or geographical scope of a firm (Aditya Birla group). 207 . keeping the composition of business intact (Jet Airways). It can be carried out in the following ways – Downsizing – It is a systematic one-time reduction in the no.

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

209 . 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. Companies achieve real agility only when people at every level rise above the ordinary to face the challenges – revitalization or transformation.e. 20% of the people carry out 80% of the changes).

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

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

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

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

TURNAROUND MANAGEMENT 214 .

– 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.. – Less than 10% of the Fortune 500 companies as first published in 1955. January 1997).WHY TURN AROUND MANAGEMENT?  Some interesting insights .. 215 (Govindarajan and Trimble. .. Source:  Why do firms atrophy? (Business Today.

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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. Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview. Control – A special resolution of 75% of the share 243 holders approving the change of guard.e. Hike – An acquirer who has already picked up a 5% has to make a mandatory disclosure for every additional 1% stake that it acquires.SEBI TAKEOVER CODE. creeping acquisition). .

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

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

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

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

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

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

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

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

Synergy can be negative as well. – Vertical Synergy – Gains come from controlling the supplychain and savings in transaction costs. Innovative product – Good distribution network). 252 . 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. – 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. Sources of operational synergy – Horizontal Synergy – Gains come from economies of scale which reduces costs.

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

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

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

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

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

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

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

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

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

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

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. Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg. so that nothing is left for the raider to strip off. Rights). Poison Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive. 263 .

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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

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

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

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

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

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

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

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

278 . It cannot be matched even by its closest competitors. 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. Leverage – They are the gateways to future markets. It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times.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.

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

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

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

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

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

The basic premise is that firms cannot exist in vacuum. 319 . However. Over a period of time.SHAREHODER – STAKE HOLDER THEORY    Till the early part of the 20th the basic objective of modern organizations was to provide goods and services for public consumption for profit maximisation. the short-term view of profit maximisation gave way to a more broader and mediumterm view wealth maximisation of the shareholders. corporate philanthropy should be a part of every corporate mission. 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.

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

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

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

BOTTOM OF THE PYRAMID    With the market across most developed markets including the US getting saturated. Prahalad notes that future markets exist collectively. they're helping millions of the world's poorest people to escape poverty. 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. 323 . C. across the world's billions of poor people having immense untapped buying power. In turn companies by serving these markets. K.

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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

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

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

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

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

Southwest Airlines: Pioneering the concept of LCC. Sony Play Station: Redefining machine-human interface in entertainment and targeting an altogether new user base. .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.

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

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