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.
1

INTRODUCTION

2

STRATEGY - DEFINITION

 

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

 

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.
4

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.
5

STRATEGIC MANAGEMENT FRAMEWORK

Fit

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

Fit

Fit

Fit
6

Management

Technological

Strategic

Operatio n

Political

HR

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

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

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

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

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

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 . A paradigm is a dominant belief about how the business and its environment operates.EVOLUTION OF MANAGEMENT     As Peter Drucker refers to it. 12 . – Mass Production Organization Size – Complicated Processes – Complex Structures Evolving of an emerging paradigm – survival of the fittest (Fayol & Taylor.Industrial Revolution. 1910). a radical change in the business environment brings about discontinuity.

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

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

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

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

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

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

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 .

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

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

To put it more simply. It is core to the strategic intent of the firm.e. 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. when radical changes in the internal and external environment (i. Dominant logic changes. it can be perceived as a set of working rules (similar to thumb rules) that enables the top management to decide what can be done and more importantly what cannot be done. strategic variety) is apparent.

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

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

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

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

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

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

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

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

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

– Influential stake-holders back out. Other causes – – The plans are unworkable and utopian. 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.INTENDED & REALISED STRATEGIES  An intended strategy is an expression of interest of a desired strategic direction. A realized strategy is what the top management actually translates into practice.

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

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. 36 . 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. The broader objective should serve the overall interest of the organization. Adaptation – As implementation progresses.

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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 .

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

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

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

Tata). Reliance).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. 54 . Resource Profile – It highlights the capabilities (generic) or competencies (business specific) of the firm. Cohesiveness – Degree of bonding existing across affiliated firms. Inertia – Excessive commitment to past strategies prevents firms from tapping emerging opportunities. dominant or related diversified or unrelated diversified businesses (Infosys.

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

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

EXPERIENCE CURVE .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 .

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

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. It is one of the earliest models in environmental scanning.VULNERABILITY ANALYSIS . Business Intelligence – Bankers. Suppliers. Customers. Acronym for Strengths – Weaknesses – Opportunities – Threats. A SWOT audit involves – Company Records – Annual Reports. Case Studies – Structured Questionnaires. Competitors. Interviews. Press Clippings & Interviews. Observation. . Websites. 59 Analysts.

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 .

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

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

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

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

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

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. selectively. . 66 Vertical integration is a powerful strategy. High investment intensity acts as a drag. An organization can draw upon the experience of its peers in similar situations.PROFIT IMPACT OF MARKET STRATEGY       PIMS is a database model developed by GE and later extended by HBS to examine the impact of a wide range of strategy variables on business performance. Relative attractiveness of the market.

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.PIMS . – Contexts may vary across countries. Authenticity of data is of prime importance – Contexts drawn across one organization may not be applicable to another. . when radical changes in the economy takes place. therefore 67 validity may be a question. – Contexts may vary over time.LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges.

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

Firms usually engage in conglomerate diversification when emerging opportunities are very attractive and offers potential growth opportunities. core business).e. 87 . synergies pulling in opposite directions). myopia). and are also strategically dissimilar. lack of knowledge of competitive forces).e. – Cost of neglect (i. – Cost of dysynergy (i.e. lack of strategic intent.e. – Cost of ignorance (i. Drawbacks of unrelated diversification – – Cost of failure (i.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 .

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent. In most cases the trade-off is between resources and opportunities. 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 . Dominant logic enables top managers to selectively scan the environment and make trade-offs.

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

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

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 .

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

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

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

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

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

MATRIX Distinctive Capabilities Strong High Medium Weak Stability Industry Attractiveness Diversify (++) Intensify (+) Med Intensify(+) Stability Harvest (-) Low Stability Harvest (-) Divest (.-) 104 .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. Divest – Selling a part or the entire business at one go. BCG – Boston Consulting Group. SBU – A business unit which is strategically different from another and also shares a different SIC code. Portfolio – An organization is perceived as a portfolio of businesses. Gap Analysis – It emphasizes what a firm wants to achieve.TERMINOLOGIES       Harvest – It entails minimizing investments while trying to maximize short-run profits and cash flow with the intention to exit the business in the near future. 107 .

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

COMPETITIVE POSITIONS Competitive Advantage Cost Differentiation Product Differentiation Competitive Scope Broad Cost Leadership (Toyota) Product Differentiation (General Motors) Narrow Cost Focus (Hyundai) Differentiation Focus (Mercedes) 114 .

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

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

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

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

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

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

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

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

e. Therefore firms should concentrate on developing complex resources that forms the very basis of differentiation. Capabilities can be generic (i. Typically. There is a high degree of internal and external causal ambiguity involved in it. 123 . can be leveraged across businesses) or specific to a particular business. differentiation based on capabilities can be sustained even in the long run. Hence. but not necessarily. They play a very critical role in shaping competitive advantage.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.

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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

PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy. 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 .

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

CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. In a market dominated by price-based differentiation one may attempt to change the rules of the game by/when – – Bases of differentiation dependent on clear identification of what customer wants or value. . It results in a shift in the productivity frontier. – Making pricing more transparent. but 136 players do not always behave rationally. Game theory relies on the principle of rationality. – Building incentives for customer loyalty.

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

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

shift from compliance to commitment. He should be an agent of change. Pragmatism is the ability to make things happen. Install a system of shared beliefs and values. In contrast. 145 . 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. bring about transparency.ROLE OF TOP MANAGEMENT     To bring about change and to implement strategies successfully. companies depend more on transformational leaders than transactional leaders.

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

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

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

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

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

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

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

It attempts to answer the following questions – Is the strategic intent appropriate to the changing context? Are the organizations capabilities still holding good. detecting changes in the external and internal environment and taking corrective action wherever necessary. 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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.
170

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.
171

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.
172

WHOM TO BENCHMARK?

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

203 . Reliance Ent). – Split-Up – In a split-up. in which the equity is allotted amongst the existing shareholders on a pro-rata basis (Eg.HIVE OFF   Spin-Off – A spin off is the creation of a new entity. 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. Tata Industries selling 20% stake to Jardine Matheson). – Split-Off – In a split-off. the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company. the entire parent company loses its identity after being split into a number of subsidiaries.

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

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

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

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

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.e. inertia). Dominant logic becomes deep-rooted in organizational contexts depending on the period it is in place (tenure of the CEO). The longer the period. the more difficult it becomes to uproot the paradigm (i. The dominant logic represents the perceptions and biases (i. 208 . thumb rules) of the top management. Strategy change is unviable without a preceding change in its dominant logics. as strategies are based on such beliefs and biases.

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

220 . Identification of the stimulus leads to the arrest of the downfall.DECLINE    Decline is the first stage in the turnaround process. 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. primarily dwindling resources and capabilities are responsible for decline. It has its origin in “resource led stretch” and subscribes to the view that a firm has substantial power to override the context.

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

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. which may be unavailable to a focused firm. 222 .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. when decline deepens shifts in strategic position becomes essential. Untangling this question brings into focus three events – Domain – Many of the strategic cures have limited applicability for an affiliated firm.

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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. 228 . Develop a product through its crude stage. Different levels of licensing Manufacturing without embracing any technology (CBU). Become a systems integrator (CKD). 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. as in Tata Indica.

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

Synergy can be negative as well. Sources of operational synergy – Horizontal Synergy – Gains come from economies of scale which reduces costs. when the “fit” between the two entities is very poor. 252 . – Vertical Synergy – Gains come from controlling the supplychain and savings in transaction costs. or from increased market power which increases sales and margins. Innovative product – Good distribution network).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.

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

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

255 . The value of wrestling control is inversely proportional to the perceived quality of that management. – – Value of Control = Value of firm after restructuring Value of firm before restructuring.VALUING CORPORATE CONTROL     Premium of M&A are often justified to control the management of the firm. Assessment of perceived quality is critical. since a restructuring can lead to significant increase in value. 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.

256 . The assets of the acquired company are used as collateral for the borrowed capital.LEVERAGE BUYOUT (LBO)     The basic difference between a take-over and a LBO is the high inherent leverage (i.e. Confidence of investment bankers and the international financial community is essential. sometimes in combination with the assets of the acquiring company. It is a very costly and risky proposition. 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.

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

falling market share). 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 . decluttering. CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. Thus efficiency was grievously hurt. declining margins. downsizing). Not knowing when to stop.THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. most often they ended up cutting corporate muscle as well and became anorexic.

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

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

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

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

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

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

each point in space represents a unique business opportunity. 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 it will be away from competition. As there is no one future. What distinguishes a leader from a laggard. is the ability to imagine in a different way what the future could be. 274 . but hundreds. The farther one can see in this endless space. greatness from mediocrity. Companies of the future will be not based so much on the strength of their resources.

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

297 .SINGLE Vs MULTIPLE CURRENCY     Transaction Costs – Though the initial cost of introduction of a single currency is very complicated and costly. Transparency – A single currency is transparent and competitive. 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. but it may have spill-over effects. a multiple currency is preferable where the business cycles of member nations are different. it helps avoiding transaction costs associated with a multiple currency. However.

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

Corporate governance aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms. In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders.CORPORATE GOVERNANCE    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. 312 312 .

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

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

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

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

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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 .

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

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

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

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

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

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

Sign up to vote on this title
UsefulNot useful