BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

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

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

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 .

APPROACHES TO STRATEGY  Analytical Approach – Igor H. – It is primarily the top management’s prerogative. – Biases and prejudices has a very little role to play in strategic choices pursued by managers. Ansoff (1960) – Strategy can be segregated into certain mutually exclusive and inter-related components aimed at managing the growth of an organization. – The choice of strategy is primarily concerned with external ones rather than internal ones. 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  Design Approach – Alfred Chandler (1970) – Structure follows strategy. – Management control systems has a dominating role in influencing firm performance. everything else follows. how it will compete. Once the control systems are in place. – The top managers then decide on the type of organization structure & systems to be in place. 16 . who will be the top managers. Successful organizations align authority and responsibility of various departments in way to reach overall objectives. – Organization structure will precede and cause changes in strategy. The organization initially decides which industry to enter.

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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 .

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

– The environment context has changed. Other causes – – The plans are unworkable and utopian. – 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. Usually there is wide gap between the two when organizational politics is evident. – Influential stake-holders back out. .

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

36 . The broader objective should serve the overall interest of the organization. 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. Macro Broadcasting – The broad idea is floated without details to invite pros and cons leading to finer refinements. Agent of Change – Formal ratification of a change plan through MBO. Adaptation – As implementation progresses.

Strategic transformation becomes smooth through a change in top leadership. Dominant logic’s are very rigid and sticky and prone to inertia. 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. 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. .

38 .LEARNING ORGANIZATION  A learning organization is capable of continual regeneration from knowledge. It helps prevent a strategic drift from occurring at the first place. 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. – Informal Networks – Emerging of new ideas. – Organisational Slack – Enough free space. – Constructive Bargaining – Agree to disagree. and skills that fosters experimentation and questioning and challenge around a shared purpose. – Experimentation – Fosters a culture of risk taking. experience.

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

ANALYZING BUSINESS ENVIRONMENT 40 .

PLANNING & STRATEGIC PLANNING     Formal planning is a function of extrapolating the past. It requires a quantum leap (i. 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 based on the assumption of incremental change. It is reactive in nature. Competitive advantage provides the surest way to fulfill the strategic gap. It is based on the assumption of radical change. Strategic planning is a function of discounting the future. It is pro-active in nature.e. gap analysis). 41 .

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

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. Understanding the composite effect is critical. but also to analyze the complex linkages across them. which may be different from the past impact. It is not intended to be used as an exhaustive list. 43 . for which a holistic picture is required.

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

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

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

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

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

51 .e. It should not only be used to understand the forces. 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. incremental or otherwise. but also used to understand how they can be countered and overcome. profit potential) per se. The model should not be used as a snapshot in time. The five forces have strong cross-linkages. the forces are subject to changes. It depicts the attractiveness of an industry (i.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

KSF helps organizations spot early opportunities and convert them into value adding business propositions. It enables the top management to draw focus. 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 .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 .

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

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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 .

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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. Firm Y’s Strategy Use Radio Use Radio +2 +6 Use Newspaper +7 -4 133 Firm X’s Strategy Use Newspaper Firm X’s Pay-Off Matrix .

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

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

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

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

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

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

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

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

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

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

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

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. Technology – With more and more convergence of technologies in business. 150 . leading to a tall structure. facing challenges & crises. It includes the desire for independence. structures are becoming flatter and more simpler. assuming responsibility.FACTORS INFLUENCING STRUCTURE    Size – As an organizations size increases there is more specialization and differentiation leading to the top management moving away from operational issues and control.

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

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. To prevent deviation of fit. However.STRATEGY EVALUATION    Strategy evaluation centers around assessment of strategic fit. certain authors propose misfit as a source of superior 152 performance.  . Deviation of fit is detrimental to performance and may lead to strategic failure. strategies need to be evaluated on an ongoing basis to prevent deviations of fit.

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

It is open-ended as well as . 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. However. checking every premise is costly as well as difficult. Special Alert Control – It intends to uncover unanticipated information having critical impact 154 on strategies. It involves assessing – strategic thrusts and milestones.

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

  

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

LIMITATIONS     More and more companies benchmark. .BENCHMARKING . 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. but it cannot be used as a strategic decision making tool. clustering).e. It can at best complement it. Strategy is more of creating best practices rather than copying them. Benchmarking merely reorients profits in the hands of few to profits in the hands in the hands of many (i. While strategy is all about differentiation and not looking alike.

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

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

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

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

designing facilities. Implementation – Developing of a prototype. Introduction – Launching the product in the market. cost and effort necessary for the purpose of reverse engineering. Inaccurate assessment at this stage may lead to a failure of the entire project.e. 180 .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. machine tools to convert ideas into a marketable product (i. nano-technology). Usually in such cases segmentation and pricing is different from the original innovator.

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

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

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

equal participation).e. It is based on the principles of MBO (i. 6-Sigma). 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.TQM .STRATEGIES    Outsourcing – It is the process of self-contracting services and operations which are routine and mundane. of units meet preset standards (Eg. enabling the firm to concentrate on core activities essential to customer satisfaction. saving precious top management time.

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

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

 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. and distinguish strategic problems from operational ones. because they have too many. It has four dimensions – – How do customers see us? – What must we excel at? – Can we continue to improve and create value? – How do we look to shareholders?  Firms more often have problems.

ageing schedule) % of key customer transactions Ranking of key customer accounts No.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 visits or calls made % of NPA’s 188 .

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt. Tatas take-over of Corus for US $11.3 billion. Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg. 205 .The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg.CAPITAL RESTRUCTURING     Capital Restructuring . involving 608 pence per share). It provides greater leverage as well as management control. Wipro).

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

– Less than 10% of the Fortune 500 companies as first published in 1955. 215 (Govindarajan and Trimble..... . January 1997)... and that the thirty-two of the country’s largest business groups in 1969 are no longer among the top fifty today. still exist as on 2005. – 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 . Source:  Why do firms atrophy? (Business Today.

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

Switz Foods. 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. 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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. Tata Steel – Corus). with an objective to reinforce its growth trajectory or to take on the might of a comparatively larger player (Eg.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. Kingfisher – Air Deccan). 248 . Brooke Bond – Lipton). Growth – This stage may witness parallel merger of two firms of similar size. Decline – Horizontal mergers are undertaken to ensure survival.

A concern of respect and trust for the business of the acquired company. 249 .INTERNATIONAL M&A . Strong differences may stifle plans and its execution. Left alone syndrome.FRAMEWORK      Positive contribution to the acquired company. Blanket promotions across entities and confidence building exercises needs to be practiced. A common shared vision. 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. active top management intervention in phases.

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

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

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

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

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

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

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. debt component) at the time of buyout and rapid changes in capital structure over time.e. LBO facilitates a relatively smaller firm to bid for a comparatively larger firm in the bid for management control. Confidence of investment bankers and the international financial community is essential. It is a very costly and risky proposition. 256 . sometimes in combination with the assets of the acquiring company.

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

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

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

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

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

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

DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control. 263 . 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. Poison Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive. Rights).

264 . East India Hotels – Reliance Industries – ITC). Gray Knight – The target company takes the help of friendly company to buy the shares of the raiding company. But often the White Knight turns a betrayer himself (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. Green Mail – The targeted company buys large blocks from holders either through premium or through pressure tactics (Eg. Pac Man – The target company makes a counter bid to take over the raider company. Shapoorji Pallonji).

COMPETING FOR THE FUTURE 265 .

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

decluttering. downsizing). Not knowing when to stop. Thus efficiency was grievously hurt. CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. falling market share).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. 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 . declining margins.

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

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

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

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

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

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

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

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays. Bosch spark plugs are used by car manufacturers worldwide). 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. reduce power costs) vis-à-vis infrastructural bottlenecks. SCM – Use of ERP to network the extended enterprise 302 across the globe.

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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 .

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

the US government passed the Sarbanes – Oxley Act. 2002 to restore public confidence in corporate governance. 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. various laws were enacted to ensure proper usage of these funds. defines corporate governance (headed by Kumar Mangalam Birla) as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the 314 shareholders. After the Enron downfall. .

Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors. 315 . Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders.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. including the society at large.

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

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

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

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

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

MRTP). 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.GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy. Fear of government interference: Excessive quench for profits may lead to build up of adverse public opinion compelling the government to intervene (Eg. people are becoming increasingly aware of their right to a decent and healthy life.

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

the underlying technology was often already in existence. . 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. They are not necessarily about technology. managerial moves are. 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). Company & industry are the wrong units of 330 strategic analysis.

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

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

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

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

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