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

Fit

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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

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

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

– It is primarily the top management’s prerogative. – The choice of product-market mix is based on conscious evaluation of risk – return factors.APPROACHES TO STRATEGY  Analytical Approach – Igor H. Learning always begin on a clean sheet of paper. – 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. 15 .

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

when radical changes in the internal and external environment (i. It is core to the strategic intent of the firm.e. Dominant logic changes. it can be perceived as a set of working rules (similar to thumb rules) that enables the top management to decide what can be done and more importantly what cannot be done.DOMINANT LOGIC     A dominant logic can be defined as the way in which the top management team conceptualizes its various businesses and make critical resource allocation decisions. strategic variety) is apparent. 23 . To put it more simply.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

Mergers & Acquisitions 47   .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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

selectively. Relative attractiveness of the market. An organization can draw upon the experience of its peers in similar situations. 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.PROFIT IMPACT OF MARKET STRATEGY       PIMS is a database model developed by GE and later extended by HBS to examine the impact of a wide range of strategy variables on business performance. 66 Vertical integration is a powerful strategy. It is also a form of assessing vulnerability through longitudinal analysis.

PIMS . As every organization is unique in its own way. therefore 67 validity may be a question. when radical changes in the economy takes place. – Contexts may vary across countries. – Contexts may vary over time. 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.

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

CORPORATE . related. dominant. 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. unrelated) and geographical scope (local. global) of a firm and deals with choices of allocating resources across them. It indicates the quality of growth an organization is looking for. national. It determines the locus a firm encounters with internal and external environment. It reflects the customer needs it intends to satisfy. 70 .

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

To identify the right problems. They must choose problems which will lead to the right kind of opportunities. managers need to ask the right questions. if addressed. will help the firm achieve its intent. nor is to a define a problem for others to solve. 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. 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 .

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

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 .

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

CORE COMPETENCE    A core competence represents the collective learning's of an organization around diverse streams of technologies. It forms the very basis of competitive advantage. – Can be sustained even in the long run. 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. – Cannot be easily imitated or substituted. These skills results in distinctive activities and processes. but not necessarily. – Can be leveraged across businesses. It should satisfy the following conditions – Contributes significantly to customer benefits. .

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

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

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 .

A saddle point is a situation where both the players are facing pure strategies.PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy. 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 .

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

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

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

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

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

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

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. checking every premise is costly as well as difficult. It is open-ended as well as .STRATEGY CONTROL IMPLEMENTATION     It involves steering the company towards its original growth trajectory & stated goals. Special Alert Control – It intends to uncover unanticipated information having critical impact 154 on strategies. However. It involves assessing – strategic thrusts and milestones.

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. Strategy not linked to resource allocation & capabilities – Lacking commitment of top management.BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas. “If you cannot .

the relative importance of each factor may vary over time and context.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. Managers should take into account all seven of these factors. Today it is considered one of the most powerful tools for strategy implementation determining success or failure. Together these factors determine the way in which a corporation operates. to be sure of successful implementation of a strategy. this may effect all others as well. On top of that. Large or small. so if one fails to pay proper attention to one of them. 156 .

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

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

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

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

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

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

Tata Motors & Fiat). It touches upon a limited aspects of a firms value chain. Alliances are usually short-lived and disbanded once the purpose is achieved. 163 It is a form of competitive collaboration.STRATEGIC ALLIANCE     It involves a pro-active collaboration between two or more firms on a particular domain or function for mutual gain. . It has limited intervention power and usually lacks holistic commitment from the alliance partner. 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.

Degree and extent of management control must be clearly 164 laid down.Honda). A comprehensive MOU is essential. Tata – AIG.JOINT VENTURES     A joint venture involves an equivalent equity participation between two firms usually of similar strategic intent and comparable size to enter a particular market through a newly formed entity. . leaving minimum scope of overlapping. (Eg. Hero . It is a win-win situation for both the companies. Dominant logic of both the companies should be complimentary. Selecting the right partner is critical for success.

. Acquisition is an outright purchase of a firm assets by another independent entity (Eg. Integrated distribution channel leads to better market penetration and overall synergy. Revival of a sick-unit through better management practices is a major motive behind an acquisition 165 strategy. ITC Tribeni Tissues. Integration of assets and other financial resources. 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. Coca Cola – Thums Up).

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

horizontal. Hive Off – It involves siphoning of assets under control. Further. spin-off and equity carve. it may be smooth (Eg. where the difference in valuation is settled off through cash or equity (Eg. 202 . including its intangibles – Mergers – It may be vertical. Mittal – Arcelor) and can take various forms. Tata – Corus) or hostile (Eg. It may include brands as well. It can have two forms. or conglo-merate.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. Further spin-off can be classified as split-off and split-up. Glaxo – Heinz).

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

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

CAPITAL RESTRUCTURING     Capital Restructuring . 205 .3 billion. Wipro). 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. Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg. It provides greater leverage as well as management control.The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. involving 608 pence per share).

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

Titan Inds. 227 . Branding is critical to franchising.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. owners of the brand Monginis allows its franchisees to sell its confectionary products. owners of the brand Tanishq allows its franchisees to sell its jewellery products. Switz Foods. It is an effective strategy to penetrate markets in a shortest possible time at a minimum cost.

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

e. 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. . Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview.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. creeping acquisition). 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

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

268 . but not of the future. A poll in circa 2000 revealed that 80% of the U. The future is not about catching up with competition. On the contrary only 20% of Japanese 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. top managers believed that quality will be a source of competitive advantage of the future.S. However. incrementalism or nominal innovation has almost reached a plateau.

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

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 .

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

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

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

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

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

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

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

Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage. 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. It cannot be matched even by its closest competitors. Leverage – They are the gateways to future markets. It represents the collective learning's of an organization centering around diverse streams of technologies. It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times.

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

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 .

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

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

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

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

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

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

time-zones. High levels of ethnocentrism usually has a negative effect on business. and vice-versa. Language Barriers – Developed country managers expect foreign partners to communicate in their languages. however. Other factors – local celebrations. 294 . in most emerging markets meetings are delayed and lasts unusually long. 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. Ethnocentrism – Developed country managers tend to regard their own culture as superior.

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

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

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

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

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

Sony Play Station: Redefining machine-human interface in entertainment and targeting an altogether new user base. Southwest Airlines: Pioneering the concept of LCC. Citibank – Automated teller machines & credit 333 cards.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. .

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