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

Operatio n

Political

HR

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

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

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

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

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

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

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

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 .

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

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

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

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

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 .

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. A strategic intent is a statement of purpose of existence. It involves an obsession to be the best or outperform the best. A substantial gap between its resources and aspirations. you cannot reach there. It provides a sense of direction and destiny. It’s a philosophy that distinguishes it from its competitors. It implies a significant stretch. A gap that consciously manages between stagnation and atrophy. 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 .

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

 24 . but achievable aspirations. beyond just making money. – It stands for the unchanging core values of the company. It provides an unity of purpose amidst diversity of personal goals.VISION It is a dream (not a forecast) about what the company wants to become in the foreseeable future.  It is a combination of three basic elements – – An organizations fundamental reason for existence. – It represents the company’s audacious. 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.

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

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

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

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

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

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

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

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

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

. Other causes – – The plans are unworkable and utopian. – Influential stake-holders back out. A realized strategy is what the top management actually translates into practice. – The environment context has changed.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. – Persons responsible for strategy conceptualization and implementation are34 divergent.

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

GROWTH .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 .

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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 .

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

BUSINESS STRATEGY & COMPETITION 108 .

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

involving harmonizing and integrating multiple streams of technologies. Blue Ocean – Consciously moving away from overcrowded industries to uncharted territories and making competition irrelevant (Kim & Mauborgne). Resource Based View – Obsession with competence building. Delta Lock In – Two dominant players co-opt to selfreinforce and create or escalate an entry barrier. developing competitive advantage (Porter). identifying critical success factors. 110 .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). leveraging (Prahalad).

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

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

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

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

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

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

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

Government regulations in the form Eg. Eg. leading to clear fragmentation. Retail and telecom. Eg. Scope for players to change the rules of the game. Eg. Paints. Diverse customer needs. MRTP may also cause fragmentation. because of lack of economies of size and scale. Air Conditioning. High exit barriers because of huge investment in CAPEX. It is characterized by – Low entry barriers. IT. 118 .GROWTH / FRAGMENTED INDUSTRY      Growth Industry – An industry characterized by high growth potential in the long run and where no firm has a significant market share (an edge over another). Consumer durables.

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

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

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

However. positions based on resources which are unique and inimitable are far more sustainable even in the long term.RESOURCE BASED VIEW    Differentiation based on cost or products saturates and ceases to exist beyond the medium term. brands. 122 . Intangible – These refer to goodwill. A firms resources can be classified into – Tangible – These refer to real assets. patents. hence very rarely confer competitive advantage as can be easily acquired or replicated. They are a standard in nature. 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.CAPABILITIES & COPMPETENCIES   These include a complex combinations of tangible and intangible resources that organizations use to convert inputs to outputs. Hence. They play a very critical role in shaping competitive advantage. There is a high degree of internal and external causal ambiguity involved in it. Therefore firms should concentrate on developing complex resources that forms the very basis of differentiation. but not necessarily. differentiation based on capabilities can be sustained even in the long run.e. Capabilities can be generic (i. Typically. can be leveraged across businesses) or specific to a particular business. 123 .

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

STRATEGIC FIT – THE PORTER WAY   The sustainability of the value chain depends on the degree of fit between the activities. A learning organization helps create strategic fit. 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. Operational effectiveness is not strategy. 129 . – Second order fit occurs when activities are reinforcing amongst them. – First order fit refers to simple consistency between each activity and the overall strategy. – Third order fit refers to optimization of effort.

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

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

132 . However. 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.GAME THEORY     The game theory was developed in 1944 by Oscar Morgenstern. A game is a contest involving two or more players. In fact there are no. In a game (similar to a business) one players win is always another's loss. illustrations depicting a win-win situation. each of whom wants to win. This is known as a zero-sum game. Here the magnitude of gain offsets the magnitude of loss equally.

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

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

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

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

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

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

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

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

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

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

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

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

150 . facing challenges & crises. Environment & People – Economic and political conditions have a major bearing on structure coupled with the attitude and aspirations of the people in the organization. leading to a tall structure. It includes the desire for independence.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. as span is broader. Technology – With more and more convergence of technologies in business. assuming responsibility.

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

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

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

Implementation Control – It aims at assessing whether key activities are proceeding as per schedule. Special Alert Control – It intends to uncover unanticipated information having critical impact 154 on strategies. Premise Control – Checking the validity of the assumptions on which a strategy was based. However.STRATEGY CONTROL IMPLEMENTATION     It involves steering the company towards its original growth trajectory & stated goals. It is open-ended as well as . checking every premise is costly as well as difficult. 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. Strategy not linked to resource allocation & capabilities – Lacking commitment of top management. “If you cannot . low strategic fit due to consultants intervention.BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas. difficult to translate into practice. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy.

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

Dell: Customized configuration of computers. Caterpillar: 48 hours delivery anywhere in the world. Citi Bank : Priority banking services. Maruti: Certified “true value” pre-owned cars. Microsoft: ESOP to employees. Infosys: Customized work-stations. TCS: Referencing potential new recruits. ITC: Shareholders factory visit. AmEx: Outsourcing data warehousing mining. MARG: Set-top box to study viewing patterns. Honda: CEO’s visit to dealers.
170

TYPES OF BENCHMARKING
Functional – Used by companies to improve a particular management activity. Eg. Motorola learnt delivery scheduling from Domino’s. Process – Improving specific key processes and operations from experiences in similar businesses. Eg. Ford adopting assembly lay-out plan of Toyota. Competitive – It involves assessing the sources of competitive advantage and imitating them. Eg. Samsung leveraging miniaturization skills of Sony. Strategic – It involves assessing business models and replicating them in a different market. Eg. Reliance replicating AT&T business model.
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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.
173

BENCHMARKING - ADVANTAGES

  

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

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

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

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

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

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

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

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

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

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

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

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

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

187 . 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.BSC – KAPLAN & NORTON (1992)  A BSC helps a manager to track and communicate the different elements of company’s strategy. and distinguish strategic problems from operational ones.

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

the entire parent company loses its identity after being split into a number of subsidiaries. 203 . – Split-Up – In a split-up. Reliance Ent). the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company.HIVE OFF   Spin-Off – A spin off is the creation of a new entity. – Split-Off – In a split-off. Tata Industries selling 20% stake to Jardine Matheson). 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. Most of these practices are not in consonance with Indian laws.

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

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

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

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

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

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

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

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

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

focuses on reengineering. the second one is a more viable strategy and sustainable option in the long run. While the first strategy produces results instantaneously. 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. reverse engineering and regenerating. Numerator – It assumes that turnover is not a barrier or constraint. 213 . down-scoping or asset stripping. In order to put back the company on the right track they are resort to – Denominator – It assumes that turnover cannot be increased.

TURNAROUND MANAGEMENT 214 .

still exist as on 2005. 215 (Govindarajan and Trimble.. – 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..WHY TURN AROUND MANAGEMENT?  Some interesting insights ... January 1997). Source:  Why do firms atrophy? (Business Today. .

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

unavailability or radical lowering of substitute costs or technological obsolescence. Rising input costs.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. Uncompetitive products or services. leading to lack of acceptability from distributors and customers. Low employee morale leading to high employee attrition at all levels. Low stakeholder confidence. suppliers and bankers. 217 . especially in key positions. Substantial shifts in consumer preferences.

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

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

primarily dwindling resources and capabilities are responsible for decline. It involves the identification of the theoretical perspectives that explains performance decline – K-Extinction – It suggests that macro economic and industry wide factors are responsible for decline. R-Extinction – It suggests that organization factors. 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.DECLINE    Decline is the first stage in the turnaround process. It has its origin in “resource led stretch” and subscribes to the view that a firm has substantial power to override the context. 220 .

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

Bajaj – Castrol). 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. Airbus – Boeing). 232 . Maruti).TYPES      Collusion – Tacit top management understanding to neutralize price wars (Eg. Complementary Equals – Two firms mutually promoting each others complimentary products (Eg. Coke – Pepsi). Backward – An alliance (quasi or tapered) with a supplier of critical components seeking commitment (Eg.STRATEGIC ALLIANCE . Whirlpool – Tide.

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. Too much stress on financials & structure be avoided. 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. – Japan Vs US). Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology.

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Asset Stripping – The targeted company hives off its key assets to another subsidiary.DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control. Poison 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. 263 . Rights). so that nothing is left for the raider to strip off.

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

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

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

What distinguishes a leader from a laggard. but hundreds. We are in the midst of a 3600 vacuum. each point in space represents a unique business opportunity. as on their aspirations. 274 .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. Companies of the future will be not based so much on the strength of their resources. The farther one can see in this endless space. greatness from mediocrity. is the ability to imagine in a different way what the future could be. 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 .

Learning Curve t1 t2 t3 Time t4 t5 277 . 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.

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

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

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

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 .

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

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

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

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

292 . low power distance in developed markets and vice versa for emerging markets). high feminity index in developed markets and vice versa for emerging markets). 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. Group Scale .It reflects the disparities in women in workforce (Eg. Feminity Index . low risk profile in developed markets and vice versa for emerging markets). Risk Profile – It reflects the risk attitude of the top management (Eg.It reflects the relative role of team building (Eg.

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

but has inherent risks involved as well. 304 . Innovations typically paves the way for more secured and improved lifestyle for consumers in general. While innovation typically adds value for organizations. innovation is the first attempt to carry it out in practice. Innovation is all about staying ahead of competition.INNOVATION      An invention is the first occurrence of an idea for a new product or process. it has destructive effects 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. However. Process innovation usually follows product innovation.      305 . Strategic innovation has the potential to change the rules of the game. process innovation is necessary to sustain the competitive advantage of product innovation. While product innovations are typically customer driven. process innovations are organizational driven.TYPES OF INNOVATION A key challenge is maintaining a balance between process and product innovations.

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

shareholders can diversify their portfolio at a much lesser risk and cost. also known as the principal-agent problem or agency dilemma. This exposes the shareholders to additional risks and higher costs. From the strategic point of view managers tend to diversify into unrelated businesses as it provides higher returns hence a more favourable appraisal. According to the agency theory top managers and shareholders interests are usually conflicting in nature and tend to pull in opposite directions. not present in portfolio diversifications. 313 .AGENCY THEORY     The root of Corporate Governance goes back to the Agency Theory. 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. SEBI Report – 2005. various laws were enacted to ensure proper usage of these funds. . 2002 to restore public confidence in corporate governance.ORIGIN & CONTEXT    Since the early 20th century since a large part of public funds were held by publicly traded firms in the US. the US government passed the Sarbanes – Oxley Act. After the Enron downfall.

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

GOVERNANCE PRINCIPLES    Integrity and ethical behaviour: Organizations should develop a code of conduct for their top management that promotes ethical and responsible decision making.. 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. 316 316 . They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting. assessment and mitigation of risks and retirement by rotation over a fixed period of time.

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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

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

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

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

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

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

companies & managers are largely at the mercy of economic forces. 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. 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. 334 .

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