BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

– 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. 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. 1910). a radical change in the business environment brings about discontinuity. 12 .Industrial Revolution.EVOLUTION OF MANAGEMENT     As Peter Drucker refers to it.

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

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 .

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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 .

Dominant logic changes.e. 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. 23 .DOMINANT LOGIC     A dominant logic can be defined as the way in which the top management team conceptualizes its various businesses and make critical resource allocation decisions. when radical changes in the internal and external environment (i. To put it more simply. strategic variety) is apparent.

It enables the top management to remain focused. – It represents the company’s audacious. – It stands for the unchanging core values of the company. It ensures that the company does not wander off into unrelated zones or fall into an activity trap.  24 .  It is a combination of three basic elements – – An organizations fundamental reason for existence. beyond just making money. but achievable aspirations. 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.

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

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

 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. A broad mission statement helps in fending competitors. its reason for existence.  27 . It enables the firm to define its business landscape and identify its competitive forces.MISSION Mission defines the space that a business wants to create for itself in a competitive terrain.

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

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

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

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

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

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

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

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

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

Dominant logic’s are very rigid and sticky and prone to inertia. 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. As it brings 37 with it a different dominant logic. Tampering with surface level factors often leads to atrophy. . Strategic transformation becomes smooth through a change in top leadership.

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

Understanding the composite effect is critical. It is not intended to be used as an exhaustive list. for which a holistic picture is required. It is particularly important that PESTEL be used to look at the future impact of environmental factors. which may be different from the past impact. 43 .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 important not only to identify the structural drivers of change. but also to analyze the complex linkages across them.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

scenario analysis). Holistic view – Prepare a complete overall picture.e. Assess the extent of impact of the factors. Forecasting – Predict the future (i. time series. It represents a summary picture of the external environmental factors and their likely impact on the organization. 65 . Strategic responses (including adaptation) to opportunities and threats is critical for survival and success.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.

Some key findings on major performance drivers that explains 75% deviations in performance – Product quality and relative market share. selectively. 66 Vertical integration is a powerful strategy. Relative attractiveness of the market. .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. It is also a form of assessing vulnerability through longitudinal analysis. High investment intensity acts as a drag. An organization can draw upon the experience of its peers in similar situations.

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

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.KEY SUCCESS FACTORS (KSF)     KSF relates to identification and putting concentrated effort on a particular activity or process which forms the very basis of competitive advantage.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

73 .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.

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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. What then is the magical number? 93 . In most cases the trade-off is between resources and opportunities. It attempts to answer the following questions – How effective has the existing strategy been? How effective will that strategy be in the future? What will be the effectiveness of alternative strategies? It is impossible for a manager to assess all the alternatives.

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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. SAP changes from time to time. In today's world of discontinuity.STRATEGIC ADVANTAGE PROFILE (SAP)       Organizations have to systematically and continuously conduct exercises to identify its SAP. Identification of SAP is critical for and stretching and leveraging of resources. In most cases SAP is hidden and dormant.

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 . The 7-S model was born at a meeting of these four authors in 1982. and was taken up as a basic tool by the global management consultancy company McKinsey. They had been investigating how Japanese industry had been so successful. It appeared also in "In Search of Excellence" by Peters and Waterman.

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

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

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 .

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

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

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

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

It had little impact on improving overall productivity. which ensures good market standing. 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. Management of quality was traditionally inspect it .fix it in nature. . zero defects.TOTAL QUALITY MANAGEMENT     Objective – Management of quality ensures conformance to certain pre-set standards.

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

Tatas take-over of Corus for US $11. involving 608 pence per share). It provides greater leverage as well as management control.CAPITAL RESTRUCTURING     Capital Restructuring . Wipro). 205 . 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.The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Scope – A diversified conglomerate may acquire a distressed business to turn it around and gain valuable synergies. Similarly new market initiatives is feasible only for multi-product firms.RESPONSE DICHOTOMY     The response initiation is somewhat dichotomous and cannot be universally applicable. 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. 222 . when decline deepens shifts in strategic position becomes essential. Contour – It is easier to reverse decline in the earlier stages through operational measures.

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

It may also be linked to deterring entry or eroding competitors position. though more profitable alternative to other choices. Strategic Behaviour – Firms may override transaction costs. in addition to a high degree of asset specificity. 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. Organizational Learning – It is a means through which a firm learns or seeks to retain their capabilities. 237 .

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

– 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. operational & financial). 251 .VALUATION   The process of valuation is central to M&A.M&A . – Unstated reasons – Personal self interest and hubris. – Market for corporate control. The process takes (6-12) months.e. over valuation can become a curse. While under valuation may be a significant opportunity. Financial motives – Undervaluation relative to true value.

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

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

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

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

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

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

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

leverage is expected to decrease over time. Any discounting has to reflect these changing cost of capital.EFFECT OF HIGH LEVERAGE      Increases the riskiness of dividend flows to shareholders by increasing the interest cost to debt holders. Therefore. 259 . – Increase equity valuation. initial rise in leverage is anticipated. Lack of sufficient cash flows to repay costly debts resulting in a possible debt trap. 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.

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

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

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

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

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. thus thwarting the raider company’s attention. Green Mail – The targeted company buys large blocks from holders either through premium or through pressure tactics (Eg. Shapoorji Pallonji). 264 . Gray Knight – The target company takes the help of friendly company to buy the shares of the raiding company.DEFENSIVE STRATEGIES     White Knight – It is the placing of stocks to a cash rich investor and bargaining for protection in return.

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

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

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

274 . but hundreds. We are in the midst of a 3600 vacuum. The farther one can see in this endless space. each point in space represents a unique business opportunity. What distinguishes a leader from a laggard. as on their aspirations. is the ability to imagine in a different way what the future could be. the farther it will be away from competition. greatness from mediocrity. Companies of the future will be not based so much on the strength of their resources.HOW DOES THE FUTURE LOOK LIKE?     There is no rule which says that for every leader there will be a follower. 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 TO FORGET P1: The degree of learning in current period is directly proportional to the degree of unlearning in the previous period. Degree of Learning Unlearning Curve P2: Unlearning in previous period does not necessarily ensure learning in the current period. Learning Curve t1 t2 t3 Time t4 t5 277 .

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. Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage. It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times. Leverage – They are the gateways to future markets. It cannot be matched even by its closest competitors. 278 . It represents the collective learning's of an organization centering around diverse streams of technologies.

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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. .INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays. Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II). reduce power costs) vis-à-vis infrastructural bottlenecks. Bosch spark plugs are used by car manufacturers worldwide).

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

Collusion with the judiciary is also another distinct possibility in emerging markets. companies are increasingly relying on internal protection to sustain innovation effects. 311 311 . 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. The most preferred strategy of internal protection includes imbibing “causal ambiguity” in the production process to make reverse engineering difficult. In most emerging markets where the IP climate is not so favorable.

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

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

various laws were enacted to ensure proper usage of these funds. . SEBI Report – 2005.ORIGIN & CONTEXT    Since the early 20th century since a large part of public funds were held by publicly traded firms in the US. 2002 to restore public confidence in corporate governance. After the Enron downfall. defines corporate governance (headed by Kumar Mangalam Birla) as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the 314 shareholders. the US government passed the Sarbanes – Oxley Act.

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. including the society at large. 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. 315 .

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

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

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

SHAREHODER – STAKE HOLDER THEORY    Till the early part of the 20th the basic objective of modern organizations was to provide goods and services for public consumption for profit maximisation. the short-term view of profit maximisation gave way to a more broader and mediumterm view wealth maximisation of the shareholders. Therefore. 319 . today economic institutions are considered as a major drivers of improvement in quality of life in general and therefore needs to include multiple stakeholders. corporate philanthropy should be a part of every corporate mission. However. The basic premise is that firms cannot exist in vacuum. Over a period of time.

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

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

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

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

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 .

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

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