Course Code: 611 & 612 Dr. Subir Sen – Faculty Member, IBS
E-Mail:, 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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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.


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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.


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.



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







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It is about adaptation and response to the same. It is long-term in nature.          7 . It involves substantial resource outlay. It is all about creativity and innovation.STRATEGIC MANAGEMENT .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 is a holistic and integrated approach.

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

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

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

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

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

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

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

Ansoff (1960) – Strategy can be segregated into certain mutually exclusive and inter-related components aimed at managing the growth of an organization. – It is primarily the top management’s prerogative. Learning always begin on a clean sheet of paper. – The choice of strategy is primarily concerned with external ones rather than internal ones.APPROACHES TO STRATEGY  Analytical Approach – Igor H. – 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. 15 .

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

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

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

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 .


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

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 .

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

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

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

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

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

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

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

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

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

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 .

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

– The environment context has changed.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. Usually there is wide gap between the two when organizational politics is evident. – Persons responsible for strategy conceptualization and implementation are34 divergent. . A realized strategy is what the top management actually translates into practice.

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

– Contexts may vary over time. 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.PIMS . .LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges. Managers should be particularly cautious while referring to such data during times of discontinuity as it makes past patterns futile. – Contexts may vary across countries. As every organization is unique in its own way.

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


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

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

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

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

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

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

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

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

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

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


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.



Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power


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.

Oil & Gas exploration Naptha-cracking Acetic Acid Paraxylene (PX)

Purified tetra-pthalic acid

Mono-ethylene glycol

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


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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.

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

undeterred attention to quality. Focus on brand loyalty. avoiding brand dilution. Successful product differentiation is often followed by premium pricing. It selects one or more attributes that buyers perceive as important. and sufficient slack. Creativity. (Eg. Culture of experimentation. 112 . Feeling the pulse of the customer. Means of product differentiation are peculiar to each industry. Intel. innovation and out of the box thinking.PORTERS – PRODUCT DIFFERENTIATION      Product Differentiation – It is a strategy that attempts to provide products or services that are differentiated from competitive products in terms of its value proposition and uniqueness. Rayban). Sony.

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

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

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

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

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

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

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

DECLINING INDUSTRY      Declining Industry – An industry which has outlived its utility due to the entry of close substitutes and or radical product innovations which results in a shift of the productivity frontier. and costly price wars. 120 . 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. Typewriters. (Eg. dot-matrix printers). scooters. with little or no signs of recovery. backed by corporate espionage.

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

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

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


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

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

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

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. 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. A high fit involving a complex chain of activities drives both competitive advantage and its sustainability. – First order fit refers to simple consistency between each activity and the overall strategy. Fit is important because discrete activities result in negative synergy and can also be easily copied by competitors. 129 . – Second order fit occurs when activities are reinforcing amongst them.

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

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

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

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

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

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

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


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).


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



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.


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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.




   

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.


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

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

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

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

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

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

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

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

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

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

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

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

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. difficult to translate into practice. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy. low strategic fit due to consultants intervention. “If you cannot .BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas.

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

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

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

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

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

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

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

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

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

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

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


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


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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.


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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.

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.


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.


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


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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

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

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

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

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

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

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

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

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

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

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

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

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

because they have too many.  The most critical element of a BSC is to measure these four dimensions. 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. and distinguish strategic problems from operational ones.BSC – KAPLAN & NORTON (1992)  A BSC helps a manager to track and communicate the different elements of company’s strategy. 187 .

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

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

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

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


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

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

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

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


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

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

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

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

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

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

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

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.CAPITAL RESTRUCTURING     Capital Restructuring . Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg. Wipro). It provides greater leverage as well as management control. 205 . Tatas take-over of Corus for US $11.3 billion. involving 608 pence per share).

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


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

owners of the brand Tanishq allows its franchisees to sell its jewellery products. 227 . Switz Foods.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. Titan Inds.

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

The type of merger is depends on the degree of relatedness (strategic) between the two businesses. 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. 245 . usually opportunistic (Eg. Reliance). Electrolux . ITC).Kelvinator). 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. Horizontal – It involves integration of two highly related businesses (Eg.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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.


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.



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.



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).



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.



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.


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

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

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

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

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

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

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

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

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

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

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

technology (microchip). economic (middle class buying power). customer awareness (microwaves). buying patterns (spread). 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 . usage (talk time). promotion (surrogate advertising).culture (food habits). lifestyle (petroleum 299 outlets – departmental stores). . Distribution – It depends on the market characteristics (fragmented – concentrated).

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

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

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


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

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

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

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


With the rapid erosion of certain industries (IT. Real Estate) companies need to untangle and understand the intricacies of their business model. 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. 309 . Investment Banking. It involves – Product Visualization – Product Prototype – Product Test – Capacity – Pricing – Distribution.

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

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

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

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

various laws were enacted to ensure proper usage of these funds. 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. . 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. the US government passed the Sarbanes – Oxley Act.

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

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

safeguards invested capital. However. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. fire and compensate top management. 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. with its legal authority to hire. 317 . a person benefitting from a decision should abstain from it. Balance of power: The simplest balance of power is very common. discussed and resolved.

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

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

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

321 . The role of media: The media and various consumer organizations have come up in protecting consumer rights and exposing mal-practices. MRTP). 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. people are becoming increasingly aware of their right to a decent and healthy life.GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy.

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

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



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

it will exist 327 in the future as well. Such strategic moves are possible through the pursuit of product differentiation and low cost simultaneously. but by creating blue oceans of uncontested market space ripe for growth . Blue Ocean’s have existed in the past. rendering rivals obsolete and unleashing new demand. It helps in creating powerful leaps in value for both the firm and its buyers. It is only the frames of the .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 .

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

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

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

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

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