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

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

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

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

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

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

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

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

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

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

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

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

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 .


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

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

DOMINANT LOGIC     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. 23 . strategic variety) is apparent. when radical changes in the internal and external environment (i. It is core to the strategic intent of the firm. it can be perceived as a set of working rules (similar to thumb rules) that enables the top management to decide what can be done and more importantly what cannot be done.e. Dominant logic changes. To put it more simply.

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

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

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

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

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

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

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

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

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

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

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

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

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.IMPLEMENTING INCREMENTALISM      General Concern – A vaguely felt awareness of an issue or opportunity. Leveraging Crisis – A sudden crisis or an opportunity should be used as a trigger to facilitate acceptance and implementation of change. 36 .

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

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

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


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

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

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

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

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

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

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   .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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


CORPORATE . 70 . It indicates the quality of growth an organization is looking for. It determines the locus a firm encounters with internal and external environment. dominant. It provides broad direction to the groups vision and mission. It reflects the customer needs it intends to satisfy. unrelated) and geographical scope (local. A corporate strategy identifies and fixes the strategic gap it proposes to fill. related.GRAND STRATEGY       It is concerned with the overall business scope (single. global) of a firm and deals with choices of allocating resources across them. 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  It involves maintaining status-quo or growing in a slow and selective manner. The reasons for stability strategy – – Lack of attractive opportunities. erosion of capabilities. – Why disturb the existing equilibrium set up? – Limited resource position. – The firm may not be willing to take additional risk associated with new projects. 72 . does not relate to do-nothing (Eg. The scale and scope of present operations remains almost intact. Stability however. (Eg. Citibank). – To stop for a while and assess past records. Hindustan Motors).

73 .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.GROWTH .

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

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

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

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

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

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

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 .

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

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

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

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

91 . A combination strategy can be implemented through green-field projects (i. 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. joint ventures). There can be no ideal strategy for every business. 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.COMBINATION STRATEGY     It is a mixture of stability.e. growth.e.


STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent. 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. In most cases the trade-off is between resources and opportunities. What then is the magical number? 93 .

SELECTIVITY IS THE KEY       The role of a top manager is not to solve a problem. nor is to a define a problem for others to solve. For an optimal choice the following four issues need to be resolved – Is the strategy clearly identifiable? Is it consistent with the resources of the firm? Will it be able to exploit the opportunities in full? Is it in tune with the values and beliefs of the firm? 94 . They must choose problems which will lead to the right kind of opportunities. managers need to ask the right questions. if addressed. The key task before a top manager is to identify the right problems. will help the firm achieve its intent. To identify the right problems.

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

SAP changes from time to time. 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. Internal strategic fit between its strategy and dominant logics is essential for the top management to stretch and leverage SAP. 126 . In today's world of discontinuity. Most successful organizations around the world have a well balanced SAP. In most cases SAP is hidden and dormant.

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

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. Operational effectiveness is not strategy. – 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.STRATEGIC FIT – THE PORTER WAY   The sustainability of the value chain depends on the degree of fit between the activities. – Third order fit refers to optimization of effort. A high fit involving a complex chain of activities drives both competitive advantage and its sustainability. 129 . – Second order fit occurs when activities are reinforcing amongst them.

A core competence usually has its roots in technology. – Cannot be easily imitated or substituted. – Can be sustained even in the long run. It forms the very basis of competitive advantage. These skills results in distinctive activities and processes. – 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. but not necessarily.CORE COMPETENCE    A core competence represents the collective learning's of an organization around diverse streams of technologies.

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

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

BIASED AND UNBIASED GAME  A game is said to be biased when one of the players have a disproportionate chance of winning. An unbiased game is one where both the players have equal chances of winning. 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 .

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. A saddle point is a situation where both the players are facing pure strategies.

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

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


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.




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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.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

It appeared also in "In Search of Excellence" by Peters and Waterman.BACKGROUND & ORIGIN  The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony Athos in 1981. Since then it is known as their 7-S model and is extensively used by corporations worldwide to implement their strategies. and was taken up as a basic tool by the global management consultancy company McKinsey. 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. They had been investigating how Japanese industry had been so successful. 157 .

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

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

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

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

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

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

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

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


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


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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

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

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

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 .

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

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

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

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

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

fully involved in decision-making and fairly rewarded for results. 183 . Kaizen – Make continuous improvement a way of life. Be customer centric – Generate the concept of internal customer (Ishikawa). the first time – From reactively fixing error in products to proactively preventing errors from occurring at the first place (Juran). 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.TQM – KEY TENETS     Do it right.

184 . enabling the firm to concentrate on core activities essential to customer satisfaction.e. equal participation). SQC – It is a process used to determine how many units of a product should be inspected to calculate a probability that the total no. It is based on the principles of MBO (i.STRATEGIES    Outsourcing – It is the process of self-contracting services and operations which are routine and mundane. saving precious top management time.TQM . 6-Sigma). Quality Circles – It a small group of shop-floor employees who meet periodically to take decisions regarding operational problems and crises. of units meet preset standards (Eg.

...... strategy implementation has never been more important. Source: Fortune Magazine Why CEO’s fail? 185 ..BALANCED SCORE CARD  Some interesting comments ... – 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...

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

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

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

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

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

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


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

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

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

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


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

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

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

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

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

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

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

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

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

of operating units.ORGANIZATIONAL RESTRUCTURING     Organizational structure and systems calls for a change when strategic variety is apparent. usually as a result external turbulence. Downscoping – It involves reducing the business and/or geographical scope of a firm (Aditya Birla group). Turnaround is the primary motive. Rightsizing – It is phasing of excess and redundant employees resulted out of faulty internal planning (SAIL). Survival is the primary motive. 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. of a firm’s employees and sometimes in the no. 207 .

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


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

owners of the brand Tanishq allows its franchisees to sell its jewellery products. It is an effective strategy to penetrate markets in a shortest possible time at a minimum cost. owners of the brand Monginis allows its franchisees to sell its confectionary products. 227 .FRANCHISING     Franchising – It is a contractual agreement between two legally independent firms whereby the franchiser grants the right to the franchisee to sell the franchisor’s product or service or do business under its brand-name in a given location for a specified period of time for a consideration. Titan Inds. Branding is critical to franchising. Switz Foods.

228 .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. Become a systems integrator (CKD). as in Tata Indica. refine processes and adopt necessary technologies (SKD). 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. Develop a product through its crude stage.

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

Companies in different industries with different but complimentary skills. It usually provides a platform to sort out differences between conceptualization and implementation to suit local market needs. Continuous sharing of knowledge is critical to the success of a supply chain partnership. Tata Motors – IDEA).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. otherwise it 230 becomes routine outsourcing. .

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

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

– Japan Vs US). Too much stress on financials & structure be avoided. Cultural orientation has been found to have a profound effect on top management’s strategic orientation (Eg.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. 233 . Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology.

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

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

synergy) rather than mere exchange (i. There are substantial linkages in the value-chain. It aims at creating new value (i. combining parts).e. whilst the partners continue to operate independently. Conceptually. It lasts till the vision is reached.JOINT VENTURE      A joint venture is a long term association between two equal partners to create an independent firm (SPV) by complementing their resources and capabilities to explore newer businesses or markets for achieving a shared vision.e. . a joint venture is a selection among modes by which two or more firms can transact. separation is very 236 bitter.

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

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

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

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


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

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

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

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

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

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

Decline – Horizontal mergers are undertaken to ensure survival. 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.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. Growth – This stage may witness parallel merger of two firms of similar size. 248 . Maturity – A larger firm acquires a smaller firm with an objective to achieve economies of scale and experience curve effects (Eg. Brooke Bond – Lipton). Kingfisher – Air Deccan). Tata Steel – Corus).

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

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

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

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

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

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

Assessment of perceived quality is critical. The value of wrestling control is inversely proportional to the perceived quality of that management. 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.VALUING CORPORATE CONTROL     Premium of M&A are often justified to control the management of the firm. – – Value of Control = Value of firm after restructuring Value of firm before restructuring. since a restructuring can lead to significant increase in value. 255 .

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

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

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

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

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

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

and Kim. 1983. and Netter. Brickley. 1983.EFFECT OF TAKE-OVER ANNOUNCEMENT  The effect of take-over announcement on bidder firm’s stock prices are not clear cut. in the event of take-over failure negative returns to the extent of 5% on bidder firm stock prices is reflected. Bradley. Desai. 262 Jarrel. 1988 . – However. – 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. over time. – However.

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

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


Compaq overpowering IBM. British Air overpowering Pan Am. 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 .GETTING OFF THE TREADMILL    Canon overpowering Xerox. Hitachi overpowering Westinghouse. were spending 99% of their precious time dealing with present. Wal-Mart overpowering Sears. Honda overpowering GM. Most companies were too preoccupied with the present than the future? 99% of the companies overpowered. Honda overpowering Volkswagen. Nokia overpowering Motorola.

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

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

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

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 .

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

A revolution that is thrust upon from the top seldom sustains. More importantly. The middle management plays a strong moderating role. Most successful revolutions (Gandhi to Mandela) rose from the dispossessed. 272 .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. Such a process is called institutionalization (from people centric to organisational centric). Transformational leaders merely lead the way.

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

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

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

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

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

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

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

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

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

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

revenues and profits. It should think globally. 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. It should have a spread of interest groups / stake holders. HSBC). act locally (Eg. 291 . Characteristics – It should have a spread of affiliates or subsidiaries.

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

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

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

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

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

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. Transparency – A single currency is transparent and competitive. but it may have spill-over effects. 297 . However.SINGLE Vs MULTIPLE CURRENCY     Transaction Costs – Though the initial cost of introduction of a single currency is very complicated and costly. a multiple currency is preferable where the business cycles of member nations are different. it helps avoiding transaction costs associated with a multiple currency.

e. 298 .FII Vs FDI INVESTMENT  Classical economists believed that foreign investment (in any form) is basically a zero sum game (i. Neo classical economists believe that foreign investment may in fact be a win-win game. the gain of one country is loss of another). – 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. hot money). It is long term with high levels of commitment.

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

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. . Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg. equity is cheap in India). Cost Structure – Companies in India need to investment in fixed costs due to poor infra-structure 300 compared to developed markets. Accounting Norms – The accounting norms of one country (AS .India) may be different from that another trading country (US – GAAP or IRS). debt is cheap in US.

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

INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays. 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). . Bosch spark plugs are used by car manufacturers worldwide). SCM – Use of ERP to network the extended enterprise 302 across the globe. Outsourcing – A company having a core competence may be the source of global outsourcing (Eg.


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

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 innovations are organizational driven.      305 . Process innovation usually follows product innovation. While product innovations are typically customer driven. However. process innovation is necessary to sustain the competitive advantage of product innovation. Strategic innovation has the potential to change the rules of the game.

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

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


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

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. Allow the management sufficient slack to be future oriented. Promote the grape-vine. Provide reasonable incentives (not necessarily monetary). 310 . A favourable intellectual property (IP) climate. Have a lean and a flat organization structure.

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

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. In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders.

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

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

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

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

Regular board meetings allow potential problems to be identified. However. discussed and resolved. safeguards invested capital. Balance of power: The simplest balance of power is very common. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance.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. a person benefitting from a decision should abstain from it. 317 . fire and compensate top management.

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

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

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

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

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

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. C.BOTTOM OF THE PYRAMID    With the market across most developed markets including the US getting saturated. K. Strategic innovations leading to disruptive business models can show the way out. They represent an enormous opportunity for companies who learn how to serve them. Prahalad notes that future markets exist collectively. In turn companies by serving these markets. 323 .



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

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

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

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

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).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. They are not necessarily about technology. managerial moves are. Company & industry are the wrong units of 330 strategic analysis. Incumbents often create blue oceans within the ambit of their core business. .

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 .

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

WHAT THEN IS THE HANDICAP?     Most of the traditional views in strategy having its origin in (Economic Theory) led to what is called the – structuralist paradigm. 334 . 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. greater than themselves. 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. All they need to do is change their managerial frames.

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