BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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

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

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

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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

ORGANIZATIONAL POLITICS  Strategic drift often leads to organizational politics. – Hiding vulnerability. Some instances of organizational politics – Formation of powerful groups or coteries. – Creating obligations of reciprocity. 33 . – Creating a favourable image. – Developing a platform of support. – Distorting information to gain mileage. – 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.

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

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

The broader objective should serve the overall interest of the organization. Agent of Change – Formal ratification of a change plan through MBO. 36 . Macro Broadcasting – The broad idea is floated without details to invite pros and cons leading to finer refinements. Adaptation – As implementation progresses.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.

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

Consumerism Challenges on the technology front – Competencies become technology based – Investment in R&D become inescapable 48 .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.

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 .

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

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

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

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

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

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

Competitors. Business Intelligence – Bankers. Case Studies – Structured Questionnaires. Websites.SWOT     The framework was originally conceptualized by Kenneth Andrews in 1970. 59 Analysts. . 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. Acronym for Strengths – Weaknesses – Opportunities – Threats. A SWOT audit involves – Company Records – Annual Reports. Press Clippings & Interviews. Observation.VULNERABILITY ANALYSIS . Customers. Interviews. Suppliers.

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

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

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

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

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

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

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

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

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 . It enables the top management to draw focus. KSF helps organizations spot early opportunities and convert them into value adding business propositions.KEY SUCCESS FACTORS (KSF)     KSF relates to identification and putting concentrated effort on a particular activity or process which forms the very basis of competitive advantage.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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.STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent. What then is the magical number? 93 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

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

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

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

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

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

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

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

Capabilities can be generic (i. they are woven around technologies. They play a very critical role in shaping competitive advantage. 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. There is a high degree of internal and external causal ambiguity involved in it. Typically. but not necessarily.e. can be leveraged across businesses) or specific to a particular business. 123 . Therefore firms should concentrate on developing complex resources that forms the very basis of differentiation. Hence.

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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

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

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

e. patents. Intangible resources (Eg.RESOURCE ALLOCATION     Resources allocation includes tangible resources (Eg. 146 . Zero Based Budget – In this case the budget of a SBU has to be worked out right from the scratch. The various methods of resource allocation includes Historical Budget – The budgets framed by HQ for a particular SBU keeping in mind past trends. brands. 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. labour. land. machines) referred to as threshold resources (i.

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

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

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

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

Inertia acts as an impediment in strategy implementation.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. Common sources of 151 inertia – complacency with past successes. irrespective whether it is from worse to good or good to worse.e. Changes in top management and unlearning helps overcome inertia. there is a tendency to continue along the same lines. Most firms undergo periods of strategic continuity rather than strategic discontinuity.  . co0ntinuity).

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

. 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.STRATEGY CONTROL      It is concerned with trafficking a strategy as it is being implemented. competitive advantages becoming disadvantages? Has the company acquired any new competency? Has the company been able to overcome the 153 environmental threats.

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

Dell: Customized configuration of computers. Caterpillar: 48 hours delivery anywhere in the world. Citi Bank : Priority banking services. Maruti: Certified “true value” pre-owned cars. Microsoft: ESOP to employees. Infosys: Customized work-stations. TCS: Referencing potential new recruits. ITC: Shareholders factory visit. AmEx: Outsourcing data warehousing mining. MARG: Set-top box to study viewing patterns. Honda: CEO’s visit to dealers.
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TYPES OF BENCHMARKING
Functional – Used by companies to improve a particular management activity. Eg. Motorola learnt delivery scheduling from Domino’s. Process – Improving specific key processes and operations from experiences in similar businesses. Eg. Ford adopting assembly lay-out plan of Toyota. Competitive – It involves assessing the sources of competitive advantage and imitating them. Eg. Samsung leveraging miniaturization skills of Sony. Strategic – It involves assessing business models and replicating them in a different market. Eg. Reliance replicating AT&T business model.
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HOW TO BENCHMARK?

Phase 1: Planning – What to benchmark? Whom to benchmark? – Identify key performance indicators & Data source. Phase 2: Analysis – Assessment of performance gaps. – Predict future performance levels. Phase 3: Integration – Communicate findings and gain acceptance. – Establish functional goals and its implementation. Phase 4: Action – Implement and monitor progress. – Measure results against stakeholder wants and needs. – Recalibrate or outperform benchmarks.
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WHOM TO BENCHMARK?

Selecting the benchmarking partner is critical to solving the problem. Firms should generally avoid selecting the industry leader, because it may not always adopt the best practices for every process or activity. Benchmarking partners may also be from different industries. Types – – Internal – It involves benchmarking against its own branches, divisions, SBU’s. Proximity to data and cooperation is taken care of automatically. – External – It involves benchmarking against firms that succeeded on account of their best practices. It may also involve benchmarking against world-class firms. Friction may arise due to presence in competing industries.
173

BENCHMARKING - ADVANTAGES

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

e. 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. downscoping). they should strive to provide unimaginable value ahead of its time (Eg. Fax. Structural Changes – Conventional hierarchical structures should be disbanded in favour of more 199 flexible ones (i. Instead. ATM. Walkman. etc). downsizing or rightsizing). and dividing the core businesses into SBU’s (i. Internal customers should also not be neglected.e. .RESTRUCTURING – BASIC TENETS    Customer Focus – Restructuring ideally begins and ends with the customer.

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

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

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

the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company. 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. – Split-Off – In a split-off.HIVE OFF   Spin-Off – A spin off is the creation of a new entity. 203 . – Split-Up – In a split-up. Equity Carve – It involves selling a minority stake to a third party while retaining control (Eg. Tata Industries selling 20% stake to Jardine Matheson). Reliance Ent). the entire parent company loses its identity after being split into a number of subsidiaries.

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

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

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the firm liquidates / pledges assets and pays off debt. leverage is expected to decrease over time. initial rise in leverage is anticipated. 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. A LBO has to pass two tests to be viable – – Restructuring to pay-off increased debt. 259 . Therefore.EFFECT OF HIGH LEVERAGE      Increases the riskiness of dividend flows to shareholders by increasing the interest cost to debt holders. – Increase equity valuation.

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

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

over time. – Most studies reported insignificant excess returns around take-over offers or merger announcements. Desai. 1983. as stock markets become more and more perfect such anomalies would reduce Source: Jensen and Ruback. 262 Jarrel. Bradley. – However. – However. and Kim. 1983. 1988 . Brickley.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. and Netter.

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

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

COMPETING FOR THE FUTURE 265 .

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

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

ensuring only survival of the present. incrementalism or nominal innovation has almost reached a plateau.S.THE PRESENT OF COMPETITION    Beyond Reengineering – Numerator based managers (innovation) at least offers some hope. However. top managers believed that quality will be a source of competitive advantage of the future. 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. but not of the future. 268 . On the contrary only 20% of Japanese managers believed that quality will be a source of competitive advantage of the future.

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

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 .

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

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

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

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

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

Initial resource position is a very poor indicator of future performance. It leads to atrophy and stagnation. Successful companies consciously create a potential gap between aspirations and resources. Resource crunch is a common factor among firms that faces a wealthy rival, and outperforms them. Leveraging what a company already has, rather than allocating it is a more creative response to scarcity. – By concentrating existing resources. – By accumulating existing resources. – By complementing existing resources. – By conserving existing resources. – By recovering existing resources.
281

CONCENTRATING RESOURCES

Concentrating – It involves effectively directing portfolio of resources on key strategic goals in which individual efforts converge over time. It is a balance between individual mediocrity and collective brilliance. It is achieved through – Converging – Redirecting multiple diverging (i.e. fragmented) short term goals into one long term goal. It is then resources can be stretched over time. Focusing – Making trade-offs and preventing dilution of resources at a particular point of time. Targeting – Focusing on the right innovations that are likely to have the biggest impact on customer value.

282

ACCUMULATING RESOURCES

Accumulating – Using existing reservoir of resources to build new resources. Each and every individual is a rich & potential source of learning, discover better ways of doing things. It is achieved through Mining – Extracting learning experiences from existing body of each additional experience (i.e. success or failure). It is an attitude that can be acquired, but never learnt. It leads to a substantial jump in the experience curve. Borrowing – Utilizing resources outside the firm through licensing, alliances, joint ventures. A firms absorptive capacity is as important as its inventive capacity.

283

COMPLEMENTING RESOURCES

Complementing – Using resources of one type with another that aligns smoothly to create higher order value. In a way it produces an accelerating effect on each individual resource. It is achieved through – Blending – Interweaving discrete capabilities to create world class technologies (GM – Honda) through integration and imagination. Different functional skills can also be blended to create a world class end products (Yamaha – Keyboard). Balancing – An ability to exploit excellence in one area is never imperiled by mediocrity in another (GE acquiring the CT scanning rights from EMI because of its inadequate market reach).

284

CONSERVING RESOURCES

Conserving – Sustaining competencies over time through frequent usage. Resources are never abandoned; they are always preserved for future use. Recycling – Increasing the velocity of use of a competencies over time. As a result core competencies can be leveraged across an array of products (Sony - Betamax). It includes brand extensions as well. Co-Opting – Enticing resources of potential competitors to exercise influence in an industry (Fujitsu – IBM). Shielding – It involves identifying competitors blind spots and then attacking without having the fear of retaliation.

285

RECOVERING RESOURCES

Recovering - It is the process of reducing the elapsed time between investing in resources and the recovery of those resources in the form of revenues via the market. Speeding – Prior to the 1980’s Detroit’s majors took an average of 8 years to develop an entirely new model; the Japanese reduced it to less than 4.5 years, with major new variants in 2 years. This envisaged Japanese players in giving customers more opportunities to switch allegiance and loyalty (Toyota). Protecting – It uses competitors strength to one’s own advantage, by deflecting it, rather than absorbing it as practiced in Judo.
286

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

Distribution – It depends on the market characteristics (fragmented – concentrated). technology (microchip). buying patterns (spread).culture (food habits).INTERNATION MARKETING    Product – The various attributes of a product may receive different degrees of emphasis depending on differences in . lifestyle (petroleum 299 outlets – departmental stores). Pricing – It depends on the competitive structure (PLC – Kellogg's). economic (middle class buying power). usage (talk time). . promotion (surrogate advertising). 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. Cost Structure – Companies in India need to investment in fixed costs due to poor infra-structure 300 compared to developed markets. . Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg. Accounting Norms – The accounting norms of one country (AS . equity is cheap in India). debt is cheap in US.India) may be different from that another trading country (US – GAAP or IRS).

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders.CORPORATE GOVERNANCE    The basic theme of corporate governance is to ensure that professional managers are identified and made accountable in terms of clear business processes or activities and held responsible through adequate mechanisms & control systems for channelizing their decisions for the benefit of stakeholders at large. 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.

313 . also known as the principal-agent problem or agency dilemma. However. According to the agency theory top managers and shareholders interests are usually conflicting in nature and tend to pull in opposite directions. From the strategic point of view managers tend to diversify into unrelated businesses as it provides higher returns hence a more favourable appraisal. This exposes the shareholders to additional risks and higher costs. 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.

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

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

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

with its legal authority to hire. Regular board meetings allow potential problems to be identified. a person benefitting from a decision should abstain from it. fire and compensate top management. Balance of power: The simplest balance of power is very common. discussed and resolved. 317 . However. 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. safeguards invested capital.

The size of the premium varied by market. who had no management ties. 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. They defined a well-governed company as one that had mostly out-side directors. McKinsey found that 80% of the respondents would pay a premium for wellgoverned companies. undertook formal evaluation of its directors. 318  . Egypt and Russia) to around 40% for Canadian & European companies.GOVERNANCE & PERFORMANCE In its “Global Investor Opinion Survey” of over 200 institutional investors in 2002.

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. However. Over a period of time. 319 . The basic premise is that firms cannot exist in vacuum. Therefore. the short-term view of profit maximisation gave way to a more broader and mediumterm view wealth maximisation of the shareholders.

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

321 . MRTP). Public image: Entrepreneurs are increasingly relying on public image as a source of competitive advantage and a higher financial discounting.GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy. people are becoming increasingly aware of their right to a decent and healthy life. 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.

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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

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

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

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

Citibank – Automated teller machines & credit 333 cards. 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.

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

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