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




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


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


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



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







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

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

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

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

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

Industrial Revolution. 1910). The first major discontinuity in the history of global business environment was the . The things happening around the firm when totally disconnected from the past leads to a paradigm shift. a radical change in the business environment brings about discontinuity. 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 paradigm is a dominant belief about how the business and its environment operates.

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

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 .

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

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

– The organization will outperform the industry where environmental forces are weak and vice-versa. 17 . – The environmental forces comprises of – supplier. new entrant. customer.APPROACHES TO STRATEGY  Positioning Approach – Michael E. competitors. 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. – An organization is seldom in a position to influence the larger business environment. substitutes.

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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. Strategic transformation becomes smooth through a change in top leadership.

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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.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. KSF helps organizations spot early opportunities and convert them into value adding business propositions.


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

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

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

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

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

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

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

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

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

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


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



Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power


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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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


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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

Nature of competition extremely high. backed by corporate espionage. scooters. Firms facing a declining phase are characterized by inertia and slow to react to environmental changes. Learning abilities have been stunted and firms adverse to investment in R&D and make fresh investments. Typewriters. with little or no signs of recovery. and costly price wars.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. Exit barriers are extremely high because of limited prospective buyers. 120 . dot-matrix printers). (Eg.

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

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

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


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

126 . 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 today's world of discontinuity. Identification of SAP is critical for and stretching and leveraging of resources. Most successful organizations around the world have a well balanced SAP. In most cases SAP is hidden and dormant.STRATEGIC ADVANTAGE PROFILE (SAP)       Organizations have to systematically and continuously conduct exercises to identify its SAP.

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). each of the players need to be efficient backed by sufficient coordination at the contact points (i. Today SCM is integrated with greening the environment as CSR practices. A VC is often compared with a relay team. kaizen or internal customer). 127 . VC pay-offs: better product availability.e. Substantial cost reductions also follow. and enhanced customer tracking – higher market share. faster product launches. 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 .

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

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

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

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

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

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

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

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


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


System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138



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


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




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


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

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

bring about transparency. Pragmatism is the ability to make things happen. Install a system of shared beliefs and values. He should be an agent of change. 145 . 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. In contrast. transformational leaders go one step beyond – Design a well crafted and designed strategic intent of the organization. companies depend more on transformational leaders than transactional leaders. shift from compliance to commitment.

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

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

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

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

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

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

certain authors propose misfit as a source of superior 152 performance.  . However. Deviation of fit is detrimental to performance and may lead to strategic failure. To prevent deviation of fit. firms should move beyond financial performance to strategic performance as organization systems are becoming complex.STRATEGY EVALUATION    Strategy evaluation centers around assessment of strategic fit. 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.

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

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

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

so if one fails to pay proper attention to one of them. the relative importance of each factor may vary over time and context. important or not they're all interdependent. Today it is considered one of the most powerful tools for strategy implementation determining success or failure. Large or small. Together these factors determine the way in which a corporation operates. On top of that. this may effect all others as well. to be sure of successful implementation of a strategy.7S FRAMEWORK OF Mc KINSEY  The 7-S Framework of McKinsey is a management model that describes 7 factors to organize a company in an holistic and effective way. Managers should take into account all seven of these factors. 156 .

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

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

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

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

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

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

It touches upon a limited aspects of a firms value chain.STRATEGIC ALLIANCE     It involves a pro-active collaboration between two or more firms on a particular domain or function for mutual gain. . Tata Motors & Fiat). 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. Alliances are usually in the areas of technologies or markets (Eg. 163 It is a form of competitive collaboration. Alliances are usually short-lived and disbanded once the purpose is achieved.

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

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

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


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


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


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

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


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


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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

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

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

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

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

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

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

thumb rules) of the top management. Dominant logic becomes deep-rooted in organizational contexts depending on the period it is in place (tenure of the CEO). The dominant logic represents the perceptions and biases (i. Strategy change is unviable without a preceding change in its dominant logics. as strategies are based on such beliefs and biases. the more difficult it becomes to uproot the paradigm (i. The longer the period.e. inertia).e. 208 .STRATEGIC CHANGE     One of the most difficult components of organization restructuring is the mindset of the top management represented through its dominant logic and its shared values reflected in cultural orientation.

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

Coke – Pepsi).STRATEGIC ALLIANCE . Maruti). Airbus – Boeing). 232 . Whirlpool – Tide. Alliances of the Weak – An alliance is entered into to preempt competition (Eg. Bajaj – Castrol). 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. Complementary Equals – Two firms mutually promoting each others complimentary products (Eg. Bootstrap – An alliance between a weak and a strong company with an intention to acquire it.

233 . Differences in level of economic development can produce differences in alliances motives.PARTNER SELECTION CRITERIA     It is likely that partners will not have complete consent on alliance objectives because the institutional context in which the alliance embedded varies from country to country. Too much stress on financials & structure be avoided. 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).

Intangible Assets – Move beyond the financials of the firm.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. Willingness to share knowledge and skills. Partner’s ability to acquire fresh skills. Managerial capabilities. Dominant Logic’s – Similarity in beliefs & biases. Experience related to previous alliances. 234 .

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

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

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

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

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

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


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

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

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. 244 . the SEBI can intervene and block share transfers if: the acquirer has ulterior motives (i. Gujarat Ambuja – ACC).SEBI TAKEOVER CODE. credentials or track record is at stake. SEBI – In case of a hostile take over. 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. whichever is higher as an exit route (Eg. Grasim – L&T Cement. asset stripping).e.

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

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

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

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

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

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

Financial motives – Undervaluation relative to true value. The process takes (6-12) months. over valuation can become a curse. 251 . – Unstated reasons – Personal self interest and hubris. – Synergy – Potential value gain from combining operations (i. 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. operational & financial).M&A . – Market for corporate control.e.VALUATION   The process of valuation is central to M&A.

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

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

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

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

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. LBO facilitates a relatively smaller firm to bid for a comparatively larger firm in the bid for management control. sometimes in combination with the assets of the acquiring company.LEVERAGE BUYOUT (LBO)     The basic difference between a take-over and a LBO is the high inherent leverage (i. 256 .e. Confidence of investment bankers and the international financial community is essential. It is a very costly and risky proposition.

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

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

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

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

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

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

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

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


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

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

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

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

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 .

Change in at least one fundamental way the rules of engagement in an industry. Create entirely new industries (i. Redraw the boundaries between industries. Successful companies have a complete grip over the industry. they do not need to restructure. It drives a hunger and a passion to transform. 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.e. It is about deliberately creating a strategic misfit. blue oceans). by converging technologies complex. 271      .

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

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

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

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

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

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

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

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

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


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


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



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



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



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



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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

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

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

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

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. Independence of the entity's auditors: Identification. Disclosure and transparency: Disclosure of information should be timely and balanced to ensure that investors have clear access to data and facts. They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting. assessment and mitigation of risks and retirement by rotation over a fixed period of time..

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

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

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

economic and social responsibilities cannot be mutually exclusive. 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. However. “a healthy business cannot exist in a sick and impoverished society”. “an enterprises decisions and actions being taken for reasons at least partially beyond its immediate economic interests”.CORPORATE SOCIAL RESPONSIBILITY     As Peter Drucker rightly pointed out that. Therefore. Therefore. CSR can be defined as.

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

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

323 . 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. Prahalad notes that future markets exist collectively. K. C.BOTTOM OF THE PYRAMID    With the market across most developed markets including the US getting saturated. In turn companies by serving these markets. across the world's billions of poor people having immense untapped buying power. They represent an enormous opportunity for companies who learn how to serve them.



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

rendering rivals obsolete and unleashing new demand. Blue Ocean’s have existed in the past. It is only the frames of the . but by creating blue oceans of uncontested market space ripe for growth .WHAT IS BLUE OCEAN?    Tomorrow’s leading companies will succeed not by battling in red oceans. 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. it will exist 327 in the future as well.

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 .

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

CONCEPTUAL UNDERPINNINGS       Blue oceans have existed in the past and will exist in the future as well. Incumbents often create blue oceans within the ambit of their core business. Company & industry are the wrong units of 330 strategic analysis. 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). . managerial moves are. the underlying technology was often already in existence. 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. .

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

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