BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

Fit

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

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

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

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

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

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

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

18 . Prahalad (1990) – The key to superior performance is not doing the same as other organizations. – Core competencies are a set of skills that are unique and can be leveraged. 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. but exploiting the resource differences among them. K. locating in most attractive industries and pursuing the same strategy. – It enables a firm to deliver unimaginable value ahead of time.

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

23 . To put it more simply.e. strategic variety) is apparent. 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. when radical changes in the internal and external environment (i. 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. It is core to the strategic intent of the firm.

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

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

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

 It serves as a road map to reach the vision. its reason for existence. Although the purpose may change over time.  27 . It enables the firm to define its business landscape and identify its competitive forces. 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.  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.

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

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

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

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

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

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

FIVE FORCES MODEL .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 .

It should not only be used to understand the forces.e. It is even wiser to apply the same at the product – market level. the forces are subject to changes. profit potential) per se.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. 51 . but also used to understand how they can be countered and overcome. The model should not be used as a snapshot in time. incremental or otherwise.

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

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

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

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

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 .

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

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 .

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

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

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

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

Delphi's technique. Assess the extent of impact of the factors. Holistic view – Prepare a complete overall picture. time series. Strategic responses (including adaptation) to opportunities and threats is critical for survival and success.e.ETOP       Acronym for Environment – Threat – Opportunity – Profile. 65 . scenario analysis). 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. Forecasting – Predict the future (i.

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

– Immense customer reach & flexible advertising. tyres. 75 . – Creativity and innovation – thinking out of the box. – Unconventional and flexible distribution channels. (Eg. socks & stockings. Du Pont – Nylon: parachutes. – Stretches product life cycles.MARKET DEVELOPMENT  It is a strategy where a firm tries to achieve growth by finding new uses of existing products or its close variants and tap a new potential customer base altogether. carpets. fabrics. upholstery.…… or Teflon: aircraft technologies to cutlery to paints or Raytheon Corp – Microwaves: radars to kitchen appliances). – Moves across geographical boundaries.

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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 .

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

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

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

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

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

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

ARTHUR’ D. 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 .

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 .

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

BUSINESS STRATEGY & COMPETITION 108 .

The strength of a firm in a particular business usually stems from its competitive advantage. building market-share. Competitive advantage is the back-bone of strategy. The principal focus is on meeting competition.e. Such resources or activities should be distinctive and sustainable over time. 109 . 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. Competitive advantage refers to a firms resources or activities in which it is way ahead of competition.

identifying critical success factors. 110 . involving harmonizing and integrating multiple streams of technologies.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. leveraging (Prahalad). Resource Based View – Obsession with competence building. preventing new entry and/or competition (Hax & Wilde). Blue Ocean – Consciously moving away from overcrowded industries to uncharted territories and making competition irrelevant (Kim & Mauborgne). developing competitive advantage (Porter).

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

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

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

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

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

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

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

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

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

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

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

Intangible – These refer to goodwill. hence very rarely confer competitive advantage as can be easily acquired or replicated. 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”. 122 . patents. brands. A firms resources can be classified into – Tangible – These refer to real assets. positions based on resources which are unique and inimitable are far more sustainable even in the long term. However.RESOURCE BASED VIEW    Differentiation based on cost or products saturates and ceases to exist beyond the medium term.

Capabilities can be generic (i. Therefore firms should concentrate on developing complex resources that forms the very basis of differentiation. 123 . They play a very critical role in shaping competitive advantage. they are woven around technologies.e. Hence. differentiation based on capabilities can be sustained even in the long run. Typically.CAPABILITIES & COPMPETENCIES   These include a complex combinations of tangible and intangible resources that organizations use to convert inputs to outputs. 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. but not necessarily.

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

A learning organization helps create strategic fit. – First order fit refers to simple consistency between each activity and the overall strategy. 129 . 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. – Third order fit refers to optimization of effort.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. Operational effectiveness is not strategy.

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

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

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

BIASED AND UNBIASED GAME  A game is said to be biased when one of the players have a disproportionate chance of winning. Firm Y’s Strategy Use Radio Use Radio +2 +6 Use Newspaper +7 -4 133 Firm X’s Strategy Use Newspaper Firm X’s Pay-Off Matrix . 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.PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy. 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 .

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BACKGROUND & ORIGIN  The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony Athos in 1981. Since then it is known as their 7-S model and is extensively used by corporations worldwide to implement their strategies. 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. and was taken up as a basic tool by the global management consultancy company McKinsey. 157 . The 7-S model was born at a meeting of these four authors in 1982. They had been investigating how Japanese industry had been so successful.

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

  

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

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

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

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

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

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

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

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

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

TQM – KEY TENETS     Do it right. the first time – From reactively fixing error in products to proactively preventing errors from occurring at the first place (Juran). 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. Be customer centric – Generate the concept of internal customer (Ishikawa). Empowerment – It takes place when employees are properly trained. Kaizen – Make continuous improvement a way of life. 183 . not a final destination.

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

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

BSC . Focus more on causes.CONCEPTUALISATION     A company’s performance depends on how it measures performance. 186 . rather than effects. Most managers tend to rely on traditional measures of performance having its origin in finance as they are well tried and tested. These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static. Organizations need to move from financial to strategic 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.

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

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

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

LEARNING PERSPECTIVE GOALS Technology Manufacturing Focus Timing MEASURES No. of 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.

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg. 205 . Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt.CAPITAL RESTRUCTURING     Capital Restructuring . involving 608 pence per share).The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. Wipro). Tatas take-over of Corus for US $11.3 billion. It provides greater leverage as well as management control.

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

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

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

Successful transformation requires – incorporating employees fully into the process – leading from a different place so as to maintain employee involvement – instill mental disciplines that will enable employees to behave differently. Companies achieve real agility only when people at every level rise above the ordinary to face the challenges – revitalization or transformation.e. 20% of the people carry out 80% of the changes). 209 . 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.

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

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

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

Numerator – 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. 213 . focuses on reengineering. the second one is a more viable strategy and sustainable option in the long run. reverse engineering and regenerating.NUMERATOR & DENOMINATOR MGT     Most firms across emerging markets undergo strategic discontinuity and as a result are forced to restructure their businesses. down-scoping or asset stripping. hence go in for downsizing. While the first strategy produces results instantaneously.

TURNAROUND MANAGEMENT 214 .

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

216 . and achieves sustainable performance recovery. A category of underlying principles and concepts. As a sequence of events describing how things change and why they change (i. skills. While content focuses on endogenous and exogenous variables. Both content (what) and process (how) are equally important for a successful turnaround. and capabilities. 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.e. process focuses on – A logic to explain a causal relationship between intervening variables. systems. Stage Theory).

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

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

primarily dwindling resources and capabilities are responsible for decline.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. 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. It has its origin in “environment led fit” that subscribes to the view that a firm has little control over external factors. Identification of the stimulus leads to the arrest of the downfall. 220 .

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

Airbus – Boeing). 232 . Whirlpool – Tide. 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. Maruti). Coke – Pepsi). Alliances of the Weak – An alliance is entered into to preempt competition (Eg.TYPES      Collusion – Tacit top management understanding to neutralize price wars (Eg. Backward – An alliance (quasi or tapered) with a supplier of critical components seeking commitment (Eg. Bajaj – Castrol).STRATEGIC ALLIANCE .

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

263 . Rights). Poison Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive. 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.DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control. so that nothing is left for the raider to strip off.

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

COMPETING FOR THE FUTURE 265 .

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

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

but not of the future. top managers believed that quality will be a source of competitive advantage of the future. 268 . but forging ahead in competition. incrementalism or nominal innovation has almost reached a plateau. However. ensuring only survival of the present. On the contrary only 20% of Japanese managers believed that quality will be a source of competitive advantage of the future. The future is not about catching up with competition. 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.S.

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

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

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

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

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

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

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

e. Neo classical economists believe that foreign investment may in fact be a win-win game.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. It is long term with high levels of commitment. – FII (transfer of intangible resources) is fast but may have strong repercussions (i. It is short-medium term with comparatively low levels of commitment. 298 .e. hot money). the gain of one country is loss of another).

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

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

technology (convergence. double taxation. 301 . social security. skills are more important that cultural fit and vice-versa. Compensation – Differential pay packages exists because of differences in purchasing power. 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. in most cases it is not desirable nor practiced. however.INTERNATIONAL HR     An uniform HR policy is idealistic to enable parity in performance appraisal. labour laws.

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

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. including the society at large.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. 315 . Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders.

GOVERNANCE PRINCIPLES    Integrity and ethical behaviour: Organizations should develop a code of conduct for their top management that promotes ethical and responsible decision making. Disclosure and transparency: Disclosure of information should be timely and balanced to ensure that investors have clear access to data and facts. 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. 316 316 . Independence of the entity's auditors: Identification.

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

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

managerial moves are. They are not necessarily about technology. 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). . the underlying technology was often already in existence.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.

BLUE OCEAN .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 .

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 .

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

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