BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

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

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

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

APPROACHES TO STRATEGY  Analytical Approach – Igor H. Learning always begin on a clean sheet of paper. – The choice of strategy is primarily concerned with external ones rather than internal ones. 15 . – 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. – The choice of product-market mix is based on conscious evaluation of risk – return factors. – Biases and prejudices has a very little role to play in strategic choices pursued by managers.

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

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

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

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

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

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

– It stands for the unchanging core values of the company. It ensures that the company does not wander off into unrelated zones or fall into an activity trap.  24 . 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. beyond just making money. It enables the top management to remain focused. – It represents the company’s audacious. but achievable aspirations.VISION It is a dream (not a forecast) about what the company wants to become in the foreseeable future.

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

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

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

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

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

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

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

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

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

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

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

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. Dominant logic’s are very rigid and sticky and prone to inertia. . Tampering with surface level factors often leads to atrophy. Dominant logic’s are the cornerstones of change when strategic transformation is apparent. It creates blinders. As it brings 37 with it a different dominant logic.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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 .

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

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

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

A game is a contest involving two or more players. In fact there are no. Here the magnitude of gain offsets the magnitude of loss equally. 132 . 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. each of whom wants to win. the stringent assumptions of game theory and difficulty in ascertaining of pay-offs makes game theory application difficult in business.GAME THEORY     The game theory was developed in 1944 by Oscar Morgenstern. illustrations depicting a win-win situation. This is known as a zero-sum game. However.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

. detecting changes in the external and internal environment and taking corrective action wherever necessary. competitive advantages becoming disadvantages? Has the company acquired any new competency? Has the company been able to overcome the 153 environmental threats. 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.

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

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

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

157 . It appeared also in "In Search of Excellence" by Peters and Waterman. At around the same time in the US Tom Peters and Robert Waterman were exploring what made a company excellent.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. The 7-S model was born at a meeting of these four authors in 1982. and was taken up as a basic tool by the global management consultancy company McKinsey. They had been investigating how Japanese industry had been so successful.

to reach identified & stated goals. Strategy – Trade-offs for the allocation of a firms scarce resources. formal & informal . Staff – Human inter-relationships. 158 . processes and routines that characterize how work should be done. Structure – The way in which the organization's units relate to each other in terms of their commonalities. Skills – An organizations capabilities and competencies. 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. Systems – The procedures. over time.

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

BENCHMARKING - ADVANTAGES

  

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

While strategy is all about differentiation and not looking alike. the more similar they end up looking. Strategy is more of creating best practices rather than copying them. It can at best complement it. . clustering).BENCHMARKING . 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.LIMITATIONS     More and more companies benchmark. Benchmarking is useful for bringing about operational efficiency. but it cannot be used as a strategic decision making tool.e.

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

than people driven Innovative Vs Traditional Customer centric Vs Organisational centric 177 .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.

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

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

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

Euro IV. – Serviceability – Large no. – Reliability – Consistency in mileage. – Perception – Customer notions. Air bags. 181 . It has eight dimensions (Eg. More and more companies are moving towards meeting implied rather than stated needs. of service stations. – Conformance – Emission standards . – Aesthetics – Appeal in design. – 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. – Features – Anti-lock braking systems. Car) – – Performance – Mileage of 14 kms to a litre of fuel.

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

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. Looking at quality as an endless journey. Kaizen – Make continuous improvement a way of life. 183 . Empowerment – It takes place when employees are properly trained. fully involved in decision-making and fairly rewarded for results. not a final destination. Be customer centric – Generate the concept of internal customer (Ishikawa).TQM – KEY TENETS     Do it right.

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

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

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

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

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

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

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

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

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 .

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

It is created and institutionalized by the top management. Kumar Birla today is more dependent on professionals. started focusing on their capabilities.) 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...... Restructuring also requires cultural reorientation.RESTRUCTURING – BASIC TENETS     Cultural Changes – A culture represents the values and beliefs of the people about the organization.. the Tatas were considered a benevolent and charitable organization. During the times of JRD... . 200 .

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

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

Reliance Ent).HIVE OFF   Spin-Off – A spin off is the creation of a new entity. Tata Industries selling 20% stake to Jardine Matheson). the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company. – Split-Off – In a split-off. 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. – Split-Up – In a split-up. the entire parent company loses its identity after being split into a number of subsidiaries. 203 . Most of these practices are not in consonance with Indian laws.

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

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

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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. – Less than 10% of the Fortune 500 companies as first published in 1955. still exist as on 2005.WHY TURN AROUND MANAGEMENT?  Some interesting insights . 215 (Govindarajan and Trimble... ... January 1997).. – Only seven of the first fifty Indian business groups in 1947 were even in business by the turn of this century.

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

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

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

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

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

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

Similarly new market initiatives is feasible only for multi-product firms. 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 . Scope – A diversified conglomerate may acquire a distressed business to turn it around and gain valuable synergies.

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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. Coke – Pepsi). leverage upon size to preempt competition by escalating entry barriers (Eg. enabling them to increase prices (Eg. Tata. Airbus – Boeing). Hyundai). Cross Holdings – A maze of equity holdings through centralised control to ensure earnings stability & threshold resources for critical mass (Eg. It can be of the following types – Multipartner – Intends to share an underlying technology or asset.

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

when the “fit” between the two entities is very poor. – Conglomerate Synergy – Gains come when one firm complements the resources or capabilities of another (Eg. 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. or from increased market power which increases sales and margins. – Vertical Synergy – Gains come from controlling the supplychain and savings in transaction costs. Innovative product – Good distribution network).

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

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

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

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. declining margins. 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 . falling market share). most often they ended up cutting corporate muscle as well and became anorexic. downsizing). decluttering.THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. Not knowing when to stop. Thus efficiency was grievously hurt.

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

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

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 .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

312 312 .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. In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders.

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

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

315 . 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. 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. Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders.

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

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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

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

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

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

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

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

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