BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

12 . The things happening around the firm when totally disconnected from the past leads to a paradigm shift.Industrial Revolution. 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.EVOLUTION OF MANAGEMENT     As Peter Drucker refers to it. 1910). The first major discontinuity in the history of global business environment was the .

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

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 .

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

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

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

K. – Organizations can significantly alter the way an industry functions. They are complex resources and undermines a firms competitive advantage. – Core competencies are a set of skills that are unique and can be leveraged. 18 . but exploiting the resource differences among them. 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. – It enables a firm to deliver unimaginable value ahead of time.APPROACHES TO STRATEGY  Core Competence – C.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges.PIMS . when radical changes in the economy takes place. – Contexts may vary across countries. therefore 67 validity may be a question. Authenticity of data is of prime importance – Contexts drawn across one organization may not be applicable to another. 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. . – Contexts may vary over time.

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

Competitive advantage arises not from an individual activity but a stream of inter-related activities. Today SCM is integrated with greening the environment as CSR practices.e. Substantial cost reductions also follow. A VC is often compared with a relay team. and enhanced customer tracking – higher market share.VALUE CHAIN ANALYSIS    A value-chain segregates a firm into strategically relevant activities to understand its composite behaviour. kaizen or internal customer). 127 . VC pay-offs: better product availability. Inventory Mgt to Logistics Mgt to Supply Chain Mgt (SCM). each of the players need to be efficient backed by sufficient coordination at the contact points (i. 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. A high fit involving a complex chain of activities drives both competitive advantage and its sustainability. – Second order fit occurs when activities are reinforcing amongst them. Operational effectiveness is not strategy.STRATEGIC FIT – THE PORTER WAY   The sustainability of the value chain depends on the degree of fit between the activities. 129 . – Third order fit refers to optimization of effort. 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.

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

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

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

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.

PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy. A saddle point is a situation where both the players are facing pure strategies. 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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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.

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

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

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

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

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

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

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

– In the majority of failures – we estimate 70% – the real problem isn’t (bad strategy) .. 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... – Efficiency and effectiveness is passé..BALANCED SCORE CARD  Some interesting comments .

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

the second one is a more viable strategy and sustainable option in the long run. down-scoping or asset stripping. 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.NUMERATOR & DENOMINATOR MGT     Most firms across emerging markets undergo strategic discontinuity and as a result are forced to restructure their businesses. 213 . While the first strategy produces results instantaneously. Numerator – It assumes that turnover is not a barrier or constraint. focuses on reengineering. reverse engineering and regenerating.

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

RESPONSE DICHOTOMY     The response initiation is somewhat dichotomous and cannot be universally applicable. 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. Contour – It is easier to reverse decline in the earlier stages through operational measures. Scope – A diversified conglomerate may acquire a distressed business to turn it around and gain valuable synergies. Similarly new market initiatives is feasible only for multi-product firms. which may be unavailable to a focused firm. 222 .

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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.PARTNER SELECTION CRITERIA     It is likely that partners will not have complete consent on alliance objectives because the institutional context in which the alliance embedded varies from country to country. – Japan Vs US). 233 . Too much stress on financials & structure be avoided. Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology.

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

– Increase equity valuation. Lack of sufficient cash flows to repay costly debts resulting in a possible debt trap. As the firm liquidates / pledges assets and pays off debt. Any discounting has to reflect these changing cost of capital. 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. 259 . initial rise in leverage is anticipated. leverage is expected to decrease over time.

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

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

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

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 Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive. Asset Stripping – The targeted company hives off its key assets to another subsidiary. Rights). Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg. so that nothing is left for the raider to strip off.

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

COMPETING FOR THE FUTURE 265 .

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

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

On the contrary only 20% of Japanese managers believed that quality will be a source of competitive advantage of the future. However.S. incrementalism or nominal innovation has almost reached a plateau. The future is not about catching up with competition. top 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. A poll in circa 2000 revealed that 80% of the U. but not of the future. ensuring only survival of the present. but forging ahead in competition. 268 .

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

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

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

272 . 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. Such a process is called institutionalization (from people centric to organisational centric). More importantly.ABOUT THE EMPOWERMENT      Bring about a revolution (a paradigm shift) in the organization. Transformational leaders merely lead the way. The middle management plays a strong moderating role. A revolution that is thrust upon from the top seldom sustains.

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

but has inherent risks involved as well. Innovation is all about staying ahead of competition. 304 . innovation is the first attempt to carry it out in practice. While innovation typically adds value for organizations. 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.INNOVATION      An invention is the first occurrence of an idea for a new product or process. it has destructive effects as well.

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

. 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. 2002 to restore public confidence in corporate governance. defines corporate governance (headed by Kumar Mangalam Birla) as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the 314 shareholders. the US government passed the Sarbanes – Oxley Act. various laws were enacted to ensure proper usage of these funds.

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

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

fire and compensate top management. However. 317 . Regular board meetings allow potential problems to be identified. Balance of power: The simplest balance of power is very common. with its legal authority to hire. 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. discussed and resolved.GOVERNANCE STRATEGIES    Monitoring by the board of directors: The board of directors. they should provide no mechanism or scope for opportunistic behaviour. safeguards invested capital.

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

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

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

321 . 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. people are becoming increasingly aware of their right to a decent and healthy life. Public image: Entrepreneurs are increasingly relying on public image as a source of competitive advantage and a higher financial discounting. Fear of government interference: Excessive quench for profits may lead to build up of adverse public opinion compelling the government to intervene (Eg. MRTP).

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

They represent an enormous opportunity for companies who learn how to serve them. 323 . Prahalad notes that future markets exist collectively. C. 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. In turn companies by serving these markets.BOTTOM OF THE PYRAMID    With the market across most developed markets including the US getting saturated. they're helping millions of the world's poorest people to escape poverty. K.

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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 .

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

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

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

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

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

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.WHAT THEN IS THE HANDICAP?     Most of the traditional views in strategy having its origin in (Economic Theory) led to what is called the – structuralist paradigm. According to this view. Off late emerging views in strategy having its origin in (Organization Theory) led to a paradigm shift to what is called the – reconstructionist view. 334 . companies & managers are largely at the mercy of economic forces. greater than themselves.

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