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




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


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


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



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







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It is long-term in nature. It is irreversible. It requires full commitment of the top management.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.STRATEGIC MANAGEMENT . It is all about creativity and innovation. It is a holistic and integrated approach.          7 .

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

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

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

11 . challenging GM and Ford. Allied Forces Vs Germany (WW-II) – Strategy: Forging alliances. – Reliance’s entry into telecom. – Yahoo and Microsoft challenging Google. Napoleon’s attack on Russia – Strategy: Waiting for the right time. – Toyota’s entry in the US.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.

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

Survival of the most adaptable becomes a new management paradigm (Ansoff. – Global market place.EVOLUTION OF STRATEGIC MANAGEMENT    The second major discontinuity in the history of global economic environment – World War II. The question of outperforming the benchmark became the new buzzword. 1960).e. – Homogeneous to heterogeneous products. push to pull). – Changes in the technology fore-front. 13 . performance across firms became differentiated. From uniform performance. – Affluence of the new customer (i. 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 .

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

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

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

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

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 .


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

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

e. 23 . To put it more simply. when radical changes in the internal and external environment (i.DOMINANT LOGIC     A dominant logic can be defined as the way in which the top management team conceptualizes its various businesses and make critical resource allocation decisions. strategic variety) is apparent. Dominant logic changes. it can be perceived as a set of working rules (similar to thumb rules) that enables the top management to decide what can be done and more importantly what cannot be done. It is core to the strategic intent of the firm.

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

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

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

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

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

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

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

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

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

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

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

However. this is not to be treated as “muddling”. Strategy formulation and implementation are linked together in a continuous improvement cycle.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. They simply unfold the particulars of the sub-system in stages. 35 . but the master scheme of the rational comprehensive scheme is not apparent. Learning is an integral part of logical incrementalism.

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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 .

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

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

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

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

ice-cream business would register a return of 10%.HOW DIVERSIFICATION REDUCES RISK? Consider a hypothetical planet. either of which is equally likely to prevail. What would be your ideal diversification strategy through optimization? 78 . 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. If the hot wave dominates the planet. while the coffee business would register a return of 30%. cold wave dominates the planet. the ice-cream business would register a return of 30%. in which a given year is either under hot or cold wave. If on the other hand.

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


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



Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power


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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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


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

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

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 .

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

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

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

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

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


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 .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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

leading to clear fragmentation. Consumer durables. Eg. 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. Air Conditioning. 118 .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. IT. Retail and telecom. Diverse customer needs. MRTP may also cause fragmentation. Government regulations in the form Eg. Eg. Paints.

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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 .

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

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


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


System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138



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


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




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


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

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

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

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

though not necessarily in the case of emerging markets. Moreover.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. these capabilities are sustainable even in the medium to long term. Due to causal ambiguity (complexity). Distinctive capabilities are complex set of skills woven around technologies. Flat Screen Displays. convergence of multiple streams of technologies at the product – market level is becoming increasingly evident (Eg. 147 . Mobiles).

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

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

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

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

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

.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. detecting changes in the external and internal environment and taking corrective action wherever necessary. It attempts to answer the following questions – Is the strategic intent appropriate to the changing context? Are the organizations capabilities still holding good.

However. checking every premise is costly as well as difficult.STRATEGY CONTROL IMPLEMENTATION     It involves steering the company towards its original growth trajectory & stated goals. Premise Control – Checking the validity of the assumptions on which a strategy was based. 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 is open-ended as well as . It involves assessing – strategic thrusts and milestones.

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

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

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

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

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

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

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

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

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

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

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

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


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


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


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

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


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


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


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

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

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

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.

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

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

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

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

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

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

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

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

These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static.BSC . 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. Organizations need to move from financial to strategic performance. In today’s context when organizational systems have become complex and multi-directional we need to have a holistic view of performance to cut the lag effects.CONCEPTUALISATION     A company’s performance depends on how it measures performance. 186 . rather than effects.

BSC – KAPLAN & NORTON (1992)  A BSC helps a manager to track and communicate the different elements of company’s strategy. 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. 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.

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

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. of times covered in media No.

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

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


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 .

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

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

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


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

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

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

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

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

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

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

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

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

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

thumb rules) of the top management. as strategies are based on such beliefs and biases. the more difficult it becomes to uproot the paradigm (i. inertia). The longer the period. 208 .e.e.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. Dominant logic becomes deep-rooted in organizational contexts depending on the period it is in place (tenure of the CEO). The dominant logic represents the perceptions and biases (i.

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

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

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

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

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


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

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

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

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

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

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

which may be unavailable to a focused firm. Contour – It is easier to reverse decline in the earlier stages through operational measures.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. Scope – A diversified conglomerate may acquire a distressed business to turn it around and gain valuable synergies. 222 . when decline deepens shifts in strategic position becomes essential. Similarly new market initiatives is feasible only for multi-product firms.

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

. Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview. 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. creeping acquisition).e.SEBI TAKEOVER CODE. Control – A special resolution of 75% of the share 243 holders approving the change of guard. 2002      Promoter – A person who has a clear control of atleast 51% of the voting rights of the company and confidence of all the major stakeholders.

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

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

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

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

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

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

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

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

Sources of operational synergy – Horizontal Synergy – Gains come from economies of scale which reduces costs. – 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. Synergy can be negative as well. 252 .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). when the “fit” between the two entities is very poor. or from increased market power which increases sales and margins.

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

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

The value of wrestling control is inversely proportional to the perceived quality of that management. – – Value of Control = Value of firm after restructuring Value of firm before restructuring. 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. While value of corporate control is negligible for firms that are operating close to their optimal value. 255 . The value of control can be substantial for firms that are operating well below optimal value. Assessment of perceived quality is critical.

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

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

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

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

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

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

1988 . Brickley. – However. over time. as stock markets become more and more perfect such anomalies would reduce Source: Jensen and Ruback. 1983.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. Bradley. Desai. and Kim. in the event of take-over failure negative returns to the extent of 5% on bidder firm stock prices is reflected. 1983. – However. 262 Jarrel. and Netter.

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

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


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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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


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


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



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



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



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



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


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

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

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

act locally (Eg. HSBC). It should think globally. Characteristics – It should have a spread of affiliates or subsidiaries. It should have a spread of manufacturing facilities. It should have a spread of interest groups / stake holders. 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. revenues and profits. 291 .

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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


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

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

In most emerging markets where the IP climate is not so favorable. companies are increasingly relying on internal protection to sustain innovation effects. 311 311 . 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.HOW TO PROTECT INNOVATION?     Without adequate protection (external or otherwise) the effects of innovation does not translate to performance. Collusion with the judiciary is also another distinct possibility in emerging markets.

Corporate governance aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms.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. In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders. 312 312 .

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

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

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

They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting. 316 316 ..GOVERNANCE PRINCIPLES    Integrity and ethical behaviour: Organizations should develop a code of conduct for their top management that promotes ethical and responsible decision making. 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. Independence of the entity's auditors: Identification.

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

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

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

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

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.GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy. Fear of government interference: Excessive quench for profits may lead to build up of adverse public opinion compelling the government to intervene (Eg. 321 . The role of media: The media and various consumer organizations have come up in protecting consumer rights and exposing mal-practices. MRTP).

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

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



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

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

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 .

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

managerial moves are. They are not necessarily about technology. Company & industry are the wrong units of 330 strategic analysis. . Incumbents often create blue oceans within the ambit of their core business. the underlying technology was often already in existence. 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).CONCEPTUAL UNDERPINNINGS       Blue oceans have existed in the past and will exist in the future as well.

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

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

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. .

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