BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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

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

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

APPROACHES TO STRATEGY  Analytical Approach – Igor H. – The choice of strategy is primarily concerned with external ones rather than internal ones. – The choice of product-market mix is based on conscious evaluation of risk – return factors. Learning always begin on a clean sheet of paper. 15 . 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.

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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. It provides an unity of purpose amidst diversity of personal goals. but achievable aspirations. beyond just making money. – It stands for the unchanging core values of the company. – It represents the company’s audacious. It enables the top management to remain focused.VISION It is a dream (not a forecast) about what the company wants to become in the foreseeable future.  24 .

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

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

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

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

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

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

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

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 .

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

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

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. but the master scheme of the rational comprehensive scheme is not apparent. this is not to be treated as “muddling”. However.LOGICAL INCREMENTALISM    According to the incrementalism approach (contrary to integrated approach) practitioners simply do not arrive at goals and announce them in crafted and well defined packages. Learning is an integral part of logical incrementalism. 35 . Strategy formulation and implementation are linked together in a continuous improvement cycle.

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

FIVE FORCES MODEL ASSUMPTIONS      The model is to be used at the SBU level and not at the industry level. The five forces have strong cross-linkages. It depicts the attractiveness of an industry (i. profit potential) per se.e. 51 . 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. It is even wiser to apply the same at the product – market level. It should not only be used to understand the forces. the forces are subject to changes.

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

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

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

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

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

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

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

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

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 .

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

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

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

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

Holistic view – Prepare a complete overall picture. Stages in ETOP analysis – List the aspects of the environment that has a bearing on the organization. Assess the extent of impact of the factors. scenario analysis). 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. time series.ETOP       Acronym for Environment – Threat – Opportunity – Profile. Forecasting – Predict the future (i. 65 . Delphi's technique.

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

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

KEY SUCCESS FACTORS (KSF)     KSF relates to identification and putting concentrated effort on a particular activity or process which forms the very basis of competitive advantage. It 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.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

73 .GROWTH .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.

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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. It attempts to answer the following questions – How effective has the existing strategy been? How effective will that strategy be in the future? What will be the effectiveness of alternative strategies? It is impossible for a manager to assess all the alternatives. In most cases the trade-off is between resources and opportunities. Dominant logic enables top managers to selectively scan the environment and make trade-offs.

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

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

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 .

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

– Second order fit occurs when activities are reinforcing amongst them.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. 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. 129 . – Third order fit refers to optimization of effort. A learning organization helps create strategic fit.

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

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

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

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

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

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

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. – Building incentives for customer loyalty.CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. Game theory relies on the principle of rationality. . It results in a shift in the productivity frontier. but 136 players do not always behave rationally. – Making pricing more transparent.

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

bring about transparency. A transactional leader is usually confined to allocating tasks & responsibilities and extracting performance. 145 . 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. companies depend more on transformational leaders than transactional leaders. In contrast. He should be an agent of change. shift from compliance to commitment. Pragmatism is the ability to make things happen. Install a system of shared beliefs and values.

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

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

STRATEGY & STRUCTURE     It is a framework within which individual efforts are coordinated to bring synergy. 148 . processes become people independent. 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. The level of centralization and decentralization is decisive. Once the structure is in place. A firm in several unrelated businesses usually employs a SBU structure.

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

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

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

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

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

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

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

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

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. At around the same time in the US Tom Peters and Robert Waterman were exploring what made a company excellent. Since then it is known as their 7-S model and is extensively used by corporations worldwide to implement their strategies. It appeared also in "In Search of Excellence" by Peters and Waterman. and was taken up as a basic tool by the global management consultancy company McKinsey. 157 .

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

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

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

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

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

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

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

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. Coca Cola – Thums Up). Integration of assets and other financial resources. Brooke Bond & Lipton). Integrated distribution channel leads to better market penetration and overall synergy. ITC Tribeni Tissues. . with the individual firms ceasing to exist any more (Eg. Acquisition is an outright purchase of a firm assets by another independent entity (Eg. Economies in scale leading to lowering of costs.

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

Dell: Customized configuration of computers. Caterpillar: 48 hours delivery anywhere in the world. Citi Bank : Priority banking services. Maruti: Certified “true value” pre-owned cars. Microsoft: ESOP to employees. Infosys: Customized work-stations. TCS: Referencing potential new recruits. ITC: Shareholders factory visit. AmEx: Outsourcing data warehousing mining. MARG: Set-top box to study viewing patterns. Honda: CEO’s visit to dealers.
170

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

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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

178 . etc) and supports the organization for the present. products. Business – It looks into markets. 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. . customers and suppliers and protects the organization from the future (i.e.REENGINEERING . BPR).e. structures. It can be of the following types – Functional – It looks into the flow of operations (i. processes. Strategic – It looks into the process of strategic planning.

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

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

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

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

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

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

.BALANCED SCORE CARD  Some interesting comments ...... – In the majority of failures – we estimate 70% – the real problem isn’t (bad strategy) . – Efficiency and effectiveness is passé. – Less than 10% of strategies effectively formulated are effectively executed... it’s bad execution..... strategy implementation has never been more important. 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. Organizations need to move from financial to strategic performance. Focus more on causes. 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. Most managers tend to rely on traditional measures of performance having its origin in finance as they are well tried and tested. rather than effects.BSC . 186 .

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

e. as strategies are based on such beliefs and biases. The dominant logic represents the perceptions and biases (i. The longer the period.e. inertia). 208 .STRATEGIC CHANGE     One of the most difficult components of organization restructuring is the mindset of the top management represented through its dominant logic and its shared values reflected in cultural orientation. thumb rules) of the top management. 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 more difficult it becomes to uproot the paradigm (i.

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.e. In most organizations. Companies achieve real agility only when people at every level rise above the ordinary to face the challenges – revitalization or transformation.FORCES AGAINST STRATEGIC CHANGE     The problem with strategic change is that the whole burden typically rests on few people (i. 209 .

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

Too much stress on financials & structure be avoided. Firms from developed markets seek access to markets and firms from emerging markets seeking access to technology. – Japan Vs US).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. 233 . Differences in level of economic development can produce differences in alliances motives. Cultural orientation has been found to have a profound effect on top management’s strategic orientation (Eg.

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. downsizing). declining margins. decluttering. falling market share). 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. 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. Thus efficiency was grievously hurt.

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

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

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

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

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

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

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

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

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

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

CORE COMPETENCE     A core competence relates to a bundle of skills (not an asset or a business) that revolves around activities or processes and critically underpins a firm’s competitive advantage. It cannot be matched even by its closest competitors. 278 . 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. It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times. Leverage – They are the gateways to future markets.

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

. 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.India) may be different from that another trading country (US – GAAP or IRS). Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg. equity is cheap in India). Accounting Norms – The accounting norms of one country (AS . debt is cheap in US.

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

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

CONTEMPORARY TOPICS 303 .

Innovation is all about staying ahead of competition. but has inherent risks involved as well. it has destructive effects as well. Innovation is the most preferred strategy today to maintain competitive advantage in the present turbulent business environment. While innovation typically adds value for organizations.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. Innovations typically paves the way for more secured and improved lifestyle for consumers in general. 304 .

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

including the society at large. The key roles of chairperson and CEO should not be held by the same person and their offices be clearly separated. Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders. Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors. 315 .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.

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

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

They have fought for profits. one companies gain is always at the 326 cost of another companies loss. and struggled for differentiation (cost or product). 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. In today’s red oceans. . battled over market-share. where most industries are saturated.WHAT IS RED OCEAN?    Companies have long engaged in head-to-head competition in search of sustained. profitable growth.

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

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

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

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

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

Citibank – Automated teller machines & credit 333 cards. Southwest Airlines: Pioneering the concept of LCC. Sony Play Station: Redefining machine-human interface in entertainment and targeting an altogether new user base.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. .

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

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