BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

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

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

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

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

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

It is core to the strategic intent of the firm. strategic variety) is apparent. 23 .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. Dominant logic changes. To put it more simply. when radical changes in the internal and external environment (i. it can be perceived as a set of working rules (similar to thumb rules) that enables the top management to decide what can be done and more importantly what cannot be done.e.

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

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

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

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

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

– It helps identifying key success factors.GOALS & OBJECTIVES  Reliance – We want to become a Rs. – It is based on Management by Objectives (MBO). It provides a quantitative feel to an abstract proposition. 29 .100K crore company by the year 2005. – 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 adds legitimacy and motivation. – It prevents deviation. – It provides a benchmark for evaluation. – It lends direction – time frame in the medium term.

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

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

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

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

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

this is not to be treated as “muddling”. Strategy formulation and implementation are linked together in a continuous improvement cycle. but the master scheme of the rational comprehensive scheme is not apparent.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. However. 35 . 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.

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Experience curve has strong linkages with performance. it can price its products more competitively. which further reduces costs. Matured firms will always be positioned advantageously on the ECurve than new entrants. leverage it as a competitive advantage. and with lower prices it can increase its sales volume. However. With lower costs. experience teaches better and more effective way of doing things.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. 55 . an E-Curve can prove to be futile during discontinuity.

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

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

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 .

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

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 .

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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. 73 .

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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. 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 . nor is to a define a problem for others to solve. will help the firm achieve its intent. if addressed. They must choose problems which will lead to the right kind of opportunities.

formal and informal ties. . keiretsus in Japan. Resource sharing. High degree of centralized control (GEO. business houses in India.e. 95 Succession planning is critical to continuity. 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. embassies). Proximity to the corridors of power (i. chaebols in Korea.DEFINITION       A business group is known by various names in various countries – guanxique in China.BUSINESS GROUP . BRC). Licenses & Quotas. Managing Agency).

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 .

sometimes impossible. therefore. Rules of the game are different. Relatedness across resources are difficult to realize.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. Why? Businesses are not about liquid assets. there are high costs associated with entry and exit. Power and resources often goes hand in hand. Investing in emerging businesses may not actually be so simple as it appears to be. 99 . next only to choice of business.

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

BIASED AND UNBIASED GAME  A game is said to be biased when one of the players have a disproportionate chance of winning. 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 .

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

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

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

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

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

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

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

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

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

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

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

Technology – With more and more convergence of technologies in business. 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.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. 150 . leading to a tall structure. It includes the desire for independence.

e. there is a tendency to continue along the same lines. co0ntinuity). Common sources of 151 inertia – complacency with past successes. Inertia acts as an impediment in strategy implementation. Changes in top management and unlearning helps overcome inertia.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. Top managers resist change. irrespective whether it is from worse to good or good to worse. Inertia is a characteristic of a firm that endures status quo (i.  .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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

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

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

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 .

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

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

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

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

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

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

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

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

186 . Organizations need to move from financial to strategic performance.BSC . rather than effects. Focus more on causes.CONCEPTUALISATION     A company’s performance depends on how it measures performance. In today’s context when organizational systems have become complex and multi-directional we need to have a holistic view of performance to cut the lag effects. These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static. Most managers tend to rely on traditional measures of performance having its origin in finance as they are well tried and tested.

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

3 billion. Wipro). Tatas take-over of Corus for US $11. involving 608 pence per share). 205 .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. Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt. It provides greater leverage as well as management control.CAPITAL RESTRUCTURING     Capital Restructuring .

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

Source:  Why do firms atrophy? (Business Today. January 1997). – Only seven of the first fifty Indian business groups in 1947 were even in business by the turn of this century. 215 (Govindarajan and Trimble.. . 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..WHY TURN AROUND MANAGEMENT?  Some interesting insights . still exist as on 2005.....

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

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

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

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

It 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. R-Extinction – It suggests that organization factors.DECLINE    Decline is the first stage in the turnaround process. It has its origin in “environment led fit” that subscribes to the view that a firm has little control over external factors. 220 . 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. primarily dwindling resources and capabilities are responsible for decline.

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

It usually provides a platform to sort out differences between conceptualization and implementation to suit local market needs. otherwise it 230 becomes routine outsourcing. Companies in different industries with different but complimentary skills. . Tata Motors – IDEA). link their capabilities to create value for end users.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.

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

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

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

including ability to provide quality products and services. 234 . Dominant Logic’s – Similarity in beliefs & biases. Willingness to share knowledge and skills. Managerial capabilities. Partner’s ability to acquire fresh skills. Experience related to previous alliances. 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. Unique Resources – Abilities or skills which cannot be easily duplicated.

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

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

JOINT VENTURE – GENERIC MOTIVES     Transaction Cost – The situational characteristics best suited for a JV are high performance uncertainty. 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. 237 . though more profitable alternative to other choices. in addition to a high degree of asset specificity. Organizational Learning – It is a means through which a firm learns or seeks to retain their capabilities. It may also be linked to deterring entry or eroding competitors position.

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

Vertical – It involves complimentarily (partially related) in terms of supply of inputs or marketing activities (Eg.Kelvinator). usually opportunistic (Eg. Electrolux . ITC). 245 . Reliance).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. 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.

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

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

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

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

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

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

– Conglomerate Synergy – Gains come when one firm complements the resources or capabilities of another (Eg. when the “fit” between the two entities is very poor. Innovative product – Good distribution network). 252 . – Vertical Synergy – Gains come from controlling the supplychain and savings in transaction costs. Synergy can be negative as well. 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.

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

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

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

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

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

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

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

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

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

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

DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control. 263 . 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. Rights). Asset Stripping – The targeted company hives off its key assets to another subsidiary. Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg.

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

COMPETING FOR THE FUTURE 265 .

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

CEO’s brutally pick up the knife and ruthlessly carve away layers of corporate flab (delayering. 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. declining margins. Thus efficiency was grievously hurt.THE PAST OF COMPETITION     Beyond Restructuring – When a competitiveness become inescapable problem (stagnant growth. decluttering. most often they ended up cutting corporate muscle as well and became anorexic. falling market share). downsizing).

S. 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. ensuring only survival of the present. incrementalism or nominal innovation has almost reached a plateau.THE PRESENT OF COMPETITION    Beyond Reengineering – Numerator based managers (innovation) at least offers some hope. 268 . However. but forging ahead in competition. top 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. but not of the future.

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

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 .

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

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

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

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

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bosch spark plugs are used by car manufacturers worldwide). Outsourcing – A company having a core competence may be the source of global outsourcing (Eg. 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. reduce power costs) vis-à-vis infrastructural bottlenecks. SCM – Use of ERP to network the extended enterprise 302 across the globe. .

CONTEMPORARY TOPICS 303 .

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

Process innovation usually follows product innovation. process innovations are organizational driven. 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. Strategic innovation has the potential to change the rules of the game.TYPES OF INNOVATION A key challenge is maintaining a balance between process and product innovations. While product innovations are typically customer driven. However.      305 .

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

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

BUSINESS MODEL FRAMEWORK 308 .

It is just one piece of the puzzle. innovative companies to carve out unique business models to fend off competition.REVENUE MODEL     Positioning is just not sufficient. With the rapid erosion of certain industries (IT. 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. 309 . Investment Banking. The revenue model described here are the means to generate revenues.

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

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

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

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

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

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

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. They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting.GOVERNANCE PRINCIPLES    Integrity and ethical behaviour: Organizations should develop a code of conduct for their top management that promotes ethical and responsible decision making. 316 316 . assessment and mitigation of risks and retirement by rotation over a fixed period of time..

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

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. 318  .GOVERNANCE & PERFORMANCE In its “Global Investor Opinion Survey” of over 200 institutional investors in 2002. Egypt and Russia) to around 40% for Canadian & European companies. and was responsive to investors' requests for information on governance issues. who had no management ties. from 10% for companies where the regulatory backdrop was least certain (those in Morocco. undertook formal evaluation of its directors. The size of the premium varied by market.

corporate philanthropy should be a part of every corporate mission. Over a period of time. However. the short-term view of profit maximisation gave way to a more broader and mediumterm view wealth maximisation of the shareholders. The basic premise is that firms cannot exist in vacuum. today economic institutions are considered as a major drivers of improvement in quality of life in general and therefore needs to include multiple stakeholders. Therefore. 319 .SHAREHODER – STAKE HOLDER THEORY    Till the early part of the 20th the basic objective of modern organizations was to provide goods and services for public consumption for profit maximisation.

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

The role of media: The media and various consumer organizations have come up in protecting consumer rights and exposing mal-practices. Public image: Entrepreneurs are increasingly relying on public image as a source of competitive advantage and a higher financial discounting. MRTP). 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.

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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

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

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

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

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

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. . Southwest Airlines: Pioneering the concept of LCC. Citibank – Automated teller machines & credit 333 cards.

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