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




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


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


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



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







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

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

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

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

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

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

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

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

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

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

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

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

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 .


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

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

it 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. when radical changes in the internal and external environment (i. strategic variety) is apparent. To put it more simply. It is core to the strategic intent of the firm.e.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. 23 . Dominant logic changes.

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

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

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

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

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

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

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

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

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

– Developing a platform of support. – Creating a favourable image. – Hiding vulnerability. 33 . – 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.ORGANIZATIONAL POLITICS  Strategic drift often leads to organizational politics. – Using covert tactics to pursue self interests. Some instances of organizational politics – Formation of powerful groups or coteries. – Distorting information to gain mileage.

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

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

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

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

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

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


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

Environmental scanning is very important component of strategic planning. events. resources and ideas move unhindered. 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. It is exploratory in nature.ENVIRONMENTAL SCANNING     The environment is defined as the aggregate of conditions. and influences that affect an organizations way of doing things. 42 . The world is flat. not guided by any boundaries.

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

ETOP       Acronym for Environment – Threat – Opportunity – Profile. Strategic responses (including adaptation) to opportunities and threats is critical for survival and success. 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. Forecasting – Predict the future (i. scenario analysis).e. Holistic view – Prepare a complete overall picture. time series. Assess the extent of impact of the factors. 65 . Delphi's technique.

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

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

It enables the top management to draw focus.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. KSF helps organizations spot early opportunities and convert them into value adding business propositions. It involves a three-stage process – Identify KSF – What does it take to be successful in a business? Drawing KSF – What should be the organizations response to the same? Benchmarking KSF – How do we evaluate organization success on this factor? 68 .


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

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

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

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

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

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

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

– Conglomerate or market power (i. dominance). From the modern point of view they are strategically dissimilar.DIVERSIFICATION  It marks the entry of a firm into newer markets with new products. From the traditional point of view. – Risk reduction. – High transaction costs and institutional gaps. 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. industrial embassies). licenses (i. thereby creating a new business. – Permits: quotas. – Internal capital market.e. 77 .e.

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

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


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



Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power


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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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


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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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. kaizen or internal customer). A VC is often compared with a relay team. faster product launches. VC pay-offs: better product availability.VALUE CHAIN ANALYSIS    A value-chain segregates a firm into strategically relevant activities to understand its composite behaviour. each of the players need to be efficient backed by sufficient coordination at the contact points (i. 127 . Today SCM is integrated with greening the environment as CSR practices.e. Inventory Mgt to Logistics Mgt to Supply Chain Mgt (SCM).

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 .

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.STRATEGIC FIT – THE PORTER WAY   The sustainability of the value chain depends on the degree of fit between the activities. A high fit involving a complex chain of activities drives both competitive advantage and its sustainability. – Third order fit refers to optimization of effort. Operational effectiveness is not strategy. – First order fit refers to simple consistency between each activity and the overall strategy. – Second order fit occurs when activities are reinforcing amongst them. 129 .

These skills results in distinctive activities and processes. It forms the very basis of competitive advantage.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. – Cannot be easily imitated or substituted. – Can be sustained even in the long run. . – Can be leveraged across businesses. It should satisfy the following conditions – Contributes significantly to customer benefits. but not necessarily. A core competence usually has its roots in technology.

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

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

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

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

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

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


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


System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138



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


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




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


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

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

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

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

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

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

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

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

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

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

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

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

“If you cannot . low strategic fit due to consultants intervention.BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy. 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. difficult to translate into practice.

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

157 . 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.BACKGROUND & ORIGIN  The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard Pascale and Anthony Athos in 1981. It appeared also in "In Search of Excellence" by Peters and Waterman. The 7-S model was born at a meeting of these four authors in 1982. and was taken up as a basic tool by the global management consultancy company McKinsey. Since then it is known as their 7-S model and is extensively used by corporations worldwide to implement their strategies.

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

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

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

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

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

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

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

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

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


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


  

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.


          

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

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


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


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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

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

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

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

CAPITAL RESTRUCTURING     Capital Restructuring . 205 . Tatas take-over of Corus for US $11.3 billion. It provides greater leverage as well as management control. 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. involving 608 pence per share).The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. Wipro).

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

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

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

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. Companies achieve real agility only when people at every level rise above the ordinary to face the challenges – revitalization or transformation. In most organizations. 20% of the people carry out 80% of the changes). 209 .e. the factor that stifled change & performance was – culture.

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

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

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

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


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

and capabilities. As a sequence of events describing how things change and why they change (i. and achieves sustainable performance recovery.e. Both content (what) and process (how) are equally important for a successful turnaround. systems. Stage Theory).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. skills. A category of underlying principles and concepts. process focuses on – A logic to explain a causal relationship between intervening variables. ends the threat with a combination of strategies. 216 .

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

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

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

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

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

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

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


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

227 .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. Branding is critical to franchising. 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. owners of the brand Monginis allows its franchisees to sell its confectionary products. Titan Inds. Switz Foods.

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

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

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

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

Alliances of the Weak – An alliance is entered into to preempt competition (Eg. 232 . Airbus – Boeing). Whirlpool – Tide. 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.TYPES      Collusion – Tacit top management understanding to neutralize price wars (Eg. Backward – An alliance (quasi or tapered) with a supplier of critical components seeking commitment (Eg. Coke – Pepsi).STRATEGIC ALLIANCE . Maruti). Bajaj – Castrol).

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

Experience related to previous alliances.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. Willingness to share knowledge and skills. Intangible Assets – Move beyond the financials of the firm. 234 . Partner’s ability to acquire fresh skills. Dominant Logic’s – Similarity in beliefs & biases. Managerial capabilities. including ability to provide quality products and services.

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

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

The market fails as sellers are unwilling to reveal their technology and buyers are unwilling to purchase in the absence of inspection. in addition to a high degree of asset specificity. 237 .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. though more profitable alternative to other choices. 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.

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

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

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


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

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

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

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

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

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

Decline – Horizontal mergers are undertaken to ensure survival. Brooke Bond – Lipton). Tata Steel – Corus). Kingfisher – Air Deccan). vertical to save transactions costs. 248 . Growth – This stage may witness parallel merger of two firms of similar size. 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.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.

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

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

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

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

Hotmail). 253 . shareholders can accomplish the same at a much lesser cost. and without paying take-over premiums. but availed after being merged with a profitable firm (Eg. Cash Slack – It reduces asymmetry between cash starved firms with deserving projects and cash cows with no investment opportunities. Synergy comes from projects which would not have been undertaken if the two firms stayed apart (Eg.VALUING FINANCIAL SYNERGY    Diversification – Reduce variability in earnings by diversifying into unrelated industries. 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. 254 . It relates to the concept of diversification. – Coupon rates may also be negotiated at lower rates. the cash flow the merged firm will be less variable than the individual firms.VALUING FINANCIAL SYNERGY   Co-Insurance Effect – If the cash flows of the two firms are less than perfectly correlated. This will induce higher debt capacity. The likelihood of default decreases when two firms' assets and liabilities are combined through a M&A compared to the likelihood of default in the individual companies. hence better performance. higher leverage. as risky debt is spread across the new firm's operations.

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

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

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

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). – 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. co-insurance effect). 258 .e. – Cash trapped company unable to utilize opportunities. – It is a temporary phenomenon. – Managers cannot be trusted to invest free cash flows wisely. – Cost of debt coming down (i.

Any discounting has to reflect these changing cost of capital. 259 . – Increase equity valuation. leverage is expected to decrease over time. A LBO has to pass two tests to be viable – – Restructuring to pay-off increased debt. initial rise in leverage is anticipated. As the firm liquidates / pledges assets and pays off debt.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.

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

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

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

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

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


Honda overpowering Volkswagen. Hitachi overpowering Westinghouse. Nokia overpowering Motorola. Compaq overpowering IBM. were spending 99% of their precious time dealing with present. The reverse was true for the companies overpowering. 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 . Wal-Mart overpowering Sears. Honda overpowering GM. British Air overpowering Pan Am.GETTING OFF THE TREADMILL    Canon overpowering Xerox.

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

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

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

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 .

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

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

Apple – iphone). Get to the future first. An ability to energize the company. What does it take to get to the future first? Understanding how competition for the future is different. 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. Toshiba – LCD. A process for finding and gaining insight into tomorrows opportunities (Eg. It requires a lot of common sense and a little bit of out of the box thinking. without taking undue risk. Apply the 40 – 30 – 20 principle. South West Airlines – LCC.

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

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

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

Learning 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. Degree of Learning Unlearning Curve P2: Unlearning in previous period does not necessarily ensure learning in the current period.

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

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

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


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


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



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



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



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



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


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

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

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

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

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

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

Language Barriers – Developed country managers expect foreign partners to communicate in their languages. Other factors – local celebrations. 294 . however. in most emerging markets use of an interpreter may be a standard protocol. time-zones.GLOBAL BUSINESS ENVIRONMENT    Time Sensitiveness – Developed country managers regard time as precious. 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.

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

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

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

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

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

debt is cheap in US. Accounting Norms – The accounting norms of one country (AS .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. 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). . equity is cheap in India). Leverage – The leverage may vary across countries depending upon money and capital market conditions (Eg.

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

Outsourcing – A company having a core competence may be the source of global outsourcing (Eg. .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. Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II). SCM – Use of ERP to network the extended enterprise 302 across the globe. Bosch spark plugs are used by car manufacturers worldwide).


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

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

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

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


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

Provide reasonable incentives (not necessarily monetary). 310 . 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 culture of experimentation. Allow the management sufficient slack to be future oriented. Promote the grape-vine. A favourable intellectual property (IP) climate. Have a lean and a flat organization structure.

companies are increasingly relying on internal protection to sustain innovation effects. 311 311 . In most emerging markets where the IP climate is not so favorable. The most preferred strategy of internal protection includes imbibing “causal ambiguity” in the production process to make reverse engineering difficult. 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. however that possibility is slowly atrophying.

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

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

various laws were enacted to ensure proper usage of these funds.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. the US government passed the Sarbanes – Oxley Act. 2002 to restore public confidence in corporate governance. . SEBI Report – 2005. defines corporate governance (headed by Kumar Mangalam Birla) as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the 314 shareholders.

315 .GOVERNANCE PRINCIPLES    Rights and equitable treatment of shareholders: Help shareholders exercise their rights by effectively communicating information in transparent ways that is understandable and accessible and encouraging shareholders to participate in general meetings. including the society at large. 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. Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors.

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

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

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

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

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

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

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

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



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

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

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 .

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

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

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

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

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

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