BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

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

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

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

However. They simply unfold the particulars of the sub-system in stages. but as a defensible response to the complexities of a large organization that mitigate against publicizing goals.LOGICAL INCREMENTALISM    According to the incrementalism approach (contrary to integrated approach) practitioners simply do not arrive at goals and announce them in crafted and well defined packages. Learning is an integral part of logical incrementalism. Strategy formulation and implementation are linked together in a continuous improvement cycle. this is not to be treated as “muddling”. 35 . but the master scheme of the rational comprehensive scheme is not apparent.

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

. Tampering with surface level factors often leads to atrophy. As it brings 37 with it a different dominant logic. Dominant logic’s are the cornerstones of change when strategic transformation is apparent. It creates blinders. Dominant logic’s are very rigid and sticky and prone to inertia.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.

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

It is exploratory in nature. A manager has to continuously scan the environment to ensure alignment of the strategies with the radically changing environment. events.ENVIRONMENTAL SCANNING     The environment is defined as the aggregate of conditions. Environmental scanning is very important component of strategic planning. and influences that affect an organizations way of doing things. resources and ideas move unhindered. not guided by any boundaries. 42 . 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. The world is flat.

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

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

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

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

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   .

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

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

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

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

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

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

54 . Reliance).FIRM ENVIRONMENT      Size and Scale of Operations – It is a very important component of competitiveness in today's global context (Bharti – MTN. Tata). dominant or related diversified or unrelated diversified businesses (Infosys. Resource Profile – It highlights the capabilities (generic) or competencies (business specific) of the firm. Cohesiveness – Degree of bonding existing across affiliated firms. 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.

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

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

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

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

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

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 .

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

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

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

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

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

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

– Contexts may vary over time. therefore 67 validity may be a question. Authenticity of data is of prime importance – Contexts drawn across one organization may not be applicable to another. As every organization is unique in its own way.PIMS . 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.LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges. – Contexts may vary across countries.

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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.GROWTH .

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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. Dominant logic enables top managers to selectively scan the environment and make trade-offs. In most cases the trade-off is between resources and opportunities.STRATEGIC CHOICE      A strategic choice seeks to determine the alternative courses of action available before top managers to achieve its strategic intent. What then is the magical number? 93 .

if addressed. The key task before a top manager is to identify the right problems. For an optimal choice the following four issues need to be resolved – Is the strategy clearly identifiable? Is it consistent with the resources of the firm? Will it be able to exploit the opportunities in full? Is it in tune with the values and beliefs of the firm? 94 . They must choose problems which will lead to the right kind of opportunities. will help the firm achieve its intent. managers need to ask the right questions. nor is to a define a problem for others to solve.SELECTIVITY IS THE KEY       The role of a top manager is not to solve a problem. To identify the right problems.

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

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

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

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

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

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

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

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

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

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

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

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

BCG – Boston Consulting Group. Gap Analysis – It emphasizes what a firm wants to achieve. Disinvestment involves selling in phases.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. Portfolio – An organization is perceived as a portfolio of businesses. 107 . SBU – A business unit which is strategically different from another and also shares a different SIC code. Divest – Selling a part or the entire business at one go.

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

Rolex. Armani). A focuser seeks to achieve a competitive advantage in its target segment. The target segment must have unusual needs or the delivery system catering to this segment must be unique. Maybach. Mont-Blanc. though it may not possess an overall competitive advantage. Sub optimization alone may not be a source of superior performance. They are poorly served by mainstream players. Cartier. 113 . coupled with fear of structural erosion.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 . jugaad or frugal engineering).e. similarly differentiation may not always lead to rising costs (i. Tata Nano). Though cost leadership and differentiation are inconsistent.HYBRID STRATEGY     A hybrid strategy is the simultaneous pursuit of cost leadership and differentiation. and usually outperforms a stand alone generic strategy. Firms focusing on a hybrid strategy typically aim at shifting the productivity frontier and recreating a new product-market segment altogether (Eg. Reducing cost does not always involve a sacrifice in differentiation. in a hyper competitive context the two strategies need not be mutually exclusive.

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

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

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

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

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

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

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

they are woven around technologies. can be leveraged across businesses) or specific to a particular business. differentiation based on capabilities can be sustained even in the long run. Hence.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. Capabilities can be generic (i. Typically. There is a high degree of internal and external causal ambiguity involved in it. but not necessarily. Therefore firms should concentrate on developing complex resources that forms the very basis of differentiation.e. 123 .

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

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

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

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

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

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

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

shift from compliance to commitment. 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. 145 . In contrast. bring about transparency. A transactional leader is usually confined to allocating tasks & responsibilities and extracting performance. Install a system of shared beliefs and values. Pragmatism is the ability to make things happen.

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

Due to causal ambiguity (complexity). though not necessarily in the case of emerging markets.CAPABILITIES & COMPETENCIES     Technology and business are slowly becoming in – separable. 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. Mobiles). these capabilities are sustainable even in the medium to long term. convergence of multiple streams of technologies at the product – market level is becoming increasingly evident (Eg. 147 . Flat Screen Displays. Moreover.

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

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

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

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

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

competitive advantages becoming disadvantages? Has the company acquired any new competency? Has the company been able to overcome the 153 environmental threats. .STRATEGY CONTROL      It is concerned with trafficking a strategy as it is being implemented. 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 IMPLEMENTATION     It involves steering the company towards its original growth trajectory & stated goals. Special Alert Control – It intends to uncover unanticipated information having critical impact 154 on strategies. However. checking every premise is costly as well as difficult. It involves assessing – strategic thrusts and milestones. Implementation Control – It aims at assessing whether key activities are proceeding as per schedule. Premise Control – Checking the validity of the assumptions on which a strategy was based. It is open-ended as well as .

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

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

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

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

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

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

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

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

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

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

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. Acquisition is an outright purchase of a firm assets by another independent entity (Eg. Revival of a sick-unit through better management practices is a major motive behind an acquisition 165 strategy. Brooke Bond & Lipton). . with the individual firms ceasing to exist any more (Eg. Integration of assets and other financial resources. Coca Cola – Thums Up). Economies in scale leading to lowering of costs. ITC Tribeni Tissues.

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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.

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

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

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

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

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

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

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

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

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

 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.BSC – KAPLAN & NORTON (1992)  A BSC helps a manager to track and communicate the different elements of company’s strategy. and distinguish strategic problems from operational ones. because they have too many. 187 .

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

During the times of JRD. It is created and institutionalized by the top management. Ratan Tata now drives the point the group means business.. 200 .... the Tatas were considered a benevolent and charitable organization.) The Aditya Birla group typically relied on the “marwari” community for key management positions .) Reliance dismantled their industrial embassies . Restructuring also requires cultural reorientation. ...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... started focusing on their capabilities....

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

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

Tata Industries selling 20% stake to Jardine Matheson). 203 . – Split-Off – In a split-off. the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company. Equity Carve – It involves selling a minority stake to a third party while retaining control (Eg. 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.HIVE OFF   Spin-Off – A spin off is the creation of a new entity. – Split-Up – In a split-up. in which the equity is allotted amongst the existing shareholders on a pro-rata basis (Eg. Reliance Ent).

repay long-term debts. 204 . In 1995. Generic motives include – – Raise working capital. strategic misfit. – Poor performance. but retained its engineering division. for a specified market or in general with full management control. Parle sold its Thums Up brand to Coke for $40 million apprehending fierce competition. In 2005. 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. Selling out in phases is called disinvestment (IPCL). A complete sell-out is known as divestment (TOMCO).

The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. It provides greater leverage as well as management control.3 billion.CAPITAL RESTRUCTURING     Capital Restructuring . involving 608 pence per share). Wipro). 205 . 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. Tatas take-over of Corus for US $11.

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

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

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

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

never take no for an answer. 210 . it is not about winning but about learning. Manage from the future. Encourage uncompromising straight talk. Promote inventive accountability. Create relentless discomfort with the status quo. The best way is to alter the institutional point of view. Questioning every basic action of the organization. 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. Harness setbacks.

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

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

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

TURNAROUND MANAGEMENT 214 .

.. – Less than 10% of the Fortune 500 companies as first published in 1955. still exist as on 2005. and that the thirty-two of the country’s largest business groups in 1969 are no longer among the top fifty today. Source:  Why do firms atrophy? (Business Today.. January 1997)..WHY TURN AROUND MANAGEMENT?  Some interesting insights . 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. Both content (what) and process (how) are equally important for a successful turnaround. ends the threat with a combination of strategies. systems. process focuses on – A logic to explain a causal relationship between intervening variables. As a sequence of events describing how things change and why they change (i.TURN AROUND MANAGEMENT      A turnaround is said to occur when a firm perseveres through an existence threatening performance decline.e. Stage Theory). A category of underlying principles and concepts. 216 . skills. and achieves sustainable performance recovery. While content focuses on endogenous and exogenous variables.

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

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

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

primarily dwindling resources and capabilities are responsible for decline.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. 220 . 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. It has its origin in “resource led stretch” and subscribes to the view that a firm has substantial power to override the context. R-Extinction – It suggests that organization factors.

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

which may be unavailable to a focused firm.RESPONSE DICHOTOMY     The response initiation is somewhat dichotomous and cannot be universally applicable. Contour – It is easier to reverse decline in the earlier stages through operational measures. 222 . when decline deepens shifts in strategic position becomes essential. 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. Untangling this question brings into focus three events – Domain – Many of the strategic cures have limited applicability for an affiliated firm.

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

Tata. It can be of the following types – Multipartner – Intends to share an underlying technology or asset.CONSORTIA     Consortia – They are defined as large inter-locking relationships & cross holdings between businesses in a similar industry. Coke – Pepsi). leverage upon size to preempt competition by escalating entry barriers (Eg. enabling them to increase prices (Eg. 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. Airbus – Boeing). Hyundai). 229 .

Continuous sharing of knowledge is critical to the success of a supply chain partnership. . 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. Companies in different industries with different but complimentary skills. link their capabilities to create value for end users. Tata Motors – IDEA).

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

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

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

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

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

a joint venture is a selection among modes by which two or more firms can transact. Conceptually. combining parts). It lasts till the vision is reached. synergy) rather than mere exchange (i. It aims at creating new value (i. separation is very 236 bitter. whilst the partners continue to operate independently. .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.e.

It may also be linked to deterring entry or eroding competitors position. 237 . The market fails as sellers are unwilling to reveal their technology and buyers are unwilling to purchase in the absence of inspection.JOINT VENTURE – GENERIC MOTIVES     Transaction Cost – The situational characteristics best suited for a JV are high performance uncertainty. 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. in addition to a high degree of asset specificity.

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

Reliance).TYPES OF MERGERS      A business is an activity that involves procuring of desired inputs to transform it to an output by using appropriate technologies and thereby creating value for its stake holders in the process. ITC). Conglomerate – It involves integration of two distinctly unrelated businesses. Horizontal – It involves integration of two highly related businesses (Eg. usually opportunistic (Eg. Godrej. Vertical – It involves complimentarily (partially related) in terms of supply of inputs or marketing activities (Eg.Kelvinator). Electrolux . 245 . The type of merger is depends on the degree of relatedness (strategic) between the two businesses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Most target firms are taken over within (6090) days. takeover failures have only initial negative effects on stock prices. 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. Initial anomaly in stock prices usually normalizes over a period of time (6-12) months. and 35% during bullish periods. Excess returns also vary across time periods. 261 . – Takeover announcements reported 30% excess returns.

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

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

But often the White Knight turns a betrayer himself (Eg. East India Hotels – Reliance Industries – ITC). Shapoorji Pallonji). 264 . Green Mail – The targeted company buys large blocks from holders either through premium or through pressure tactics (Eg. Gray Knight – The target company takes the help of friendly company to buy the shares of the raiding company. 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. Pac Man – The target company makes a counter bid to take over the raider company.

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

Corporate governance aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms. 312 312 .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.

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

the US government passed the Sarbanes – Oxley Act. . 2002 to restore public confidence in corporate governance. 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. 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. SEBI Report – 2005. After the Enron downfall.

Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors. 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. 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.

assessment and mitigation of risks and retirement by rotation over a fixed period of time.. 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. Disclosure and transparency: Disclosure of information should be timely and balanced to ensure that investors have clear access to data and facts. 316 316 . They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting.

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

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

Over a period of time. 319 . Therefore. 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. today economic institutions are considered as a major drivers of improvement in quality of life in general and therefore needs to include multiple stakeholders.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. The basic premise is that firms cannot exist in vacuum.

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

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

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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 .

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

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

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

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.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. Off late emerging views in strategy having its origin in (Organization Theory) led to a paradigm shift to what is called the – reconstructionist view. According to this view. greater than themselves. companies & managers are largely at the mercy of economic forces. 334 .

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