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

Fit

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

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Fit

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

– Mass Production Organization Size – Complicated Processes – Complex Structures Evolving of an emerging paradigm – survival of the fittest (Fayol & Taylor. 1910). a radical change in the business environment brings about discontinuity. 12 . A paradigm is a dominant belief about how the business and its environment operates.Industrial Revolution. 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 .EVOLUTION OF MANAGEMENT     As Peter Drucker refers to it.

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

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

– It is primarily the top management’s prerogative. – Biases and prejudices has a very little role to play in strategic choices pursued by managers. 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. 15 . – The choice of strategy is primarily concerned with external ones rather than internal ones. – The choice of product-market mix is based on conscious evaluation of risk – return factors. Learning always begin on a clean sheet of paper.

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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 .

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

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

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

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

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. Although the purpose may change over time.  It serves as a road map to reach the vision.  27 . its reason for existence.  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. A broad mission statement helps in fending competitors.

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

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

It is the process of garnering necessary inputs.PLANS Reliance – Desire to invest 25K crore in telecom business by circa 2010. coordinating appropriate technologies. – Compress project times. – Acquire a market share of indomitable position.  30 . – Use price-elasticity to break market barriers. – Leverage economies of size and scale. It is specific to a particular business. 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.

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

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 .

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

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. Divest – Selling a part or the entire business at one go. Disinvestment involves selling in phases. 107 . Gap Analysis – It emphasizes what a firm wants to achieve.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. SBU – A business unit which is strategically different from another and also shares a different SIC code.

BUSINESS STRATEGY & COMPETITION 108 .

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

involving harmonizing and integrating multiple streams of technologies. developing competitive advantage (Porter). Delta Lock In – Two dominant players co-opt to selfreinforce and create or escalate an entry barrier. preventing new entry and/or competition (Hax & Wilde). 110 . leveraging (Prahalad). Resource Based View – Obsession with competence building. identifying critical success factors.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).

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

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

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

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

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

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

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

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

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

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

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

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

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

“If you cannot . low strategic fit due to consultants intervention.BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas. difficult to translate into practice. Strategy not linked to resource allocation & capabilities – Lacking commitment of top management. 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.

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

168 .WHY MANAGEMENT TOOLS?      Change is becoming pertinent in the business environment. Change provides enormous opportunities. TQM – Doing the right thing the first time. Some tools to ensure that – Benchmarking – Adopt certain best practices. 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. every time. it is also a source of potential threat. Companies therefore need to ensure competitive advantages doesn’t become competitive disadvantages. Balanced Scorecard – Tracking strategy 3600.

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.
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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.
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BENCHMARKING - ADVANTAGES

  

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

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

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

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.

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

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

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

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

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

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

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

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

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 . 186 . rather than effects. These measures worked well when organizational systems were simple and unidirectional and more importantly the environment was static.CONCEPTUALISATION     A company’s performance depends on how it measures performance. Organizations need to move from financial to strategic performance. Focus more on causes.

187 . because they have too many.  The most critical element of a BSC is to measure these four dimensions. and distinguish strategic problems from operational ones. 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.

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

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 .

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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

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. 20% of the people carry out 80% of the changes).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. In most organizations. 209 . the factor that stifled change & performance was – culture.

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

2002      Promoter – A person who has a clear control of atleast 51% of the voting rights of the company and confidence of all the major stakeholders.e. Control – A special resolution of 75% of the share 243 holders approving the change of guard.SEBI TAKEOVER CODE. 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. 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).

SEBI TAKEOVER CODE. 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. whichever is higher as an exit route (Eg. SEBI – In case of a hostile take over.e. asset stripping). credentials or track record is at stake. Grasim – L&T Cement. Gujarat Ambuja – ACC). 244 . 2002    Pricing – Acquirers will have to offer minority shareholders (at least 20%) the past 26 weeks or past 2 weeks average price.

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

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

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

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

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

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

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

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

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

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

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

e. sometimes in combination with the assets of the acquiring company. LBO facilitates a relatively smaller firm to bid for a comparatively larger firm in the bid for management control. The assets of the acquired company are used as collateral for the borrowed capital. 256 .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. It is a very costly and risky proposition. Confidence of investment bankers and the international financial community is essential.

 However. off-late many publicly traded firms have gone private keeping in mind the following – – The fear of LBO. liquidity.access to financial markets. the advantages of going public includes . 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. 257 . – Increased information needs.TO GO PUBLIC OR NOT?   However. on-going valuation. – The need to satisfy analysts and shareholders. – Separation of ownership from management.

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

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

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

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

– However. Brickley. 1983. 1988 . Desai. in the event of take-over failure negative returns to the extent of 5% on bidder firm stock prices is reflected. and Kim. and Netter. over time. 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. 1983. 262 Jarrel.EFFECT OF TAKE-OVER ANNOUNCEMENT  The effect of take-over announcement on bidder firm’s stock prices are not clear cut. – However. Bradley.

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

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

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

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

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

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

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

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

Leverage – They are the gateways to future markets. It cannot be matched even by its closest competitors.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 represents the collective learning's of an organization centering around diverse streams of technologies. 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.

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

In most emerging markets where the IP climate is not so favorable. 311 311 . Collusion with the judiciary is also another distinct possibility in emerging markets.HOW TO PROTECT INNOVATION?     Without adequate protection (external or otherwise) the effects of innovation does not translate to performance. however that possibility is slowly atrophying. 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.

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

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

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

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

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

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

undertook formal evaluation of its directors. 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. from 10% for companies where the regulatory backdrop was least certain (those in Morocco. who had no management ties.GOVERNANCE & PERFORMANCE In its “Global Investor Opinion Survey” of over 200 institutional investors in 2002. Egypt and Russia) to around 40% for Canadian & European companies. McKinsey found that 80% of the respondents would pay a premium for wellgoverned companies. The size of the premium varied by market. 318  .

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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

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

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

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

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

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

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