BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

today's battles are fought over markets. It is an old wine in a new bottle.STRATEGY . In contrast. Even in today’s markets. In the ancient days battles were fought over land. obsession. 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. battles fought on the market front are won by companies by virtue of their obsession & strategies. but with a lot a rigour and robustness.ORIGIN     The word strategy has its origin from the Greek word strategia meaning Military Commander. but by virtue of their courage. 10 .strategies. and more importantly .

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

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

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

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

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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. Reachable – It should be within a reasonable target in the known future. Brevity – It should be short. clear. Sharing – The company across all hierarchies should have faith in it. 25 . Empathy – It should reflect the company’s beliefs to which it is sensitive.CHARACTERISTICS       Reliance – Where growth is a way of life.VISION . not an utopian dream. Clarity – Vividly descriptive image of what the company wants to be known for in the future.

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

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

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

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

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

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

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 .

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

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

However. 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. but as a defensible response to the complexities of a large organization that mitigate against publicizing goals. They simply unfold the particulars of the sub-system in stages. this is not to be treated as “muddling”. Learning is an integral part of logical incrementalism. 35 . Strategy formulation and implementation are linked together in a continuous improvement cycle.

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

for which a holistic picture is required. It is important not only to identify the structural drivers of change. 43 . which may be different from the past impact. but also to analyze the complex linkages across them. It is not intended to be used as an exhaustive list. 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. Understanding the composite effect is critical.

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

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

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

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

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 .

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

e. the forces are subject to changes. The model should not be used as a snapshot in time. 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. but also used to understand how they can be countered and overcome. It should not only be used to understand the forces. profit potential) per se. 51 . The five forces have strong cross-linkages. It depicts the attractiveness of an industry (i. incremental or otherwise.

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

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

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

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

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

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

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

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

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

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

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

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

therefore 67 validity may be a question.PIMS . – Contexts may vary across countries. . – Contexts may vary over time. 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. when radical changes in the economy takes place. Authenticity of data is of prime importance – Contexts drawn across one organization may not be applicable to another.LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges.

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

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

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

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

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

107 . BCG – Boston Consulting Group. Gap Analysis – It emphasizes what a firm wants to achieve. 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. Disinvestment involves selling in phases. Divest – Selling a part or the entire business at one go.TERMINOLOGIES       Harvest – It entails minimizing investments while trying to maximize short-run profits and cash flow with the intention to exit the business in the near future.

BUSINESS STRATEGY & COMPETITION 108 .

rent). The principal focus is on meeting competition. 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. Such resources or activities should be distinctive and sustainable over time. and earning super-normal profits (i. 109 .e. Competitive advantage is the back-bone of strategy. building market-share.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

faster product launches.e. and enhanced customer tracking – higher market share. Substantial cost reductions also follow. VC pay-offs: better product availability. 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. Today SCM is integrated with greening the environment as CSR practices. A VC is often compared with a relay team. 127 . Inventory Mgt to Logistics Mgt to Supply Chain Mgt (SCM). kaizen or internal customer).VALUE CHAIN ANALYSIS    A value-chain segregates a firm into strategically relevant activities to understand its composite behaviour.

THE VALUE CHAIN Support Infrastructure n gi ar M Human Resource Management Technology Development Procurement Out Logistics Mktg & Sales In Logistics Operations Primary Service M ar gi n 128 .

– Second order fit occurs when activities are reinforcing amongst them. A learning organization helps create strategic fit. 129 . 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. – First order fit refers to simple consistency between each activity and the overall strategy. – Third order fit refers to optimization of effort. A high fit involving a complex chain of activities drives both competitive advantage and its sustainability. Fit is important because discrete activities result in negative synergy and can also be easily copied by competitors.

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

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

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

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 . A saddle point is a situation where both the players are facing pure strategies.PURE STRATEGY GAME  The strategy each player follows will always be the same regardless of the other players strategy.

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

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

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

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

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

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

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

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

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

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. competitive advantages becoming disadvantages? Has the company acquired any new competency? Has the company been able to overcome the 153 environmental threats.STRATEGY CONTROL      It is concerned with trafficking a strategy as it is being implemented. .

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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

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

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

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

with an intention to copy it (Eg. – Early entry advantages. 179 . reverse engineering is a top-bottom approach. 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. However.REVERSE ENGINEERING    It is a process by which a product is dismantled and analyzed in order to understand how the product was designed and manufactured. – Causal Ambiguity. learning curve advantage. Cheaper versions of Intel chips and mother-boards manufactured in Taiwan.

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

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

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. It is deeply embedded as an aspect of 182 organisational life & culture. It had little impact on improving overall productivity. zero defects.fix it in nature. touching upon a limited aspect of a value chain. Management of quality was traditionally inspect it . .

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

CAPITAL RESTRUCTURING     Capital Restructuring . 205 . It provides greater leverage as well as management control.The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. Wipro). Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg. involving 608 pence per share). Tatas take-over of Corus for US $11.3 billion. Conversion – Replacing debt with equity or vice-versa or costlier with cheaper debt or cross currency debt.

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

207 . of operating units. Survival is the primary motive. Turnaround is the primary motive. keeping the composition of business intact (Jet Airways). 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).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. Downscoping – It involves reducing the business and/or geographical scope of a firm (Aditya Birla group). usually as a result external turbulence.

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

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

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

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

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 .OUTCOMES Alternatives Organizational Short .

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

it should adopt a holistic approach. Regaining lost market share and distributor confidence. 224 . Instead of focusing on financial parameters alone. Failure is an indication that initial momentum was not sustainable characterized by irreversibility. Revival of key customers and new product launches. Supplier and banker confidence. 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. Share price indications and media coverage.

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

Managing over-diversification. Merging of organisational structures. while the ultimate acquisition was made at 607 pence/share). neglecting core business. Tata – Corus). Overvaluation is often as a result of an ego drive and substantially affects future returns. Managing size. Top management overtly focused on due diligence exercise and negotiations. When Tata Steel started negotiations with Corus. 247 . their initial offer was around 420 pence/share. Inability to achieve synergy. Overvaluation of buying firms (Eg.MERGERS & ACQUISITIONS PITFALLS        Cultural differences (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. Brooke Bond – Lipton). Growth – This stage may witness parallel merger of two firms of similar size.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. Tata Steel – Corus). Kingfisher – Air Deccan). 248 . vertical to save transactions costs. with an objective to reinforce its growth trajectory or to take on the might of a comparatively larger player (Eg.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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

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

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

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

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

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

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

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

It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times. 278 . It represents the collective learning's of an organization centering around diverse streams of technologies. 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. Leverage – They are the gateways to future markets. Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage.

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

After the Enron downfall. . the US government passed the Sarbanes – Oxley Act. SEBI Report – 2005. 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. 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. various laws were enacted to ensure proper usage of these funds.

Interests of other stakeholders: Recognize the legal and other obligations of all legitimate stakeholders. 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. 315 . Role and responsibilities of the board: It deals with issues about an appropriate mix of executive and nonexecutive directors.

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

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

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

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

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

people are becoming increasingly aware of their right to a decent and healthy life. 321 .GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy. MRTP). Public image: Entrepreneurs are increasingly relying on public image as a source of competitive advantage and a higher financial discounting. 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.

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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 .

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

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). Company & industry are the wrong units of 330 strategic analysis.CONCEPTUAL UNDERPINNINGS       Blue oceans have existed in the past and will exist in the future as well. managerial moves are. the underlying technology was often already in existence. . They are not necessarily about technology. Incumbents often create blue oceans within the ambit of their core business.

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

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

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

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

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