BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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. It is also a form of assessing vulnerability through longitudinal analysis. . 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. 66 Vertical integration is a powerful strategy. An organization can draw upon the experience of its peers in similar situations. Relative attractiveness of the market.

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

Competitive advantage refers to a firms resources or activities in which it is way ahead of competition. The principal focus is on meeting competition. building market-share. Competitive advantage is the back-bone of strategy.e. rent).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. The strength of a firm in a particular business usually stems from its competitive advantage. and earning super-normal profits (i. 109 .

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

preferential access to raw materials.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. 111 . Reliance) or may pass it to customers to increase market-share (Eg. Locational or early entry advantage. The firm may retain the benefits of cost advantage by enjoying higher margins (Eg. Nirma. Ayur. Compress project duration through crashing. backward integration. Sources of cost advantage are varied and depends on the structure of the industry – Economies of size. proprietary technology. T-Series). Steep experience curve effects.

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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. An unbiased game is one where both the players have equal chances of winning.

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

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

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

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

IMPORTANCE OF STRATEGIC FIT  Strategic fit has a central role to play in strategic management. 143 . 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. – Better strategic and operational control. – Resource commitment from top management. – Development of capabilities & competencies. – Unlearning & learning of new skill sets. – Changing the rules of the game. internal strategic fit (strategy – dominant logic) is critical to strategy implementation.

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

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

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

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

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 related businesses usually employs a divisional structure. Once the structure is in place. The level of centralization and decentralization is decisive. A firm in several unrelated businesses usually employs a SBU structure. 148 . A single product or a dominant business firm usually employs a functional structure. processes become people independent.

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

150 . assuming responsibility. as span is broader. 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.FACTORS INFLUENCING STRUCTURE    Size – As an organizations size increases there is more specialization and differentiation leading to the top management moving away from operational issues and control. Technology – With more and more convergence of technologies in business. structures are becoming flatter and more simpler. facing challenges & crises. leading to a tall structure.

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

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

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

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

BARRIERS TO STRATEGY EXECUTION     Vision and strategy not actionable – Utopian ideas. 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. difficult to translate into practice. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy. Strategy not linked to resource allocation & capabilities – Lacking commitment of top management. “If you cannot .

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

e. ageing schedule) % of key customer transactions Ranking of key customer accounts No. 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.

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

from survival of the fittest . 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.CORPORATE RESTRUCTURING      The only thing constant in today's business environment is change. to survival of the most adaptable.. Tata Group).... firms use restructuring strategies. Strategic variety may be caused by changes in the as external well as internal environment.” 198 . “every organization must be prepared to abandon everything it does.. Radical change brings about strategic variety. Strategic variety brings paradigm shift.

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

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

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

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

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

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

CAPITAL RESTRUCTURING     Capital Restructuring . It provides greater leverage as well as management control. 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. Wipro). involving 608 pence per share). 205 .The internal & external liability composition undergoes a major change – LBO – Acquiring control over a substantially larger company through borrowed funds (Eg. Share Buyback – It is a process of cancellation of shares out of free reserves to the extent of 25% of paid-up capital (Eg.

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

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

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

e. 20% of the people carry out 80% of the changes). Companies achieve real agility only when people at every level rise above the ordinary to face the challenges – revitalization or transformation.FORCES AGAINST STRATEGIC CHANGE     The problem with strategic change is that the whole burden typically rests on few people (i. 209 . the factor that stifled change & performance was – culture. In most organizations. 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.

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

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

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

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

TURNAROUND MANAGEMENT 214 .

– Less than 10% of the Fortune 500 companies as first published in 1955. .... January 1997). 215 (Govindarajan and Trimble.WHY TURN AROUND MANAGEMENT?  Some interesting insights . Source:  Why do firms atrophy? (Business Today.... and that the thirty-two of the country’s largest business groups in 1969 are no longer among the top fifty 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.

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

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

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

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

It has its origin in “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. R-Extinction – It suggests that organization factors. 220 . It involves the identification of the theoretical perspectives that explains performance decline – K-Extinction – It suggests that macro economic and industry wide factors are responsible for decline.DECLINE    Decline is the first stage in the turnaround process. Identification of the stimulus leads to the arrest of the downfall.

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

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

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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

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

Whirlpool – Tide. Coke – Pepsi). Maruti).TYPES      Collusion – Tacit top management understanding to neutralize price wars (Eg. Airbus – Boeing). Backward – An alliance (quasi or tapered) with a supplier of critical components seeking commitment (Eg. 232 . Bootstrap – An alliance between a weak and a strong company with an intention to acquire it. Bajaj – Castrol). 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 .

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

– Synergy – Potential value gain from combining operations (i. – Market for corporate control. Financial motives – Undervaluation relative to true value. 251 .VALUATION   The process of valuation is central to M&A.M&A . over valuation can become a curse. – Unstated reasons – Personal self interest and hubris. operational & financial). 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.e. While under valuation may be a significant opportunity.

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

Synergy comes from projects which would not have been undertaken if the two firms stayed apart (Eg. but availed after being merged with a profitable firm (Eg. ITC – Bhadrachalam Paper). Tax Benefits – Tax benefits may accrue from tax entitlements and depreciation benefits unutilized by a loss making firm. 253 . 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. and without paying take-over premiums. However.

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

The value of control can be substantial for firms that are operating well below optimal value.VALUING CORPORATE CONTROL     Premium of M&A are often justified to control the management of the firm. 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. since a restructuring can lead to significant increase in value. 255 . While value of corporate control is negligible for firms that are operating close to their optimal value.

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

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

– Debts repaid off from increased value after successful restructuring and wresting management control. co-insurance effect).RATIONALE FOR HIGH LEVERAGE  The high leverage in a LBO can be justified by – – If the target firm has too little debt (relative to its optimal capital structure). – Cash trapped company unable to utilize opportunities. 258 . – Cost of debt coming down (i. – It is a temporary phenomenon. – Managers cannot be trusted to invest free cash flows wisely. which disappears once assets are liquidated and significant portion of debt is paid off.e.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

Leverage – They are the gateways to future markets. 278 . It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times. Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage.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. It cannot be matched even by its closest competitors. It represents the collective learning's of an organization centering around diverse streams of technologies.

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

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 .

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

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

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

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

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

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

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

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

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

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

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

culture (food habits). Pricing – It depends on the competitive structure (PLC – Kellogg's). economic (middle class buying power). . buying patterns (spread). usage (talk time). promotion (surrogate advertising). lifestyle (petroleum 299 outlets – departmental stores). customer awareness (microwaves).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). technology (microchip).

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

2002 to restore public confidence in corporate governance. SEBI Report – 2005. .ORIGIN & CONTEXT    Since the early 20th century since a large part of public funds were held by publicly traded firms in the US. After the Enron downfall. various laws were enacted to ensure proper usage of these funds. defines corporate governance (headed by Kumar Mangalam Birla) as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the 314 shareholders. the US government passed the Sarbanes – Oxley Act.

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

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.. Independence of the entity's auditors: Identification. 316 316 . They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting. Disclosure and transparency: Disclosure of information should be timely and balanced to ensure that investors have clear access to data and facts.

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

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

where most industries are saturated. They have fought for profits. 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. and struggled for differentiation (cost or product). profitable growth. Yet in today’s overcrowded industries. In today’s red oceans. one companies gain is always at the 326 cost of another companies loss. battled over market-share. .

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

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

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

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

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 .

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

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

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