BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

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

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

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

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

– Toyota’s entry in the US. – Reliance’s entry into telecom. – Yahoo and Microsoft challenging Google. Napoleon’s attack on Russia – Strategy: Waiting for the right time.SOME PARALLELS     Japan’s attack on Pearl Harbour – Strategy: Attack where it hurts the most. 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. challenging GM and Ford. 11 .

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

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

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

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

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

competitors. customer. – The environmental forces comprises of – supplier. new entrant. – 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. – An organization is seldom in a position to influence the larger business environment. Porter (1980) – Choose a consumer segment and position your product accordingly. 17 . substitutes.APPROACHES TO STRATEGY  Positioning Approach – Michael E.

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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 .

– Creating obligations of reciprocity. 33 . – Developing a platform of support. – Creating a favourable image. – Using covert tactics to pursue self interests. – Hiding vulnerability. – 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. Some instances of organizational politics – Formation of powerful groups or coteries.

– The environment context has changed. – Influential stake-holders back out. . – 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. Usually there is wide gap between the two when organizational politics is evident. A realized strategy is what the top management actually translates into practice. Other causes – – The plans are unworkable and utopian.

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

41 .PLANNING & STRATEGIC PLANNING     Formal planning is a function of extrapolating the past. gap analysis). It is based on the assumption of incremental change. It points to a position of superiority with relation to competition. 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.e. Strategic planning is a function of discounting the future. Competitive advantage provides the surest way to fulfill the strategic gap. It is based on the assumption of radical change. It requires a quantum leap (i.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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 .

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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 .

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

Dominant logic enables top managers to selectively scan the environment and make trade-offs. 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. In most cases the trade-off is between resources and opportunities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

convergence of multiple streams of technologies at the product – market level is becoming increasingly evident (Eg. 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. Flat Screen Displays. these capabilities are sustainable even in the medium to long term. Due to causal ambiguity (complexity). Mobiles). 147 . though not necessarily in the case of emerging markets. Distinctive capabilities are complex set of skills woven around technologies.

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

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

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

there is a tendency to continue along the same lines.  . Changes in top management and unlearning helps overcome inertia. 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. Inertia acts as an impediment in strategy implementation. co0ntinuity). Common sources of 151 inertia – complacency with past successes. Inertia is a characteristic of a firm that endures status quo (i. Top managers resist change.e. Most firms undergo periods of strategic continuity rather than strategic discontinuity.

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

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

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

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. Strategy not linked to resource allocation & capabilities – Lacking commitment of top management. Strategy intent not linked with goals and objectives – Lack of coordination at lower levels leading to negative synergy. “If you cannot . low strategic fit due to consultants intervention. difficult to translate into practice.

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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.

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

Dell: Customized configuration of computers. Caterpillar: 48 hours delivery anywhere in the world. Citi Bank : Priority banking services. Maruti: Certified “true value” pre-owned cars. Microsoft: ESOP to employees. Infosys: Customized work-stations. TCS: Referencing potential new recruits. ITC: Shareholders factory visit. AmEx: Outsourcing data warehousing mining. MARG: Set-top box to study viewing patterns. Honda: CEO’s visit to dealers.
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TYPES OF BENCHMARKING
Functional – Used by companies to improve a particular management activity. Eg. Motorola learnt delivery scheduling from Domino’s. Process – Improving specific key processes and operations from experiences in similar businesses. Eg. Ford adopting assembly lay-out plan of Toyota. Competitive – It involves assessing the sources of competitive advantage and imitating them. Eg. Samsung leveraging miniaturization skills of Sony. Strategic – It involves assessing business models and replicating them in a different market. Eg. Reliance replicating AT&T business model.
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HOW TO BENCHMARK?

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

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

  

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

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

clean sheet). DOS to Windows). .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. Re-engineering involves complete reconstruction and overhauling of job descriptions from the scratch (i. Re-engineering attempts to radically change an organizational products or process by challenging the basic assumptions surrounding it. for achieving performance improvement (E. process mapping) and eliminating or improving them (E.g.e. Windows 95 to 97).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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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

Successful transformation requires – incorporating employees fully into the process – leading from a different place so as to maintain employee involvement – instill mental disciplines that will enable employees to behave differently. In most organizations. the factor that stifled change & performance was – culture. 209 .e.FORCES AGAINST STRATEGIC CHANGE     The problem with strategic change is that the whole burden typically rests on few people (i. 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.

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

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

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

Numerator – It assumes that turnover is not a barrier or constraint. focuses on reengineering. 213 . 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. In order to put back the company on the right track they are resort to – Denominator – It assumes that turnover cannot be increased. reverse engineering and regenerating. hence go in for downsizing. While the first strategy produces results instantaneously. the second one is a more viable strategy and sustainable option in the long run.

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

the response should be operational. If the decline stems from structural shifts. new market initiatives. 221 . asset reduction. diversification. the response should be strategic. If the underlying cause is internal efficiency. The response must match the cause of the decline. Operating responses typically focuses on the way the firm conducts business and involves tactics geared towards – cost cutting and process redesigning (BPR).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.

222 . Scope – A diversified conglomerate may acquire a distressed business to turn it around and gain valuable synergies. Untangling this question brings into focus three events – Domain – Many of the strategic cures have limited applicability for an affiliated firm. 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.RESPONSE DICHOTOMY     The response initiation is somewhat dichotomous and cannot be universally applicable. Similarly new market initiatives is feasible only for multi-product firms.

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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).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. as in Tata Indica. Develop a product through its crude stage. Become a systems integrator (CKD). refine processes and adopt necessary technologies (SKD).

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

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.SUPPLY CHAIN PARTNERSHIP     It is a pro-active & collaborative arrangement between supplier and customer aimed at achieving better control over the value chain (Eg. Tata Motors – IDEA). Continuous sharing of knowledge is critical to the success of a supply chain partnership. Companies in different industries with different but complimentary skills. otherwise it 230 becomes routine outsourcing. .

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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

It drives a hunger and a passion to transform. 271      .e. It is about deliberately creating a strategic misfit. hence do not fall sick in the first place. Change in at least one fundamental way the rules of engagement in an industry. Therefore. blue oceans). Redraw the boundaries between industries. Successful companies have a complete grip over the industry. Create entirely new industries (i. they do not need to restructure. by converging technologies complex.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.ABOUT THE EMPOWERMENT      Bring about a revolution (a paradigm shift) in the organization. The middle management plays a strong moderating role. Such a process is called institutionalization (from people centric to organisational centric). More importantly. Most successful revolutions (Gandhi to Mandela) rose from the dispossessed. 272 . Transformational leaders merely lead the way. A revolution that is thrust upon from the top seldom sustains.

Get to the future first. without taking undue risk. What does it take to get to the future first? Understanding how competition for the future is different. Companies need to strategize (think ahead of times). South West Airlines – LCC. Apple – iphone). 273 . Apply the 40 – 30 – 20 principle. An ability to energize the company. Toshiba – LCD. 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. A process for finding and gaining insight into tomorrows opportunities (Eg.

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

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 .

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

It is characterized by the following – Unique – It provides unimaginable customer value ahead of its times.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. 278 . Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage. Leverage – They are the gateways to future markets.

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

Trade Block – It will strengthen the EU identity which would not have been possible otherwise. However. a multiple currency is preferable where the business cycles of member nations are different. 297 . Transparency – A single currency is transparent and competitive. but it may have spill-over effects. 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. it helps avoiding transaction costs associated with a multiple currency.

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

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

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

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

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. .INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays. Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II). Bosch spark plugs are used by car manufacturers worldwide). reduce power costs) vis-à-vis infrastructural bottlenecks.

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

the US government passed the Sarbanes – Oxley Act. various laws were enacted to ensure proper usage of these funds. 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. 2002 to restore public confidence in corporate governance. After the Enron downfall. . 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.

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

assessment and mitigation of risks and retirement by rotation over a fixed period of time.. 316 316 .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. 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.

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

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

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. corporate philanthropy should be a part of every corporate mission. However. the short-term view of profit maximisation gave way to a more broader and mediumterm view wealth maximisation of the shareholders. Over a period of time. 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. 319 .

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.CORPORATE SOCIAL RESPONSIBILITY     As Peter Drucker rightly pointed out that. CSR can be defined as. giving a very important message that one cannot exist without the other. economic and social responsibilities cannot be mutually exclusive. “an enterprises decisions and actions being taken for reasons at least partially beyond its immediate economic interests”. Therefore. “a healthy business cannot exist in a sick and impoverished society”. Therefore.

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

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

Prahalad notes that future markets exist collectively. C. across the world's billions of poor people having immense untapped buying power. They represent an enormous opportunity for companies who learn how to serve them. K. In turn companies by serving these markets. 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. 323 .BOTTOM OF THE PYRAMID    With the market across most developed markets including the US getting saturated.

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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

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

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

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

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

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

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. greater than themselves. According to this view. 334 . companies & managers are largely at the mercy of economic forces. 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.