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

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

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

today's battles are fought over markets. Even in today’s markets. but by virtue of their courage. obsession. and more importantly . It is an old wine in a new bottle. 10 . In the ancient days battles were fought over land. whose origin can be traced to some of the greatest battles fought in the ancient days.strategies. 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. In contrast.ORIGIN     The word strategy has its origin from the Greek word strategia meaning Military Commander.STRATEGY .

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

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

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

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 .

15 . – It is primarily the top management’s prerogative. Learning always begin on a clean sheet of paper. – 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 choice of product-market mix is based on conscious evaluation of risk – return factors. 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.

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

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

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

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 .

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

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

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

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

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

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

 It serves as a road map to reach the vision. A broad mission statement helps in fending competitors.MISSION Mission defines the space that a business wants to create for itself in a competitive terrain. its reason for existence.  It is intuitive for managers to conceive their business in terms of the customer needs they are serving – What business are we in? – Which customer needs are we serving?  It should be broad based and relevant to all stake-holders. Although the purpose may change over time.  27 . It enables the firm to define its business landscape and identify its competitive forces.

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

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

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

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

STRATEGIC DRIFT FRAMEWORK Environmental Change Degree of change Strategic Change Radical Change Incremental Change State of Flux Continuity Stage of Transformation Strategic Drift Stage of Atrophy Time 32 .

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

Other causes – – The plans are unworkable and utopian. – Persons responsible for strategy conceptualization and implementation are34 divergent. – Influential stake-holders back out. – The environment context has changed. 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.INTENDED & REALISED STRATEGIES  An intended strategy is an expression of interest of a desired strategic direction. .

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

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. Leveraging Crisis – A sudden crisis or an opportunity should be used as a trigger to facilitate acceptance and implementation of change.IMPLEMENTING INCREMENTALISM      General Concern – A vaguely felt awareness of an issue or opportunity. Adaptation – As implementation progresses. The broader objective should serve the overall interest of the organization.

It creates blinders. Dominant logic’s are the cornerstones of change when strategic transformation is apparent. . Strategic transformation becomes smooth through a change in top leadership. 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. Tampering with surface level factors often leads to atrophy. As it brings 37 with it a different dominant logic.

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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 .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 enables the top management to draw focus.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

GROWTH .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 .

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

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

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

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

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

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

HORIZONTAL INTEGRATION

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

80

HORIZONTAL INTEGRATION

Reliance Capital

Reliance Infrastructure

Reliance Industries

Reliance Ports

Reliance Power
81

VERTICAL INTEGRATION

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

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

Purified tetra-pthalic acid

Mono-ethylene glycol

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

DIVERSIFICATION SUCCESS ?

    

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

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

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

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

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

1956 does not permit this mode. However. (Eg. 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.DIVESTMENT . where 100% of the assets (including intangibles) are valued and paid for. Sale of Diamond Beverages to Coca-Cola for US $ 40 million). involving 608 pence per share).ROUTES    Outright Sale – Popularly known as the asset route. the Companies Act. Hive-Off – A hive off is the creation of a new entity followed by transfer of assets. 90 . Tatas buy-out of Corus for US $ 11. (Eg.

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

managers need to ask the right questions. if addressed. To identify the right problems. nor is to a define a problem for others to solve. They must choose problems which will lead to the right kind of opportunities. will help the firm achieve its intent. The key task before a top manager is to identify the right problems.SELECTIVITY IS THE KEY       The role of a top manager is not to solve a problem. 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 .

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

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 .

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

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

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

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

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

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

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 .ARTHUR’ D.

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 .

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

Therefore firms should concentrate on developing complex resources that forms the very basis of differentiation. Typically. but not necessarily. 123 . Hence. Capabilities can be generic (i. they are woven around technologies. They play a very critical role in shaping competitive advantage. can be leveraged across businesses) or specific to a particular business.e. differentiation based on capabilities can be sustained even in the long run.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.

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

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

but not necessarily. These skills results in distinctive activities and processes. – Can be sustained even in the long run. – Cannot be easily imitated or substituted. A core competence usually has its roots in technology. 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.CORE COMPETENCE    A core competence represents the collective learning's of an organization around diverse streams of technologies. – Can be leveraged across businesses. It forms the very basis of competitive advantage. .

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

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

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

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

– Building incentives for customer loyalty. Game theory relies on the principle of rationality. but 136 players do not always behave rationally. – 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. 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

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

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

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

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

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

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

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

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

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

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

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

checking every premise is costly as well as difficult.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 involves assessing – strategic thrusts and milestones. However. Premise Control – Checking the validity of the assumptions on which a strategy was based. It is open-ended as well as . Implementation Control – It aims at assessing whether key activities are proceeding as per schedule.

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

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

BENCHMARKING - ADVANTAGES

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

ORGANIZATIONAL RESTRUCTURING     Organizational structure and systems calls for a change when strategic variety is apparent. 207 . Turnaround is the primary motive. Survival is the primary motive. keeping the composition of business intact (Jet Airways). Downscoping – It involves reducing the business and/or geographical scope of a firm (Aditya Birla group). 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. 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.

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

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

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

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

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 .

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

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

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

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

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

Switz Foods.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 Tanishq allows its franchisees to sell its jewellery products. 227 . It is an effective strategy to penetrate markets in a shortest possible time at a minimum cost. owners of the brand Monginis allows its franchisees to sell its confectionary products. Branding is critical to franchising. Titan Inds.

HM manufacturing GM range of cars in India with a buy-back arrangement is a perfect example of CBU. refine processes and adopt necessary technologies (SKD). Develop a product through its crude stage. Become a systems integrator (CKD). 228 . as in Tata Indica. 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.

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

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

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

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

– 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. Differences in level of economic development can produce differences in alliances motives. 233 . 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. Cultural orientation has been found to have a profound effect on top management’s strategic orientation (Eg.

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

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

a joint venture is a selection among modes by which two or more firms can transact.e. It lasts till the vision is reached.e. .JOINT VENTURE      A joint venture is a long term association between two equal partners to create an independent firm (SPV) by complementing their resources and capabilities to explore newer businesses or markets for achieving a shared vision. synergy) rather than mere exchange (i. combining parts). whilst the partners continue to operate independently. Conceptually. It aims at creating new value (i. separation is very 236 bitter. There are substantial linkages in the value-chain.

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

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

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

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

MERGERS & ACQUISITION 241 .

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

.SEBI TAKEOVER CODE. Hike – An acquirer who has already picked up a 5% has to make a mandatory disclosure for every additional 1% stake that it acquires.e. creeping acquisition). 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. Acquirer – Someone (individual or firm) who picks up an atleast 5% stake without mandatory disclosure having an intention to wrest management control (i. 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rights).DEFENSIVE STRATEGIES     Golden Parachute – An employment contract that compensates top managers for loss of jobs as a result of change in management control. Poison Pill – An offer to existing shareholders to buy shares at a substantial discount to increase their voting rights (Eg. 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.

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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. time-zones. Other factors – local celebrations. however. in most emerging markets use of an interpreter may be a standard protocol. and vice-versa.GLOBAL BUSINESS ENVIRONMENT    Time Sensitiveness – Developed country managers regard time as precious. High levels of ethnocentrism usually has a negative effect on business. in most emerging markets meetings are delayed and lasts unusually long. 294 .

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

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

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

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

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

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

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

Outsourcing – A company having a core competence may be the source of global outsourcing (Eg. .INTERNATIONAL OPERATIONS     Location Incentives – FDI in emerging markets should explore options for SEZ’s to explore benefits (tax holidays. SCM – Use of ERP to network the extended enterprise 302 across the globe. 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 .

but has inherent risks involved as well. While innovation typically adds value for organizations.INNOVATION      An invention is the first occurrence of an idea for a new product or process. Innovations typically paves the way for more secured and improved lifestyle for consumers in general. innovation is the 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. it has destructive effects as well. 304 .

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

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

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

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

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

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

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

a person benefitting from a decision should abstain from it. fire and compensate top management. they should provide no mechanism or scope for opportunistic behaviour. However. with its legal authority to hire. Regular board meetings allow potential problems to be identified. safeguards invested capital. 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.GOVERNANCE STRATEGIES    Monitoring by the board of directors: The board of directors. 317 . discussed and resolved.

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

319 . the short-term view of profit maximisation gave way to a more broader and mediumterm view wealth maximisation of the shareholders. corporate philanthropy should be a part of every corporate mission. today economic institutions are considered as a major drivers of improvement in quality of life in general and therefore needs to include multiple stakeholders. Therefore. The basic premise is that firms cannot exist in vacuum. However. Over a period of time.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.

Therefore. “a healthy business cannot exist in a sick and impoverished society”. 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. in fact a large part of it is significantly overlapping. economic and social responsibilities cannot be mutually exclusive. the debate on CRS still continues whether firms should detract its focus from its business? 320 . “an enterprises decisions and actions being taken for reasons at least partially beyond its immediate economic interests”. Therefore.

GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy. Fear of government interference: Excessive quench for profits may lead to build up of adverse public opinion compelling the government to intervene (Eg. 321 . 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.

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

Such strategic moves are possible through the pursuit of product differentiation and low cost simultaneously. but by creating blue oceans of uncontested market space ripe for growth .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. It is only the frames of the . rendering rivals obsolete and unleashing new demand. Blue Ocean’s have existed in the past. It helps in creating powerful leaps in value for both the firm and its buyers.

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

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

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

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

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

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