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

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

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

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

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

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

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

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

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

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

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

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

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

TOP MANAGEMENT PERSPECTIVE 20 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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   .Survival of the fittest MNC Onslaught – Enhancing stakes – Power Equation – Joint Ventures – Technological Alliances – Take-over threat.

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

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

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

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

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

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

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

However. The E-Curve thus enables organisations to build entry barriers. 55 . Experience curve has strong linkages with performance.EXPERIENCE CURVE      The cost of performing an activity declines on per-unit basis as a firm becomes more efficient. With lower costs. leverage it as a competitive advantage. it can price its products more competitively. and with lower prices it can increase its sales volume. 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. which further reduces costs.

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

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

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

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

SWOT ANALYSIS .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 .

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

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

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

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

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

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

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

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

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

73 .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.

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

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

Close Up: Fluoride – Gel toothpaste or VIP . – 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. – Leverage on customer and brand loyalty. Refills) 76 . durability. perception. conformance. – Deliverable through – redesigning or reengineering. – Substitutes that serve the same needs (Eg. features.Strolleys). serviceability. – Leveraging through – innovation.PRODUCT DEVELOPMENT  It is a strategy where a firm tries to achieve growth through a radical new product (Eg. aesthetics. reliability.

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

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

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

Dominant logic enables top managers to selectively scan the environment and make trade-offs. What then is the magical number? 93 . In most cases the trade-off is between resources and opportunities.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.

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

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. Managing Agency). formal and informal ties. Licenses & Quotas. embassies). keiretsus in Japan. Their origins can be traced back to market imperfections existing in an economy (MRTP Laws. Resource sharing. chaebols in Korea. business houses in India. 95 Succession planning is critical to continuity. BRC).BUSINESS GROUP . High degree of centralized control (GEO. Proximity to the corridors of power (i.e.

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

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

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

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

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

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

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

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

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

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

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

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

BUSINESS STRATEGY & COMPETITION 108 .

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

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

PORTERS – COST LEADERSHIP      Cost Leadership – It is a strategy that focuses on making a firm more competitive by producing its products more cheaply than its competitors. preferential access to raw materials. Ayur. backward integration. Nirma. proprietary technology. 111 . 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. Steep experience curve effects. Reliance) or may pass it to customers to increase market-share (Eg. Compress project duration through crashing. T-Series). Locational or early entry advantage.

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

A focuser seeks to achieve a competitive advantage in its target segment.PORTERS NICHE OR FOCUS     Focus / Niche – It is a variant strategy of cost leadership or product differentiation targeting a specific market or buyer sub-segment with the exclusion of others (Eg. They are poorly served by mainstream players. Armani). Cartier. 113 . The target segment must have unusual needs or the delivery system catering to this segment must be unique. Maybach. Mont-Blanc. Sub optimization alone may not be a source of superior performance. Rolex. though it may not possess an overall competitive advantage. 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 .

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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

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

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

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

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

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

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

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. – Making pricing more transparent. It results in a shift in the productivity frontier. In a market dominated by price-based differentiation one may attempt to change the rules of the game by/when – – Bases of differentiation dependent on clear identification of what customer wants or value. but 136 players do not always behave rationally. – Building incentives for customer loyalty. . Game theory relies on the principle of rationality.

DELTA MODEL & LOCK-IN

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

THE THREE STRATEGIC POSITIONS

System Lock-In
System Economics Market Dominance Complementary Share

Enabled through effective use of technology

Total Customer Solutions
Customer Economics Cooperation Customer Share

Proprietary Product
Product Economics Rivalry Product Share 138

138

LOCK-IN PAYOFFS

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

LOCK-IN SUSTAINABILITY

 

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

STRATEGY IMPLEMENTATION

141

STRATEGY IMPLEMENTATION

   

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

142

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

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

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

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

Moreover. 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 . though not necessarily in the case of emerging markets. Due to causal ambiguity (complexity). Flat Screen Displays. convergence of multiple streams of technologies at the product – market level is becoming increasingly evident (Eg. Mobiles).CAPABILITIES & COMPETENCIES     Technology and business are slowly becoming in – separable. Distinctive capabilities are complex set of skills woven around technologies.

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

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

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

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

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

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

It involves assessing – strategic thrusts and milestones. checking every premise is costly as well as difficult. Special Alert Control – It intends to uncover unanticipated information having critical impact 154 on strategies. However. 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.STRATEGY CONTROL IMPLEMENTATION     It involves steering the company towards its original growth trajectory & stated goals.

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

BENCHMARKING

  

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

169

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

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

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

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

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY MAPPING 192 .

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

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .OUTCOMES Alternatives Organizational Short .RESTRUCTURING .

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

TURNAROUND MANAGEMENT 214 .

.WHY TURN AROUND MANAGEMENT?  Some interesting insights . Source:  Why do firms atrophy? (Business Today. 215 (Govindarajan and Trimble. – Only seven of the first fifty Indian business groups in 1947 were even in business by the turn of this century. 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. . – Less than 10% of the Fortune 500 companies as first published in 1955.... January 1997)..

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

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

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

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

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

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

when decline deepens shifts in strategic position becomes essential. Similarly new market initiatives is feasible only for multi-product firms. Contour – It is easier to reverse decline in the earlier stages through operational measures. 222 .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. Scope – A diversified conglomerate may acquire a distressed business to turn it around and gain valuable synergies. which may be unavailable to a focused firm.

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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. link their capabilities to create value for end users. otherwise it 230 becomes routine outsourcing. . Continuous sharing of knowledge is critical to the success of a supply chain partnership.

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

Acquirer – Someone (individual or firm) who picks up an atleast 5% stake without mandatory disclosure having an intention to wrest management control (i.e. . Preferential – A preferential allottee ending up acquiring 5% stake also comes under its purview. 2002      Promoter – A person who has a clear control of atleast 51% of the voting rights of the company and confidence of all the major stakeholders. creeping acquisition). Control – A special resolution of 75% of the share 243 holders approving the change of guard. Hike – An acquirer who has already picked up a 5% has to make a mandatory disclosure for every additional 1% stake that it acquires.SEBI TAKEOVER CODE.

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

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

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

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

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

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

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

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

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

ITC – Bhadrachalam Paper). Synergy comes from projects which would not have been undertaken if the two firms stayed apart (Eg. Hotmail). but availed after being merged with a profitable firm (Eg.VALUING FINANCIAL SYNERGY    Diversification – Reduce variability in earnings by diversifying into unrelated industries. However. shareholders can accomplish the same at a much lesser cost. and without paying take-over premiums. 253 . 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.

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

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

debt component) at the time of buyout and rapid changes in capital structure over time. It is a very costly and risky proposition.e. 256 . 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. 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.

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

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

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

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

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

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

Asset Stripping – The targeted company hives off its key assets to another subsidiary. Poison Put – Premature retirement of bonds at attractive rates to pour surplus cash and make target investment unattractive.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. 263 . Rights). so that nothing is left for the raider to strip off.

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

reduce power costs) vis-à-vis infrastructural bottlenecks. Outsourcing – A company having a core competence may be the source of global outsourcing (Eg. . Technology – The cost to be evaluated in terms of latest technology (Euro VI) vis-à-vis effective cost of appropriate technology (Euro II).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. Bosch spark plugs are used by car manufacturers worldwide).

CONTEMPORARY TOPICS 303 .

it has destructive effects as well.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 all about staying ahead of competition. While innovation typically adds value for organizations. but has inherent risks involved as well. innovation is the first attempt to carry it out in practice. 304 . Innovation is the most preferred strategy today to maintain competitive advantage in the present turbulent business environment.

process innovation is necessary to sustain the competitive advantage of product innovation.TYPES OF INNOVATION A key challenge is maintaining a balance between process and product innovations.      305 . However. Process innovation usually follows 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. While product innovations are typically customer driven.

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

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

The most preferred strategy of internal protection includes imbibing “causal ambiguity” in the production process to make reverse engineering difficult. companies are increasingly relying on internal protection to sustain innovation effects. 311 311 . Collusion with the judiciary is also another distinct possibility in emerging markets. however that possibility is slowly atrophying.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 aims to reduce the principal-agent problem present in most professional managed organizations through appropriate forms of accountability and control mechanisms. In fact the principles of corporate governance implies that managers go beyond in satisfying the stated and unstated needs of the multiple stakeholders.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. 312 312 .

However. shareholders can diversify their portfolio at a much lesser risk and cost. also known as the principal-agent problem or agency dilemma. According to the agency theory top managers and shareholders interests are usually conflicting in nature and tend to pull in opposite directions. not present in portfolio diversifications. 313 . This exposes the shareholders to additional risks and higher costs.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.

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

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

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.GOVERNANCE PRINCIPLES    Integrity and ethical behaviour: Organizations should develop a code of conduct for their top management that promotes ethical and responsible decision making. Independence of the entity's auditors: Identification. 316 316 . They should also implement systems to independently verify and safeguard the integrity of the company's financial reporting.

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

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

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

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

Public image: Entrepreneurs are increasingly relying on public image as a source of competitive advantage and a higher financial discounting. MRTP). Fear of government interference: Excessive quench for profits may lead to build up of adverse public opinion compelling the government to intervene (Eg. 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.GROWING CONCERN FOR CSR     Awareness due to education: With growing literacy. 321 .

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

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

BLUE OCEAN STRATEGY 324 .

TWO WORLDS 325 .MARKETSPACE .

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

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

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 .

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

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

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

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

Citibank – Automated teller machines & credit 333 cards. Sony Play Station: Redefining machine-human interface in entertainment and targeting an altogether new user base. Southwest Airlines: Pioneering the concept of LCC. .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.

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

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