BUSINESS STRATEGY

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

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STRATEGY - DEFINITION

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

STRATEGIC MANAGEMENT DEFINITION

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

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

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

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Management

Technological

Strategic

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Political

HR

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

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

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

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

SOME PARALLELS     Japan’s attack on Pearl Harbour – Strategy: Attack where it hurts the most. – Yahoo and Microsoft challenging Google. 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. challenging GM and Ford. Napoleon’s attack on Russia – Strategy: Waiting for the right time. Allied Forces Vs Germany (WW-II) – Strategy: Forging alliances. 11 . – Reliance’s entry into telecom.

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

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

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 .

Learning always begin on a clean sheet of paper.APPROACHES TO STRATEGY  Analytical Approach – Igor H. 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 strategy is primarily concerned with external ones rather than internal ones. – The choice of product-market mix is based on conscious evaluation of risk – return factors. 15 . – It is primarily the top management’s prerogative.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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. Leveraging Crisis – A sudden crisis or an opportunity should be used as a trigger to facilitate acceptance and implementation of change. 36 . Adaptation – As implementation progresses. Agent of Change – Formal ratification of a change plan through MBO.IMPLEMENTING INCREMENTALISM      General Concern – A vaguely felt awareness of an issue or opportunity.

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

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

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

ANALYZING BUSINESS ENVIRONMENT 40 .

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

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

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

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

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

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

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

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

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

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 .

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

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

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

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

Matured firms will always be positioned advantageously on the ECurve than new entrants. However. which further reduces costs. an E-Curve can prove to be futile during discontinuity. and with lower prices it can increase its sales volume. 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. 55 . experience teaches better and more effective way of doing things. The E-Curve thus enables organisations to build entry barriers. it can price its products more competitively. leverage it as a competitive advantage.

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

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

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 .

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

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 .

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

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

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

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

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

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

LIMITATIONS  The analysis is based on historical data and it does not take care of future challenges. As every organization is unique in its own way. . when radical changes in the economy takes place. – Contexts may vary across countries.PIMS . therefore 67 validity may be a question. Managers should be particularly cautious while referring to such data during times of discontinuity as it makes past patterns futile. – Contexts may vary over time. 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. It involves a three-stage process – Identify KSF – What does it take to be successful in a business? Drawing KSF – What should be the organizations response to the same? Benchmarking KSF – How do we evaluate organization success on this factor? 68 .KEY SUCCESS FACTORS (KSF)     KSF relates to identification and putting concentrated effort on a particular activity or process which forms the very basis of competitive advantage. KSF helps organizations spot early opportunities and convert them into value adding business propositions.

IDENTIFYING ALTERNATIVE STRATEGIES 69 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY CHOICE & PORTFOLIO ANALYSIS 92 .

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

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

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

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 .

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

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

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

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

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

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

Gap Analysis – It emphasizes what a firm wants to achieve. Portfolio – An organization is perceived as a portfolio of businesses. 107 . BCG – Boston Consulting Group.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. Disinvestment involves selling in phases. SBU – A business unit which is strategically different from another and also shares a different SIC code. Divest – Selling a part or the entire business at one go.

BUSINESS STRATEGY & COMPETITION 108 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COMPETITIVE ADVANTAGE 124 .

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

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

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

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 .

– Third order fit refers to optimization of effort. 129 . – Second order fit occurs when activities are reinforcing amongst them. 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. A learning organization helps create strategic fit.STRATEGIC FIT – THE PORTER WAY   The sustainability of the value chain depends on the degree of fit between the activities. Operational effectiveness is not strategy. – First order fit refers to simple consistency between each activity and the overall strategy.

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

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

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

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 . An unbiased game is one where both the players have equal chances of winning.BIASED AND UNBIASED GAME  A game is said to be biased when one of the players have a disproportionate chance of winning.

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

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

– Making pricing more transparent. .CHANGING THE RULES OF THE GAME    In a situation where a player is unable to compete with the existing rules of the game may attempt to change the rules of the game altogether. – Building incentives for customer loyalty. Game theory relies on the principle of rationality. 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.

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

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

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

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

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

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

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

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

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

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

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

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

Premise Control – Checking the validity of the assumptions on which a strategy was based. checking every premise is costly as well as difficult. 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. It involves assessing – strategic thrusts and milestones. However. It is open-ended as well as . Special Alert Control – It intends to uncover unanticipated information having critical impact 154 on strategies.

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

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

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. Since then it is known as their 7-S model and is extensively used by corporations worldwide to implement their strategies. They had been investigating how Japanese industry had been so successful. It appeared also in "In Search of Excellence" by Peters and Waterman. The 7-S model was born at a meeting of these four authors in 1982. and was taken up as a basic tool by the global management consultancy company McKinsey. 157 .

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

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

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

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

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

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

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

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

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

MANAGEMENT TOOLS IN STRATEGY 167 .

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

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

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

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

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

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

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

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

which ensures good market standing. It had little impact on improving overall productivity. Management of quality was traditionally inspect it .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. touching upon a limited aspect of a value chain. TQM is a way of creating an organization culture committed to the continuous improvement of work processes – Deming. zero defects. .fix it in nature.

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

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

. – 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..BALANCED SCORE CARD  Some interesting comments . strategy implementation has never been more important.... it’s bad execution... – Efficiency and effectiveness is passé. Source: Fortune Magazine Why CEO’s fail? 185 ..

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

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

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

BUSINESS PERSPECTIVE GOALS Skills Excellence Exposure Introduction MEASURES New capabilities and competencies Implementation & gestation period Bank and supplier credit limits & PLR Unit Costs / Conversion Ratio / Defect Ratio No. of new product launches Vs competition Product pricing Vs competition 189 . of times covered in media 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.LEARNING PERSPECTIVE GOALS Technology Manufacturing Focus Timing MEASURES No. of product innovations 190 .

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

STRATEGY MAPPING 192 .

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 .BSC .

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

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

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

CORPORATE RESTRUCTURING 197 .

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

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

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

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

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

Most of these practices are not in consonance with Indian laws. in which the equity is allotted amongst the existing shareholders on a pro-rata basis (Eg. Tata Industries selling 20% stake to Jardine Matheson). Equity Carve – It involves selling a minority stake to a third party while retaining control (Eg. 203 . the existing shareholders receive equity in the subsidiary in exchange for the stocks of the parent company.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. Reliance Ent). – Split-Off – In a split-off.

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

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

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

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

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

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

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

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

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

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

TURNAROUND MANAGEMENT 214 .

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

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

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

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

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

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

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

when decline deepens shifts in strategic position becomes essential. 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.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. Contour – It is easier to reverse decline in the earlier stages through operational measures. 222 . Similarly new market initiatives is feasible only for multi-product firms.

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

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

COOPERATIVE STRATEGIES & ALLIANCES 225 .

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

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

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

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

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. Continuous sharing of knowledge is critical to the success of a supply chain partnership. Tata Motors – IDEA). 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.

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

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

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

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

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

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

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

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

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

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

MERGERS & ACQUISITION 241 .

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

Hike – An acquirer who has already picked up a 5% has to make a mandatory disclosure for every additional 1% stake that it acquires. creeping acquisition).SEBI TAKEOVER CODE. 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. 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. . Control – A special resolution of 75% of the share 243 holders approving the change of guard.

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

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. Electrolux . Conglomerate – It involves integration of two distinctly unrelated businesses. usually opportunistic (Eg. ITC). Reliance). Godrej. 245 . Vertical – It involves complimentarily (partially related) in terms of supply of inputs or marketing activities (Eg.Kelvinator).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.

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

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

Decline – Horizontal mergers are undertaken to ensure survival. 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. Brooke Bond – Lipton). 248 . Tata Steel – Corus). with an objective to reinforce its growth trajectory or to take on the might of a comparatively larger player (Eg. 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).

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

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

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

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

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

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

– – Value of Control = Value of firm after restructuring Value of firm before restructuring.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. The value of control can be substantial for firms that are operating well below optimal value. 255 . since a restructuring can lead to significant increase in value. Assessment of perceived quality is critical. The value of wrestling control is inversely proportional to the perceived quality of that management.

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

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

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

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

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

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

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

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

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

COMPETING FOR THE FUTURE 265 .

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

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

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

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

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 .

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

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

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

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

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

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

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

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. 278 .CORE COMPETENCE     A core competence relates to a bundle of skills (not an asset or a business) that revolves around activities or processes and critically underpins a firm’s competitive advantage. Inimitable & Insubstitutable – A high degree causal ambiguity between these skills yield sustainable competitive advantage. Leverage – They are the gateways to future markets. It cannot be matched even by its closest competitors.

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

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

RESOURCE STRETCH & LEVERAGE

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

CONCENTRATING RESOURCES

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

282

ACCUMULATING RESOURCES

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

283

COMPLEMENTING RESOURCES

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

284

CONSERVING RESOURCES

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

285

RECOVERING RESOURCES

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

INTERNATIONAL BUSINESS ENVIRONMENT 287 .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONTEMPORARY TOPICS 303 .

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

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

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

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

BUSINESS MODEL FRAMEWORK 308 .

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

310 . Promote the grape-vine. Provide reasonable incentives (not necessarily monetary). Allow the workforce idiosyncrasies for their errors. Have a lean and a flat organization structure. 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. A favourable intellectual property (IP) climate.

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

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

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

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

315 . including the society at large. 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.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.

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

with its legal authority to hire. 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. However. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. Balance of power: The simplest balance of power is very common. Regular board meetings allow potential problems to be identified. safeguards invested capital. 317 . discussed and resolved. fire and compensate top management.

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

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

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

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

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

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

BLUE OCEAN STRATEGY 324 .

MARKETSPACE .TWO WORLDS 325 .

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

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

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 .

Niche markets & monopoly havens are continuing to disappear. As trade barriers between nations & regions fall.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. information imperfections atrophy instantly. of European nations. Demand across developed markets reaching a plateau. .

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). . Incumbents often create blue oceans within the ambit of their core business. Company & industry are the wrong units of 330 strategic analysis. They are not necessarily about technology. managerial moves are.

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 .

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

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

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