Harvard Business Review • September–October 1996

A company’s practices and strategies should

change continually; its core ideology should
not.
Core ideology defines a company’s timeless character.
It’s the glue that holds the enterprise together even when
everything else is up for grabs.
Core ideology is something you discover — by looking
inside.
It’s not something you can invent, much less fake.
 A core ideology has two parts
1. Core values are the handful of guiding
principles by which a company navigates.
They require no external justification.
For example, Disney’s core values of
imagination and wholesomeness stem
from the founder’s belief that these
should be nurtured for their own sake, not
merely to capitalize on a business
opportunity.
Instead of changing its core values, a
great company will change its markets—
seek out different customers—in order to
remain true to its core values.
Harvard Business Review • September–October 1996
2. Core purpose is an organization’s
most fundamental reason for being.
It should not be confused with the
company’s current product lines or
customer segments.
Rather, it reflects people’s idealistic
motivations for doing the company’s work.
Disney’s core purpose is to make people
happy—not to build theme parks and make
cartoons.
 An envisioned future, the second component of an effective vision,
has two elements

1. Big, Hairy, Audacious Goals 2. Vivid descriptions

(BHAGs) paint a picture of what it will be like to
are ambitious plans that rev up the entire achieve the BHAGs.
organization. They make the goals vibrant, engaging—
They typically require 10 to 30 years’ and tangible.
work to complete.
Example:
In the 1950s, Sony’s goal was to “become the company most known for changing
the worldwide poor-quality image of Japanese products.”

It made this BHAG vivid by adding, “Fifty years from now, our brand name will be as well
known s any in the world . . . and will signify innovation and quality. . . .‘Made in Japan’ will
mean something fine, not something shoddy.”
Harvard Business Review • September–October 1996
 Ralph S. Larsen, CEO of Johnson & Johnson, puts it
this way:

“The core values embodied in our

credo might be a competitive advantage, but
that is not why we have them. We have them
because they define for us what we stand
for, and we would hold them even if they became a
competitive disadvantage in certain
situations.”

Harvard Business Review • September–October 1996

Harvard Business Review • September–October 1996
Why are we here?
 Many people assume, • Purpose (which should last at least 100
wrongly, that a years) should not be confused with
specific goals or business strategies
company exists (which should change many times in 100
simply to make years).
money. While • Whereas you might achieve a goal or
complete a strategy, you cannot fulfill a
this is an important purpose; it is like a guiding star on the
result of a company’s horizon—forever pursued but never
reached.
existence, • Yet although purpose itself does not
we have to go deeper change, it does inspire change.
and find the real • The very fact that purpose can never be
fully realized means that an organization
reasons for our can never stop stimulating change and
being. progress.

Harvard Business Review • September–October 1996

 Vision-level BHAG.
It is found in research that visionary companies often use bold missions—or what
we prefer to call BHAGs (pronounced BEE-hags and shorthand for Big, Hairy,
Audacious Goals)—as a powerful way to stimulate progress. All companies have
goals.
But there is a difference between merely having a goal and becoming committed to a
huge, daunting challenge— such as climbing Mount Everest.
A true BHAG is clear and compelling, serves as a unifying focal point of effort, and
acts as a catalyst for team spirit.
It has a clear finish line, so the organization can know when it has achieved the goal;
people like to shoot for finish lines. A BHAG engages people—it reaches out and grabs
them.
It is tangible, energizing, highly focused. People get it right away; it takes little or no
explanation.
 Common-enemy BHAGs involve
Big, Hairy, Audacious Goals Aid Long-Term Vision David-versus-Goliath thinking
• Knock off RJR as the number one
Target BHAGs can be quantitative or qualitative tobacco
company in the world (Philip
• Become a $125 billion company by the year 2000 (Wal-Mart, 1990) Morris, 1950s)
• Democratize the automobile (Ford Motor Company, early 1900s) • Crush Adidas (Nike, 1960s)
• Yamaha wo tsubusu! We will
• Become the company most known for changing the worldwide poor
destroy Yamaha! (Honda, 1970s)
quality image of Japanese products (Sony, early 1950s)
• Become the most powerful, the most serviceable, the most farreaching
Role-model BHAGs suit up-and-coming
world financial institution
organizations
that has ever been (City Bank, predecessor to Citicorp, 1915) • Become the Nike of the cycling industry
• Become the dominant player in commercial aircraft and bring the (Giro Sport Design, 1986)
world into the jet age (Boeing, • Become as respected in 20 years as
Hewlett-Packard is today (Watkins-
1950) Johnson, 1996)
• Become the Harvard of the West
(Stanford University, 1940s)
You must translate the
vision from words to
pictures with a vivid
description of what it will
be like to achieve your
goal.
For example, Henry Ford brought to
life the goal of democratizing the
automobile with this vivid description:
“I will build a motor car for the great
multitude.... It will be so low in price
that no man making a good salary will
be unable to own one and enjoy with
his family the blessing of hours of
pleasure in God’s great open spaces....
When I’m through, everybody will be
able to afford one, and everyone will
have one. The horse will have
disappeared from our highways, the
automobile will be
taken for granted...[and we will] give a
large number of men employment at
good wages.”
The Story of One of the Most Memorable
Marketing Blunders Ever
The History of New Coke
To hear some tell it, April 23, 1985, was a
day that will live in marketing infamy.
On that day, The Coca-Cola Company took
arguably the biggest risk in consumer goods
history, announcing that it was changing the
formula for the world's most popular soft
drink, and spawning consumer angst the likes
of which no business has ever seen.
 Swinging for the Fences
The Coca-Cola Company introduced reformulated Coca-Cola, often referred to as "new
Coke," marking the first formula change in 99 years. The company didn't set out to create the
firestorm of consumer protest that ensued; instead, The Coca-Cola Company intended to re-
energize its Coca-Cola brand and the cola category in its largest market, the United States.
That firestorm ended with the return of the original formula, now called Coca-Cola classic, a
few months later. The return of original formula Coca-Cola on July 11, 1985, put the cap on
79 days that revolutionized the soft-drink industry, transformed The Coca-Cola Company
and stands today as testimony to the power of taking intelligent risks, even when they don't
quite work as intended.
"We set out to change the dynamics of sugar colas in the United States, and we did exactly
that -- albeit not in the way we had planned," then chairman and chief executive officer
Roberto Goizueta said in 1995 at a special employee event honoring the 10-year anniversary
of "new Coke."
"But the most significant result of 'new Coke' by far," Mr. Goizueta said, "was that it sent an
incredibly powerful signal ... a signal that we really were ready to do whatever was necessary
to build value for the owners of our business."
 Factors That Shaped the Launch Decision
The story of "new Coke" is widely recalled, but the context is often forgotten. In 1985, The Coca-
Cola Company's share lead over its chief competitor, in its flagship market, with its flagship
product, had been slowly slipping for 15 consecutive years. The cola category in general was
lethargic. Consumer preference for Coca-Cola was dipping, as was consumer awareness. That
changed, of course, in the summer of 1985 as the consumer outcry over "new Coke" was replaced
by consumer affection for Coca-Cola classic.
The fabled secret formula for Coca-Cola was changed, adopting a formula preferred in taste tests
of nearly 200,000 consumers. What these tests didn't show, of course, was the bond consumers felt
with their Coca-Cola — something they didn't want anyone, including The Coca-Cola Company,
tampering with.
The events of the spring and summer of '85 — pundits blasting the "marketing blunder of the
century," consumers hoarding the "old" Coke, calls of protests by the thousands — changed
forever The Coca-Cola Company's thinking.
At the 10-year anniversary celebration, Mr. Goizueta characterized the "new Coke" decision as a
prime example of "taking intelligent risks." He urged all employees to take intelligent risks in their
jobs, saying it was critical to the company's success. Many of the employees there that day had
worked for the company in 1985 and remembered the thousands of calls and consumer complaints.
Calls flooded in not just to the 800-GET-COKE phone line, but to Coca-Cola offices across the
United States. By June 1985, The Coca-Cola Company was getting 1,500 calls a day on its
consumer hotline, compared with 400 a day before the taste change. People seemed to hold any
Coca-Cola employee — from security officers at our headquarters building to their neighbors
who worked for Coke — personally responsible for the change.
Mr. Goizueta received a letter addressed to "Chief Dodo, The Coca-Cola Company." (He often
said he was more upset that it was actually delivered to him!) Another person wrote to him
asking for his autograph — because, in years to come, the signature of "one of the dumbest
executives in American business history" would be worth a fortune.
When the taste change was announced, some consumers panicked, filling their basements with
cases of Coke®. A man in San Antonio, Texas, drove to a local bottler and bought $1,000 worth
of Coca-Cola. Some people got depressed over the loss of their favorite soft drink. Suddenly
everyone was talking about Coca-Cola, realizing what an important role it played in his or her
life.
Protest groups — such as the Society for the Preservation of the Real Thing and Old Cola
Drinkers of America (which claimed to have recruited 100,000 in a drive to bring back "old"
Coke) — popped up around the country. Songs were written to honor the old taste. Protesters
at a Coca-Cola event in downtown Atlanta in May carried signs with "We want the real thing"
and "Our children will never know refreshment."
 The Return of a Classic
When the announcement of the return of "old" Coca-Cola was
made in July 1985, those hoarding as many as 900 bottles in their
basements could stop their self-imposed rationing and begin to
drink the product as they always had — as often as they'd like.
That July day, the story that the "old" Coca-Cola was returning
to store shelves as Coca-Cola classic led two network newscasts
and made the front page of virtually every major newspaper.
Consumers applauded the decision. In just two days after the
announcement of Coca-Cola classic, The Coca-Cola Company
received 31,600 telephone calls on the hotline. Coca-Cola was
obviously more than just a soft drink.
Coca-Cola classic was sold alongside Coca-Cola ("new
Coke"), and the two brands had distinct advertising
campaigns, with the youthful, leading-edge "Catch the Wave"
campaign for the new taste of Coke and the emotional "Red,
White and You" for Coca-Cola classic. Later, the name of the
new taste of Coca-Cola was changed to Coke II; the product is
no longer available in the United States.
The events of 1985 changed forever the dynamics of the soft-
drink industry and the success of The Coca-Cola Company, as
the Coca-Cola brand soared to new heights and consumers
continued to remember the love they have for Coca-Cola.
EXTERNAL ANALYSIS
 Quiz
The Five Competitive Forces
10 Marks
Q1
What barriers to entry can incumbents create?
A. Economies of scale
B. Customer Switching costs
C. Capital Requirements
D. Unequal access to distribution channel
E. All of the above
Q2
What should Starbucks do to overcome the low entry barriers?
A. Standardize
B. Innovate
C. Diversify
D. Consolidate
Q3
What can an organization do to neutralize the power of supplier?
A. Standardize
B. Innovate
C. Diversify
D. Consolidate
Q4
What can an organization do to neutralize the power of the buyer?
A. Standardize
B. Innovate
C. Diversify
D. Consolidate
Q5
If the cost of switching is low, the threat of substitute is __
A. High
B. Low
Q6
Rivalry is greatest when exit barriers are
A. High
B. Low
Q7
Which of these is not a force?
A. Rivalry
B. Technology
C. Potential entrants
Q8
Eliminating rivals is a ________ strategy
A. Risky
B. Successful
C. Mediocre
Q9
Good strategy is about finding a position in the industry where the
forces are
A. Weakest
B. Strongest
C. Non-existent
Concepts of Innovation
What is Innovation?
• Innovation?
• Invention?
• Ideation?
• Implementation?
• Improvisation?
Stages of Innovation
From creativity to execution
From execution to commercialization

Ideation Invention Innovation

Innovation = Invention + Commercialization
Six kinds of innovation
Product Innovation
Six kinds of innovation
Product Innovation
Process Innovation
Six kinds of innovation
Product Innovation
Process Innovation
Service Innovation
Six kinds of innovation
Product Innovation
Process Innovation
Service Innovation
Market Innovation
Six kinds of innovation
Product Innovation
Process Innovation
Service Innovation
Market Innovation
Managerial Innovation
Six kinds of innovation
Product Innovation
Process Innovation
Service Innovation
Market Innovation
Managerial Innovation
Business Model Innovation
Degrees of Innovation
Radical or Breakthrough

Small or Incremental
New to whom?
• New to me?
OR
• New to the world?
Building a culture of Innovation in your company
Some Things to Look at
• What kind of goals will you set up for your teams?
• Easily Achievable
• Fairly difficult
• Extremely difficult
• Almost unachievable
• What kind of rewards will you pay to your teams, in which order?
• A. Fixed Rewards
• B. Incentives
• C. Recognition
What kind of culture do you need to establish for innovation?
A. Extreme Autonomy
B. Completely Constrained
C. Autonomy within Boundaries
Have you heard?
Penetration?

Expansion?

Diversification?

Are they the same or different?

What is Diversification?
Mr. Ghansham Das makes wooden almirahs in Kashipur.

Now he makes steel almirahs in Chandigarh.

Is this Diversification?
What is Diversification?
Mr. Ghansham Das makes wooden almirahs in Kashipur.

Now he makes sofas in Chandigarh.

Is this Diversification?
What is Diversification
• Is Diversification good?

• Is Diversification bad?

• Is Diversification necessary?

• Is Diversification viable?
Case Discussion
• IIM Indore's five year management programme, a big draw
• Integrated Program in Management) IPM is a five years program.
• IPM consists of 15 terms spread over five years, with each year having
three terms of three months each. The broad design of the
programme includes education in natural sciences, liberal arts, and
humanities and social sciences setting.
• “This year, we received 12,000 applications for 120 seats. That is a
1:100 ratio almost that of Common Admission Test,” said Rishikesha T
Krishnan, director, IIM-Indore.

•  The tuition fee for the first three years is Rs 3 lakh per annum and for
the next two years it is Rs 13 lakh — a total of Rs 22 lakh. 
Question to Ponder
Q1. Is this a good expansion?

a. If yes, why are other IIMs not doing it?

b. If no, why is IIM Indore continuing it?

Q2. What should be the recourse for other IIMs?

Q3. Can there be other innovative programs that IIMs should offer?
Benefits of Diversification
• Risk reduction
• Multiple uses of resources
• Synergies
• Credibility and size
• Bargaining power
• Overcome cyclical nature of business
Issues with Diversification
• Sub-optimal (Below Optimal) strategy

• Lack of a core competence

Issues with Diversification
• Agency problems

• Example 2 – Narayana Murthy vs Vishal Sikka

• Example 3 – Ratan Tata vs Cyrus Mistry

Types of Diversification
• Vertical (Netflix's shift from licensing shows and movies from
major studios to producing its own original content)
• Horizontal (Apple | From Computers to MP3 Players and
Phones, Disney | From Cartoons to Cruises, Theme Parks, and
Media.)
• Conglomerate (ITC)
McKinsey 7S Framework
The model can be applied to many situations and is a
valuable tool when organizational design is at question.
The most common uses of the framework are:
• To facilitate organizational change.
• To help implement new strategy.
• To identify how each area may change in a future.
• To facilitate the merger of organizations.
Strategy
 is a plan developed by a firm to achieve sustained competitive
advantage and successfully compete in the market. What does a well-
aligned strategy mean in 7s McKinsey model? In general, a sound
strategy is the one that’s clearly articulated, is long-term, helps to
achieve competitive advantage and is reinforced by strong vision,
mission and values. But it’s hard to tell if such strategy is well-aligned
with other elements when analyzed alone. So the key in 7s model is not
to look at your company to find the great strategy, structure, systems
and etc. but to look if its aligned with other elements. For example,
short-term strategy is usually a poor choice for a company but if its
aligned with other 6 elements, then it may provide strong results.
Structure
represents the way business divisions and units are organized and
includes the information of who is accountable to whom. In other
words, structure is the organizational chart of the firm. It is also one of
the most visible and easy to change elements of the framework.
Systems
 are the processes and procedures of the company, which reveal
business’ daily activities and how decisions are made. Systems are the
area of the firm that determines how business is done and it should be
the main focus for managers during organizational change.
Skills
are the abilities that firm’s employees perform very well. They also
include capabilities and competences. During organizational change, the
question often arises of what skills the company will really need to
reinforce its new strategy or new structure.
Staff
element is concerned with what type and how many employees an
organization will need and how they will be recruited, trained,
motivated and rewarded.

Style
represents the way the company is managed by top-level managers, how
they interact, what actions do they take and their symbolic value. In
other words, it is the management style of company’s leaders.
Shared Values 
are at the core of McKinsey 7s model. They are the norms and standards
that guide employee behavior and company actions and thus, are the
foundation of every organization.