Strategic management

1. Strategy Management
Strategy Implementation – 1
Diversification, Turnaround Strategies

2. McKinsey’s 7-S Framework
[Source: Peters & Waterman, “In search of Excellence…”]
According to McKinsey & Co,
Strategy is only one of seven
elements in successful business
practice, hence real change in large
institutions is a function of at least
seven areas of complexity.
Some of these may be regarded as
the hardware while some others may
be regarded as software of business.
Structure
// Shared
values
Systems
Style: Company employees share a common way of thinking and behaving, eg.
McDonald’s employees smile at the customer, while IBM employees are very
professional in their customer dealings.
Skills: Employees have the necessary skills to carry out the company’s strategy.
Staff: Co. has hired able people, trained them well and assigned them to the right jobs.
Shared values: act as a bond whereby employees share the same set of guiding values,
eg. Tata companies. When all these elements are present, companies are usually more
successful at strategy implementation.
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Staff
Strategy
Skills Style
Hardware of success
Software of success
// Bond

3. Growth Strategies
Integrative Growth
Forward
integration
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Backward
integration
Horizontal
integration
Intensive Growth
Market
penetration
Product
developmt
Market
developmt
Diversification Growth
Conglomerate
diversification
Horizontal
diversification
Concentric
Diversification
ANSOFF’S MATRIX

4. Intensive Growth - The Ansoff’s Matrix
Review of opportunities for improving the existing businesses’ performance
Existing Products New Products
H.Igor Ansoff’s ‘Product - Market Expansion Matrix, HBR, 1957 [Ref: Aaker David, Ch.11]
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MARKETS
PRODUCTS
Existing
Markets
New
Markets
Market Penetration Strategy
Market Development Strategy
Product Development Strategy
Diversification Strategy
• Increase Market share by
- creating a SCA (Sustainable
Competitive Advantage) with
enhanced customer value.
• Increase product usage through
- increase in frequency of use,
- increase in quantity of use, and
- new applications for current users.
• Add product features, product
refinement
• Develop a new-generation product
• Develop new (related) products for
the same market (through brand
extension).
• Expand geographically
• Target new segments
• Related
• Unrelated

5. Diversification
DIVERSIFICATION: process of making the production base wider by
bringing in the element of variety. A business enterprise may diversify
 to utilise the existing infrastructure better so as to improve efficiency;
 to reduce the risk of ‘putting all the eggs in one basket’;
 to reap the fruits of synergy accruing out of “joint efforts and shared
costs”. These synergies may be identified as
 Production synergy (same plant/machinery),
 Marketing synergy (same dealers, ad agency/campaigns, etc),
 Financial synergy, and
 Organizational synergy (same staff, infrastructure, etc).
TYPES OF DIVERSIFICATION:
1. CONCENTRIC Diversification is the process of adding products/
services that are related to the existing products/services (“sticking
to the knitting”). They fall within the framework of the organization’s
knowhow and experience in technology, product line, distribution
channels or customer base. Example, ‘Amul’ has diversified into
chocolates, ice creams, butter, ghee, cheese, etc., Honda from
motor cycles into scooters, three-wheelers, cars, generators, etc.
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6. Diversification (contd)
2. HORIZONTAL Diversification: is where the organization adds unrelated
products/services for existing customers, eg. Reliance Textiles (Vimal)
into Petrochemicals and now Petroleum products.
 Less risky, because the customers are known;
 May be accomplished by acquiring the shareholding of the competitor, by
purchase of assets or by pooling of interests of two organizations.
3. CONGLOMERATE Diversification: refers to the strategy where
significantly different products/services are added to the present product
line, with a view to
 cash in on expanding/new market opportunities, or
 bringing about some turnaround by way of conversion of losses into
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profits.
Examples, the Godrej group diversifying from its core steel business (locks,
safes, cupboards, office furniture, etc.) into cosmetics, consumer
durables, toiletries, vanaspati, food, mosquito repellants, and so on.
Similarly, DCM diversifying from textiles into chemicals, calculators, sugar,
automobiles, etc.
ITC diversifying from tobacco into hotels, edible oils, financial services, etc.

7. Diversification (contd)
Some of the important mechanics for adopting Conglomerate
Diversification may be summarised as follows:
 Supporting some divisions with cash flow from other divisions
during the period of development or temporary difficulty;
 Using the profits of one division to cover the expenses of
another division without paying the taxes from the first division;
 Taking advantage of unusually attractive growth opportunities;
 Distributing risk by serving several different markets;
 Gaining better access to capital markets and better stability or
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growth in earnings;
 Increasing the price of an organization’s stock, and
 Reaping the benefits of synergy (as already discussed).

8. Diversification (contd)
‘DIVERSIFICATION INTO DISASTERS’
Business World has identified the following factors which could
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lead to disasters:
1. If you are not big enough, do not try it.
2. If you lack in staying power, stay clear of grandiose
diversification.
3. Look before you leap.
4. If possible, be the first.
5. Where feasible, float a separate company.
6. Check whether you have the marketing skills necessary in the
new business.
7. Be ready to accept your limitations and compromise.
8. If you are a small player, it is better to have a small ego.
9. Tax saving alone is not a good enough reason to diversify.
10. Ultimately, it is no crime to remain undiversified.

9. Turnaround strategies
DEFINITION: ‘Turnaround’ is the process of re-activating a
deteriorating, sick unit which is facing a “‘survival crisis” due
to consistent downward trend in operating profits. This could
be attributed to several reasons:
DANGER SIGNALS – THE CAUSES OF CORPORATE SICKNESS
1. Inadequate Financial Controls: Ignorance of market dynamics
and/or lack of adequate control over cash inflows/outflows.
2. Ineffective Management: on account of the following factors
a) One-man rule: All power is concentrated in the CEO, hence
he keeps on repeating his past follies.
b) Combined Chairman and Chief Executive: Weakens not
only the process of execution but also effective monitoring
and controlling.
c) Ineffective Board of Directors: Rubbers stamps, signing on
the dotted line, thereby organisation continues to falter on all
fronts.
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10. Turnaround strategies (contd.)
d) Other managerial shortcomings: Managers, who have sneaked
into the organisation either through inheritance or other backdoor
entries, have neither the capability/will to develop nor the aptitude
to learn from others. They remain in their own shells surrounded by
sycophants and continue to be a constant liability to the company.
3. Competition: Inefficient and irrational organisations, which do not
keep pace with consumer preferences in a competitive market, will
face serious problems. Substituting products before they reach the
decline stage will provide energy and dynamism to the organisation.
4. High Cost structure (compared to competitors): due to
a) Inability to take advantage of economies of scale;
b) Cost disadvantage due to ineffective control of strategic variables;
c) Under-utilization of capacity/ill-maintenance of plant & machinery;
d) Other operating inefficiencies/unfavourable Govt. policies.
5. Changes in Market demand: either due to shift in consumer
preferences or other innovations resulting in emergence of better
product in the market, resulting in huge financial losses to the
company.
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11. Turnaround strategies (contd.)
6. Lack of Marketing effort: resulting from managerial complacency in
the declining phase. Failure to keep up the tempo of sales/promo-tions
or make the product appear attractive and presentable.
7. Big Projects & Acquisitions: Over-ambitious organisations sometimes
go in for projects/acquisitions for which they have neither the
resources nor the expertise to manage, thereby blocking funds
without ROI.
8. Irrational Financial policy: either due to high Debt/Equity ratio or use
of inappropriate financing sources/cash management.
9. Inadequate Reinvestment in Business: Adequate reinvestment in
plant, equipment and machinery is necessary for a company to
remain competitive.
TURNAROUND MANAGEMENT is defined as the measures adopted to
reverse the negative trends in the performance indicators of a
company, i.e, to turn a sick company back to healthy one. The exact
nature of turnaround management and the relative importance of
different factors may vary from company to company.
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12. Turnaround strategies (contd.)
TURNAROUND STRATEGIES: Prof. Pradeep N. Khandwalla (ex-IIM-A) has
identified the following 10 elements of a successful turnaround
strategy:
1. Change in top management: An efficient new CEO is usually
appointed, who will not only streamline things but may also have to
change the corporate culture.
2. Initial credibility-building measures: with both stakeholders and
shareholders, especially the employees.
3. Neutralizing external pressures: economic, political, trade-unions,
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vested interests, etc.
4. Initial control: Quick, firm grip over the affairs of the organisation.
5. Identifying quick pay-off activities: Marketing/promotional efforts.
6. Rapid cost-reductions: may require laying off surplus manpower.
7. Revenue generation: emphasis on recoverables, etc.
8. Asset liquidation for generating cash: SBUs, real estate, etc.
9. Mobilization of the organization: infusing a sense of urgency and
dynamism in the existing work-force, improvement in HR through
training and recruitment of competent people, if necessary.
10. Better internal coordination: lack of which is often a cause of the
decline, in the first place.