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Business

  1. 1. BUSINESS STRATEGY - I Course Code: 602 Prof. Subir Sen – Faculty Member ICFAI E-Mail: subir@ibsindia.org / 9830697368 Ref: 1) Strategic Management – Thompson & Strickland 2) Strategic Management – Pearce & Robinson 3) Strategic Management – Lomash 4) Strategic Management – Fred. R. David 5) Strategic Management – Johnson & Scholes
  2. 2. <ul><li>INTRODUCTION </li></ul>
  3. 3. STRATEGY - DEFINITION <ul><li>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 - </li></ul><ul><ul><li>Corporate Strategies – It is all about making choices across various businesses and allocating resources among them. </li></ul></ul><ul><ul><li>Business Strategies – It is all about developing and leveraging competitive advantage. </li></ul></ul><ul><ul><li>Functional Strategies – It is all about doing things differently, rather than doing different things. </li></ul></ul>
  4. 4. STRATEGIC MANAGEMENT - DEFINITION <ul><li>Strategic management attempts to align the traditional management functions with the environment to make resource allocations in a way to achieve organisational goals and objectives. </li></ul><ul><ul><li>This alignment is called strategic fit . </li></ul></ul><ul><ul><li>It serves as a road-map for the organisation in its growth path. It provides the direction – extent – pace – timing . </li></ul></ul><ul><ul><li>It depends on the turbulence of the environment and the aggressiveness of the organisation. </li></ul></ul><ul><ul><li>It distinguishes winners from the losers. </li></ul></ul>
  5. 5. STRATEGIC MANAGEMENT - FRAMEWORK Fit Fit Fit Political Political Strategic Intent Strategic Management Finance Marketing Economical Social & Cultural Fit Fit Fit Fit Political Technological HR Production Strategic Management
  6. 6. STRATEGY - ORIGIN <ul><li>The word strategy has its origin from the Greek word strategia meaning Military Commander. In the ancient days battles were fought over land. In contrast, today's battles are fought over markets. </li></ul><ul><ul><li>In the ancient days battles were won not by virtue of size, efficiency, adaptive ability; but by virtue of their strategies. </li></ul></ul><ul><ul><li>Even in today’s markets, battles fought on the market front are won by companies by virtue of their strategies, which has its origin in the battles fought in the ancient days. </li></ul></ul>
  7. 7. SOME PARALLELS <ul><li>Japan’s attack on Pearl Harbour </li></ul><ul><ul><li>Strategy: Attack where it hurts the most. </li></ul></ul><ul><ul><li>Toyota’s entry in the US challenging GM and Ford. </li></ul></ul><ul><li>US attack of Morocco to capture Germany </li></ul><ul><ul><li>Strategy: Pin-hole strategy </li></ul></ul><ul><ul><li>Wal-Mart challenging Sears by first entering small towns. </li></ul></ul><ul><li>Battle of Moses and Ramases II </li></ul><ul><ul><li>Strategy: Survival of the fittest </li></ul></ul><ul><ul><li>Jack Welch’s ruthless downsizing of GE. </li></ul></ul>
  8. 8. SOME MORE PARALLELS ………… <ul><li>Caesar, Genghis Khan, Alexander </li></ul><ul><ul><li>Strategy: Concentration of resources. </li></ul></ul><ul><ul><li>Nokia challenging Motorola. </li></ul></ul><ul><li>Allied Forces Vs Germany (World War II) </li></ul><ul><ul><li>Strategy: Forging alliances. </li></ul></ul><ul><ul><li>Yahoo and Microsoft challenging Google. </li></ul></ul><ul><li>Napoleon’s attack on Russia </li></ul><ul><ul><li>Strategy: Waiting for the right time. </li></ul></ul><ul><ul><li>Reliance’s entry into telecom. </li></ul></ul><ul><li>Cold War: US Vs USSR </li></ul><ul><ul><li>Strategy: Containment. </li></ul></ul><ul><ul><li>Tata’s during the 80’s vis-à-vis Reliance. </li></ul></ul>
  9. 9. EVOLUTION OF MANAGEMENT <ul><li>As Peter Drucker refers to it, a radical change in the business environment brings about discontinuity . The things happening around the firm are totally disconnected from the past. It leads to a paradigm shift . </li></ul><ul><li>The first major discontinuity in the history of global business environment – Industrial Revolution . </li></ul><ul><ul><li>Mass Production </li></ul></ul><ul><ul><li>Complicated Processes Organisation Size </li></ul></ul><ul><ul><li>Complex Structures </li></ul></ul><ul><li>Evolving of an emerging paradigm – Survival of the fittest (Fayol & Taylor, 1907). </li></ul>
  10. 10. EVOLUTION OF STRATEGIC MANAGEMENT <ul><li>The second major discontinuity in the history of global economic environment – World War II . </li></ul><ul><ul><li>Global market place. </li></ul></ul><ul><ul><li>Affluence of the new customer. </li></ul></ul><ul><ul><li>Homogeneous to heterogeneous products. </li></ul></ul><ul><ul><li>Changes in the technology fore-front. </li></ul></ul><ul><li>From uniform performance, performance across firms became differentiated. The question of outperforming the benchmark became the new buzzword. </li></ul><ul><li>Survival of the most adaptable becomes a new management paradigm (Ansoff, 1960). </li></ul>
  11. 11. ENVIRONMENTAL CHANGE Phase I : Extrapolation of the past Phase II : Discrete Scenarios Phase III : Range of Scenarios Phase IV : Horizon of Scenarios 1 2 1B 1A 2A 2B 1 3 2 1 Prior to 1950 1950 to 1970 1970 to 1990 1990 onwards 3 2 1
  12. 12. STRATEGIC MANAGEMENT - IMPORTANCE Industry Effects – 45% Strategy Effects – 35% Time Effects – 20% Source: Schmalensee, (1985)
  13. 13. STRATEGIC MANAGEMENT - FEATURES <ul><li>It forms the core activity of the top management. </li></ul><ul><li>It requires commitment of the top management. </li></ul><ul><li>It is long-term. </li></ul><ul><li>It is about adaptation and response to the same. </li></ul><ul><li>It is all about creativity and innovation. </li></ul><ul><li>It involves substantial resource outlay. </li></ul><ul><li>It is irreversible. </li></ul><ul><li>It is a holistic approach. </li></ul><ul><li>It provides broad guidelines. </li></ul><ul><li>It can make or destroy a company. </li></ul>
  14. 14. STRATEGIC MANAGEMENT – MYTHS <ul><li>It does not involve short-cuts. </li></ul><ul><li>It is not about forecasting. </li></ul><ul><li>It is not about a definite formula. </li></ul><ul><li>It does not attempt to minimise risk. </li></ul><ul><li>It does not brings instant success. </li></ul><ul><li>It is not about mere data and facts. </li></ul><ul><li>It does not involve nitty-gritty's. </li></ul><ul><li>It is not a bundle of tricks or even techniques. </li></ul>
  15. 15. ENVIRONMENTAL DEMANDS <ul><li>To be continuously alert. </li></ul><ul><li>To assimilate change faster. </li></ul><ul><li>To be future oriented. </li></ul><ul><li>To tap markets across boundaries. </li></ul><ul><li>To be insulated against environmental threats. </li></ul><ul><li>To leverage size, scale and scope. </li></ul><ul><li>To generate large resource pool. </li></ul><ul><li>To gain expertise in technologies. </li></ul><ul><li>To develop core–competencies. </li></ul>
  16. 16. APPROACHES TO STRATEGY <ul><li>Analytical Approach – Igor H. Ansoff (1960) </li></ul><ul><ul><li>Strategy can be segregated into certain mutually exclusive and inter-related components aimed at managing the growth of an organisation. </li></ul></ul><ul><ul><li>The choice of strategy is primarily concerned with external ones rather than internal ones. </li></ul></ul><ul><ul><li>The choice of product-market mix is based on conscious evaluation of risk – return factors. </li></ul></ul><ul><ul><li>Personal biases has a very little role to play in strategic choices. </li></ul></ul>
  17. 17. APPROACHES TO STRATEGY <ul><li>Design Approach – Alfred Chandler (1970) </li></ul><ul><ul><li>Structure follows strategy. The organisation initially decides which industry to enter, how it will compete, who will be the top managers, and who will directly decide on the type of organisation structure (MCS). </li></ul></ul><ul><ul><li>Organisation structure will precede and cause changes in strategy. Successful organisations align authority and responsibility of various departments in way to reach overall objectives. </li></ul></ul>
  18. 18. APPROACHES TO STRATEGY <ul><li>Positioning Approach – Michael E. Porter (1980) </li></ul><ul><ul><li>An organisations performance is a direct function of the environmental forces in which it is exposed; over which the firm has little or no control. </li></ul></ul><ul><ul><li>The environmental forces comprises of – supplier power, customer power, new entrant, substitutes, competitors. </li></ul></ul><ul><ul><li>The organisation will outperform the industry where environmental forces are weak and vice-versa. </li></ul></ul><ul><ul><li>An organisation is seldom in a position to influence the business environment. </li></ul></ul>
  19. 19. APPROACHES TO STRATEGY <ul><li>Resource Based Approach – C. K. Prahalad (1990) </li></ul><ul><ul><li>The key to superior performance is not doing the same as other organisations – locating in most attractive industries – and pursuing the same strategy – but exploiting the differences among firms. </li></ul></ul><ul><ul><li>Core competencies comprises of basic resources linked together through a wide range of bonding mechanisms to form complex resources. </li></ul></ul><ul><ul><li>It comprises of delivering unimaginable value to customers much ahead of time. </li></ul></ul><ul><ul><li>Organisations can significantly alter the way an industry functions. </li></ul></ul>
  20. 20. STRATEGIC MANAGEMENT - PROCESS <ul><li>Strategic Intent </li></ul><ul><li>Strategic Planning </li></ul><ul><ul><li>Environmental Scanning </li></ul></ul><ul><ul><li>Internal Appraisal of the Firm </li></ul></ul><ul><li>Strategy Formulation </li></ul><ul><ul><li>Corporate Strategy </li></ul></ul><ul><ul><li>Business Strategy </li></ul></ul><ul><ul><li>Functional Strategy </li></ul></ul><ul><li>Strategy Implementation </li></ul><ul><li>Strategy Performance </li></ul><ul><li>Strategy Evaluation & Control </li></ul>Strategic Gap Strategic Choices
  21. 21. <ul><li>TOP MANAGEMENT PERSPECTIVE </li></ul>
  22. 22. STRATEGIC INTENT <ul><li>A strategic intent is a dream that energizes a company; it is a sophisticated and positive version of a simple war-cry. It is the cornerstone of an organisations strategic architecture. </li></ul><ul><ul><li>It provides a sense of direction and destiny. </li></ul></ul><ul><ul><li>It’s a philosophy that distinguishes it from its competitors. </li></ul></ul><ul><ul><li>It implies a significant stretch. A substantial gap between its resources and aspirations. </li></ul></ul><ul><ul><li>It consciously creates a strategic gap. A gap that consciously manages between stagnation and atrophy. </li></ul></ul>
  23. 23. STRATEGIC INTENT - HIERARCHY Dominant Vision Mission Objectives Goals Plans Integrative Specific Single Many Dominant Logic
  24. 24. DOMINANT LOGIC <ul><li>A dominant logic can be defined as the way in which the top management team conceptualises its various businesses and make critical resource allocation decisions. </li></ul><ul><li>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 . </li></ul><ul><li>It is central to the strategic intent of the firm. </li></ul><ul><li>Dominant logic changes, when changes in the internal and external environment (i.e. strategic variety) is apparent. </li></ul>
  25. 25. HOW DOES DOMINANT LOGIC EVOLVE? <ul><li> </li></ul>Strategic success or failure Doing the right things Identify critical success factors (Schemas) (What worked before?) (Paradigms) (Heuristic Principles) Characteristics of the core business
  26. 26. DOMINANT LOGIC <ul><li>Reliance: Perceptions of Lt. Dhirubhai Ambani </li></ul><ul><ul><li>Investments marked by low per-capita consumption. </li></ul></ul><ul><ul><li>Create cost barriers through economies of size. </li></ul></ul><ul><ul><li>Use price-elasticity to blow up the market to international standards. </li></ul></ul><ul><ul><li>Integrate vertically and horizontally across businesses. </li></ul></ul><ul><ul><li>Acquire a dominating market share. </li></ul></ul><ul><ul><li>Exploit early entry advantages. </li></ul></ul><ul><ul><li>By-pass the regulatory regime. </li></ul></ul>
  27. 27. VISION <ul><li>It is a dream (not a forecast) about, what the company wants to become in the foreseeable future. It is a combination of three basic elements – </li></ul><ul><ul><li>An organisations fundamental reason for existence; beyond just making money. </li></ul></ul><ul><ul><li>It stands for the unchanging core values of the company. </li></ul></ul><ul><ul><li>It represents the company’s aspirations. It should be audacious, but achievable. </li></ul></ul>
  28. 28. VISION - CHARACTERISTICS <ul><li>Reliance – Where growth is a way of life. </li></ul><ul><ul><li>Clarity – Vividly descriptive image of what the company wants to be known for in the future. </li></ul></ul><ul><ul><li>Reachable – It should be within a reasonable target in the known future. </li></ul></ul><ul><ul><li>Brevity – It should be short, clear, and preferably memorisable. </li></ul></ul><ul><ul><li>Empathy – It should reflect the company’s beliefs to which it is sensitive. </li></ul></ul><ul><ul><li>Sharing – The company across all hierarchies should have faith in it. </li></ul></ul>
  29. 29. VISION - ADVANTAGES <ul><li>To stay focused on the right track. </li></ul><ul><li>To prevent the fall in a activity trap. </li></ul><ul><li>It gives enlightment. </li></ul><ul><li>It gives the impression of a forward-looking organisation. </li></ul><ul><li>It provides a holistic picture. </li></ul><ul><li>It gives a shared platform. </li></ul><ul><li>It fosters risk taking and experimentation. </li></ul><ul><li>It lends integrity and genuineness. </li></ul>
  30. 30. MISSION <ul><li>It is a broad and enduring statement that distinguishes it from another organisation. It helps identify the scope of the organisation in terms of its products and markets. It also serves as a road–map to reach the vision; its reason for existence. </li></ul><ul><ul><li>What business are we in? </li></ul></ul><ul><ul><li>It reflects the organisations image and identity. </li></ul></ul><ul><ul><li>Its objective should be broad and enduring. </li></ul></ul><ul><ul><li>It should reflect current realities. </li></ul></ul><ul><ul><li>It should be flexible an dynamic. </li></ul></ul><ul><ul><li>It is a philosophy. </li></ul></ul>
  31. 31. MISSION – SOME IDEAS <ul><li>Reliance – We are in the business of integration. </li></ul><ul><ul><li>We do not offer clothes, </li></ul></ul><ul><ul><li>………………… . We offer comfort. </li></ul></ul><ul><ul><li>We do not offer engine oils, </li></ul></ul><ul><ul><li>………………… . We offer liquid engineering. </li></ul></ul><ul><ul><li>We do not offer software's, </li></ul></ul><ul><ul><li>………………… . We offer solutions. </li></ul></ul><ul><ul><li>We do not offer insurance, </li></ul></ul><ul><ul><li>………………… . We offer security. </li></ul></ul><ul><ul><li>We do not offer steel, </li></ul></ul><ul><ul><li>………………… . We offer strength. </li></ul></ul>
  32. 32. GOALS & OBJECTIVES <ul><li>Reliance – We want to become a Rs.1,00,000 crore company by the year 2010. It reflects the result that an organisation expects to achieve in the distant future. </li></ul><ul><ul><ul><li>It adds legitimacy to the mission. </li></ul></ul></ul><ul><ul><ul><li>It lends direction – time frame. </li></ul></ul></ul><ul><ul><ul><li>It provides a benchmark for evaluation. </li></ul></ul></ul><ul><ul><ul><li>It involves all the SBU’s. </li></ul></ul></ul><ul><ul><ul><li>It motivates the top management to identify the – key success factors. </li></ul></ul></ul>
  33. 33. PLANS <ul><li>Reliance – Desire to invest Rs.25000 crore in telecom business (circa 1999). It is the process of garnering necessary inputs, coordinating appropriate technologies, and gaining access to desired markets in the near future. </li></ul><ul><ul><ul><li>Backward integrate process technologies. </li></ul></ul></ul><ul><ul><ul><li>Compress project times. </li></ul></ul></ul><ul><ul><ul><li>Leverage economies of size and scale. </li></ul></ul></ul><ul><ul><ul><li>Use price-elasticity to break market barriers. </li></ul></ul></ul><ul><ul><ul><li>Acquire a market share of indomitable position. </li></ul></ul></ul>
  34. 34. STRATEGIC DRIFT <ul><li>Historical studies have shown that most organisations tend to continue with their existing strategies. Therefore, past strategies tend to have a bearing on future strategies. This tendency to restore continuity is known as inertia (resistance to change) . </li></ul><ul><li>When changes in the environment is incremental , equilibrium is maintained. However, radical change may lead to disequilibrium. This state of affairs is known as strategic drift . </li></ul><ul><li>In such a context strategies lose touch with emerging environment. </li></ul>
  35. 35. STRATEGIC DRIFT FRAMEWORK Degree of change Time Continuity Incremental Change State of Flux Radical Change Stage of Atrophy Environmental Change Strategic Change Strategic Drift Stage of Transformation
  36. 36. ORGANIZATIONAL POLITICS <ul><li>Inertia often leads to organizational politics. Organizational politics is defined as, which involves intentional acts of influence to enhance or protect the self-interest of individuals or groups . It leads to - </li></ul><ul><ul><li>Formation of powerful groups. </li></ul></ul><ul><ul><li>Creating obligations (reciprocity). </li></ul></ul><ul><ul><li>Hiding vulnerability. </li></ul></ul><ul><ul><li>Using covert tactics to pursue self interests. </li></ul></ul><ul><ul><li>Creating a favourable image. </li></ul></ul><ul><ul><li>Developing a platform of support. </li></ul></ul><ul><ul><li>Distorting information to gain mileage. </li></ul></ul>
  37. 37. LOGICAL INCREMENTALISM <ul><li>According to the incrementalism approach practitioners simply do not arrive at goals and announce them in precise integrated packages. They simply unfold the particulars of the sub-system, but the master scheme of the rational comprehensive scheme is not apparent . </li></ul><ul><li>This is not to be treated as muddling ; but as a defensible response to the complexities of a large organization that mitigate against publicizing goals . </li></ul><ul><li>Strategy formulation and implementation are linked together in a continuous improvement cycle. </li></ul>
  38. 38. IMPLEMENTING INCREMENTALISM <ul><li>General Concern – A vaguely felt awareness of an issue or opportunity . </li></ul><ul><li>Macro Broadcasting – The broad idea is floated without details to invite pros and cons leading to refinements . </li></ul><ul><li>Agent of Change – Formal ratification of a change plan . </li></ul><ul><li>Leveraging Crisis – A sudden crisis or an opportunity should be used as a trigger to facilitate acceptance and implementation of change . </li></ul><ul><li>Adaptation – As implementation progresses . </li></ul>
  39. 39. LEARNING ORGANIZATION <ul><li>A learning organization is capable of continual regeneration from knowledge, experience, and skills that fosters experimentation and questioning and challenge around a shared purpose. It helps overcome organisational politics. What fosters a learning organisation? </li></ul><ul><ul><li>Pluralistic – An environment where different and even conflicting ideas are welcome. </li></ul></ul><ul><ul><li>Experimentation – Fosters a culture of risk taking. </li></ul></ul><ul><ul><li>Informal Networks – Emerging of new ideas. </li></ul></ul><ul><ul><li>Constructive Bargaining – Agree to disagree. </li></ul></ul><ul><ul><li>Organisational Slack – Enough free space. </li></ul></ul>
  40. 40. MANAGING UNCERTAINTY <ul><li>Not all organizations face similar environments and they differ in their form and complexity. Therefore, they need to have different approaches to strategy. </li></ul><ul><li>Dominant logic are the foundations when strategic transformation is apparent. </li></ul><ul><li>Dominant logic is very rigid and sticky. </li></ul><ul><li>Strategic transformation becomes smooth through a change in top leadership. As it brings with it a different dominant logic. </li></ul>
  41. 41. ENVIRONMENTAL CONDITIONS Simple Complex Static Dynamic Learning Scenario Planning Decentralisation Forecasting
  42. 42. INTENDED & REALISED STRATEGIES <ul><li>An intended strategy is an expression of interest of a desired strategic direction. A realised strategy is what the organisation actually translates into practice. Usually there is wide gap between the two. Causes – </li></ul><ul><ul><li>The plans are unworkable. </li></ul></ul><ul><ul><li>The environment context has changed. </li></ul></ul><ul><ul><li>Influential stake-holders back out. </li></ul></ul><ul><ul><li>Strategies are superimposed. </li></ul></ul><ul><li>An emergent strategy is one which slowly evolves over time. </li></ul>
  43. 43. <ul><li>ANALYZING </li></ul><ul><li>BUSINESS ENVIRONMENT </li></ul>
  44. 44. FORMAL PLANNING Vs STRATEGIC PLANNING <ul><li>Formal planning is a function of extrapolating the past. It is based on the assumption of incremental change. It is reactive. </li></ul><ul><li>Emergent strategy is a function of discounting the future. It is based on the assumption of radical change. It is pro-active. </li></ul><ul><li>Strategic gap basically points towards a vacuum of where the organisation wants to be and where it is. It requires a quantum leap. </li></ul><ul><li>Competitive advantage provides the surest way to fulfill the strategic gap. It points to a position of superiority with relation to competition. </li></ul>
  45. 45. ENVIRONMENTAL SCANNING <ul><li>The environment is defined as the aggregate of conditions, events, and influences that affect an organisations way of doing things. </li></ul><ul><li>Factors can be external as well as internal to the organisation. </li></ul><ul><li>Environmental scanning is very important function of strategic planning. Since the pace of change in the environment is increasing rapidly, a strategic manager has to continuously scan the environment to ensure fit with its strategic intent. </li></ul><ul><li>It is exploratory in nature (PESTEL) . </li></ul>
  46. 46. EXTERNAL ENVIRONMENT <ul><li>Political Environment </li></ul><ul><ul><li>Government Stability </li></ul></ul><ul><ul><li>Government Attitude </li></ul></ul><ul><ul><li>Economic Model </li></ul></ul><ul><ul><li>Central – State Co-alignment </li></ul></ul><ul><ul><li>Subsidies & Protection </li></ul></ul><ul><ul><li>Licensing & Quotas </li></ul></ul>
  47. 47. EXTERNAL ENVIRONMENT <ul><li>Economic Environment </li></ul><ul><ul><li>GDP, Fiscal deficit </li></ul></ul><ul><ul><li>Savings & Investment </li></ul></ul><ul><ul><li>Inflation & Interest Rates </li></ul></ul><ul><ul><li>Monsoon & Food stock reserves </li></ul></ul><ul><ul><li>Economic Cycles </li></ul></ul><ul><ul><li>Capital Market </li></ul></ul><ul><ul><li>Forex Reserves </li></ul></ul><ul><ul><li>Currency Stability </li></ul></ul><ul><ul><li>Infra-Structural Investments </li></ul></ul>
  48. 48. EXTERNAL ENVIRONMENT <ul><li>Social & Cultural Environment </li></ul><ul><ul><li>Population </li></ul></ul><ul><ul><li>Religious Composition </li></ul></ul><ul><ul><li>Literacy Levels </li></ul></ul><ul><ul><li>Inter-state immigration & Mobility </li></ul></ul><ul><ul><li>Income Distribution – Middle Class </li></ul></ul><ul><ul><li>Customs, Beliefs, Rituals & Practices </li></ul></ul><ul><ul><li>Language Barriers </li></ul></ul><ul><ul><li>Social Values & Attitude </li></ul></ul><ul><ul><li>Age Distribution </li></ul></ul>
  49. 49. EXTERNAL ENVIRONMENT <ul><li>Environmental - Technological </li></ul><ul><ul><li>Manufacturing Processes </li></ul></ul><ul><ul><li>Flexible Production Systems </li></ul></ul><ul><ul><li>Obsolescence Rate </li></ul></ul><ul><ul><li>Patent Laws </li></ul></ul><ul><ul><li>Research & Development </li></ul></ul><ul><ul><li>Backward Integration </li></ul></ul><ul><ul><li>Carbon Credits </li></ul></ul><ul><ul><li>Green Supply Chain Management </li></ul></ul><ul><ul><li>Enterprise Resource Planning (ERP) </li></ul></ul>
  50. 50. EXTERNAL ENVIRONMENT <ul><li>International Environment </li></ul><ul><ul><li>Emerging Markets </li></ul></ul><ul><ul><li>Forex Markets </li></ul></ul><ul><ul><li>War & Terrorism </li></ul></ul><ul><ul><li>FII & FDI Inflows </li></ul></ul><ul><ul><li>Mergers & Acquisition </li></ul></ul><ul><ul><li>Financial Crises – Sub Prime </li></ul></ul><ul><li>Legal Environment </li></ul><ul><ul><li>Corruption – Transparency International – 89 th </li></ul></ul><ul><ul><li>Transparency – RTI Act, 2005 </li></ul></ul><ul><ul><li>Speedy Trials & Pending Cases </li></ul></ul>
  51. 51. ECONOMIC LIBERALISATION <ul><li>New Industrial Policy (NIP) – </li></ul><ul><ul><li>Liberalising industrial licensing. </li></ul></ul><ul><ul><li>FERA Liberalisation. </li></ul></ul><ul><ul><li>MRTP Liberalisation. </li></ul></ul><ul><ul><li>Curtailment of PSU’s. </li></ul></ul><ul><ul><li>Encouraging Foreign Direct Investment. </li></ul></ul><ul><li>Economic Reforms – </li></ul><ul><ul><li>Fiscal & Monetary Reforms. </li></ul></ul><ul><ul><li>Banking Sector Reforms. </li></ul></ul><ul><ul><li>Capital Market Reforms. </li></ul></ul>
  52. 52. <ul><li>New Trade Policy (NTP) – </li></ul><ul><ul><li>Lowering import tariffs </li></ul></ul><ul><ul><li>Abolition of import licenses </li></ul></ul><ul><ul><li>Encouraging exports </li></ul></ul><ul><ul><li>Rupee Convertibility </li></ul></ul><ul><li>Structural Adjustments – </li></ul><ul><ul><li>Phasing out subsidies </li></ul></ul><ul><ul><li>Dismantling price controls </li></ul></ul><ul><ul><li>PSU Disinvestments </li></ul></ul><ul><ul><li>Exit Policy- VRS </li></ul></ul>ECONOMIC LIBERALISATION
  53. 53. DISCONTINUITY <ul><li>Destabilization due to entrepreneurial freedom </li></ul><ul><ul><li>Cocoon of protection disappears </li></ul></ul><ul><ul><li>Diversification spree </li></ul></ul><ul><ul><li>Existing notions of size shaken </li></ul></ul><ul><ul><li>Industry structures change radically </li></ul></ul><ul><ul><li>Economic Darwinism - Survival of the fittest </li></ul></ul><ul><li>MNC Onslaught </li></ul><ul><ul><li>Enhancing stakes – Power Equation </li></ul></ul><ul><ul><li>Joint Ventures – Technological Alliances </li></ul></ul><ul><ul><li>Take-over threat, Mergers & Acquisitions </li></ul></ul>
  54. 54. DISCONTINUITY <ul><li>Hyper Competition </li></ul><ul><ul><li>MNC’s - Globalization </li></ul></ul><ul><ul><li>Cheap Imports </li></ul></ul><ul><ul><li>Access to technology </li></ul></ul><ul><li>Buyers exacting demands </li></ul><ul><ul><li>Shortage to surplus – Price competition </li></ul></ul><ul><ul><li>Life-style changes </li></ul></ul><ul><ul><li>Stress on quality, Consumerism </li></ul></ul><ul><li>Challenges on the technology front </li></ul><ul><ul><li>Competencies become technology based </li></ul></ul><ul><ul><li>Investment in R&D become inescapable </li></ul></ul>
  55. 55. DISCONTINUITY <ul><li>Compulsion to find export markets </li></ul><ul><ul><li>Identifying competitive advantage </li></ul></ul><ul><ul><li>Technological gap </li></ul></ul><ul><ul><li>Global presence </li></ul></ul><ul><ul><li>Depreciating Currency – Exports </li></ul></ul><ul><li>Corporate vulnerability </li></ul><ul><ul><li>It is no longer business as usual </li></ul></ul><ul><ul><li>Capital inadequacy </li></ul></ul><ul><ul><li>Lack of product clout and brand power </li></ul></ul><ul><ul><li>One product syndrome </li></ul></ul><ul><ul><li>Loss of monopoly </li></ul></ul>
  56. 56. FIVE FORCES MODEL - PORTER Threat of New Entrants Threat of Substitutes Bargaining power of Suppliers Bargaining power of Suppliers Bargaining power of Customers Competition from Existing Players
  57. 57. PORTERS FIVE FORCES ANALYSIS <ul><li>Competition from existing players – </li></ul><ul><ul><li>Industry growth rate, attractive margins. </li></ul></ul><ul><ul><li>Intermittent overcapacity. </li></ul></ul><ul><ul><li>Strong product differentiation. </li></ul></ul><ul><ul><li>Fragmented market. </li></ul></ul><ul><ul><li>High exit barriers. </li></ul></ul><ul><ul><li>Concentrated market. </li></ul></ul><ul><ul><li>Unorganised sector. </li></ul></ul><ul><ul><li>Piracy and counterfeits. </li></ul></ul><ul><ul><li>Dependence on advertising and promotion. </li></ul></ul>
  58. 58. PORTERS FIVE FORCES ANALYSIS <ul><li>Threat of New Entrants – </li></ul><ul><ul><li>Economies of size and scale. </li></ul></ul><ul><ul><li>Huge investment in CAPEX. </li></ul></ul><ul><ul><li>Strong brand power. </li></ul></ul><ul><ul><li>Product differentiation. </li></ul></ul><ul><ul><li>Resource profile, access to inputs. </li></ul></ul><ul><ul><li>Learning curve advantages. </li></ul></ul><ul><ul><li>Access to distribution channels. </li></ul></ul><ul><ul><li>High switching costs. </li></ul></ul><ul><ul><li>Licensing & Quotas. </li></ul></ul>
  59. 59. PORTERS FIVE FORCES ANALYSIS <ul><li>Bargaining power of Customers – </li></ul><ul><ul><li>Buyer concentration and volumes. </li></ul></ul><ul><ul><li>Scope for backward integration. </li></ul></ul><ul><ul><li>Price sensitiveness = Price / Total Purchase. </li></ul></ul><ul><ul><li>Customer age profile, individual - corporate. </li></ul></ul><ul><ul><li>One-time / repeat purchase . </li></ul></ul><ul><ul><li>Decision makers’ incentive. </li></ul></ul><ul><ul><li>Business margins. </li></ul></ul><ul><ul><li>Credit limits. </li></ul></ul>
  60. 60. PORTERS FIVE FORCES ANALYSIS <ul><li>Bargaining power of Suppliers – </li></ul><ul><ul><li>Importance of volume to supplier. </li></ul></ul><ul><ul><li>Presence of substitute inputs. </li></ul></ul><ul><ul><li>Differentiation of inputs. </li></ul></ul><ul><ul><li>Low scope for vertical integration </li></ul></ul><ul><li>Threat of Substitutes – </li></ul><ul><ul><li>Source of latent competition – timing. </li></ul></ul><ul><ul><li>Substitute offering a price advantage and/or performance improvement. </li></ul></ul><ul><ul><li>Buyers’ propensity to substitute. </li></ul></ul>
  61. 61. FIRM ENVIRONMENT <ul><li>Size and Scale of operations. </li></ul><ul><li>Inertia – Commitment to past strategies. </li></ul><ul><li>Cohesiveness – Degree of Bonding. </li></ul><ul><li>Structure – M Form (Profit Centres). </li></ul><ul><li>Business Portfolio – Composition. </li></ul><ul><li>Business Scope – Single, Related, Unrelated. </li></ul><ul><li>Initial Resource Profile. </li></ul><ul><li>Skills & Capabilities </li></ul><ul><ul><li>Business Specific Capability </li></ul></ul><ul><ul><li>Growth Management Capability </li></ul></ul><ul><ul><li>Entrepreneurial Capability </li></ul></ul>
  62. 62. COMPONENTS OF FIRM ENVIRONMENT <ul><li>Competencies </li></ul><ul><ul><li>Imitability – Uniqueness </li></ul></ul><ul><ul><li>Substitutability – Difficult to Emulate </li></ul></ul><ul><ul><li>Sustainability – Duration </li></ul></ul><ul><ul><li>Leverage – Scope </li></ul></ul><ul><li>Performance </li></ul><ul><ul><li>Accounting, Market, Risk, Growth </li></ul></ul><ul><ul><li>Strategic </li></ul></ul>
  63. 63. VULNERABILITY ANALYSIS - SWOT <ul><li>Acronym for Strengths – Weaknesses – Opportunities – Threats. It helps an organisation to capitalise on the opportunities by maximising its strengths and neutralising the threats minimising the weaknesses. A SWOT audit should rely on – </li></ul><ul><ul><li>Company Records – Annual Reports, Websites, Press Clippings & Interviews. </li></ul></ul><ul><ul><li>Case Studies – Structured Questionnaires, Interviews, Observation. </li></ul></ul><ul><ul><li>Business Intelligence – Bankers, Suppliers, Customers, Analysts, Competitors. </li></ul></ul>
  64. 64. SOURCES OF STRENGTH <ul><li>Strong brand identity – Eg. Tata. </li></ul><ul><li>High quality products – Eg. Sony, Toyota. </li></ul><ul><li>Excellent penetration – Eg. HLL, ITC. </li></ul><ul><li>Strong R&D base – Eg. Dr. Reddy’s, Ranbaxy. </li></ul><ul><li>Economies of scale – Eg. Reliance. </li></ul><ul><li>Good credit rating – Eg. Infosys. </li></ul><ul><li>Motivated employees & cordial industrial relations – Eg. Tisco. </li></ul><ul><li>Large resource pool – Eg. Reliance. </li></ul><ul><li>Strong after sales & service network – Eg. Caterpillar. </li></ul>
  65. 65. SOURCES OF WEAKNESSES <ul><li>Outdated technology – Eg. Hindustan Motors. </li></ul><ul><li>Poor working capital management – Eg. Kirloskars. </li></ul><ul><li>Excess manpower – Eg. SAIL. </li></ul><ul><li>Narrow product base – Eg. Procter & Gamble. </li></ul><ul><li>Inefficient top management – Eg. Ballarpur Inds. </li></ul><ul><li>Single product base – Eg. Nirma. </li></ul>
  66. 66. SOURCES OF OPPORTUNITIES <ul><li>Delicensing of Industries – Eg. Telecom. </li></ul><ul><li>Import relaxations – Eg. Hardware & Software. </li></ul><ul><li>Capital market reforms – Eg. Abolishing CCI. </li></ul><ul><li>Abolishing MRTP – Eg. Maruti. </li></ul><ul><li>Consumerism – Eg. Retailing. </li></ul><ul><li>Growing population – Eg. Middle-class buying power. </li></ul><ul><li>Globalisation – Eg. GDR’s, ECB’s </li></ul><ul><li>Free pricing – Eg. Fertilisers, Insurance, Sugar </li></ul><ul><li>Exit Policy – Eg. VRS </li></ul><ul><li>Collaborations & Joint Ventures – Bharti – WalMart. </li></ul>
  67. 67. SOURCES OF THREATS <ul><li>Political instability – Eg. (1985–1990). </li></ul><ul><li>Social activism – Eg. Singur SEZ. </li></ul><ul><li>Terrorist attacks – Eg. 9/11. </li></ul><ul><li>Import liberalisation – Eg. Dumping from China. </li></ul><ul><li>Foreign Direct Investment (FDI) – Eg. Onida. </li></ul><ul><li>Economic recession – Eg. (1970’s). </li></ul><ul><li>Natural disaster – Eg. Tsunami, Earth Quake. </li></ul><ul><li>Nationalisation – Eg. TISCO. </li></ul><ul><li>Hostile take-over – Eg. Bajoria – Bombay Dyeing. </li></ul><ul><li>Group disintegration – Eg. Reliance. </li></ul>
  68. 68. ETOP <ul><li>Acronym for Environment – Threat – Opportunity – Profile. It represents a summary picture of the environmental factors and their likely impact on the organisation. Stages in ETOP analysis – </li></ul><ul><ul><li>List the different aspects of the environment that has a bearing on the organisation. </li></ul></ul><ul><ul><li>Assess the nature and extent of impact of the factors. </li></ul></ul><ul><ul><li>Holistic view – Prepare a complete overall picture. </li></ul></ul><ul><ul><li>Forecasting – Predict the future (i.e. multi-variate, delphi's technique, judge-mental). </li></ul></ul>
  69. 69. PROFIT IMPACT OF MARKET STRATEGY <ul><li>PIMS is a computer based database model developed by GE and later extended by HBS to examine the impact of a wide variety of strategy issues on business performance. It is also a form of vulnerability analysis. </li></ul><ul><li>An organisation can draw upon the experience of its peers in similar situations. PIMS Findings – 75% of the variance in performance is due to: </li></ul><ul><ul><li>Industry attractiveness. </li></ul></ul><ul><ul><li>Industry segmentation and positioning. </li></ul></ul><ul><ul><li>Industry pricing and distribution. </li></ul></ul>
  70. 70. PIMS - LIMITATIONS <ul><li>The analysis is based on historical data and it does not take care of future challenges . Therefore, </li></ul><ul><ul><li>Contexts drawn across one organisation may not be applicable to another. As every organisation is unique in its own way. </li></ul></ul><ul><ul><li>Contexts may vary over time, when radical changes in the economy takes place. </li></ul></ul><ul><ul><li>Contexts may vary across countries, therefore validity may be a question. </li></ul></ul>
  71. 71. COMPETITIVE ADVANTAGE <ul><li>A competitive advantage is a strength relative to competition. </li></ul><ul><li>It results in a distinct cost advantage or a differentiation advantage. </li></ul><ul><li>A competitive advantage is a back bone for a strategy. </li></ul><ul><li>It enlarges the scope of an organisation. </li></ul><ul><li>A collection of competitive advantages comprises strategic advantage profile (SAP). </li></ul><ul><li>Success of a strategy critically depends on SAP. </li></ul>
  72. 72. STRATEGIC ADVANTAGE PROFILE (SAP) <ul><li>Organisations have to systematically and continuously conduct exercises to identify its SAP. </li></ul><ul><li>In most cases SAP is hidden and dormant. </li></ul><ul><li>Identification of SAP is critical for and stretching and leveraging of resources. </li></ul><ul><li>In today's world of discontinuity, SAP changes from time to time. </li></ul><ul><li>Strategic fit is essential for the top management to shape its SAP. </li></ul><ul><li>Most successful organisations around the world have a well balanced SAP. </li></ul>
  73. 73. COMPOSITION OF SAP <ul><li>Marketing </li></ul><ul><ul><li>High market standing and steady market share. </li></ul></ul><ul><ul><li>Continuous product innovation. </li></ul></ul><ul><ul><li>Strong market penetration. </li></ul></ul><ul><ul><li>Market Research – early trend recognition. </li></ul></ul><ul><ul><li>Advertising effectiveness. </li></ul></ul><ul><ul><li>Cost leadership. </li></ul></ul><ul><li>Finance </li></ul><ul><ul><li>Low cost of capital. </li></ul></ul><ul><ul><li>Dynamism in tax planning. </li></ul></ul><ul><ul><li>Innovative financial instruments. </li></ul></ul>
  74. 74. COMPOSITION OF SAP <ul><li>Human Resources </li></ul><ul><ul><li>Low attrition rate. </li></ul></ul><ul><ul><li>Ability to attract talent. </li></ul></ul><ul><li>Research & Development </li></ul><ul><ul><li>Large no. of patents. </li></ul></ul><ul><ul><li>Huge spending in R&D. </li></ul></ul><ul><ul><li>Velocity of R&D multiplier. </li></ul></ul><ul><li>Production </li></ul><ul><ul><li>Flexible manufacturing systems. </li></ul></ul><ul><ul><li>Outsourcing and controlling SCM. </li></ul></ul>
  75. 75. KEY SUCCESS FACTORS (KSF) <ul><li>KSF relates to identification and putting concentrated effort on a particular activity which forms the very basis of competitive advantage. It involves a three-stage process- </li></ul><ul><ul><li>Identify KSF – What does it take to be successful in a business? </li></ul></ul><ul><ul><li>Drawing KSF – What should be the organisations response to the same? </li></ul></ul><ul><ul><li>Benchmarking KSF – How do we evaluate organisation success on this factor? </li></ul></ul><ul><li>KSF helps organisations spot early opportunities and convert them into value adding business propositions. </li></ul>
  76. 76. EXPERIENCE – LEARNING CURVE <ul><li>The cost of performing an activity declines on a per-unit basis as they grow more efficient as experience teaches better way of doing things. </li></ul><ul><li>With lower costs, it can price its products more competitively, and with lower prices it can increase its sales volume, which further reduces costs. </li></ul><ul><li>Matured firms will always be positioned advantageously on the EL Curve than new entrants. </li></ul><ul><li>The EL Curve thus enables organisations to build entry barriers, leverage it as a competitive advantage. </li></ul>Also Refer Slide: 265
  77. 77. EL - CURVE Production / Volume Cost per unit of output Decreases at an increasing rate Decreases at a constant rate Decreases at a decreasing rate Point of inflexion
  78. 78. EL - TRADITIONAL VIEW Experience = Efficiency Efficiency = Lower Costs Lower Costs = Higher Sales Higher Sales = Lower Costs Lower Costs = Entry Barriers Entry Barriers = Better Performance 1 2 3 4 5 6
  79. 79. EL - STRATEGIC VIEW Experience = Inertia Inertia = Limited Growth Limited Growth = Diversification Diversification = New Experience New Experience  Previous Experience Strategic Failure = Poor Performance 1 2 3 4 5 6
  80. 80. <ul><li>IDENTIFYING ALTERNATIVE STRATEGIES </li></ul>
  81. 81. CORPORATE STRATEGY <ul><li>It provides direction to the groups vision and mission. </li></ul><ul><li>A corporate strategy identifies and fixes the strategic gap it proposes to fill. </li></ul><ul><li>It provides a platform for subsequent strategic decisions. </li></ul><ul><li>It determines the locus a firm encounters with internal and external environment. </li></ul><ul><li>It indicates the type and quality of growth an organisation is looking for. </li></ul><ul><li>It serves the process of renewal of the firm. </li></ul>
  82. 82. GRAND STRATEGIES Corporate Strategy Growth Stability Divestment Combination Intensification Diversification Vertical Market Penetration Horizontal Conglomerate / Unrelated Market Development Product Development Concentric / Related
  83. 83. STABILITY <ul><li>It involves maintaining status-quo or growing in a slow and selective manner. The size and scale of present operations remains almost intact. Stability however, does not relate to do-nothing. It still has to adopt a strategy to sustain current performance levels. (Eg. Hindustan Motors). The reasons for stability strategy – </li></ul><ul><ul><li>Lack of attractive opportunities. </li></ul></ul><ul><ul><li>The firm may not be willing to take additional risk associated with new projects. </li></ul></ul><ul><ul><li>To stop for a while and assess past records. </li></ul></ul><ul><ul><li>Why disturb the existing equilibrium set up? </li></ul></ul><ul><ul><li>Limited resource position. </li></ul></ul>
  84. 84. GROWTH - ANSOFF’S MODEL Existing Market New Market Existing Product New Product Market Penetration (+) Market Development (++) Product Development (++) Diversification (+++) Note: (+) indicates type of growth and risk involved .
  85. 85. MARKET PENETRATION <ul><li>It is a strategy where a firm directs its entire resources to the growth of a single product, within a well defined market. Market penetration can be achieved by – increasing sales to current customers, convert competitors customers, direct non-users to users. (Eg. Nirma) </li></ul><ul><ul><li>Suitable for industries where scope for technological break-through is limited. </li></ul></ul><ul><ul><li>The company carries a risk of product obsolescence. </li></ul></ul><ul><ul><li>Helps firms which are not comfortable with unfamiliar terrain. </li></ul></ul>
  86. 86. MARKET DEVELOPMENT <ul><li>It is a strategy where a firm tries to achieve growth by finding new uses for existing products or its close variants and tap a new potential customer base altogether. (Eg. Du Pont – nylon: parachutes, socks & stockings, fabrics, tyres, upholstery, carpets,……). </li></ul><ul><ul><li>The firm should be creative and innovative – thinking out of the box . </li></ul></ul><ul><ul><li>Unconventional and flexible channels of distribution. </li></ul></ul><ul><ul><li>Move across geographical boundaries. </li></ul></ul><ul><ul><li>It is a classical case of re-engineering . </li></ul></ul>
  87. 87. PRODUCT DEVELOPMENT <ul><li>It is a strategy where a firm tries to achieve growth through a new product or an improved version of an existing product or its variant to repeatedly enter the same market. (Eg. Honda – bikes, cars, generators, lawn mowers). </li></ul><ul><ul><li>Leverage on customer loyalty. </li></ul></ul><ul><ul><li>Areas of product improvement – quality, features, styling. </li></ul></ul><ul><ul><li>Ensure high reach through advertising and promotion. </li></ul></ul><ul><ul><li>Product development with related technologies – core competencies. </li></ul></ul>
  88. 88. DIVERSIFICATION <ul><li>It marks the entry of a firm into newer markets with new products, thereby creating a new business. The new business is distinct from the existing business in terms of – inputs – technologies – markets. More importantly they are strategically dissimilar. </li></ul><ul><li>Why do firms diversify? </li></ul><ul><ul><li>Risk reduction. </li></ul></ul><ul><ul><li>High transaction costs and institutional gaps. </li></ul></ul><ul><ul><li>Economies of size, scale, and scope. </li></ul></ul><ul><ul><li>Conglomerate power. </li></ul></ul><ul><ul><li>Internal capital market. </li></ul></ul><ul><ul><li>Permits - quotas, licenses. </li></ul></ul>
  89. 89. HOW DIVERSIFICATION REDUCES RISK? <ul><li>Consider a hypothetical planet, in which a given year is either under hot or cold wave, either of which is equally likely to prevail. Let us assume that there are two businesses constituting the entire market – coffee and ice-cream. If the hot wave dominates the planet, the ice-cream business would register a return of 30%, while the coffee business would register a return of 10%. If on the other hand, cold wave dominates the planet, ice-cream business would register a return of 10%, while the coffee business would register a return of 30%. What would be your diversification strategy? </li></ul>
  90. 90. SOLUTION <ul><li>If we invested in only one of the two companies, our expected return will be 20%, with a possible risk of 10%. If, we split our investment between the two companies 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. Diversification results in 20% expected return without risk, whereas investing in individual businesses was yielding an expected return of 20% with a risk factor of 10%. </li></ul>
  91. 91. WHAT GUIDES DIVERSIFICATION SUCCESS? <ul><li>The newly formed business should be consistent with the dominant logic of the group. Businesses which are not consistent are said to be opportunistic. Conclusion: Higher the strategic fit; better the performance. </li></ul><ul><li>The countermanding logic – </li></ul><ul><ul><li>Appropriate and timely response. </li></ul></ul><ul><ul><li>Better strategic and operational control. </li></ul></ul><ul><ul><li>Unlearning and learning of new skill sets. </li></ul></ul><ul><ul><li>Resource commitment from top management. </li></ul></ul><ul><ul><li>Development of capabilities & competencies. </li></ul></ul><ul><ul><li>Override the industry context. </li></ul></ul>
  92. 92. HORIZONTAL DIVERSIFICATION <ul><li>It takes place when a company enlarges its scope of operations by getting into businesses which provides a feeder services to its existing businesses (Eg. Reliance). On the other way existing business may recreate new businesses, which are distinct, but strategically related (Eg. Bajaj – scooters to motorcycles). </li></ul><ul><ul><li>It results in increasing market power. </li></ul></ul><ul><ul><li>Distinctive capabilities extended to other areas. </li></ul></ul><ul><ul><li>Resources can be shared for mutual benefit. </li></ul></ul><ul><ul><li>Reduces economic risk, because of differences in business cycles. </li></ul></ul>
  93. 93. HORIZONTAL DIVERSIFICATION - RELIANCE Reliance Industries Reliance Capital Reliance Power Reliance Infrastructure Reliance Ports
  94. 94. VERTICAL DIVERSIFICATION <ul><li>It allows a firm to enlarge its scale of operations either in a backward business process or in a forward one. Backward integration occurs when the company starts manufacturing its inputs. Advantages of backward integration – </li></ul><ul><ul><li>Cost competitiveness – entry barrier. </li></ul></ul><ul><ul><li>Better operational control – timely supplies, quality control, coordination – JIT. </li></ul></ul><ul><li>Disadvantages of backward integration – </li></ul><ul><ul><li>It may spark of a chain reaction. </li></ul></ul><ul><ul><li>High gestation (i.e. investment in fixed assets) </li></ul></ul>
  95. 95. VERTICAL DIVERSIFICATION - RELIANCE Textiles Polyester Filament Yarn Polyester Staple Fibre Purified tetra-pthalic acid Mono-ethylene glycol Paraxylene Naptha-cracking Oil & Gas exploration (PFY) (PSF) (PTA) (MEG) (PX) Acetic Acid
  96. 96. QUASI & TAPERED INTEGRATION <ul><li>Full Integration - Where one firm has full ownership and control over all the stages in the production of a product (Eg. Reliance) . </li></ul><ul><li>Quasi-integration - A firm gets most of its requirements from one or more outside suppliers that is under its partial ownership and control (Eg. Maruti – Sona Steering). </li></ul><ul><li>Tapered integration - A firm produces part of its own requirements and buys the rest from outside suppliers with a variable degree of ownership and control. Usually the firm concentrates on its core activities, and out-sources the non-core activities. </li></ul>
  97. 97. A CASE OF TAPERED INTEGRATION Very Critical Components Full Ownership Critical Components Partial Ownership Ordinary Components Zero Ownership Engine Transmission Design Steering Electricals Windscreen Seats & Carpets
  98. 98. CONGLOMERATE DIVERSIFICATION <ul><li>It relates to businesses which are distinct in terms of businesses as well as strategically unrelated. Companies usually engage in conglomerate diversification when industry characteristics are very attractive. Drawbacks of unrelated diversification – </li></ul><ul><ul><li>Cost of ignorance. </li></ul></ul><ul><ul><li>Cost of failure (i.e. lack of foresight) </li></ul></ul><ul><ul><li>Cost of neglect (i.e. core business). </li></ul></ul><ul><ul><li>Cost of dysynergy (i.e. synergies pulling in opposite directions). </li></ul></ul>
  99. 99. CONGLOMERATE DIVERSIFICATION - ITC Tobacco Paper & Packaging Food & Confectionary Edible Oils Hotels
  100. 100. DIVESTMENT <ul><li>Divestment is a defensive strategy involving the sale of a business (Eg. Bisleri) in full to an independent entity. It is usually taken into account when performance is disappointing and survival is at stake and nor does the firm have the resources to fend off competitive forces. It may also involve a product (Eg. Glaxo’s “Glucon-D” to Heinz) ; or an SBU (Eg. L&T -Cement Division to Aditya Birla Group) technically known as divestiture. </li></ul><ul><li>It is may also be a pro-active strategy , where a company simply exits because the business no longer contribute to or fit its dominant logic. (Eg. Tatas sale of Goodlass Nerolac, Tata Pharma, Tata Press, ACC). </li></ul>
  101. 101. DIVESTMENT - ROUTES <ul><ul><li>Outright Sale – Popularly known as the asset route; where 100% of the assets (including intangibles) are valued and paid for. (Eg. Sale of Diamond Beverages to Coca-Cola for US $ 40 million). </li></ul></ul><ul><ul><li>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 $ 11.3 billion, involving 608 pence per share). </li></ul></ul><ul><ul><li>Spin-Off – A spin off is the creation of a new entity; where the equity is allotted amongst the existing shareholders on a pro-rata basis. </li></ul></ul>
  102. 102. COMBINATION STRATEGY <ul><li>It is a mixture of stability, growth, and divestment strategies applied simultaneously or sequentially for a portfolio of businesses (i.e. business group). </li></ul><ul><li>It is usually pursued by a business group with diverse interests. </li></ul><ul><li>There can be no ideal strategy for every business. Because every business has its own unique business and economic cycle. </li></ul><ul><li>The most popular models used to determine corporate strategies for a business group – BCG Model, GE Matrix, Arthur’ D. Little, and Shell. </li></ul>
  103. 103. <ul><li>STRATEGY CHOICE </li></ul>
  104. 104. WHAT IS A BUSINESS GROUP? Parent Company Firm 1 Firm 2 Firm 3 Firm 4 Firm 5
  105. 105. BUSINESS GROUP - DEFINITION <ul><li>A business group is known by various names in various countries – guanxique in China, keiretsus in Japan, chaebols in Korea, business houses in India. They share some similar characteristics – </li></ul><ul><ul><li>Their origins can be traced back to market imperfections existing in an economy (MRTP Laws, Licenses & Quotas). </li></ul></ul><ul><ul><li>High degree of centralised control (GEO, BRC). </li></ul></ul><ul><ul><li>Resource sharing. </li></ul></ul><ul><ul><li>Formal and informal ties. </li></ul></ul>
  106. 106. BCG GROWTH MODEL Relative Market Share (%) Industry Growth (%) ? High High Low Low Stars Question Mark Cash Cow Dogs
  107. 107. BUSINESS ANALYSIS – TATA GROUP <ul><li>Stars – They have enormous potentials in the long term, provided the industry growth rate continues and the company is able to maintain its market-share (i.e. diversify). These businesses are net users of resources (Eg. TCS). </li></ul><ul><li>Question Marks – They have potentials in the long term, provided the company is able to build up on its market-share (i.e. market penetration, market development, product development), which remains a big? These businesses are also net users of resources, but their risk profile is higher than the stars (Eg. Trent, Tata Telecom). </li></ul>
  108. 108. BUSINESS ANALYSIS – TATA GROUP <ul><li>Cash Cow – These are matured businesses, and the company dominates the industry ahead of competition (i.e. stability). Given that the growth potential in the business is low, they are generators of resources. However, cash cows may also need to invest provided the industry takes an upswing (Eg. Tata Motors, Tata Chem, TISCO). </li></ul><ul><li>Dogs – They are a drag on the group, and they lack on competencies to take on competition and are basically cash traps (Eg. Nelco, Tata Pharma). Groups prefer to dispose such businesses (i.e. divest). </li></ul>
  109. 109. GE - MATRIX Industry Attractiveness Distinctive Capabilities Strong Medium Weak High Low Med Diversify (++) Intensify (+) Intensify(+) Stability Harvest(-) Divest (- -) Stability Stability Harvest(-)
  110. 110. ARTHUR’ D. LITTLE Invest Consolidate Industry Life-Cycle Competitive Position Growth Inception Maturity Decline Dominant Strong Favourable Tenable Weak Selective Abandon Niche Divest Harvest Hold Improve
  111. 111. SHELL – DIRECTIONAL POLICY MATRIX (DPM) Business Sector Prospects Distinctive Capabilities Attractive Average Unattractive Strong Average Weak Market Leadership Try Harder Double Or Quit Growth Custodial Expand Divest Phased Withdrawal Generate Cash Phased Withdrawal
  112. 112. STRATEGIC CHOICE – SUBJECTIVE FACTORS <ul><li>Commitment to past strategies - Inertia. </li></ul><ul><li>Attitude towards risk. </li></ul><ul><ul><li>Risk averse managers. </li></ul></ul><ul><ul><li>Risk prone managers. </li></ul></ul><ul><li>Degree of external dependence. </li></ul><ul><li>Internal political considerations. </li></ul><ul><li>Timing – Pressures, Frame, Horizon. </li></ul><ul><li>Corporate culture. </li></ul><ul><li>Competitive reactions. </li></ul><ul><li>Organisation structure. </li></ul>
  113. 113. STRATEGIC CHOICE – MACRO TIMING Depression (Stability) Recovery (Intensification) Prosperity (Diversification) Recession (Divestment)
  114. 114. STRATEGIC CHOICE – MICRO TIMING Inception - Stability Growth - Expansion Maturity - Diversification Decline - Divestment Duration (Yrs) Growth (%) Re-Engineering
  115. 115. <ul><li>COMPETITIVE STRATEGY </li></ul>
  116. 116. GENERIC STRATEGIES <ul><li>A generic strategy deals with how a firm competes in a particular business. The principal focus is on meeting competition, protecting market-share, and earning super-normal profits. </li></ul><ul><li>The strength of a firm in a particular business usually stems from its competitive advantage. Competitive advantage refers to a firms resources or activities in which it is way ahead of competition. </li></ul><ul><li>Such resources or activities should be distinctive and sustainable over time. </li></ul><ul><li>Firms usually build competitive advantage by initiating certain unique steps. </li></ul>
  117. 117. GENERIC STRATEGY - TYPES <ul><li>Cost Leadership – It is a strategy that focuses on making a firm more competitive by producing its products more cheaply than its competitors. </li></ul><ul><li>The firm may retain the benefits of cost advantage by enjoying higher margins (Eg. Reliance) or may pass it to customers to increase market-share (Eg. Nirma, Ayur, T-Series). Sources of cost advantage – </li></ul><ul><ul><li>Economies of size, backward integration. </li></ul></ul><ul><ul><li>Cutting project duration. </li></ul></ul><ul><ul><li>Locational advantage. </li></ul></ul><ul><ul><li>Early entry advantage. </li></ul></ul><ul><ul><li>Steep experience curve effects. </li></ul></ul>
  118. 118. GENERIC STRATEGY - TYPES <ul><li>Product Differentiation – It is a strategy that attempts to develop products and services that are differentiated from competitive products in terms of value proposition. Usually product differentiation is followed by premium prices. (Eg. Intel, CitiBank, Sony). Sources of product differentiation - </li></ul><ul><ul><li>High on brand loyalty. </li></ul></ul><ul><ul><li>Unique or package of features, services. </li></ul></ul><ul><ul><li>Investment in R&D, creativity & innovation. </li></ul></ul><ul><ul><li>Patents & Copyrights. </li></ul></ul><ul><ul><li>Market Penetration & Distribution Channels. </li></ul></ul><ul><ul><li>Undeterred attention to quality. </li></ul></ul>
  119. 119. GENERIC STRATEGY - TYPES <ul><li>Focus / Niche – It is a combination strategy of cost leadership or product differentiation targeting a specific market or buyer segment (Eg. Rolex, Mercedes, Mont-Blanc, Cartier, Gucci, Armani). Sources of focus – </li></ul><ul><ul><li>Brand image. </li></ul></ul><ul><ul><li>Matured customer base. </li></ul></ul><ul><ul><li>The customer takes pride in the product (i.e. sign of prestige, power, and status). </li></ul></ul><ul><ul><li>Pricing is a limited consideration. </li></ul></ul><ul><ul><li>Limited editions (i.e. planned supply constraint). </li></ul></ul><ul><ul><li>Avoiding brand dilution. </li></ul></ul>
  120. 120. PORTERS MODEL OF COMPETITIVE ADVANTAGE Competitive Advantage Competitive Scope Narrow Broad Cost Leadership Product Differentiation Cost Leadership (Toyota) Differentiation Focus (Mercedes) Cost Focus (Hyundai) Differentiation (General Motors)
  121. 121. EMERGING INDUSTRY <ul><li>Emerging Industry – An industry characterised by radical environmental changes, changing customer needs, technological innovations, ending in a different cost economics. Eg. Digital photography and printing. Reasons for emerging – </li></ul><ul><ul><li>High level of technological uncertainty. </li></ul></ul><ul><ul><li>High initial costs, followed by steep cost reduction. </li></ul></ul><ul><ul><li>First-time buyers. Eg. i-Phones. </li></ul></ul><ul><ul><li>Excessive turbulence in the environment. </li></ul></ul><ul><ul><li>Unknown customer and market profile. </li></ul></ul><ul><ul><li>Low penetration levels. </li></ul></ul>
  122. 122. GENERIC STRATEGY <ul><li>Rapid industry changes - strategic uncertainty. (Eg. Pricing in the telecom industry). </li></ul><ul><li>Shaping industry structure. </li></ul><ul><li>Be a market leader, not market follower. </li></ul><ul><li>Strictly differentiation, not standardisation. </li></ul><ul><li>Flexible supplier and distribution channels. </li></ul><ul><li>Shifting mobility barriers. </li></ul>
  123. 123. FRAGMENTED INDUSTRY <ul><li>Fragmented Industry – An industry where no firm has a significant market share. Reasons for fragmentation – </li></ul><ul><ul><li>Low entry barriers. Eg. Detergents. </li></ul></ul><ul><ul><li>Absence of economies of scale. Eg. Mineral Water. </li></ul></ul><ul><ul><li>High level of creative content. Eg. Advertising & Interior Designing. </li></ul></ul><ul><ul><li>Local regulations. Eg. MRTP. </li></ul></ul><ul><ul><li>Lack of bargaining power. Eg. Televisions. </li></ul></ul><ul><ul><li>Diverse customer needs. Eg. Blue Star. </li></ul></ul><ul><ul><li>High transportation costs. Eg. Cement, Fertiliser. </li></ul></ul>
  124. 124. GENERIC STRATEGY <ul><li>Conduct industry wide analysis. </li></ul><ul><li>Identify causes of fragmentation. </li></ul><ul><li>Look for ways to overcome fragmentation. </li></ul><ul><li>Assess consequences of overcoming fragmentation. </li></ul><ul><li>Locate a defendable position to take advantage of industry consolidation. </li></ul><ul><li>Primarily concentrate on differentiation, also focus on cost advantages. </li></ul>
  125. 125. MATURE INDUSTRY <ul><li>Mature Industry – An industry characterised by imperfect competition leading to saturation in growth rates. Eg. FMCG. Reasons for maturing – </li></ul><ul><ul><li>Cartel among existing players. </li></ul></ul><ul><ul><li>Creating entry barriers. </li></ul></ul><ul><ul><li>Lack of innovation. </li></ul></ul><ul><ul><li>Exhaustive networks. </li></ul></ul><ul><ul><li>Increased exposure in working capital. </li></ul></ul><ul><ul><li>Experience curve effects. </li></ul></ul><ul><ul><li>International competition. Eg. Dumping. </li></ul></ul>
  126. 126. GENERIC STRATEGY <ul><li>Sophisticated cost analysis and correct pricing. </li></ul><ul><li>Process innovation and efficient designing. </li></ul><ul><li>Rationalising the product mix. </li></ul><ul><li>Increasing scope of existing customers. </li></ul><ul><li>Buy distressed companies. </li></ul><ul><li>Move beyond geographical boundaries. </li></ul><ul><li>Cost and service main basis of competition. </li></ul>
  127. 127. DECLINING STRATEGY <ul><li>Declining Industry – An industry which has outlived its utility due to the entry of substitutes which radically improves the cost-benefit relationship, with no sign of recovery. Eg. Typewriters. Reasons for decline – </li></ul><ul><ul><li>Slow to react to environmental changes. </li></ul></ul><ul><ul><li>Adverse to investment in R&D. </li></ul></ul><ul><ul><li>High exit barriers. </li></ul></ul><ul><ul><li>Corporate espionage. </li></ul></ul><ul><ul><li>Costly price wars. </li></ul></ul><ul><ul><li>Not inducive for fresh investment. </li></ul></ul>
  128. 128. GENERIC STRATEGY <ul><li>Leadership through takeovers and mergers. </li></ul><ul><li>Identifying a niche sub-segment. </li></ul><ul><li>Harvesting – </li></ul><ul><ul><li>Stop to fresh CAPEX. </li></ul></ul><ul><ul><li>Curtailing working capital exposure. </li></ul></ul><ul><ul><li>Minimising adhoc expenditures. </li></ul></ul><ul><ul><li>Maintain a skeleton structure. </li></ul></ul><ul><ul><li>Reducing product diversity. </li></ul></ul><ul><ul><li>Curtailing distribution channels. </li></ul></ul><ul><li>Early divestment – Sell early before it becomes dead-wood. </li></ul>
  129. 129. <ul><li>COMPETITIVE ADVANTAGE </li></ul>
  130. 130. COMPETITIVE ADVANTAGE <ul><li>Strategy drives competitive advantage; competitive advantage is the back-bone of any strategy. </li></ul><ul><li>For a competitive advantage to sustain over time, it should be of a higher order in relation to competition (i.e. inimitable, sustainable). </li></ul><ul><li>A durable and higher order competitive advantage in turn rests on some fundamental and enduring strengths, which is unique to the firm. </li></ul><ul><li>Such distinct sources of competitive advantage are referred to as core competencies. (Eg. miniaturisation abilities of Sony, engine designing abilities of Honda). </li></ul>
  131. 131. HOW TO DEVELOP COMPETITIVE ADVANTAGE? <ul><li>Building competitive advantage is the task of the top management – Identify KSF’s. </li></ul><ul><li>Internal appraisal and competition analysis helps identify competitive advantage. </li></ul><ul><li>Benchmarking – Internal, Functional, Competitive, Generic. </li></ul><ul><li>Value chain will be great of use in identifying and building competitive advantage. </li></ul><ul><li>Building competitive advantage is a conscious long term process. </li></ul>
  132. 132. UNDERSTANDING VALUE CHAIN <ul><li>A value chain segregates a firm into strategically relevant activities to understand its cost behaviour. </li></ul><ul><li>Competitive advantage arises by performing these activities efficiently and differently. </li></ul><ul><li>The sustainability of the value chain depends on the degree of fit between the activities. </li></ul><ul><li>Value chain significantly influences the competitive scope. How it can be leveraged? </li></ul><ul><ul><li>Segment Scope </li></ul></ul><ul><ul><li>Industry Scope </li></ul></ul><ul><ul><li>Vertical Scope </li></ul></ul><ul><ul><li>Geographical Scope </li></ul></ul>
  133. 133. VALUE-CHAIN ANALYSIS Support Primary Human Resource Management Infrastructure Technology Development Procurement In Logistics Operations Out Logistics Mktg & Sales Service Competitive Advantage
  134. 134. STRATEGIC FIT – THE PORTER WAY <ul><li>Fit is important because discrete activities result in negative synergy. </li></ul><ul><ul><li>First order fit refers to simple consistency between each activity and the overall strategy. </li></ul></ul><ul><ul><li>Second order fit occurs when activities are reinforcing. </li></ul></ul><ul><ul><li>Third order fit refers to optimisation of effort. </li></ul></ul><ul><li>Competitive advantage arises from a fit across the entire system of activities. </li></ul>
  135. 135. CORE COMPETENCE <ul><li>A core competence represents a fundamental, unique and inimitable strength that – </li></ul><ul><ul><li>Cannot be replicated / substituted even by its closest competitors. </li></ul></ul><ul><ul><li>Contributes significantly to customer benefits. </li></ul></ul><ul><ul><li>Can be leveraged across a wide range of businesses. </li></ul></ul><ul><ul><li>Can be sustained even in the long run. </li></ul></ul><ul><li>A core competence generally has its roots in technology. </li></ul><ul><li>Core competence implies stretching and leveraging of resources and not outspending in R&D. </li></ul>Also Refer Slide: 266-268
  136. 136. COMPETITIVE ADVANTAGE - CORE COMPETENCE <ul><li>A competitive advantage does not necessarily imply a core competence; a core competence always implies a competitive advantage. </li></ul><ul><li>A competitive advantage may lead to superior performance, a core competence usually does. </li></ul><ul><li>A competitive advantage manifests from a function; a core competence has its roots in products or businesses. </li></ul><ul><li>A competitive advantage is sustainable in the short-medium term; a core competence is sustainable even the long-term. </li></ul>
  137. 137. GAME THEORY <ul><li>The game theory was developed in 1944 by Oscar Morgenstern. Subsequent work on game theory by John Nash led to him to a Nobel prize in 1994 . </li></ul><ul><li>A game is a contest involving two or more players, each of whom wants to win. In a game ( similar to a business ) one players win is always another's loss. This is known as a zero sum . </li></ul><ul><li>Here the magnitude of gain offsets the magnitude of loss equally. </li></ul><ul><li>However, the stringent assumptions of game theory and difficulty in ascertaining of pay-offs makes game theory application difficult in business. </li></ul>
  138. 138. BIASED AND UNBIASED GAME <ul><li>A game is said to be biased when one of the players have a disproportionate chance of winning. </li></ul>Use Radio +2 Firm Y’s Strategy Firm X’s Strategy Use Radio Use Newspaper Use Newspaper Firm X’s Pay-Off Matrix +6 +7 -4
  139. 139. PURE STRATEGY GAME <ul><li>In a pure strategy game, the strategy each player follows will always be the same regardless of the other players strategy. A saddle point is a situation where both the players are facing pure strategies. </li></ul>Use Radio Use Newspaper Firm Y’s Strategy Use Radio Use Newspaper Firm X’s Strategy +3 +5 +1 -2 Firm X’s Pay-Off Matrix Saddle Point
  140. 140. <ul><li>BLUE OCEAN STRATEGY </li></ul>
  141. 141. TWO WORLDS - MARKETSPACE
  142. 142. WHAT IS RED OCEAN? <ul><li>Companies have long engaged in head-to-head competition in search of sustained, profitable growth. They have fought for profits, battled over market-share, and struggled for differentiation. </li></ul><ul><li>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. </li></ul>
  143. 143. WHAT IS BLUE OCEAN? <ul><li>Tomorrow’s leading companies will succeed not by battling competitors, but by creating blue oceans of uncontested market space ripe for growth . Such strategic moves - termed value innovation - create powerful leaps in value for both the firm and its buyers, rendering rivals obsolete and unleashing new demand. </li></ul><ul><li>Blue Ocean Strategy provides a systematic approach to making the competition irrelevant, by creating uncontested marketplace………… </li></ul>
  144. 144. RED OCEAN Vs BLUE OCEAN Compete in existing markets Beat the competition Exploit existing demand Make the value cost tradeoff Supply is the defining variable Compete in uncontested markets Make the competition irrelevant Create and capture demand Break the value cost tradeoff Demand is the defining variable
  145. 145. RECONSTRUCT MARKET BOUNDARIES Issues Structures Reactive Time/Trends Improving Value Orientation Forecast Scope Serving Buyer Group Short - Medium Competitiveness Within Industry Proactive Shifting Value Dream Redefining Long Beyond
  146. 146. BLUE OCEAN STRATEGY - IMPERATIVES <ul><li>Globalisation. </li></ul><ul><li>Supply exceeding demand. </li></ul><ul><li>Accelerated product life-cycles and obsolescence. </li></ul><ul><li>Commodification of products. </li></ul><ul><li>Learning curves getting saturated. </li></ul><ul><li>Branding becoming more and more difficult. </li></ul><ul><li>Increasing price-wars. </li></ul><ul><li>Shrinking profit margins. </li></ul><ul><li>Efficiency and effectiveness reaching a plateau </li></ul>
  147. 147. BLUE OCEAN STRATEGY <ul><li>Examining a wide range of strategic moves across a host of industries, Blue Ocean Strategy highlights the six principles that every company can use to successfully formulate and execute blue ocean strategies. </li></ul><ul><li>The six principles show how to reconstruct market boundaries - focus on the big picture - reach beyond existing demand - get the strategic sequence right - overcome organizational hurdles - and build execution into strategy. </li></ul>
  148. 148. THE CORE PRINCIPLES Reconstruct market boundaries … overcome beliefs . Reach beyond existing demand … go for uncontested space. Get the strategic sequence right … value (innovation) first . VI COST VALUE
  149. 149. VALUE INNOVATION – GREENER PASTURES A new value curve Reduce Eliminate Create Raise Which factors to be reduced below the industry standard Which of the industry factors that the industry takes for granted should be eliminated Which of the factors should be raised above the industry’s standard Which factors should be created that the industry has not offered
  150. 150. REACH BEYOND EXISTING DEMAND Core Customer Non Costumer Soon-to-be-NC Refusing Customer
  151. 151. RISK IN BLUE OCEAN Search Risk Planning Risk Scale Risk Business Model Risk Organizational Risk Management Risk Formulation Risks Execution Risks Reconstruct market boundaries Focus on the big picture Reach beyond existing demand Get the strategy sequence right Formulation Principles Execution Principles Overcome key hurdles Motivation
  152. 152. BLUE OCEAN STRATEGY SEQUENCE Buyer Utility Is there exceptional buyer utility in your business idea? Price Is your price easily accessible to the mass of buyers? Cost Can you attain your cost target to profit at your strategic price? Adoption What are the adoption hurdles in actualizing your business idea? Are you addressing them up front? A Commercially Viable Blue Ocean Strategy
  153. 153. <ul><li>STRATEGY </li></ul><ul><li>IMPLEMENTATION </li></ul>
  154. 154. STRATEGY IMPLEMENTATION <ul><li>It relates to transforming strategy formulations into practices. Performance realisation of a strategy depends on the effort behind it to move it forward. Successful implementation depends on the appropriateness of the strategy. It requires – </li></ul><ul><ul><li>Strategy activation. </li></ul></ul><ul><ul><li>Full commitment of the top management. </li></ul></ul><ul><ul><li>Optimum resource allocation; including its stretching and leveraging. </li></ul></ul><ul><ul><li>Proactive leadership and motivating employees. </li></ul></ul><ul><ul><li>Compatible organisation structure. </li></ul></ul><ul><ul><li>Strategic evaluation and control. </li></ul></ul>
  155. 155. STRATEGY IMPLEMENTATION - ROUTES Organic Growth Mergers & Acquisition Take Overs Joint Venture Strategic Alliance Strategic Fit - High Strategic Fit - Low
  156. 156. ORGANIC GROWTH <ul><li>Here a corporate builds up its facilities right from the scratch and continues without any external participation. The entire infra-structural facilities are set up afresh having its own gestation, i.e. green-field projects. (Eg. Reliance Industries). </li></ul><ul><ul><li>It has complete control over inputs, technologies, and markets. </li></ul></ul><ul><ul><li>Govt. concessions are available for green-field projects. (Eg. SEZ’s, Tax holidays). </li></ul></ul><ul><ul><li>Long gestation leads to delayed market entry. </li></ul></ul><ul><ul><li>Risk of cost and time overruns. </li></ul></ul><ul><ul><li>Develop competencies. </li></ul></ul>
  157. 157. STRATEGIC ALLIANCE <ul><li>It involves a pro-active collaboration between two companies on a particular domain or function. It touches upon a limited aspects of a particular business. Alliances are usually in the areas of technologies or marketing . ( Eg. Reliance & DuPont; Tata Motors & Fiat ). </li></ul><ul><ul><li>There is no funding or equity participation. </li></ul></ul><ul><ul><li>Both the companies continue to operate independently. </li></ul></ul><ul><ul><li>It is short-term; lacks committment. </li></ul></ul><ul><ul><li>It intends to do away with competition by joining a common platform (i.e. capabilities). </li></ul></ul>
  158. 158. JOINT VENTURES <ul><li>A joint venture involves a equity participation between two companies usually of similar intent in a particular business. It is a win-win situation for both the companies. (Eg. DSP Financial Vs Merrill Lynch). </li></ul><ul><ul><li>For a joint venture to be successful the dominant logic of both the companies should match. </li></ul></ul><ul><ul><li>Selecting the right partner is critical for success. </li></ul></ul><ul><ul><li>A comprehensive MOU is essential. </li></ul></ul><ul><ul><li>Degree and extent of management control must be clearly laid down. </li></ul></ul><ul><ul><li>Significant linkages in value-chain. </li></ul></ul>
  159. 159. MERGERS & ACQUISITION <ul><li>It refers to the fusion of two or more companies into a single entity. Size and synergy are the two main considerations in mergers; it strengthens overall competitiveness. (Eg. Brooke Bond Vs Lipton - HUL) </li></ul><ul><ul><li>Economies in scale and scope through larger capacities. </li></ul></ul><ul><ul><li>Integrated distribution channel leads to better market penetration ( i.e. synergy ). </li></ul></ul><ul><ul><li>Integration of assets and other financial resources. </li></ul></ul><ul><ul><li>Revival of a sick-unit through better management practices. </li></ul></ul><ul><ul><li>Humane side should be handled properly ( i.e. structure ). </li></ul></ul>
  160. 160. TAKE OVERS <ul><li>It refers to the acquisition of significant management control by buying out a majority stake in the equity of the company (Eg. TISCO Vs Corus). </li></ul><ul><ul><li>A company seeking to acquire control has to inform SEBI and make a public offer of not less than 20% of the balance equity (Also Refer Slide: 231) . </li></ul></ul><ul><ul><li>Hostile takeover. </li></ul></ul><ul><ul><li>Instant access to capacities and markets. </li></ul></ul><ul><ul><li>Integration of organisation cultures becomes a difficult exercise. </li></ul></ul><ul><ul><li>Geographical spread. </li></ul></ul><ul><ul><li>Consolidation in a fragmented industry. </li></ul></ul>
  161. 161. RESOURCE ALLOCATION <ul><li>Resources include physical resources (Eg. land, labour, machines), intangible resources (Eg. brands, patents), and distinctive capabilities and competencies. The various methods of resource allocation includes – </li></ul><ul><ul><li>Historical Budget – The budgets framed by SBU heads for a particular business keeping in mind past trends. </li></ul></ul><ul><ul><li>Zero Based Budget – In this case the budget of a SBU has to worked out from the scratch. </li></ul></ul><ul><ul><li>Performance Budget – Here the act of allocation is a function of the performance of the SBU. </li></ul></ul>
  162. 162. STRATEGY & STRUCTURE <ul><li>An appropriate organisation structure is essential to implement strategies and achieve stated goals. It refers to the ways authority and responsibility is allocated to individuals and groups. The following considerations are to be kept in mind – </li></ul><ul><ul><li>Size – An organisation grows steeper its size increases. </li></ul></ul><ul><ul><li>Complexity – An organisation grows flatter as its business process complexity increases. </li></ul></ul><ul><ul><li>People – An organisation grows flatter as people become more matured. </li></ul></ul><ul><ul><li>Technology – An organisation grows flatter as it becomes more technology inducive. </li></ul></ul>
  163. 163. TYPES OF STRUCTURES <ul><li>Functional Structure – Activities grouped together by a common function. </li></ul><ul><li>Divisional Structure – Units grouped together in terms of products and divisions. </li></ul><ul><li>Strategic Business Units – Businesses segregated in terms of distinct strategies. </li></ul><ul><li>Project / Matrix Structure – A team formed for the completion of a particular project; with team members having dual line of control. </li></ul><ul><li>Team Structure – An informal group formed for a crisis, based on skills and competencies. </li></ul><ul><li>Virtual Structure – A boundaryless organisation. </li></ul>
  164. 164. MOTIVATION & LEADERSHIP <ul><li>To bring about change and to implement strategies successfully, companies depend on transformational leaders. </li></ul><ul><ul><li>Design a well crafted and designed strategic intent of the organisation. </li></ul></ul><ul><ul><li>Pragmatism is the ability to make things happen and achieve positive results. </li></ul></ul><ul><ul><li>He should be an agent of change. </li></ul></ul><ul><ul><li>Install a system of shared beliefs and values. </li></ul></ul><ul><ul><li>Shift from compliance to commitment. </li></ul></ul><ul><ul><li>Bring about transparency. </li></ul></ul>
  165. 165. THE STRATEGIC FIT – 7S <ul><li>Shared Values – It represents the dominant logic of the top management. </li></ul><ul><li>Strategy – A trade-off aimed at gaining competitive advantage. </li></ul><ul><li>Structure – An organisation chart that represents how tasks are divided and integrated. </li></ul><ul><li>Style – The way in which the top management influences the functioning of an organisation. </li></ul><ul><li>Systems – It represents the flow of activities. </li></ul><ul><li>Staff – The basic values and beliefs of employees. </li></ul><ul><li>Skills – An organisations capabilities and competencies. </li></ul>
  166. 166. MC KINSEY 7-S FRAMEWORK: TOM PETERS 1 st Order Fit 2 nd Order Fit 3 rd Order Fit Shared Values Skills Structure Strategy Systems Staff Style
  167. 167. FUNCTIONAL STRATEGIES <ul><li>A functional strategy aims at performing a function differently from its closest competitors. Linkages occur in any one or more functional area. However, sustainability of functional strategies are very low. It involves - </li></ul><ul><ul><li>The strategic choices are smoothly implemented across all divisions. </li></ul></ul><ul><ul><li>The various divisions are bound by a set of integrated policies. </li></ul></ul><ul><ul><li>Better coordination of work flow at various levels of hierarchy. </li></ul></ul><ul><ul><li>Reduces friction, induces synergy. </li></ul></ul>
  168. 168. MARKETING STRATEGIES <ul><li>Segmentation – It involves dividing the market into distinct groups of buyers on the the basis of income, location, benefits, age, psychographic. It can be differentiated, undifferentiated or concentrated ( Eg. Ujala, Colorplus, Sumeet ). </li></ul><ul><li>Positioning – It is an act of designing the company’s offerings and image to the target market, to portray the company’s standing vis-à-vis its competitors, USP. </li></ul><ul><li>Pricing – It involves determining the price to be paid by the consumer in relation to costs, demand, taxes, and competition. </li></ul><ul><li>Distribution – It concerns specific objectives in terms of market coverage. </li></ul>
  169. 169. FINANCE STRATEGIES <ul><li>Procurement of Funds – It ensures adequate and regular supply of capital at a competitive cost of capital. ( Eg. The Tatas enjoy one of the lowest cost of debt by virtue of the immense trust their name generates ). It involves fixed as well as working capital through a mix of debt and equity. </li></ul><ul><li>Utilisation of Funds – It involves applying various discounting criteria to appraise, rank and select projects in order of their merit. It also includes decisions like make, buy or lease. ( Eg. When Reliance selects a project, they saturate it with resources as much it can absorb. For them time lost is more important than costs ). </li></ul>
  170. 170. HR STRATEGIES <ul><li>Recruitment – It is a process of creating an challenging environment to link the best people with the jobs to be filled ( Eg. Infosys ). </li></ul><ul><li>Selection – It is the process of picking the right people to fill up jobs in an organisation. Sometimes it is also a process of elimination. ( Eg. Aptitude & Psychometric Tests ). </li></ul><ul><li>Placement – The broad objective is to put the right person in the right job. For mid-level placements experiences relating to previous organisation cultures is an important criteria. ( Eg. Learning & unlearning of skills ). </li></ul>
  171. 171. STRATEGIC CHANGE Market Imperfection Industry & Group Characteristics Dominant Logic Strategy A major shift in the company’s course of action. Prior to 1990 Post 1990
  172. 172. MANAGING STRATEGIC CHANGE - INERTIA <ul><li>When a corporate has been operating in a certain fashion for a long time, there is a tendency to continue along the same lines. Inertia is a basic characteristic of an organisation that endures status quo. It is retards the process of strategic change. Changes in top management and unlearning helps overcome inertia. Sources of inertia – </li></ul><ul><ul><li>Complacency with past successes. </li></ul></ul><ul><ul><li>Paradigms & conventional beliefs. </li></ul></ul><ul><ul><li>Pattern recognition processes. </li></ul></ul><ul><ul><li>Reliance based on limited heuristics. </li></ul></ul>
  173. 173. STRATEGY EVALUATION <ul><li>Strategy evaluation centers around assessment of strategic fit. Since the internal and external environment is in a state of continuous flux, strategies need to be evaluated on a continuous basis to prevent deviations of fit. </li></ul><ul><li>Deviation of fit is detrimental to performance. </li></ul><ul><li>To prevent deviation of fit, corporates should move beyond traditional measures of performance (i.e. Returns, EPS, Margins) to strategic performance. </li></ul><ul><li>Strategic performance focuses on market share, implementation delays, response time. </li></ul>
  174. 174. STRATEGY CONTROL <ul><li>It is concerned with trafficking a strategy as it is being implemented detecting changes in the external and internal environment and taking corrective action wherever necessary. (Eg. Reliance Infocomm’s pricing strategy). It attempts to answer questions such as – </li></ul><ul><ul><li>Are the organisations capabilities still holding good? </li></ul></ul><ul><ul><li>Is the strategic intent appropriate to the changing context? </li></ul></ul><ul><ul><li>Has the company acquired any new competency? </li></ul></ul><ul><ul><li>Has the company been able to overcome the environmental threats. </li></ul></ul><ul><ul><li>Are competitive advantages becoming competitive disadvantages? </li></ul></ul>
  175. 175. IMPLEMENTING STRATEGY CONTROL <ul><li>It involves steering towards the company’s original course of action. </li></ul><ul><ul><li>Premise Control – Checking the validity of the assumptions on which a strategy is based. However, checking every premise is costly as well as difficult. </li></ul></ul><ul><ul><li>Implementation Control – It aims at assessing whether key activities are proceeding as per schedule. It involves assessing – strategic thrusts and milestones. </li></ul></ul><ul><ul><li>Special Alert Control – It intends to uncover unanticipated information having critical impact on strategies. It is open-ended as well as unfocussed. </li></ul></ul>
  176. 176. <ul><li>MANAGEMENT TOOLS </li></ul><ul><li>IN STRATEGY </li></ul>
  177. 177. WHY MANAGEMENT TOOLS? <ul><li>Change is becoming pertinent in the external environment. Radical change is superseding incremental change. The past is ceasing to be an indication of the future. Change provides enormous opportunities; it is also a source of potential threat. Companies therefore need to adapt to the environment to stay ahead in competition. Some tools to ensure that – </li></ul><ul><ul><li>Benchmarking – Adopt certain best practices. </li></ul></ul><ul><ul><li>Reengineering – Redesigning work processes. </li></ul></ul><ul><ul><li>TQM – Doing the right thing the first time. </li></ul></ul><ul><ul><li>Balanced Scorecard – Tracking strategy. </li></ul></ul>
  178. 178. BENCHMARKING <ul><li>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. </li></ul><ul><li>These exemplary practices involves the stakeholders of the company and helps achieve its strategic intent. </li></ul><ul><li>Best practices centers around looking at a different way to satisfy various stakeholders. </li></ul><ul><li>Benchmarking involves the identification , understanding and adapting of certain best practices and implementing them to enhance performance. </li></ul>
  179. 179. SOME BEST PRACTICES <ul><li>Dell: Customised configuration of computers. </li></ul><ul><li>Caterpillar: 48 hours delivery. </li></ul><ul><li>Axis Bank: Priority banking services. </li></ul><ul><li>Maruti: Certified “true value” cars. </li></ul><ul><li>Microsoft: ESOP to employees. </li></ul><ul><li>Infosys: Video conferencing potential employees. </li></ul><ul><li>TCS: Referencing potential employees. </li></ul><ul><li>ITC: Shareholders factory visit. </li></ul><ul><li>AmEx: Outsourcing data mining. </li></ul><ul><li>MARG: Set-top box to understand viewing patterns. </li></ul><ul><li>Honda: CEO’s visit to dealers. </li></ul>
  180. 180. WHAT TO BENCHMARK? <ul><li>Functional – Used by companies to improve a particular management activity. Eg. Motorola learnt delivery scheduling from Domino’s. </li></ul><ul><li>Process – Improving specific key processes and operations from experiences in similar businesses. Eg. Ford adopting assembly lay-out plan of Toyota. </li></ul><ul><li>Competitive – It involves assessing the sources of competitive advantage and imitating them. Eg. Samsung leveraging miniaturisation skills of Sony. </li></ul><ul><li>Strategic – It involves assessing business models and replicating them. Eg. Reliance replicating AT&T business model. </li></ul>
  181. 181. HOW TO BENCHMARK? APPROACHES <ul><li>Phase 1: Planning </li></ul><ul><ul><li>What to benchmark? </li></ul></ul><ul><ul><li>Whom to benchmark? </li></ul></ul><ul><ul><li>Identify key performance indicators. </li></ul></ul><ul><ul><li>Data source. </li></ul></ul><ul><li>Phase 2: Analysis </li></ul><ul><ul><li>Assessment of performance gaps. </li></ul></ul><ul><ul><li>Predict future performance levels. </li></ul></ul><ul><li>Phase 3: Integration </li></ul><ul><ul><li>Communicate findings and gain acceptance. </li></ul></ul><ul><ul><li>Establish functional goals and implementation plans. </li></ul></ul>
  182. 182. HOW TO BENCHMARK? <ul><li>Phase 4: Action </li></ul><ul><ul><li>Implement and monitor progress. </li></ul></ul><ul><ul><li>Measure results against stakeholder wants and needs. </li></ul></ul><ul><ul><li>Recalibrate benchmarks. </li></ul></ul>
  183. 183. WHOM TO BENCHMARK? <ul><li>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 unrelated industries. Types – </li></ul><ul><ul><li>Internal – It involves benchmarking against its own branches, divisions, SBU’s. </li></ul></ul><ul><ul><li>External – It involves benchmarking against firms that succeeded on account of their best practices. </li></ul></ul><ul><ul><li>International - It involves benchmarking against world-class firms. </li></ul></ul>
  184. 184. BENCHMARKING - ADVANTAGES <ul><li>Finding better ways of meeting stakeholder needs. </li></ul><ul><li>Establishing goals based on formal assessment of external conditions. </li></ul><ul><li>Defining effective measure of indicators. </li></ul><ul><li>Ensuring a learning organisation. </li></ul><ul><li>Reducing competitive disadvantage. </li></ul><ul><li>Organisational turnaround. </li></ul>
  185. 185. BENCHMARKING - LIMITATIONS <ul><li>More and more companies benchmark, the more similar they end up looking. While strategy is all about differentiation. </li></ul><ul><li>Benchmarking is useful for bringing about operational efficiency; but it cannot be used as a strategic decision making tool. It can at best complement it. </li></ul><ul><li>Strategy is more of creating best practices rather than copying them. </li></ul><ul><li>Benchmarking merely reorients profits in the hands of few to profits in the hands in the hands of many (i.e. clustering) . It does not shifts the growth trajectory of the industry as a whole. </li></ul>
  186. 186. RE-ENGINEERING <ul><li>Redesigning leads to identification of superfluous activities and eliminating them (i.e. business mapping, Eg. single window clearance). </li></ul><ul><li>Re-engineering attempts to radically change an organisational products or process by challenging the basic assumptions surrounding it, for achieving performance improvement (Eg. DOS to Windows) </li></ul><ul><li>Re-engineering involves complete reconstruction and overhauling of job descriptions from the scratch (i.e. clean sheet). </li></ul><ul><li>The task demands a total change in organisational culture and mindset. </li></ul>
  187. 187. REENGINEERING – KEY TENETS Ambition Focus Attitude Enabler Performance Large scale improvement by questioning basic assumptions about how work is done Micro Vs Macro Business Processes Vs Organisational Processes Starting right from the scratch Not historical More IT driven, than people driven Innovative Vs Traditional Customer centric Vs Organisational centric
  188. 188. REENGINEERING - LEVELS <ul><li>Reengineering can be successfully leveraged at all levels of an organisation with varying degree of results. It can be of the following types – </li></ul><ul><ul><li>Functional – It looks into the flow of operations (i.e. structures, processes, etc) and supports the organisation for the present. </li></ul></ul><ul><ul><li>Business – It looks into markets, customers and suppliers and protects the organisation from the future (i.e. BPR) . </li></ul></ul><ul><ul><li>Strategic – It looks into the process of strategic planning, resource allocation and prepares the organisation for the future (i.e. Proactive Vs Reactive) . </li></ul></ul>
  189. 189. REVERSE ENGINEERING <ul><li>It is a process by which a product is dismantled and analysed in order to understand how the product was designed and manufactured, with an intention to copy it (Eg. Cheaper versions of Intel chips and mother-boards manufactured in Taiwan). </li></ul><ul><li>It generally acts as a threat to innovation. However, protection against RE can be had in the following ways – </li></ul><ul><ul><li>Early entry advantages. </li></ul></ul><ul><ul><li>High cost and time acts as a deterrent. </li></ul></ul><ul><ul><li>Patenting. </li></ul></ul><ul><ul><li>Causal Ambiguity. </li></ul></ul>
  190. 190. STAGES IN REVERSE ENGINEERING <ul><li>Awareness – Recognising whether the product is found to be worth the time, cost and effort necessary for the purpose of reverse engineering. </li></ul><ul><li>Actualisation – Obtaining and dismantling of the product to assess how it functions. </li></ul><ul><li>Implementation – Developing of a prototype, designing facilities, machine tools to convert ideas into a marketable product (i.e. nano-technology). </li></ul><ul><li>Introduction – Launching the product in the market. Usually in such cases segmentation and pricing is different from the original innovator. </li></ul>
  191. 191. WHAT IS QUALITY? <ul><li>It involves the totality of a product or service to meet certain stated or implied needs. It has the following dimensions (Eg. Car) – </li></ul><ul><ul><li>Performance – Mileage of 14 kms to a litre of fuel. </li></ul></ul><ul><ul><li>Features – Anti-lock braking systems, Air bags. </li></ul></ul><ul><ul><li>Reliability – Consistency in mileage. </li></ul></ul><ul><ul><li>Conformance – Preset standards - BIS. </li></ul></ul><ul><ul><li>Durability – 1980 manufactured cars still on road. </li></ul></ul><ul><ul><li>Serviceability – Large no. of service stations. </li></ul></ul><ul><ul><li>Aesthetics – Appeal in design. </li></ul></ul><ul><ul><li>Perception – Customer notions. </li></ul></ul>
  192. 192. TOTAL QUALITY MANAGEMENT <ul><li>Objective – Management of quality ensures zero defect products, reduces time and cost of reworking and ensures good market standing. </li></ul><ul><li>Management of quality was traditionally inspect it - fix it in nature, touching upon a limited aspect of a production process. It had little impact on improving productivity. </li></ul><ul><li>TQM is a way of creating an organisation culture committed to the continuous improvement of work processes – Deming . </li></ul><ul><li>It is deeply embedded as an aspect of organisational life. </li></ul>
  193. 193. TQM – KEY TENETS <ul><li>Do it right the first time – From reactively fixing products to proactively preventing it. </li></ul><ul><li>Be customer centered – Generate the concept of - internal customer. </li></ul><ul><li>Kaizen – Make continuous improvement a way of life. Looking at quality as an endless journey; not a final destination. </li></ul><ul><li>Empowerment – It takes place when employees are properly trained, provided with all relevant information and best possible tools, fully involved in decision-making and fairly rewarded for results. </li></ul>
  194. 194. TQM - TECHNIQUES <ul><li>Outsourcing – It is the process of self-contracting services and operations which are routine and mundane, enabling the firm to concentrate on core activities. </li></ul><ul><li>Quality Circles – It a small group of shop-floor employees who meet periodically to take decisions regarding operational problems and crises, saving precious top management time. </li></ul><ul><li>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. of units meet preset standards (Eg. 6-Sigma). </li></ul>
  195. 195. BALANCED SCORE CARD <ul><li>Some interesting comments ......... </li></ul><ul><ul><li>Efficiency and effectiveness is passé, strategy implementation has never been more important. </li></ul></ul><ul><ul><li>Less than 10% of strategies effectively formulated are effectively executed. </li></ul></ul><ul><ul><li>In the majority of failures – we estimate 70% – the real problem isn’t (bad strategy) ..... it’s bad execution. </li></ul></ul>Source: Fortune Magazine Why CEO’s fail?
  196. 196. BARRIERS TO STRATEGY EXECUTION <ul><li>Vision and strategy not actionable – Utopian ideas, difficult to translate into practice. </li></ul><ul><li>Strategy not linked with goals and objectives – Lack of coordination leading to negative synergy. </li></ul><ul><li>Strategy not linked to resource allocation – Lacking commitment of top management. </li></ul><ul><li>Performance measures are defective – What to evaluate against? How to measure the construct? </li></ul>
  197. 197. BSC - CONCEPTUALISATION <ul><li>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 (Eg. ROI, OPM, EPS) because they are well tried and tested. </li></ul><ul><li>All the above measures are subject to lead-lag problems (i.e. poor response time). </li></ul><ul><li>As a result modern managers tend to rely on strategic measures of performance where lead-lag is minimum (Eg. cycle time, defect ratio, market-share, patents). </li></ul><ul><li>BSC combines the traditional with strategic measures of performance (i.e. cross functional integration). </li></ul>
  198. 198. BSC – KAPLAN & NORTON (1992) <ul><li>Firms more often have problems , because they have too many . At the very onset managers must learn to distinguish between operational and strategic ones. </li></ul><ul><li>A BSC helps a manager to track and communicate the different elements of company’s strategy. It has four dimensions – </li></ul><ul><ul><li>How do customers see us? </li></ul></ul><ul><ul><li>What must we excel at? </li></ul></ul><ul><ul><li>Can we continue to improve and create value? </li></ul></ul><ul><ul><li>How do we look to shareholders? </li></ul></ul><ul><li>The authors view that performance is organisational and not people centric. </li></ul>
  199. 199. 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.e. ageing schedule) % of key customer transactions Ranking of key customer accounts No. of visits or calls made % of bad debts
  200. 200. BUSINESS PERSPECTIVE GOALS Skills Excellence Exposure Introduction MEASURES New capabilities and competencies Implementation & gestation period Bank and supplier credit limits Unit Costs / Conversion Ratio / Defect Ratio No. of times covered in media No. of new product launches Vs competition Product pricing Vs competition
  201. 201. LEARNING PERSPECTIVE GOALS Technology Manufacturing Focus Timing MEASURES No. of new patents registered Time to develop next generation products Average and spread in cycle time % of products that equal 2/3 sales No. of product innovations
  202. 202. FINANCIAL PERSPECTIVE GOALS Survival Success Prosper Valuation MEASURES Cash flows Growth in sales and profits Return on Investment Market capitalisation / PE ratio
  203. 203. BSC - IMPLEMENTATION STRATEGY Mobilise change through effective leadership Translate strategy into operational terms Align the organisation to the strategy Make strategy everyone’s job Make strategy a continual process 1 2 3 4 5 BALANCED SCORE CARD
  204. 204. BSC - ADVANTAGES <ul><li>Most often top managers face information overload. As a result, they don’t know - what they don’t know. </li></ul><ul><li>The BSC brings together the different elements of a company’s strategy at a glance. </li></ul><ul><li>It helps translating strategy into practice (i.e. sharing of vision). </li></ul><ul><li>Shift from control to strategy (i.e. doing right things instead of doing things right). </li></ul><ul><li>Focus on cause not effects . </li></ul>
  205. 205. EFFICIENCY Vs EFFECTIVENESS Ineffective Goes out of Business quickly Survives Dies Slowly Thrives Inefficient Efficient Effective
  206. 206. <ul><li>CORPORATE </li></ul><ul><li>RESTRUCTURING </li></ul>
  207. 207. RESTRUCTURING <ul><li>The only thing constant in today's business environment is change. Radical change brings about strategic variety. Strategic variety may be caused by changes in the as external well as internal environment. </li></ul><ul><li>Strategic variety brings paradigm shift, from survival of the fittest ....... to survival of the most adaptable. </li></ul><ul><li>To adapt to the changing environment, firms use restructuring strategies. </li></ul><ul><li>Restructuring involves consciously driving significant changes in the way an organisations thinks and looks (Eg. Tata Group). </li></ul>
  208. 208. RESTRUCTURING – BASIC TENETS <ul><li>Customer Focus – Restructuring ideally begins and ends with the customer. Company’s should go beyond just asking what he expects. Instead, they should strive to provide unimaginable value ahead of their time (Eg. Walkman, Fax, ATM, etc). </li></ul><ul><li>Core Business – Company’s should introspect – What business are we in? Business evolved out of opportunism or myopia should be divested, and dividing the core businesses into SBU’s (i.e. down-scoping). </li></ul><ul><li>Structural Changes – Conventional hierarchical structures should be dis

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