Strategic MGMT Notes

Mgmt study material created/ compiled by - Commander RK Singh
[email protected]
Date: 18 Jan 2007

Mr Kuldip Kawatra
Re c o m m e nd e d Bo o k s
1.
Strategic Management: by John Pearce II and Richard B Robinson (to be used as a

Text Book)
2.
The Strategic Process, Concepts and Contexts: by Henry Mintzberg and James
Brian Quinn
3.
The Strategy Safari: by Henry Mintzberg
In addition, there are as many as 12 more books which are recommended for reading.
Quite a few of them are authored by Mr Michael Porter.
Additionally, Titanic Shift and Rule of Three by Mr Jagdish Sheth are also recommended
for reading. Rule of Three is a book which propounds that a company should strive to be
among the top of three in its business, else, it should quit.
Lis t o f T o p i c s
1.
Strategy An introduction
2.
Components and Hierarchy of Strategy
3.
5 Ps of Strategy
4.
Business Strategy, BCG Matrix
5.
Factors influencing competitive success
6.
Industry analysis. Michael Porters 5 Forces and three generic strategies. Value
chain analysis.
7.
Strategic Management
8.
Why Strategies fail?
9.
Change Management
10.
Entrepreneurship and Strategy
11.
Strategy and Competitive advantage of Diversified companies
12.
Competitive strategies of Declining Industries
13.
Vertical Integration and Diversification
14.
Global Strategy
15.
Entry Strategies. Strategic Alliances
16.
Mergers and Acquisitions

Page 1 of 48 - Strategic Management (Ver-1.0/03.03.07)
Jamnalal Bajaj Institute of Mgmt Studies
[email protected]
Lis t o f C a s e s :
1.
The fundamental of Strategy Formulation
2.
The case of counter strategy
3.
Cultural Concerns
4.
The case of strategic acquisitions
5.
Change: To be or Not to be
6.
The case of vendor development
7.
Gramophone Company of India: The Digital Challenge
8.
Wal-Mart competing in the Global Market
9.
The General Electric
10.
Richard Branson & the Virgin Group of companies
This is a university paper and therefore requires comprehensive study. Subject requires
special focus since boundaries of this subject are not well defined.
W hy is t h i s s ub je c t i m p o r ta nt f o r e v e r y b us i ne s s m a na g e r ?
The first fundamental of business is to survive. It is euphemistic way of saying that
business needs to make profit. Any business not making profits is sure to sink. And in
order to survive, business needs to grow constantly. Gone are the days of static business
where a business could survive without substantial growth. Your neighbourhood
Kiranawala is no more secure in his small shop. He is being threatened by Reliance,
Subhiksha, Bharti-Walmart and the Mega Malls mushrooming like Pan shops every
where. Your decades old family tailors business is being usurped by the mega branded
apparels. Thus, to be able to survive in this globalising market, the business needs to be
able to grow.
In the business environment that is prevailing and forecasted to unfold over the next two
decades, every business, however big or small, is threatened by the competition. Even
Reliance is scared about Wal-Marts entry and is advancing rollout of its retail ventures.
While there is always the first mover's advantage, in the end it will be business strategies
which will differentiate between successful and failed business.
B us i ne s s Gr o wt h Mo d e ls
1.
Organic Growth Growth of existing business by building additional capacities

from raw factors of production as against growth by procurement of readymade
capacities through mergers, acquisitions and takeovers.
2.
Inorganic Growth
(a)
Growth by acquisitions
(b)
Growth by mergers
(c)
Diversification
(d)
Innovations
[email protected]
Gr o wt h I n v o l v e s :
1.
Managing the Present (Market/Competition)
Irrespective of the future
plans, every company needs to grow its present market share. According to Rule of
Three by Dr Jagdish Sheth, a company needs to be in the top three or retire.
3.
Managing Future (Tomorrows Competition)
Many greatly successful
companies have sunk and been obliterated because they failed to manage the Future. They
did not invest timely into technology, cost management, productivity, etc, and were wiped
out by the new competitors who came with better and/or cheaper products. (The once thriving
lock industry of Aligarh was wiped out by the cheap and better quality Chinese imports because they failed
to invest in quality and cost of their locks).
2.
Selectively Forget the Present
Between managing the Present and the
Future, is the requirement to Selectively Forget the Present. Few successful companies
have the stomach to come out of the cosy comforts of present success and invest into the
uncertainties of future. (AT&T was the largest land line phone company in the world with its business
spanning whole of American and even Latin American continents. It was first to conceptualise the idea of
mobile phone as early as 1980s but never implemented it. There were many reasons as to why the company
did not launch the mobile phone business. Primary one was that the company could not disassociate itself
from the present ie the success of its land line business. Second was the Ernst and Young report which
forecasted demand of only 90,000 lines per year. Such gross error in estimates happened because of wrong
methodology of market survey).
In order to selectively forget the Present, it is essential that an ownership of new

project is established. Therefore, setup a separate project team delinked from present
business and reporting only to the CEO. Similarly, delink HR department from hiring the
people for project team. Their old mind set will not allow hiring right kind of people for
project. Delink the evaluation/appraisal process as well since there will no profits,
negative ROI and so on for a few years. Even provide a separate financial umbilical chord
since Finance Department is often stingy about releasing finance timely and adequately
for new unproven products.
While managing future, one needs to manage three c r i t i c a l u n k n o w n s
1.
Consumer Needs It is biggest business challenge to forecast what customer will

need in future. And biggest threat is that a competitor may launch a better (next
generation) product before or shortly after your launch. AT&T lost its numero-uno
position because it failed to gauge customers need for mobile phones.
2.
Potential What is the market potential for a particular product? AT&T did not
launch the mobile phone because Ernst & Young failed to correctly assess the
market potential.
3.
[email protected]
Technology at Low Cost Newer Designs/features, newer materials, newer

processes and lesser cost are the challenges which are being thrown regularly at
every producer. Once a particular production process has been installed, it is often
not possible to switch over to another process without incurring huge expenses.
While the new entrants come with advantage of newer technology, oldies are
saddled with outdated designs and high production cost/lower quality technologies.
Unless the plant has been deeply depreciated, it is difficult for old player to match
the cost and therefore pricing structure of new entrants.
W ha t i s t he k e y p ur p o s e o f St r a te g y F o r m u la ti o n?
Strategy is aimed at creating sustainable competitive advantage.
D e f i n it i o n o f S tr a t e g y
Strategy is a fundamental pattern of present and planned objectives, resource deployment
and interactions of an organisation with markets, competitors and environmental factors.
C o m p o ne nts o f S tr a t e g y
1.
Scope Scope refers to the expanse of business or more accurately, activities of a

business house. Like ITC starts from its primary business of cigarettes and goes
into paper, greeting cards, rural retail, hotels and so on. Similarly, Hindustan Lever
has its presence in 100s of the personal care products. Further, scope of each
business needs to be decided; like, in hotel business, whether the company wants
to be in the budget hotel segment or executive segment or in the luxury segment.
2.
Mission, Goals and Objective Mission Goals and Objectives need to be clearly
identified. What kind of profitability or ROI is expected? Even Profit is not always
the motive. Some times public welfare may be the objective.
3.
Deployment of Resources Based on the Mission, Goals and Objectives, resource

deployment is decided.
4.
Developing Sustainable Competitive Advantage The plan is formulated which

will give the company a sustainable competitive advantage which is the core
purpose of strategy formulation.
5.
Synergise Take advantage of various synergies available. Synergy is all about

creating a sum which is more than arithmetic total of its parts.
Str a te g y F o r m ul a ti o n i s d o ne a t t hr e e l e v e ls
1.
Corporate Level Corporate Strategy
2.
Strategic Business Unit (SBU) Level Business Strategy
3.
Functional Level Page 4 of 48 - Strategic Management (Ver-1.0/03.03.07)
[email protected]
At each level of business, a strategy needs to be formulated, from macro level to micro
level.
5 Ps o f S tr a te g y
1.
Plan - Plans evolve from the patterns of the past and are about intended patterns
for the future.
2.
Pattern Patterns are typical progressions of business environment like market

growth, customer behaviour and response, etc.
3.
Positioning - Positioning is about locating products in particular markets to

achieve competitive advantage.
4.
Perspective - Perspective is about an organisation's culture - its way of doing

things. Tata, Infosys and Wipro would prefer to forego some profit in favour of
following business ethics and corporate governance. Some other business house
will probably have no qualms in burying all ethics below their profit motive.
Strategy will be drawn accordingly.
5.
Ploy - Ploy is a specific manoeuvre intended to outwit a competitor.
[email protected]
B T : CASE STUDIES
The Fundamentals of Strategy Formulation

SYNOPSIS
"Do we need a strategy? As an automotive ancillary, we have operated for nearly 15 years
without one. Business has been good, our linkages with our customers have been strong,
technology and funds have never been a problem since dedicated suppliers like us are not
easy to develop. We continue to link our schedules, our costs, and our quality standards
with those of our buyers. But, yes, I can sense that there is a change taking place in the
industry. Post-liberalisation, a realignment has begun, with the emergence of Tier-I, TierII, and Tier-III suppliers. Without your own technology, it is difficult to reach the top of
these tiers. Moreover, it is difficult to compete with global suppliers without investing in
scale. Everybody in my company is aware that the external environment is changing, but
no one is able to fathom its magnitude. Naturally, we are not sure whether a supplier
needs a strategy. If we do, how should we develop one? And should we articulate it? Or
should it be kept a closely-guarded secret? Can we diversify without a strategy?" Vinod
Abhayankar, the young CEO of the Pune-based Auto Components, was tossing the issue of
strategic planning in his mind even as he addressed a meeting of the Young Presidents'
Organisation. A BT Case Study.
OCCASION: Young Presidents' Organisation (YPO) Meeting
DATE: August 7, 1996
TIME: 4 p.m.
VENUE: The Carlton Chambers, Mumbai
PRESENT: Vinod Abhayankar, CEO, Auto Components; Lalit Desai, Chairman, YPO;
Members of the YPO
AGENDA: The Need For Strategic Planning
Lalit Desai: Good evening, ladies and gentlemen. Let me begin by welcoming our guest
speaker for today, Vinod Abhayankar, the CEO of Auto Components, which manufactures
the Zebra brand of shock-absorbers. Founded by his father, Dhanvantri Abhayankar, in
1984, Auto Components now enjoys the status of being a preferred supplier to many of the
Original Equipment Manufacturers (OEMs) in the Indian automobile sector. Vinod will
speak about the problems he faced while implementing a strategy-planning process in the
company. Vinod...
Vinod Abhayankar: Thanks, Lalit. I always look forward to these meetings of the YPO
which, apart from being the country's only association of young CEOs, provides me with
an opportunity to discuss the problems of managing a business I wish to correct Lalit at
the very outset. We haven't implemented strategic planning at Auto Components; we are
in the process of doing so. We are still grappling with two questions. First, do we need
strategic planning at all? That's surprising since strategy is supposed to be high on every
CEO's list of priorities. Second, how should the company formulate a strategy? Should it
be based on Auto Components' present position in the industry? Or should we factor in the
[email protected]
emergence of new forces in the future--such as technology, scale, and costs--and draw up
a strategy in the light of their impact on our operations? I thought I could use this platform
as a sounding-board, and fine-tune my own approach to strategic planning. Please feel free
to interrupt me
It has been nearly a year since I took over as the CEO of Auto Components. I returned
from the US in 1995 where, after completing my MBA, I worked in the Production
Planning Division of a transnational. I was looking forward to a promising career, but
chucked it in deference to the wishes of my father, who wanted me to return home to take
over the family business. A technocrat, he has spent his life in the automotive sector and
decided, in his mid-40s, to set up a company of his own. Auto Components started off as a
captive ancillary unit for Sadgati Motors, then a fledgling four-wheeler manufacturer. Our
initial capacity of 1 million shock-absorbers per annum has grown into 3.20 million units.
Incidentally, the total output in the country is 21 million units per annum. However, the
growth in the top-line has been erratic. There were years when Auto Components grew by
80 per cent; in others, the company registered a negative rate of growth Yes?
That is bound to happen when you are a component-manufacturer. A feeder unit's
fortunes, invariably, move in tandem with those of its OEMs. Is there anything peculiar
about the shock-absorber market?
Yes, there is. The thing is that there is no replacement market. Not only do most autoancillary units fare better than the automotive sector, they are also insulated from
recessions because of the after market. Unlike most auto components, whose life is
between 2 and 3 years, a shock-absorber can last for anything between 6 and 8 years. You
can also re-condition a shock-absorber--a process that extends the life of the product by at
least 2 years. At less than a quarter of the price of a new one, re-conditioning is cheaper
than replacement. Of course, although the owners of premium vehicles will not opt for reconditioning, we do not get volumes there. So, we are fully dependent on the OEM
market.
As a manufacturer of shock-absorbers, are there any other market segments you can
target?
No. Basically, the shock-absorber functions as a dampener of shocks resulting from the
vertical vibrations of a vehicle. Its function is to absorb the jerks transferred from the
wheels to the frames, thus ensuring a comfortable ride. Typically, each shock-absorber
consists of 2 oil-chambers. Whenever a vehicle passes over an uneven surface, the
movement of a piston-rod results in the displacement of oil, leading to the generation of a
dampening force. Almost the entire output of shock-absorbers produced in the country is
used by the automotive industry. Shock-absorbers are both technology- and capitalintensive--a big barrier for new entrants. Since the specifications are unique to each
customer, their design is critical. A shock-absorber with only a few moving parts is
considered to be better. Importantly, the quality of the raw material--bright bars--is crucial
to the production of a quality shock-absorber. Again, there is little possibility of the
[email protected]
unorganised and small-scale sectors making a beeline for this business because of these
factors.
Incidentally, since 1991, we have had a collaboration with Sephantu, a Japanese
component-manufacturer. We chose Sephantu because it supplies shock-absorbers to quite
a few Japanese auto majors, some of which have set up operations here. In fact, this
collaboration has helped us get new customers since Auto Components enjoys a preferredsupplier partnership with some of them. It has also placed us on a strong wicket as far as
our future plans are concerned. It will now be easier for us to become a sourcing-base for
both European and Japanese auto majors for their global operations--a possibility that we
will examine shortly. I believe that only by becoming a part of the global value-chain can
we become competitive.
Let me raise one question that we have frequently asked ourselves in the past 12 months:
should we cater to other markets as well? I can cite the example of Sephantu, which has a
capacity of about 1 billion shock-absorbers per annum. It also makes telescopic front-forks
for two-wheelers, and has a bearings division manufacturing a complete range of bi-metal
bearings, flanges, and washers. These bearings cater to the requirements of the railways,
the marine, and the power industries. Sephantu looks at them as related diversifications,
and sees nothing wrong in focusing on those segments too
THE SWOT
STRENGTHS
Captive Buyer Base
Established Customer Links
Access to Technology
Healthy Financials
WEAKNESSES
Entrepreneur-Driven Culture
Single-Product Orientation
Little Scope for Diversification
Absence of Core Competencies
THREATS
Transnational Competition
Integration by OEMs
Dependence on Few Buyers
Sense of Complacency
OPPORTUNITIES
Expansion of User Industry
Emergence of New Buyers
Global Sourcing Base
Newer Technologies
You are now dependent on a solitary end-user industry, but have a captive clientele. All
you need to do is to maintain the relationships with your buyers, work closely with them,
and be an integral part of their value-chain. I can see your reservations about the need
to evolve a strategy at Auto Components...
As Lalit mentioned, Auto Components enjoys a preferred supplier status with 5 leading
OEMs in the country. We get technical and financial assistance from our partners. They
encourage outsourcing, and some of their clients have become global sourcing-centres.
We have access to their Total Quality manuals and Management Information Systems,
like the Spider Web Charts. It is a symbiotic relationship, and both partners tend to win.
When the market is assured, production is predictable, the customer-list is captive, and we
have a single-product orientation, why do we need to plan 5 years in advance? After all,
we will continue to enjoy the benefits of bonding. Auto Components can easily operate
[email protected]
through Management By Objectives and annual budgets--as it has been doing in the past.
Our planning schedules are linked to the plans of our customers. We don't need a separate
strategic planning process at Auto Components Yes?
It is worthwhile recalling the introduction of the concept of strategic planning in the
West. The interest in strategy was caused by the realisation that the external
environment was becoming progressively discontinuous with the past. Objectives and
annual targets alone were no longer adequate as tools of managerial initiative. Strategy
was important because a company needed direction in its search for, and the creation of
new opportunities. You had to identify your core strengths as part of developing the
business strategy...
Core has little relevance in a business like ours. That is, if you mean a unique attribute
which straddles several segments, markets, and products. A two-wheeler company would
view itself in the transportation business, and a petroleum company would categorise itself
as an energy business. But there is no common core capability as far as our single-product
business is concerned. There is no common thread I see that can link our present and
future product-markets
I think you are mistaken. Objectives represent the ends that the company seeks to attain.
Strategy is the means to achieve those ends. It provides the roadmap...
I thought as much. That is why I took the next step: enlisting the help of an outsider. We
short listed 2 consultancy firms, Strategic Consultants, a transnational company, and
Transformation Consulting, a local firm, and asked them to submit proposals for
formulating a strategy, and to help us implement it at Auto Components. Teams from both
the firms have spent several hours with us, and submitted their reports. The contrast in
their approach to strategic planning is striking
How does your father view the need for strategy? After all, he was the one who built the
company...
He is sceptical. He feels that strategy is fine for large corporations with diversified
interests, but doesn't make much sense for Auto Components. He often says that nothing
works better in business than gut-feel--his ultimate touchstone. The rest is all frills,
serving no more than an ornamental purpose. I am less sceptical, and more open to the
idea. I feel that it is imperative for us to know where we will be 5 years from now; it will
help us work towards an objective. Once we have identified a goal, we can start building
structures, systems, and an organisational framework that will help us achieve that goal. It
is crucial to have the big picture. That is where the importance of strategy lies
Aren't both these consultancy companies well-known for their work on strategy?
Yes. Strategic Consultants is headquartered in New York, with 32 offices across the world
and over 500 consultants on its pay-roll. It enjoys a formidable reputation in strategyformulation. What interested me was the fact that it has done substantial work on the
[email protected]
automotive industry and has a senior partner, based in Frankfurt, who focuses exclusively
on the auto industry. The distinguishing feature of Strategic Consultants' approach is an
underlying belief that strategy must be based on present data--not future trends. It will
identify for us those segments, channels, price-points, product-differentiators, sellingpropositions, and value-chain configurations that will yield us profits. But the
identification is focused strictly within the present framework of the auto components
industry. Incidentally, the firm has made it clear that it will not be involved in the
implementation process
I am not very comfortable dealing with a consultant who stays away from
implementation. What about the second firm?
The sheet-anchor of Transformation Consulting is just the opposite. It believes that the
purpose of strategy is not only to enable Auto Components to compete today, but also to
ensure that it remains competitive in a fluid market situation. The firm aims at
reconfiguring the auto components sector to the advantage of Auto Components--not just
maximising the company's profits.
Both the proposals I have received are well-structured and cover a wide canvas although I
must mention that the fees quoted by them are quite high for a 3-month project. While
Transformation Consulting has quoted Rs 12 lakh, Strategic Consultants has asked for a
fee of Rs 17 lakh. The former says it will depute a senior partner and 3 associates, one of
whom will work full-time on our project. Strategic Consultants will depute a principal and
2 associates on a part-time basis. But its offer is quite attractive since its partner will be
flown in from Frankfurt for all the major discussions
The fee is, indeed, high. But it isn't a major issue as long as the consultant delivers. My
concern is more about the organisational approach of the 2 consultancies...
Strategic Consultants' approach is top-driven. It does not believe in involving employees
at different levels in formulating a strategy. It forms a team consisting of 2 senior
managers of the company and 2 of its consultants. The team lays down the strategy that, it
thinks, is good for the company. That is quite in contrast with Transformation Consulting's
approach, which is both top-down and bottom-up. It seeks the active involvement of
employees, who are asked to define the kind of organisation they want their company to
be given, of course, the changes that are expected in the future
Strategic Consultants is too focused on the present while Transformation Consulting
builds a vision for the future as part of its strategy. The latter's approach is a radical
departure from the conventional route to strategy-formulation. It is the novelty of the
approach that fascinates me...
Permit me to read out the relevant portions from Transformation Consulting's report: "Our
methodology comprises 4 phases: Envisioning, External Analysis, Internal Analysis, and
Action Plan. These phases will be implemented during the course of 4 separate retreats
[email protected]
spread over 3 months at the company's holiday-home at Lonavla (near Mumbai), where all
the senior managers of Auto Components will gather...
At the beginning of the one-day session on Envisioning, the lights will be put out in the
conference-room for a minute to signify a disconnect with the past. Once the lights reappear, the designated co-ordinator from Transformation Consulting will announce that it
is 2003. Each manager will then be asked to imagine himself as part of Auto Components
in the 21st Century, and talk of what the company will be as he, or she, sees it. Although
the exercise will be structured, it will be informal and free-flowing to break the ice and
loosen up people. Not used to looking beyond day-to-day operations, many managers are
likely to fumble. But, at the end of the day, everyone will be comfortable with looking
ahead into the future...
External Analysis, spread over the next 3 days, will be more focused. Managers will be
asked for their perceptions about the customer, the competitor, and the macro-environment
in 2003. They will be required to answer the following questions: who are Auto
Components' customers? Are they local or global? What are the specific needs that they
expect these products to fulfil? Why do they prefer Auto Components to other
manufacturers? The competitor-analysis would seek to probe questions like: who are Auto
Components' competitors? What are their cost advantages? What are their strengths and
weaknesses vis-a-vis Auto Components? Why do customers buy these products? What is
their brand equity? The analysis will examine the impact of technology, government
policies, and cultural and demographic trends on the auto components industry. Mainly,
the objective of Phase II will be to arrive at a summary of opportunities and threats for
Auto Components in 2003...
Phase III, comprising Internal Analysis, will begin a month later, and will be spread over 4
days. Aimed at enabling managers to look inwards, the Internal Analysis will be split into
Performance Analysis, and Strategic Options. The performance of the group will be
measured both on financial parameters, like profitability, sales, and returns on assets, and
on non-financial parameters, like supplier relationships, product quality, and customer
satisfaction. The participants will, then, determine the strategic options available to Auto
Components. This would involve reviewing past strategies to identify strategic problems,
organisational capabilities, and constraints. Based on these findings, a summary of the
strengths and weaknesses of the group will be arrived at.
The final part of Phase III will involve defining the core competencies of Auto
Components, and updating a statement of vision. The last session will be used to
determine the strategic plan to move Auto Components from 1998 to 2003. It will address
questions like the core competencies the company should build, the product-market
segments that it should focus on, and the buyer-and-supplier linkages it should leverage
within the industry..."
There is a difference between the two approaches. Strategic Consultants' gameplan
depends solely on the CEO's vision while Transformation Consulting's approach seeks
the involvement of senior managers in obtaining a vision...
[email protected]
Transformation Consulting's approach to strategy is different from the conventional timetested approach in many ways. I, for one, am wary of any approach that is untested.
Traditionally, corporate strategic planning has been based on the present position of the
company in the industry. There are a number of grey areas in this approach. Take the
capsule on Envisioning, for instance. Very few middle-level managers, caught up as they
are with routine operational issues, have the ability to look beyond the limited timehorizon of a year. That's my major apprehension
More fundamentally, I am not sure if strategy-formulation can be a bottom-up exercise.
A vision, for example, is always driven from the top. It is only when a vision needs to be
articulated that the involvement of middle management becomes imperative. But, as far
as envisioning is concerned, it has to be confined to senior management. This raises a
second crucial issue: is there a need to document strategy? Personally, I feel that the
strategy of a company should not be documented. Only then will it ensure
confidentiality. As Strategic Consultants' approach points out, strategy should be
confined to a handful at the top. It can never be an across-the-board initiative...
That is the way I feel too. But I am open to both opinions although, I must confess, I am
unable to decide on which one to follow. I am aware that some companies link strategy to
vision, but this linkage has not been well-documented. Strategy should be based on the
realities of today; not the dreams of tomorrow. We have to make sure that we do not
become the guinea-pigs for a strategy-formulation exercise.
THE FINANCIALS
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1.56
1.04
0.92
0.81
0.78
0.06
0.05
1991-92
1992-93
Sales
0.22
0.17
0.16
0.14
0.13
0.07
1993-94
Gross Profits
0.11
0.09
1994-95
1995-96
Net Profits
Figures in Rs crore
[email protected]
Is there a need for a strategy at Auto Components? Does a small company operating in a
predictable environment need to formulate one? Can approaches to strategy be so
conceptually different? Should Abhayankar go by gut-feel and, by using in-house talent,
do what he believes is right for the company? Instead of spending time on documenting a
strategy, shouldn't Auto Components just have an informal plan of action, governed by the
intuition of its senior managers? Since the company has a team which knows its business
better than any consultant, why should Auto Components bank on external ideas? Should
strategy ever be documented?
READINGS
Strategic Planning: What Every Manager Must Know; George Albert Steiner
Strategy And Strategic Management; J.I. Moore
Applied Strategic Planning: A Comprehensive Guide; Leonard Goodstein
Business Policy And Strategic Management; Mark L. Sirower
Chart Your Own Course: Strategic Planning Tools For Business Leaders; James C.
Collins & Jerry I. Porras
Creating Strategic Change: Designing The Flexible High Performance
Organisation; William A. Passmore
Fourth Generation Management The New Business Consciousness; Brian L.
Joiner
The New Rules of The Game; James R. Eemshof & Teri E. Denlinger
The New Strategists; Stephen J. Wall & Shanon Rye Wall
Corporate Strategy; Igor Ansoff
Solution:
Let us first analyse various beliefs and assumptions of Mr Abhayankar before we start
with the doubts, dilemma and indecision that he is facing:
Should it be based on Auto Components' present position in the industry?
Any growth strategy should be based on opportunities and threats that the market will
present in future but duly moderated by strengths and weakness of the company at present.
Thus, any strategy that is based totally on todays internal and external environment
without any heed to emerging trends of the future is sure to fail in the medium to long run.
Real growth does not emerge from normal progression of the present but from the
disconnects from the present. (Japan and America were both booming manufacturing power houses of
1970s and 1980s. They were the sunrise economies those days. American economy, though larger, was far
behind Japan in competitiveness. Yet it continued to surge ahead through 1990s and 2000s while for Japan,
these were the L o s t D e c a d e s . Despite all the super refined productivity tools in place, hardworking and
honest workforce with highest productivity and commitment anywhere in the world, Japanese economy is
going through a recession. Why?
America spotted the opportunities lying with knowledge economy and created a disconnect by shifting its
thrust from manufacturing to knowledge industry. Japan on the other hand was so deeply obsessed with its
success in manufacturing sector that it refused to look into the future and kept trying to refine its production
processes and quality further and further. Remember the basic fundamental of life. Most of the graphs are
[email protected]
Gains
parabolic. Increase in any input will fetch you gains on the principal of diminishing marginal utility till it
reaches zero after which there is negative return on increasing investment).
Input
Parabolic relationship between investment and ROI

Companys Growth Although the company grew by 220% over a period of one and half
decades, not much comfort could be drawn from it. Its market share in domestic market
was barely 15%. Thus, there was enormous potential for top line growth without even
considering explosive growth in four wheeler market that was just beginning to unfold at
that time.
Scope of Business and Diversification Very few single product companies have been
able to register spectacular growth. Diversified companies, be it Tata, ITC, Wipro or
Reliance, have scripted much faster growth rate. Auto Components is apparently refusing
to see beyond its nose. It has not even considered diversification. There are plenty of
diversification opportunities available. To begin with company can make a bid for
replacement market by establishing own facilities or appointing franchisees for shock
absorber reconditioning the way many tyre units have done for retreading of worn out
tyres or Maruti True Value scheme. Or, the company can opt for horizontal growth by
encashing on existing goodwill as quality conscious company with current customers and
diversify into other auto component businesses. In addition, company can also go for
concentric diversification by diversification into technologically related products like
tubular auto components, marine engine components, and non-auto engineering products.
Threats Company is considering its future position secure under the assumption that the
technological complexity of the product as well as capital requirement will keep away the
new entrants. Its assumption may be true for local small scale sector but there are plenty of
big players with enough technological and financial muscle are available who can enter
the fray and spoil the party. Another factor that company has completed overlooked is the
possibility to competition emerging from overseas in a market which was fast globalising.
Thus, benefits of bonding can not be taken for granted.
Core Competency Company has once again failed to identify its strength by saying that
there is no common thread that links its present and future product markets. 15 years
[email protected]
experience is a substantial competency in the auto ancillary field. As stated earlier, it can
lead to diversification into various other auto components or non auto engineering
products.
Distrust on Middle Level Managers Ability to Contribute in Evolving a Viable Strategy
Almost every one has streak for future planning. Only, people either do not get time to
devote to such ideas or there is not enough incentive and encouragement to forward those
brainwaves and thus get suppressed. Given the right ambience and impetus, they can
resurrect. Transformation Consulting's approach of taking the executives away from
present humdrum to holiday home in Goa for brain storming sessions is based exactly on
this precept.
Envisioning and Strategy Formulation by Senior Management Only It is true that
envisioning and Strategy Formulation should be done by Senior Management or ideally by
Chairman/CEO himself, but there is no harm in taking inputs from all and sundry. Once
inputs are received, final strategy should be chalked by senior management.
Mr Abhayankar is suffering from decisional paralysis. He is completely confused as to
what course of action he should take.
Gut feel is not the call of sixth sense as many people would believe. Gut feel emanates
from long experience and well meditated analysis of all the known and unknown factors.
Only, the thought process is no so well structured. And yet, going by the gut feel is not the
right course of action in such a situation. Two things go against gut feel action in this case.
First is the absence of experience in Mr Abhayankar and secondly, the pace of changes
that were taking place in the business environment at that instant, made gut feel reaction a
risky affair.
Whether a small company operating in a predictable environment needs a strategy?
The false notion of predictable environment has already been busted above. Auto
Components competition is no more going to be limited to local companies only. In view
of the liberalisation that was underway, global competition in the business was a certainty.
Thus, company needed a strong strategy lest it got swept away by the multinational
behemoths.
Can approaches to strategy be so conceptually different?
Mr Abhayankars bewilderment at conceptual divergence between two approaches to
strategy formulation is truly bewildering. Strategies and approaches to strategies follow
no predictable pattern and can be as diverse as ones imagination goes. There are in any
case always more than one ways of achieving a target.
Instead of spending time on documenting a strategy, shouldn't Auto Components just
have an informal plan of action, governed by the intuition of its senior managers?
[email protected]
Although it would be ideal to document the action plan, it can be done away with in
favour of an informal plan of action if it is not too complex. But plan of action, whether
documented or informal, has to emerge from the long term strategy. Therefore, strategy
formulation is inevitable.
Since the company has a team which knows its business better than any consultant, why
should Auto Components bank on external ideas?
It is true that the company has experts in the field of its business. But their experience and
knowledge is probably limited to existing ways of doing business. Their capabilities in the
field of strategy development and business models appropriate for the then unfolding
liberalised, globally competitive environment were untested. Secondly, old occupants
develop a Tunnel Vision Syndrome. They can not see beyond what is existing and
apparent. New people bring new ideas and therefore involvement of external people in any
brainstorming session always pays. Also, strategy development is an art/craft and
experience of particular business is a poor substitute for this art.
And remember, a guide who is willing to walk the distance with you is always better than
one who tells you the path on the map. So, involve an external consultant, who is willing
to work through the implementation of the strategy rather than one who will wash off his
hands after handing you a 1000 page report written in Queens English and collecting his
green backs.
Should strategy ever be documented?
Documentation of strategy should be avoided as far as possible. Ideally it should lie in the
minds of top management for the sake of confidentiality. However, strategy is always a
combination of two or more deeply correlated but seemingly independent course of
actions. Each course has its own action plan which should be well documented so that
middle and lower levels of management can implement it effectively. But when external
consultants are hired, strategy also comes as a document.
Let us now examine the above case study from the perspective of Components of
Strategy:
Scope Mr Abhayankar has limited the scope of his business to just the current business.
If he opts for in-house strategy building, the scope may remain limited to just that.
Engagement of external consultants may widen the scope to include Horizontal, lateral or
concentric diversification.
Mission, Goals and Objectives These are often formulated by Scenario-Building.
Scenario Building is the foundation stone of strategic planning. Future is uncertain and
could take more than one possible course; some logical and other unbelievably dramatic.
Scenario-Building process encourages people for out of the box thinking; to think about
those dramatic turns in the future growth path. Many assumptions (critical unknowns)
[email protected]
about the future of the company future customer needs, changing industry structures,
and the company's response to both--get answered in the process.
However, there is one pitfall that needs to be guarded against. Most people to tend
to extrapolate the future as a logical extension of the present. Strategic planning's
advantage lies in finding the discontinuity in the business environment in near future.
Discover if there is one building up; and create one if there is none developing on its own.
One who is prepared to take advantage of this discontinuity will secure the biggest
competitive advantage. Such an approach would provide an auto-components
manufacturer with critical insights into emerging supplier-buyer configurations. But to be
able to achieve this, a thorough environment scan is essential.
Resource Planning/Deployment Execution of any action plan requires deployment of
resources. Availability of adequate resources, from money to men (5 Ms), is critical to
success of plans. Many strategic plans fall flat since they omitted to pinpoint their resource
requirements and therefore planning. It is vital that the organisational structure, finances,
technologies, and alliances required to achieve the aspirations spelt out in the strategic
plan be clearly spelled out.
Resources assume even more importance when there is a discontinuity. A discontinuity
often calls for resources that are scarce and mustering them is the first challenge during
plan implementation phase. (BPO/Call Centre boom demanded English speaking educated youth
which China and many other low wage countries do not have in adequate numbers. Off late, even India has
begun to feel the shortage. But we still have plenty of non English speaking educated youth. Considering this
resource base, some entrepreneurs have created KPO (Knowledge Process Outsourcing India based
scientific and social research). This is a discontinuity that Indian entrepreneurs have created).
Developing Sustainable Competitive Advantage The eventual aim of entire strategic

planning is to have a competitive advantage. An in-depth understanding of your
competitors--their visible performance and their less-visible management practices--is
important. Competitive analysis enables a company to look for ways in which it can best
position itself not only to exploit its inherent strengths, but also to attack the weaknesses
of its competitors. Minimise your own vulnerabilities and attack the weaknesses of
competitors.
Another important part of developing Competitive Advantage is Gap Analysis. Gaps are
difference between future requirements vis a vis organisations capabilities. Out of the
possible series of gaps that will emerge from scenario building and SWOT analysis, it is
advisable to concentrate only on the few that can provide maximum leverage (Rule of
80:20). This is important from the point of view of focus.
Next important part of development of Sustainable Competitive Advantage is effective
implementation. Unfortunately, implementation of a new idea is inherent strength of only
few organizations/people. So, any key strategic initiative, especially discontinuity, should
be treated as a new project, and assigned to independent project leaders at various levels
of implementation. Apply the strategy of selectively forget the present. Disconnect HR
Department from selecting people for project team, disconnect finance department from
[email protected]
funding this project, disconnect HR Department from appraisal process of project people
and so on. Dont allow non-believers anywhere near the project. Guard tightly against
development of vested interests in the organisation.
[email protected]
C A PA BI LI TY Vs C O M P E T EN C Y Vs CO R E C O M P E T E NC Y
Capability is what you can do (as well as others). Competency is what you can do better
than most; and Core competency is what you are most proficient at.
Let us see the core competencies of some of the companies
Amul Advertising (Copy based on recent high decibel news/event)
Reliance Project Mgmt (Fast and economical execution)
Sony New technology product development
Distinctive/Strategic Competency A competency which gives you edge over your
competitors. Marutis distinctive competency is in manufacturing entry level cars. Despite
close of 100 models of various cars launched, Maruti 800 still retains over 50% of the total
car market. Maruti has not been so successful in other segments. Its Zen and Wagon R
models were successfully challenged by first by Daewoo and then Hundae with Santro
model.
Core Assets Your best assets are your core assets. Take the case of Wipro Ltd. It is a
multibusiness highly diversified company. It has software, lighting, Oils, etc. But their
software division is their core asset.
Distinctive Assets Distinctive assets are those assets which differentiate you from your
competitors and give you competitive advantage. Assets need not be physical/tangible.
They could be intangible as well. Brand Value is one such asset and Tata group has
unmatched strength in that. HLLs and ITC distinctive assets are their distribution
network. Toyotas distinctive asset is its production system where productivity is highest
in the world among all car makers.
[email protected]
PO R T E R S B U SI N ES S M A N AG E M E N T S T R A T EGY
(Porter was originally an engineer, then an economist before he specialised in strategy)
Michael Porters business management strategy is a three step process: (a)
Assessment of problem,
(b)
Planning to fight the problem and then
(c)
Application
These three broad steps of Porters business management strategy are christened as: (I)
Michael Porters Five Forces Model (to identify the profit limiting forces)
(II)
Michael Porters Generic Strategy (Plan to fight these forces and meet the
challenges)
(III)
Michael Porters Value Chain Analysis (to build competitive advantage which is
the core of any strategy).
(I)
Po r t e r s F iv e Fo r c e s M o d e l
This model was developed by Michael Porter in 1979. It uses concepts developed in
economics to derive 5 forces that determine the attractiveness of an industry/market. It is
also known as FFF (Fullerton's Five Forces). These are the forces that have maximum
impact on companys ability to make a profit. A change in any of the forces will require a
company to re-assess its business.
New Entrants
Suppliers
Bargaining
Power
Industry Competitors
(Rivalry among existing
firms)
Buyers
Bargaining
Power
Substitutes
A graphical representation of Porters Five Forces
[email protected]
These five forces are: 1.
Bargaining power of customers,
2.
Bargaining power of suppliers,
3.
Threat of new entrants,
4.
Threat of substitute products, and
5.
Level of competition in an industry. (Rivalry among existing players)
Now let us see when, why and how the 5 forces affect the profitabitability of a company: 1.
Bargaining Power of Customers

(a)
Buyer Concentration to Firm Concentration Ratio In simple terms, this

is demand supply gap. When there is oversupply of product, and many
competitors for a small group of buyers, buyer has option to switch to other
supplier and there is tendency among suppliers to woo the customer
through price discounts, gifts etc to garner larger share of the market.
(b)
Bargaining Leverage Many customers have leverage over suppliers due

to various reasons. There could be host of reasons, like political clout,
muscle power, status, locational advantage, etc. Sugarmills have this
advantage while buying sugarcane from farmers. Farmers are unable to
transport sugarcane to other factories because only one mill is permitted in
specified area. Mills often pay the farmers after months and even less than
govt rate. Those who insist immediate payments are denied sale. Similarly
malls insist on higher discount on MRP (approx 40% of MRP).
(c)
Volume Buyer Customers who are large buyers are often able to bargain
better prices. Like almost 50% of P&Gs world wide sales comes from
Walmart stores. Therefore Walmart has huge bargaining power with P&G.
(For that matter, with any supplier)
(d)
Buyers Switching Costs relative to Firm Switching Costs Some times

there is substantial cost involved in switching from one supplier to another
supplier. Take the cost of telephones. The cost and efforts involved in
informing all your contacts of change in your number is huge and is the
biggest deterrent in switching your cell number. Thus, once a mobile
phone company is able to retain a customer for about 6 months, he is a
captive customer thereafter. But once number portability is allowed across
telecom service providers, the churnrate among mobile phone companies
will increase substantially.
(e)
Buyer Information Availability Information is Power. Once the buyer is

aware about inside information of the company, like production cost,
[email protected]
customer base, capacity utilisation, material usage, etc, he will bargain

from a position of strength. If he knows that you have additional unutilised
capacity, he will ask for additonal supplies at marginal cost + small profit.
Similarly, if he comes to know that your production cost is very low, or
you have inventory build up, or your sales are down, he will bargain hard
for higher discounts.
2.
(f)
Ability to Integrate Backwards If the customer has capacity and

capability to integrate backward into your business, he will bargain harder
with the threat that you will not only lose your business from him but
precipitate another competitor as well.
(g)
Availability of Competitive/Substitute Products Any one who has easy

and at par cost or cheaper access to competitive/substitute product is a
tough customer. Take instance of soft drinks. For coke and Pepsi, besides
each other, a host of substitutes are available starting with water (yes! mineral
water and even plain cold matka water) to beer, lassi, Nimbu Pani, Jaljeera, etc.
That is why their advertising spend is among the highest in all sectors.
(h)
Undifferentiated Product If a product is undifferentiated, a customer

will have no difficulty in switching over to another supplier.
(i)
When His Profit Margins Are Low - Bargains hard to keep his margin
intact.
(j)
When product is unimportant to him.
Bargaining Power of Suppliers

(a)
Supplier Switching Costs Relative to Firm Switching Costs Reverse of

above.
(b)
Degree of Differentiation of Inputs If a supplier has a well

differentiated product, he can command a premium on price. Customer has
little choice but to be a victim of such a suppliers fancy.
(c)
Absence of substitute inputs If a product does not have substitutes and

there are not multiple suppliers with over capacity of that product in
sourcing area, such suppliers will command premium on their product
(d)
Supplier concentration to firm concentration ratio
(e)
Threat of forward integration by suppliers relative to the threat of backward

integration by firms
(f)
Cost of inputs relative to selling price of the product
(g)
Insignificance of volume to supplier

(h)
3.
4.
[email protected]
Cartelisation by Suppliers OPEC is an example which keeps adjusting

production to keep crude prices artificially high.
Threat of New Entrants

(a)
Existence of Barriers to Entry Any kind of barriers like cartelisation by

existing manufacturers, govt regulations (licences), natuaral barriers, etc.
(b)
Capital Requirement Capital intensive industries have relatively lesser

threat of new entrants since very few people can afford to invest that kind
of capital.
(c)
Economies of Scale There are some products which afford huge

economy of scale. While the existing players would have slowly grown to
build adequate market share/demand, new entrant would have to start with
similar capacity without any demand/market to be able to produce at
competitive cost. Maruti could slowly build a network of its service
stations and spare parts vendors across India. Any new entrant can not
afford to build that kind of network unless they have that kind of density of
vehicles on roads and therefore are finding it difficult to compete.
(d)
Brand Equity If there is a well entrenched product in the market, it hard

for any new product to find a market for itself and therefore discourages
new entrants.
(e)
Switching Costs
(f)
Access to Distribution Distribution network is the trump card in the

hands of a company. HLL, with its reach to the remotest corner or the
country, enjoys that advantage and poses a barrier to the new comers.
Many companies, including HLL are known to buy out all the prime shelf
and advertising hoarding space ahead of launch of a competing product to
black out them in the market.
(g)
Absolute Cost Advantages If a firm is enjoying a cost advantage due to

any reason, may be captive mines, or pit head location (so low
transportation cost) or cheap captive power generation in a power intensive
product like metals, it poses hurdle for new entrants.
(h)
Learning Curve Advantages
(i)
Expected Retaliation
(j)
Government Policies
The Threat of Substitute Products

(a)
Buyer Propensity to Substitute

5.
(b)
Relative price Vs performance of substitutes
(c)
Buyer switching costs
(d)
Perceived level of product differentiation
[email protected]
The Intensity of Competitive Rivalry

(a)
Number of Competitors Higher the number of competitors, higher the

struggle for the market share. Bigger group also brings in ego clashes
leading to indiscrimanate poaching even at otherwise prohibitive costs.
(b)
Industry Growth Rate This happens in later stages of product life cycle
when product demand begins to stabilise or even decline after peaking
while new entrants continue to set up additional capacities without
observing the life cycle stage of the product, leading to overcapacity
(c)
Intermittent Industry Overcapacity It is again a common phenomenon.

Many people who catch the cyclic demand late end up adding capacity
when demand begins to ebb. Thus, there is huge overcapacity during lean
demand period. This phenomenon is most prominent in agriculture. One
season, there will be scarcity of, say, pulses and therefore very high prices.
Attracted by the good prices, there will be increased acreage under pulses
cultivation. And then due to oversupply of pulses, the prices will not be
adequate even to recover the costs. Having suffered huge losses, farmers
will switch the crop next year and there will be scarcity of pulses once
again and the cycle continues.
(d)
Exit Barriers If exist routes are not available, existing players will
continue to attempt to garner larger market share through price cuts or
discounts etc.
(e)
Diversity of Competitors Rivalry becomes intense with diversity of

competitors. Say, a product is being supplied by manufactures from across
the world (take for instance BPO services). Each supplier has a different
cost advantage, different problems, different govt policies, and so on. On
the other hand suppliers have no common forum to meet and plan their
strategy against arbitrary damaging actions by individual player.
(f)
Informational Complexity and Asymmetry increases distrust and rivalry.
(g)
Thin Profit Margin Products Rivalry is intense when profit margins are
already thin since only way out to increase profits is by increasing sales.
(Imagine the intensity of competition in salt business. Consumption can not be increased
in any way. Probably this is the only product in the world whose consumption can not be
increased . Profit margins are thin. (Govt would not want a second Dandi March by a new
born Mahatma). What growth strategies can the salt manufactureres follow but to snatch
each others market share? (But Catch salt did it by differentiation and packaging)
(h)
[email protected]
Lack of Product Differentiation If there is no real avenue for product

differentiation, like in case of soft drinks, rivalry increases.
Though not supported by all, some argue that a 6th force should be added to Porter's list to
include a variety of stakeholder groups from the task environment. This force is referred to
as "Relative Power of Other Stakeholders". Some examples of these stakeholders are
governments, local communities, creditors, shareholders, employees, & so on.
Not every industry faces all the forces. Some industries face as low a two while some
other might face all the five. Again the intensity of individual forces will vay with
industry. Your job is to identify the forces and find a position where the sum total effect of
all the forces is minimum.
Critic ism
Porter's framework has been challenged by other academics who have raised objections to
underlying assumptions in the model, viz (a)
That buyers, competitors, and suppliers are unrelated and do not interact
and collude
(b)
That the source of value is structural advantage (creating barriers to entry)
(c)
That uncertainty is low, allowing participants in a market to plan for and

respond to competitive behavior.
( I I ) P o r t e r Ge n e r i c S t r a t e g ie s
Michael Porter has described three general types of strategies that are commonly used by
businesses. These three generic strategies are defined along two dimensions:
(a)
Strategic Strength is a supply-side dimension and addresses the core

competency of the firm: Cost Leadership or Product Differentiation. Please
remember that the two strengths are exclusive to each other. Cost
leadership and product differentiation do not go hand in hand. Either a
company goes cost leadership way or opts for product differentiation. ViJohn (Barbers favourites) and Gillette range of saving products are the
examples of two strategies.
(b)
Strategic Scope is a demand-side dimension and looks at the size and

composition of the market you intend to target.
In his 1980 classic Competitive Strategy: Techniques for Analysing Industries and
Competitors, Porter lays down the three best strategies. They are
(a)
Cost Leadership,
(b)
Product Differentiation, and
(c)
Market Segmentation (or Focus).
[email protected]
While first two are standalone strategies, and exclusive to each other, Market
Segmentation, as a strategies, can not stand on its own feet without supposrt of one of the
two other strategies. It complements both the other strategies and is necessarily an
accompaniment. It has to be adopted irrespective of cost or differentiation leadership.
Only scope will differ in two cases.
Combining a market segmentation strategy with a product differentiation strategy is an
effective way of matching your firms product strategy (supply side) to the characteristics
of your target market segments (demand side).
Empirical research on the profit impact of marketing strategy indicated that firms with a
high market share were often quite profitable, but so were many firms with low market
share. The least profitable firms were those with moderate market share. Porters
explanation of this is that firms with high market share were successful because they
pursued a cost leadership strategy and firms with low market share were successful
because they used market segmentation to focus on a small but profitable niche market.
Firms in the middle were less profitable because they did not have a viable generic
strategy.
1.
Cost Leadership Strategy
This strategy emphasizes efficiency. The product is often a basic no-frills product that is
produced at a relatively low cost and made available to a very large customer base (It is
assumed that benefits of low cost production are passed on to the customer in the form of
low prices. But it does not happen everytime. In many cases company continues to charge
market rate of product despite substantially low cost of production and uses this advantage
strategically). Maintaining this strategy requires a continuous search for cost reductions in
all aspects of the business.
2.
D i f fe r e n t i a t i o n S t r a t e g y
Differentiation involves creating a product that is perceived as superior to its competitors.

The unique features or benefits should provide superior value for the customer if this
strategy is to be successful. Because customers see the product as unrivaled and
unequaled, the price elasticity of demand tends to be reduced and customers tend to be
more brand loyal. (Pears Soap (Glycerine based transparent) and Dove (with moisturising cream) are
two products which have maintained their differentiation for a very very long time). This can provide
considerable insulation from competition. However, there are usually additional costs
associated with the differentiating product features (both glycerine and moisturising cream
are expensive ingredients and this could require a premium pricing strategy.
To maintain this strategy the firm should have:
(a)
Strong research and development skills
(b)
Strong Product engineering skills
(c)
Strong creativity skills
(d)
Strong marketing skills
(e)
Focus (Segmentation) Strategy
[email protected]
In this strategy, the firm targets a few selected markets, be it demographics or geography
or any other parameter.. It is also called a focus strategy or niche strategy. It is hoped that
by focusing your marketing efforts on one or two narrow market segments and tailoring
your marketing mix to these specialized markets, you can better meet the needs of that
target market. The firm typically looks to gain a competitive advantage through
effectiveness rather than efficiency. It is most suitable for relatively small firms but can be
used by any company. As a focus strategy it may be used to select targets that are less
vulnerable to substitutes or where a competition is weakest to earn above-average return
on investments.
( I I I ) Va l u e C h a i n
(Value Chain is a concept that was first described and popularized by Michael Porter in his 1985
best-seller, Competitive Advantage: Creating and Sustaining Superior Performance).
A firm is a bundle of activities. The activities can be broadly divided into two groups
(a)
Primary Activities The activities for which the company exists. The
activities that add value to the product.
(b)
Secondary Activities Peripheral or support activities.
The primary activities include:

(a)
Inbound logistics,
(b)
Operations (production),
(c)
Outbound logistics,
(d)
Marketing and sales, and
(e)
Customer Service
The support activities include:

(a)
Procurement
(b)
Human resource management,
(c)
R&D
(d)
Administrative
(e)
[email protected]
Infrastructure management,
Support activities are not specifically related to any one primary activity but span across
all of them. The value chain framework quickly made its way to the forefront of
management thought as a powerful analysis tool for strategic planning. Its ultimate goal is
to maximize value creation while minimizing costs.
[email protected]
B U SI N ES S ST RA T E G Y
Unlike Corporate Level Strategy which takes care of a Business Houses broad strategies,
Business Level Strategy is strategy at the SBU level.
The classical BCG model (four quadrangles of cash cow, star, dog and Question Mark) is
utilised to fine tune resource deployment plan.
Following factors help in developing competitive advantage
(a)
(b)
(c)
(d)
Distribution System This is the strongest weapon in the armoury of

market men. Any other marketing strategy can fail but this is hard to fail.
Research and Development
Field Strength
Assets
Five Rules to create competitive advantage

(a)
(b)
(c)
(d)
.
. Michael Porters three rules
.
First Movers Advantage Walkman and Windows are two products where
the owner companies benefitted hugely.
(e)
Synergy Advantage A sports goods manufacturing company can start

sports garment business. Since the market is same, customers are same,
distributors and retailers are also same, brand equity can also be encashed.
What is Stra tegic Com petency?

It is defined as strength of companys core competency Vs strength of competitors core
competency
S t r a t e g i c C o mp e t e n c i e s
1.
Brand Equity Brand Equity create Image assest as well as financial assets. It
helps company to realise better margins on its products and achieve higher sales
with lesser investment in marketing.
2.
Creative Methods of Pricing Some companies are capable of making the prices
affordable for the customer. Shampoo bottles even in 100 ml bottles, was
unaffordable for lower middle class segment girls. Shampoo sachets at Re 1/- per
wash was like offering shampoo bottle on flexible installment plan. It brought this
[email protected]
elite product within the reach of poor girls and created a huge market for the
company.
3.
Market Management Market management is not same as marketing

management. While marketing management is about reaching the minds of
consumer and managing sales and distribution of the product, market management
is about future planning by forecasting the market trends or quick reaction to
changes in the market through product innovation, positioning etc. Planning cycles
in yesteryears used to be pretty long. Long term plans used to be drawn with 5, 7
or even 10 years perspective. Such kind of time frame is unthinkable now. Markets
have become volatile and planning cycles have shortened. Market Management
involves following steps
(a)
Develop Real Time Information System for collecting information not

only from local market but from across the world. Even though a company
may not be a global player, competitor might source his products from a
foreign country at substantially lower cost. (Ganesh idols (made in China) during
this Ganesh Chaturthi were being sold at one third the last years price. Who would have
envisioned that China, a communist (atheist) would invade the Ganesh idol market? )
(b)
Developing sensitivity to information (useful information only).
(c)
Flexibility in Planning Capability to change the plans at short notice in

response to dynamic change in situation.
(d)
Online Scanning & Analysis of Information There is veritable flood of

information. Therefore, it is beneficial to scan and analyse the information
online itself.
(e)
Proactive Approach Company should have a proactive approach to

market management. It should analyse and forecast market direction and
take appropriate action.
Charac teristic of Compa ny Which Can Manage Market

1.
Sensitive to Market
(a)
In-Out Organisation Such companies scan the prevailing business

environment and react to the changes that are taking place in the market.
(b)
Out-in Organisation The company scans macro environment and

changes its strategy proactively before the effects of changes in macro
environment manifest themselves in market. The company is ready to take
the advantage of changes in market when the time comes. There are
companies which are even smarter. They manage the environment itself.
They mould the environment according to their need. Take the case of
Reliance. They laid out the cables across length and breadth of country for
[email protected]
CDMA phone which was a WLL (Wireles in Local Loop restricted area
roaming) service. (This technology is much cheaper in installation and equally cheap
in operation. Even licence fee was only a fraction of what GSM cellular services providers
had to pay). After Reliance completed its cable laying and rolled out the
services, restrictions on roaming for CDMA phones were suddenly

removed and the service was offered in completition with GSM cellular
phones.
(c)
Give Importance to Real Time Information Management They are

good at online analysis of information and action is taken immediately.
Take the case of Walmart Retail Stores. Information about a product sold
and billed is directly communicated to their central server where sales data
is collated from all the stores and is analysed by computer. Depending upon
sales pattern and current stock levels in various stores, order for supply is
placed on the supplier automatically by the computer itself. Or, slow
moving inventory from one store is shifted to other store.
(d)
Knowledge Management Let us first understand difference between

Information and Knowledge. Information is unorganised raw data, facts
and figures. Knowledge is when this random data is organised in the mind
in a structured and logical form to facilitate deductions/analysis/forecasts.
In simple words, information is knowing what had happened or who had
done it; Knowledge is knowing why did it happen and why did he do it;
and Wisdom is knowing what to do to make the best use of what had
happened. Thus, Knowledge is a mental aspect and very difficult to
manage. Since knowledge lies in the minds of managers, many companies
often call for brainstorming sessions/meetings where free flow of ideas and
discussions take place and strategies are formulated. This is called
knowledge management.
(e)
Capability to scan information online.
(f)
Entrepreneurial Thrust The management should be quick at identifying

the opportunities, arranging the necessary resources, building team and
converiting it into a profitable business.
(g)
Global Perspective Refer to Strategic Competencies. (Page 28).
(h)
Effective use of various marketing tools.
[email protected]
Proce ss of Strategic Managem ent (Strategic Management

Model)
Strategy Formulation
Mission &
Objectives
Environmental
Analysis
Internal Resource
Analysis
Strategy Choice
Generic Corporate
Strategy
Generic Business
Strategy
Strategy
Implementation
Culture
Organisation
Culture
Leadership
Reward
System
Functional
Policies
Strategy Evaluation
& Control
Strategic Management process begins after the Vision and Mission statement have been
set. Vision and Mission statement actually indicate the direction of strategic management
process.
Vision Corporate vision is a short, succinct, and inspiring statement of what the
organization intends to become and to achieve at some point in the future. Vision
is intentions that are broad, all-intrusive and forward-thinking. It describes
aspirations for the future, without specifying the means that will be used to achieve
those desired ends.
In simple terms - Vision is the description of desired future form/state of the
company. It is the dream of top management as to where it would like the
company to be in future. It is a common folly to extrapolate the present into future.
[email protected]
Drawing the Vision requires the top management to empty their mind of the past
and present before they sit down for the purpose.
Once the Vision Statement has been drawn, it needs to be communicated to the
employees. It is not enough to communicate just the Vision. Vision statement does
not include the action plan, because it is meant for not only the company but the
general masses as well. But it is a must to communicate the action plan for
achieving those lofty aims to the employees. Else, it will lack the authenticity and
belief of the people whose heart and soul is must for making it a reality.
Mission Mission is the dream for the near future. It is a statement of what
company wishes to achieve in the short term.
Strategy Management Process consists of following steps

1.
Analysis of External (Macro) Environment Macro environment is source of

threats, opportunities & constraints and uncontrollable. Therefore, the strategy has
to be drawn around those uncontrollables within the contraints imposed and
opportunities offered by them. Macro Environment can be further sub-dived into
following
Remote Environment (Global as well as Domestic)

(i)
Social
(ii)
Technological
(iii)
Legal
(iv)
Political
(v)
Economic
Industry Environment Porters five forces model

(vi)
Entry Barriers
(vii)
Suppliers Powers
(viii)
Buyers Power
(ix)
Substitute Availability
(x)
Competitive Rivalry
Operating Environment
(i)
Competitors
(ii)
Creditors
(iii)
Customers
(a)
(iv)
Labour
(v)
Suppliers
Socio - Cultural Environment

(i)
(b)
(c)
[email protected]
Demographic factors such as:

(aa)
Population size and distribution
(ab)
Age distribution
(ac)
Education levels
(ad)
Income levels
(ae)
Ethnic origins
(af)
Religious affiliations
(ag)
Housing conditions
(ii)
Attitudes/Belief towards: Materialism/capitalism/socialism, free

enterprise individualism, role of family, role of government,
collectivism, language, etc
(iii)
Cultural structures including: Religious beliefs and practices,

consumerism, environmentalism, Work Ethics, Pride of
accomplishment, diet and nutrition, etc.
Technical Environment
(i)
Efficiency of infrastructure, including: roads, ports, airports, rolling

stock, hospitals, education, healthcare, communication, etc.
(ii)
New manufacturing processes
(iii)
New products and services of competitors
(iv)
New products and services of supply chain partners
(v)
Any new technology that could impact the company
Legal Environment
(i)
Minimum Wage laws
(ii)
Environmental Protection laws
(iii)
Industrial laws
(iv)
Union laws
(v)
Copyright and Patent laws
(vi)
Effectiveness of Law & Order enforcement machinery.
(d)
(e)
[email protected]
Political Environment
(i)
Political Climate Type of govt

(Capitalist/Communist/Democratic/ Autocratic/Monarchy/etc)
(ii)
Political Stability and Risk What political stability relates to

business is the stability of govt policies. In many countries like
Japan, Italy, France, Germany and even in our own country, govts
have changed but business policies of the govt have remained
constant over the time. Political instability is serious when business
policies change drastically with govts.
Economic Environment
(i)
GNP or GDP per capita
(ii)
Economic growth rate
(iii)
Inflation rate
(iv)
Consumer and investor confidence
(v)
Currency exchange rates
(vi)
Unemployment rate
(vii)
Balance of payments
(viii)
Future trends
(ix)
Budget deficit or surplus
(x)
Corporate and personal tax rates
(xi)
Import tariffs and quotas
(xii)
Export restrictions
(xiii)
Restrictions on international financial flows
Scanning these macro environmental variables for threats and opportunities

requires that each issue be rated on two dimensions. It must be rated on its
potential impact on the company, and rated on its likeliness of occurrence.
Multiplying the potential impact parameter by the likeliness of occurrence
parameter gives us a good indication of its importance to the firm. Let us see how
Times of India has been affected by the changes in its external environment:
Demographic Changes There is a change in readership of newspapers. The
average age of newspapers readers have come down. TOI has responded to this
demographic change with change in the content and presentation of its articles.
Social Changes TOI has started with various supplements like Matrimonial,
Property, Suburban Specials, etc
[email protected]
Technological Paper is in colour, more prompt (even late hour news gets
coverage due to faster printing technology, and more and more editions.
Economic Lower prices
2.
Internal Resource Analysis Let us see how to evaluate our internal resources. We
need to ask a few questions to ourselves (a)
Is it a distinctive Asset?
(b)
What is the life of resource? (Kodak company which had become a household name
world over due to its photographic films and equipment business failed to see the end of
this business due to advent of digital (filmless) photography. Companies in the business of
non-renewable natural resources have to be specially aware of this fact).
3.
(c)
Is your resource copyable? If it is, does it have copyright protection? If no

then, it has no value because along with your launch it will proliferate.
(d)
What is your Brand Power?
(e)
What is the result of SWOT analysis?
Strategy Formulation Once we know the external and internal environment

(SWOT analysis) vis a vis our vision and mission, it is time to formulate the
strategy. Strategy formulation is done on the basis of following principles
(a)
Cost Leadership
(b)
Product Differentiation
(c)
Market Segmentation (or Focus)
(d)
First Movers Advantage
(e)
Synergy
Company has to take a call as to which of routes to adopt.

4.
Implementing the Strategy

A bad strategy may still succeed if implementation is good but best of the
strategies will not succeed if implementation is bad.
Above matter of fact statement sums up the importance of implementation phase.
Strategy implementation is dependent on organisational strength. Following
organisational factors affect the implementation:
(a)
Leadership
(b)
Organisational Structure Flat/Project Team/Matrix/Hierarchical, etc.
[email protected]
(c)
Reward Systems Appraisals and monetary and non-monetary rewards.
(d)
Functional Policies Implementation/execution on the ground is done at

the middle and lower manager levels. Thus, HR policies assume high
significance. Implementation is dependent on incentives, employees
motivation and commitment towards company which are shaped by the HR
policies. Marketing policies also affect the implementation some times.
(e)
Is the organisation a learning organisation? Implementation in a learning

organisation is always much better since lessons from previous
implementations must have been used to strengthen the system.
Based on above requirements, you need to create an organisation capable of

carrying out the strategy successfully in following steps:
5.
(a)
Allocate necessary and adequate resources.
(b)
Create strategy supportive systems and procedures.
(c)
Create work culture conducive to strategy implementation
(d)
Install information storage and retrieval system.
Evaluation and Control System In order to evaluate the performance, targets

need to be set. An effective, accurate and prompt feedback system is essential so
that any deviations from plan can be spotted in time and course correction applied.
High performers need to be kept motivated through awards and rewards and low
performers should be motivated or changed. If the need be fine tune/reformulate
your strategy.
[email protected]
W HY S T R AT E GI E S FAI L?
A strategy is impacted by numerous factors and most of them are uncertain. Some, like
external factors, are uncontrollable. Such factors are forecasted and factored in the
strategy formulation. Success is achieved when all or at least most forecasts turn out
correct. However, if forecasts turnout to be way off the mark, strategy fails. Quite often,
strategies fail because they were not implemented properly. Yet another time, a competitor
comes up with a counter strategy (like ambush marketing done by Pepsi in cricket World
Cup against Coca Cola). In addition, there are a host of other factors that also affect
success of strategy
(a)
Faulty strategy due to inaccurate/scanty data or assumptions or pure

inaptitude of strategists.
(b)
Inadequate training/preparation/commitment/inaptitude of
entrusted with strategy implementation (generally line managers)
(c)
Faulty definition of business
(d)
Faulty Definition of SBU Some times so much of independence is given

to SBUs that they start competition with each other. GE CEO had once
deliberately adopted this path hoping to spur company sales person to
perform better.
(e)
Excessive Focus on Numbers Some companies keep a tab on numbers,

ROI, Sales, etc, but ignore soft issues like, people welfare, ambience, etc.
Results are less than satisfactory in such situations.
(f)
Imbalance Between External and Internal Considerations Internal

resources of company are inadequate to meet the external challenges or
exploit the opportunities that are presented. A company may not have
liquidity or storage capacity to bulk purchase raw material and take
advantage of huge discounts, which may have been a key element of the
strategy.
(g)
Unrealistic Self Assessment Over assessment is as dangerous as

underassessment. Over assessment will lead to biting more than it can chew
and underassessment will allow opportunities to pass without attempting to
exploit them.
(h)
Insufficient Action Detailing God lies in details. Many times only macro
planning is done and nitty-gritties are left to be tackled on the spot. It may
lead to costly delays or complete derailing of plans.
(i)
Poor management of Corporate-SBU Interface Many top managers

approve plans based on their of personal likes and dislikes of middle level
people
[email protected]
managers rather than on the strengths of the proposal. Some others are
swept by the glossy presentations. Resources may be denied to some needy
SBU and instead allotted to SBU which can lobby well.
(j)
Conflict with corporate system and procedures
(k)
Faulty info systems.
[email protected]
CHANGE MANA GEME NT
[email protected]
ENTREPRENE URSHI P AND S TRATEGY
Gartener, a market research agency (specialising in IT sector) has done extensive studies
in entrepreneurship also. It was a related field as maximum successful entrepreneurs of the
last two decades have come from IT field only; Bill Gates being the supreme among them
and there after there is whole of Silicon Valley in US and Infosys, TCS, Wipro, etc, in
India.
During their studies, they identified a total of 90 attributes which are found in most
successful entrepreneurs. However, there was lot of overlapping in those attributes.
Therefore, they applied Factor Analysis to identify the stand alone attributes. They thus
identified following seven Unique Personal Characteristics (called UPCs)
U n iq ue P e r s o na l C h a r a c t e r i s t i c s
(a)
Risk Taking Ability This is one characteristic which is the most

important of all. Any entrepreneurial venture is like wading into uncharted
waters where dangers are plenty and your strength limited. So, unless a
person is able to take moderate calculated risk, he can not be an
entrepreneur. (Mark the word, Moderate Risk. High risk takers qualify for gamblers
tag and not entrepreneurs).
(b)
Internal Focus Entrepreneurs have very strong self belief. They believe
that they can overcome any odd.
(c)
Autonomy Most of the entrepreneurs like to be independent. They hate

interference in their matters. They want to be their own masters and hate
taking orders from any one.
(d)
Perseverance In a venture full of risks some failures are inevitable.

Unless the person has the perseverance to stay on his course despite
setbacks and failures, he wont succeed.
(e)
Commitment Entrepreneurs have very strong commitment to their chosen

aim.
(f)
Vision Entrepreneurs have long term targets. (I personally dont agree with this
attribute. I believe that most real entrepreneurs start small without lofty aims and ideas
with basic survival + a little more as their aim. These management jargons of Vision &
Mission enter into their vocabulary only after achieving a reasonable level of success).
(g)
Creativity Most entrepreneurs are creative. (Once again I dont agree with this
attribute. It helps in achieving success but is not a must have attribute. A poor farmers
son, dissatisfied with income from his meagre farming land, may become an entrepreneur
by opening a grocery or even a Paan shop in the village. No creativity is involved in
entering or running these businesses at basic level. It appears that Gartener has done its
study majorly among IT entrepreneurs only for whom creativity is almost a must).
[email protected]
One attribute which I rate as the top among the Must Have attributes, even higher
than Risk Taking Ability, is Ambitiousness. As they call it Need is mother of all
inventions. Ambition is the need for material achievement. Unless this all
consuming passion is present, person with all the abilities will be satisfied with
whatever he has and will rarely attempt entrepreneurship. So, Ambition is the
primary driving force for entrepreneurship. For unknown reasons, this all
important attribute does not find a place in Garteners list.
T he r e a r e t w o wa y s to l o o k i nt o E ntr e p r e n e ur s hi p
(a)
(b)
From Inputs side

(i)
Unique Personal Characteristics
(ii)
Insight into business
(iii)
Thinking abilities
From Output side

(i)
Innovations - New Products/services/technology
(ii)
Transforming Organisations
(iii)
Creating wealth/adding value
W ha t i s c o r p o r a t e e nt r e p r e ne ur s h ip ?
When the whole company behaves like a entrepreneur, takes an entrepreneurial approach
to business; spotting opportunities, taking risks, seeking innovations in business, creating
value by unconventional means, etc; such a phenomenon is called corporate
entrepreneurship. Some of the examples of corporate entrepreneurship are Google, Virgin
Corporation, Microsoft, etc.
C o r p o r a t e E ntr e p r e ne ur s hi p
m e c ha nis m s
c o ns is ts
of
t hr e e
c r it i c a l
1.
Identification of Entrepreneurial Opportunity; like Sony CEO did for Walkman.

(Idea of a portable music system was born when Mr Akio Morita saw his
production head walking into his cabin with a music system. When the production
head stated that he can not live without music, Mr Morita realised that there would
be many in world like his production head who would love to carry a music system
with them).
2.
Emergence of Entrepreneurial Initiative Every day a million entrepreneurial

ideas are born across the world but few get attempted. Not every one has the
initiative to pursue his idea.
3.
Renewal of Organisational Capacity Inspiring people and motivating them.

Keep developing competitive advantage through entrepreneurship.
[email protected]
H o w t o Li nk Ent r e p r e ne ur s hi p to Str a t e g y ( 7 Cs )
1.
Context Seeking opportunity all the times and finding how to create value
2.
Culture Build culture that supports value creation
3.
Competencies Acquire required resources, skills, etc
4.
Competing Outperforming competitors
5.
Change Believing in change
6.
Control Control by example.
[email protected]
DI VERSI FI CATI ON S TRATEG I ES
W ha t i s Ve r t ic a l I n t e g r a t io n a n d ho w d o y o u d i f f e r e n ti a te it
f r o m Div e r s if i c a ti o n ?
Vertical Integration is when a company expands in the value chain of its existing business;
forward or backward; towards suppliers or customers businesses. Eg. When a cloth mill
expands into the business of yarn manufacturing (backward integration suppliers
business) or into cloth retailing (forward integration customers business), as was done
by Reliance, it is vertical integration.
Thus integrative growth can be achieved by
(a)
Backward Integration Co seeks ownership or increased control of its

raw material supply system. Like Reliance, which has refinery at Jamnagar,
diversified into Oil exploration.
(b)
Forward Integration Co seeks ownership or increased control of its

distribution system. Reliance company is also opening retail petroleum
outlets. Thus, it has grown to marketing its own products.
(c)
Horizontal Integration Co seeks ownership or increased control of some

of its competitors. Like Birla Group (Grasim) which has strong presence in
cement production
Diversification is when the company expands into unrelated business; outside the value
chain of its present business; like Wipro moved into IT business from its traditional
business of Oils, Soaps and lighting. There is no commonality between their old and new
businesses. Such a move is called Product Diversification.
There are three types of diversifications: (a)
Concentric Diversification New products that have technological and/or

marketing synergies with existing ones for new class customers. Like a
plastic kitchen ware company deciding to diversify into plastic chairs and
tables or industrial storage bins/crates business. It already has know-how
and equipment for manufacturing plastic articles.
(b)
Horizontal Diversification New products appealing its present customers

though technologically unrelated. Like a CD manufacturing company
coming out with CD Storage Racks. The technology required by the two
products is entirely different, but the customers are same.
(c)
Conglomerate Diversification New products for new classes. This is

[email protected]
diversification into area which has no relation with companys present

business or customers in any way. Take the case of Raymond. A cloth
manufacturing company ventured into cement production at one time.
There is no synergy between cement and cloth business either in terms of
the product or the customers.
Str a te g i c I ni t i a ti v e s f o r D i v e r s i f i c a ti o n
1.
Pick new industries to enter and decide the mode of entry; own venture (a green
field project), partnership, Joint Venture, strategic partnership, licensing or
acquisition.
2.
Initiate actions to boost combined performance of existing and new companies.

(a)
Establish/improve the competitive position through economy of scale,

larger market share, leveraging/improving brand value, etc
(b)
Make each business more profitable by improving competitive position.
(c)
Offer new business your resources to minimise cost and improve

profitability.
(d)
Acquire a third company through combined resources of two companies.
3.
Pursuing opportunities to leverage cross business value chains, like, when a sports
goods manufacturer diversifies in sports apparels business, his forward value chain
is common; same distribution network and customers. Thus, he can benefit from
this common part of value chain. He can use his brand name, ware houses,
distribution network, etc.
4.
Establish investment priorities
W he n a nd w hy s h o u ld y o u d iv e r s i f y ?
Reasons for diversification are many.
1.
Spread the Business Risk - Most of the businesses are cyclic in nature. On the up
for some time and then going into recession for some time. Cash flow crunch at
recession times can impact the company adversely in terms of meeting debt
servicing, modernisation, expansion, etc. Strategically diversified companies will
have stable cash flow and can cross utilise the cash.
2.
Need for Growth - Existing product sector may be getting saturated with capacity
and it may be imprudent to add any further capacity.
3.
Opportunity - Often a new sector opens up by virtue of change of govt policies,

R&D, social changes, etc, where the profitability is high. Take the case of Wipro.
[email protected]
They diversified into IT sector when they found a new sector emerging and saw
the opportunity there. Similarly, United Breweries Group of Mr Vijay Mallya
diversified into aviation sector when the Indian aviation sector was being opened
up even though they continued to strengthen their liquor business through
acquisitions.
4.
Product Obsolescence - Take the case of photographic films. Digital Photography

has begun to erode the market for films. A horizontally diversified company like
Kodak is still surviving because the market for photographic printing paper,
chemicals and equipment is still intact and growing. It is high time that these
companies begin to have a serious re-look on their business strategies from
diversification angle. One of the most successful typewriter company, Remigton
Rand, is out of business because it did not diversify when computers began to
erode its market.
Cr it e r i a f o r Di v e r s if ic a t io n
1.
Industry Attractiveness Industry attractiveness is defined by many factors. Some

of them are
(a)
Market size
(b)
Growth rate
(c)
ROI projections (profit margins)
(d)
Competitive Intensity (existing and proposed capacity Vs demand)
(e)
Raw material availability
(f)
Govt Rules (Licensing, Taxes and tax holidays, subsidy, etc)
(g)
Energy Requirement This has assumed importance in India because

there is acute shortage of power. Therefore any energy intensive industry,
like aluminium foil, in India could face hurdles of availability as well as
high cost. Energy cost in Dubai is as low as Rs 0.25 per KW as against Rs
5-6 in India.
2.
Entry Cost (Initial Investment) How much is the minimum investment for a
competitively sized factory? Generally, basic industries like metals are capital
intensive. Similarly, continuous process industries are also capital intensive and
therefore become difficult for entry for small players. So, does the company have
pockets deep enough?
3.
Synergetic Effect Does the new industry have any synergy with existing one?
Advantage of synergy will lower the cost and make the company more
competitive.
[email protected]
Str a te g i c O p t i o ns r e g a r d i ng D iv e r s if ic a t io n
1.
2.
3.
Diversify into related business

(a)
Transfer skills, capabilities and resources of one business into other.
(b)
Share resources for cost reduction
(c)
Leverage use of brand name.
(d)
Combine the resources to create new capabilities or competitive advantage.
Diversify into Unrelated business

(a)
Spread business risk
(b)
Get into the big league Often there is only limited growth opportunities
in a single segment.
(c)
Seize profit opportunities suddenly of offer. Refer para 3 of reasons for

diversification above.
(d)
Manage business portfolio Resources can be re-appropriated from

business in recession to business in upswing.
Diversify into Related and Unrelated Business.
Cr it e r i a f o r U nr e l a te d Bus in e s s D iv e r s if ic a t io n
1.
Late stage of business life cycle of current product Photofilm industry (Kodak) is
one example.
2.
Assets Undervalued Acquisition method is adopted for unrelated business

diversification when assets of other company are found to be undervalued.
3.
When the other company is in financial distress and therefore is available for cheap
valuation.
Pros
(a)
Business risk is scattered.
(b)
It may be possible to reappropriate or share resources between two

businesses and thereby manage costs better.
Cons
(a)
Availability of trained and competent people to manage a new business.
(b)
Is the new business really as attractive as it appeared?
Diversification could be Broad or narrow. There are companies like Tata, Reliance and
ITC who have tens of unrelated businesses. Tata starts from salt and at one time ended
with Airlines. This is broad diversification. Then, there are narrowly diversified
companies like JK group, who at one time had diversified into cement along with their
core business of textiles.
[email protected]
Str a te g i e s f o r Al r e a d y Di v e r s if i e d Co m p a nie s
1.
Make new acquisitions
2.
Build new positions ahead of competitors. Strengthen position of business units.
3.
Divest some of existing business units that are not in line with companys vision or
are not much profitable. Restructure the portfolio.
4.
Become multi industry multi country corporation. This is the most difficult option
of all. It needs tremendous capabilities to operate in multiple businesses in wide
variety of environments. Take the case of a car manufacturer who found his new
successful car complete flop in a new market. Reason the name of car had
distasteful meaning in local language. Currently, Tata is adopting this strategy. It
has its presence in many countries in automobiles (Tata trucks and cars), software
(TCS), Tea (Tata Tetley brand) and Steel (Tata Corus).

Strategic MGMT Notes

Uploaded by

Copyright:

Available Formats

Strategic MGMT Notes

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Strategic MGMT Notes

Uploaded by

Copyright:

Available Formats

Mgmt study material created/ compiled by - Commander RK Singh

Date: 18 Jan 2007

Strategic Management: by John Pearce II and Richard B Robinson (to be used as a

The Strategy Safari: by Henry Mintzberg

Components and Hierarchy of Strategy

Business Strategy, BCG Matrix

Factors influencing competitive success

Why Strategies fail?

Entrepreneurship and Strategy

Strategy and Competitive advantage of Diversified companies

Competitive strategies of Declining Industries

Vertical Integration and Diversification

Entry Strategies. Strategic Alliances

Mergers and Acquisitions

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh

The fundamental of Strategy Formulation

The case of counter strategy

The case of strategic acquisitions

The case of vendor development

Gramophone Company of India: The Digital Challenge

Wal-Mart competing in the Global Market

The General Electric

Richard Branson & the Virgin Group of companies

Organic Growth Growth of existing business by building additional capacities

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh

In order to selectively forget the Present, it is essential that an ownership of new

Consumer Needs It is biggest business challenge to forecast what customer will

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh

Technology at Low Cost Newer Designs/features, newer materials, newer

Scope Scope refers to the expanse of business or more accurately, activities of a

Deployment of Resources Based on the Mission, Goals and Objectives, resource

Developing Sustainable Competitive Advantage The plan is formulated which

Synergise Take advantage of various synergies available. Synergy is all about

Corporate Level Corporate Strategy

Strategic Business Unit (SBU) Level Business Strategy

Functional Level Page 4 of 48 - Strategic Management (Ver-1.0/03.03.07)

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh

Pattern Patterns are typical progressions of business environment like market

Positioning - Positioning is about locating products in particular markets to

Perspective - Perspective is about an organisation's culture - its way of doing

Ploy - Ploy is a specific manoeuvre intended to outwit a competitor.

Page 5 of 48 - Strategic Management (Ver-1.0/03.03.07)

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh

The Fundamentals of Strategy Formulation

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh

Page 7 of 48 - Strategic Management (Ver-1.0/03.03.07)

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh

Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh