S CDL Strategic Management

STRATEGIC
MANAGEMENT
(FOR PRIVATE CIRCULATION ONLY)

2019
PROGRAMME COORDINATOR
Dr. Padmpriya Irabatti
COURSE DESIGN AND REVIEW COMMITTEE

Prof. Ashok Soman Prof. Avinash Tripathi
Prof. Sunil Kumar Prof. Chandan Chatterjee
Prof. Vivek Sane Prof. Avinash Nene
COURSE WRITER
Prof. Shirish Bagewadi
EDITOR
Ms. Neha Mule
Published by Symbiosis Centre for Distance Learning (SCDL),

2001 (Revision 03, 2014)
Copyright © 2019 Symbiosis Open Education Society

All rights reserved. No part of this book may be reproduced, transmitted or utilised in any form or by any
means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval
system without written permission from the publisher.
Acknowledgement
Every attempt has been made to trace the copyright holders of materials reproduced in this book. Should any
infringement have occurred, SCDL apologises for the same and will be pleased to make necessary corrections
in future editions of this book.
PREFACE
This study material is not a book or even a textbook but a referral book compiled for the benefit of
students and aspiring managers. It covers the basic theory and also a lot of relevant knowledge taken
from the world’s leading management authors. Students are expected to keep in touch with the latest
texts and management articles. By reading newspapers and magazines, you will be able to correlate
the theories with events in the real world. There has been an effort to apply the concepts to certain
companies by way of examples, caselets and cases. The aim is to make you relate the concepts to real
life situations in business.
Unit 1 covers the introduction, scope and importance of strategic management and the role of
managers in today’s dynamic environment.
Unit 2 covers the aspects of strategic business units, the various levels of strategy in a company, the
issues in strategic decision-making and also the role of strategists in strategic management.
Unit 3 covers the strategic planning process, company vision and mission, formulation of goals and
objectives, the critical success factors, strategic intent, leverage and fit.
Unit 4 covers the study of the internal and external environment, methods of environment scanning,
internal appraisal of the company, its competencies, internal capabilities, core competencies, ETOP
and SWOT analysis and strategic advantage profile.
Unit 5 covers corporate and business level strategies, various dimensions of strategies, diversification,
mergers and acquisitions and strategic alliances.
Unit 6 covers multinational, international and global companies and how they would become
transnational, the various dimensions of strategies, unpopular strategies of retrenchment and
divestment, combination strategies, business level strategies, generic strategies and strategies in
expanding markets.
Unit 7 covers strategic decision making under uncertainty, McKinsey’s 7-S Model, the emerging
theory of manufacturing, corporate parenting analysis and Michael Porter’s model for industry
analysis.
Unit 8 covers the Boston Consulting Group approach, the General Electric model, Profit Impact of
Market Strategy Model, Game Theory, Delphi Method and Other Methods.
Unit 9 covers strategy implementation and includes the hierarchy of plans and objectives, decision
making, allocation of resources, factors in organisation structure, and the evolution of companies.
Unit 10 covers the implementation aspects of data vs information, types of systems in a company, the
importance of Corporate Social Responsibility and the role of values and ethics.
Unit 11 covers the functional aspects including marketing, finance, manpower, production, materials,
R & D and information technology. It also discusses planning, knowledge management, impact and
use of SCM, CRM, outsourcing, synergy and dis-synergy and leadership requirements.
Unit 12 covers control systems and review including strategic evaluation, control systems and change
management.
Your suggestions for improvements in the book are welcome.
Prof. Shirish Bagewadi
iii
ABOUT THE AUTHOR
Shirish Bagewadi is a Mechanical Engineer from Government College of Engineering, Pune, and
a post-graduate in Management from the Indian Institute of Management, Bangalore, in Marketing
and Finance.
He has over 14 years of industrial experience in reputed companies with different functions like
manufacturing, sales and marketing, corporate planning and financial services.
He also has over 10 years of academic and teaching experience and is a faculty with institutes such
as Symbiosis Institute of Business Management, Symbiosis Institute for Management Studies,
Symbiosis Center for Information Technology, etc. He has also been associated with Symbiosis
Centre for Distance Learning for over 6 years.
Active in corporate training, he is an expert in Strategic Management and Corporate Finance. He is a
regular faculty with many reputed corporate training organizations in Pune.
iv
CONTENTS
Unit No. TITLE Page No.

1 Introduction to Strategic Management 1-16
1.1 Introduction
1.2 Evolution of Strategic Management
1.3 Importance of Strategic Management
1.4 Changing Business Scenario
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
2 Understanding Strategy 17-42
2.1 Introduction
2.2 Strategic Business Units (SBUs)
2.3 Levels of Strategy
2.4 Issues in Strategic Decision-making
2.5 Strategists and their role in Strategic Management
2.6 Competitor Analysis
Summary
Keywords
Suggested Reading
3 The Strategic Management Process 43-66
3.1 Introduction
3.2 Definitions of Strategic Management
3.3 The Strategic Planning Process
3.4 Company Vision and Mission
3.5 Goals and Objectives
3.6 Critical Success Factors
3.7 Balanced Scorecard
Summary
Keywords
Suggested Reading
v
4 Environmental Appraisal and SWOT 67-86
4.1 Introduction
4.2 Concept of Environment
4.3 External and Internal Environment
4.4 Environmental Scanning
4.5 Organizational Appraisal
4.6 Environmental Appraisal
4.7 ETOP Analysis ( Environment Threat and Opportunity Profile)
4.8 Strategic Advantage Profile and Organisational Capability Profile
Summary
Keywords
Suggested Reading
5 Corporate Level Strategies : I 87-118
5.1 Introduction
5.2 Grand Strategies
5.3 Business Definition
5.4 Stability Strategies
5.5 Types of Integration
5.6 Diversification Strategies
5.7 Mergers and Acquisitions
5.8 Strategic Alliances
Summary
Keywords
Suggested Reading
6 Corporate Level Strategies : II 119-144
6.1 Introduction
6.2 Organizational Models
6.3 Retrenchment Strategies
6.4 Turnaround Strategies
6.5 Divestment Strategies
6.6 Business Level Strategies
6.7 Other Business Strategies
6.8 How Strategic Management helps in beating the Competition
6.9 Marketing Warfare
Summary
Keywords
Suggested Reading
vi
7 Tools for Strategic Analysis and Choice : I 145-178
7.1 Introduction
7.2 Strategic Decision making under Uncertainty
7.3 McKinsey’s 7-S Model
7.4 Creating new Market Space
7.5 The Emerging Theory of Manufacturing
7.6 Corporate Parenting Analysis
7.7 Michael Porter’s Five Forces Model for Industry Analysis
Summary
Keywords
Suggested Reading
8 Tools for Strategic Analysis and Choice : II 179-212
8.1 Introduction
8.2 Boston Consulting Group (BCG) Approach
8.3 General Electric (GE) Model
8.4 Introduction to Portfolio Analysis
8.5 Superposition of BCG Matrix on the GE Matrix
8.6 Profit Impact of Market Strategy Model (PIMS)
8.7 Game Theory
8.8 Delphi Method
8.9 Other Methods
Summary
Keywords
Suggested Reading
vii
9 Implementing Strategy : I 213-242
9.1 Introduction
9.2 Strategy Implementation
9.3 Decision Making
9.4 Organization Structure
9.5 Organization Levels
9.6 Departmentation
9.7 Entrepreneurial Structure
9.8 Matrix Organization
9.9 Strategic Business Units
9.10 Why Business Models Matter
9.11 Telling a Good Story
9.12 Tying Narrative to Numbers
9.13 Evolution and Revolution
Summary
Keywords
Suggested Reading
10 Implementing Strategy : II 243-266
10.1 Introduction
10.2 Data vs Information
10.3 Control Systems
10.4 Strategic Decision Making
10.5 Corporate Social Responsibility (CSR)
10.6 Values and Ethics
Summary
Keywords
Suggested Reading
viii
11 Implementing Strategy : III 267-312
11.1 Introduction
11.2 Functional Strategies
11.3 Manpower Planning
11.4 Planning Process
11.5 Capital Structure Planning
11.6 Marketing Plan
11.7 Research and Development Planning
11.8 The Knowledge Creating Company
11.9 Supply Chain Management
11.10 Customer Relationship Management
11.11 Outsourcing, Mergers and Acquisitions
11.12 Synergy
Summary
Keywords
Suggested Reading
12 Strategic Evaluation and Control 313-328
12.1 Introduction
12.2 Levels of Evaluation
12.3 Types of Strategic Controls
12.4 Types of Operational Controls
12.5 Evaluating Corporate Strategy
12.6 Reasons for Transformational Failure
12.7 Important Events having a Great Impact on India and Indian Industry
Summary
Keywords
Suggested Reading
Annexure 329
Book Review 335
Caselet 337
References 339
ix
x
Introduction to Strategic Management
UNIT
1
Structure:
1.1 Introduction
1.2 Evolution of Strategic Management
1.3 Importance of Strategic Management
1.4 Changing Business Scenario
Summary
Keywords
Suggested Reading
Introduction to Strategic Management 1

Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
●● Evaluate strategic management and its aspects
---------------------- ●● Assess the importance of strategic management
---------------------- ●● Judge the role of managers in the future
---------------------- ●● Describe the evolution of strategy
---------------------- 1.1 INTRODUCTION

---------------------- The term “Strategic Management” has been used traditionally through
new titles such as Business Policy, Business Policy & Strategic Management,
----------------------
Corporate Strategy and Policy, Corporate Planning and Policy, and so on.
---------------------- Essentially all are now used extensively and mean more or less the same
concepts and coverage.
----------------------
---------------------- 1.2 EVOLUTION OF STRATEGIC MANAGEMENT
---------------------- In the initial days, typically in early 1920’s till the 1930’s, managers used
to do day-to-day planning methods. However, after that, managers have tried
---------------------- to anticipate the future. They have used tools like preparation of budgets and
by using control systems like capital budgeting and management by objectives,
---------------------- and various other tools. However, as these techniques and tools were unable
---------------------- to emphasize the role of the future adequately. In the initial days, typically in
early 1920’s till the 1930’s, managers used to do day-to-day planning methods.
---------------------- However, after that, managers have tried to anticipate the future. They have
used tools like preparation of budgets and by using control systems like capital
---------------------- budgeting and management by objectives, and various other tools. However,
---------------------- as these techniques and tools were unable to emphasize the role of the future
adequately.
----------------------
The next step was to try and use long-range planning, which was soon
---------------------- replaced by strategic planning, and later by strategic management – a term that
is currently being used to describe the process of strategic decision-making.The
---------------------- next step was to try and use long-range planning, which was soon replaced by
strategic planning, and later by strategic management – a term that is currently
----------------------
being used to describe the process of strategic decision-making.
---------------------- The first phase, which can be traced back to the mid-1930s. Mainly due to
the nature of the business of that period, the way planning was done was on the
----------------------
premise of ad hoc policy-making. The need for policy-making arose, as many
---------------------- of the businesses had just about started operations and were mostly in a single
product line. The ranges of operations were in a limited area. Most of them were
---------------------- catering to a small and identifiable set of customers. As companies grew, they
expanded their products, catered to more customers and also increased their
----------------------
geographical coverage.The first phase, which can be traced back to the mid-
2 Strategic Management
1930s. Mainly due to the nature of the business of that period, the way planning Notes
was done was on the premise of ad hoc policy-making. The need for policy-
making arose, as many of the businesses had just about started operations and ----------------------
were mostly in a single product line. The ranges of operations were in a limited
area. Most of them were catering to a small and identifiable set of customers. As ----------------------
companies grew, they expanded their products, catered to more customers and ----------------------
also increased their geographical coverage.
----------------------
The method of using informal control and coordination was not enough
and became somewhat irrelevant as these companies expanded. This expansion ----------------------
brought in complexity and a lot of changes in the external environment. Thus,
there was then a need to integrate functional areas. This integration was brought ----------------------
about by framing policies to guide managerial action. Policies helped to have
----------------------
predefined set of actions, which helped the people to make decisions. Policy-
making became the way owners managed their business and it was considered ----------------------
their prime responsibility. They later assumed the role of senior management.
Thus, with the increasing environment changes in the 1930’s and 40’s, planned ----------------------
policy formulation replaced ad hoc policy-making, which shifted the emphasis
----------------------
to the integration of functional areas in a rapidly changing environment.The
method of using informal control and coordination was not enough and became ----------------------
somewhat irrelevant as these companies expanded. This expansion brought in
complexity and a lot of changes in the external environment. Thus, there was ----------------------
then a need to integrate functional areas. This integration was brought about by
----------------------
framing policies to guide managerial action. Policies helped to have predefined
set of actions, which helped the people to make decisions. Policy-making ----------------------
became the way owners managed their business and it was considered their
prime responsibility. They later assumed the role of senior management. Thus, ----------------------
with the increasing environment changes in the 1930’s and 40’s, planned policy
----------------------
formulation replaced ad hoc policy-making, which shifted the emphasis to the
integration of functional areas in a rapidly changing environment. ----------------------
As the years progressed, there was more complexity and significant
----------------------
changes in the environment, especially after the Second World War. This
made the management lead through planned policy, as a way of management, ----------------------
increasingly difficult. Businesses had grown much larger and were targeting
larger markets geographically, serving more number and types of customers ----------------------
and also were manufacturing and selling more types of products. Competition
----------------------
had also increased with many companies entering the markets. Policy-making
and functional-area integration only did not suffice for the complex needs of a ----------------------
business. By the 1960s, there was a demand for a critical look at the basic concept
of business, due to increasing competition. As the years progressed, there was ----------------------
more complexity and significant changes in the environment, especially after
----------------------
the Second World War. This made the management lead through planned policy,
as a way of management, increasingly difficult. Businesses had grown much ----------------------
larger and were targeting larger markets geographically, serving more number
and types of customers and also were manufacturing and selling more types of ----------------------
products. Competition had also increased with many companies entering the
----------------------

Notes markets. Policy-making and functional-area integration only did not suffice for
the complex needs of a business. By the 1960s, there was a demand for a critical
---------------------- look at the basic concept of business, due to increasing competition.
---------------------- The environment had a crucial role on the business. The effect and
relationship of the business with the environment led to the concept of
---------------------- strategy. This helped the management of managing both the business and the
environment, thus leading to the third phase, based on a strategy paradigm, in
----------------------
the early sixties. The environment had a crucial role on the business. The effect
---------------------- and relationship of the business with the environment led to the concept of
strategy. This helped the management of managing both the business and the
---------------------- environment, thus leading to the third phase, based on a strategy paradigm, in
the early sixties.
----------------------
In the earlier eighties, the patterns again changed, with many companies
---------------------- going global and also facing competition from rivals across the world.
Japanese companies unleashed a force across the world along with other Asian
----------------------
companies and posed threats for the U.S. and European companies. This led
---------------------- to the current thinking – which emerged in the eighties. It is on the premise of
strategic management. In the earlier eighties, the patterns again changed, with
---------------------- many companies going global and also facing competition from rivals across
the world. Japanese companies unleashed a force across the world along with
----------------------
other Asian companies and posed threats for the U.S. and European companies.
---------------------- This led to the current thinking – which emerged in the eighties. It is on the
premise of strategic management.
----------------------
Strategic management focus is towards two aspects – first on the strategic
---------------------- process of business and – second on the responsibilities of general management.
Unlike earlier, in this phase the role of the senior management is vital and of
---------------------- utmost importance. Their role would be important in decisions like :
---------------------- ●● Whether a company either promotes a joint venture or a new division.
●● Whether it decides to exit or sell some of its business.
----------------------
●● Whether it decides to go on an expansion.
----------------------
●● Whether it takes other similar important actions.
---------------------- All these actions and decisions have a long-term impact on its future
operations and status of the company. They are a result of senior management
----------------------
decision-making. It is the senior management, which is primarily responsible
---------------------- for charting and deciding the future course of action. As per many eminent
authors and management thinkers, Strategic Management / business policy is
---------------------- both about the present and about the future in respect of the following :
---------------------- ●● The study of the function and responsibilities of senior management.
●● The crucial problems that affect success in the total enterprise.
----------------------
●● he decisions that determine the direction of the organization and shape
T
---------------------- its future.
----------------------
●● he choice of purposes of the organization and the molding of its character
T Notes
and its identity.
●● The mobilization of resources and their allocation. ----------------------
Managers face a wide variety of choices when looking at the future and ----------------------
thus decisions could be based on given circumstances, which in their opinion,
would take the company in a specific direction. Thus this could lead to the ----------------------
attaining the planned identity. ----------------------
Check your Progress 1 ----------------------
----------------------
Fill in the blanks.
1. With the expansion of companies, the method of using ___________ ----------------------
control and coordination was not enough and became somewhat
----------------------
irrelevant.
2. _______________ of companies brought in complexity and a lot ----------------------
of changes in the external environment.
----------------------
----------------------
Activity 1
----------------------
Track the changes in the Indian economy due to strategic decisions of
----------------------
government.
----------------------
1.3 THE IMPORTANCE OF STRATEGIC MANAGEMENT ----------------------
Strategic Management is wide and encompasses all functions and thus it ----------------------
seeks to integrate the knowledge and experience gained in various functional
----------------------
areas of management. It enables one to understand and make sense of the
complex interaction that takes place between different functional areas. ----------------------
In real life there are constraints and complexities, which Strategic
----------------------
Management deals with. In order to develop a theoretical structure of its own,
Strategic Management cuts across the narrow functional boundaries. This in ----------------------
turn helps to create an understanding of how policies are formulated and also in
creating an appreciation of the complexities of the environment that the senior ----------------------
management faces in policy formulation.
----------------------
Managers need to be in control and therefore begin by gaining an
understanding of the business environment. They then can become more ----------------------
receptive to the ideas and suggestions of the senior management. When they ----------------------
become capable of relating environmental changes to policy changes within
an organization, and what the top management are thinking, managers feel ----------------------
themselves to be a part of a process, which helps to reduce their feeling of
isolation. ----------------------
----------------------

Notes Let us look at what Indian managers need to do. As per Mr. Kamat of
ICICI, some of the characteristics that the Indian manager will require in the
---------------------- current scenario will be as follows :
---------------------- ●● anaging and understanding Information Technology, which is changing
M
the face of business.
---------------------- ●● s public and common investors own more and more companies, managers
A
---------------------- need to be oriented towards shareholder value. Managers would need to
acquire skills to maximize shareholder value.
---------------------- ●● I t is essential for managers to foresee the future and track changes in
---------------------- customer expectations thus take a Strategic perspective. Intuitive and
conceptual ways using sound reasoning and logic as well as instinct and
---------------------- perceptions in decision-making would be needed.
---------------------- ●● I ncreasingly the success of companies depends on its people, thus People
management would be a requirement of Management. They would have
---------------------- to create capability for initiating and managing change through leadership
and personal qualities of patience, commitment, and perseverance.
----------------------
●● ue to the rapid changes in the environment and scenarios that the
D
---------------------- business faces, responsiveness would be important. Managers would
have to provide speedy responses to environmental changes through
---------------------- information systems and organizational processes.
---------------------- ●● s companies are becoming more and more integrated with public life
A
and their impact on society increases, Corporate governance is becoming
---------------------- important, which will be a key for Managers, who would have to enhance
good governance practices.
----------------------
●● ateral thinking. Managers would have to learn to deal with chaotic
L
---------------------- situations and the complex relationship between decision variables.
---------------------- ●● oundaries across business and countries are shrinking. Thus the need
B
for global sensitivity and experience. Managers would have to develop
---------------------- the sensitivity to deal with global managers and cultural preferences,
business protocols, and market conditions.
----------------------
●● s situations become complex and uncertain, managers will need courage
A
---------------------- in decision-making. Managers would have to develop the courage to make
unconventional decisions.
----------------------
●● ocial responsibility. Managers would have to maintain high ethical
S
---------------------- standards in business and focus on social responsibility.
---------------------- Thus we can say that the purpose of Strategic Management is many fold.
For success in the business, it is necessary to have a holistic view and thus
---------------------- the need for integration of knowledge gained in various functional areas of
management. This requires managers, especially senior management to adopt a
---------------------- generalist approach to problem solving. This would require understanding the
---------------------- complex interlinkages operating within an organization through the use of a
systems approach to decision-making and relating these to the changes taking
---------------------- place in the external environment.
Caselet : Apollo Tyres Notes
There lies a legend behind every success story and ours goes back a long ----------------------
way to ancient Greece. Named after the Greek Sun God, Apollo has created
a niche for itself in the tyre market. After three decades of consistent growth, ----------------------
today Apollo shines as India’s premier tyre manufacturing and distribution ----------------------
company.
----------------------
The history of Apollo as a company goes back to the early seventies, when
hard-nosed MNCs and Indian tyre majors dominated the tyre industry. ----------------------
Despite incurring heavy losses in the initial years, mainly due to the fact that
all tyre majors in those days had high production capacities as compared to ----------------------
the market demand, Apollo came back as a strong player backed by strong
----------------------
production and marketing strategies. Thanks to its state-of-the-art technology,
goal-oriented people and clear, adventurous vision of the top management, ----------------------
Apollo is today, a name to reckon with, not just in the nylon, but also in the
radial tyre segment. ----------------------
With a view to position itself in the premium tyre segment, Apollo decided to ----------------------
price its brands reasonably higher than its competitors. The rationale behind
this was targeting a customer segment for whom price was almost a non- ----------------------
issue. Our key criterion was product benefit. Premium branding led to the
----------------------
development of a niche that comprised of those who looked for the best tyre
and not necessarily the best bargain. ----------------------
This not only made the company less vulnerable to recessionary trends in
----------------------
the years to come but also in the recent times. While the industry has been
crying wolf, Apollo has comfortably weathered the storm of recession. Little ----------------------
wonder then, that customer loyalty to Apollo brands has become legendary.
----------------------
Believing firmly in the philosophy of ‘always looking for new answers’,
Apollo has all along envisioned action that would challenge the conventional ----------------------
wisdom of the tyre industry. Call it holistic thinking or innovative marketing
strategies, as a corporation Apollo has always thrived on huge challenges so ----------------------
as to turn them around to its advantage. ----------------------
Caselet : Arvind Mills
----------------------
1930 was a year the world suffered a traumatic depression. Companies across
the globe began closing down. In UK and in India the textile industry in ----------------------
particular was in trouble. At about this time, Mahatma Gandhi championed the
Swadeshi Movement and at his call, people from all India began boycotting ----------------------
fine and superfine fabrics, which had so far been imported from England. ----------------------
In the midst of this depression one family saw opportunity. The Lalbhais
----------------------
reasoned that the demand for fine and superfine fabrics still existed. And
any Indian company that met this demand would surely prosper. The three ----------------------
brothers, Kasturbhai, Narottambhai and Chimanbhai decided to put up a mill
to produce this superfine fabric. Next they looked around for state-of-the-art ----------------------
machinery that could produce such high quality fabric. Their search ended in
----------------------

Notes England. The best technology of that time was acquired at a most attractive
price. And a company called Arvind Mills was born.
----------------------
Arvind Mills started with a share capital of Rs 2,525,000 ($55,000) in the year
---------------------- 1931. With the aim of manufacturing the high-end superfine fabrics Arvind
invested in very sophisticated technology. With 52,560 ring spindles, 2552
----------------------
doubling spindles and 1122 looms it was one of the few companies in those
---------------------- days to start along with spinning and weaving facilities in addition to full-
fledged facilities for dyeing, bleaching, finishing and mercerizing. The sales
---------------------- in the year 1934, three years after establishment were Rs 45.76 lakhs and
profits were Rs 2.82 lakhs. Steadily producing high quality fabrics, year after
----------------------
year, Arvind took its place amongst the foremost textile units in the country.
---------------------- In the mid 1980’s the textile industry faced another major crisis. With the
power loom churning out vast quantities of inexpensive fabric, many large
----------------------
composite mills lost their markets, and were on the verge of closure. Yet
---------------------- that period saw Arvind at its highest level of profitability. There could be
no better time, concluded the Management, for a rethink on strategy. The
---------------------- Arvind management coined a new word for it new strategy – Renovision.
It simply meant a new way of looking at issues, of seeing more than the
----------------------
obvious and that became the corporate philosophy. The national focus paved
---------------------- way for international focus and Arvind’s markets shifted from domestic to
global, a market that expected and accepted only quality goods. An in-depth
---------------------- analysis of the world textile market proved an eye opener. People the world
over were shifting from synthetic to natural fabrics. Cottons were the largest
----------------------
growing segments. But where conventional wisdom pointed to popular
---------------------- priced segments, Renovision pointed to high quality premium niches. Thus in
1987-88 Arvind entered the export market for two sections. Denim for leisure
---------------------- andfashion wear. And high quality fabric for cotton shirtings and trousers. By
1991 Arvind reached 1600 million meters of Denim per year and it was the
----------------------
third largest producer of denim in the world.
---------------------- In 1997 Arvind set up a state-of-the-art shirting, gabardine and knits
---------------------- facility, the largest of its kind in India, at Santej. With Arvind’s concern for
environment a most modern affluent treatment facility with zero affluent
---------------------- discharge capability was also established.
---------------------- Year 2005 is a watershed year for textiles. With the mulitifiber agreement
getting phased out and the disbanding of quotas, international textile trade is
---------------------- poised for a quantum leap. In the domestic market too, the rationalizing of the
cenvat chain and the growth of the organized retail industry is likely to make
---------------------- textiles and apparel see an explosive growth.
---------------------- Arvind has carved out an aggressive strategy to verticalize its current
operations by setting up world-scale garmenting facilities and offering a
----------------------
one-stop shop service, of offering garment packages, to its international and
---------------------- domestic customers.
With the Indian economy poised for rapid growth, Arvind brands with its
----------------------
international licenses of Lee, Wrangler, Arrow and Tommy Hilfiger and its Notes
own domestic brands of Flying Machine, Newport, Excalibur and Ruf & Tuf,
is setting it’s vision on becoming the largest apparel brands company in India. ----------------------
----------------------
1.4 CHANGING BUSINESS SCENARIO
----------------------
In the eighteenth century with the beginning of Industrial Revolution
(With the invention of James watt’s steam engine in 1769) the job of manager ----------------------
transformed from owner-manager to professional, salaried manager. ----------------------
The Volumes of the Business increased as they were able to reduce time
required to produce goods and send them to the market. Simultaneously, with ----------------------
advanced production process, the concept of MASS-PROdUCTION emerged. ----------------------
It became feasible to sell goods cheaply due to the economies of scale.
----------------------
Fresh concepts and logical methods/techniques were needed for managing
these large scale organizations. Though volumes of goods produced increased ----------------------
but still there was less/No emphasis on QUALITY.
----------------------
The Quantitative Management Viewpoint emerged as a major force
during the world war II. The sheer magnitude of the war effort caused the ----------------------
British and then the US military services to turn to quantitative methods for
help in determining the effective use of resources. ----------------------
This approach takes into account mathematics, statistics and information ----------------------
tools to aid managerial decision-making and organizational effectiveness.
----------------------
After world war – II
The approach was to rebuild the destructed and devastated economies. ----------------------
The earlier approach of whatever has been produced by Industry has to be ----------------------
consumed by customer changed in 60s and 70s. This leads to fierce competition
in various Industries and diversification of Products. Now the company started ----------------------
focusing on their core competencies.
----------------------
The market changed from a sellers’ market to buyers’ market. The
consumer gradually developed a set of brand beliefs about where each brand ----------------------
stands on each attribute. Then he formed preferences among the brands in the
----------------------
choice set. He generally had an intention to buy the most preferred brand.
By the end of 20th Century ----------------------
The Business Scenario changed all of a sudden, with the end of Communism ----------------------
and fall of USSR, the world rapidly moved towards the Liberalization. Trade
Bodies like WTO came into picture to allow free and fair trade internationally ----------------------
and to safeguard the interests of Third World Countries.
----------------------
The progress made in the IT field in the last 20 yrs of 20th Century and
its Impact on all other Industries brought a New Revolution in the Business ----------------------
world. Now the companies could connect with all of their Branch Offices on ----------------------
Real- time basis and share Data and Resources.
----------------------

Notes Then Concept of E-Commerce came into picture and people started
trading online—with this concept like—B2B, B2C, C2C etc came into picture.
----------------------
Present Scenario (21st Century)
---------------------- Globalization, price pressure, technology and consumer behaviour play
a crucial role in shaping the structure of any industry in economy. It’s difficult
----------------------
to predict the future trends of the Marketplace and consumer’s tastes and
---------------------- behaviour because of a variety of products and services are available and that
too at competitive prices.
----------------------
With the daily advancement of technology, the product which used to last
---------------------- in the Market for years get outdated in a matter of months. No company can
afford complacency and take customers for granted. ‘Survival of the Fittest’ has
---------------------- become the Mantra of Business Today.
---------------------- Role of Manager
---------------------- In today’s changing business scenario, the goal of every manager should
be to establish an environment in which people can accomplish group goals
---------------------- with least time, money materials & personal dissatisfaction.
---------------------- Managers should be charged with the responsibility of taking actions that
will make it possible for an individual to make their best contributions to group
---------------------- objectives.
---------------------- Following are the three main skills required by a manager-
1. Technical skills-
----------------------
●● Of greatest importance at supervisory level
----------------------
●● nowledge of and proficiency in activities involving methods,
K
---------------------- procedures and processes.
●● Involves working with specific tools and techniques.
----------------------
2. Conceptual skills-
----------------------
●● bility to see the ‘big picture’ & to recognize significant elements
A
---------------------- in a situation.
●● To understand the relationship among the different elements.
----------------------
3. Human skills-
----------------------
●● Ability to work with people
---------------------- ●● Co-operative effort and teamwork
---------------------- ●● reation of an environment in which people feel secure & free to
C
express their opinions.
---------------------- Other skills, which are necessary for manager now a days,
---------------------- 4. Design skills-
---------------------- ●● Ability to solve problems so that it will benefit the enterprise.
●● To find the optimal solution
----------------------
●● Working out a practical solution to a problem.
5. Work-life balance Notes
Ability to manage professional as well as personal life effectively.
----------------------
A competent manager should perform the following roles in an enterprise-
----------------------
1. Interpersonal roles:
 Figurehead role ----------------------
 Leader role ----------------------
 The liaison role
----------------------
2. Informational role:
----------------------
 Recipient role
 Disseminator role ----------------------
 Spokesperson role ----------------------
3. Decision role:
----------------------
 Entrepreneurial role
 Disturbance-handler role ----------------------
 Resource- allocator role ----------------------

 Negotiator role ----------------------
A manager should operate in the internal as well as external environment
of an enterprise. Managers can’t perform their tasks well unless they have ----------------------
an understanding of and are responsive to many elements of the external ----------------------
environment i.e. economic, technological, social, political and ethical elements.
----------------------
Caselet : Nicholas Piramal Limited
Nicholas Piramal India Limited is one of India’s largest companies with ----------------------
an unmatched record of managing JVs/Alliances/Partnerships, and a proven
----------------------
commitment to IPR. With strong brand management and sales capabilities,
a US FDA site-approved plant for on-and-off patent APIs and Intermediates, ----------------------
Basic Research, Process Innovation, Custom Chemical Synthesis,
Formulations R&D, NDDS, and a world-class, accredited Clinical Research ----------------------
Organisation, NPIL is poised to emerge as India’s pharma powerhouse.
----------------------
With growth fuelled through a strategy of partnerships, quality acquisitions,
brand building, focused selling and manufacturing, NPIL’s consolidated net ----------------------
sales turnover was US$ 300 million (INR 13.9 billion) in 2003-04 (April to
----------------------
March).
NPIL has emerged among the leaders in Indian pharma with a unique mix ----------------------
of inorganic and organic growth fuelled through a strategy of acquisitions, ----------------------
brand building and focused selling, and manufacturing. The company has
one of the widest product portfolios in India, spanning nine key therapeutic ----------------------
areas, including the Cardio-vascular, Neuro-psychiatry, Oncology, Diabetes
Management, Respiratory, Anti-infectives, Gastro-intestinals, Dermatology ----------------------
and NSAIDS. ----------------------

Notes The company was formed when the Piramal Group acquired Nicholas
Laboratories, a small formulations company in 1988 from Sara Lee. It has
---------------------- followed a multi-pronged strategy to integrate and maximize synergies with
---------------------- the planned acquisitions and develop and consolidate its major strength in
marketing to therapeutic niches.
---------------------- Managed by a team of highly proficient industry professionals, NPIL’s key
---------------------- strengths come from its strong brand building, selling and distribution,
manufacturing and alliance/partnership management skills. The last,
---------------------- especially, are quite unique in the Indian context - few Indian Pharmaceutical
have exhibited such a strong and consistent record in successfully and
---------------------- ethically managing JVs/Alliances and Partnerships as NPIL has. Its policy of
---------------------- respecting IPR and managing partnerships, in keeping with both the letter and
the spirit of written agreements, has been widely respected and commended
---------------------- by its partners. NPIL is the flagship company of the Rs. 2500 crore (US $
550 million) Piramal Enterprises (PEL), one of India’s largest diversified
---------------------- business houses.
---------------------- Nicholas Piramal under the leadership of Ajay Piramal
---------------------- Ajay Piramal Speaks.
“You cannot fool yourself, reality will strike. Five years ago, my management
----------------------
style was radically different from what it is today. I was a hands-off manager
---------------------- and had entrusted the running of the company to a professional manager.
However, over a period of time I realised that though the company was
---------------------- profitable it was not performing to its fullest potential. Delving deeper into
the issue I recognised that the company was not moving in the right direction
----------------------
in terms of sustainability of profit levels, quality of people and retaining
---------------------- market share.
---------------------- The first thing I did was to change the CEO and personally get involved in
the management of the company. I took a step back, understood the basics,
---------------------- hired McKinsey to evaluate our strategy and then implemented it. My top
management was restructured and we improved the quality and depth of
---------------------- management across the company. We got out of unprofitable businesses and
---------------------- worked on maximising the value of the assets we owned. This was a huge
challenge for me and it made me more detail-oriented and quantitative. I
---------------------- spend a fair amount of my time now in planning and thinking in order to
identify performance levers, growth engines and the root causes of poor
---------------------- performance.”
---------------------- Ajay Piramal has always emphasised on seven principles he has been
following and implementing in his organisation that has made Nicholas
---------------------- Piramal emerge a winner. According to him,
---------------------- ●● ou have to think big. Because ultimately you are what you think you
Y
are.
----------------------
●● he values of the employees should be harmonious with those of the
T
---------------------- organisation.
●● You must keep stretching your employees more and more. Notes
●● It is essential to break barriers. ----------------------
●● Every company reinvents itself over a period of time.
----------------------
●● Believe in your strategy and stick to it even if you are criticised for it.
●● It is important to have milestones to motivate your employees. ----------------------
----------------------
State True or False. ----------------------
1. There is no need to integrate functional areas in companies. ----------------------
2. Policy-making and functional-area integration did suffice for the
complex needs of a business. ----------------------
3. The effect and relationship of the business with the environment led ----------------------
to the concept of strategy.
----------------------
Fill in the blanks.
----------------------
1. Strategic management focusses on two aspects − the ___________ of
business and the responsibilities of __________ management. ----------------------
2. Strategic management is wide and encompasses all functions and
----------------------
thus, it seeks to _______________ the knowledge and experience
gained in various functional areas of management. ----------------------
3. For success in the business, it is necessary to have a _____________ ----------------------
view and thus the need for ______________ of knowledge gained
importance in various functional areas of management. ----------------------
4. The ________________ management viewpoint emerged as a major ----------------------
force during World War II.
----------------------
Activity 2 ----------------------
----------------------
Read more on the emergence of the quantitative management viewpoint as
a major force during World War II. ----------------------
----------------------
Summary
----------------------
●● trategic Management is wide and encompasses all functions and thus
S ----------------------
it seeks to integrate the knowledge and experience gained in various
functional areas of management. ----------------------
●● It enables one to understand and make sense of the complex interaction
----------------------
that takes place between different functional areas. In real life there are
constraints and complexities, which Strategic Management deals with. ----------------------

Notes ●● In order to develop a theoretical structure of its own, Strategic Management
cuts across the narrow functional boundaries. This in turn helps to create
---------------------- an understanding of how policies are formulated and also in creating
an appreciation of the complexities of the environment that the senior
---------------------- management faces in policy formulation.
----------------------
Keywords
----------------------
●● Strategy: A plan of action against rivals.
----------------------
●● Internal environment: All the internal resources of the organisation like
---------------------- men, machine, money, material and processes.
---------------------- ●● External environment: Economic, legal, political, technological, social
and cultural, natural environment of business.
----------------------
---------------------- Self-Assessment Questions
---------------------- 1. Explain the evolution of strategic management.

2. What are the different aspects of strategic management?
----------------------
3. Explain the importance of studying and applying strategic management.
----------------------
4. What would the roles and skills of managers in the future be?
---------------------- 5. What is the purpose of strategic management?
---------------------- 6. Explain the changes in the business environment today.
----------------------
----------------------
Check your Progress 1
----------------------
Fill in the blanks.
---------------------- 1. With the expansion of companies, the method of using informal control
and coordination was not enough and became somewhat irrelevant.
----------------------
2. Expansion of companies brought in complexity and a lot of changes in the
---------------------- external environment.
----------------------
---------------------- Check your Progress 2

State True or False.
----------------------
1. False
----------------------
2. True
---------------------- 3. True
----------------------
----------------------
Fill in the blanks. Notes
1. Strategic management focuses on two aspects – the strategic process of
----------------------
business and the responsibilities of general management.
2. Strategic management is wide and encompasses all functions and thus, ----------------------
it seeks to integrate the knowledge and experience gained in various
----------------------
functional areas of management.
3. For success in the business, it is necessary to have a holistic view and ----------------------
thus the need for integration of knowledge gained importance in various
----------------------
functional areas of management.
4. The quantitative management viewpoint emerged as a major force during ----------------------
World War II. ----------------------
Suggested Reading ----------------------
----------------------
1. Cummings, S. and U. Daellenbach. 2009. “A Guide to the Future of
Strategy? The History of Long Range Planning.” Long Range Planning. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Understanding Strategy
UNIT
2
Structure:
2.1 Introduction
2.2 Strategic Business Units (SBUs)
2.3 Levels of Strategy
2.4 Issues in Strategic Decision-making
2.5 Strategists and their role in Strategic Management
2.6 Competitor Analysis
Summary
Keywords
Suggested Reading
Understanding Strategy 17
Notes
Objectives
----------------------
----------------------
●● Analyse the concept of strategy
---------------------- ●● Describe strategic business units
---------------------- ●● Identify the levels of strategy
---------------------- ●● Evaluate the role of strategists in strategic management
---------------------- 2.1 INTRODUCTION

---------------------- The concept of strategy is central to understanding the process of strategic
management. The term ‘strategy’ is derived from the Greek word Strategos,
----------------------
which means generalship – the actual direction of military force, as distinct
---------------------- from the governing its deployment. Therefore, the word ‘strategy’ literally
means the art of the general.
----------------------
Strategy in business has taken various connotations, based on studies and
---------------------- views by various experts and management gurus. Some typical decisions that
managers may have to look in the course of deciding on strategy may involve
---------------------- situations like
---------------------- ●● how to face the competition.
●● whether to undertake expansion or diversification.
----------------------
●● whether to be broad-based or have focus.
----------------------
●● how to chart a turnaround.
---------------------- ●● how to ensure stability or should we go in for a divestment, etc.
---------------------- An established company may have been successful and possibly been
profitable in the past. They would invariably start to face new threats in the
---------------------- environment. This would be more so because of its success – like the emergence
of new competitors – then it has to rethink the course of action it had been
---------------------- following, thus the strategy. With such rethinking and environment analysis,
---------------------- new opportunities may emerge and may be identified in the environment, which
had not been there in the past or were not noticed before and even there exists
---------------------- a potential to create opportunities. To take advantage of these opportunities, the
company might fundamentally rethink and also reassess the ways and means,
---------------------- the actions it had been following and may like to alter and change its courses of
---------------------- action. These may be called strategies. For a company, undoubtedly strategy is
one of the most significant concepts to emerge in the field of management, and
---------------------- also one of the most vital for survival and success.
---------------------- Some definitions of strategy are as follows :
Alfred Chandler : “The determination of the basic long-term goals and
----------------------
objectives of an enterprise and the adoption of the courses of action and the
---------------------- allocation of resources necessary for carrying out these goals.”
William Glueck, who was a distinguished Professor of Management at the Notes
University of Georgia till his death in 1980 : “A unified, comprehensive and
integrated plan designed to assure that the basic objectives of the enterprise are ----------------------
achieved.”
----------------------
One of the most interesting and meaningful views on strategy is of
Michael Porter. His opinion is that the core of general management is strategy. ----------------------
After the success of Japanese and Asian companies in the eighties, many ----------------------
companies tried to copy the efficiency and practices of the Japanese companies
and embarked on initiatives to reduce cost, improve quality and everything in ----------------------
improving their operations. This was thought to be strategy. Michael Porter
----------------------
argues that this operational effectiveness, as he calls it, is essential, even
mandatory, but that is not strategy. ----------------------
Today’s managers must make companies flexible, respond rapidly,
----------------------
benchmark the best practices, outsource aggressively, develop core
competencies, in fact play to new rules everyday. Hyper competition is a ----------------------
common phenomenon, rivals copy very fast.
----------------------
Operational effectiveness / efficiency is absolutely necessary, but not
sufficient. Without this – a company cannot survive at all. For this, companies ----------------------
undertake cost cutting, re-engineering, total quality management – a lot of
tools are available, with enough experts and management thinkers to guide ----------------------
companies. The unfortunate part is that – because of proliferation of knowledge ----------------------
and information revolution – this advice and help is available to all companies
and thus it does make a company better than others. ----------------------
Companies can outperform rivals only if it can establish a difference it ----------------------
can preserve and deliver greater value at a reasonable cost. Strategy thus rests
on unique activities – the essence of strategy is in the activities – choosing to ----------------------
perform activities differently or to perform different activities than rivals.
----------------------
You can adopt a variety based strategic position by providing a subset
of industry’s products or services – a company needs to be the best and offer ----------------------
superior service to a wide range of customers. Another way to have a strategic
----------------------
position is to have a needs based strategic position – where there are groups
of customers with differing needs – design a tailored set of activities to serve ----------------------
those needs. Alternatively you can have access based strategic position by
segmenting customers, who are accessible in different ways although their ----------------------
needs are different. Access can be a function of customer geography, or of scale
----------------------
or any other factor. Whatever the basis – strategy is a creation of unique and
valuable position, which rests on unique set of tailored activities. ----------------------
Choosing a unique position is not enough to create a sustainable advantage,
----------------------
as it will attract imitation. To avoid this you need trade offs. Trade offs occur
when activities are incompatible. They create a need for choice. Trade offs ----------------------
occur for 3 reasons. First, there are inconsistencies in image and reputation.
Second the activities themselves are inconsistent. Thirdly, there are limits on ----------------------
internal co-ordination and control. If trade offs are not required, you could do
----------------------
everything and there would be no need for strategy.
Notes Positioning choices determine not only which activities a company will
perform and how it will configure individual activities, but also how activities
---------------------- relate to one another. While operational effectiveness is achieving excellence
in individual activities, strategy is about combining activities. It involves a
---------------------- whole system of activities and how they fit and reinforce each other. Fit locks
---------------------- out imitators by creating a chain that is as strong as its strongest link. Fit is
important for competitive advantage – discrete activities affect each other.
---------------------- There are three levels of fit – first order which is simple consistency – second
order when activities are reinforcing each other – third order when there is
---------------------- optimization of efforts. Improvement in one area leads to improvement in other
---------------------- areas. Thus all factors, the structure, the systems, the processes, etc. must be
strategy specific.
----------------------
It is important to remember that strategy is long term. Shifts are costly
---------------------- and difficult to make. The pitfalls are many. First it is the failure to choose itself
that there is confusion. Second if you target only operational effectiveness, you
---------------------- will be good, but not better than others. The third and most important problem is
the growth trap. This is the over emphasis on growth that could dilute strategy.
----------------------
Growth can come by deepening strategy. Leadership plays an important part in
---------------------- the strategy selection.
We note that strategy is basically :
----------------------
●● plan / course of action / decision rules which are leading to particular
A
---------------------- direction.
---------------------- ●● The above is related to the company’s activities.
●● I t depends on the vision / mission of the company, where it would like to
----------------------
reach from its current position.
---------------------- ●● It deals with the future, which has uncertainties.
---------------------- ●● I t is concerned with the resources available today and those that will be
necessary in the future for implementing a plan or following a course of
---------------------- action.
---------------------- ●● It is connected to the strategic positioning of a firm.
●● I t is about making trade-offs between its different activities, and creating
---------------------- a fit among these activities.
---------------------- A company will need Strategy at various levels, as there is a different need
at each level. A company may have different business with a central corporate
---------------------- office. Thus there will be multiple strategies at different levels.
----------------------
2.2 STRATEGIC BUSINESS UNITS (SBUs)
----------------------
When a company has different business / portfolio of products, one of
---------------------- the most common way that the company will organize itself will be in the form
of Strategic Business Units or SBUs as they are popularly known. In order
----------------------
to segregate different units or segments, each performing a common set of
---------------------- activities, many companies are organized on the basis of operating divisions
or, simply, divisions. These divisions may also be known as profit centres or Notes
strategic business units (SBUs).
----------------------
SBUs are normally formed when there are multiple businesses, each
which are unique in some way – either in terms of products, in the customers ----------------------
they serve or in the markets they operate. The division is such a way that they
are involved in a unique way of business, which can be segregated. ----------------------
Corporate Level ----------------------
----------------------
Functional level strategies (corporate)
----------------------
----------------------
----------------------
SBU 1 SBU 2 SBU 3 (SBU level)
----------------------
----------------------
Functional level strategies
Fig 2.1 Functional level strategies ----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. The term ‘strategy’ is derived from the Greek word _________, which
means ________ the actual direction of military force, as distinct ----------------------
from the governing its deployment.
----------------------
2. Strategy is defined as “a unified, comprehensive and integrated plan
designed to assure that the basic _______________ of the enterprise ----------------------
are achieved.”
----------------------
3. Strategy rests on unique activities – the essence of strategy is in the
activities – choosing to perform activities _______________ or to ----------------------
perform ________________ activities than rivals.
----------------------
----------------------
Activity 1
----------------------
Analyse the positioning strategy of Bajaj Automobiles. ----------------------
----------------------
----------------------
----------------------
----------------------
Notes 2.3 LEVELS OF STRATEGY
---------------------- Thus there is a corporate and then there are SBUs. The strategy would
be looked at these levels i.e. of the corporate and SBU level. We also need to
---------------------- appreciate that there are differences even at functional levels, like marketing,
finance, production, etc. Thus we also need functional level strategies, both
----------------------
at the corporate level and also at the SBU level. These need to aligned and
---------------------- integrated.
---------------------- Corporate level strategy is the broad level strategies or you could call the
plans of action at the company level to achieve what the company as a whole. It
---------------------- would cover the various strategies and functions performed by different SBUs.
The strategy needs to be in line with the objectives of the company. Thus it
---------------------- would be for allocation of resources to each SBU and the broad level functional
---------------------- strategies. To ensure this there would need to have coordination of different
businesses of the SBUs.
---------------------- SBU level (or business) strategy will be line to achieve the objectives for
---------------------- SBUs, which are derived and in line with the corporate / company objectives.
It would cover allocation of resources among functional areas along with
---------------------- functional strategies, which again are in line to functional strategies of the
corporate level. There needs to be coordination between the corporate and SBU
---------------------- level both in objectives and functional strategies for optimization.
---------------------- Functional strategy at the SBU level deals with a relatively smaller area,
providing objectives for a specific function in that SBU environment, like
----------------------
marketing, finance, production, operations, etc. These are the three levels at
---------------------- which strategic plans are made for most companies.
But larger companies, may need to have strategies at some other levels
----------------------
too. Large companies like conglomerates, or companies with multiple business
---------------------- in different countries often need a larger level for the group as a whole.
Sometimes even relatively smaller companies may often need a set of strategies
---------------------- at a level higher than the corporate level. This could be for what is known as
societal strategies. A societal strategy is a generalized view or how the company
----------------------
perceives itself in its role towards the society or even a country or countries,
---------------------- in terms of a particular vision / mission statement, or even a need or a set of
needs that it strives to fulfill. Corporate-level strategies are then derived from
---------------------- the societal strategy.
---------------------- In the dynamic environment and due to the complexities of business,
strategies are needed to be set at lower levels i.e. at one step down the functional
---------------------- level, known as operation level strategies. These would be more specific and
would deal with specific and would have a well-defined scope. Typically for
----------------------
example, a marketing strategy could be further subdivided into sales strategies,
---------------------- even sales strategies for different segments and markets, pricing, distribution,
product development and communications and advertising strategies. Some of
---------------------- them may be common and some unique to the target markets. The strategies need
to have synergies and contribute to the functional objectives of the marketing
----------------------
function. This would then be interlinked with other strategies at the functional Notes
level, like those of the finance, production, etc., functions.
----------------------
Mission / Vision Level
----------------------
Corporate Level ----------------------
----------------------
Functional level strategies (corporate)
----------------------
----------------------
----------------------
SBU 1 SBU 2 SBU 3 (SBU level)
----------------------
----------------------
Functional level strategies
----------------------
Operational Level ----------------------

Fig 2.2 Operational Level ----------------------
Operational Level strategies are derived from Functional strategies.
----------------------
Functional strategies operate under the SBU-level.
----------------------
SBU-level strategies are put into action under the corporate-level strategy.
Corporate level is derived from the societal-level strategy of a corporation. ----------------------
----------------------
2.4 ISSUES IN STRATEGIC DECISION-MAKING
----------------------
●● A company would have different people in the decision-making at
different periods of time. Decisions often require judgements and thus ----------------------
it is important to note that the person-related factors are important in
----------------------
decision-making and the decisions may differ as the persons change.
●● gain, an individual does not take decisions alone. But often there is
A ----------------------
a tussle in decisions, which could be individual versus group decision-
----------------------
making. The decisions taken by the group could be different from those
that may be taken by individuals themselves. ----------------------
●● company would need to decide on what criteria it should make its
A
----------------------
decision. Thus it needs a process of objective setting, which serve as
benchmarks for evaluation of the efficiency and effectiveness of the ----------------------
decision-making process. There are three major criteria in for decision-
making - the concept of maximization - the concept of satisfying - the ----------------------
concept of incrementalism. Based on the chosen concept strategic
----------------------
decisions will differ.
----------------------
Notes ●● I t is assumed that decision-making is logical and thus there will be
rationality in decision-making. In the context of strategic decision-making,
---------------------- it means that there would be a proper evaluation and then exercising a
choice from among various alternative courses of action in such a way
---------------------- that it may lead to the achievement of the objectives in the best possible
---------------------- manner.
●● As situations are complex, straightforward thinking may not be effective.
---------------------- Creativity in decision-making may be needed thus the decision must be
---------------------- original and different. But the also based on situation and circumstances
there could be variability in decision-making.
---------------------- Case : Maruti Udyog Ltd. – In the driver’s seat
---------------------- Company background
---------------------- The primary object of India’s foreign investment policy has been to build
a self- reliant economy through better utilization of its human and material
---------------------- resources with the help of foreign technology. Thus the emphasis from the
beginning has been on foreign technology rather than on financial investment.
----------------------
Foreign investment is looked upon not so much as a means of adding to
---------------------- India’s investable resources, but as a vehicle for the transfer of sophisticated
technology required to promote the country’s development objectives as
---------------------- articulated in its development plans. Since 1980, its approach has changed
significantly from the past trends in the direction of greater flexibility. That
----------------------
change resulted from heightened concerns for improving the efficiency of
---------------------- Indian industries.
Industrial collaboration between India and Japan started in the 1950s with
----------------------
a solitary approval for collaboration in 1951. The number reached a peak
---------------------- of 108 in 1985, and then dropped to 96 in 1988 (see figure 1). The amount
of investment shows a sizeable degree of volatility (see figure 2). The early
---------------------- Japanese industrial investments in India, that is, in the 1950s, were in areas
such as fishing trawlers, sheet glass-making, manufacture of refrigeration
----------------------
facilities and fountain pens. In the 1960s, Japanese investments in India were
---------------------- directed to import substitution manufacturing industries, such as rayon, wire
rope, bicycle chains, wall film, electric motors, transformers and bearings. In
---------------------- the 1970s, investments from Japan flowed to Indian industries in such sectors
as dry-cell batteries, agricultural tillers, hydraulic pumps and valves. In the
----------------------
early 1980s, Japanese investments in India seemingly broke with the past
---------------------- pattern, with increased concentration in electronics and automobiles.
Maruti collaborated with Suzuki of Japan to produce cars in 1983. At this
----------------------
time, the Indian car market had stagnated at a volume of 30,000 to 40,000
---------------------- cars for the decade ending 1983. With MUL’s entry, the passenger car market
saw a spurt in demand. The sector registered 18.6% CAGR growth in sales
---------------------- during 1981-
---------------------- 90. The company reached a total production of one million vehicles in March
1994, becoming the first Indian Company to cross this milestone. It crossed
---------------------- the two million mark in 1997. In 2001, it launched new businesses – ‘True
value’, ‘Maruti finance’, ‘Maruti Insurance’ and ‘N2N’. In 2003, the company Notes
listed on BSE & NSE after its public issue.
----------------------
Business profile
----------------------
MUL is the leading automobile company in the passenger car segment with
over 50% market share in FY04. It has a presence across many segments in ----------------------
automobiles. It is the leader in the mini and the compact segment with its
brands like ‘800’, ‘Zen’, ‘Alto’, ‘Wagon R’. It also has a presence in the mid- ----------------------
size segment with its ‘Esteem’ and ‘Baleno’ brands and the ‘Omni’, ‘Vitara’,
----------------------
‘Versa’ models.
Industry scenario ----------------------
The passenger vehicles industry comprises passenger cars, utility vehicles ----------------------
(UV) and multi-purpose vehicles (MPV’s). The fortunes of the auto sector
are strongly correlated to macro-economic parameters and the performance ----------------------
of the industrial sector. In India, around 80% of all new cars are financed. ----------------------
The increased availability of finance at low rates and strong GDP growth
translated in a healthy growth for the industry. ----------------------
Passenger car sales account for over 77% of total passenger vehicle market ----------------------
and UV’s Account for the balance. Infact, UV’s have a higher share than
what they did in the earlier years. It is still lower compared to some of the ----------------------
developed countries. In USA for instance, UV’s account for 50% of the total
Passenger vehicles market and in Indonesia they account for 80% of the ----------------------
market. ----------------------
Exhibit 1 : Player wise market shares
----------------------
Mkt share including UV’s 2003-04
----------------------
MUL 45%
Hyundai 7% ----------------------
M&M 15%
----------------------
Tata 16%
Others 17% ----------------------
Source: SIAM ----------------------
The Maruti Suzuki project
----------------------
In consonance with that change, Suzuki Motors of Japan and Maruti Udyog Ltd.
of India (MUL) concluded an agreement In 1982 to manufacture automobiles ----------------------
in India. They collaborated in equity participation and technology transfer.
----------------------
That joint company produces passenger cars, microbuses, pick-up vans, jeeps
etc. ----------------------
Before MUL was launched, there were only two private-sector car-producers,
----------------------
Premier Automobiles and Hindustan Motors. The former originally
collaborated with Fiat of ltaly and the latter with a British company. ----------------------
----------------------
Notes MUL, a public-sector company, initiated the process of revitalization of
India’s automobile industry, which is nearly 30 years behind in technological
---------------------- development. The project involved the largest ever single direct investment
by Japan in India.
----------------------
MUL initially planned to start with light commercial vehicles. It concluded
---------------------- a financial and technical tie-up with Suzuki Motors of Japan, which was
given 26 per cent of the equity share of MUL. In the agreement between
----------------------
the two companies concluded in 1982, it was specified that MUL would
---------------------- produce 30 per cent of the value of each finished car. In turn, Its collaborator,
Suzuki, was to transfer the technology corresponding to production of the
---------------------- same proportion. As far as the other 70 per cent of the value was concerned,
however, the agreement was largely open-ended and a condition was made
----------------------
that 60 per cent of the 70 per cent would be supplied domestically.
---------------------- Leadership
---------------------- As far as Indian markets are concern Maruti 800 has retained the leadership
position through out. The company focused on the Indian geographical
---------------------- conditions and analysed the unmet need which has catered millions of
customer in India. They have large number of distribution channel and service
----------------------
centers through out the country. They are pioneer in many things.
---------------------- Effects :
---------------------- (a) Indigenization
---------------------- MUL’s Indigenization programme from the official commencement of
production in November 1983 to the present can be divided into three
---------------------- major periods. The first stage of indigenization began in December
1984, when the assembly shop, with a handling capacity of 20,000
---------------------- vehicles a year, was completed. The production under the first stage
---------------------- of indigenization of MUL was characterized by the assembly of semi-
knocked-down packs supplied by Suzuki. The assembly at that stage
---------------------- basically involved fitting into the imported car low-technology and
value components and equipment like tires, batteries, electric wiring,
---------------------- wheel rims, seats and glass produced on the assembly line.
---------------------- The second stage of indigenization started in June 1984 with the
construction of the welding and paint shops and the expansion of
----------------------
capacity from 20,000 to 40,000 vehicles a year. Mean while, some more
---------------------- domestic parts and equipment like small rubber parts, bolts and nuts,
spring and plain washers were brought into assembly. It was declared
---------------------- that the company was able to achieve the revised target of indigenization
for the year 1984-1985, that is, 23 per cent. The completion of the
----------------------
welding and paint shops enabled MUL to go for a higher level of
---------------------- indigenization. As the painting and the welding operations started to be
executed within the factory, the component packs supplied by Suzuki
---------------------- were replaced by those of a lower value, namely, completely knocked-
down packs. With the completion of the machine and press shops of
----------------------
Phase 2 of the project, the proportion of the value of a car to which Notes
MUL itself could contribute went up to 30 per cent.
----------------------
Phase 3 of the project was to incorporate more of the domestic
products in assembly and the setting up of joint ventures in component ----------------------
manufacturing. Vendors in certain cases were given facilities to set up
their units in MUL campus with equity participation. In 1985-1986, ----------------------
major components like clutches, brakes, filters, shock absorbers, air
----------------------
cleaners, engine valves, alternators and lamps were indigenized. The
other items indigenized were speedometer assembly, headlamps, ----------------------
steering wheels, brake pipes, wheel hubs, oil pumps, fuel pumps,
seats, glasses, plastic injection-moulded items, steering gears, steering ----------------------
columns, fue1 tanks and other sheet-metal Items. The in-house facilities
----------------------
that were set up included a press line for body panels, cylinder heads,
transmission cases, crankshafts and camshafts. ----------------------
In December 1988, Suzuki increased its equity participation In MUL
----------------------
from 26 per cent to 40 per cent, that is, from Rs. 0.90 billion to Rs.
1.11 billion. That amount is to be utilized almost entirely towards ----------------------
financing MUL’s project for the 1000 cc passenger car. The new project
is estimated to cost around Rs 1 billion, the bulk of which would be ----------------------
met from internal revenues. To meet a part of the foreign exchange
----------------------
cost, however, the company proposed to raise a foreign-exchange loan
of about $50 million, which was to have been raised before the end of ----------------------
1989, and MUL hopes to secure it at a concessional rate of interest.
In the past, MUL has borrowed $75 million from the open market at ----------------------
well below the LlBOR rate. A welding line is being set up in the MUL
----------------------
factory for the new car, which should be on the road towards the end of
1990. ----------------------
(b) Production achievements
----------------------
MUL has been able to exceed production targets in every year of its
operation. In 1984-1985, the target fixed was 20,000 units, while the ----------------------
actual production was 30,000. The volume of production increased ----------------------
dramatically in later years, reaching 400 vehicles per day in 1988.
(c) Productivity and value-added ----------------------
MUL has been able to achieve a high rate of production mainly because ----------------------
of the high productivity of men and machines. There was a steep rise
in the number of vehicles produced per man-year. In 1984-1985,14.62 ----------------------
vehicles were produced per man-year. The figure increased to 20.66 In ----------------------
1985-1986, and 28.26 in 1986-1987. The value added per employee in
MUL was Rs 0.19 million in 1984-1985, and rose to Rs 0.40 million in ----------------------
1986-1987.
----------------------
(d) Effect on transfer of technology
----------------------
Since the inception of thc project, Suzuki has been actively involved
in the transfer of technology, one indication of which Is that notable ----------------------
Notes progress in indigenization has been achieved. According to the annual
reports of MUL, the proportion of imported raw materials in the value
---------------------- of output declined to 72.3 per cent in 1986-1987, the fourth year of
---------------------- operation.
MUL also set up a research and development centre in 1986-1987,
---------------------- which accommodates a quality-control laboratory with sophisticated
---------------------- equipment like ozone weather test equipment. The laboratory was
strengthened by the addition of a modern physical testing machine
---------------------- for rubber and plastic materials equipment for thermal shock and heat
cycle tests has also been installed to enable simulation of various heat
---------------------- conditions to observe the behaviour of components. As part of research
---------------------- and development facilities, three indigenous dynamometers have been
commissioned for endurance testing of engine parts, audit checks of
---------------------- engines and development of critical items like carburetors. Product
development activities have been undertaken for optional items like
---------------------- car trays, luggage carriers and car heaters. The fire-resistant plastic
---------------------- hard top for the Gypsy Jeep has been developed as an alternative to the
polyvinyl chloride (PVC) soft top.
----------------------
To assist the export of vehicles to other countries, all international
---------------------- standards were collected to compile the specific requirements of various
countries to meet local regulations for automobiles. The first phase of
---------------------- a reliability and endurance-testing workshop was commissioned and
was set up as a technical service for the rigorous testing of indigenous
----------------------
components before approval for mass production.
---------------------- For vendor education and upgrading of vendor technologies, a
concerted campaign was undertaken to achieve all-round improvement
----------------------
in product/ component quality, which also includes introduction of
---------------------- statistical quality- control techniques. A vendor quality-rating system
for objective rating was introduced to facilitate improvements needed
---------------------- for various vendors and also to help decide on orders for components
based on quality.
----------------------
---------------------- (e) Training of local labour

The whole working system in MUL has been transformed to a Japanese
---------------------- pattern, encompassing such practices as the same uniform for all levels
---------------------- of the work force, physical exercise before the start of work, common
dining room etc. According to a study in the India-Japan Study
---------------------- Committee,
---------------------- In 1986-1987 alone, MUL sent 43 employees to Japan for training.
There were also periodic in-house training programmes with a view to
---------------------- increasing productivity and improving the quality of products.
----------------------
----------------------
(f) Export development Notes
MUL has taken important steps In promoting the export of automobiles ----------------------
from India. It is an Interesting case, where, within the short span of five
years, several countries have been added to the export list. By early ----------------------
1989, MUL was exporting its vehicles to countries like Bangladesh,
----------------------
Cyprus, Hungary, Malta, Mauritius, Sri Lanka and Yugoslavia. The
company’s objective is to emerge as a net foreign-exchange earner in ----------------------
the near future.
----------------------
(g) Manufacture of auto-ancillary items
An important offshoot of MUL projects has been that other Japanese ----------------------
auto-makers in India have taken measures to assist component ----------------------
production in India. The assistance has been provided in two ways.
One is direct technical assistance to the Indian makers with which ----------------------
the Japanese developed collaboration arrangements. The other is the
indirect approach, by requesting Japanese component manufacturers to ----------------------
go to India and build production facilities there. The second approach ----------------------
has been adopted, especially for critical parts.Anumber of Japanese
component manufacturers are now manufacturing shock absorbers, ----------------------
lamps, rubber products, batteries, bearings, electrical equipment etc. in
India. ----------------------
(h) Expectations and some concerns of host countries ----------------------

Several concerns have emerged during the course of the collaboration, ----------------------
one of which was the huge outflow of foreign exchange as cars were
initially being imported in completely knocked-down condition and ----------------------
merely assembled. The pace of indigenization was much slower than
anticipated, because ancillary manufacturers did not gear up production ----------------------
to meet the large demands required by MUL. Besides, the indigenization ----------------------
programme was delayed with the introduction of the new model of the
Maruti 800 in May 1986. ----------------------
Even so, there is a point of view that a greater indigenization should ----------------------
have been the objective from the outset. The progress of indigenization
depends to a very large extent on the capacity of the ancillary sector. In ----------------------
the case of India, as noted before, significant effort has been made to
----------------------
develop this ancillary sector either through domestic efforts or through
collaboration with foreign partners. And this pace of indigenization has ----------------------
picked up.
----------------------
Another problem raised concerns the quality of output and, in particular,
the flimsy body of the car, which, according to some people, is not ----------------------
suitable for tough Indian road conditions. But the company strongly
contests that point of view and maintains that the car has been put ----------------------
through rigid tests. As far as the flimsy body is concerned, It is stated
----------------------
that this problem has been resolved by the stronger body being used for
the new model, Maruti 800. ----------------------
Notes The prohibitively high price of spare parts was also considered to be
a matter of concern. Indigenization has now managed to reduce prices
---------------------- of some spare parts. For example, the price of the glass windshield is
now Rs 612 as against the earlier price of Rs 1601 for the imported one.
---------------------- Similarly, the radiator now costs Rs 840 as against the previous price
---------------------- of Rs 2301; the door panel assembly is Rs 1372 as against Rs 2084
earlier; the flywheel is Rs 280 as against Rs 1042 previously; and the
---------------------- wiper blade assembly is Rs 40 as against Rs 126 earlier. In that context,
It is also alleged that some of the indigenized spare parts, such as clutch
---------------------- plates, shock absorbers, silencers and air conditioners, are not up to the
---------------------- required standards of quality.
Finally, questions have been raised about the price of cars produced by
----------------------
MUL. With progressive increases in Maruti prices, it is now beyond
---------------------- the reach of the target group for which it was originally planned. It was
expected to attract buyers who had been using two-wheeler scooters
---------------------- and were unable to purchase the high-priced cars already on the market.
With the price hike, the Maruti has gone beyond the purchasing power of
----------------------
the individual middle-class buyer, who was the initial target consumer.
---------------------- The recent Indian union budgets have contributed to price increases
through excise-tax measures. In 1983, a MUL car was available on the
---------------------- road for about Rs 55,000, while in 1989, the on-road price went up to
Rs 90,000. The sharp price increase came from higher excise duties.
----------------------
Gains for the host country
----------------------
Despite the concerns mentioned above, MUL has brought about major changes
---------------------- in the Indian automobile industry. The Indian policy changes supported and
reinforced the modernization process. Indian industry for its part responded
---------------------- to the initiative of the Government of India with a series of proposals for
the modernization of technology, manufacturing facilities, as well as setting
----------------------
up new projects. A spurt of activity was witnessed in an industry which had
---------------------- remained quite dormant for almost two decades.
---------------------- The major gain for the economy was the rapid increase in the production of
all segments of the automobile industry. The new breed of vehicles feature
---------------------- many advanced product technologies, better-designed engines, transmission
systems, and the use of lighter materials. Streamlined body shapes have
---------------------- contributed to greater fuel efficiency. Bucket seats, improved suspension
---------------------- systems, improved cabin design, use of better gear systems and precision
machining of moving parts have improved both passenger comfort and
---------------------- driving convenience. Overall performance of vehicles has improved in terms
of better pick-up, higher top speed, less noise and vibrations and greater
---------------------- reliability. All the various sub-systems of the automobile, such as the brake
---------------------- system, cooling system and electrical system, have seen some improvement.
----------------------
----------------------
Exports Notes
MUL exported 51,175 units in FY04, a growth of 59% yoy. Its FOB value ----------------------
is Rs9.4bn in FY04 compared to Rs6.2bn in FY03, registering a 51.7% rise
yoy. This growth was mainly due to ‘Maruti 800’ which grew 56.8%. The A2 ----------------------
category registered a 60.5% growth. The Alto and the Zen have done well
for the company. The company registered good growth in Algeria, Belgium, ----------------------
Bhutan, Chile, Denmark, Germany, Hungary, Nepal, Sri Lanka and UK. ----------------------
Raw material costs
----------------------
Steel sheets, castings, forgings, alloy steels, steel tubes, saw steep rises
in prices, which added to the raw material costs of the company in FY04. ----------------------
Consolidated buying of steel and long term contracts helped counter this
----------------------
problem to some extent. Even under such a scenario where raw material
prices were rising, the company saw its cost of raw material go down by ----------------------
4.8 percentage points to 74.5% of net sales in FY04 due to its operating
efficiencies. The company enjoyed a royalty waiver on some of its models ----------------------
from Suzuki, and paid 10% less on components sourced from Suzuki, which
----------------------
helped reduce raw material costs further. Operating profit margins (OPM) for
the company improved to 10% in FY04 from 5.3% in FY03. ----------------------
Voluntary Retirement Scheme (VRS)
----------------------
This was a strategic move for cost-cutting. The company has 3,334
employees as on March 31, 2004. It offered VRS to its employees in FY04 ----------------------
and 1,251 employees accepted the same. Rs1.2bn were accounted in the ----------------------
income statement to VRS in FY04. This was additional to the VRS offer in
FY02, which was accepted by 1,050 employees. ----------------------
Initiatives taken ----------------------
●● endor rationalization was done and number of vendors was reduced
V
to 220 in FY04 from over 350 two years prior to FY04. This helped ----------------------
enhance the supply chain efficiencies. ----------------------
●● UL’s tie-up with SBI and its associate banks enabled it to reach
M
smaller towns and cities where financing for purchase of vehicles was ----------------------
provided. Largely driven by this initiative, the company witnessed a ----------------------
17% growth in its ‘800’ sales. The ‘Alto’ too, with its reduced prices
saw a 130% growth, the highest by any car in the year. MUL has 142 ----------------------
outlets covering over 100 cities.
----------------------
●● The company, realizing that presence across segments is a key factor,
launched the ‘Grand Vitara’ a top-end SUV for the Indian market. ----------------------
●● It extended its ‘true value’ scheme and now accepts old cars of any ----------------------
manufacturer for a new MUL car.
R&D ----------------------
The objective of R&D by MUL was two-fold. One was to reduce product ----------------------
costs and the second is to become the regional R&D hub for Suzuki
----------------------
Notes
operations. The R&D spend for FY04 stood at Rs390mn which is 0.35% of
---------------------- total turnover. R&D operations include, face lifts and body changes – styling,
clay modeling, computer aided design, proto-type making, dies designing
---------------------- and so on. In FY04, the company introduced new Zen due to its R&D efforts.
---------------------- No capacity constraint
---------------------- MUL has three fully integrated facilities with a combined production capacity
of 500,000 units pa. However, the company produced around 1.4lac cars in
---------------------- Q4 FY04 without a third shift. Annualizing this figure makes it 5.6lac cars
annually, which is higher than the 4.7lac cars produced by MUL in FY04.
---------------------- Therefore, MUL will not be constrained by capacity in the near future. MUL
---------------------- also reduced the number of hours required to produce a vehicle. From a high
of 100 hours in FY01 to 46.1 hours in FY04, it has come a long way in
---------------------- improving its productivity and efficiency.
---------------------- Depreciation
MUL revised the estimated life of dies and jigs from a uniform eight years to
---------------------- periods ranging from 29 months to five years depending on the model. This
---------------------- was done wef April 1, 2003 based on technical evaluation. This resulted in
higher depreciation to Rs4,949mn in FY04 from Rs3,221mn in FY03.
----------------------
Investment of surplus fund
---------------------- Investments worth Rs15.7bn were made during FY04. The major chunk of the
investments are in debt mutual funds that account for 88.4% of the investment
----------------------
portfolio in FY04 compared to bank fixed deposits which accounted for
---------------------- 98% of the total investments in FY03. Investment in bank fixed deposits is
included under cash & bank balances in the annual report.
----------------------
Working capital management
---------------------- The company follows just-in-time (JIT) inventory principles. The net working
---------------------- capital of the company fell 62.7% yoy in FY04 to Rs4.9bn. This was mainly
due to a fall in the debtor days to 26.8 days from 34.3 days in the previous
---------------------- year. Inventory holding days declined to 17.1 days in FY04 from 24.9 days
in FY03.
----------------------
Approximately 70% of MUL’s components are outsourced. The creditor days
---------------------- reduced too to 47.3 days from 58.1 days in the previous years. The company
states that it does not desire to delay payments to component manufacturers
---------------------- and therefore has not stressed on increasing average payable period.
---------------------- Due to high sales growth and improved efficiency in operations caused the
EPS to more than triple to Rs18.8 in FY04 from Rs5.1 in FY03. The debt
---------------------- to equity ratio declined to 0.09 in FY04 from 0.15 in FY03. This shows
---------------------- that RONW increased with lower level of risks. Cash flow from operating
activities increased by 32% yoy to Rs10.5bn in FY04.
----------------------
----------------------
Outlook and future strategies Notes
Robust economic growth, favourable regulatory framework, affordable ----------------------
finance and improvements in infrastructure favor growth of the passenger
vehicles segment. The low penetration levels at 7 per thousand and rising ----------------------
income levels will augur well for the auto industry. However, rising oil prices
----------------------
and input raw material costs remains a concern. MUL expects the compact
cars, which currently constitute around 80% of the market, to be the engine ----------------------
of growth in the future.
----------------------
About 18% of cars sold in India run on diesel. MUL does not have a presence
in this segment. It is therefore, setting up a capacity to offer diesel cars. It will ----------------------
be investing Rs3,500mn on this plant that will be operational by 2006.
----------------------
1. Operational effectiveness/efficiency is absolutely necessary and ----------------------
sufficient.
----------------------
2. One way to have a strategic position is to have a needs based strategic
position, where there are groups of customers with same needs and ----------------------
design a tailored set of activities to serve those needs.
----------------------
3. Choo sing a unique position is enough to create a sustainable
advantage. ----------------------
----------------------
Activity 2
----------------------
Select any company with multiple SBUs and identify its SBUs. ----------------------
----------------------
2.5 STRATEGISTS AND THEIR ROLE IN STRATEGIC
MANAGEMENT ----------------------
----------------------
The senior management is involved in strategic management. Let us look
at the role of each briefly. ----------------------
1. Role of Board of Directors – they are the supreme authority in a company,
----------------------
who represent the owners / shareholders, sometimes lenders. They are
supposed to direct and are responsible for the governance of the company. ----------------------
The Companies Act and other laws also bind them and their actions.
The board though is supposed only to direct, they do get involved in ----------------------
a lot of operational issues also. Professionals on the BoD help to get
----------------------
new perspectives and provide guidance. They are the link between the
company and the environment. ----------------------
----------------------
Notes 2. Role of Chief Executive Officer – the most important strategist and
responsible for all the aspects right from formulation / implementation
---------------------- to review of strategic management. The CEO is chief architect of
organizational purpose, the leader and builder, motivator and mentor.
---------------------- CEO is the link between the company and the BoD and also is responsible
---------------------- for managing the external environment and relationships.
3. Role of Entrepreneurs – they are the ones who start new businesses, are
----------------------
independent in thought and action. Often even internally, a company
---------------------- could promote the entrepreneurial spirit. Thus this view and attitude can
also be inside an organization. Often they provide a sense of direction and
---------------------- are active in implementation.
---------------------- 4. Role of Senior Management – they would either look after strategic
management as responsible for certain areas or as part of teams and are
---------------------- answerable to the BoD and the CEO.
---------------------- 5. Role of SBU-level Executives – they would be more focussed on their
product line / business and also on co-ordination with other SBU and with
---------------------- senior management. They would be more in the implementation role.
---------------------- 6. Role of Corporate Planning Staff – would normally provide administrative
support, tools and techniques and be a co-ordination function.
----------------------
7. Role of Consultant – often consultants may be hired for a specialized new
---------------------- business or expertise or even to get an unbiased opinion on the business
and the strategy.
----------------------
8. Role of Middle Level Managers – they are the vital link in strategizing and
---------------------- implementation. Though they are not actively involved in formulation of
strategies, they are often developed to be the future top management.
----------------------

---------------------- Fill in the blanks.
---------------------- 1. ____________ choices determine not only which activities a company
will perform and how it will configure individual activities, but also
---------------------- how activities ______________ to one another.
---------------------- 2. While _____________ effectiveness is achieving excellence in
individual activities, strategy is about ____________ activities.
----------------------
3. When a company has different business / portfolio of products, one of
---------------------- the most common ways that the company will organise itself will be
in the form of _______________ .
----------------------
----------------------
----------------------
----------------------
Notes
Activity 3
----------------------
Select any company with multiple SBUs. Analyse the various levels of
----------------------
strategy.
----------------------
2.6 COMPETITOR ANALYSIS ----------------------
Strategic Management develops the ability in organizations to create a ----------------------

“Sustainable Competitive Advantage” to be able to dominate at all times.
----------------------
Accordingly, all organizations need to carry out the all-important
“Competitors’ Analysis” which attempts to answer the following key questions: ----------------------
1. Who are the competitors? ----------------------
●● gainst whom do we usually compete? Who are our most intense
A ----------------------
competitors? Makers of substitute products?
●● an these competitors be put in strategic groups on the basis of
C ----------------------
their assets, competencies and/or strategies? ----------------------
●● ho are the potential competitive entrants? What are their barriers
W
to entry? Is there anything that can be done to discourage them? ----------------------
2. Evaluating the competitors ----------------------
●● hat are their objectives & strategies? Their level of commitment?
W ----------------------
Their entry barriers?
●● hat is their cost structure? Do they have a cost advantage or
W ----------------------
disadvantage?
----------------------
●● What is their image& positioning strategy?
----------------------
●● hich are the most successful unsuccessful competitors overtime
W
and why? ----------------------
●● What are the strengths and weaknesses of each competitor?
----------------------
●● hat leverage points (our strategic weakness or unmet needs or
W
customer problems) could competitors exploit? ----------------------
●● valuate the competitors with respect to their assets and
E ----------------------
competencies. Generate a competitor strength grid.
Understanding Competitors ----------------------
1. Size, growth, and profitability ----------------------

●● Source - Published turnover figures. ----------------------
●● A non-profitable company cannot have access to capital − externally
----------------------
or internally.
----------------------
----------------------
Notes 2. Image and positioning strategy
●● seful to understand competitors profile in terms of their positioning
U
----------------------
strategy.
---------------------- ●● What are the associations – they use?
---------------------- 3. Current and past strategies of competitors
●● xamine their past failures in strategy .Same is not likely to be tried
E
----------------------
again
---------------------- ●● hat is their strategy dependence on product line breadth, product
W
quality, service, distribution, or brand identification
----------------------
●● I n case of a low cost strategy - is it based on economies of scale,
---------------------- manufacturing facilities or access to raw material?
---------------------- 4. Competitor organisation and culture
●● re managers drawn from marketing, manufacturing, finance or
A
---------------------- engineering?
---------------------- ●● Are they largely from another industry or company?
---------------------- ●● A tightly controlled organisation would be less aggressive in using

marketing oriented strategies and vice versa for flat organisations
---------------------- which can be more innovative and marketing oriented.
---------------------- 5. Cost structure

●● Direct labour cost
----------------------
●● Relative cost of raw materials and purchased components
---------------------- ●● Investment in inventories, plant & equipment
---------------------- ●● Sales level
●● Number of plants with locations
----------------------
6. Exit barriers
----------------------
●● Specialised assets – plant, equipment, etc.
---------------------- ●● ixed costs – labour agreements, maintain parts for existing
F
equipment
----------------------
●● elationship to other businesses – Firm’s image, shared facilities,
R
---------------------- distribution channels, or sales force.
---------------------- ●● overnment and social barriers – Long-term government incentives
G
linked to a time period of existence/public service obligation.
---------------------- ●● anagerial pride or emotional attachment to a business or employees
M
---------------------- affecting economic decisions.
----------------------
----------------------
----------------------
Assessing Strengths & weaknesses of Competitors Notes
Checklist of Strengths & weaknesses
----------------------
1. Innovation
----------------------
●● Technical, Product or Service superiority
●● New product capability ----------------------
●● R&D ----------------------
●● Technologies
----------------------
●● Patents
2. Manufacturing ----------------------
●● Cost structure ----------------------

●● Flexible production operations ----------------------
●● Equipment
----------------------
●● Access to raw material
●● Vertical integration ----------------------
●● Workforce attitude & motivation ----------------------
●● Capacity
----------------------
3. Finance – Access to capital
----------------------
●● From operations
●● Net short - term assets ----------------------
●● Ability to use debt and equity financing ----------------------
●● Parent’s willingness to finance
----------------------
4. Management
----------------------
●● Quality of top and middle management
●● Knowledge of business ----------------------
●● Culture ----------------------
●● Strategic goals and plans
----------------------
●● Entrepreneurial thrust
●● Planning / operation system ----------------------
●● Loyalty- employee turnover ----------------------
●● Quality of strategic decision making
----------------------
5. Marketing
----------------------
●● Product quality reputation
●● Product differentiation ----------------------
●● Brand name recognition ----------------------
●● Product line breadth
----------------------
Notes ●● Customer orientation
●● Segmentation/focus
----------------------
●● Distribution
---------------------- ●● Retailer relationship
---------------------- ●● Advertising promotion skills
●● Sales Force
----------------------
●● Customer Service/Product Support
----------------------
6. Customer base
---------------------- ●● Size and loyalty
---------------------- ●● Market share
●● Growth of segments served
----------------------
The essential objective of strategic management is to develop the ability to
---------------------- meet and to beat the competition. Therefore, we should carry out the competitor
analysis, which answers the following:
----------------------
a) What drives the competitor? (What are his future objectives?)
----------------------
b) What does the competitor think about itself and the industry? (Assumptions)
---------------------- c) What are the competitor’s capabilities? (Capabilities)
---------------------- Response
---------------------- a) What will our competitors do in the future?

b) Where do we hold an advantage over the competitor?
----------------------
c) How will our relationship change with our competitor?
----------------------
Methods /Tools used to learn about the rival’s advantage
---------------------- Value chain will help us to identify the areas of our improvement as
---------------------- compared to the competitor. Our effort should try to beat the competitor on as
many primary and support activities as possible. Some other methods are as
---------------------- under:
---------------------- a) Examining the competitor’s products: One way to get the propriety
information about a protected technology is to disassemble and carefully
---------------------- study each firm’s new product. Then we can try to make individual items
and assemble them (reverse engineering).
----------------------
Companies benchmark their products with the rival’s products to evaluate
---------------------- the costs, quality and performance.
---------------------- b) Questioning the competitor’s employees: This can be done in the
professional meetings, interviews or in parties.
----------------------
c) Using consultants: Company can hire experienced consultants.
---------------------- d) Engage in industrial espionage: Another way is to pay a fee to an
employee in rival company to get the information.
----------------------
e) Pirating employees: In this method, rival company’s employees are Notes
hired.
----------------------
Globalisation
Globalisation consists of viewing the world s as a single market for the ----------------------
firm, the process by which the firm expands the business across different regions
----------------------
and national markets. On an industry level, globalisation refers to the changes
in the economic factors, such as economy of scale, experience, and R&D that ----------------------
make competing on a worldwide basis a necessity.
----------------------
Environmental Factors that Accelerate the Process of Globalisation
a) To make business stable by taking advantage of global factors such as ----------------------
peak demand for Diwali (Oct/Nov) or Christmas. ----------------------
b) Narrowing of demand characteristics, for example, same products are
promoted by Unilever in India, Pakistan, Bangladesh, and Nepal. ----------------------
c) To achieve economy of scale and to reduce cost and capture market share. ----------------------
d) Reduction in transportation costs. Crude oil cost can be reduced by ----------------------
employing very large crude carriers (VLCCs).
----------------------
e) Ease of Internet access and low cost of communication.
f) Escalating costs of R&D. For example, a typical life saving drug ----------------------
development would cost much more than 1,000 crore. ----------------------
g) Reduction of tariffs worldwide due to free trade pacts and World Trade
Organisation. ----------------------
Need for Global Markets ----------------------

a) Steel business: In steel business, the breakeven point has gone up and ----------------------
currently a steel mill of more than 3 million tons can hope to make some
profits. ----------------------
b) Automobile engines: Tata Joint venture with Fiat to make world-class ----------------------
engines at Rangangaon provides engines not only to Tata Sumo, Fiat but
also to Maruti Suzuki Dezire. ----------------------
c) Semiconductor business and computer chips: Almost 70 % of ----------------------
computers in world use the chips from Intel.
----------------------
d) Aircraft manufacturing: Entire Global Market is dominated by Boeing
(USA) and Airbus Industry (European Union). ----------------------
e) Aero engines: Only four manufactures dominate the global market. These ----------------------
are GE Aero Engine Div (USA), Pratt and Whitney (USA), Rolls Royce
(UK) and CFM (France). ----------------------
Reduction in Transportation Costs ----------------------
a) Containerisation: A ship carrying 500 containers can be unloaded in flat
----------------------
four hours.
b) Intermodal transportation: Shipping/Rail. ----------------------
Notes c) Transportation by pipelines: In this method solids and gases can be
transported over long distances fast and cheaply − Turkmenistan,
---------------------- Afghanistan, Pakistan and India pipeline (TAPI).
---------------------- Communication Costs
a) Communication has become very fast reliable and distortion free due to
----------------------
jelly filled optical fiber network.
---------------------- b) Availability of Internet globally.
---------------------- Storage costs
---------------------- The costs of storage have come down due to:

a) Refrigeration
----------------------
b) Just in Time (JIT)
----------------------
c) Reduction in perish ability
---------------------- d) Improvement in supply chain management
---------------------- In short, global expansion has helped the organisation to build and extend
their sources of competitive advantage to new market. High R&D costs, growing
---------------------- economy of scale and ease of communication have taken many firms on the
---------------------- path of globalisation, for example, Nokia, a firm from Finland (population 50
million only) gets most of the business from its global operation. Benefits of
---------------------- global expansion include entering into fast growing market. For example, Tata
Motors sells 50% of their Jaguar and Land Rover cars in China.
----------------------
---------------------- Summary
---------------------- ●● Strategy is about the future. The focus is long term often 5 – 10 – 15
years into the future. It needs operational effectiveness, tradeoffs and fit.
---------------------- It is implemented at the SBU level, even though there are many levels of
---------------------- strategy.
●● The strategy at the different levels needs to be in synergy and also be
---------------------- consistent. There are various different types of people and groups involved
in strategy, but it is largely senior people and normally restricted to the
----------------------
top management.
----------------------
Keywords
----------------------
---------------------- ●● Strategic Business unit: Independently operating units.

●● Strategy: The determination of the basic long-term goals and objectives
---------------------- of an enterprise and the adoption of the courses of action and the allocation
of resources necessary for carrying out these goals.
----------------------
●● Corporate level strategy: Corporate level strategy is the broad level
---------------------- strategies or you could call the plans of action at the company level to
achieve what the company as a whole.
----------------------
Notes
----------------------
1. Explain the meaning of strategy.
2. Give some definitions of strategy. ----------------------
3. What are the aspects of strategy? ----------------------
4. What are SBUs? ----------------------
5. Explain the levels at which strategy is formulated.
----------------------
6. What are the issues in Strategic Decision-making?
----------------------
7. Explain the role of different people involved in strategy.
----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. The term ‘strategy’ is derived from the Greek word strategos, which
means generalship – the actual direction of military force, as distinct from ----------------------
the governing its deployment.
----------------------
2. Strategy is defined as “a unified, comprehensive and integrated plan
designed to assure that the basic objectives of the enterprise are achieved.” ----------------------
3. Strategy rests on unique activities – the essence of strategy is in the ----------------------
activities – choosing to perform activities differently or to perform
different activities than rivals. ----------------------
----------------------
----------------------
----------------------
1. False
2. False ----------------------
3. False ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Notes Check your Progress 3
Fill in the blanks.
----------------------
1. Positioning choices determine not only which activities a company will
---------------------- perform and how it will configure individual activities, but also how
activities relate to one another.
----------------------
2. While operational effectiveness is achieving excellence in individual
---------------------- activities, strategy is about combining activities.
---------------------- 3. When a company has different business/portfolio of products, one of the
most common ways that the company will organise itself will be in the
---------------------- form of strategic business units.
----------------------
Suggested Reading
----------------------
1. French S. 2009. “Critiquing the Language of Strategic Management.”
----------------------
Journal of Management Development.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
The Strategic Management Process
UNIT
3
Structure:
3.1 Introduction
3.2 Definitions of Strategic Management
3.3 The Strategic Planning Process
3.4 Company Vision and Mission
3.5 Goals and Objectives
3.6 Critical Success Factors
3.7 Balanced Scorecard
Summary
Keywords
Suggested Reading
The Strategic Management Process 43

Notes
Objectives
----------------------
----------------------
●● Discuss the vision and mission of an organisation
---------------------- ●● Explain the strategic management process
---------------------- ●● Differentiate between goals and objectives
---------------------- ●● Analyse the critical success factors for an organisation
---------------------- 3.1 INTRODUCTION

---------------------- Strategic management is a systematic process. It is a series of steps
in sequence, which are important – you cannot take a shortcut, nor can you
----------------------
skip steps. While there are various definitions – all of them invariably say the
---------------------- same thing – strategy is long term. It decides the direction, defines what the
company is all about, and brings in consistency in what the company will do.
---------------------- It all starts with the company vision and mission, followed by setting of goals
and objectives. You need a SWOT analysis, which leads to identification of the
----------------------
Critical Success Factors.
----------------------
3.2 DEFINITIONS OF STRATEGIC MANAGEMENT
----------------------
Let us start with some definitions of strategic management.
----------------------
Glueck : “Strategic Management is a stream of decisions and actions that
---------------------- lead to the development of an effective strategy or strategies to help achieve
corporate objectives.”
----------------------
Hofer : “Strategic Management is the process, which deals with the fundamental
---------------------- organizational renewal and growth with the development of strategies, structures
and systems necessary to achieve such renewal and growth, and with the
----------------------
organizational systems needed to effectively manage the strategy formulation
---------------------- and implementation process.”
---------------------- Ansoff : “Strategic Management is the systematic approach to a major and

increasingly important responsibility of general management to position and
---------------------- relate the firm to its environment in a way that will assure its continued success
and make it secure from surprises.”
----------------------
Sharplin : “Strategic Management is the formulation and implementation of
---------------------- plans and carrying out of activities relating to the matters, which are of vital,
pervasive or continuing importance, to the total organization.”
----------------------
Harrison and St. John : “Strategic Management is the process through which
---------------------- organizations analyze and learn from their internal and external environments,
establish strategic direction, create strategies that are intended to help achieve
---------------------- establish goals and execute these strategies, all in an effort to satisfy key
---------------------- organizational stakeholders.”
On a very simple level, the process would look like Fig 3.1 Notes
Company Vision & Mission/ ----------------------

Requirements of Major Stakeholders
----------------------
Strategic Intent
----------------------
----------------------
External & Internal Analysis / SWOT
Environment Analysis ----------------------
----------------------
Define Strengths / Weaknesses / Core ----------------------
Competencies
----------------------
Generate Strategic Alternatives / ----------------------
Evaluate & Select
----------------------
Implement / Feedback / Control ----------------------
----------------------
Fig 3.1
So from the definitions of Strategic Management, we see that ----------------------
●● I t is a process. ----------------------
●● Leads to formulation of strategy or set of strategies.
----------------------
●● Managing the organizational systems.
●● For achievement of mission, vision, goals and objectives . ----------------------
●● There is a relation between organization and the environment. ----------------------
●● Environment management is necessary for success.
----------------------
●● Satisfaction of stakeholders important.
●● Learning is needed. ----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. Strategy is __________ term and it decides the direction, defines
what the company is all about and brings in _________ in what the ----------------------
company will do.
----------------------
2. Strategy starts with the company’s ________ and _________ ,
followed by setting of goals and objectives. ----------------------
3. According to Glueck , strategic management is a stream of decisions ----------------------
and actions that lead to the development of an effective strategy or
strategies to help achieve _____________ objectives. ----------------------

Notes
Activity 1
----------------------
Compare the strategic management process mentioned here with the process
----------------------
followed by your organisation.
----------------------
---------------------- 3.3 THE STRATEGIC PLANNING PROCESS

---------------------- The component tasks of strategic planning are:
---------------------- 1. Clarifying the mission of the corporation
---------------------- This is the first task of the strategic planning process. The mission is the
expression of the corporate intent. The mission justifies the organisation
---------------------- and legitimises the corporate’s role in the society. It tells insiders and
outsiders what the corporate stands for. The mission would carry the
---------------------- grand design of the firm and communicate what it wants to be. It will
---------------------- indicate broadly the businesses it will be in and the customer needs it
seeks to satisfy. The mission is shaped by the capabilities and vision of
---------------------- the corporation’s leaders.
---------------------- Defining the business

This is a pre-requisite for selecting the right opportunities and steering
---------------------- the firm on the correct path. For formulating the strategy too, the proper
---------------------- definition of the business is essential. For environment study and search,
the business in which it operates should be defined clearly.
----------------------
2. Surveying the environment –External and Internal
---------------------- This is central to strategic planning. Basically, a firm gathers all relevant
information relating to the environment and analyse them in detail. It
----------------------
analyses the macro-environmental factors as well as environmental factors
---------------------- that are specific to the business concerned. Under the macro-environmental
factors, it studies the demographic, socio-cultural, economic, political
---------------------- and legal environment. Business specific environmental factors include
emerging trends in the industry, structure of the industry, nature of the
----------------------
competition and the scope for invasion by substitute products.
---------------------- Internal appraisal of the firm
---------------------- This is the process of assessing the corporation’s capabilities and
resources, strengths and weaknesses, core competencies and competitive
---------------------- advantages. The firm also has to examine which of its perceived strengths
---------------------- actually constitutes the competitive advantage for the firm. The firm
compares itself against the competition and develops its competitive
---------------------- advantage profile (CAP). The process of internal appraisal also throws
up the capability gaps of the firm; ie. The gaps between its existing
---------------------- capabilities and the needed capabilities for tapping the opportunities
---------------------- spotted through the environmental survey.
3. Generate Strategic Alternatives, Evaluate and Select : Notes
Setting the corporate objectives
----------------------
The main task in setting the corporate objectives is to decide the extent
of growth the firm wants to achieve. Balancing the opportunities with ----------------------
organization’s capabilities and ambitions, the firm figures out its growth
----------------------
objectives. In addition to growth, there are certain other key determinants
of corporate success, which apply to all firms: profitability, productivity, ----------------------
technology, competitive position, human resources, social responsibility
and corporate image. The objectives are set in a measurable and time ----------------------
bound manner.
----------------------
4. Formulate the corporate strategy
----------------------
The most crucial task is formulating the corporate strategy. The
effectiveness of the entire strategic planning process of a firm is tested and ----------------------
proved by the effectiveness of the corporate strategy it chalks out. While
the objectives clarify where the firm wants to go, the strategy provides ----------------------
the design to getting there. The main function of the corporate strategy ----------------------
is to provide strategic is to provide strategic direction to the firm. It is
corporate strategy is to provide strategic that ensures the fit between the ----------------------
firm and its environment. It finally sets the pace of the corporation’s total
growth, and thereby it’s future and overall prospects. It can be stated that ----------------------
primary corporate strategy denotes the firm product market posture. It is ----------------------
the route map chosen for navigating the firm through all the fluctuations
and turbulence the firm may face. ----------------------
5. Implement, Monitoring, Feedback and Control of the strategy ----------------------
The strategy has to be monitored and adjustments that become necessary
have to be brought. Essentially the thing had to be compatibility of the ----------------------
strategy with the environment as well as internal realities. ----------------------
3.4 COMPANY VISION AND MISSION ----------------------
These terms are often misunderstood. Typically a vision is what a company ----------------------
wishes to become or aspires to be and mission is what the company is and why ----------------------
it exists.
Jerry Porras and James Collins in their book “Built to Last” have given a ----------------------
good framework for developing a vision and a mission. They divide this into two ----------------------
parts – core ideology and envisioned future. Core ideology is the unchanging
part of the organization, its character. It would not change for a long time, even ----------------------
if it were a disadvantage. Envisioned future is a goal to be reached.
----------------------
----------------------
----------------------
----------------------

Notes
Core Values
---------------------- Core Ideology
Core Purpose
---------------------- Vision / Mission
Audacious Goals
----------------------
Envisioned Future
---------------------- Vivid Description
---------------------- Fig. 3.2

---------------------- Core ideology has two components, core values and core purpose.
---------------------- The core values are a few values (no more than five or so) that are central
to the firm. Core values reflect the deeply held values of the organization and
---------------------- are independent of the current industry environment and management fads.
---------------------- One way to determine whether a value is a core value to ask whether it
would continue to be supported if circumstances changed and caused it to be
---------------------- seen as a liability. If the answer is that it would be kept, then it is core value.
Another way to determine which values are core is to imagine the firm moving
---------------------- into a totally different industry. The values that would be carried with it into the
---------------------- new industry are the core values of the firm.
Core values will not change even if the industry in which the company
---------------------- operates changes. If the industry changes such that the core values are not
---------------------- appreciated, then the firm should seek new markets where its core values are
viewed as an asset.
----------------------
For example, if innovation is a core value but then 10 years down the road
---------------------- innovation is no longer valued by the current customers, rather than change its
values the firm should seek new markets where innovation is advantageous.
----------------------
The following are a few examples of values that some firms has chosen to
---------------------- be in their core: Excellent customer service - Pioneering technology - Creativity
- Integrity -Social responsibility
----------------------
Core Values of M&M
---------------------- Core values form the bedrock on which Mahindra & Mahindra has been
---------------------- built. Believed and followed by each of the employees, this is what drives the
company to excel in whatever it does.
---------------------- “M&M has evolved as a customer-centric global corporation led by a
---------------------- team of professionals who create long-term strategy, set goals, merge synergies
across various sectors & measure and motivate performance across divisions
---------------------- and geographies.” - Anand Mahindra, Vice Chairman and Managing Director
---------------------- The core purpose is the reason that the firm exists. This core purpose is
expressed in a carefully formulated mission statement. Like the core values, the
---------------------- core purpose is relatively unchanging and for many firms endures for decades or
even centuries. This purpose sets the firm apart from other firms in its industry
---------------------- and sets the direction in which the firm will proceed.
The core purpose is an idealistic reason for being. While firms exist to Notes
earn a profit, the profit motive should not be highlighted in the mission statement
since it provides little direction to the firm’s employees. What is more important ----------------------
is how the firm will earn its profit since the “how” is what defines the firm.
----------------------
Initial attempts at stating a core purpose often result in too specific of
a statement that focuses on a product or service. To isolate the core purpose, ----------------------
it is useful to ask “why” in response to first-pass, product-oriented mission
----------------------
statements. For example, if a market research firm initially states that its
purpose is to provide market research data to its customers, asking “why” leads ----------------------
to the fact that the data is to help customers better understand their markets.
Continuing to ask “why” may lead to the revelation that the firm’s core purpose ----------------------
is to assist its clients in reaching their objectives by helping them to better
----------------------
understand their markets.
The core purpose and values of the firm are not selected - they are ----------------------
discovered. The stated ideology should not be a goal or aspiration but rather,
----------------------
it should portray the firm as it really is. Any attempt to state a value that is not
already held by the firm’s employees is likely to not be taken seriously. ----------------------
The Envisioned Future also has two components of audacious goals and
----------------------
a vivid description. The audacious goals are what the company would like to
achieve, they are tough, need extraordinary commitment and effort, need a bit ----------------------
of luck and are ambitious. It is thinking far into the future of what to achieve
and start today. The vivid description is putting the goals into words that evoke ----------------------
a picture of what it would be like to achieve your audacious goals.
----------------------
Most visionary goals fall into one of the following categories :
----------------------
Target - quantitative or qualitative goals such as a sales target or Ford’s goal to
“democratize the automobile.” ----------------------
Common enemy - centered on overtaking a specific firm such as the 1950’s ----------------------
goal of Philip-Morris to displace RJR.
----------------------
Role model - to become like another firm in a different industry or market. For
example, a cycling accessories firm might strive to become “the Nike of the ----------------------
cycling industry.”
----------------------
Internal transformation - especially appropriate for very large corporations.
For example, GE set the goal of becoming number one or number two in every ----------------------
market it serves.
----------------------
While visionary goals may require significant stretching to achieve, many
visionary companies have succeeded in reaching them. Once such a goal is ----------------------
reached, it needs to be replaced; otherwise, it is unlikely that the organization
----------------------
will continue to be successful. For example, Ford succeeded in placing
the automobile within the reach of everyday people, but did not replace this ----------------------
goal with a better one and General Motors overtook Ford in the 1930’s.
----------------------
----------------------

Notes Microsoft’s Vision
---------------------- Empower people through great software anytime, any place, and on any
device.’ (1999).
---------------------- Intel’s Vision
---------------------- “Getting a billion connected computers worldwide, million servers, and
a trillion of dollars of e – commerce. We are Vision – catalyst the chemical
----------------------
reaction, the starter motor that kicks the high performance engine to life.
---------------------- Key to action, implementation and results – the paintbrush that gives the
subsequent strategy shape, form and purpose.”
----------------------
The vision is quite simply the desired future for your business put over in
---------------------- a way that excites and motivates the other people. It is difficult.
Challenge – future state – exciting of getting there. - Collins and Porras (1996)
----------------------
bhAG - Big Headed Audacious Goals. And this conveys something of the
---------------------- stretch and excitement implied in a true vision in that it must genuinely convey
---------------------- a picture of a desired future state. Tony Blair set BHAG if ever there was one, to
the first Labour Party Conference following the party’s election victory in 1997.
---------------------- Caselet : Maruti Suzuki Ltd
---------------------- Corporate Profile
---------------------- Maruti Suzuki Limited, a subsidiary of Suzuki Motor Corporation of Japan,
has been the leader of the Indian car market for about two decades. Its
---------------------- manufacturing plant, located some 25 km south of New Delhi in Gurgaon.
---------------------- The company has a portfolio of 10 brands, including Maruti 800, Omni,
premium small car Zen, international brands Alto and WagonR, off-roader
---------------------- Gypsy, mid size Esteem, luxury car Baleno, the MPV, Versa and Luxury SUV
Grand Vitara XL7. In recent years, Maruti has made major strides towards
----------------------
its goal of becoming Suzuki Motor Corporation’s R and D hub for Asia. It
---------------------- has introduced upgraded versions of WagonR, Zen and Esteem, completely
desgined and styled in-house. Maruti’s contribution as the engine of growth
---------------------- of the Indian auto industry, indeed its impact on the lifestyle and psyche
of an entire generation of Indian middle class, is widely acknowledged. Its
----------------------
emotional connect with the customer continues. Customers have rated the
---------------------- company number one in customer satisfaction yet again in the J D Power
Survey 2004. Maruti is the only market leader in the world to be ranked
---------------------- number one in customer satisfaction, and the only company to top customer
satisfaction rankings for five years in a row. The company has also been
----------------------
ranked number one in J D Power Sales Satisfaction Survey 2004. Maruti
---------------------- products including Maruti 800, the Zen and the Esteem have been rated best
cars in their category in Total Customer Satisfaction Survey 2004 conducted
---------------------- by TNS - Automotive. The company’s quality systems and practices have
been rated as a “benchmark for automotive industry worldwide” by A V
----------------------
Belgium, global auditors for International Organisation for standardization.
----------------------
In keeping with its leadership position, Maruti supports safe driving and traffic Notes
management through mass media messages and a state-of-the art driving
training and research institute that it manages for the Delhi Government. ----------------------
The company’s service businesses including sale and purchase of pre owned ----------------------
cars (True Value), lease and fleet management service for corporates (N2N),
Maruti Insurance and Maruti Finance are now fully operational. These ----------------------
initiatives, besides providing total mobility solutions to customers in a
convenient and transparent manner, have helped improve economic viability ----------------------
of the company’s dealerships. ----------------------
Vision and Mission Statements
----------------------
“To be a Leader in the Indian Automobile Industry, Creating customer delight
and shareholders wealth, A Pride of India”. ----------------------
Core Values ----------------------
●● Customer Obsession ----------------------
●● Fast, flexible and first mover
----------------------
●● Innovation and Creativity
●● Network and partnership ----------------------
●● Openness and learning ----------------------
Benefits of a Vision
----------------------
A vision helps to create a common identity for the entire company and
helps to develop a shared sense of purpose. It helps to bond the employees ----------------------
together. They are usually inspiring. Because they are futuristic, they encourage
----------------------
looking far ahead into the future. Thus they also foster risk taking, and focus on
building skills and competencies to achieve the vision. It gives a direction of ----------------------
where the company wants to go.
----------------------
Characteristics of a Mission Statement
A mission as defined by Peter Drucker says that a mission is stating what ----------------------
a company will be, why it exists. So it is the reason for the existence of the ----------------------
organization. It is the role it wants to play in society. So a mission should be
feasible, realistic and achievable. Tisco wanted to become the world’s lowest ----------------------
cost producer. Mission should be clear and precise, so the employees have
clarity on what to achieve. Phillips wants to make things better for the benefit of ----------------------
consumers. It should be motivating for the employees so they will put in efforts ----------------------
and give commitment. It should be distinctive and should indicate the strategic
aspects the company wants to pursue. ----------------------
Key Elements in developing a Mission Statement: ----------------------
Three key elements must be taken into account in developing mission statements:
----------------------
1) History of the Organization: Critical characteristics and events of the past
must be considered in formulating and developing a mission statement. ----------------------
----------------------

Notes 2) Organization’s distinctive competencies: The organization should seek to
do what it does best. Once this has been determined, it can incorporate its
---------------------- competency into the mission statement.
---------------------- 3) The organization’s environment: The management should identify the
opportunities provided and threats/challenges posed by the environment
---------------------- before formulating a mission statement.
---------------------- Elements of a Mission Statement :
1) The mission statement should specify the products to be produced and/
----------------------
or services to be rendered, markets and/or customer groups to be served,
---------------------- markets and/or customer groups to be served and the type of technology.
2) The primary concern for survival and development through profitability.
----------------------
3) The organizational philosophy in terms of basic beliefs, values, attitudes
---------------------- and aspirations
---------------------- 4) Management style to be practiced
Characteristics/Features of Mission Statement :
----------------------
1) Market Focus Rather Than Product Focus: Customers are a key factor
---------------------- in determining an organization’s mission. In recent years a key feature of
mission statements has been external rather than internal focus. Hence, it
----------------------
is viewed that, the mission statement should focus on the broad class of
---------------------- needs that the organization is intending to satisfy (external focus) not on
the physical product or service that the organization is serving at present.
----------------------
2) Achievable: The mission statement should realistic/feasible i.e. It should
---------------------- be practically achievable. Therefore the organization should consider any
limitations to its resources while formulating its mission statement.
----------------------
3) Motivational: A well defined mission provides a shared sense of purpose.
---------------------- Thus the mission should motivate the employees and managers to work
---------------------- for the organization, customers and the society.
4) Specific: The mission statement should be precise and specific and provide
----------------------
direction and guidelines for management’s choices between alternative
---------------------- courses of action. Similarly it should not be so narrow as to restrict the
management’s activities.
----------------------
5) Clear: The mission statement should be stated in clear terms.
---------------------- 6) Distinctive: The mission statement of one organization should be different
---------------------- from those of similar organizations.
7) Indicate Major Components of Strategy Objectives: The mission statement
---------------------- without the objectives and strategies is incomplete. The organization’s
---------------------- mission statement, therefore, should indicate the objectives and strategies
to be employed.
---------------------- 8) Achievement of the Policies: The mission statements of organization’s
---------------------- should include major policies they plan to follow in the pursuit of their
missions.
Functions of a Mission Statement : Notes
1) It should define what the organization is and what the organization aspires
----------------------
to be.
----------------------
2) It should be limited enough to exclude some ventures and broad enough
to allow for creative growth. ----------------------
3) It should distinguish a given organization from all others. ----------------------
4) It should serve as a framework for evaluating both current and prospective
activities. ----------------------
5) It should be stated in terms sufficiently clear to be widely understood ----------------------

throughout the organization.
----------------------
Need for a written Mission Statement
----------------------
1) To ensure unanimity of purpose within the organization.
2) To provide a basis for motivating the use of organizational resources. ----------------------
3) To develop a basis, or standard for allocating organizational resources. ----------------------
4) To establish a general tone or organizational climate. ----------------------
5) To serve as a focal point for those who can identify with the organization’s
----------------------
purpose and direction.
6) To facilitate the translation of objectives and goals into a work structure ----------------------
involving the assignment of tasks of responsible elements within the
----------------------
organization.
Contents of Mission Statements ----------------------
1) Company Product or Service : Identifies the goods or services produced ----------------------
by the organization
----------------------
2) Markets: Describes the markets and customers that the organization
intends to serve. ----------------------
3) Technology: Techniques and processes by which the company produces ----------------------
goods and/or renders services
----------------------
4) Philosophy/ Core Values: A statement of organizational philosophy
commonly appears as part of the mission statement. It reflects the basic ----------------------
beliefs and values that should guide the organizations business.
----------------------
5) Public Image: Mission statements normally contain some reference to the
type of impression that the organization wants to leave with its public. ----------------------
Caselet : hindustan Petroleum Corporation Limited
----------------------
Energy to keep the home fire burning.
----------------------
Energy to keep the wheels of industry turning. Energy that fuels movement.
On land, in air or sea. Energy that transports the present to the future. ----------------------
Energy that makes growth possible HP. A Future Full of Energy ----------------------

Notes HPCL is India’s second largest integrated oil refining and marketing
Company. From transportation to power plants, textiles to pharmaceuticals,
---------------------- consumer durables to heavy engineering, their petroleum products cover them
---------------------- all. But their vision takes them beyond the dynamics of size or scale; they
strive to excel in every thing they do. Identified as one of the Navratnas, in
---------------------- the league of Global Corporates, by the Government of India, their strengths
speak of more than just oil. hPCL has come a long way since its inception,
---------------------- with a track record that has not only resulted in a tremendous growth in their
---------------------- performance, but also their consumer base.
They say:
----------------------
We do more than sell petro - products, we set values. And we vouch by them.
----------------------
Its Roots
---------------------- Hindustan Petroleum Corporation Limited (hPCL) is the result of a
successful convergence of four established companies. Today the second
----------------------
largest integrated oil refining and marketing company in India, HPCL was
---------------------- born of the merger of ESSO, Lube India Ltd, Caltex Oil Refining India
Ltd and Kosan Gas Company Ltd. The Company was first incorporated as
---------------------- Standard Vacuum Refining Company of India Limited, on July 5, 1952, and
later named ESSO India Limited, on March 31, 1962. On July 12, 1974,
----------------------
when Esso and Lube India were nationalised, the Company was renamed
---------------------- Hindustan Petroleum Corporation Limited with effect from July 15, 1974.
---------------------- The undertakings after nationalisation were then vested in HPCL.

The Government of India also nationalised the Caltex undertakings in the year
---------------------- 1976, which were subsequently merged with HPCL in 1978. In the following
---------------------- year, the undertakings of Kosan Gas Company Ltd, the concessionaires of
HPCL in the domestic LPG market, were merged with HPCL. Thus, the
---------------------- various amalgamations, at different points in time, have given rise to HPCL
that has ever since been growing from strength to strength.
----------------------
HPCL had a humble beginning in 1974 with one refinery at Mumbai that
---------------------- had a refining capacity of 3.5 million metric tonnes per annum (MMTPA).
The Lube oil refinery at Mumbai stood around 165000 Tonnes per annum.
---------------------- The sales turnover in that year was only Rs. 3.67 billion, and the net profit
---------------------- Rs. 58 million. But over the years, the Corporation has made judicious use
of its assets to achieve tremendous growth. Dedicated and well - experienced
---------------------- manpower, strategically located refineries at Mumbai and Visakh and a
---------------------- widespread marketing network have enabled the company to carve a niche in
the Indian oil industry today.
----------------------
Vision and Mission
---------------------- Their growth as a Corporation has been strong and steady over the years in all
---------------------- spheres of activity. HPCL has emerged as a mega Public Sector Undertaking
with a consistent record of generating profits and adding value to the
---------------------- stakeholders. The two Refineries owned by the Corporation have progressed
from small to medium scale operations, with a growing marketing network. Notes
Having consolidated their domestic strengths, they are now ready to set world ----------------------
- class standards. This is reflected in the Company’s Vision, and its Mission
agenda to achieve this Vision. ----------------------
VISION ----------------------
“ To be a leading world class company in hydrocarbons and energy related ----------------------
sectors with global presence”
MISSION ----------------------
“HPCL, along with its joint ventures, will be fully integrated company in the ----------------------
hydrocarbons sector of exploration and production, refining and marketing;
----------------------
focussing on enhancement of productivity, quality and profitability; caring
for customers and employees; caring for environment protection and cultural ----------------------
heritage. It will also attain scale dimensions by diversifying into other energy
related fields and by taking up transnational operations.” ----------------------
Values ----------------------
In order to realise the Corporation’s Mission, and play an effective role in
----------------------
the emerging operating environment, they have made Corporate Values an
integral part of their decision making process. They aim to: ----------------------
●● Consistently provide top quality products with prompt and efficient ----------------------
services to ensure customer satisfaction.
●● Be cost effective and emphasize on high productivity and profitability. ----------------------
●● Expedite redressal of employee, customer and shareholder grievances. ----------------------
●● Motivate employees for professional and social advancement at all
----------------------
levels in a participative environment.
●● Develop capabilities and enhance effectiveness of employees through ----------------------
training and career planning.
----------------------
●● Reward shareholders with consistently good returns.
They are essential tenets, a small set of timeless guiding principles, require ----------------------
no external justification, they are intrinsic. ----------------------
The HP Team
----------------------
Imparting knowledge. Encouraging ideas.
----------------------
Inspiring teamwork. Raising standards.
Strengthening bonds. Understanding limits. ----------------------
Broadening horizons. Rewarding excellence. ----------------------

Sharing wealth. That’s how we build the family. ----------------------
The HP family.
----------------------
----------------------

Notes HPCL believes that the key to organisational excellence are its Human
Resources. From the stage of recruitment, progression up the ladder, and a
---------------------- continuous development of skills - the management of Human Resources at
HPCL takes high precedence. It is people, who make the company and provide
----------------------
it with an identity. Each of the nearly 11,300 employees, spread all over India
---------------------- not only contribute to the performance of the company but more significantly
lend the Corporation its own personality. The entire team is divided into two
---------------------- functional groups - Refining and Marketing & Distribution. Recruitment is
by and large carried out at entry level in the three categories - Management,
----------------------
Clerical & Labour based on vacancies and the skills required for the position.
---------------------- It is never too late to learn. The Corporation has a full fledged residential
training centre in the beautiful settings at Nigdi, Pune which provide the
---------------------- perfect ambience to learning, about oneself and one’s area of work.
---------------------- STRATEGIC INTENT
---------------------- As given by C.K. Prahlad and Gary hamel

To develop an effective strategy – you need to have strategic intent.
----------------------
Invariably – companies look at competition traditionally – i.e. focus on existing
---------------------- position & resources, rather than at the resourcefulness of competition and their
pace at which they are building competencies. Accessing the current tactical
---------------------- advantages of known competitors will not help to understand the resolution,
stamina and inventiveness of potential competitors.
----------------------
Strategic intent envisions a desired leadership position and establishes the
---------------------- criterion the organization will chart its progress – it is simply something more
than just unfettered ambition. It captures the essence of winning and is stable
----------------------
over time. It sets a target that requires personal effort and commitment and also
---------------------- a bit of luck – it is not a soft target.
The important question that companies ask is not “How will next year
----------------------
be different?” – but they ask, “What must we do differently next year to get
---------------------- closer to our Strategic Intent?” Most companies look at change and innovation
in isolation – i.e. try and keep a few people isolated and let them free – but real
---------------------- innovation comes from everywhere – top management role is to add value.
---------------------- Strategic intent is clear about the ends, but flexible about the means – it
leaves room for improvisation and creativity and the top management gives
---------------------- the direction. The difference is resource as a constraint versus resources as
---------------------- leverage. In both, it is implicit that there must be balance in the scope so as
to reduce risk. In the first you do it through building a balanced portfolio of
---------------------- cash generating and cash consuming business, in the other you ensure a well
balanced and sufficiently broad portfolio of advantages.
----------------------
Strategic intent implies a sizeable stretch for an organization. Current
---------------------- capabilities and resources will not suffice. This will force inventiveness to
make the most of existing resources. It will create a sense of urgency and
---------------------- force a competitor focus at all levels through widespread use of competitive
---------------------- intelligence. The companies will invest and train employees with the skills they
need to work effectively.
The management will keep on invoking challenges, but also not Notes
overwhelm the employees with unreasonable pressures and demands. They
give the organization time to digest one challenge before launching another ----------------------
challenge. There are clear milestones, which are communicated without any ----------------------
ambiguity and also review mechanisms to monitor the milestones.
One important parameter is reciprocal responsibility. Invariably in bad ----------------------
times, the blame is put at the operating levels – i.e. the workers and junior ----------------------
managers would lose their jobs, take pay cuts, etc., but in the good times it is
the top management which would take the credit and reward themselves with ----------------------
hefty bonuses, increased salaries, etc. But reciprocal responsibility means equal
blame and credit. It goes a long way in building credibility and motivation. ----------------------
Instead of attacking competitors blindly and taking them head-on, companies ----------------------
must leverage their resources.
----------------------
Thus they look for ways to build competitive innovation. The first common
way is to build layers of advantage – i.e. to build on strengths and apply them ----------------------
to the next / adjoining process and improve the links and keep on extending
it. The next way is to search for loose bricks – clusters of business, groups of ----------------------
customers that competition has ignored / not noticed - gap in the market waiting
----------------------
to be exploited that gives you a foothold in the market.
Quite often changing the rules of engagement help, as it puts the entire ----------------------
way of doing business into a fresh perspective. You can start on relatively equal
----------------------
footing rather than being at a disadvantage. Sometimes you compete with
collaborations, instead of a straight fight. There is a similarity like in judo – ----------------------
you may be small – but you can use the size of your rivals against them. This
mapping implies a new view of strategy. It ensures consistency in resource ----------------------
allocation in the long run, focuses efforts in the medium term and reduces risk
----------------------
in the short run. Quite often blindly following the leader or playing by the
industry leader’s rule is competitive suicide. ----------------------
Companies with good strategic intent know the importance of documenting
----------------------
failure – but instead of blame fixing and nailing people – they are more interested
in the management reasons and the orthodoxy that may have led to the failure. ----------------------
Sounds simple, but somehow not practiced. In bad times the simplest way is to
sell a business doing badly. This is the common method, but then you hand over ----------------------
markets and profits on a platter to the competition. The challenge is to survive
----------------------
and turn around and also to find niches within the market and create new spaces
uniquely suited to the strengths, space that quite often off the map. ----------------------
Today for practically all companies, the threat is global and diverse, even ----------------------
industry boundaries are becoming blurred. Typical competition as understood
is being redefined and unlikely competitors are coming up. But this also has the ----------------------
positive spill off – in the sense that even opportunities are larger and global.
Typical SBU structure though helpful may prove to be a constraint in such ----------------------
conditions. The reasons are that it could narrowly divide resources and thus ----------------------
loose their leverage and flexibility.
----------------------

Notes One of the dangers that companies impose on themselves is a belief that,
if an executive is put through a lot of career moves fast – it would help him
---------------------- to be better person. But in the industry where the amount of knowledge and
expertise required is very vast – this may be counterproductive. The managers
---------------------- may lack the deep strength required in their areas. Thus there could be tendency
---------------------- for “denominator management”.
Most companies would appraise their managers on the basis of some ratios
----------------------
and financials. These measures would have a numerator – typically turnover /
---------------------- sales – i.e. the figures showing the position externally. The denominator would
be costs, profits, and mainly internal parameters. To show better results – there
---------------------- is a short cut available which is tempting – i.e. focus on the internal parameters
– so restructure – cut costs – and do things that may hurt a company.
----------------------
Looking at the denominator may bring short-term results, but there may
---------------------- be serious long-term sacrifices. So unless a company does both simultaneously
– focus on increasing the numerator and also focus on reducing the denominator,
----------------------
there could be a serious problem in the future. It would lead to a downward
---------------------- spiral, as again when the next problem occurs, you look inward and shrink again
and again till finally somebody else gobbles you up. Thus in many situations,
---------------------- managers follow a code of silence, ignoring the signals seen and keeping silent.
It is better to bring the problems to the surface and discuss them, rather than
----------------------
increase the level of anxiety, which everybody knows of.
---------------------- Thus Strategic intent is what the organization strives for. Komatsu wanted
to “Encircle Caterpillar” in the earthmoving business. Canon wanted to “Beat
----------------------
Xerox”. These are some of the strategic intents. It is an obsession with an
---------------------- organization – an obsession with having ambitions that may even be out of
proportion to their existing resources and capabilities. This obsession is to win
---------------------- at all levels of the organization which sustaining that obsession in the quest for
global leadership.
----------------------
Stretch, Leverage and Fit
----------------------
To achieve Strategic Intent – you need to Stretch. As of today there is a
---------------------- misfit between resources and aspirations. So instead of looking at resources, you
will look at resourcefulness. To achieve you will stretch and make innovative
---------------------- use of your resources.
---------------------- This leads to Leveraging your resources. Leverage refers to concentrating
your resources to your strategic intent, accumulating learning, experiences and
---------------------- competencies, in a manner that a scarce resource base can be stretched to meet
---------------------- the aspirations that an organizational resources to its environment.
The strategic fit is the traditional way of looking at strategy. Using
----------------------
techniques such as SWOT analysis, which are used to assess organizational
---------------------- capabilities and environmental opportunities, Strategy is taken as a compromise
between what the environment has got to offer in terms of opportunities and the
---------------------- counteroffer that the organization makes in the form of its capabilities.
----------------------
Under fit, the strategic intent is conservative and seems to be more Notes
realistic, but you may not be aware of the potential; under stretch and leverage it
could be improbable, even idealistic, but then you look at something far beyond ----------------------
present possibilities and look at the potential possibilities.
----------------------

1. The mission would carry the grand design of the firm and communicate ----------------------
what it wants to be.
----------------------
2. The mission justifies the organisation and legitimises the corporate’s
role in the society. ----------------------
3. The mission is the expression of the corporate intent ----------------------
----------------------
3.5 GOALS AND OBJECTIVES
----------------------
Role of Objectives
----------------------
Goals are targets than an organization hopes to / wants to accomplish in a
future period of time. Goals are clear and unambiguous and often an organization ----------------------
sets a combination of goals, financial and non-financial, quantitative and
qualitative. Goals are more on an organizational level and thus in this sense ----------------------
they are broad in nature. So an organization could set goals on turnover, profits,
----------------------
returns on assets / equity, it could also have market share, customer satisfaction,
employee satisfaction, etc as goals. The important thing to remember is that ----------------------
too many goals can be confusing and can often lead to contradictions. So goals
should be limited and manageable, clear and consistent with each other. ----------------------
Objectives are the ends that state specifically how the goals shall be ----------------------
achieved. They are concrete and specific in contrast to goals, which are
generalized at the company wide level. In this manner, objectives make the ----------------------
goals operational. While goals may be qualitative, objectives tend to be more ----------------------
quantitative in specification. In this way they are measurable and comparable.
Objectives are set and in a way they define what the organization has to ----------------------
achieve for its employees, shareholders, customers, etc. Since objectives are set ----------------------
with the environment in mind they define its relationship with its environment.
Objectives are framed in line with the vision / mission of the organization. This ----------------------
consistency helps the organization to pursue its vision and mission. Objectives
become the basis for strategic decision-making, as the right strategies need ----------------------
to be formulated and implemented for achieving the objectives. Objectives ----------------------
are invariably quantitative. They provide clear measures and standards for
performance. So they help in appraisal, to see if the organization is on the right ----------------------
track or not.
----------------------
----------------------

Notes Characteristics of objectives
In order that objectives be understood, so that the employees will be able
----------------------
to pursue them, objectives should have the following characteristics :
---------------------- ●● Understandable.
---------------------- ●● Have a clearly defined time frame.
●● Concrete and specific.
----------------------
●● Actionable.
---------------------- ●● Measurable.
---------------------- ●● Controllable.
---------------------- ●● Challenging, not easily achievable.

●● Correlate with different objectives.
----------------------
Targets on turnover, profit and market share form part of a firm’s objectives.
---------------------- A leading engineering company which had a Rs. 800 crores turnover, laid down
the objectives of becoming a Rs. 1500 crore company in the next 4 years with
---------------------- 12% PAT and market share of over 50%.
---------------------- Factors to be considered :
---------------------- When setting objectives the following factors need to carefully evaluated
1. Specificity – they should be specific for the level at which they are being
---------------------- set. If they are too broad, they will be confused with goals and if too
---------------------- narrow, will be confused with targets. Corporate objectives, SBU level
objectives, operational level objectives need to clearly demarked.
----------------------
2. Multiplicity – Objectives invariably are for different performance areas,
---------------------- hence they need to be multiplicity of objectives.
3. Periodicity – Need to formulated for different time frames, typically
----------------------
short term, medium term and long term and should linked and consistent.
---------------------- 4. Verifiability – Ability to check whether achieved or not is important.
---------------------- Thus need the right measures for quantification.
---------------------- 5. Environment – are the objectives taking into account the environment.
Also need to check whether they are fulfilling the needs of the stakeholders
---------------------- in the business, like customers, shareholders, employees, suppliers, etc.
---------------------- 6. Reality - Are the objectives looking at the reality of the organization’s
resources and internal constraints, including politics and power
----------------------
relationships.
----------------------
----------------------
----------------------
----------------------
3.6 CRITICAL SUCCESS FACTORS Notes
Critical success factors (CSFs) are sometimes referred to as strategic ----------------------
factors or key factors for success. These are those factors, resources, skills,
etc., which are required for success and hence are crucial for the organization. ----------------------
CSFs (or key factors for success) should be treated as a basic business strategy
----------------------
for competing wisely in any industry. For example, a company in the consumer
durable industry should have a very good distribution channel and a good ----------------------
market coverage. Without this, the company will not have greater success in the
market. ----------------------
1. Policies : ----------------------
Policies are also plans but they are general statements or understandings, ----------------------
which guide thinking in decision-making. Not all policies are
“statements”; they often are merely implied from the actions of managers. ----------------------
The president of a company, for example, may strictly follow - perhaps
for convenience - the practice of promoting from within; the practice may ----------------------
then be interpreted as a policy and carefully followed by subordinates. ----------------------
Thus policies define an area within which a decision is to be made and
ensures that the decision will be consistent with, and contribute to, an ----------------------
objective. Policies help decide issues before they become problems, make
it unnecessary to analyze the same situation every time it comes up, and ----------------------
unify other plans. Policies ordinarily exist at all levels of the organization, ----------------------
ranging from major company policies to minor policies applicable to
smallest segment of the organization. There are many types of policies. ----------------------
Examples include policies of hiring only university-trained engineers or of
encouraging employee suggestions for improved cooperation, promoting ----------------------
from within, setting competitive prices etc. ----------------------
Since policies are guides to decision making, it follows that they must
----------------------
allow for some discretion. Otherwise they would be rules.
2. Procedures : ----------------------
Procedures are plans that establish a required method of handling future ----------------------
activities they are guides to action, rather than to thinking, and they
detail the exact manner in which certain activities must be accomplished. ----------------------
They are chronological sequences of required actions. Procedures often
----------------------
cut across department lines. For example, in a manufacturing company,
the procedure for handling orders will involve sales department (for the ----------------------
original order), the production department (for the order to produce goods
or authority to release them from stock), the accounting department (for ----------------------
recording the transaction). There, however exists a relationship between
----------------------
procedures and policies. Company policies may grant employee vacation;
procedures to implement this policy will provide for scheduling vacations ----------------------
to avoid disruption of work, setting methods and rates of vacation pay,
----------------------
----------------------

Notes maintaining records to assure each employee of a vacation and spelling
out means for applying for the vacation
----------------------
3. Rules :
---------------------- Rules spell out specific actions or non-actions, allowing no discretion.
A procedure might be looked upon as sequence of rules. For example, a
----------------------
procedure governing the handling of orders may incorporate the rule that
---------------------- all orders must be confirmed the day they are received. This rule allows
no deviation from a stated course of action and in no way interferes with
---------------------- the rest of the procedures for handling orders. The essence of a rule is that
it reflects a managerial decision that some certain action must or must not
----------------------
be taken.
---------------------- 4. Programs :
---------------------- Programs are complex of goals, policies, procedures, rules, task assignment
steps to be taken, resources to be employed, and other elements necessary
---------------------- to carry out a given course of action. They may be as major as an airline’s
---------------------- program for acquiring a $400 million fleet of jets or the 5-year program
embarked upon by the Ford Motor Company several years ago to improve
---------------------- the status and quality of thousands of its foremen. A primary program
may call for many supporting programs. The program requires many
---------------------- supporting programs. A program for providing the maintenance and
---------------------- operating bases with spare parts and components. Special maintenance
facilities must be prepared and maintenance personnel trained. Pilots and
---------------------- flight engineers must also be trained, flight personnel must be recruited.
Advertising programs must give adequate publicity to the new service.
----------------------
5. Budgets :
---------------------- A budget is a statement of expected results expressed in numerical terms.
---------------------- It may be referred to as a “numberized” program. Budget is often called
a “profit plan”. Although a budget usually implements a program, it may
---------------------- in itself be a program. One company in difficult financial straits installed
an elaborate budgetary control program designed not only to control
---------------------- expenditures but also instill cost consciousness in management. Infact,
---------------------- one of the major advantages of budgeting is that it makes people plan,
because a budget is in the form of numbers, it forces precision in planning.
----------------------
Critical success factors are the factors that make the organisation
---------------------- successful. For example:
a) Five-star hotel or an airline has a critical success factor as occupancy
----------------------
rate.
---------------------- b) For the shipping industry, the critical success factor is timing of
---------------------- buying and selling of ships and right timing of ordering new ships.
c) For the toothpaste industry, the critical success factor is 4-F., namely,
---------------------- firm, flavor, freshness and foam.
----------------------
Not only organisations but also companies have critical success factors. Notes
e.g. Reliance Industry Ltd (RIL) has three critical success factors:
----------------------
i) Economy of Scale
ii) An ability to complete very large projects in shortest time at lowest costs ----------------------
iii) Vertical Integration (Forward and Backward) ----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. Corporate strategy ensures the ___________ between the firm and its
environment. ----------------------
2. The main task in setting the corporate __________ is to decide the
----------------------
extent of growth the firm wants to achieve.
3. Internal ______________ of the firm is the process of assessing the ----------------------
corporation’s capabilities and resources, strengths and weaknesses,
----------------------
core competencies and competitive advantages.
----------------------
Activity 2 ----------------------
----------------------
Study the business area of your organisation with the external and internal
factors affecting it. ----------------------
----------------------
3.7 BALANCED SCORECARD
----------------------
R.S Kaplan and D.P. Nortan came out with a popular concept called
----------------------
the balanced scorecard approach in early 1990s linking corporate goals with
strategic action undertaken at business units, departmental and complementary ----------------------
perspective.
----------------------
The scorecard allows managers to evaluate the firms from different
complementary perspective. ----------------------
a) A firm can offer superior returns to stockholder if it has competitive ----------------------
advantage in its products or service offering when if it has a competitive
advantage in its product or service offering as compared to rivals. ----------------------
b) In order to sustain competitive advantage in its products or service offering ----------------------
when compared to its rivals.
c) This in turn requires development of operation with necessary capabilities. ----------------------
d) In order to develop the needed operational capabilities a firm requires ----------------------

the serves of employees having requisite skills, creativity, diversity, and
----------------------
motivation.
----------------------

Notes Four Perspectives of balanced Scorecard
1. Financial Perspective
----------------------
a) Economic Value Addition (EVA)
----------------------
b) Profitability
---------------------- c) Growth
---------------------- 2. Customer Perspective
---------------------- a) Differentiation
b) Costs
----------------------
c) Quick response
----------------------
3. Operation Perspective
---------------------- a) Product development
---------------------- b) Demand management
---------------------- c) Order fulfillment
4. Organisational Perspective
----------------------
a) Leadership
----------------------
b) Organisational learning
---------------------- c) Ability to change
---------------------- Financial Perspective
---------------------- Does the firm provide the customer with superior value in terms of
products, differentiation, low costs or quick reflexes?
----------------------
Operational Perspective
---------------------- How effectively and efficiently do the core processes that produce
customer value perform? Which are the most important sources of customer
----------------------
value? Which of them needs improving to offer greater customer value?
---------------------- Organisational Perspective
---------------------- Can this firm adapt to change in its environment? Is its workforce
committed to shared goals? Does the organisation learn from the past mistakes,
---------------------- when confronted with a problem? Does it go to work at the root cause or does
---------------------- it only scratch the surface?
A properly constructed scoreboard helps a firm strike a fine balance
----------------------
between short and long- term financial measures, financial and long-term
---------------------- measures, internal and external performance perspective.
Corporate success ultimately depends upon how well a firm is able to extend its
----------------------
competitive advantage to new areas along a period of time.
----------------------
----------------------
Summary Notes
●● Success of any company depends on how well the company has formulated ----------------------
its strategy. Strategy formulation is not easy, you need to take into account
----------------------
the environment of the company.
●● The steps in strategic management – which starts with the vision / ----------------------
mission of the company forms the foundation. Effective SWOT analysis
----------------------
is important. It is both subjective and objective.
----------------------
Keywords
----------------------
●● Vision: It is the statement explaining the lifetime objective of the
----------------------
organisation. It the reason of its existence.
●● Mission: Mission statement is action oriented, its focus on how the vision ----------------------
is to be achieved.
----------------------
Self-Assessment Questions ----------------------
1. Explain Strategic Management with a few definitions. ----------------------
2. Draw a flowchart to show the strategic management process. ----------------------

3. Why is it necessary to have a vision and a mission? What are their ----------------------
characteristics?
----------------------
4. What is Strategic Intent? How does it help in Strategic Management?
5. Explain Stretch, Leverage and Fit. ----------------------
6. How are goals formulated? What is the difference between goals and ----------------------
objectives?
----------------------
7. Write a detailed note on objectives.
8. Explain Critical Success Factors. ----------------------
9. What are policies, rules, budgets, programs and procedures? ----------------------
----------------------
----------------------
----------------------
Fill in the blanks.
1. Strategy is long term and it decides the direction, defines what the ----------------------
company is all about and brings in consistency in what the company will
----------------------
do.
2. Strategy starts with the company’s vision and mission, followed by setting ----------------------
of goals and objectives.
----------------------
----------------------

Notes 3. According to Glueck, strategic management is a stream of decisions and
actions that lead to the development of an effective strategy or strategies
---------------------- to help achieve corporate objectives.
----------------------
----------------------
----------------------
1. True
---------------------- 2. True
---------------------- 3. True
----------------------
----------------------
Fill in the blanks.
----------------------
1. Corporate strategy ensures the fit between the firm and its environment.
---------------------- 2. The main task in setting the corporate objectives is to decide the extent of
---------------------- growth the firm wants to achieve.
3. Internal appraisal of the firm is the process of assessing the corporation’s
----------------------
capabilities and resources, strengths and weaknesses, core competencies
---------------------- and competitive advantages.
----------------------
Suggested Reading
----------------------
1. Auste, E. P. and C W. Choo. 1993. “Environmental Scanning by CEOs
---------------------- in Two Canadian Industries.” Journal of the American Society for
Information Science.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Environmental Appraisal and SWOT
UNIT
4
Structure:
4.1 Introduction
4.2 Concept of Environment
4.3 External and Internal Environment
4.4 Environmental Scanning
4.5 Organizational Appraisal
4.6 Environmental Appraisal
4.7 ETOP Analysis (Environment Threat and Opportunity Profile)
4.8 Strategic Advantage Profile and Organisational Capability Profile
Summary
Keywords
Suggested Reading
Environmental Appraisal and SWOT 67

Notes
Objectives
----------------------
----------------------
●● Discuss the concept of environment
---------------------- ●● Judge an organisation’s environment
---------------------- ●● Identify the major external and internal environmental factors
---------------------- ●● Make a SWOT analysis
----------------------
4.1 INTRODUCTION
----------------------
As a part of the strategic management process, environmental appraisal
---------------------- or SWOT is a vital step in the strategy formulation. It translates into a detailed
analysis through the collection of information that becomes a foundation for
---------------------- future steps. The concept fo what enironment to study is important – both internal
---------------------- and external as this would decide your steps. You need to do the scanning of
the environment along with the capability study of the internal part. Various
---------------------- methods and techniques are used for the same.
----------------------
4.2 CONCEPT OF ENVIRONMENT
----------------------
Environment means the surrounding, both internal and external objects,
---------------------- factors and influences or circumstances under which someone or something
exists. The environment of any organization is “the aggregate of all conditions,
---------------------- events and influences that surround and affect it.”
---------------------- Environment is complex – there are many factors in the environment. Most
are the factors have relationships with each other and the interrelationships are in
---------------------- many different ways. Environment is dynamic. The factors in the environment
---------------------- have effect on the company and the actions of the company in turn affect the
environment and the effects are constantly changing. Thus it has a great and
---------------------- far-reaching impact on the company.
---------------------- Let us look how Michael Hammer and James Chapy in their book
“Reengineering” have looked at the change occurring in the business world
---------------------- today.
---------------------- “They say that every company in the world wants an organization, which
is flexible enough to adjust quickly to changing environment. But still so many
---------------------- companies are rigid, non-competitive, uncreative, inefficient and losing money.
The answer lies in how these companies do their work and why they do it that
---------------------- way. It has been seen most of the times that the efficiency of a company’s parts
---------------------- come at the expense of the efficiency of the company as a whole. Work that
requires cooperation and coordination of several different departments within
---------------------- a company is often a source of trouble. The companies performed badly not
because of any intrinsic flaw but because the world has changed beyond the
----------------------
limits of their capacity to adjust or evolve. There was a need that the people in Notes
these companies should work differently rather than working harder.
----------------------
Adam Smith, in 1776 described in his book “The Wealth of Nations”, the
principle of division of labor for increasing worker productivity and reducing ----------------------
cost of goods. After applying this principle the American companies became
best in the world. But today the old ways of doing business – the division of ----------------------
labor around which the companies have been organized simply don’t work
----------------------
because in today’s environment nothing is constant or predictable- not market
growth, customer demand, product life cycles, and the rate of the technological ----------------------
change or the nature of competition. The three forces driving today’s companies
(known as three C’s) are: customers, competition and change. ----------------------
Customers take charge : Earlier customers had little choice and they used to ----------------------
buy the products that were offered to them. But today the customers demand
customized products and want individual attention. So customers have an upper ----------------------
hand these days.
----------------------
Competition intensified : Earlier, the company that could get to market with an
acceptable product or service at the best price would get to sale. Now, not only ----------------------
does more competition exist, it’s of many different kinds. The good performers
----------------------
drive out inferiors because the lowest price, the highest quality, the best service
available from anyone of them soon becomes the standard for all competitors. ----------------------
Change becomes constant : Today, with the globalization of the economy, ----------------------
change has become both pervasive and persistent because companies face a
greater number of competitors and each one of which may introduce product ----------------------
and service innovations to the market. So the companies need to move fast or
they won’t be moving at all. ----------------------
Let us start by knowing what environment to study. ----------------------

GLOBAL ENVIRONMENT ----------------------
RELEVANT ENVIRONMENT
----------------------
IMMEDIATE ENVIRONMENT
----------------------
INTERNAL ENVIRONMENT
To take an analogy from physics, the company is a semi open or semi ----------------------
closed system. The environment affects the company and the company through ----------------------
its actions, also affects the environment. Environment on a broad level can
be classified as internal and external environment. Both internal and external ----------------------
environments are important to study. The way to look at internal and external
environment is that, there is a fair degree of control over the internal environment, ----------------------
but on the external environment, there is little control. ----------------------
The environment per se is very large, but it is very important to know
what to study in the environment. So a manager must decide in the external ----------------------
environment, what is the immediate environment and what is the relevant ----------------------
environment. The rest of the environment can be ignored. The immediate
environment has a direct and very large impact on the company and thus would ----------------------

Notes be studied in a great deal of detail. The relevant environment has an indirect
impact on the company and would be studied adequately, while the rest can be
---------------------- ignored.
----------------------
----------------------
Fill in the blanks.
----------------------
1. ____________ appraisal translates into a detailed analysis through the
---------------------- collection of information that becomes a foundation for future steps
of a company.
----------------------
2. Environment means the surrounding, both __________ and _________
---------------------- objects, factors and influences or circumstances under which someone
or something exists.
----------------------
3. It has been seen most of the times that the efficiency of a company’s
---------------------- parts come at the expense of the efficiency of the company as a
__________.
----------------------
----------------------
Activity 1
----------------------
Identify the environmental factors influencing your organisation.
----------------------
----------------------
4.3 EXTERNAL AND INTERNAL ENVIRONMENT
----------------------
The external environment is made up of all the factors, conditions and
---------------------- influences outside the organization. This may give rise to opportunities, which
can be exploited or it may give rise to threats, which can undermine or cause
---------------------- problems to the organization. The internal environment refers to all the factors
---------------------- within the control of, and inside an organization. These factors may impart
strengths, which can be utilized to exploit the opportunities or become a cause
---------------------- of weaknesses of a strategic nature, thus threats can affect the organization.
---------------------- To look at this again :

1. Opportunity – A favorable condition in the organization’s environment.
----------------------
It can be exploited and can help to it to consolidate and strengthen its
---------------------- position. Example – growing demand for the products or services that a
company provides due to better GDP growth.
----------------------
2. Threat – An unfavorable condition in the organization’s environment. It
---------------------- will pose a risk for, or causes damage to the organization. Example – Due
to opening up of the economy, the emergence of multinational competitors
---------------------- who are stronger and have more resources to offer stiff competition to the
existing companies in an industry.
----------------------
----------------------
3. Strength – It is always in relation to the environment. Is an inherent Notes
capacity, which needs to fulfill two conditions – first – it is required for
success – second – it gives the organization strategic advantage, at it would ----------------------
have this capacity more than the competition, which it can use to gain
more than the competition. Example – superior research and development ----------------------
facilities where innovation and new products are required. ----------------------
4. Weakness – Again, it is always in relation to the environment. It is an
----------------------
inherent inadequacy – something that is required for success is missing
and it gives the organization strategic disadvantage, competition, can use ----------------------
this weakness to gain more due to the inherent limitation or constraint.
Example – Over dependence on a single product line in a mature market ----------------------
and lack of new product development capabilities, which is potentially
----------------------
risky for a company in times of crisis.
An understanding of the external environment, in terms of opportunities ----------------------
and threats, and the internal environment, in terms of strengths and weaknesses,
----------------------
is crucial for existence, growth, and profitability of any organization. A
systematic approach to understanding the environment is the SWOT analysis. ----------------------
4.4 ENVIRONMENTAL SCANNING ----------------------
----------------------
As would be explained later in this unit, various environments need to be
studied, but we need to know what factors are to be considered for Environmental ----------------------
Scanning.
----------------------
●● The first is Events. These are important and specific occurrences taking
place in different environmental sectors, an example is bilateral agreement ----------------------
between two countries in which the company is operating and facing
competition from local companies. ----------------------
●● Trends are the way the environment is shaping up. They are the general ----------------------
tendencies or the courses of action along which events take place, like
global warming, nuclear families, etc. ----------------------
●● Issues are the current concerns that arise in response to events and trends, ----------------------
like pollution control, business ethics, scams.
●● Expectations are the demands made by interested groups in the light ----------------------
of their concern for issues, like corporate governance, stricter auditing ----------------------
norms, greater transparency, etc.
Sources of Information for Environment Scanning ----------------------
The various sources of information, which are tapped for collecting data ----------------------
for environmental scanning, could be classified in different ways. There could
be formal and informal sources. Then there could be written as well as verbal ----------------------
sources. In terms of origin, the data sources could be external and internal. ----------------------
----------------------
----------------------

Notes Given below are some of the important types of sources of information.
1. Secondary sources of information – which are already documented – like
----------------------
publications, newspapers, magazines, journals, books trade and industry
---------------------- association newsletters, annual reports of competitors, companies, etc.
2. Mass media such as radio, television and the internet.
----------------------
3. Sources internal to the company – documents, databases, company files
---------------------- management information system, knowledge of employees, etc.
---------------------- 4. Associated external agencies and relationships, like customers, dealers,
channels, intermediaries, suppliers, associations, government, etc.
----------------------
5. Formal studies and Market Research by employees, research agencies,
---------------------- consultants, and studies by educational institutions.
---------------------- Methods and Techniques used for Environmental Scanning
There are many varied and different methods and techniques available that
----------------------
can be used for environmental scanning. These are both formal and systematic
---------------------- technique as well as intuitive methods. Strategists may choose those methods
and techniques from among these, which suit their needs in terms of the quality,
---------------------- availability, timeliness, relevance, and of environmental information.
---------------------- Some groups of techniques for environment appraisal are:
---------------------- Single-variable extrapolation / Multivariable interaction analysis

Structured / Unstructured Expert / Inexpert opinion
----------------------
Dynamic modes and mapping
----------------------
Some techniques used for environmental scanning and forecasting in strategic
---------------------- planning are as follows:
Scenario writing, Simulation, Morphological analysis, Game theory, Cross-
----------------------
impact analysis, Analogies, and other forecasting techniques.
---------------------- The external environment can be broken into the following categories
for simplicity : marketing environment – finance environment – economic
----------------------
environment – demographic environment – political and legal environment –
---------------------- supplier and technological environment – social and cultural environment.
---------------------- 1. The marketing environment

It is concerned with the markets in which the company operates and the
---------------------- linkage between the company, customers and competitor.
---------------------- A typical study would involve :
---------------------- ●● Customers – needs, preferences, perceptions, price - performance
equation, awareness levels, buying behavior, etc.
----------------------
●● Growth rate, demand v/s supply, differentiation, substitutes, etc.
---------------------- ●● Channels of distribution, intermediaries, logistics, etc.
---------------------- ●● Competition, nature of competition, entry and exit of competitors,
etc.
●● Industry structure, integration of markets, globalization, etc. Notes
The financial environment
----------------------
It is concerned with the
----------------------
●● Demand / supply of money, sources and cost of money, tenure of
loans, securities asked for loans etc. ----------------------
●● Capital markets, intermediaries, interest rates, various financial
----------------------
instruments, and other factors in the financial sector, etc.
The demographic environment ----------------------
It is concerned with the ----------------------
●● Population’s size, age, income groups and distribution.
----------------------
●● Family size and structure, geographic distribution, ethnic mix, etc.
----------------------
The economic environment
It is concerned with ----------------------
●● Inflation rates, GDP, savings rate, etc. ----------------------
●● Trade deficits, balance of payments, trade gap, trade cycles, etc.
----------------------
●● Infrastructure like electricity / communication / roads / rail / air /
etc. ----------------------
●● Other such factors that affect the entire industry. ----------------------
The political / legal environment
----------------------
It is concerned with
----------------------
●● Govt. policies, stability, philosophy of government.
●● Various laws, Infrastructure for implementation of various laws / ----------------------
policies, etc.
----------------------
●● Attitude towards labor, bilateral relations.
●● Overall factors that may affect industry climate. ----------------------
The social / cultural environment ----------------------

●● Attitudes about work / quality, concerns.
----------------------
●● Ethics, values, religion, corruption.
●● Other such factors. ----------------------
The supplier and technological environment ----------------------

●● The quality and number of suppliers, labor and people as suppliers,
----------------------
etc.
●● The logistics, raw material. ----------------------
●● Trends and rate of change of technology, appropriate technology, ----------------------
cost/benefit of technology.

Notes ●● Other such factors.
The international / global environment
----------------------
It is concerned with
----------------------
●● Direction of Globalization, Trade Blocs.
---------------------- ●● Global trade and commerce, WTO, GATT, TRIPS, legal mechanisms,
---------------------- etc.
●● Global demographics.
----------------------
●● Technology and flow of technology.
---------------------- ●● Standards and conventions.
---------------------- ●● Other such factors.
Along with the above, the internal environment also would be studied.
----------------------
Here the analysis would be of resources, capabilities and competencies.
---------------------- There are tangible and intangible resources. Tangible resources can be
quantified and are identifiable / visible – basically 4 types – financial resources
----------------------
– organizational resources – physical resources – technological resources.
---------------------- Intangible resources are less visible – like human resources – innovation
resources – reputation resources.
----------------------
Capabilities are the firm’s capacity to deploy resources that have been
---------------------- purposely integrated to achieve a desired end state. Capabilities enable the firm
to create and exploit external opportunities. Core competencies are explained
---------------------- later in this chapter.
---------------------- Based on the above – a firm would evaluate the SWOT analysis. There
would be threats and opportunities in the environment. To take advantage of
---------------------- the opportunities and minimize the threats, a firm would require a few critical
---------------------- success factors. If these CSF’s are available with the firm in a measure larger
than others are – it is strength. If all firms have, it is a neutral factor. If something
---------------------- is needed but is absent – it is a weakness.
---------------------- SWOT ANALYSIS of a Financial Services company :

Strengths
----------------------
●● Good sales force
----------------------
●● Branch office all over India
---------------------- ●● High customer base
---------------------- ●● In the market since 40 years, starting services for the corporate sector .
●● Strong research team
----------------------
Weakness
---------------------- ●● Less technology oriented
----------------------
----------------------
Opportunities Notes
●● Growing market
----------------------
 Early mover advantage
----------------------
Threats
●● Changing customer needs and preferences ----------------------
●● Changing regulation ----------------------
●● Entry of multinational into the business
----------------------
●● Direct selling by the companies.
----------------------
----------------------
1. A company performs badly because of intrinsic flaw but not because
----------------------
the world has changed beyond the limits of their capacity to adjust or
evolve. ----------------------
2. There is a need that the people in a company should work similarly
----------------------
rather than working harder.
3. In today’s environment, everything is constant or predictable − ----------------------
market growth, customer demand, product life cycles and the rate of ----------------------
the technological change or the nature of competition.
----------------------
Activity 2 ----------------------
List down the factors formulating the internal and external environment of ----------------------
your organisation. ----------------------
----------------------
4.5 ORGANIZATIONAL APPRAISAL
----------------------
Organizational capability could be understood in terms of the strengths and
weaknesses existing in the different functional areas of an organization and also ----------------------
their integration. We shall mainly consider six such areas: finance marketing, ----------------------
operations, personnel, information management and general management. We
shall try to mention the important factors influencing them and clarify the nature ----------------------
of the various functional capability factors.
----------------------
Competencies
----------------------
An organization, on the basis of its resources, the capabilities to convert
the resources into outputs and the behavior of these resources and capabilities, ----------------------
develops certain strengths and weaknesses which when combined lead to
synergistic effects. Synergy, which means the whole is greater than the sum ----------------------
of the parts, manifest themselves in advantages over the competition in terms
----------------------
of organizational competencies. An organization develops its competencies

Notes over a period of time. It helps them in developing a fine art of competing with
its rivals, and over time, it tends to use these competencies exceedingly well.
---------------------- The capability to use the competencies exceedingly well turns them into core
competencies.
----------------------
There seems to be distinction here between the three terms: competencies,
---------------------- core competencies, and distinctive competencies. The difference lies in the
degree of uniqueness associated with the net synergistic effects occurring within
----------------------
an organization. You could think of them as being synonymous so long as you
---------------------- are able to make a distinction among them when necessary. Among the three, it
is the term “core competence” that has gained greater currency and popularity.
----------------------
Core Competencies
---------------------- As per C.K. Prahalad and Gary hamel
---------------------- How do businesses see themselves? As a portfolio of competencies or as
portfolio of products / services / different businesses. Quite often it would be
---------------------- the latter. For a company, in the short run, it derives its competencies from the
---------------------- price performance attributes, in the long run; it is derived from the ability to
build at lower cost and speedily than others the core competencies that spawn
---------------------- unanticipated products.
---------------------- A diversified company is like a large tree. Trunk and large limbs are core
products; leaves, fruits and flowers are the end products. What are not easily
---------------------- visible and apparent are the roots of the tree – hidden from direct view – which
provide the sustenance, nourishment and stability. The roots are akin to “core
---------------------- competence”.
---------------------- Core competence is the collective learning of an organization, especially
how to co-ordinate diverse production skills and integrate multiple
---------------------- steams of technologies and in the organization of work and delivery of value.
---------------------- It is communication, deep involvement and commitment to work across
organizational boundaries across all levels and functions. It does not diminish
---------------------- with use, unlike physical assets. Need to be nurtured and protected. In many
companies, what seems to be an extremely diversified portfolio of businesses is
---------------------- actually the application of a few shared core competencies. Core competencies
---------------------- are the glue that bind existing businesses and guide market entries instead of
market attractiveness.
----------------------
Building core competencies is not outspending rivals on R & D or vertical/
---------------------- horizontal integration. It is also not sharing costs by SBU’s. It is also not
building global brand dominance, as media perceives it, but to build global
---------------------- share of the mind and of manufacturing.
---------------------- Three tests can be used to identify core competencies - First it provides
potential access to a wide variety of markets and diverse products. Second, it
---------------------- makes a significant contribution to the perceived benefits of the end product.
Third, it is difficult for competitors to imitate, especially if it is a complex
----------------------
harmonization of individual technologies and production skills.
----------------------
Many skills rented in / outsourced because of cost center concept. Good Notes
companies will never let such skills go outside. It might be a short cut today,
but does not contribute to building people skills needed for leadership. By ----------------------
not building competencies in emerging markets, you may lose the chance of
competing in emerging markets. Giving up existing markets because they ----------------------
are mature / declining may also be harmful as competencies may be lost. It is ----------------------
important to maintain the competencies even if not active in the markets.
----------------------
The tangible link between identified core competence and end products
are core products. Maintaining dominance in core products helps you to reserve ----------------------
the power to shape the evolution of the end products. Problems with SBU
concept can lead to non-development or loss of competencies. First is under- ----------------------
investment in development of competencies and core products. Second are
----------------------
imprisoned resources. Third is bounded innovation.
Think of your company as a tree - it will help build the strategic architecture ----------------------
for the company. Sufficiently strong roots must be sunk for health. Competence
----------------------
carriers must not be held hostage in some SBU, but be treated as corporate
resource. This is top management’s responsibility. Core competencies are the ----------------------
wellspring of new businesses. They should constitute the focus for strategy at
the corporate level. ----------------------
ITC’s diversified status originates from its corporate strategy aimed at ----------------------
creating multiple drivers of growth anchored on its time-tested core competencies:
unmatched distribution reach, superior brand-building capabilities, effective ----------------------
supply chain management and acknowledged service skills in hoteliering.
----------------------
Over time, the strategic forays into new businesses are expected to garner a
significant share of these emerging high-growth markets in India. ----------------------
Organizational Capability ----------------------
Organizational capability is the inherent capacity or potential of an
organisation to use its strengths and overcome its weaknesses in order to exploit ----------------------
opportunities and face threats in its external environment. Since organizational ----------------------
capability is the capacity or potential of an organisation, it means that it is a
measurable attribute. Since it can be measured, organizational capability can ----------------------
also be compared, though it is very difficult to measure organizational capability.
This is because there are lots of subjective attributes in the measurement. ----------------------
Strategists are primarily interested in organizational capability because ----------------------

of two reasons. Firstly, they wish to know what capacity exists within the
organisation to exploit opportunities or face threats in its environment. Secondly, ----------------------
they are interested in knowing what potentials should be developed within the ----------------------
organisation so that opportunities could be exploited and threats should be faced
in future. ----------------------
----------------------
----------------------
----------------------

Notes Factors leading to Financial Capability
There are three major factors to be considered
----------------------
1. Sources of funds – how well the company can raise funds, their cost and
---------------------- availability, etc.
---------------------- 2. Usage of funds – how optimally the company uses funds, where and how
are the funds used, etc.
----------------------
3. Management of funds.
---------------------- Factors leading to Marketing Capability
---------------------- The factors to be considered are
---------------------- 1. The 4 P’s – Product / Price / Place / Promotion-related factors.
2. Integrative and systemic factors.
----------------------
Factors leading to Operations Capability
----------------------
The factors to be considered are
---------------------- 1. Production system / operations and control system.
---------------------- 2. R & D system.
---------------------- Factors leading to Personnel Capability
The factors to be considered are
----------------------
1. The personnel system.
----------------------
2. Organizational and employees’ characteristics.
---------------------- 3. Industrial relations.
---------------------- Factors leading to Information Management Capability
---------------------- The factors to be considered are
1. Acquisition and retention of information / processing and synthesis of
----------------------
information / Transmission and dissemination of information.
---------------------- 2. The retrieval and usage of information.
---------------------- 3. Integrative, systemic and supportive factors.
---------------------- SWOT Analysis of Arvind Mills
Internal Analysis: Strengths
----------------------
●● Arvind Mills is India’s largest and the world’s third largest producer of
---------------------- denim with a capacity of around 90 million meters (mm).It is on its way
to becoming a global textile conglomerate.
----------------------
●● The vertically integrated plants rank among the most modern in the
---------------------- world. Arvind offers both Slasher as well as Rope dyeing facilities under
one roof.
----------------------
●● The company believes in continuous innovation and market / customer-
---------------------- based development which is backed by a dedicated DNTG (Development
and New Technology Group) and a fully-equipped pilot plant for Notes
sampling of new products.
----------------------
●● Denim from Arvind offers reliability, quality and value-addition through
services like shrink-film-wrapping and bar-coded labeling of rolls, ----------------------
providing washed and unwashed shade blankets with every order and
faster documentation, using the SAP/R3 module. A customer counseling ----------------------
team is devoted to resolving quality issues and achieving desired wash ----------------------
results.
●● Global offices and independent dedicated sales teams for all locations ----------------------
and key accounts enhance the customer service. To support the entire
----------------------
infrastructure, there is technical expertise on and off the shop
floor, a vigilant quality assurance team, a dedicated DNTG, computer ----------------------
professionals and a thoroughly professional marketing and customer
service team ----------------------
●● Trend-setting seasonal collections, introduced in consultation with the ----------------------
designers, and market feedback keep us miles ahead of competitors.
----------------------
●● With its presence across the textile value chain, the company endeavors
to be a one-stop shop for leading garment brands. ----------------------
●● Products are marketed to the industry’s biggest names in Asia, Europe
----------------------
and America.
Internal Analysis : Weaknesses ----------------------
●● Out of the total production capacity of 90 million meters(mm), it is able ----------------------
to export only around 50% currently due to quota restrictions imposed
on India by European Union and US markets (India has just 2% quota of ----------------------
US markets and 4% quota of European markets).
----------------------
●● Management track record: The past track record of the management has
not been very impressive and investors have to give utmost importance ----------------------
to the aforesaid factor. Since lenders comprising financial institutions
----------------------
have burnt their fingers earlier. Arvind may have to mobilize funds at
a significantly higher interest rate than the market if it were to plan ----------------------
any further expansion.
External Analysis : Opportunities ----------------------
●● Quota free market from January – 2005. Free access to the huge global ----------------------
textile market. (Opportunities in USA, UK and EU) This would lead to
----------------------
the company being able to utilize its full production capacities improving
the economies of scale. ----------------------
●● Textile industry identified as core sector of India. Many incentives
----------------------
announced (Freeing garment from SSI clout, subsidized loans, reduction
in export duty on finished, lower import duty on machinery, etc). ----------------------
●● Textile industry shifting to developing countries like India and China for cost
advantage. Over reliance on China a cause of concern…Hence identifying ----------------------
alternative sourcing base like India, Bangladesh and Thailand. ----------------------

Notes External Analysis : Threats
---------------------- ●● Intensive competition faced from developing countries like China,

Bangladesh and Thailand. (Bangladesh churns as many garments as
---------------------- India from a fifth as many factories. Employee cost almost similar in
both India and China.)
----------------------
●● Hidden subsidies provided by the Chinese government to its industry.
---------------------- ●● Cyclical business: The denim business is cyclical in nature. In FY96,
when the cycle reversed, Arvind Mills suffered with huge debts as the
----------------------
downturn coincided with its expansion plans. Due to poor realizations,
---------------------- its operating margins suffered badly. The company has not yet got over
that event and the effects of the same can still be seen as its debt to
---------------------- equity ratio is higher than 1. This highlights how things can turn for the
worse and remains as the biggest concern for the company.
----------------------
●● Dollar depreciation: Since the US dollar has depreciated around 10% in
---------------------- last one year, Arvind Mills, which earns 80% of its international business
revenues in dollars has suffered significantly. The fact that the US dollar
----------------------
is likely to remain on the weaker side for the next one year will definitely
---------------------- have a negative impact on the company’s export realisations.
●● Cotton prices: Cotton is the most important raw material for the denim
----------------------
segment. Consequently, operating margins of the company depend on
---------------------- cotton prices, which fluctuate from season to season. Domestic cotton
prices have moved up by 22% over the past 12 months. As a result of
---------------------- this, raw material costs as percentage of sales have gone up from 31% in
FY03 to 56% in FY04..
----------------------
●● Absence of consensus between various textile industrial association and
---------------------- bodies representing diverse business interests.
---------------------- Distinctive competence
A firm gets distinctive competence by two methods.
----------------------
a) It is an ability to do something, which your competitor simply cannot do.
---------------------- For example, Roche a Swiss company has come up with a drug Tamiflu,
which is a savior in Bird Flu.
----------------------
b) An ability to do something better than the competitor. For example, Toyota
---------------------- Lexus has a claim that their vehicles have lowest customer complains.
----------------------
4.6 ENVIRONMENTAL APPRAISAL
----------------------
For carrying out the organization capabilities study you perform internal
---------------------- analysis with tools like
---------------------- ●● Value chain analysis.
●● Quantitative analysis both financial and non-financial.
----------------------
●● Qualitative analysis.
----------------------
●● Comparative analysis – internal and external using historical analysis / Notes
industrial norms / benchmarking.
----------------------
●● Comprehensive analysis using new tools like balanced scorecard / key
factor rating. ----------------------
We now proceed to explain the factors affecting environmental appraisal :
----------------------
Factors Affecting Environmental Appraisal
----------------------
1. Strategist-related factors – there is a high level of skill and subjectivity
involved, hence the age, experience, background, etc., are important. ----------------------
2. Organization-related factors – the age, size, nature of organization, ----------------------
industry, products / process / projects, etc., are important.
----------------------
3. Environment-related factors – complexity of environment, growth rate,
diversity, hostility, etc., are important. ----------------------
Structuring Environmental Appraisal
----------------------
Structuring the environmental appraisal is a difficult process.
Environmental issues do not lend themselves to a straightforward classification ----------------------
into neat categories and often interdependent and interconnected, thus issues ----------------------
may arise simultaneously from more than one sector. Strategists have to use their
experience and judgment to place the different environmental issues where they ----------------------
mainly belong so that clarity can emerge. There are many techniques available
to structure the environmental appraisal. One technique is that of preparing an ----------------------
environmental threat and opportunity profile (ETOP) for an organization. ----------------------
The preparation of ETOP involves dividing the environment into different
sectors. It then analyzes the impact of each sector on the organization into ----------------------
positive, neutral or negative impact. To do a more comprehensive ETOP, you ----------------------
can subdivide each environmental sector into sub factors and then the impact
of each sub factor on the organization is described in the form of a statement, ----------------------
which is positive, neutral or negative impact.
----------------------
Fill in the blanks. ----------------------

1. The three forces driving today’s companies (known as three Cs) are ----------------------
_________ , ____________ and ____________.
----------------------
2. The company is a semi- __________ or semi- ___________system.
3. There are ____________ and ________________ resources. ----------------------
4. ____________ resources can be quantified, whereas ____________ ----------------------

resources cannot be.
----------------------
----------------------
----------------------

Notes
Activity 3
----------------------
If you have to examine your organisational environment, then, which factors
----------------------
would you consider?
----------------------
---------------------- 4.7 ETOP ANALYSIS ( ENVIRONMENT THREAT AND

----------------------
OPPORTUNITY PROFILE)
---------------------- It is a technique to analyse the external environment. However, it is not an

accurate tool and can be used to shortlist the business opportunities. More tools
---------------------- must be used before taking the final decision.
---------------------- We have eight external environmental factors, namely, Social, Political,

Economical, Market, Supplier, Regulatory, Technological and International. Against
---------------------- each of the factors we should analyse whether the environment is favourable,
unfavourable or neutral, and give reasons for it. In a graphical representation, a
---------------------- favourable factor is depicted by an upward arrow, a negative factor by a downward
---------------------- arrow and a neutral arrow by a horizontal arrow. Then we can do a table as under.
We will take a very controversial topic, where there will be positive,
----------------------
negative and neutral factors. We are pondering whether to enter into beef market
---------------------- because there is a huge demand in the international market and companies like
Allana have reached almost a 10,000 crore turnover.
----------------------
ETOP Analysis of beef Export business
---------------------- Sr. No. Factor Reasons
1 Social positive Eating beef is against the religious
----------------------
 belief of Hindus, Sikhs and Jains.
2 Political negative Vishwa Hindu Parishad*(VHP),
----------------------
----------------------
 Bajarang Dal are against cow slaughter.
3 Economical positive Beef is the cheapest meat available.
----------------------
4 Market positive
 There are large numbers of players,
----------------------  there is no threat of substitute as it is
cheapest meat.
---------------------- 5 Supplier positive India has a largest cattle population in
----------------------
 the world.
6 Regulatory neutral We have good policies but bad
----------------------  implementation.
7 Technological negative There is a need to import abattoir
----------------------  machinery.
8 International positive Hugh market in Islamic world, Arab
----------------------  world and Africa.
---------------------- There are five positive factors, two negative factors and one neutral factor,
so the net score is three out of eight. It is not a good business, unless we locate
---------------------- it in unpopulated areas or in Muslim or Christian areas.
Another example of ETOP Analysis Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
4.8 STRATEGIC ADVANTAGE PROFILE AND ----------------------
ORGANISATIONAL CAPABILITY PROFILE
----------------------
Strategic Advantage Profile (SAP) is a tool to analyse the external
environment. It uses the same methodology and symbols of ETOPAnalysis, that ----------------------
it uses an Upward Arrow for a positive factor, a Downward Arrow for negative
----------------------
factor and a Horizontal Arrow for a neutral factor. There is no provision to give
a longer or a short arrow. ----------------------
Strategic Advantage Profile of Tata Motors ----------------------
Sr No Capability Factor Nature of Impact Competitive Strength/weakness
----------------------
1 Finances Positive Completed Sanand Project
of Nano in just 13 Months. A ----------------------
company known for its Honesty
and Trustworthiness. ----------------------
2 Marketing Positive Complete range of products.
----------------------
3 Production/ Positive High degree of automation,
Operation Flexible Production System, ----------------------
Just In Time(JIT)
4 HRM Positive HarmonybetweenManagement, ----------------------
Unions And Workers.
5 IT Positive Wide use of Computers in all ----------------------
Departments, IBM Main Frame ----------------------
6 General Positive Strategists are from Tata
Management Administration Services. ----------------------

Notes We have got six positive factors. If we give five marks for a positive
factor then our score would be 30 out of 30. However, no company is so perfect.
---------------------- We will have to change to a method where we can give in-between marks so a
degree of perfection would come.
----------------------
Organisational Capabilities Profile (OCP)
----------------------
In this method, we can give marks on a scale of + Five to – Five to each
---------------------- of the internal environmental factors. How many marks we should give depends
upon the perception of the assessor but the marks would never be 100%?
----------------------
Example: Internal Environmental Factor assessment by Organisational
---------------------- Capability Profile (OCP) of Tata Motors.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- So, our score is 24/30, which will be close to reality.
---------------------- Summary
----------------------
●● SWOT analysis is the cornerstone to decide on strategy. You need to
---------------------- identify your strengths, weaknesses, opportunities and threats. Along with
this the concept of core competencies is a vital tool for going forward. It
---------------------- has to be dynamic, ongoing and proactive.
---------------------- ●● Scanning the environment is collection of lots of information, but it’s
analysis is an art requiring skill and experience.
----------------------
---------------------- Keywords
---------------------- ●● External environment: Economic, legal, political, technological, social

and cultural, natural environment of business.
----------------------
●● Internal environment: All the internal resources of the organisation like
---------------------- men, machine, money, material and processes.
----------------------
●● Environmental scanning: Scanning the internal and external Notes
environment to identify the impact of changes taking place in those
respective environments. ----------------------
----------------------
----------------------
1. What is the environment?
----------------------
2. Distinguish between Internal and External Environment.
3. What is SWOT? Explain each component. ----------------------
4. How would you scan the environment? Explain the methods for scanning ----------------------
the environment.
----------------------
5. Explain what you would study in the various external environments.
----------------------
6. How would you do an organizational appraisal?
7. Explain ‘Competencies’. ----------------------
8. What are organization capabilities? ----------------------
9. What is ETOP? ----------------------
Answers to Check your Progress ----------------------

1. Environmental appraisal translates into a detailed analysis through the ----------------------
collection of information that becomes a foundation for future steps of a
company. ----------------------
2. Environment means the surrounding, both internal and external objects, ----------------------
factors and influences or circumstances under which someone or
something exists. ----------------------
3. It has been seen most of the times that the efficiency of a company’s parts ----------------------
come at the expense of the efficiency of the company as a whole.
----------------------

1. False ----------------------
2. False
----------------------
3. False
----------------------
----------------------
----------------------

Fill in the blanks.
----------------------
1. The three forces driving today’s companies (known as three C’s) are
---------------------- customers, competition and change.
---------------------- 2. The company is a semi-open or semi-closed system
---------------------- 3. There are tangible and intangible resources.

4. Tangible resources can be quantified, whereas intangible resources cannot
---------------------- be.
----------------------
Suggested Reading
----------------------
1. Cockburn, I. M., R. M. Henderson and S. Stern. 2000. “Untangling the
----------------------
Origins of Competitive Advantage.” Strategic Management Journal.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Corporate Level Strategies : I
UNIT
5
Structure:
5.1 Introduction
5.2 Grand Strategies
5.3 Business Definition
5.4 Stability Strategies
5.5 Types of Integration
5.6 Diversification Strategies
5.7 Mergers and Acquisitions
5.8 Strategic Alliances
Summary
Keywords
Suggested Reading
Corporate Level Strategies : I 87

Notes
Objectives
----------------------
----------------------
●● Identify how to bring stability in existing business
---------------------- ●● Discuss the expansion in existing business or new business
---------------------- ●● Suggest diversification and merger strategies
---------------------- ●● Evaluate strategic alliances
----------------------
5.1 INTRODUCTION
----------------------
All companies target growth. This can come in the same business or in
---------------------- other businesses. It needs to make the right choice about the strategies. This is
important as these involve substantial resources, the direct how the firm will
---------------------- grow in the future. Often these decisions are irreversible, or reversible at a very
---------------------- high cost. The unit will discuss the various ways available for a company to
grow.
----------------------
5.2 GRAND STRATEGIES
----------------------
Corporate level strategies are at the topmost level – for the company as a
----------------------
whole. They are basically about the direction the company intends to pursue in
---------------------- order to achieving its objectives. When we say a company, it could be a small
business involved in a single / product / market / business, or a large, multi
---------------------- product, multi location, complex and diversified conglomerate with several
different business.
----------------------
Corporate level strategies deal with major issues like :
----------------------
●● Resource allocation among the different businesses of the company.
---------------------- ●● Transferring resources from one set of businesses to others.
---------------------- ●● Selecting, managing and nurturing a portfolio of businesses.
The Corporate level strategies are formulated in such a way that overall
----------------------
corporate objectives are achieved. An analysis based on business definition
---------------------- provides a set of strategic alternatives that an organisation can consider.
---------------------- Case : TATA STEEL

Tata Steel is rapidly expanding capacity and plans to produce 15 million
---------------------- tonnes (MT) of steel annually by 2010. It acquired Singapore’s NatSteel in
---------------------- August 2004. This has added 2 MT to its capacity. It is close to completing a
1 MT capacity expansion in its Jamshedpur plant. The expansion is scheduled
---------------------- to be completed by September 2005. In addition a 6 MT greenfield plant is to
be developed in Kalinganagar, Orissa, India (to be commissioned in 2010)
---------------------- and another 2.4 MT capacity expansion will be taken up in Jamshedpur (to
---------------------- be completed in 2008).
“Tata Steel has never been in a stronger position than it is today with good Notes
people, a modern and world class plant, with good products, and customers
----------------------
with whom we have built long term and sustainable relationships,”
Muthuraman said. ----------------------
He said the company had “ambitious plans” that would take steel production
----------------------
to “15 million tons by 2010 and to 25 million tons by 2015.”
He said that the company produced 5 million tons of steel at Jamshedpur and 2 ----------------------
million tons overseas, adding that the expansion of production in Jamshedpur ----------------------
to 7 million tons was ongoing and would be completed in 2008.
“Thereafter, the Jamshedpur Works will be expanded to 10 million tons. ----------------------
We have asked the state government to provide us with adequate iron ore ----------------------
reserves,” the Managing Director said.
Speaking on the Indian economy, he said “the Indian economy is doing well ----------------------
and in spite of several difficulties and challenges, typical of a developing ----------------------
country, India is marching towards a better future. Not so fast as China is
doing but better than in the past and, hopefully, the momentum will gather ----------------------
speed in the coming years”, he said.
----------------------
Tata Steel to buy 5% stake in Australian coal mine
----------------------
TATA Steel announced that it is investing in coal mines in Australia.
The steel major has signed agreements to buy a five per cent stake in ----------------------
Carborough Downs Coal Project located in Queensland, Australia.
----------------------
Tata Steel and other steel companies have been looking to invest in coal
mines overseas, primarily in a bid to ensure sustained supply of coal. ----------------------
This decision assumes importance in the backdrop of the company’s expansion ----------------------
plans. “Tata Steel has ambitious plans to grow by setting up Greenfield plants
or acquiring capacities in India and overseas, which is in keeping with its ----------------------
long-term vision and strategy,’’ the company said in a news release today. ----------------------
In September 2004, Steel Authority of India Ltd (SAIL) had signed a
memorandum of understanding with BHP Billiton to form a strategic alliance ----------------------
to jointly develop coking coal and iron ore mines both in India and other ----------------------
countries. SAIL would require continuous supply of hard coking coal as well
as iron ore to meet its plan of raising hot metal production from 13 million ----------------------
tonnes to about 20 million tonnes by 2011-12. When contacted the company’s
spokesperson said negotiations between SAIL and BHP Billiton are still on. ----------------------
With most of the steel companies announcing capacity expansion plans, ----------------------
requirement for raw material especially coking coal would be important.
----------------------
While most steel companies have entered into long-term purchase deals
with coal mines abroad, some of them have also explored the possibility of ----------------------
investing in these mines as partners.
----------------------
Ispat Industries had acquired 51 per cent stake in a coke oven plant in Bosnia.
Tata Steel plans to increase its steel production capacity to 15 million tonnes ----------------------

Notes by 2010 from the current level of five million tonnes. The Carborough
---------------------- Downs coal project is majority owned and operated by a subsidiary of
AMCI Holdings Australia Pty Ltd. AMCI International AG, the apex holding
---------------------- company of AMCI Holdings Australia Pty Ltd, is a large global producer,
shipper and trader of high-grade metallurgical coal.
----------------------
Carborough Downs is an undeveloped underground coking coal project with
---------------------- production slated to commence in 2006. The project life is currently estimated
at 14 years and approximately 58 million tonnes of raw coal is expected to be
---------------------- mined during this period.
---------------------- “There is a further potential resource of 100 million tonnes of raw coal in the
unexplored areas and deeper seams. The clean coal envisaged to be produced
----------------------
will be low-ash coking coal and PCI coal, highly suitable for steel making,’’
---------------------- Tata Steel said in the release.
The agreement with Carborough was signed today in Jamshedpur by Mr. Brian
----------------------
MacDonald, Managing Director, AMCI Australia Pty Ltd, Dr T. Mukherjee,
---------------------- Deputy Managing Director (Steel), Tata Steel, and Mr A. D. Baijal, Vice-
President (Raw Materials), Tata Steel.
----------------------
Merger and Acquisition & ties-up
---------------------- Tata Steel eyeing a second acquisition overseas in South-east Asia this year
---------------------- and more later.
Indian corporate entities with the urge to increase the earnings are expanding
---------------------- fast into other countries especially South East Asia. That is making India a
---------------------- true global power and at the same time providing healthy competition for
similar companies in other countries. According to media reports, Tata Steel
---------------------- Monday said it was eyeing a second overseas acquisition in South-east Asia
this year and would continue to look at further pickings.
----------------------
“We are eyeing a second overseas acquisition in South-East Asia during
---------------------- the course of this year and we will continue to look at further acquisitions,”
Managing Director B Muthuraman said in a speech after hoisting the tricolour
----------------------
on India’s Independence Day here.
---------------------- However, he did not specify the location and the amount involved.
---------------------- Tata Steel had recently acquired NatSteel Asia with a capacity of two
million tonnes of finished steel. The company also has plans to set up
---------------------- steel manufacturing units in Iran and Bangladesh. It has also signed MoUs
memorandum of understandings with the Governments of Orissa and
----------------------
Chhattisgarh for putting up a steel plant in each State.
---------------------- Tata Steel ties up with Metaljunction for secondary steel sale
---------------------- Tata Steel and Metaljunction on Thursday signed an agreement under which
the latter has been entrusted the task of collecting and selling a range of
---------------------- secondary steel products, byproducts and obsolete capital goods and spares
---------------------- of Tata Steel.
Notes
----------------------
Fill in the blanks.
----------------------
1. Often the decisions related to growth are ___________ or reversible
at a very high cost. ----------------------
2. _______________ level strategies are at the topmost level for the ----------------------
company as a whole.
----------------------
3. Corporate level strategies are basically about the _____________ the
company intends to pursue in order to achieve its _____________ . ----------------------
----------------------
Activity 1
----------------------
Take examples from the economy and find out companies that use stability ----------------------
and expansion through concentration as a growth strategy.
----------------------
5.3 BUSINESS DEFINITION ----------------------
The concept of Business Definition looks simple but it can give solutions ----------------------
to difficult problems. ----------------------
This concept is given by Dereck F. Abell. It divides the function of the
organisation into customer group (who uses product or service), customer ----------------------
function (what function is being performed), alternative technology (how that ----------------------
function is being performed).
----------------------
The concept of Business Definition can be used to analyse business systematically.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes This simple tool will help you to identify the customer group, which we
are not serving, customer function, which our products are not performing and
---------------------- alternative technologies, which we are not using.
---------------------- However, we must remember:
a) Not enter into any group, which we are not serving without adequate
----------------------
market research.
---------------------- b) To increase business it is easier to concentrate on products or services
where we are strong.
----------------------
c) If we do not have adequate R&D capacity, then company can ponder to
---------------------- buy technology or go for joint ventures or takeover a company, which has
---------------------- that capability.
---------------------- 5.4 STABILITY STRATEGIES

---------------------- When a company attempts only a marginal or incremental improvement
of its functional performance by marginally or improving or changing one or
----------------------
more of its businesses, then the stability strategy is adopted. These could be in
---------------------- terms of their respective customer groups, customer functions, and alternative
technologies—either singly or collectively. Usually they would serve the same
---------------------- markets with the present products using the existing technology.
---------------------- The aim in this strategy is to consolidate, move slowly and surely, leading
the companies to marginally improve their performance, or at least letting them
---------------------- remain where they are. This may be because they face a volatile and hostile
---------------------- environment and / or a highly competitive market. It could also because it is
less risky, involves fewer changes and people feel comfortable with things,
---------------------- as they are in which the environment faced is relatively stable. When there is
lack of resources, confidence then also stability may be adopted, as expansion
---------------------- may be perceived as being threatening and risky. Sometimes after periods of
---------------------- continuous growth or rapid changes and expansion, consolidation is sought
through stabilizing.
---------------------- The following options may be available in Stability strategies.
---------------------- 1. Maintain strategies (also known as No Change strategies)
---------------------- Here the company will by choice, maintain its position, and not do anything
new. It may appear that there is no strategy at all. If the environment is
---------------------- stable, existing competition is manageable and also stable, this may work.
However this is a rare situation and thus this strategy may be dangerous in
----------------------
current markets, where there is intense competition and also environment
---------------------- is dynamic
2. Small Exploration strategy (Pause/proceed with Caution strategies)
----------------------
This is typical strategy taken by companies in gauging new products
---------------------- and markets, where they will explore tentatively by small test markets,
---------------------- launches to gauge the reaction of the customers. This normally would be
done before an expansion strategy. It could be also to gear up the entire Notes
company in the new direction and also could help the company to learn
before they go full-fledged in the market. ----------------------
3. Consolidation / Better Profit strategies ----------------------
Here the company tries to initiate a lot internal actions like cost cutting,
----------------------
quality improvements all, which will definitely result in a positive
payoff, there is practically no risk at all, and the outcomes will always ----------------------
be beneficial. This is often undertaken when the company is unsure of
the external markets and waiting and watching for the right moments to ----------------------
undertake some other strategy. Quite often, this is also an ongoing strategy
----------------------
along with other strategies, for many companies to remain competitive.
4. Expansion strategies ----------------------
Growth is accepted as the most easly way of life. All organizations ----------------------
look for expansion, thus expansion strategies are the most popular and
common corporate strategies. Companies aim for substantial growth. A ----------------------
growing economy, burgeoning markets, customers seeking new ways of ----------------------
need satisfaction, and emerging technologies offer ample opportunities
for companies to seek expansion. When a company follows the expansion ----------------------
strategy, it aims at high growth. This can be done by a large increase in
one or more of its businesses. The scope of the business is broadened ----------------------
in terms of their respective customer groups, customer functions, and ----------------------
alternative technologies—singly or jointly—in order to improve its overall
performance. An expansion strategy has a significant and profound impact ----------------------
on a company’s internal structure and processes, leading to changes in
most of the aspects of internal functioning. Expansion strategies are more ----------------------
risky as compared to stability strategies. ----------------------
Expansion strategy is when environment demands increase in pace of
activity, due to increase in market size and large opportunities being ----------------------
available. Management feels more satisfied with the prospects of growth ----------------------
from expansion, it is a matter of pride for employees to the chief executives
in working for companies perceived to be growth-oriented. Alternatively ----------------------
after a long time in the business, companies often feel that they can take
advantage from their experience to go in for expansion. There may be ----------------------
enough resources generated from existing operations that companies feel ----------------------
that the best way to utilize these resources is to go in for expansion.
Expansion strategies can be undertaken in a variety of ways. ----------------------
a) Expansion through Concentration ----------------------

For expansion, concentration is often the first-preference strategy for a ----------------------
company. The simple reason for this is that it would like to do more of
what it is already doing. A company that is familiar with an industry would ----------------------
naturally like to invest more in known businesses rather than unknown
----------------------
ones. Each industry is unique in the sense that there are established way
of doing thing. ----------------------

Notes Concentration Strategies
---------------------- Concentration strategies involve concentrating your resources in one or

more firms business in terms of Customer Group, Customer functions,
---------------------- and Alternative technologies, either singly or jointly so as to expand the
business.
----------------------
In strategic management terminologies, it is called as Intensification,
---------------------- Focus or Specialisation Strategies.
---------------------- In the book, In Search of Excellence, written by Thomas Peters and
Waterman, there is a whole Chapter on Stick to Knitting. That company
---------------------- must do more of what it knows best.
---------------------- Strategic alternatives available to the firms pursuing concentration
strategies are as under.
----------------------
a) Increase usage by existing customer
---------------------- b) Making a nonuser into a user
---------------------- c) Wooing the competitors’ customers
---------------------- Focus on Customer

a) Increase the size of purchase or frequency of purchases. For
----------------------
example, teach children to brush their teeth after every meal.
---------------------- b) Give customer loyalties programmes, for example, Frequent Flying
Programmes.
----------------------
c) Improve product location.
----------------------
(i) Expand product line (size, options and styles). For example,
---------------------- Rexona bathing soap is now available in three variants −
Rexona Lime for oily skin, Rexona Olive for dry skin and
---------------------- Rexona Sandalwood for normal skin.
---------------------- (ii) Expand shelf life.
---------------------- Attract Competitors’ Customers
a) Increase promotional activities. Give exchange scheme offers or
----------------------
promos like give any wrapper free and get discount. Return any
---------------------- color TV and get a new TV at a great price.
b) Initiate Price cuts
----------------------
Make non-users into users
----------------------
a) Promote with select segments. For example, low cost airlines in
---------------------- budget hotels or II Class AC or railway first class.
---------------------- b) Reduce cost of production and give special offer, for example,
Pichaku Tomato sauce at Rs 10 only.
----------------------
c) Give test rides, for example, test rides of Macho Motorcycle in elite
---------------------- areas, or when twin blade technology came to India, disposable
razors were given for free.
d) Increase product availability in new geographical areas. Notes
Focus on Products
----------------------
a) Differentiate products from the Competitors b) Increase rate of
obsolescence (Mobiles) ----------------------
i) Change styles ii) Change options ----------------------
c) Change colours ----------------------
d) Develop new uses for products (Mobiles, Tractors, Computers)
----------------------
e) Improve product servicing. For example, Maruti Suzuki has a
service station at Khardung la pass, highest motorable road in the ----------------------
world.
----------------------
Focus on Technology
----------------------
a) Develop new equipment to improve efficiency (Maruti Suzuki Alto
with K series of engines). ----------------------
b) Develop new products like I Phone 5. ----------------------
c) Improve Quality (Hyudai Santro gives 2,00000 KM guarantee.)
----------------------
Ansoff’s Matrix
----------------------
The three types of growth strategies proposed by Ansoff are:
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
The product matrix provides us three types of concentration strategies. ----------------------
a) Market penetration: This strategy involves selling more products
----------------------
to the same market. A firm can attempt to focus intensely on
existing market with present products, attempt to focus intensely ----------------------

Notes on existing market share of present products using low costs for
market penetration. For example, Indigo Airlines and SpiceJet in
---------------------- low-cost airlines.
---------------------- b) Market development: This strategy involves selling the same
product to new market. The tactics involve attracting new users to
---------------------- existing products.
---------------------- The new markets could be geographic (moving into new territories)
or demographic (targeting a segment). For example, offering jute
---------------------- bags to persons who care for environment.
---------------------- c) Product development: This involves selling new products into
same markets, for example, promoting India as a destination for
---------------------- affordable Medical Tourism.
---------------------- Concentration involves converging resources in one or more of a
company’s businesses in terms of their respective customer needs,
---------------------- customer functions, or alternative technologies, either singly or jointly.
---------------------- The aim is to have expansion. Concentration strategies are also known as
intensification, focus or specialization strategies. Concentration strategies
---------------------- involve investment of larger resources in a product line for an identified
market with the help of proven technology. This may be done by various
---------------------- means. A company may attempt market penetration type of concentration,
---------------------- or it may try attracting new users for existing products resulting in a market
development type of concentration. Alternatively it may introduce newer
---------------------- products existing markets by concentration on product development.
---------------------- Concentration strategies have several advantages :

●● Concentration involves fewer organizational changes.
----------------------
●● I t is less threatening and more comfortable staying with present
---------------------- business.
---------------------- ●● I t also enables the company to specialize by gaining an in-depth
knowledge of these businesses and thus master.
---------------------- ●● I ntense focussing of resources helps create the conditions for a
---------------------- company to develop a competitive advantage.
●● Systems and processes within the form are easily developed.
----------------------
●● The decision-making has a high level of predictability.
---------------------- ●● Past experience is valuable, as it is replicable.
---------------------- Limitations of Concentration strategies :
●● irstly, concentration strategies are heavily dependent on the
F
----------------------
industry, so adverse conditions in an industry can and do affect
---------------------- companies if they are intensely concentrated.
●● econdly, factors such as product obsolescence, fickleness of
S
----------------------
markets, and emergence of newer technologies can be threats.
----------------------
●● Thirdly, doing too much of a known thing may create an Notes
organizational inertia; managers may not be able to sustain interest
and find the work less challenging and less stimulating. ----------------------
●● inally, concentration strategies may lead to cash flow problems
F ----------------------
that may pose a dilemma before a company. For expansion through
concentration large cash inflows are required for building up assets ----------------------
while the businesses are growing. But when these businesses
mature, company often faces a cash surplus with little scope for ----------------------
investing in the present businesses. ----------------------
b) Expansion through Integration
----------------------
Integration basically means combining activities on the basis of the value
chain related to the present activity of a company. Sets of interlinked ----------------------
activities performed by an organisation right from the procurement of
basic raw materials right down to the marketing of finished products ----------------------
to the ultimate consumers is a value chain. So a company may move ----------------------
up or down the value chain and expand their business. This helps it to
concentrate more comprehensively on the customer groups and needs ----------------------
than it is already serving.
----------------------
Integration results in a widening of the scope of the business definition
of a company. Integration is also a part of diversification strategies as it ----------------------
involves doing something different from what the company has been doing
----------------------
previously. Typically in process-based industries such as, petrochemicals,
steel, textiles or hydrocarbons, we see enough examples of integrated ----------------------
companies. These companies deal with products with a value chain
extending from the basic raw materials to the ultimate consumer. One ----------------------
of the best examples is the Reliance Group. Companies operating at one
----------------------
end of the value chain attempt to move up or down in the process while
integrating activities adjacent to their present activities. ----------------------
There are certain conditions under which a company adopts integration
----------------------
strategies. Most common condition is a ‘make or buy’ decision. Transaction
cost economics, a branch of study in the economics of transactions and ----------------------
their costs helps to explain the situation where integration strategies are
feasible. The cost of making the items used in the manufacture of one’s ----------------------
own products is to be evaluated against the cost of procuring them from
----------------------
suppliers. If the cost of making is less than the cost of procurement then
the company moves up the value chain to make the items itself. Likewise, ----------------------
if the cost of selling the finished products is lesser than the price paid to
the sellers to do the same thing then it is profitable for the company to ----------------------
move down on the value chain. In both these cases the company adopts
----------------------
an integration strategy.
c) Expansion through Diversification ----------------------
Diversification is a much-debated strategy and involves all the dimensions ----------------------
of strategic alternatives. Diversification involves a drastic change in the
----------------------

Notes business in terms of customer functions, customer groups, or alternative
technologies of one or more of a company’s’ businesses in isolation or in
---------------------- combination.
---------------------- d) Expansion through Cooperation
Cooperative strategies could be of the following types:
----------------------
●● Mergers
----------------------
●● Strategic Alliance
---------------------- Value Chain – A Concept by Michael Porter
---------------------- Michel Porter, a Professor of Harvard Business School has given a concept
of value chain. Porter divided the function of the organisation into two parts:
---------------------- Primary activities and Support activities.
---------------------- The primary activity is sequential in nature. At each stage, value has to be
added. The primary activities are Inbound Logistics, Manufacturing/Operation,
---------------------- Outbound Logistic, Sales and Marketing and After-sales service. These primary
---------------------- activities are supported by four support activities, the support activities not
only support each other but also support all the primary activities. The support
---------------------- activities are HRM, Firm Infrastructure, Technology and Procurement.
---------------------- The factors given below are indicative. As per the Industry and Company,
you may add some more factors or delete few factors that are not so important.
---------------------- Tata Motors Value Chain to get differentiation for Jaguar/Land Rover
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Primary Activities Notes
The primary activities are described below.
----------------------
1. Inbound logistics: It starts from the time procurement activities are
completed and continue till the material is sent to the production lines. In ----------------------
Indian condition, it locks up to 30% of the cost of production. However,
----------------------
if we use methods like Just in Time ( JIT) then it can add considerably to
profits and effectiveness. ----------------------
The factors are vehicle scheduling, loading, documentation, transportation,
----------------------
weighing, measuring, counting, sending goods to inwards department
for unloading, unpacking, checking for quality/quantity, sending for ----------------------
production against documentation, etc.
----------------------
2. Manufacturing or operations: It involves converting raw material,
assemblies and sub-assemblies into final product. The activity in an ----------------------
engineering company starts with foundry, machine shop, assembly shop,
test shop, paint and packing, etc. If we do these activities called Work ----------------------
In Progress (WIP) efficiently and shorten them, it will result in higher ----------------------
efficiency and profits.
3. Outbound Logistics: It consists of activities like excise bounded store, ----------------------
vehicle scheduling, loading, documentation, transportation, sending to ----------------------
the distribution network.
4. Sales and Marketing: It consists of converting your products or services ----------------------
into money. If we perform any of the activities well − Product, Price, ----------------------
Place, Promotion .Physical Evidence, People, Packaging and Pace −
that is, better than the competitors, it results in higher profitability and ----------------------
effectiveness.
----------------------
5. After-sales service: The after-sales service starts right from the time the
product is sold and continues until its life. If we do the after-sales service ----------------------
well − installation, adjustment, calibration, assurances of supply of
----------------------
original company spare parts, up gradation, good guarantee and warranty
− we can retain the customers as well as get repeat business from them. In ----------------------
Indian conditions, after-sales service should get maximum attention.
----------------------
Support Activities
1. HRM: Since it is the men that drive the material, machinery and money, ----------------------
the company’s capability depends upon it.
----------------------
The HRM activities consist of ability to select, compensate and retain
best of employees, then placing them, inducting, training and developing ----------------------
them. If these activities are done efficiently, it results in a competitive ----------------------
advantage.
2. Firm Infrastructure: It comprises factors that give a competitive edge ----------------------
that is difficult to beat by competitors. These factors are location, qualities ----------------------
of machinery and equipment, relationship with the political parties,
bankers, legal capability, etc. ----------------------

Notes 3. Technology: In this age of competition, it is technology, which gives us
innovative products. We see in the market that companies with innovative
---------------------- products continuously increase their market share. For example, Mahindra
and Mahindra has got more market capitalisation than Tata Motors due to
---------------------- its innovative vehicles.
---------------------- The factors are qualification and experience of the researchers, their ability
to come up with innovative products ahead of competitors, technical
----------------------
collaborations, ability to absorb the technology, etc.
---------------------- 4. Procurement: It is a very important factor in India as procurement costs
are 45% to 65% of the cost of production. Any saving in procurement
----------------------
directly affects the profitability. The factors are right quantity, quality,
---------------------- time, place, source, transportation, price, contracts.
In essence, value chain is a systematic way of comparing yourself with
----------------------
competitors on 70 to 90 parameters. A company should aim at becoming better
---------------------- than the competitors on as many factors as possible.
---------------------- We can draw a value chain to give us an advantage of differentiation,

price leadership or to become quick reaction company.
----------------------
----------------------
---------------------- State True or False.

1. Vertical integration could be of two types: backward and forward
----------------------
integration.
---------------------- 2. Diversification involves a drastic change in the business in terms of
customer functions, customer groups or alternative technologies of
----------------------
one or more of a company’s’ businesses in isolation or in combination.
---------------------- 3. Integration means combining activities on the basis of the value chain
---------------------- related to the present activity of a company.
----------------------
Activity 2
----------------------
---------------------- Identify and explain vertical and horizontal integration strategies adopted
by any organisation of your choice.
----------------------
---------------------- 5.5 TYPES OF INTEGRATION

---------------------- 1. Vertical Integration :
---------------------- Vertical integration could be of two types: backward and forward
integration. Backward integration means retreating to the source of raw
---------------------- materials – in simple terms becoming your own supplier – while forward
---------------------- integration moves the organization nearer to the ultimate customer – in
simple terms becoming your own customer. When an organization starts
making new products that serve its own needs, vertical integration takes Notes
place. In other words, any new activity undertaken with the purpose of
either supplying inputs (such as raw materials, an automobile company ----------------------
going in for a steel mill, this is backward integration) or serving as a
customer for outputs (such as, marketing of company’s product, for ----------------------
example, Titan going into setting their own retail outlets – this is forward ----------------------
integration) is vertical integration.
----------------------
2. Horizontal Integration :
When a company starts serving the same customers that it knows very ----------------------
well with additional products that are different from the earlier products
----------------------
in any of the terms of their respective customer needs, customer functions,
or alternative technologies, either singly or jointly, it is horizontal ----------------------
integration. Simple example, a hardware manufacturer starts supplying
software also, a car manufacturer getting into vehicle insurance or selling ----------------------
fuel.
----------------------
5.6 DIVERSIFICATION STRATEGIES ----------------------
1. Concentric diversification : When an organisation takes up an activity ----------------------

in such a manner that it is related to the existing business, it is called
----------------------
concentric diversification.
2. Conglomerate diversification : When an organisation undertakes a ----------------------
strategy which requires taking up those activities which are unrelated to
----------------------
the existing business, it is called conglomerate diversification.
Why are diversification strategies adopted? ----------------------
As you will note, there are many reasons why organizations adopt ----------------------
diversification strategies. The three basic and important reasons are:
----------------------
●● They minimize risk by spreading it over several businesses.
●● Used to capitalize on organizational strengths or minimize weaknesses. ----------------------
●● his may be the only way out if growth in existing businesses is blocked
T ----------------------
due to environmental and regulatory factors.
----------------------
Some important questions that need to be asked when integration or
diversification strategies are undertaken ----------------------
●● efore diversifying, how better are you than your competitors in existing
B ----------------------
markets? Instead of diversifying on a vague definition of the business, they
need to determine what they can do better than their existing competitors ----------------------
to have a better chance of succeeding in new markets.
----------------------
In short, fixing upon the strategic assets of the company – it’s unique
unbeatable competitive strengths. It’s similar to conducting a SWOT analysis ----------------------
and figuring out not only what you’re good at but rather what you are better at
than your rivals. ----------------------
----------------------

Notes Success Story : UK’s Boddington Group – vertically integrated beer producer that
owned a brewery, wholesalers, and pubs throughout the country. Consolidation
---------------------- in the industry was shrinking profitability. Strategic Asset was retailing and
hospitality – managing pubs. They took the plunge, sold off the brewery (which
---------------------- still wasn’t making losses but not growing) acquired resorts, nursing homes,
---------------------- hotels, restaurants and health clubs which added to their portfolio of pubs,
creating immense shareholder value in the bargain.
----------------------
Failure : Real Value appliances marketed the ‘Cease Fire’, which turned out
---------------------- a major success, but profits were subsequently invested in the launch of the
Food Vacuumizer – a product that bombed. The Company had a very vague and
---------------------- unclear definition of its strategic assets.
---------------------- ●● hat are the core competencies and strategic assets you would require to
W
succeed in the new markets? Excelling in one market does not guarantee
---------------------- success in a new. It is also not sufficient to have only some of the strategic
assets and core competencies, but must have most or even all of them to
----------------------
be able to stand competition in the new markets.
---------------------- Assess what relevant strategic assets are integral to success in the new
industry into which a diversification move is being contemplated. Remember
----------------------
that this combination of strategic assets won’t perform the same if broken down
---------------------- and acquired over time.
Failure : Coke plunged into the wine business with the assumption that its
----------------------
strategic assets – intimate knowledge of consumers, marketing and branding
---------------------- experience would be enough. They had 90% of what it took but they lacked the
competence in making good quality wine. The weightage given to this 10% was
---------------------- greater because it was imperative to success in that product line.
---------------------- ●● I f we do not have all the core competencies and strategic assets, can we
catch up with competitors by buying or developing what is missing? So
---------------------- even if the answer to the earlier question is no, but the answer is yes to
this question, it is worthwhile diversifying.
----------------------
Not possessing the requisite strategic assets does not mean you simply
---------------------- abandon all diversification plans. Ask yourself –
---------------------- a) Can we purchase them? – Like Sharp Corporation did when it diversified
into the electronic calculator business by buying the necessary technology
---------------------- from Rockwell.
---------------------- b) Alliances? – Walt Disney diversified in its core business of animation to
theme parks, live entertainment, cruise lines, resorts, planned residential
---------------------- communities, TV Broadcasting and retailing. It’s tie-up with McDonald’s
---------------------- and Mattel and gave it an edge in retailing. It’s close working relationship
with the Florida state-government gave the company the expertise it
---------------------- needed in the theme park biz.
---------------------- c) Can we develop them in-house? – Sharp between 1990 –’92 invested
$540 mn in liquid-crystal-display factories and earmarked an additional
---------------------- $550mn for future investments.

d) Can we rewrite market’s rules of competition, thereby making the missing Notes
assets obsolete? – Canon boasted strong competencies in photographic
technology and dealer mgmt. But it faced formidable competition from ----------------------
Xerox, which dominated the high-speed copier market, targeting large
businesses through its well-connected direct sales force. In addition ----------------------
Xerox leased rather than sold its machines – a strategic choice that had ----------------------
paid off earlier. Canon played the game differently: The company targeted
small and midsize businesses, as well as the consumer market. Then it ----------------------
sold its machines outright through a dealer network rather than through a
direct sales force and differentiated its products from those of Xerox by ----------------------
focusing on quality and price rather than speed. Canon emerged as the ----------------------
market leader (in unit sales) within 20 years of its foray into the business.
----------------------
e) Can we do all or a combination of this at a reasonable cost? – Not all
companies have the skill, financial strength and managerial foresight to ----------------------
pull off what these companies did. But relevant strategic assets must be
obtained; otherwise moving forward into new markets is likely to backfire. ----------------------
●● ill diversification break up core competencies and strategic assets
W ----------------------
that need to be kept together for success? Many core competencies
and strategic assets work in harmony when they are kept together ----------------------
and fail if separated. So if diversification is going to separate the
----------------------
core competencies and strategic assets, there are chances of failure.
In many cases it is possible that strategic assets are bound together in a ----------------------
relationship that is symbiotic in nature and cannot be broken up into components
----------------------
that need to be used separately in a different activity; i.e. strategic assets rely on
one another for their effectiveness and cannot function in isolation. ----------------------
In other words, if a company plans to break apart, recombine and
----------------------
relocate its strategic assets, it must also be prepared to create a hospitable new
environment for them. ----------------------
Mc Donald’s core competencies were in finding good real estate locations
----------------------
and offering family entertainment, management of distribution outlets and
making products of consistent quality, distribution and food retailing which ----------------------
combined together to give it the edge over competition. If these strategic assets
were to be broken up into their components and new businesses started with ----------------------
each of them individually, most probably all these new ventures would fail.
----------------------
●● fter diversifying, will the company be just another player or will it
A
emerge a Dominant player? Diversification must lead to strength or there ----------------------
will be too many resources and management time devoted to just about ----------------------
surviving.
A company’s competitive advantage in its diversification move wouldn’t ----------------------
last long if the competitors can quickly and cheaply acquire the strategic assets ----------------------
required or find substitutes for the same. Therefore it would not be of any use
unless the company can beat the competition at their own game. ----------------------
----------------------

Notes This can be tested by the following three steps:
1. Are the strategic assets required rare?
----------------------
2. Can the strategic assets be imitated?
----------------------
3. Can the strategic assets be substituted?
---------------------- If the answer to all these questions is in the negative then the company
---------------------- can consider it safe to go ahead with the diversification move as it will have a
competitive edge for enough time to beat the competition.
---------------------- ●● What can the company learn by diversifying and are we sufficiently
---------------------- organized to learn it?
A good manager should not only stop at thinking about the benefit of the
---------------------- diversification move and must also think 2-3 steps ahead. The learning from the
---------------------- diversification move could be any one or all of the following:
1. The company can use what it has learned to move into a third market
---------------------- more quickly and cheaply.
---------------------- 2. Some of the competencies acquired could also be applied to the existing
business to make it even more competitive.
----------------------
3. The organization should do all it can to make sure that transfer of relevant
---------------------- information and competencies from one line of business to another is
happening smoothly and efficiently.
----------------------
The answer to these questions need to be carefully evaluated before
---------------------- integrating or diversifying.
----------------------
5.7 MERGERS AND ACQUISITIONS
----------------------
When the firms having similar objectives and strategies combine into one
---------------------- firm, such a combination is called Merger.
---------------------- Definitions
---------------------- A Merger is a combination of two or more businesses in which one

acquires assets and liabilities of the other in exchange of stocks or cash or both.
---------------------- An acquisition is a purchase of a firm by another firm that is considerably
---------------------- larger. The firm that acquires is called the acquiring firm and the other the
merging firm. This strategy is called by WIPRO a string of pearls.
---------------------- Merger is a commonly used technique to grow rapidly.
---------------------- Common methods of mergers are:
---------------------- i. All-cash deal: HINDALCO taking over a Canadian Aluminum company
to become world’s biggest company in Aluminum long.
----------------------
ii. Shares for share: Hindustan Lever Ltd (HLL) merged with Lipton and
---------------------- Brook Bond. The entire transaction was shares for shares transaction. With
this deal, HLL got the entire distribution network of both the companies.
----------------------

iii. Stocks and cash: Arcellor and Ispat International merger was a Notes
combination of shares and cash. The shareholders of erstwhile Arcellor
company got shares of new company plus cash. ----------------------
Types of Mergers ----------------------
a) Horizontal merger: A horizontal merger is a combination of two or more
----------------------
firms in same or similar business.
i. Jet Airlines with Air Sahara ----------------------
ii. Oriental Bank of Commerce with Global Trust Bank iii. Glaxo ----------------------
with Smith Kline Beecham
----------------------
b) Vertical merger: Vertical merger is a combination of two or more firms
engaged in activities complimentary to each other like supply of raw ----------------------
material, production or marketing. For example, Ruston and Hornsby (I)
Ltd ( manufacture of Engines) with Greaves Ltd (Marketing of Engines), ----------------------
Reliance Industries Ltd with Reliance Poly Propylene and Reliance Poly ----------------------
Ethylene.
c) Concentric merger: Concentric merger is a combination of two or more ----------------------
companies, which are related to each other in terms of customer group, ----------------------
customer function and alternative technologies. For example, combination
of a sewing machine firm with a food processor firm. ----------------------
d) Conglomerate merger: Conglomerate is a combination of two or more ----------------------
firms, which are unrelated to each other in terms of customer group,
customer function and alternative technologies. ----------------------
Some important MNC MERGERS ----------------------
a) Times Warner and America on line(AOL) – 172 Billion US $ ----------------------
b) Proctor and Gamble and Gillette Ltd – 80 Billion US$
----------------------
c) Mitsubishi and Mitsui Ltd – 145 Billion US$
----------------------
d) HP and Compaq – 80 billion US$
Important Indian Mergers ----------------------
a) Tata Steel and Corus – Rs 124000 crore ----------------------
b) Arcellor and Mittal – Rs 154000 crore ----------------------
Reasons for Mergers for buyer Company
----------------------
a) To increase the value of firms’ shares
----------------------
b) To increase the growth rate of firm
c) To balance or fill out the product line ----------------------
d) To diversify into new product line ----------------------
e) To eliminate a competitor ----------------------
f) For tax reason
----------------------

Notes Sellers’ Motives for Mergers
a) To increase the value of the stock
----------------------
b) To improve firms’ growth rate
----------------------
c) To get resources and save the company from bankruptcies
---------------------- Critical Issues in Mergers
---------------------- a) Strategic issues: Strategic issues relate to commonality of strategic
interest for mergers between firms. The synergy provides distinctive
---------------------- competence advantage.
---------------------- b) Financial issues: Financial issues relate to dealing with SWAP ratios
---------------------- i. Valuation of the seller’s firm
ii. Sources of financing for the mergers
----------------------
Value of the selling firm should be calculated by taking into account
---------------------- Intellectual Property Rights (Nicholas Piramal was taken over by Abbot
Lab for an offer more than Rs 11,000 crore). The real value of assets,
----------------------
for example, the real value of land may be taken into consideration.
---------------------- Market standing, earning potential and future growth may be taken into
consideration.
----------------------
c) Managerial issues: There would be significant changes in Top and
---------------------- Middle Management. After Merger many people will become surplus,
so two questions will arise. First how many are surplus? Is it possible to
---------------------- train and redeploy them? Alternatively, they should be given voluntary
---------------------- retirement.
There may be a problem of post-merger situation in which new
---------------------- designations, higher salary must be addressed.
---------------------- d) MRTP Act and Income Tax Act.
---------------------- Advantages of Merger
1) Economy of Scale.
----------------------
2) Rapidly enter into new geographical territories. When Oriental
---------------------- Bank of Commerce and Global Trust Bank merged, in entire south
---------------------- India, Oriental Bank became strong.
3) Diversify activities. For example, Kingfisher Airlines and Air
---------------------- Deccan merged giving a foothold for Kingfisher Airlines in low
---------------------- cost airlines business.
4) Reviving a sick unit, which would go bankrupt without the merger
---------------------- with a financially a strong player.
---------------------- 5) Buyer company will have an access to the sources of raw material
(Tata Steel taking over Bhoomi in Indonesia, which assured them
----------------------
good quality coal.), finance, or human resources. It can give the
---------------------- buyer company technology and access to distribution network

(Mahindra and Mahindra and Ssanyong Motors not only gave high Notes
technology to Mahindras but also gave access to their distribution
network in USA and China.) ----------------------
6) Problems getting skilled worker can be solved. In India, few people ----------------------
speak fluent Spanish language. TCS merged with an Argentinian
company along with 23,00 Spanish speaking people. ----------------------
7) Buyer company can save taxes and get assets of seller company. ----------------------
The seller company can save itself from bankruptcy.
Disadvantages of Mergers ----------------------
1) Negative attitude or step-motherly treatment to the employees of ----------------------

seller company.
----------------------
2) Executives and employees of seller company may get less status, low
pay, less authority as in case of a merger of IDBI Bank with United ----------------------
Western Bank.
----------------------
Joint Ventures
Joint venture is a combination of two or more firms, which come together ----------------------
either for a project or a time frame or a task. ----------------------
Even a successful Joint Venture may not last forever. For example, JV of
Tata engineering and locomotive company with Mercedes Benz Ltd. ----------------------
Developing countries like India have benefited enormously from the Joint ----------------------
Ventures. India has especially got technology, economy of scale and access to
global market due to Joint Ventures. ----------------------
a) Hindustan Aeronautics Ltd with Sukhoi (Russian Federation) to make ----------------------

fifth- generation aircraft at US$ 35 billion.
----------------------
b) Hindustan Aeronautics Ltd with United Aircraft Ltd ( Russian Federation)
to make a Medium Transport Aircraft (MTA). India on its own could have ----------------------
made it but it would be below breakeven point so always in losses (7
billion US$) ----------------------
c) Tata Technology with Sikorsky Ltd to make S91 Helicopter cabins. ----------------------
d) Turkmenistan, Afghanistan, Pakistan, India (TAPI) Pipeline to bring oil ----------------------
from landlocked Turkmenistan.
e) Larson and Toubro with Mitsubishi to make power plant of 800 MW. ----------------------
There are five more companies with similar capacity. These joint ventures ----------------------
will completely solve India’s problem of power shortage.
f) Tata Automotive Component Ltd (TACO) in auto component sector ----------------------
will have about 35 joint ventures. The joint venture partner will provide ----------------------
technology and Tata will manufacture it in India. The joint venture
partner’s global distribution network will be used to market the product. ----------------------
g) One of the biggest joint venture in which many Fortune 500 companies ----------------------
have taken part is an oil pipeline from Azerbaijan to the Red Sea. It is
called Baku- Tbalisi-Ceyhan Pipeline. ----------------------

Notes Reasons for a Joint Venture
a) When the business is too risky and the risks have to be shared. For
----------------------
example, Reliance Industries have two joint venture partners in the
---------------------- Krishna Godavari Basin. One is NEKO of Canada and the other is Hardy
Oil of UK.
----------------------
b) To pool up the resources, for example, HPCL has a joint venture partner
---------------------- L.N Mittal in their Bhatinda Refinery.
c) To get technology, for example, Tata got technology to make helicopters
----------------------
in Hydrabad with technology from Augusta Westland. Joint ventures may
---------------------- be formed to get finance or managerial acumen.
---------------------- d) To overcome local resistance, nationalistic feelings or Government

legislation (to enter the Arab world, you have to have a joint venture
---------------------- partner.)
---------------------- Types of Joint Ventures

a) Joint Venture between two Indian companies in same business. For
---------------------- example, a joint venture between Prasanna Travel and Varun Travel to
---------------------- form Purple Buses plying from Pune to Mumabi.
b) Joint venture between two Indian companies in different business, for
----------------------
example, Indian Railways with NTPC. Indian Railways will carry the
---------------------- coal to NTPC plant, which will be converted into electricity, which Indian
Railway will buy.
----------------------
c) Joint venture between one Indian company and an Indian state government.
---------------------- For example, Raju Group of Companies with Andhra Pradesh Government
(Nagarjuna Steel).
----------------------
d) Joint venture between an MNC and a state government. For example, a
---------------------- joint venture between Frito Lay (Pepsi Foods) and Punjab Agro to make
Lehar brand of Pepsi.
----------------------
e) A joint venture between an Indian company and an MNC. For example,
---------------------- Bajaj Auto Ltd with Kawasaki, or Maruti Suzuki.
---------------------- f) A joint venture between an Indian company and an MNC but working in a
third country. For example, ACC (Tata Company) with Babcock Wilcocks
---------------------- (USA) but working in Saudi Arabia.
---------------------- Advantage of Joint Ventures
a) To pool up resources or to get technology or managerial acumen.
----------------------
b) To combine knowledge and resources.
----------------------
c) To get a quick access to distribution channels.
---------------------- d) Partners in a host country can assist in language, local customs, and
---------------------- culture. For example, Ranbaxy has many joint venture partners in South
America, which speak Spanish and Portuguese.
----------------------

e) To minimise risk. Notes
f) To combine the strength of the partners and utilise the opportunities
----------------------
provided by the environment.
Thus, joint venture is called an art of making impossible into possible. ----------------------
Takeover Strategy ----------------------
Takeover is change of ownership through purchase of shares. ----------------------
Types of Takeovers
----------------------
a) Friendly takeover: In a friendly takeover, there is a financial offer to the
seller company, which is acceptable to it. Examples of friendly takeovers ----------------------
are:
----------------------
i) Tata Tea taking over Tetley Tea. With this deal, Tata Tea became a
market leader in USA and Europe. ----------------------
ii) Tata Steel and Corus (Anglo-Dutch ) ----------------------
iii) Tata Steel taking over Natsteel of Singapore. ----------------------
iv) Mahindra and Mahindra taking over Ssanyong Motors. (South
Korea) ----------------------
v) Microsoft taking over hotmail from Sabir Bhatia. ----------------------

b) Hostile takeover: In a hostile takeover, the buyer company, called a ----------------------
Raider, pounces upon an unsuspecting seller called the Victim company
against its wishes to try and take over the control of the company. ----------------------
This naturally results in hostility as it is against the wishes of the original ----------------------
owners that the raider attacks. Victim company will go to court and may adopt
illegal means to stop the Raider. If there is so much hostility then why raiders ----------------------
try to attack?
----------------------
Arun Bajoria, a jute trader tried to take over Bombay Dyeing in a hostile
bid, which did not succeed. However, many friendly takeovers are excellent ----------------------
business proposition. For example, Tata Steel took over Nat Steel at just Rs
----------------------
1,213 crore, since Natsteel was a two million tonnes plant. Tata got a good deal.
A two million plant would require about Rs 7000 crore, but it will require at ----------------------
least five years to construct, whereas you are in business in a very short time
after a friendly takeover. ----------------------
Advantages of Takeover ----------------------
a) Elimination of a competitor. ----------------------
b) Takeovers ensure management accountability.
----------------------
c) It provides easy path to growth.
----------------------
d) Penny shares (shares which are low priced) become valuable.
e) Avoids lengthy gestation periods. POSCO took almost six years to get ----------------------
the approvals and will take another four to five years to start production. ----------------------

Notes It provides chance of survival to sick units and provides alternatives to
disincentive strategies.
----------------------
Disadvantages of Takeover
---------------------- a) Professional management gets replaced by financial power.
---------------------- b) Takeovers may create a parallel economy if ill-gotten wealth of corrupt
politicians, gangsters enters into share markets. This money, in turn, may
---------------------- be used for anti-national activities, drugs or terror activities.
---------------------- c) Take over may result into monopolies.
---------------------- d) Interests of common shareholders are nor protected.

Guidelines to prevent Takeovers
----------------------
a) As your business increase in size and profitability, try to increase your
---------------------- share percentage. You can buy your own shares when the prices are low.
---------------------- b) You can use many methods to increase your shareholding such as buying
small amount of shares every months (nibbling) or buying your shares
---------------------- through a mutual fund where you have substantial holdings.
---------------------- c) Continuously watch who is buying your shares, check if a takeover tycoon
is behind purchase of your shares.
----------------------
d) Use methods such as White Night (your wealthy friend buying your
---------------------- shares on your behalf), Scorch the Earth policy (selling your own valuable
business for which you are getting threatened) and Golden Parachute.
----------------------
Caselet : Nicholas Piramal
----------------------
Joint Ventures, Alliances & Partnerships
---------------------- NPIL is well positioned as a partner of choice for any multinational company
looking at the Indian market. It has an unmatched record of managing Joint
----------------------
Ventures/Alliances/Partnerships and a proven commitment to IPR. Capabilities
---------------------- include strong brand management, sales and marketing, a US FDA site-
approved plant for on-and-off patent APIs and Intermediates, Basic Research,
---------------------- process innovation, Custom Chemical Synthesis, Formulations R&D, NDDS,
and a world-class Clinical Research Organisation. Few Indian Pharmaceutical
----------------------
have as strong and consistent record in successfully and ethically managing
---------------------- JVs/Alliances and Partnerships as NPIL has. Its policy of respecting IPR and
managing partnerships, in keeping with both the letter and the spirit of written
---------------------- agreements, has been widely respected and commended by its partners.
---------------------- The Logic of Acquisitions
---------------------- (A) The Acquisition of Nicholas Laboratories, 1988

Aspro Nicholas, Nicholas laboratories parent company, wanted to quit India
---------------------- for several reason. Piramal in June 1988 purchased an initial 24.5% of Nicholas
---------------------- Laboratories equity for Rs.16.4 mn. Shortly thereafter, the company’s name
was changed from Nicholas laboratories to Nicholas Piramal India Limited
---------------------- (NPIL).

The first step was to identify clear objectives, and three emerged Notes
●● To be amongst the top five fastest growing companies in the ----------------------
pharmaceutical industry in India in order to achieve ‘critical mass’
●● To raise profitability to the upper quartile of the industry ----------------------
●● To form strategic alliances with the best multinational pharmaceutical ----------------------
groups so as to have access to new molecules in the post GATT/IPR era
----------------------
To meet these objectives, substantial investments were made in both
manufacturing and distribution. ‘It occurred to us that these would be the two ----------------------
assets that multinational companies would value the most when looking for a
local partner in India and these capabilities would also improve the company’s ----------------------
sales, market share and profitability’, said Hattangadi, the company’s new
----------------------
managing director in 1988.
Expansion strategies ----------------------
New plant at Pithampur in addition to two plants at Deonar and Ambernath ----------------------
kicked off Nicholas Piramal’s Expansion plans. The plant cost approximately
Rs.100mn and began operations in 1991. it was further expanded in December ----------------------
1996, bringing investment upto approximately Rs.250 mn. The plant was built ----------------------
to comply with USFDA standards to allow Nicholas to access the enormous
American Generics market, but more importantly to increase its credibility ----------------------
with potential partner so that Nicholas could attract post-GATT product ----------------------
licensing agreements. Its central location facilitated efficient distribution and
its modern manufacturing technologies allowed substantial improvement in ----------------------
productivity and cost savings, although its capacity was well above current
needs ----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. For expansion, _____________ is often the first-preference strategy
for a company. ----------------------
2. ___________ strategies are more risky as compared to stability ----------------------
strategies.
----------------------
3. Sometimes after periods of continuous growth or rapid changes and
expansion, _______________ is sought through stabilising. ----------------------
----------------------
Activity 3
----------------------
Take examples from the economy and find out companies that use ----------------------
diversification as a growth strategy.
----------------------
----------------------

Notes 5.8 STRATEGIC ALLIANCES
---------------------- A strategic alliance is one when two or more entities join hands for mutual
benefit. They unite to pursue a set of agreed goals. They are interdependent
---------------------- for these goals, but are otherwise independent. The entities share the benefits
of the alliance and control over the performance of interdependent tasks and
----------------------
contribute on a continuing basis in one or more key strategic areas, for example,
---------------------- marketing, technology, etc. A strategic alliance is therefore a cooperative
arrangement between two or more companies where a common strategy is
---------------------- developed in unison and all parties adopt a win-win attitude. The relationship
is reciprocal, with each partner prepared to share specific strengths with each
----------------------
other. There is a pooling of resources, investments, and risks occurs for mutual
---------------------- (rather than individual) gain. This could help in entering new markets, reducing
manufacturing costs, developing and diffusing technology, etc.
----------------------
Managing strategic alliances :
---------------------- A strategic alliance is a difficult cooperative strategy to manage. Some of
---------------------- the principles to manage are –
1. Clearly define a strategy and assign responsibilities.
----------------------
2. Phase in the relationship between the partners.
----------------------
3. Blend the cultures of the partners.
---------------------- 4. Provide for an exit strategy.
---------------------- Types of International strategies :
---------------------- Companies need larger markets to survive. So one way is to expand
the boundaries of the market beyond countries. But conditions in the markets
---------------------- around the world are different.
---------------------- Stopford and Wells’s International Structure Model
---------------------- Worldwide Global Matrix

Product Division
----------------------
Foreign Product
---------------------- Diversity
International
---------------------- Division
Area Division
----------------------
----------------------
Foreign Sales as Percentage of Total Sales
----------------------
Fig 5.1
----------------------
Stopford and Wells suggest that worldwide companies typically manage
---------------------- their international operations through an international division at an early stage
of foreign expansion, when both foreign sales and diversity of products sold
---------------------- abroad are limited. Subsequently, some companies expand their sales abroad

without significantly increasing foreign product diversity, tend to adopt an Notes
area structure. Other companies, facing substantial increase in foreign product
diversity, tend to adopt the worldwide product division structure. Finally when ----------------------
both are high, companies resort to the global matrix.
----------------------
Most companies that experimented with this structure eventually returned
to a more conventional structure with clear lines of responsibility being given to ----------------------
geographic managers, as the global matrix prevented the resolution of difference
----------------------
among managers with conflicting views and overlapping responsibilities.
There are two sets of factors that make a company’s decision to adopt ----------------------
international strategies difficult :
----------------------
1. The economies of scale thus cost pressures for global competitiveness.
----------------------
2. The pressures for local responsiveness to adapt to different markets.
Cost pressures denote the requirement of large volumes to minimize its ----------------------
unit costs. ----------------------
Pressures for local responsiveness makes a company tailor its strategies
to respond to national-level differences in terms of variables like customer ----------------------
preferences and tastes, government policies, or business practices. ----------------------
These two factors are contradictory in nature.
----------------------
High High
Transnational ----------------------
Global Strategy
Strategy
----------------------
Cost Low
International Multinational
Pressures ----------------------
Strategy Strategy
----------------------
Low High
Pressure for local response ----------------------
Fig 5.2 ----------------------
When a company creates value by transferring products and services
----------------------
to foreign markets where these products and services are not available, it
is adopting an international strategy. International company succeeds by ----------------------
maintaining a tight control over its overseas operation, offers standardized
products and services in different countries with little or no differentiation. ----------------------
Most international companies, such as GE, Coca-Cola, IBM, Kellogg, Proctor
----------------------
and Gamble, Microsoft and several others adopt their strategy for the different
countries they operate in. ----------------------
Porter’s Model of Competitive Advantages of the Nations
----------------------
Why certain nations are better in some field compared to others? For
example, why India excels in computer software? The answer is that India is ----------------------
a mother country for Mathematics, it has contributed Zero to the world and
----------------------
zero and one of the basis of Binary system or why Swiss are good in watch
manufacturing? This can be explained by Porter’s Diamond. ----------------------

Notes The four factors are called diamond determinants.
a) Factor conditions: National resources, raw material, labour, etc .that a
----------------------
nation possess.
---------------------- b) Demand conditions: The nature and size of the buyers’ need in domestic
market.
----------------------
c) Related and supporting industries: The existence of related and support
---------------------- industries.
---------------------- d) Firm strategy, structure, and rivalry: The conditions in the firm, how
firms are created, organised and managed and the nature of domestic
---------------------- competition.
---------------------- The Emergence of Indian Multinational Companies
---------------------- The Indian companies are going global for a number of reasons for
example ease of doing the business.
----------------------
Today their global business has become bigger than Indian operation for
---------------------- many an Indian companies. For example, for Tata Steel as well as Tata Motors,
it is a global business that is giving more than 70% of business. Sectors after
---------------------- sectors Indian companies are going global and becoming Indian MNCs.
---------------------- Information Technology: Companies like WIPRO, Infosys, TCS, HCL Tech
have global operations.
----------------------
Pharmaceutical sector: Indian companies like Ranbaxy, Dr Reddy’s Lab,
---------------------- Cipla, Wockhart, Cadila, Torrent Pharma, have global operations.
---------------------- Steel Industry: Tata Steel, Global Steel, Jindal Steel, L N Mittals, Arcellor
Mittal have global operations.
---------------------- Hotels: Indian Hotels (Taj Group), East India Hotels (Oberoi group) have
---------------------- global operations.
Aluminum: HINDALCO has global operation after taking over a Canadian
----------------------
company Novalis.
---------------------- Caselet : GROWTH STRATEGY OF TATA MOTORS
---------------------- With the domestic market getting tightened by stiff competition especially in
the passenger car segment, the company is looking at the international markets
---------------------- for growth. The company since it is not so familiar with the international
working and environment is initially aiming at joint ventures. However even
----------------------
the acquisition strategy is not far behind from the joint venture strategy. The
---------------------- company is presently on a rampant move to target the international market.
---------------------- MERGERS AND ACQUISITIONS

●● n March 16, 2005, Tata Motors acquired 21% stake in Hispano
O
---------------------- Carocerra SA Spain with a call option to acquire the balance 79% stake.
---------------------- ●● I t also introduced the range of heavy commercial vehicles from its
Tata Daewoo Heavy Commercial Vehicle Company plant in the
---------------------- Republic of Korea, in several overseas markets, complementing the

Company’s existing product range. Tata Motors, the country’s largest Notes
truck maker acquired Daewoo Commercial Vehicle, the truck-making
arm of bankrupt South Korean chaebol Daewoo Motors ,the second ----------------------
largest producer of heavy trucks in South Korea as a part of its global
expansion strategy. ----------------------
●● Investements in Hispano Carrocera SA, a leading Spanish bus ----------------------

manufacturing company, is expected to provide the Company with
high- end buses and the related technology to address the luxury bus ----------------------
segment in various geographies. This is a penetration strategy into the ----------------------
luxury bus segment.
POTENTIAL MARKETS SOUGHT BY TATA MOTORS ----------------------
1. Potential International Market ----------------------

Tata Motors will look at acquisitions of commercial and passenger vehicle ----------------------
plants across Europe, South Africa, Latin America, South East Asia
and China. Tata Motors operates in these economies through acquired ----------------------
companies and joint ventures.
----------------------
According to Ratan Tata, chairman, it is ideal to go global and operate
in different economies across all continents than limiting one’s self to ----------------------
one or two countries.
----------------------
A good trade relation with Pakistan may not enable India sell its
vehicles there, but will significantly increase the commercial vehicle ----------------------
demand for carrying trade with Pakistan.
----------------------
The company would focus more on cars for the middle and lower
middle- class and less on high-end cars. ----------------------
2. Potential Domestic Market ----------------------
The company expects to roll out the Rs 1 lakh small car over the next ----------------------
three years.
----------------------
Company will endeavor on making cars more affordable to the common
man. India has a growing middle class, equivalent to the size of the US. ----------------------
It will be looking towards tapping this potential.
----------------------
Post WTO, with the removal of trade barriers, the Indian economy is
expected to face tough competition from global players. Tremendous ----------------------
pressure on margins on account of growing metal prices has also been
expected. The company will face the challenge through cost reductions, ----------------------
new launches and, above all, focus on cars for the common man.
----------------------
A good monsoon, significant infrastructure investment from the
government and foreign direct investment in infrastructure will be ----------------------
good for the growth of the car and commercial vehicle market in the
----------------------
country.
Companies that have high level of local responsiveness by matching ----------------------
their products and services offerings to the national conditions operating ----------------------

Notes in the countries they operate in are adopting a multinational strategy.
The multinational companies extensively customize their products and
---------------------- services according to the local conditions operating in the different
countries, leading to a high-cost structure. Examples are Unilever and
----------------------
Phillips.
---------------------- Companies when they rely on a low-cost approach based on reaping
the benefits of experience-curve effects and location econmics and
----------------------
offering standardized products and services across different countries
---------------------- are adopting a global strategy. The global company focuses intensively
on a low-cost structure by leveraging their expertise in providing
---------------------- certain products and services, and concentrating the production of
these standardized products and services at a few favourable locations
----------------------
around the world. These products and services are offered in an
---------------------- undifferentiated manner in all countries the global company operates
in, usually at competitive prices.
----------------------
---------------------- Summary
---------------------- ●● Growth has many different modes. The choice is upto the company, which
uses the alternative best suited to itself.
----------------------
●● Growth spurs companies, yet they need to consolidate once in a while. It
---------------------- can look for stability, exp[ansion through concentration or cooperation.
IT can look for organic or inorganic growth.
----------------------
---------------------- Keywords
---------------------- ●● Stability strategy: The strategies adopted by the organisation in which
firm chooses to grow by way of maintaining the current status of
---------------------- operations.
---------------------- ●● Maintain strategies (No Change strategies): Here the company will by
choice, maintain its position, and not do anything new. It may appear that
---------------------- there is no strategy at all.
---------------------- ●● Small Exploration strategy (Pause/proceed with Caution
strategies) : This is typical strategy taken by companies in gauging new
---------------------- products and markets, where they will explore tentatively by small test
markets, launches to gauge the reaction of the customers.
----------------------
●● Concentration Strategies: Concentration strategies involve concentrating
---------------------- your resources in one or more firms business in terms of Customer Group,
Customer functions, and Alternative technologies, either singly or jointly
---------------------- so as to expand the business.
----------------------
----------------------
----------------------

Notes
----------------------
1. Enlist and explain various diversification strategies with appropriate
example. ----------------------
2. Compare merits and demerits of vertical and horizontal integration.
----------------------
3. With respect to diversification strategy, discuss the case of any automobile
company. ----------------------
4. What is strategic alliance? ----------------------

5. What are co-operative strategies? ----------------------

1. Often the decisions related to growth are irreversible or reversible at a ----------------------
very high cost.
----------------------
2. Corporate level strategies are at the topmost level for the company as a
whole. ----------------------
3. Corporate level strategies are basically about the direction the company ----------------------
intends to pursue in order to achieve its objectives.
----------------------

1. True
----------------------
2. True
----------------------
3. True
----------------------

1. For expansion, concentration is often the first-preference strategy for a
----------------------
company.
2. Expansion strategies are more risky as compared to stability strategies. ----------------------
3. Sometimes after periods of continuous growth or rapid changes and ----------------------
expansion, consolidation is sought through stabilising.
----------------------
----------------------
----------------------

Notes
Suggested Reading
----------------------
1. Carpenter, M. A. 2002. “The Implications of Strategy and Social Context
---------------------- for the Relationship between Top Team Management Heterogeneity and
Firm Performance.” Strategic Management Journal.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Corporate Level Strategies : II
UNIT
6
Structure:
6.1 Introduction
6.2 Organizational Models
6.3 Retrenchment Strategies
6.4 Turnaround Strategies
6.5 Divestment Strategies
6.6 Business Level Strategies
6.7 Other Business Strategies
6.8 How Strategic Management helps in beating the Competition
6.9 Marketing Warfare
Summary
Keywords
Suggested Reading
Corporate Level Strategies : II 119

Notes
Objectives
----------------------
----------------------
●● Assess the different strategies for situations
---------------------- ●● Identify when you should retrench
---------------------- ●● Evaluate turnaround
---------------------- ●● Explain the different business level strategies
---------------------- 6.1 INTRODUCTION

---------------------- The unit describes the various corporate strategies that have developed
in the corporate world over the period of time and applied by various firms all
---------------------- around the world. It also talks about the different models of firms that exist and
---------------------- what strategy is applicable to which kind of firm depending on the growth and
environment prevailing in the firm. The strategies discussed allow a firm to
---------------------- apply them to concentrate on their core business and help in keeping their firm
lean and focused.
----------------------
---------------------- 6.2 ORGANISATIONAL MODELS

---------------------- 1. Multinational organizational model: consists of a decentralized federation
of assets and responsibilities, management process with simple financial
---------------------- control systems overlaid on informal personal coordination.
---------------------- 2. International organizational model: structure resembles multinational
organization but subsidiaries are more dependent on the center.
----------------------
3. Global organizational model: combination of centralized hub
---------------------- configuration, dependent and tightly controlled subsidiaries and a
management mentality that saw the world as a single economic entity.
----------------------
Each of the above has advantages and disadvantages. For a company
---------------------- to be successful in the international markets, they will need to go in for a
transnational strategy. They will need a combined approach of low-cost and
---------------------- high local responsiveness simultaneously for their products and services.
---------------------- Dealing with these two often-contradictory objectives is difficult and calls for a
creative approach to managing. Along with this is a third requirement of global
---------------------- learning.
---------------------- In the 1980s, in all three, the earlier dominance of single set of environment
forces was replaced by a much more complex set of environment demand.
---------------------- To win, a company must now achieve all three goals at the same time. With
the multidimensional strategic requirements, these businesses have become
----------------------
transnational industries.
---------------------- Christopher Bartlett and Sumantra Ghoshal make a strong case for
applying transnational strategy as they opine that this is possibly the only viable
----------------------
strategy in a competitive world. The flow of expertise should not be a one-
way process from the transnational company situated in a developed country Notes
to the developing countries it operates in. Rather, through a process of global
learning, a transnational company should transfer the expertise from all over the ----------------------
world to all their units.
----------------------
Corporate examples :
----------------------
1. Infosys the major Indian IT company has created a programme that binds
all its business units in Europe and the west by transfer of learning that ----------------------
may evolve in its business units. Therefore the learning that gets generated
in Infosys helps to keep the uniformity and avoids gap creation in its ----------------------
business units.
----------------------
2. The Ispat Group’s managers all around the world make sure that the
best practices are followed in all its business units , formulated KPI (key ----------------------
process instructions) that may be formed after intense day to day analysis
----------------------
of business practices in any one of the business units are circulated and
communicated to all its units. ----------------------
Ways to enter global markets : ----------------------
Entry modes
----------------------
a) Export entry modes :
----------------------
Direct export / Indirect export. Contractual entry modes: Licensing /
Franchising / Other forms of contractual arrangements. ----------------------
b) Investment entry modes :
----------------------
Joint venture / Independent ventures / Wholly-owned subsidiaries.
----------------------

1. _______________ organisational model is a combination of centralised ----------------------
hub configuration, dependent and tightly controlled subsidiaries and a
management mentality that saw the world as a single economic entity. ----------------------
2. _______________ organisational model consists of a decentralised ----------------------
federation of assets and responsibilities, management process with
simple financial control systems overlaid on informal personal ----------------------
coordination.
----------------------
3. In __________ organisational model, structure resembles multinational
organisations but subsidiaries are more dependent on the centre. ----------------------
----------------------
Activity 1 ----------------------
Identify two Indian companies that have applied turnaround strategies. ----------------------
----------------------

Notes 6.3 RETRENCHMENT STRATEGIES
---------------------- A retrenchment grand strategy is followed when an organization aims at
a contraction of its activities through substantial reduction or the elimination
---------------------- of the scope of one or more of its businesses, in order to improve its overall
performance.
----------------------
Retrenchment strategy is adopted because the management no longer
---------------------- wishes to remain in business either partly or wholly due to continuous losses and
---------------------- unviability, the environment faced is hostile and intense competition is present,
but retrenchment, reallocation of resources from unprofitable to profitable
---------------------- businesses can be done.
---------------------- There are essentially four types of recovery situations:

1. Non-recoverable situation - no chance of survival as the company - no
----------------------
potential for improvement, costs cannot be reduced - declining demand.
---------------------- 2. Temporary viability - limited recovery for a limited time - can be done
if repositioning of the product is possible, cost reduction and revenue
----------------------
generation is possible.
---------------------- 3. Survival is possible but little potential for future growth exists, industry
is in a process of slow decline. A company facing such a situation could
----------------------
either divest or go in for a turnaround, if it one sees a comfortable niche
---------------------- in the industry where it perceives chances of being the industry leader.
---------------------- 4. Good and long-term recovery is possible - can be done through new
product development and /or market repositioning - the industry is still
---------------------- attractive enough - problems were caused by internal factors than external
conditions.
----------------------
So an organization can have a turnaround strategy or a liquidation strategy.
---------------------- Corporate examples :
---------------------- 1. IBM which was mainly into making computer servers saw the market of
personal computers growing and introduced its own range of computers,
----------------------
but when the personal computer manufacturing arm of IBM was not doing
---------------------- well and the company decided to focus on its core business, they sold the
personal computer manufacturing arm of the company to a Chinese based
---------------------- firm called Lenovo.
---------------------- 2. L & T, a company whose core business is engineering sold off its cement
manufacturing arm, Ultratech cement to Grasim, a flag ship company
---------------------- of Aditya Birla company as the cement arm was not doing well. They
therefore decided to concentrate on their core business which was
----------------------
engineering.
----------------------
----------------------
----------------------

Retrenchment Strategies Notes
Retrenchment strategies are of three types:
----------------------
a) Turnaround strategies
----------------------
b) Divestment strategies
c) Liquidation strategies ----------------------
----------------------
6.4 TURNAROUND STRATEGIES
----------------------
In turnaround strategies, the company may be making a marginal profit
but the trend is towards losses, or the company may already be in a loss and you ----------------------
have to turn it around to profit.
----------------------
We need to find out the symptoms of industrial sickness, which are as under.
----------------------
a) Negative profit
b) Overall losses ----------------------
c) A drastic change in market share. The company, which is having some ----------------------
marginal profits and growth rate lesser than the competitors, will become
sick if the competition becomes severe. ----------------------
d) Uncompetitive products or services. The Marketing Department would ----------------------
receive complaints and there would be great increase in finished goods
inventory. ----------------------
e) Rapid deterioration in physical facilities. ----------------------

f) Low morale, low productivity, high rejection and high labour turnover. ----------------------
g) Bad management.
----------------------
h) Changes in government policy.
----------------------
Turnaround strategies as given by Prof Pradip Khandawala ( IIM
Ahamedabad) ----------------------
a) Drastic changes in top management.
----------------------
b) Initial credibility building exercise
----------------------
c) Neutralising the external pressure (suppliers, trade unions, bankers,
competitors) ----------------------
d) Initial assertion of control (centralisation)
----------------------
e) Identifying quick payoff activities
----------------------
f) Quick cost reduction activities
g) Asset liquidation for generation of cash ----------------------
h) Mobilisation of the organisation ----------------------
i) Better internal control ----------------------
First three elements are common in all the organisations, but last six
factors are used by companies, which are successful. ----------------------

Notes
Caselet : Ispat Mexicana (Imexa)
---------------------- In the early 1980s, the Mexican government decided to build a new steel
---------------------- mill - Sicartsa II - adjacent to its existing Sicartsa facility located in Lazaro
Cardenas.
---------------------- They invested $2.2 billion in a state-of-the-art facility, which included a
---------------------- pelletizer plant to produce iron pellets from ore, the first DRI plant in the
world using the HyL III technology, electric arc furnaces, casters to roll
---------------------- molten steel into flat slabs and a mill to convert these slabs into plates to
produce pipes for the then-booming oil industry.
----------------------
Before the factory was completed, however, the end of the oil boom coincided
---------------------- with a faltering economy which forced Mexico to devalue the peso. The
government also abandoned the planned plate mill, forcing the plant to sell
---------------------- steel slabs -- an intermediate product -- rather than finished steel plates. Three
---------------------- years after opening, the plant operated well below its capacity of two million
tons per year and incurred significant operating losses.
----------------------
Based on Ispat’s reputation for turning around Iscoot, a steel mill in Trinidad,
---------------------- the Mexican government invited Ispat to join two other steel companies
in bidding for Sicartsa. This was the point where Ispat again applied its
---------------------- turnaround strategies to make Imexa in Mexico a profit making organization.
---------------------- Caselet : General Electric (GE)
---------------------- GE observed that hospitals and health care centers were not doing well in
America and were facing growing financial crisis. GE Healthcare Financial
---------------------- Services a provider of capital, financial solutions, and related services for the
global healthcare market. With over $15 billion of capital committed to the
---------------------- healthcare industry, offers a full range of capabilities from equipment financing
---------------------- and real estate financing to working capital lending, vendor programs, and
practice acquisition financing. With its knowledge of all aspects of health
---------------------- care from hospitals and long-term care facilities to physicians’ practices and
life sciences, works with customers to create tailored financial solutions that
---------------------- help them improve their productivity and profitability.
---------------------- Turned around hospitals by GE.
---------------------- Crouse Hospital, a 556-bed facility in Syracuse, NY, filed for bankruptcy
protection in 2001. After implementing a strategic financial process, the
---------------------- facility emerged as a financially viable, independent hospital in 2003.
---------------------- Kaleida Health, a five-hospital health system in Buffalo, NY, experienced
turmoil after a full-asset merger in 1997 that created a gap in system
---------------------- accountability. By implementing several financial turnaround strategies and
increasing accountability the health system met its budget in 2002 and has
----------------------
continued to strengthen its balance sheet each year.
----------------------
----------------------

Notes
----------------------
----------------------
1. In external retrenchment, emphasis is laid on improving internal
efficiency. ----------------------
2. Retrenchment is done neither internally nor externally. ----------------------
3. A retrenchment grand strategy is followed when an organisation aims ----------------------
at a contraction of its activities through substantial reduction or the
elimination of the scope of one or more of its businesses, in order to ----------------------
improve its overall performance.
----------------------
----------------------
Activity 2
----------------------
Choose any Indian business group and explain how it has been a cost leader
in its domain. ----------------------
----------------------
6.5 DIVESTMENT STRATEGIES ----------------------
Divestment (also called divestiture or cutback) strategy involves the sale ----------------------
or liquidation of a portion of business. It is usually a part of rehabilitation or
restructuring plan and is adopted as a last resort. Harvesting is often an option ----------------------
used, which involves a process of gradually letting a company or business ----------------------
wither away in a controlled.
Most companies dedicate considerable time and attention to acquiring ----------------------
new businesses and undermine the benefits that can be derived from divesting ----------------------
the existing ones due to certain beliefs and notions. Divestitures can a powerful
source of strengthening & rejuvenating companies but barring a few examples ----------------------
most companies shun it and associate it with having a negative impact on the
health of any business. ----------------------
Even those, which have gone in for divestitures, have been reactive rather ----------------------
than being proactive in their approach towards divestiture. This reaction has been
----------------------
a result of pressures like receding profit line and unfavorable market response.
Also, the timing has been inappropriate, as the companies have always showed ----------------------
delayed responses to such pressures. The reasons for the same being:
----------------------
●● Belief that acquisitions symbolize that everything is hunky dory whereas
divestitures indicate problems. ----------------------
●● delayed responses strengthen this belief as delays worsen the situation
----------------------
and when divestitures are carried out the unit is already deep in the red.
Most companies are wary of divestiture due to various costs imposed by ----------------------
it in the form of loss of: regular cash flows, stability, marketplace advantages
----------------------
and strong sentimental attachments of stakeholders in the company. But, if we

Notes do a cost-benefit analysis of divestiture we find that it the benefits derived from
divesting far outweigh the costs incurred. These costs may take three forms in
---------------------- the form of:
---------------------- Costs to the Corporation
---------------------- Companies become complacent due to stability and do not look for
greener pastures which can provide avenues for higher growth. Returns from
---------------------- the existing businesses may be steady but they are generally lower than what
can be realized by creating new businesses with higher growth prospects. Long
---------------------- held businesses may be a drain on the company’s resources in terms of both
---------------------- time and effort.
Costs to The Unit
----------------------
The company may not be able to provide skills and resources needed by
---------------------- the unit which should ideally be divested.
---------------------- Depressed Exit Price
---------------------- A poorly timed divestiture can destroy shareholder value as when the
divestiture is delayed, the business may have already started showing declining
---------------------- returns.
---------------------- MAKING IT HAPPEN

●● It is important to prepare the organization and explain the employees as
---------------------- to why the divestiture being undertaken. Divestiture announcements are
---------------------- surrounded by a lot of stigma and there may be strong resistance to it.
●● Divestiture should be considered at regular intervals and should be made
---------------------- a part of the strategic management process. The criteria being measuring
---------------------- business against growth, margin and return on capital rates.
Identifying Candidates for Divestiture :
----------------------
Factors to be considered :
----------------------
1. What impact business unit has on the rest of the corporation in terms of
---------------------- time, effort and money?
2. What impact the corporation has on the business unit i.e. we need to
----------------------
see how well the corporate culture fits the business, synergies that flow
---------------------- between the two etc.
3. We also need to compare our expectations from the business with the
----------------------
value that the market places on the business .We may find that this unit
---------------------- may qualify for divestiture but it may actually be a cash cow meaning
thereby that it is a secured source of income for the business. But, we
---------------------- should not forget that a unit becomes a cash cow when it has reached an
advance stage in it’s life cycle and is no comparison for the returns that
----------------------
can be derived from other new prospects.
----------------------
----------------------

Divestment Strategies Notes
Divestment, disinvestment or divestiture strategies are used when the
turnaround strategies fail, but we may use divestment strategies directly if the ----------------------
symptoms of turnaround strategies are so severe that even attempting them is a ----------------------
waste of time.
Divestment strategies = Turnaround Strategies + Sale of assets ----------------------
Reasons for Divestment ----------------------

a) Business that has been started or acquired, proves to be a mismatch, for ----------------------
example, Escort Ltd (motorcycles and tractors) entered into floating dock
business but within a year sold it to Indian Navy. L&T (engineering giant) ----------------------
entered into Leather Shoe business (Brand La Paz) but sold it to Mideast
India Shipping company (MESCO). ----------------------
b) Severity of competition and company’s inability to cope up with it. ----------------------

c) Selling a part of the business is the only way by which rest of the company ----------------------
can be saved.
----------------------
d) Companies like GE (USA) sell any unit if it does not come into top two
company, for example, they sold Genpact at a billion US$ even though at ----------------------
was profit making.
----------------------
e) To reshuffle the Pac, Mahindra and Mahindra sold Dr Beck and company
to another German company Snekedi, India, although it was profit-making ----------------------
and invested the money in business where there is more profit, such as
Mahindra British Telecom and Mahindra Holidays. ----------------------
f) An organisation may divest a part of its business to come out the ambit of ----------------------
MRTP.
----------------------
Corporation’s overall portfolio
This should be based on a careful quantitative and qualitative analysis. ----------------------
Here, we need to remember that divestiture is not opposed to diversification by
----------------------
any means but we need to strike the right balance between the two.
A number of factors need to be considered while deciding upon the ----------------------
candidates for divestiture. These may be taxes, availability of buyers, market
----------------------
reaction, payment mix, use of divestiture proceeds etc.
Structure the deal and Communicate the decision ----------------------
The reasons for divestiture must be very clear and the announcement of the ----------------------
divestiture must not be made until and unless the deal has been finalized or else if
the deal falls through there can be a backlash from the employees of the unit. ----------------------
Creation and Destruction ----------------------
Divestiture is not an end in itself. While destruction is what the company
----------------------
started with, the end should be in the form of creating new businesses and
strengthening existing ones. All the funds, management time, and support ----------------------
function capacity that are freed up through a divestiture should be reinvested in
creating shareholder value. ----------------------

Notes Combination Strategies
The organisation adopts a mixture of stability, expansion, and retrenchment,
----------------------
either at the same time in its different businesses or at different times in the
---------------------- same business. Combination strategy is adopted because, the organisation is
large and faces a complex environment and because each business unit lies in a
---------------------- different industry requiring a different response.
---------------------- Dimensions of Grand Strategies
Grand strategies operate over different dimensions as follows:
----------------------
 Internal /external dimension
----------------------
Internal dimension - an organisation adopts a strategy independently.
---------------------- External dimension - adopts a strategy in association with another entity.
---------------------- ●● Related/unrelated dimension

Related dimension - an organisation adopts a strategy that is related to its
---------------------- existing business.
---------------------- Unrelated dimension - adopts a strategy that unrelated to its existing
business.
----------------------
●● Horizontal/vertical dimension
----------------------
Horizontal dimensions - an organisation adopts a strategy which
---------------------- complement the existing business.
Vertical dimensions - a expansion or contraction existing business.
----------------------
●● Active/passive dimension
----------------------
Active dimension - an organisation adopts an offensive strategy in
---------------------- anticipation of environment threats and opportunities.
Passive dimension - adopts a defensive strategy as a reaction to
----------------------
environment threats and opportunities.
---------------------- Liquidation Strategies
---------------------- Amongst the retrenchment strategies, liquidation strategy is the most
unattractive strategy.
----------------------
It is considered as a last resort because it leads to serious consequences
---------------------- such as loss of employment and termination of opportunities as well as a stigma
of failure to the management.
----------------------
Why liquidation is undesirable to the most
----------------------
Every concerned party namely Government, political parties (fear loss of
---------------------- votes), management (stigma of failure), employees (loss of employment), trade
union (loss of a unit or even an existence) makes liquidation difficult.
----------------------
However, if company is able to convince everyone that everyone will
---------------------- lose money unless it goes for it then it is possible to opt for it. With a quick
liquidation, suppliers will get at least much of the payment, banks will recover
---------------------- much of the loans and employees can get a Voluntary Retirement scheme (VRS).

6.6 BUSINESS LEVEL STRATEGIES Notes
After looking at corporate level strategies let us look at business level ----------------------
strategies. As discussed earlier business level strategies are derived from
corporate level strategies. ----------------------
Let us look at the generic strategies that a firm can pursue as suggested by ----------------------
Michael Porter. The three generic strategies suggested by him are - cost
leadership, differentiation and focus. ----------------------
1. Cost Leadership : ----------------------

This involves a company attaining the lowest cost of producing a product ----------------------
or a service. One important thing to remember here is that this is not the
same as price leadership. A cost leader may or may not be a cost leader. ----------------------
To be a cost leader, a company puts up large investments in cost saving
----------------------
technologies and automation in manufacturing, thus may have startup
losses. To utilize these, the company must have economies of scale - thus ----------------------
requires relatively high market share. They need good forecasting to plan
well and reduce costs. The entire focus is on costs and thus companies ----------------------
have a high degree of supervision and tight control. The products are
----------------------
designed for ease of manufacturing and the focus is on a large base of
customers. Cost leadership is used when there is demand for functional ----------------------
products and there is a price competition in the markets.
----------------------
Cost leadership is a good defense against competition as competition can
lower prices only to their cost of production, which will be higher than ----------------------
the cost of the cost leader. Customers will bargain only to the extent of the
nearest price competitor, which again leaves a margin for the cost leader. ----------------------
Suppliers would be under control due to large volumes and also due to
----------------------
the fact there is margin to play around with. Substitutes - unless they can
match the price and utility will not be a major threat. ----------------------
However there are risks with cost leadership. The biggest risk is rapid and
----------------------
sudden technological change, which can erode the cost advantage and the
investments made in earlier technology. Other companies can copy the ----------------------
methods and narrow down the cost differential. Overemphasis on cost
may make the company loose the sight of changes in the customer needs ----------------------
and in the market.
----------------------
2. Differentiation :
----------------------
This is giving something unique and different to a customer, which the
customer values and thus is willing to pay for it. Differentiation may ----------------------
be tangible or perceived. To attain differentiation, a company must
incorporate features that offer utility and value to a customer matching ----------------------
with their tastes and preferences. For this the company must have very ----------------------
good marketing skills. Since the company is trying to create something
unique to a customer, it must often give up market share to keep the ----------------------
uniqueness of the product. Differentiation could be offered in various
ways, the product itself, features, quality, service, distribution, etc. ----------------------

Notes When the markets are large and if customers are willing to trade price for
features, quality, etc, there is a scope for differentiation. The benefits of
---------------------- are that through differentiation, customer loyalty can be gained. Because
of this loyalty, competition can be taken care of. Buyers through their
---------------------- loyalty are willing to pay a premium leading to better margins. Due to the
---------------------- higher margins, suppliers can be negotiated. Substitutes do not pose much
of a threat due to brand / customer loyalty.
----------------------
Differentiation also has risks. Products which were differentiated tend
---------------------- to become common and loose their uniqueness and then customers are
unwilling to pay a premium. The premium charged may not be sustainable
---------------------- as rivals may match the differentiation at a lower price. Sometimes the
differentiating factor may loose its relevance itself from the customer
----------------------
side.
---------------------- 3. Focus :
---------------------- The third generic strategy is Focus. Here the company would choose a
small market - either geographically or a customer segment. The company
---------------------- would then serve the market so well that it is willing to pay a premium
for the services. Thus it is similar to capturing a niche. Companies need
----------------------
to identify this niche where the cost leaders and differentiators are not
---------------------- present and operating. The reason could be that the market size is not
viable for them. You then need to create superior value by service or
---------------------- quality and highly honed skills to target this niche. In all markets there is
a scope for focus due to lifestyles, customer unique requirements, etc.
----------------------
Focused company is protected from competition, as others are not looking
---------------------- immediately at the small market the focused player is targeting. Since
---------------------- focus volumes are large suppliers are not in a position to create a threat.
Buyers are willing to pay premiums due to the specialized products and
---------------------- services. Substitutes cannot be a threat as long as the service given to the
niche is maintained.
----------------------
Like others, focus also has its risks. There is a high dependence on
---------------------- small markets. It requires unique skills and competencies to be built and
sustained. This is time consuming and difficult. The niche may become
---------------------- large and attractive to the larger players who would have lower cost.
---------------------- Other focused players may create a niche in that niche and out-focus you.
How to build differentiation in the Product
----------------------
a) Product features like high quality such as in Ferrari or Lenses of Carl
---------------------- Zeiss.
---------------------- b) Product performance
---------------------- c) Complementary product

d) Complementary service, for example, Maruti Suzuki has a service station
---------------------- at Khardunga la pass, which is highest motorable road in the world, or
---------------------- Axis Bank has an ATM at 13,500 feet.

e) Advertising spending like Hindustan Unilever spends millions of rupees Notes
a day on advertising.
----------------------
f) A very high quality reliable product like almost all the high-priced
cameras in the world use Carl Zeiss lenses. Bausch and Lomb makes the ----------------------
famous goggles by the name Ray Ban.
----------------------
g) Qualification of workers. Bajaj Auto Chakan plant has maximum percentage
of diploma engineers and graduates in workers category in the world. ----------------------
h) High degree of vertical integration. Reliance Industry Ltd (RIL) has a
----------------------
very long backward and forward integration chain.
How to get Cost Leadership ----------------------
Low cost leadership builds competitive advantage through below- ----------------------

mentioned factors.
----------------------
a) Economy of scale: The companies using economy of scale are able to
produce, market and promote in greater volumes than their competitors. ----------------------
This reduces costs of production due to reduction in indirect costs, saving
in transportation costs, bulk discounts, less administration cost. ----------------------
b) Experience curve: As the organisation repeats the activities, they learn ----------------------
how to carry them out more quickly and accurately. Designs improve
----------------------
if there is feedback from the Customers. Tata Steel, for example, which
is a more than 100-year-old company, is the lowest cost producer in the ----------------------
world.
----------------------
c) Vertical integration: It helps having good control over the inputs and
also ensuring that suppliers or customers do not become competitors by ----------------------
forward integration and backward integration respectively.
----------------------
Firms pursue vertical integration in cases where their products and
services are fairly stable over a long period. Vertical integration can be ----------------------
important in cost reduction if the firm manufactures the components and
directly feed it in final products. ----------------------
d) Location of the suppliers near the plant: If your suppliers are near your ----------------------
main unit, it is easy to go in for techniques like Just-in-Time and reduce
cost of transportation and administration. Maruti Suzuki, for example, ----------------------
has most of its suppliers near its Gurgaon Plant. ----------------------
How to build Focus, Niche or Segment Leadership
----------------------
Most companies neither can have differentiation nor can be lowest cost
producers. A very practical way is to compete in focus or a niche or segment ----------------------
market. We can go for either product focus or territorial focus.
----------------------
1. Product focus: An organisation can go for product focus, that is, give
product, which has a market in particular area. Hindustan Aeronautics ----------------------
Ltd has designed and manufactured helicopters for very high altitude
----------------------
operations in Siachin Glacier by the name Advance Light helicopter
(ALH) Dhruv. Indian Shipyards have captured the world maket for ----------------------

Notes Overseas Supply Vessels (OSVs) and suddenly by concentrating on
these markets are having orders of more than Rs 20,000 crore. Similarly,
---------------------- Anchor Toothpaste is advertised as 100% vegetarian toothpaste, which
has a great appeal to Gujarati and Jain communities.
----------------------
2. Price focus: In recessionary conditions, a firm offers a product for the
---------------------- bottom of the pyramid. For example, Parle has offered a Rs 2 biscuit
packet or Cadbury has offered Cadbury Shots, a two-rupee chocolate or
----------------------
Ayur brand of shampoo is at half the price as compared to leading brands.
---------------------- 3. Geographical focus: Bagh Bakri Chai, for example, is a market leader in
Gujarat. It beats such market leaders as Lipton and Brook Bond.
----------------------

---------------------- 1. ________________ strategy involves the sale or liquidation of a
portion of business
----------------------
2. For a company to be successful in the international markets, they will
---------------------- need to go in for a ______________ strategy which is a combined
approach of low-cost and high local responsiveness simultaneously
----------------------
for their products and services.
----------------------
---------------------- Activity 3
----------------------
Select a product from the Indian automobile industry and analyse how the
---------------------- product is differentiated from other products in the same segment.
----------------------
6.7 OTHER BUSINESS STRATEGIES
----------------------
---------------------- Building a Learning Organisation

Learning organisations are firms that view change as a positive opportunity
---------------------- to learn and create new sources of competitive advantage.
---------------------- Successful companies to become learning organizations should have the
below-mentioned characteristics.
----------------------
a) Frequent rotation of managers
----------------------
b) Continuous training c) Decentralisation
---------------------- d) Openness and diversity of ideas
---------------------- e) High tolerance for failure f) Multiple experiments
----------------------
----------------------

Let us now look at some marketing strategies : Notes
1. Strategies for a Market Leader
----------------------
The company can look at two major alternatives - Expanding the total
market or Defending Market Share. ----------------------
a) Expanding the Total Market ----------------------
●● By getting new users - this can be done by getting new users ----------------------
among three types of groups - market penetration strategy)
getting users who might use the product - new market ----------------------
segment strategy (finding new users who have never used
your product) - geographical expansion strategy (going into ----------------------
new markets). ----------------------
●● By new uses - promoting new uses, example petroleum
jelly was a lubricant, but later skin care was a new use. Bus ----------------------
manufacturers also use their engines as gensets. ----------------------
●● By more usage - by convincing customers to use more -
example - brush your teeth twice a day - or - apply shampoo, ----------------------
rinse, apply again, create lather, rinse, so shampoo is used
----------------------
twice.
b) Defending Market share : ----------------------
A market leader, even when expanding and even when the markets ----------------------
are growing need to carefully defend their markets, as competitors
are always looking for entry into existing markets. ----------------------
●● Position Defense - build a fortification around one’s territory. ----------------------
●● Flank Defense - protect a weak front by creating outposts to ----------------------
stop attackers.
●● Preemptive Defense - attack before the competitor starts the ----------------------
offence.
----------------------
●● Counteroffensive Defense - respond after an attack.
----------------------
●● Mobile Defense - stretch over new territories, broaden
markets and diversify. ----------------------
●● Contraction Defense - strategic withdrawal and give up weak
----------------------
positions, concentrate on the strong position.
2. Strategies for a Market Follower : ----------------------
Sometimes a company smartly decides to be follower. They will let the ----------------------
leaders develop the market, spend on innovation and customer acceptance
and then follow. ----------------------
●● Counterfeiter - duplicate the leader and claim to be similar or even ----------------------
the same.
----------------------
●● Cloner - emulate leader with slight variations.
----------------------

Notes ●● Imitator - copy but with a difference that can be seen.
●● Adapter - adapts and improves what the leader does.
----------------------
3. Strategies for a Market Challenger :
---------------------- The market challenger has 3 choices :
---------------------- ●● Attack the market leader.
---------------------- ●● Attack others of its own size.
●● Attack smaller and regional / local firms.
----------------------
Attack strategies
---------------------- ●● Frontal attack
---------------------- ●● Flank attack
---------------------- ●● Encirclement attack

●● Bypass attack
----------------------
●● Guerilla attack
---------------------- 4. Strategies for a Niche Marketer
---------------------- ●● Be a leader in a small market. This avoids competition with the
large players. They would create niches, expand niches and protect
---------------------- niches. It carries a major risk as the niche may dry up or can be
attacked by a larger player. So a company must continuously create
----------------------
new niches. Niche can be on the following basis - end user specialist
---------------------- - customer size specialist - specific customer specialist - geographic
specialist - product feature specialist - etc.
----------------------
---------------------- 6.8 HOW STRATEGIC MANAGEMENT HELPS IN

BEATING THE COMPETITION
----------------------
The essence of Strategic Management is to develop the ability to meet
---------------------- and beat the competition.
---------------------- Offensive Strategies
---------------------- There are six basic strategies to attack the competitors. These are:
a) Attacking the competitors’ strength
----------------------
b) Attacking the competitor’s weakness
----------------------
c) Simultaneous attacks on many fronts
---------------------- d) End-run offensives
---------------------- e) Guerilla offensive
---------------------- f) Pre-emptive attack
---------------------- a) Attacking the competitor on the strength: This would be a dangerous

strategy as commonsense tells us that we should attack the competitor
---------------------- on his weakness. Therefore, this type of attack should be launched

thoughtfully. We should be absolutely sure that we have far superior Notes
resources as compared to the competitor.
----------------------
i) Launch the attack to gain market share by overcoming strong
competitor by challenging competitor where they are strongest. ----------------------
ii) To whittle away at the competitor’s strength and competitor’s
----------------------
advantage.
Success of this strategy can be measured by how much the competitive ----------------------
gap is narrowed. The effectiveness of the strength against strength is
----------------------
measured by the surplus of benefit over its costs . The initiator to be
successful should need competitive strength and superior resources. ----------------------
Types of Attacks ----------------------
i. Price cutting: Cummins India, for example, vigorously attacked
----------------------
Ruston and Hornsby (I) Ltd, which had superior German technology
in its MWM Engines. The advantage of Cummins was it had a range ----------------------
from 11 HP to 2000HP, whereas Ruston had a range up to 500 HP
engines only. Cummins (I) went on reducing its price up to 500 ----------------------
HP. To stop the customers to go to Cummins (I) Ltd, Ruston had to
----------------------
reduce its price. Since Cummins was making money on 500 HP to
2000 HP engines, they could maintain the attack. ----------------------
ii. Comparative advertisements: This is a very aggressive strategy
----------------------
and will have immediate retaliation by the competitor. For example,
when Balasaras entered the Ayurveda segment by launching Babool ----------------------
and Promise toothpaste, Colgate immediately sued them in the
court. Some other examples are Tata Indica against Hyundai Santro, ----------------------
and TCL against most TV companies.
----------------------
iii. New plant in the backyard of the competitor: Again a very
aggressive strategy, which will be retaliated. ----------------------
b) Attacking the competitor on his weakness: Attack on the weakness of ----------------------

the competitor is a prudent strategy.
----------------------
Types of Attacks
----------------------
i. Attack a geographical region or a product range that the competitor
is ignoring, for example, Bagh Bakari Chai, a market leader in ----------------------
Gujarat, or a truck manufacture Asian Motor Works (AMW) which
has captured a substantial market share in medium range trucks. ----------------------
A Brazilian firm has captured substantial market with their Embracer ----------------------
aircraft in turbo prop aircrafts.
----------------------
ii. Attack a rival that is neglecting quality and features. For example,
Bajaj Auto Ltd, a market leader in 150 CC Scooter in the world, ----------------------
was wiped out in that segment by Kinetic Honda and then by Honda
----------------------
Activa.
----------------------

Notes c) Simultaneous attack on many fronts: The purpose is to throw the
competitor off balance by launching many initiatives in many areas at the
---------------------- same time.
---------------------- Types of Attacks
a) Change in the product attributes. For example, Wheel becoming
----------------------
super Wheel, or Maruti Suzuki launching Maruti 800 with K series
---------------------- of engines.
---------------------- b) Change in size. Coca Cola becoming Mini Cola or Maha Cola. c)
Price cuts. Reduced cost of incoming calls in mobiles.
---------------------- d) Creation of new market segments.
---------------------- e) New channels of distributions. Direct marketing or Tanishq watches
being sold through jewellery shops.
----------------------
d) End-run offensive: A very prudent strategy, which have products of
---------------------- excellent quality and well-established brands.
---------------------- This strategy avoids head-on collisions, price wars, brand ambassadors,
heavy promotion activity. Instead, it focuses on building its excellent
---------------------- network of distribution. They trust their excellent quality, superior
---------------------- innovative features, which are way ahead of competitors. They even use
the skimming the cream strategy. For example, Honda Activa scooter,
---------------------- which even today has a waiting period. Ultimately, Bajaj Auto had to quit
the scooter segment completely.
----------------------
e) Guerilla strategy: In the book, Marketing Warfare by Al Rice and Jack
---------------------- Trout, it is quoted that 94 % of the companies should have guerrilla
strategy.
----------------------
These are the ways by which you are outclassed by the competitors:
----------------------
i) When the competitors have resources to launch a full-scale attack.
---------------------- ii) When the competitors are too big, resourceful and have a wide as
---------------------- well as large market.
Types Attacks
----------------------
a) Attack on a narrow front that is weakly defended by the competitor.
----------------------
b) Go for geographical territories like sparsely populated areas, small
---------------------- villages, mountainous areas.
c) Give personalised attention and service, better delivery schedules.
----------------------
d) Add to the quality.
----------------------
e) Increase technical services when the customer is confused by the
---------------------- number of offerings.
----------------------
----------------------

f) Pre-emptive attack: Pre-emptive attack involves attacking a competitor Notes
as he is about to attack you.
----------------------
To launch a successful attack requires excellent intelligence, swift and
accurate attack as well as some luck. This strategy aims at putting the ----------------------
competitor at a disadvantage by taking him by surprise and tries to seek a
weakness during any attack. ----------------------
Types of Attacks ----------------------
a) Expand production and marketing capacity ahead of the completion
----------------------
to flood the market so that competition is discouraged. For example,
Tata Engineering and locomotive company tried to flood India with ----------------------
commercial in 1998 when India got a stable government so as to
pre-empt Ashok Leyland. ----------------------
b) Secure the best geographical location, for example, Tatas in steel ----------------------
business at Jamshedpur or take over land for hotels close to airports.
----------------------
c) Obtain business of prestigious customers.
d) Secure best source of material and/or most reliable high quality ----------------------
suppliers through long-term contracts, for example, Tata Nano. ----------------------
Defensive Strategies
----------------------
The aim of the defensive strategies is lowering the risk of getting attacked.
The three main strategies are: a) Raising the barriers to enter the business, b) ----------------------
Making the business less attractive, and c) Preparing for retaliation.
----------------------
a) Increasing the barriers to enter the business
----------------------
i. Economy of scale. By increasing the production, the gap between
demand and supply will be reduced or eliminated. Many would-be ----------------------
competitors would decide not to enter the business.
----------------------
ii. Increase the capital cost of entering the business.
----------------------
iii. Use differentiation to deter competition, for example, increase
warranty and guarantee. ----------------------
iv. Strengthen the distribution network. Increase commission or
----------------------
increase payment period for a limited time.
v. Increase switching cost to competitors. ----------------------
vi. Strengthen the distribution network. ----------------------
vii. Take help of government policies. For example, increase custom ----------------------
duties on imported goods, reduce excise duty, etc. or pass
government legislation. ----------------------
b) Make business less attractive ----------------------
i. Give the right information to the public who may not know the facts
----------------------
well. Make use of consultants to make it look impartial.
----------------------

Notes ii. Reduce the profit margins and make it less attractive, take advantage
of economy of scale to increase market share.
----------------------
c) Threat of retaliation
---------------------- i. Publicly announce a policy that if the company’s core business
is attacked, it will retaliate with its full might. For example, TVS
----------------------
launched a motorcycle Flame motorcycle. Bajaj Auto, which had
---------------------- developed a technology called DTSI technology was surprised
when TVS Motorcycle was launched with the same technology.
---------------------- Bajaj sued TVS for Rs 250 crore and made TVS to withdraw the
technology in an out-of-court settlement.
----------------------
ii. Maintain a war chest of cash or quickly liquefiable assets so that
---------------------- quick retaliation can be carried out.
----------------------
6.9 MARKETING WARFARE
----------------------
The essence of strategic management is an ability to meet and beat the
---------------------- competition. Competition is a constant factor in today’s world. As nation there
is competition, as organisation there is competition, as an individual there is
----------------------
always competition.
---------------------- An eminent Chinese strategist, Sun Tzu, in his book Art of War has
explained how war and business are similar.
----------------------
These principles are written in Marketing Warfare, a book by Al Rice and
---------------------- Jack Trout.
---------------------- The industry and business has gone through three phases. These stages are
production-oriented phase, marketing-oriented phase and competitor-oriented
---------------------- phase.
---------------------- Stage I
---------------------- Production-oriented stage
Henry Ford I had developed the concept of mass production. He
----------------------
standardised his car, which was Ford T series of car and his company was
---------------------- producing the car at just 400 US$. Advertising campaigns were used to spur the
demand. This era was production-oriented. Whatever was produced was sold
---------------------- by the marketing effort, primarily the advertisement.
---------------------- Stage II
---------------------- Customer-oriented stage

In this stage, which happened in the aftermath of WWII, all the leading
---------------------- companies became customer-oriented. The marketing expert became very
---------------------- important person and the marketing researcher became important.
The marketing researcher tried to find out what the customer wanted,
----------------------
for example, when the Aviation Sector in India was opened to competition,
---------------------- the market researcher gave a feedback that the main consideration of customer

was a low-cost ticket. Companies after companies, which were in domestic Notes
sector like Kingfisher, Air India, and Jet Airlines entered into low-cost segment.
This was the reason that nobody got an advantage. Kingfisher Airlines got into ----------------------
huge debt burden after acquisition of low cost airline Air Deccan and Air India
has loss of thousands of crore and surviving only because it has government ----------------------
support. ----------------------
Stage III
----------------------
Becoming competitor-oriented
----------------------
In this century, you have to be competitor-oriented to be successful.
Competitors must look into the weak points of the competitor and launch a ----------------------
marketing attack.
----------------------
The true nature of marketing today is rivalry amongst the corporations
and it has lost focus on satisfying human needs and wants. ----------------------
It requires outwitting, outflanking and overpowering your enemy. ----------------------
In the book Marketing Warfare, it is given that there is not one strategy
----------------------
but four strategies from which you must choose.
a) Market leader: There is always only one market leader and he prefers ----------------------
defensive strategy.
----------------------
b) Market challengers are number two and number three companies. They
should opt for offensive strategy. ----------------------
c) Market followers: These are companies number four and five. They ----------------------
must go for Flanking Strategy. In a Flanking Strategy, the company goes
in an uncontested area. For example, Tata Nano for low-cost segment and ----------------------
for high-cost cars like Jaguar and Land Rover. ----------------------
d) Guerrilla strategy: Remaining companies should go for a guerrilla
strategy by serving niche segment. ----------------------
Principles of defensive Strategy ----------------------

a) Only the market leader should consider a defensive strategy. It must try to ----------------------
increase the total market and/or try to maintain the market share.
----------------------
b) The best defensive strategy is the courage to attack yourself, that is,
you should launch new products and make your own existing products ----------------------
obsolete. Even if your existing products lose the market share, your new
products will more than compensate it and even increase it. It is far better ----------------------
that your own products take away your old products’ market share than
----------------------
new products of competitors doing it.
c) Most companies only have one chance to win, but the market leader ----------------------
has two chances. If the leader misses the opportunity to attack itself, the
----------------------
company can often recover by copying the competitor’s move.
Be prepared to strike back at a moment’s notice. When a major brand is ----------------------
hit by price attack, the classic response is to wait and watch. ----------------------

Notes What would the company do if a major competitor cuts its price
substantially? The leader should be emotionally ready to strike back.
----------------------
While an attacker should go all out, it is not always desirable for the
---------------------- leader to spend as much money as possible on marketing operation.
Marketing Peace – The goal of all defensive strategies is marketing peace
----------------------
with the competition reduced to sporadic guerrilla attacks.
---------------------- Principles of Offensive warfare
---------------------- The market challenger should try to attack the market leader because
market leader will not fight that hard as Market Flankers or Guerilla will fight.
---------------------- This is because they will have the threat of losing a very high market share or
---------------------- even may lose their existence.
a) The main consideration is the strength of the market leader’s position.
----------------------
b) Find a weakness in the leader’s strength. Hindustan Unilever, for example,
---------------------- has a strength in high-quality marketing personnel, who are well paid. This
strength is also a weakness as paying a high salary could be a weakness as
---------------------- compared to a competitor.
---------------------- c) Launch an attack on as narrow a front as possible. A market challenger
should select either a territory or a product or few products only and
----------------------
launch a concentrated attack on a narrow front.
---------------------- Principles of Flanking Strategy
---------------------- Flanking is going into an uncontested area where there is no competition.
When we introduce a product in an uncontested area, it also helps us by giving
---------------------- protection against competition. Tata Motors, for example, has launched Ace
---------------------- Zip, a 500-kg vehicle. It also must launch vehicles in heavy segment to protect
its flanks.
---------------------- a) Flanking must be done in an uncontested area.
---------------------- b) Tactical surprise has to be an important element of the plan.
---------------------- c) Pursuit is as critical as the attack itself, that is, when we have the advantage
of entering into an uncontested area, we must try to take a big market
---------------------- before the competition comes in. We should then reduce prices and get
more customers, this way we will have an advantage of economy of scale
----------------------
that will reduce the gap in demand and supply and deter the competition
---------------------- from entering or force them to quit.
Variation in Flanking
----------------------
a) Flanking with low price, for example, Day Inn flanked Holiday Inn.
----------------------
b) Flanking with high price, for example, Haagen Daz ice cream or Rolls
---------------------- Royce cars.
---------------------- c) Flanking with small size, for example, Sony Walkman or a five-rupee
coke bottle.
----------------------

d) Flanking with large size, for example, Coca Cola becoming Maha Coca Notes
Cola (big size same price).
----------------------
e) Flaking with a distribution network, for example, Tanishq Watches are
sold in jewellery shop with a catch phrase − A Jewellery with a Watch ----------------------
attached to it.
----------------------
f) Flaking with fewer calories, for example, Diet Coke.
Principles of Guerrilla Strategy ----------------------
a) As discussed earlier, 94 per cent of products of companies compete with a ----------------------
guerilla attack, when they are hopelessly outclassed by their competitors
who have more resources and are well established , Find a segment that ----------------------
is small enough to defend. For example, Bagh Bakri Chai (advertised ----------------------
as Kadak Chai) is market leader in Gujarat. Make products whose
low volumes are profitable for market leader or market challenger, for ----------------------
example, Asian Motor Works (AMW) in Medic Truck Segment.
----------------------
b) No matter how successful you are, never act like a leader. The day a
guerilla leader buys his first expensive car with company money, it will ----------------------
start going down.
----------------------
c) Be prepared to bug out at a moment’s notice. Leave the territory in which
you have got a substantial market share. If a large company attacks you ----------------------
with heavy promotion, do not fight with your own promotion.
----------------------
Industry Guerillas: Kale Consultant, a software company had specialised in
airlines business. ----------------------
High-end Guerrilla: A high price creates visibility. ----------------------
Summary ----------------------
----------------------
●● The unit explains the various corporate strategies that have evolved in
the corporate world. It explains various types of organizations and how ----------------------
different strategies are applied to them depending on the type and growth
of an organization. It also explains how strategies are classified and when ----------------------
are they applied. It also makes one to tailor make strategy according to
----------------------
the environment prevailing in the organization which may be explained
by the type of hierarchy and growth of the organization. ----------------------
●● Each classification of strategy explains what the strategy is made up off
----------------------
and how are they different from each other. The strategies also focus on
various points that should be kept in mind and pondered upon to make the ----------------------
strategy a success.
----------------------
----------------------
----------------------
----------------------

Notes Keywords
----------------------
●● Retrenchment strategies: Strategies adopted when the firm is
---------------------- experiencing the declining position.
●● Turnaround, Divestment, Liquidation, Marketing warfare: Types of
---------------------- retrenchment strategies which are adopted in the increasing severity of
---------------------- the decline.
---------------------- Self-Assessment Questions

----------------------
1. Explain what you mean by grand strategies.
---------------------- 2. What are business level strategies?
---------------------- 3. Explain the different business level strategies.
---------------------- 4. When and why would you use stability strategies?

5. Explain the various types of expansion strategies.
----------------------
6. Write a note on Integration and Diversification.
----------------------
7. Explain International Strategies.
---------------------- 8. What are the advantages and disadvantages of mergers and acquisitions?
---------------------- 9. What are joint ventures and strategic alliances? When are they feasible?
---------------------- 10. Explain retrenchment and combination strategies.

11. What are the dimensions of grand strategies?
----------------------
---------------------- Answers to Check your Progress

1. Global organisational model is a combination of centralized hub
----------------------
configuration, dependent and tightly controlled subsidiaries and a
---------------------- management mentality that saw the world as a single economic entity.
2. Multinational organisational model consists of a decentralised federation
----------------------
of assets and responsibilities, management process with simple financial
---------------------- control systems overlaid on informal personal coordination.
---------------------- 3. In international organisational model, structure resembles multinational

organisations but subsidiaries are more dependent on the centre.
----------------------
----------------------
----------------------
----------------------

Check your Progress 2 Notes
1. False
----------------------
2. False
----------------------
3. True
----------------------
1. Divestment strategy involves the sale or liquidation of a portion of
business. ----------------------
2. For a company to be successful in the international markets, they will ----------------------

need to go in for a transnational strategy which is a combined approach of
----------------------
low-cost and high local responsiveness simultaneously for their products
and services. ----------------------
----------------------
Suggested Reading
----------------------
1. Hamel, G. 1996. “Strategy as Revolution.” Harvard Business Review.
2. Huffman, B. 2001. “What Makes a Strategy Brilliant?” Business ----------------------
Horizons. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
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Tools for Strategic Analysis and Choice : I
UNIT
7
Structure:
7.1 Introduction
7.2 Strategic Decision making under Uncertainty
7.3 McKinsey’s 7-S Model
7.4 Creating new Market Space
7.5 The Emerging Theory of Manufacturing
7.6 Corporate Parenting Analysis
7.7 Michael Porter’s Five Forces Model for Industry Analysis
Summary
Keywords
Suggested Reading
Tools for Strategic Analysis and Choice : I 145

Notes
Objectives
----------------------
----------------------
●● Discuss how strategic decisions are made under uncertainty
---------------------- ●● nalyse McKinsey’s 7-S Model for management of organisational
A
---------------------- change
●● Evaluate the emerging theory of manufacturing
----------------------
●● Explain Michael Porter’s model for industry analysis
---------------------- ●● Assess the corporate parenting model
----------------------
7.1 INTRODUCTION
----------------------
The traditional approach towards uncertainty is binary.
----------------------
Either the future is certain (precise enough) or it is totally uncertain. When
---------------------- it is assumed to be pretty certain - the uncertainty is underestimated and this can
---------------------- lead to strategies that neither defend against the threats nor take advantage of
the opportunities under uncertainty.
---------------------- The other extreme is to assume the future to be totally uncertain and
---------------------- abandon decision-making / strategy altogether. Making systematically sound
decisions under uncertainty requires a different approach - one that avoids the
---------------------- dangerous binary view.
----------------------
7.2 STRATEGIC DECISION MAKING UNDER UNCERTAINTY
----------------------
Even the most uncertain business environments contain a lot of
---------------------- strategically relevant information.
---------------------- First it is possible to identify clear trends, such as market demographics,

etc. Second, there is usually a host of factors that are currently unknown - but
---------------------- could be known if the right analysis is done.
---------------------- The uncertainty that remains after the best possible analysis is “residual
uncertainty”.
----------------------
Levels for decision Making :
---------------------- Based on the residual uncertainty, there are four possible levels / scenarios
for the future that can be used for decision making.
----------------------
1. Level 1 - A Clear Enough Future
----------------------
●● ingle forecast of the future that is precise enough for strategy
S
---------------------- development.
---------------------- ●● Residual uncertainty is irrelevant to strategic decision making.

●● Traditional tools of strategy are good enough for this level.
----------------------

2. Level 2 - Alternate Futures Notes
●● Future is described as one of a few alternative futures.
----------------------
●● nalysis cannot identify which outcome will occur, but you can
A
establish probabilities. ----------------------
●● ome elements of the strategy would change if the outcomes were
S ----------------------
predictable.
●● ypical tools used in this level are decision analysis, option valuation
T ----------------------
models, game theory, etc. ----------------------
3. Level 3 - A Range of Futures
----------------------
●● A range of potential futures can be identified.
●● That range is defined by a limited number of key variables ----------------------
●● he actual outcome may lie anywhere along the continuum bounded
T ----------------------
by that range.
----------------------
●● There are no natural discrete scenarios.
●● he tools at this level are latent demand research, technology
T ----------------------
forecasting, scenario planning, etc.
----------------------
4. Level 4 - True Ambiguity
----------------------
●● Occurs rarely
●● Multiple dimensions of uncertainty interact together. ----------------------
●● The environment is virtually impossible to predict ----------------------
●● Leads to other levels in a short period of time.
----------------------
●● he tools used at this level are, analogies and pattern recognition,
T
nonlinear dynamic models, etc. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
A Clear Enough Future Alternate Futures Range of Futures
Fig 7.1 ----------------------
1. Clear Enough Future : ----------------------

Japanese company Casio which is basically into diverse businesses ----------------------
such as calculators, miniature TV sets, monitors for laptop computers,
and automotive dashboards has competency which is common to all i.e. ----------------------
miniaturization, microprocessor design, material science and ultrathin
----------------------
precision casing, that is why Casio’s entry into the handheld TV market
was predictable. ----------------------

Notes 2. Alternate Futures :
Consider US long-distance telephone providers in late 1995, as they began
----------------------
developing strategies for entering local telephone markets. Legislation
---------------------- that would fundamentally deregulate the industry was pending in
Congress, and the broad form that new regulations would take was fairly
---------------------- clear to most industry observers. But whether the legislation was going
to pass and how quickly it would be implemented if it did were still
----------------------
uncertain. No amount of analysis would allow the long-distance carriers
---------------------- to predict those outcomes, and the correct course of action-for example,
the timing of investments in network infrastructure-depended on which
---------------------- one materialized.
---------------------- For example, in oligopoly markets, such as those for pulp and paper,
chemicals, and basic raw materials, the primary uncertainty is often
---------------------- competitors’ plans for expanding capacity. Economies of scale often
dictate that any plant built would be quite large and would be likely to
----------------------
have a significant impact on industry prices and profitability. Therefore,
---------------------- any one company’s decision to build a plant is often contingent on
competitors’ decisions.
----------------------
3. Range of Futures :
---------------------- Consider a European consumer goods company deciding whether to
---------------------- introduce its products to the Indian market. The best possible market
research might identify only a broad range of potential customer
---------------------- penetration rates-say, from 10 percent to 30 percent-and there would be no
obvious scenarios within that range, making it very difficult to determine
---------------------- the level of latent demand. Analogous problems exist for companies in
---------------------- technologically driven fields, such as the semiconductor industry. When
deciding whether to invest in a new technology, producers can often
---------------------- estimate only a broad range of potential cost and performance attributes
for it, and the overall profitability of the investment depends on those
---------------------- attributes.
---------------------- 4. True Ambiguity :
---------------------- Companies considering major investments in postcommunist Russia in 1992

faced level four uncertainty. They could not predict the laws or regulations
---------------------- that would govern property rights and transactions-a central uncertainty
compounded by additional uncertainty about the viability of supply chains
---------------------- and about the demand for previously unavailable consumer goods and
---------------------- services. Shocks such as a political assassination or a currency default could
have spun the whole system toward completely unforeseen outcomes.
----------------------
Strategic Postures :
---------------------- 1. Shapers
---------------------- They aim to drive their industries towards a new structure of their own
devising. They seek to play a leadership role in establishing how the
---------------------- industry operates - for example by setting standards, by creating demand.

2. Adapters Notes
Adapters take the current industry structure and its future evolutions as
----------------------
given and then react to the opportunities the market offers. They seek to
win through speed, agility and flexibility in recognizing and capturing ----------------------
opportunities in existing markets.
----------------------
3. Reserve the right to play
This is a special form of adaptation, involving making incremental ----------------------
investments today that puts a company in a privileged position, through
----------------------
either information, cost structures, etc.
Basically it is to invest sufficiently to stay in the race, but avoiding ----------------------
premature commitments. ----------------------
Strategic Portfolio of Actions :
----------------------
There are 3 portfolios, which along with postures can give different
combinations. ----------------------
1. big bets ----------------------
These are large commitments, such as major capital investments /
----------------------
acquisitions that will result in large payoffs in some cases and large losses
in others. Shaping strategies usually involve large bets, whereas adapting ----------------------
and reserving the right to play do not involve large bets.
----------------------
2. Options
They are designed to secure the big payoffs of the best case scenarios ----------------------
while minimizing the losses in the worst case scenarios. Most options ----------------------
involve making modest initial investments that allow companies to ramp
up or scale back the investment later as the market evolves. ----------------------
3. No-Regrets Moves ----------------------
No-regrets are moves that will payoff no matter what happens. The very
----------------------
obvious no-regrets moves are cost reduction measures, skill building, etc.
Caselet : Maruti Suzuki ----------------------
An organization’s success depends upon the adapting to new situations and ----------------------
changes. Sometimes changes can be in forms of regulatory rules; sometimes
it can be because of maturity of industries leading to changes in ways the ----------------------
industry practices. Maruti clearly has to sit down with its corporates to discuss
----------------------
the uncertainties which it might have to face and find a solution to it. One thing
that immediately strikes while mentioning changes can be in way of rising ----------------------
fuel prices. If fuel prices rise and income levels does not rise, then customers
feel the pinch in their pocket as maintaining a car for them will be even more ----------------------
difficult and they shall resort other means of transportation. Another change
----------------------
could be that the fossil fuels getting exhausted which means that alternative
fuels shall emerge, as far as now it is difficult which alternative fuel shall ----------------------
establish itself so Maruti will face an uncertainty in this regard. So the efforts
should be research on emerging alternative fuels which could be cheap and ----------------------

Notes easily available. This means that it needs to adapt to these alternative fuels
onto its cars, so it might a face an uncertainty of level 2 and level 3 which
----------------------
are alternate futures or a range of futures. So it is imperative for Maruti to
---------------------- take this uncertainty seriously and ideally it should concentrate its efforts
into researching and also taking the help of subsidiary Suzuki in this event of
---------------------- uncertainty.
----------------------
----------------------

1. The uncertainty that remains after the best possible analysis is
---------------------- ____________ uncertainty.
---------------------- 2. Based on the residual uncertainty, there are ____________ possible
levels/ scenarios for the future that can be used for decision-making.
----------------------
3. _____________ moves are moves that will pay off no matter what
---------------------- happens.
----------------------
----------------------
Activity 1
---------------------- Mention any industry scenario where strategic decisions when implemented
became ineffective due to external factors. Analyse the reasons behind
---------------------- failure of these decisions.
----------------------
---------------------- 7.3 MCKINSEY 7-S FRAMEWORK

---------------------- Many companies place stress on strategic planning but do not implement
according to plan. The question then is - how can companies ensure that they
---------------------- reach where they had planned to. The answer lies in the proper implementation
of strategies. It is because of poor implementation that many companies, in
----------------------
spite of having good strategies, have failed.
---------------------- The Mckinsey 7-S Framework
---------------------- The 7-S framework was developed McKinsey Company, a very well
known management consultancy firm. It aimed to diagnose the causes of
---------------------- company problems and to formulate programs for improvement.
---------------------- The complex relationship is diagrammatically shown. According to
the model, change is not simply a matter of structure, although structure is a
----------------------
significant variable in the management of change.
---------------------- It is also not a simple relationship between strategy and structure,
although strategy is also critical aspect. Effective change may be understood to
----------------------
be a complex and interrelated relationship between the 7 s - strategy, structure,
---------------------- systems, style, skills, staff and super ordinate goals.

The framework suggests that, there are multiple factors that influence a Notes
company’s ability to change. Because of the interconnectedness of the variables
it would be difficult to make significant progress in one area without making ----------------------
progress in the others as well
----------------------
----------------------
Structure
----------------------
----------------------
Staff System ----------------------
Super ----------------------
Ordinate ----------------------
Goals
----------------------
Skills Style ----------------------
----------------------
Strategy ----------------------
----------------------
Fig 7.2 ----------------------
It is also important to note that there is no starting point. You can start ----------------------
from anywhere and thus there is no implied hierarchy.
----------------------
Any of the 7 factors could be the driving force in changing a particular
company at a certain point in time. The critical variables could be different ----------------------
across companies and in the scope at different points in time.
----------------------
1. Super Ordinate Goals
They may be considered to be “company purposes”. ----------------------
According to the framework, super ordinate goals refer to a set of values ----------------------
and aspirations, often unwritten, which go beyond the conventional
formal statement of corporate objectives. ----------------------
Super ordinate goals are the fundamental ideas around which a business ----------------------
is built. They are its main values. They are the broad notions of future
direction that the top management teams infuse through out the companies. ----------------------
They are the way in which the team wants to express itself. ----------------------
Examples would include Theodore Vail’s “universal services” objectives,
which has so dominated AT&T; the strong drive to “customer services” ----------------------
which guides IBM’s marketing; GE’s slogan, “progress is our most ----------------------
important product”, which encourages engineers to tinker and innovate
through out the company; Hewlett-Packard’s “innovative people at all ----------------------

Notes levels in the company’; Dana’s obsession with productivity, as a total
company, not just a few at the top; and 3-M’s dominating culture of “new
---------------------- ventures”. Super ordinate goals may not have much meaning to outsiders
---------------------- who are not very familiar with the company, but they are supposed to have
tremendous significance for those inside the company. Super ordinate
---------------------- goals, when properly articulated, can provide a strong basis of stability
to a company in a dynamic environment by providing a basic meaning to
---------------------- people working for the company.
---------------------- 2. Structure
---------------------- It is like the skeleton of the whole company edifice. Company structure
refers to the relatively more durable company arrangements and
---------------------- relationships.
---------------------- Company Structure :
●● p rescribes the formal relationships among various positions and
----------------------
activities
---------------------- ●● i ncludes arrangements about reporting relationships & how a
company member is to communicate with other members
----------------------
●● informs what roles to perform
---------------------- ●● o utlines the rules and procedures to guide the various activities
---------------------- performed by company members
Major functions of the structure :
----------------------
●● o reduce external uncertainty through the forecasting, research
T
---------------------- and planning sub-units
---------------------- ●● o reduce internal uncertainty arising out of variable, unpredictable,
T
random human behavior within the company through the control
---------------------- mechanism
---------------------- ●● o undertake a wide variety of activities through devices such as
T
departmentalization, specialization, division of labor and delegation
---------------------- of authority
---------------------- ●● o enable the company to keep its activities coordinated and to have
T
a focus in the midst of diversity in the pursuit of its objectives.
---------------------- Company structure as described in the 7-S framework may be compared
---------------------- with the “superstructure” of a company or the “infrastructure’. The design
involves such issues as division of company tasks and allocation of
---------------------- responsibilities among various positions, relationship between different
departments.
----------------------
Structure indicates the degree of differentiation or in other words to what
---------------------- extent the activities of the company are specialized. One company may
have an engineering department, a manufacturing department, and a
---------------------- quality control department. Another may have an engineering department,
---------------------- manufacturing department, a production planning and control department,
a materials planning department and a R&D department.
The superstructure also indicates some of the ways in which the company’s Notes
tasks are integrated or coordinated. The organization chart commonly
depicts the superstructure. Company structure must be designed in ----------------------
accordance with the heads of the strategy. Change in a company’s
strategy give rise to problems, which cannot be resolved with the help of ----------------------
the existing structure thus necessitating a new structure. ----------------------
3. Systems
----------------------
“Systems” refers to all the rules, regulations, and procedures, both formal
and informal that complements the company structures. ----------------------
It includes production planning and control systems, cost accounting ----------------------
procedures, planning and budgeting systems; capital budgeting systems;
training and development systems; performance evaluation systems; etc. ----------------------
Often changes in the strategy may be implemented with some changes in
----------------------
“systems” rather than in the company’s structure.
Changes in company structure, for example, from functional to divisional ----------------------
or functional to matrix or divisional to matrix would also necessitate ----------------------
changes in the systems in various degrees.
4. Style ----------------------
Style is one of the seven levers which top managers can use to bring about ----------------------
company change.
----------------------
The style of a company includes the following :
----------------------
Actions of Top Management
The style of a company becomes evident through the actions taken by the ----------------------
top management team over a period of time. The aspects of business most ----------------------
emphasized upon by the top management are more likely to be noticed by
people in the lower orders. ----------------------
Reporting Relationships ----------------------
Reporting relationships may also convey the style of the company. Within
the same company reporting relationships may change as a part of the ----------------------
evolutionary process thus conveying changes in the style of management. ----------------------
Culture of the Company
----------------------
“Style” also involves the culture of the company. Culture provides a way
to bring in the people dimension in macro company analysis without ----------------------
using psychological models of human behavior.
----------------------
Culture can be defined as: The pattern of basic assumptions that a given
group has invented, discovered, or developed in learning to cope with its ----------------------
problems of external adaptation and internal integration, and that have
----------------------
worked well enough to be considered valid, and, therefore, to be taught to
new members as the correct way to perceive, think, and feel in relation to ----------------------
these problems.
----------------------

Notes Sathe 1983, defines culture as “…the set of important understandings
that members of a community share in common.” Human can be warm,
---------------------- aggressive, friendly, open, innovative, conservative, and so forth. So
can companies. Companies’ culture is expressed in a variety of ways;
---------------------- unwritten rules and traditions, shared norms about what is important,
---------------------- prejudices, standards for social etiquette and demeanor; established ways
o relating with peers, subordinates and superiors, etc. The culture that
---------------------- a company wishes to develop is conveyed through rites, rituals, myths,
legend, and actions. Different companies develop different culture.
----------------------
5. Staff
----------------------
Staffing is the process of acquiring human resources for the company and
---------------------- ensuring that they have the potential to contribute to the achievements of
the company’s goals.
----------------------
This process involves selecting people for specific company positions.
---------------------- These people are then trained and developed so that they acquire the
abilities and skills they would need to be effective in the assignments
---------------------- allotted to them.
---------------------- The staffing function applies to the whole company, i.e. it cuts across all
company levels though the processes may be different for different kinds
---------------------- of jobs. Good performing companies paid attention to the development
---------------------- of managers. On the Indian scene there are some examples of firms,
which are relatively more, concerned about the process of management
---------------------- development.
---------------------- Larsen & Toubro Limited has a well established system of recruiting
graduate engineers from well-known technical institutions and providing
---------------------- them with on the job training in a number of functional areas before
deciding on the final placement in consultation with the person concerned.
---------------------- During the practice of training the trainers are also required to undergo
---------------------- short duration training programs on a variety of management related
subjects.
---------------------- Hindustan Lever Limited is well known for its marketing orientation,
---------------------- which is considered to be one of its main strengths. As part of the
marketing orientation, all new recruits for future management positions
---------------------- are required to spend a minimum period of time in the field. Both Larsen
and Toubro and Hindustan Lever are known for their consistent good
---------------------- performance. Japanese firms are known for their considerable investment
---------------------- in the development of their managers. Matsushita, Sony, etc are some
examples of such companies.
----------------------
6. Skills
---------------------- The term “skills” include those characteristics, which most people use to
describe a company.
----------------------
For example, Hindustan Lever or Procter & Gamble are known for
---------------------- their marketing skills. Larsen and Toubro or the Tata Engineering and

Locomotive Company (TELCO) are known for their engineering skills. Notes
IBM is known for its customer service, DuPont for its research skills and
Sony for new product development. ----------------------
Companies may have strengths in a number of areas, but their key ----------------------
strengths or dominant skills are few. The dominant skills or the distinctive
competence of a company are part of the company character. ----------------------
These are developed over a period of time. It is a result of the interaction ----------------------
of a number of factors; performing certain tasks successfully over a period
of time, the kind of people in the company, the top management style, the ----------------------
company structure, the management systems, the external environmental
----------------------
influences, etc. Hence when companies make a strategic shift it becomes
necessary to consciously build those new skills. ----------------------
Caselet : Acme
----------------------
The following is a brief example analyzing Acme Corporation’s (a furniture
distributor) ability to remain flexible and to adapt to changes in the seven ----------------------
categories: ----------------------
Strategy-In response to the competitive nature of the industry and profit
pressure exerted by the manufacturer by the transferring of certain expenses ----------------------
to distributors, Acme is looking seriously into acquiring neighboring ----------------------
distributorships (wholesaler consolidation), a strategy encouraged by the
manufacturer. ----------------------
Structure-As a sales-focused company, Acme has decentralized the sales ----------------------
process, training its drivers as well as its on-premise and off-premise sales
staff to create unique value to the customer by consulting with the customer ----------------------
on product placement, point-of-sale strategy, and inventory management.
----------------------
Systems-Acme possesses sophisticated sales training systems, including its
involvement as a beta test site for the manufacturer’s nationwide interactive ----------------------
satellite sales network, making it one of the more technologically advanced
----------------------
distributorships in the wholesaler network.
Skills-Acme possesses the most experienced sales and warehousing staff of ----------------------
any distributor within a 75-mile radius, giving the company an enormous
----------------------
competitive advantage.
Staff-Acme personnel exhibit great pride in their product, to the point of ----------------------
identifying closely with the manufacturer and its national advertising ----------------------
presence, with a deep conviction that they market the finest product in the
industry. ----------------------
Style-Top management exudes teamwork in everything it does, a feeling ----------------------
that pervades the entire organization, resulting in a remarkably cohesive and
satisfied workforce. ----------------------
Super Ordinate goals-Acme operates on the fundamental principal that is ----------------------
best expressed in its president’s motto: “Ensuring our customer’s success
will ensure our success.” The company, therefore, looks beyond the sales ----------------------

Notes mentality to focus on providing value to the customer, which sets it apart
from its competitors.
----------------------
Case : ICICI Lombard
---------------------- 1) THE SUPER- ORDINATE GOALS
---------------------- To become the top insurer of India by 2010 in terms of premium .
---------------------- 2) THE STYLE
The style of ICICI is one and only. They change their management
----------------------
structure according to the need of the situation. ICICI Lombard has
---------------------- always been aggressive in marketing and as a result they are successful
in acquiring a good amount of market share. They are the top private
---------------------- sector company and they have always kept their ambitions high. They
have suffered couple of high losses but they have managed their way
----------------------
and are moving with the same pace. They are also developing channel
---------------------- partners for a long term sustainable relationship. They are trying to
integrate their banking model of doing retail business in doing Insurance
---------------------- retailing business. This model has undergone several criticism but they
are determined to prove themselves .They are having a full proof B TO
----------------------
C model where they are selling their policies through the net.
---------------------- 3) SYSTEMS
---------------------- Networking : ICICI Lombard has 65 offices throughout the country.
All the offices are totally connected which each other and with the head
---------------------- office at Mumbai. They are using software called Premia developed by
---------------------- ICICI Infotech limited. The Software is basically accounting software
connecting all the offices. It also has customer relation software
---------------------- integrated into it to support activities such as policy generation, claims
management, online issuance of policy etc.
----------------------
There is an intranet facility within an office and among all offices.
---------------------- There is a strong communication among the employees through emails
and each employee has email identification.
----------------------
Updating : There is continuous updating of information in the system.
---------------------- As soon an entry of a transaction is made all updates within the system
is made accordingly .The updating is so foolproof that the CEO can see
---------------------- on his screen what premium has been booked at any point of time and
---------------------- the division of premium on various heads .
Foolproof Control and Quality : The Company is trying to ensure full
----------------------
proof quality in al aspects toward customer orientation. The policies
---------------------- which are issued are trying to be made error free. The Business to
consumer model on the internet where the consumers can buy policies
---------------------- online has the legal acceptability and is password protected. The claims
settlement is an essential aspect of quality management. The company
----------------------
has outsourced the surveys to a company called Cunningham Lindsay
---------------------- India Pvt limited the system ensures that the survey is done on time and

the claim is settled in the appropriate time. If the claims settlement period Notes
exceeds the time frame the system informs the concerned person. ICICI
Lombard is also going towards ISO certification to ensure foolproof ----------------------
quality.
----------------------
Assurance : Various steps are taken to design and maintain a robust
platform for underwriting, reinsurance accounting, customer relation ----------------------
management (claims to be a part of this) and business reporting. On
----------------------
the B TO C the company is selling all personal lines policy and legally
secured on all fronts. The company is also working on the digital ----------------------
signature module so that it can allow policies to be generated online,
directly by the consumers. it has obtained the “ verisign “secured ----------------------
transaction processing system , ensuring complete confidentiality
----------------------
and control over web based transactions . it is also looking at online
transaction for its channel partners such as the agents and brokers . ----------------------
4) STAFF
----------------------
Attrition and Retention : The top level management is not a problem.
The attrition rates is low, as a result the retention rate is high. at the top ----------------------
the people have stayed longer with the organization . it is also ICICI
----------------------
practice to shuffle people from their other businesses to insurance .
They get the best of people in their new businesses and go hard in ----------------------
attaining the market share. A lot of people are from banking. They have
also got experienced people from all over the country who are dynamic ----------------------
and are result oriented. They have a good incentive structure depending
----------------------
upon one performance. The biggest problem of attrition and retention
comes lower down the line in the SME and retail categories sales force ----------------------
where salaries are low and stress in more on incentives .At this level
the sales people switch jobs if a change in their salaries is offered . ----------------------
The company incentives structure is attractive at every level. The sales
----------------------
people are not enrolled on companies’ payrolls at the first go. They are
first observed and given targets. If they are able to fulfill their targets on ----------------------
three successive occasions they are absorbed by the company.
----------------------
Sourcing : ICICI Lombard sources its lower level staff from the
placement agencies and employment exchanges. The top level managed ----------------------
are selected from the top management and insurance institutes and
also from internal appraisals. ICICI appraisals depend upon the results ----------------------
generated by the managers. ----------------------
Training and Retraining : Human capital too is very important at
ICICI. Training is a big thing; each employee spends at least 69 hours ----------------------
during the year recharging him. Training is essential for continuous ----------------------
improvement of any person and for organizational growth. Training
at two levels are imparted .one type of training is the internal training ----------------------
given to sales people and team managers and other is the training given
to key people in such as the underwriters , claims executives etc to ----------------------
continuously update their knowledge . These training are internal as ----------------------

Notes well as external .the training calendar is practically fixed for the entire
year before hand and is given to the executives. The manager at the
---------------------- top of that person has to ensure that the training is done. He has also
---------------------- to measure the effectiveness of the training and make a report to the
management .in insurance one has to obtain the general knowledge
---------------------- about the subject and also about one own company’s product knowledge
.the latter in basically done internally. Training is done on a regular
---------------------- basis to continuously update the knowledge.
---------------------- 5) SKILLS
---------------------- Innovation : The integrated intranet system is helping the whole
organization to work as a unit. the online policy generation by the
---------------------- company to its agents and channel partners is another innovative feature
which the company has done . The company is leveraging technology
----------------------
to make work simpler. In the marketing front is adopted a new approach
---------------------- to sell personal lines insurance. It has planned to recruit more than 200
direct sales force under a team head in each city, depending upon the
---------------------- size of the city and the premium potential. The company is creating a
retail hub where these sales people would sit. They would be provided
----------------------
with computers and technology would be integrated into the system.
---------------------- ICICI is diverting from the traditional way of doing retail business
where one ties up with dealers, intermediaries and sell it. It is going
---------------------- direct in the market to sell personal lines of insurance. In the S.M.E
sector also ICICI has taken out innovative policies with a lot of section
----------------------
built in one policy, so that a consumer can take one policy and have a
---------------------- lot of covers built into it. There are discounts provided in the non - tariff
sections also. In the corporate front also ICICI has approach its banking
---------------------- corporate clients and leveraged the relationship to get business. They
have provided valve added services to their corporate client in the tariff
----------------------
regime where premium are fixed and have given them value for money.
---------------------- Among all private sector is has been the most aggressive in the market
and is the leading private sector insurer. In the marine Hull insurance
---------------------- front also it managed to garner a lot of premium where other private
insurers have failed.
----------------------
Technology : Growth without technological advancement is not
---------------------- possible. ICICI is incorporating new technology within the organization
to help the organization grow. It is integrating technology with business
----------------------
processes and trying to create a business process which is totally
---------------------- integrated so that they can handle any amount of work.
---------------------- Benchmarking : With the change in the structure of ICICI Lombard

there has been a change in accountability of each individual. Every
---------------------- person is managed by results and objectives. Management by
objectives is a comprehensive managerial system that integrates
---------------------- many key managerial activities in a systematic manner and that is
---------------------- consciously directed towards the effective and efficient achievement

of organizational the individual studies. (Essentials of management: Notes
Harold Koontz, Heinz Weihrich). In this structure you set yourself a
goal which in aligned with the bosses goal at every stage. The goals are ----------------------
quantitative as well as qualitative. The goals must be verifiable. As each ----------------------
person in responsible for something, he also has some managerial task
with him also. The qualitative analysis of a person his capabilities such ----------------------
as claims management of his account, client satisfaction, management
of teams etc. is highlighted. ----------------------
6) STRATEGY ----------------------
Their strategy changes from time to time. Current their focus is more ----------------------
on retail business. The growth which the company is looking at would
come from retail. ----------------------
7) STRUCTURE ----------------------
Delayering and boundary less organization: Basically delayering leads
----------------------
to a boundary less organization. In ICICI initially the structure was
different. It functions differently from what it was. Earlier the whole of ----------------------
India was divided into 5 regions. Each region had a Regional Manager
and under him there were people who were looking after Retail, ----------------------
Corporate, SMES, Banc assurance and Government business. These
----------------------
people were reporting to the regional head and had targets based on the
regional heads target. The regional head had the overall responsibility ----------------------
for the business of that particular region under the various heads. He
was given a target and he had to fulfill it. Each division of business was ----------------------
taken separately but the fulfillment of the target the weight age was
----------------------
not given. The organization then changed from a horizontal structure
(Regional structure) to a Vertical structure. The effort was to delink ----------------------
the organization structures from market designations. The organization
arranged itself into business verticals, namely Corporate, Government ----------------------
& Key accounts, SME, Retail and Banc assurance, with support
----------------------
activities like Underwriting, Operations and Claim realigning to suit
the needs of the business verticals. ----------------------
The ideal was to impart a greater focus in the channels, and to
----------------------
deepmine relationships and prospects alike for incremental sales. The
regional structure gives way to the individual verticals into the senior ----------------------
management. The vertical arrangement has lead to a more performance
based approach where each person in the region is responsible for ----------------------
his work and the achievement. It would also provide him with more
----------------------
empowerment and will have his own judgment and would be more
responsible for his action. As the focus in there, it would ultimately ----------------------
lead to concentration of businesses in the above mentioned areas and
ultimately lead to business growth. ----------------------
The support activities namely include Underwriting, operations and ----------------------
claims processing. This basically happens at the local level as well as
----------------------

Notes the head office level. Currently the claims are processed at the local
level by the claims head and a request is send for payment with all the
---------------------- papers to the head office. Claims payment is highly centralized at the
---------------------- head office level and needs a change because it is time consuming and
involves customer dissatisfaction.
---------------------- Matrix formations : the support activities involved with all five lines of
---------------------- business and help them whenever required. The support activities have
specialist people who are well versed with their subjects and help the
---------------------- verticals in all respects.
----------------------
7.4 CREATING NEW MARKET SPACE
----------------------
Based on an article by W. Chan Kim and Renee Mauborgne:
---------------------- Creating new market space requires a different pattern of strategic
---------------------- thinking. Instead of looking within accepted boundaries that define how we
compete, managers can look systematically across them.
---------------------- Focus on the following areas to think beyond our boundaries:
---------------------- Looking Across Substitutes
---------------------- ●● Apart from intra-industry competition, there is also competition between
companies producing substitute products.
----------------------
●● pace between substitute industries provides opportunities for value
S
---------------------- innovation.
●● Customers very often make trade off’s across substitute industries.
----------------------
Home Depot revolutionized the do-it-yourself market in North America,
---------------------- creating over $24 billion business by eliminating the costly features, employing
a self-service warehouse format that lowers overhead and maintenance costs,
---------------------- generating economies of scale in purchasing and minimizing stock outs.
---------------------- Looking Across Strategic Groups within Industries
---------------------- ●● Strategic groups can be ranked in rough hierarchical order built on 2
dimensions, price and performance.
----------------------
●● Here the companies should understand the factors that determine buyer’s
---------------------- decisions to trade up or down from one group to another.
Ralph Lauren built its brand space between the two strategic groups of
----------------------
providing high quality designer clothes with updated classical look and price
---------------------- along with the elegance of it stores and luxury of its materials.
Looking Across Chain of buyers
----------------------
●● An industry normally focuses on a single buyer group. However in reality
---------------------- there is a chain of customers involved in buying decisions i.e.
---------------------- 1. the purchasers who actually pay for the product or service.
2. the actual users.
----------------------

3. the influencers who, in some cases are important as well. Notes
●● hallenging an industry’s conventional wisdom about which buyer group
C
----------------------
to target can lead to the discovery of new markets.
●● loomberg, a company in the IT industry, became one of the largest and
B ----------------------
most profitable business-information providers by shifting focus from an
industry oriented towards IT managers to actual users, the traders. They ----------------------
created a system designed for traders to analyze information, provide ----------------------
online information about wine, clothing, jewelry etc to traders.
Looking Across Complementary Product and Service Offerings ----------------------
●● ew products are used in a vacuum. In most cases, the complimentary

F ----------------------
products and services affect the value of the main product. E.g. even the
----------------------
cost of a crèche, car parking in a theater, is involved even though they are
complimentary services. ----------------------
●● ntapped value is often hidden in complementary services and products.
U
Companies can create new market space by zeroing in on the complements ----------------------
that add to the value of their own product or service. ----------------------
●● arnes & Noble revolutionized the book store concept by creating
B
complementary services such as specialized staff, large number of books ----------------------
exceeding 150000, superstores furnished with armchairs, reading tables ----------------------
and sofas to encourage people to read books, coffee bars etc.
Looking Across Functional or Emotional Appeal to buyers ----------------------
●● ompetition in an industry converges not only around an accepted notion

C ----------------------
of the scope of its products but also around one or two possible bases
of appeal. Companies’ behavior affects customers’ expectations in a re- ----------------------
enforcing cycle. ----------------------
●● motionally oriented industries offer many extras’ that add price
E
without enhancing functionality. Stripping those extras away may create ----------------------
a fundamentally simpler, lower priced, lower cost business model that ----------------------
customers would welcome.
Starbucks instead of viewing coffee as a functional product, set out ----------------------
to make coffee an emotional experience, what customers often refer to as a ----------------------
‘caffeine-induced oasis’.
Looking Across Time ----------------------
●● ll industries are subject to external trends that affect their business

A ----------------------
overtime. Looking at these trends with the right perspective can unlock
innovation that creates new market space. ----------------------
●● ooking across time- from the value a market delivers today to the value
L ----------------------
it might deliver tomorrow - managers can actively shape their future and
lay claim to a new market space ----------------------
●● isco systems created a new market space by innovating data exchange

C ----------------------
models through routers, switches and other networking devices.
----------------------

Notes Regenerating Large Companies
Creating a new market space is critical not just for start-ups but also for
----------------------
the prosperity and survival of even the world’s largest companies.
---------------------- Toyota’s Lexus accounted for one-third of its operating profit while only
2% of its volume. Thus market creation is a central strategic challenge to all the
----------------------
organization in the coming decade.
----------------------
----------------------

1. Many companies put stress on strategic planning but do not implement
---------------------- according to plan.
---------------------- 2. The 7-S framework is aimed to diagnose the causes of company
problems and to formulate programs for improvement.
----------------------
3. The 7-S framework suggests that there are multiple factors that
---------------------- influence a company’s ability to change.
----------------------
----------------------
Activity 2
---------------------- Mention how McKinsey’s 7-S Framework can be applicable to your

organisation.
----------------------
----------------------
7.5 THE EMERGING THEORY OF MANUFACTURING
----------------------
Based on an article by Peter Drucker :
---------------------- The post-modern factory will be more conceptual than mechanical. The
---------------------- concepts include 4 principles and practices that constitute a new approach to
manufacturing. Each concept has its own objectives and its own impact.
---------------------- Statistical Quality Control (SQC)
---------------------- ●● It is a rigorous, scientific method of identifying the quality and productivity
that can be expected form a production process.
----------------------
●● Both these attributes, i.e. quality and productivity are built into the process
---------------------- itself.
---------------------- ●● It can instantly spot malfunctions and show where they occur.
●● It quickly identifies the impact of any change on performance.
----------------------
●● Japan’s major productivity gains are the results of social changes brought
---------------------- about by SQC.
----------------------
----------------------

●● It increases the number of machine operators, but the sharp drop in the Notes
number of non-operating, blue collared employees offsets it many times
over. ----------------------
●● It makes it possible for machine operators to be in control of their work. ----------------------
Modern Manufacturing Accounting Methods
----------------------
●● Its aim is to integrate manufacturing with business strategy.
Traditional Cost Accounting has 3 major limitations ----------------------
●● he benefits of a change in process or in method are primarily defined in

T ----------------------
terms of labour cost savings.
----------------------
●● raditional cost accounting measures only the costs of producing. It
T
ignores the cost of non-producing. ----------------------
●● Cost Accounting assumes the factory as an isolated entity. ----------------------
For example, it does not take into account the impact of a change in
process on the acceptability of the product in the market. ----------------------
●● odern Accounting uses time as a unit of measure. It assumes all costs to
M ----------------------
be fixed, except for time. Savings are in terms of time saved.
----------------------
The “Flotilla”
●● raditionally, manufacturing people believed that you can have either
T ----------------------
standardization at low cost or flexibility at high cost, but not both. ----------------------
●● he modern factory can, and must, achieve both the objectives - and
T
at low cost. But to achieve this, the factory will have to be structured ----------------------
differently. ----------------------
●● he modern plant will be a “flotilla”, consisting of modules centered
T
around a stage in the production or around a number of closely related ----------------------
operations. ----------------------
●● Though overall command exists, each module can operate independently.
----------------------
●● This organization gives the twin benefits of standardization and flexibility.
●● ach module must strike an optimum balance of standardization and
E ----------------------
flexibility. An “average” balance across the plant will not help.
----------------------
●● he structure requires different communication and information flow. A
T
good deal of information will flow sideways and across departments. ----------------------
●● ll the management in a plant will have to understand and be aware of the
A ----------------------
performance of the whole.
Caselet : Tata Group ----------------------
The Tata Group comprises 93 operating companies in seven business sectors: ----------------------
information systems and communications; engineering; materials; services;
----------------------
energy; consumer products; and chemicals.
Tata Sons which is premier promoter company of the Tatas was established as ----------------------
a trading enterprise by Group founder Jamsetji Tata in 1868. It is the promoter
----------------------

Notes of all key companies of the Tata Group and holds the bulk of shareholding
in these companies. Tata Sons is the owner of the Tata name and the Tata
---------------------- trademark, which are registered in India and several other countries. These
are used by various Tata companies in relation to their products and services.
----------------------
The terms of use of the Group mark and logo by Tata companies are governed
---------------------- by the Brand Equity and Business Promotion Agreement, which is signed by
Tata Sons and individual Group companies.
----------------------
The subsidiaries and divisions of Tata Sons are:
---------------------- ●● CE Consulting Engineers: Offers multi-disciplinary solutions for
T
---------------------- projects in the fields of water supply and wastewater, industry, power
and chemicals.
---------------------- ●● HDC: Services include identification of land, project conceptualisation,
T
---------------------- designing, construction, marketing and management of residential and
commercial complexes.
---------------------- ●● ata Quality Management Services: Helps Tata companies achieve
T
their high levels of excellence through the Tata Business Excellence
----------------------
Model.
---------------------- ●● ata Financial Services: In-house financial consultancy which carries
T
out long- and short-term financial planning for Tata companies.
----------------------
●● ata Economic Consultancy Services: Specialises in investment
T
---------------------- banking and strategy consulting services.
---------------------- ●● ata Petrodyne: Engaged in the exploration and production of crude oil
T
and natural gas.
---------------------- ●● SerWizSol: Providies voice- and data-based BPO services.
---------------------- The Systems Approach
---------------------- ●● anufacturing is seen as an integral process that converts materials into
M
goods.
----------------------
●● he new manufacturing system is not controlled at all. Most of its parts
T
---------------------- are independent.
---------------------- ●● he Systems Concept of manufacturing is extended beyond the plant and
T
into the marketplace.
---------------------- ●● I f manufacturing is a system, every decision in a manufacturing business
---------------------- becomes a manufacturing decision.
●● ystems manufacturing will influence how we design and remodel plants
S
---------------------- and how we manage manufacturing businesses.
---------------------- Comparative Study of the Four Concepts
---------------------- ●● I n SQC, the factory is a place where people work. In Management

Accounting and the “Flotilla” concept, it is a place where work is being
---------------------- done; and in the Systems Concept, the factory is not a place at all. It is just
a value adding process.
----------------------

●● o apply SQC, you did not have to think, you have to do. Management
T Notes
Accounting focuses on technical analysis while the “Flotilla” concentrates
on organisation design and work flow. ----------------------
●● ll the 4 concepts are based on the assumption that the manufacturing
A ----------------------
process is a configuration.
Conclusion : ----------------------
These 4 concepts are synergistic and together, they tackle the conflicts ----------------------
that have plagued the traditional, 20th Century mass production plants: conflicts
between people & machines, time & money, standardization & flexibility and ----------------------
functions & systems. ----------------------
7.6 CORPORATE PARENTING ANALYSIS ----------------------
Misfit ----------------------
Heartland
Between Ballast
----------------------
Critical Edge of
Success Heartland ----------------------
Factors
And ----------------------
Parenting ----------------------
Alien Territory Value Trap
Characteristics
----------------------
Fig 7.3 Fit between Parenting Opportunities & Parenting ----------------------

Characteristics ----------------------
Think of a diversified company as a corporate headquarters with SBUs’s. ----------------------
The manner in which the corporate will manage the SBU’s is corporate parenting.
The entire company will be looked at in terms of resources and capabilities. ----------------------
Two issues will have to be addressed here : ----------------------
1. What should the diversification be?
----------------------
2. what organization structure, management processes and philosophy will
be needed for superior performance? ----------------------
The next step is examining the critical success factors of each business, ----------------------
identifying the improvement areas, and then developing a fit between parent
and SBU. ----------------------
This gives rise to five groups of businesses : ----------------------
1. Heartland business - This type of business is given the highest priority ----------------------
2. Edge of heartland business - Some fit and some misfit, Parent needs to
give attention to understanding the business. Can grow if time and money ----------------------
invested by the parent. ----------------------
----------------------

Notes 3. Ballast business - Fit well, but low opportunities. Similar to cash cows.
Continue for as long not a burden.
----------------------
4. Alien Territory business - Little opportunity, invariably results of non-
---------------------- planned diversification - need to divest.
5. Value Trap businesses - Fit well with parenting opportunities, but misfit
----------------------
with understanding of Critical Success factors. Better to retrench, there
---------------------- may be a temptation to see them as attractive, but remember not the right
business.
----------------------
Parenting-Fit Matrix for Diversified Food Business
----------------------
Heartland
Ballast
---------------------- Misfit Restaurant A
Edge of
Between Restaurant B
---------------------- Property Heartland
Critical
Success
---------------------- Food Products Retail
Factors
---------------------- And
Parenting Value Trap
Characteristics Alien Territory
---------------------- Hotels
---------------------- Fig 7.4 Fit between Parenting Opportunities & Parenting
---------------------- Characteristics
---------------------- 1. Heartland business :
Businesses that fall in the top right corner should be at the heart of the
----------------------
company’s future. Heartland businesses have opportunities to improve
---------------------- that the parent knows how to address, and they have critical success
factors the parent understands well.
----------------------
In the case of the two restaurant businesses in the graph, the parent
---------------------- provides high quality services in property development, food purchasing,
menu management and staff scheduling. The parent also has skills in
---------------------- formula branding, in setting performance targets that generate above-
average restaurant margins, and in designing flat structures for chain
----------------------
operations that keep overhead per unit to a minimum. Furthermore, the
---------------------- parent does not have any characteristics that will destroy value; none of
its characteristics conflict with the businesses’ critical success factors.
----------------------
2. Edge of heartland business :
---------------------- For some businesses, making clear judgments is difficult. Some parenting
---------------------- characteristics fit; others do not. We call those businesses, such as the retail
business in the food-company example, edge of heartland. The parent’s
---------------------- skills in staff scheduling, brand management, and lean organizational
structures appear to add value to the business. However, the added
---------------------- value is partly offset by critical success factors that fit less well with the
---------------------- parent. For example, the retail business requires skills in site selection

and property development that are different from those required for the Notes
restaurants. The parent’s influence in those areas is probably negative.
With edge-of-heartland businesses, the parent both creates and destroys ----------------------
value. The net contribution is not clear-cut.
----------------------
When Unilever acquired Calvin Klein’s perfume business, it adjusted its
usual parenting approach to increase the potential for value creation. For ----------------------
instance, Unilever did not impose its famous human resource management
----------------------
processes on Calvin Klein, because it recognized that its managers and
Calvin Klein’s would not mix easily. Unilever also did not impose its ----------------------
marketing policies, which would have conflicted with Calvin Klein’s.
Calvin Klein, for instance, does not use market research to launch its ----------------------
upmarket perfumes in the same way Unilever does to launch mass-market
----------------------
products. Unilever treated Calvin Klein as a global business, while its own
personal-products businesses are national or regional. To accommodate ----------------------
the differences between Calvin Klein and its other businesses, Unilever
changed or neutralized many of its usual parenting influences and ----------------------
channeled most contact between the two companies through a single
----------------------
person.
3. Ballast business : ----------------------
In the food-company example, the property business fits that category. ----------------------
The business owns a large number of sites that are leased to third
parties. The company has little potential for adding value to the business ----------------------
operation because it has identified no parenting opportunities. It also has
----------------------
little potential for destroying value because the parent managers are so
familiar with the property-business issues. ----------------------
4. Alien Territory business : ----------------------
Most Corporate Portfolios contain at least a smattering of businesses
in which the parent sees little potential for value creation and some ----------------------
possibility of value destruction. Those businesses are alien territory for ----------------------
that parent. Frequently, they are small and few in a portfolio - the remnants
of past experiments with diversifications, pet projects of senior managers, ----------------------
businesses acquired as part of a larger purchase, or attempts to find new
growth opportunities. ----------------------
In the food-company example, the largest business -food products -fits ----------------------
partly into alien territory, even though it is the company’s original core
business. The industry has become international, so the national business ----------------------
has become less competitive. The parent’s managers have little inter ----------------------
national experience and have mostly come up through the restaurant side
of the company. Their influence is more likely to destroy than to create ----------------------
value in the business.
----------------------
5. Value Trap businesses :
----------------------
Parent managers make their biggest mistakes with value-trap businesses.
They are businesses with a fit in parenting opportunities but a misfit in ----------------------

Notes critical success factors. The potential for upside gain often blinds managers
to the misfit -that is, downside risks. In the food-company example, the
---------------------- hotel business is a value trap. The parent believed its restaurant and retail
skills would bring success in the hotel business. Management initially saw
---------------------- it as an edge-of-heartland experiment, with parenting opportunities in food
---------------------- purchasing, property-development costs, and performance benchmarking.
But value was destroyed in other vital areas. Hotel businesses require
---------------------- selling skills, referrals from other businesses, and specialized site
selection. The parent’s influence in those areas proved highly negative,
---------------------- and, five years after its acquisition, the business is probably worth half the
---------------------- capital invested in it.
Caselet : Arvind Mills Group
----------------------
Here we find multibusiness companies brought together under a parent
---------------------- organization, business that could potentially be independent. Such parent
companies can justify themselves economically only if their influence creates
----------------------
value. Multibusiness companies create value by influencing-or parenting-
---------------------- the business they own. The growth share matrix implies that businesses are
related if their cash,profit,and growth performance create a balance within the
---------------------- portfolio. The core competence concept says that businesses are related if they
have common technical or operating know-how. The parenting framework,
----------------------
in contrast, focuses on the competencies of the parent organization and on
---------------------- the value created from the relationship between the parent and its businesses.
The businesses that are undertaken by Lalbhai group of which Arvind Mills
----------------------
is the flagship company are
----------------------
●● Arvind Mills Limited
---------------------- ●● Arvind Products Limited
---------------------- ●● Arvind Brands Limited
●● Atul Limited
----------------------
●● Amol Dicalite Limited
---------------------- ●● Anup Engineering Limited
---------------------- Arvind Products Limited: The company is a subsidiary of The Arvind

Mills Limited. The principal business segments of the company include
---------------------- manufacturing and marketing of Voiles fabrics, Bottomweight fabric (khakis)
and Yarn. The company operates through its divisions viz: Arvind Intex (with
---------------------- both ring and open end yarn manufacturing under one roof), Arvind Cotspin
---------------------- (manufacturing 100% cotton yarn and double yarn in a wide range of counts
and varieties) and Ankur Textiles.
---------------------- Arvind Brands Limited: Arvind Brands, a group company, manages various
---------------------- brands owned by Arvind. These include Flying Machine, Newport and Ruf &
Tuf in Jeans and Excalibur in Shirts. This company services entire Domestic
---------------------- market in India apart from exports in the neighboring countries. Apart from
these owned brands, the company has licenses from reputed International
---------------------- brands like Arrow, Lee, Wrangler and Tommy Hilfiger for the Indian market.

Atul Limited: The Rs.600 crore Atul Products, set up in 1947, is one of the Notes
Asia’s largest and greenest chemical complexes. The company has grown
to become India’s largest dyestuffs manufacturer, making and marketing ----------------------
over 250 varieties of chemical and intermediates, from basic commodity ----------------------
chemicals to specialty intermediate required for the agrochemical, defense,
dyestuff, leather, paper, pharmaceutical and textile industries. Atul exports to ----------------------
more than 50 countries.
----------------------
Amol Dicalite Limited: A group company with the business ranging from
Textile clothing to Filter Aids to Perlite Products. ----------------------
Anup Engineering Limited: It is one of the leading Engineering companies ----------------------
engaged in manufacturing process equipment for Chemicals, Refineries,
Petrochemicals, Pharmaceuticals, Fertilizers, Drugs and Allied Industries. ----------------------
The company is equipped with Laboratory to carry out various destructive
and non-destructive tests apart from an independent quality control ----------------------
department. The company undertakes design and manufacture of equipment’s ----------------------
to meet the requirements of national and international codes such as ASME,
BS- 5500, TEMA, EJMA, IBR, IS2825 etc for design, manufacturing and ----------------------
testing apart from any other specific quality requirements specified by the
customer. Equipment and components are manufactured out of carbon steel, ----------------------
stainless steel, monel, inconel, cupronickle, aluminum alloys, clad sheets, ----------------------
querched and tempered steels, etc.
----------------------
By assessing the various companies under Lalbhai group we can form a matrix
that would say that the companies Arvind Products Limited, Arvind Brands ----------------------
Limited, Atul Limited come under the heartland business. Anup Engineering
Limited could be placed under Ballast business where the potential for further ----------------------
value creation is low but the businesses fits comfortably with the parenting
----------------------
approach. Amol Dicalite Limited would come under alien- territory business
where the parent sees little potential for value creation and some possibility of ----------------------
value destruction. Managers normally concede that alien-territory businesses
do not fit with the company’s parenting approach and would perform better ----------------------
with another parent.
----------------------
7.7 MICHAEL PORTER’S FIVE FORCES MODEL FOR ----------------------
INDUSTRY ANALYSIS
----------------------
Essence of formulating competitive strategy is relating a company
----------------------
to its environment. While industry factors are important, factors outside the
environment are also significant - difference of success is how companies deal ----------------------
with them.
----------------------
What exactly is competition?
Typically companies will look at other players in the industry only as ----------------------
competition. But this is a narrow view and can mislead analysis. A framework for ----------------------
this is the Porter’s model - which helps a firm to defend against the competitive
forces. ----------------------

Notes Return in an industry
Companies enter business for a return. Money is invested by way of debt
----------------------
and equity. Return is on this amount invested. There are avenues by which a
---------------------- company can earn return without any risk. This is known as risk free rate of
return - typically the return from Govt. Securities. When in business, there is a
---------------------- risk. So the return expected is more than risk free rate of return - the rate above
is the risk premium for being in business.
----------------------
Thus the REQUIRED RATE OF RETURN = RISK FREE + RISK PREMIUM.
----------------------
Risk is different for different industries and also differs from person to
---------------------- person. Competition drives down the return in the industry.
---------------------- The competition in an industry is due to various factors as mentioned

below.
---------------------- The Five Competitive Forces :
---------------------- 1. The Threat of Entry by New Entrants.
---------------------- 2. The Rivalry Among the Current Competitors
3. The Threat of Substitutes
----------------------
4. The Bargaining Power / Threat of Buyers.
----------------------
5. The Bargaining Power / Threat of Suppliers.
---------------------- All of the above “Competitors” - can be termed as Extended Rivals.
---------------------- Number of important technical & economic characteristics are critical to the
strength of each competitive force.
----------------------
1. Threat of Entry
---------------------- When would new entrants come in?
---------------------- When the returns in an industry are more than the rate of return adjusted for
risk premium. So if the industry has good returns it attracts new entrants.
---------------------- They bring new capacities - increase competition & reduce profitability.
The entry is dependent on barriers to entry, which can prevent new players.
----------------------
There are essentially the following barriers to entry :
----------------------
●● conomies of scale - cost per unit - what determines Economies of
E
---------------------- scale - could be different for functions - components - sharing of
operations - joint costs
----------------------
●● Product differentiation - brand identification & customer loyalty -
---------------------- entrant has to spend heavily to get acceptance
---------------------- ●● Capital requirements - investments - working capital

●● Switching costs - costs that a buyers has to incur
----------------------
●● Access to distribution channels
----------------------
----------------------

Notes
Threat of new
Entrants ----------------------
----------------------
----------------------
Bargaining Power of Threat of new Bargaining Power of
Buyers Entrants Suppliers ----------------------
----------------------
Inter / Intra Firm ----------------------

Rivalry ----------------------
Fig 7.5 ----------------------

Cost Disadvantages independent of Scale ----------------------
●● Proprietary product technology ----------------------
●● Favorable access to raw materials
●● Favorable locations ----------------------
●● Government subsidies ----------------------
●● Learning or experience curve
----------------------
●● Expected retaliation
●● High exit barriers ----------------------
2. Rivalry among current Competitors ----------------------
The level of competition among existing players takes form of jockeying
----------------------
for position - using tactics like price competition, advertising battles,
new launches, customer service. Move by one-player affects all others, ----------------------
as in a competitive industry the players are mutually dependent. The
rivalry occurs because one sees opportunity or feels the pressure to react. ----------------------
Normally price competition is not sustainable - it leaves entire industry
----------------------
worse off.
The following factors affecting rivalry and increase the rivalry ----------------------
●● Numerous or equally balanced competitors ----------------------
●● Slow industry growth
----------------------
●● High fixed or storage costs
●● Lack of differentiation or switching costs ----------------------
●● Capacity augmented in large increments ----------------------
●● Diverse competitors
----------------------
●● High Strategic stakes
●● High exit barriers like - specialized assets - fixed costs of exit - ----------------------
strategic interrelationships - emotional barriers - Govt. & social
restrictions ----------------------

Notes ●● Numerous or equally balanced competitors :
The global commercial aircraft sector consists of only two major
---------------------- competitors-Boeing in the United States and Airbus Industry in Europe.
---------------------- Competition in the commercial aircraft industry is particularly intense
with regard to price, operating costs, and production schedules.
---------------------- Likewise, the competitive relationship of the two giants of the photographic
---------------------- and imaging industry: Eastman Kodak Company and the Fuji Photo Film
Co.Ltd. exemplify intense rivalries between pairs of relatively equivalent
---------------------- competitors.
---------------------- ●● Slow industry growth :
The market for large aircraft is expected to decline or grow only slightly over
----------------------
the next few years. To expand market share, Boeing and Airbus will compete
---------------------- aggressively in terms of the introduction of new products, and product and
service differentiation. Both firms are likely to win some and lose other
---------------------- battles. Boeing’s grip on the control stick is shaky at best. Over the first nine
months of 2003, Airbus snatched 59 per cent of orders for new aircraft, and
----------------------
it began production of an ultra-large new double-decked jet called the A380,
---------------------- which will be the world’s biggest airliner and will rival Boeing’s 747.
●● High fixed or storage costs :
----------------------
When fixed costs account for a large part of total costs, companies try to
---------------------- maximize the use of their productive capacity. Doing so allows the firm
to spread costs across a larger volume of output. However, when many
----------------------
firms attempt to maximize their productive capacity, excess capacity
---------------------- is created on an industry-wide basis. To reduce inventories, individual
companies typically cut the price of their product and offer rebates and
---------------------- other special discounts to customers. These practices, however, often
intensify competition. The pattern of excess capacity at the industry level
----------------------
followed by intense rivalry at the firm level is observed frequently in
---------------------- industries with high storage costs. Perishable products, for example, lose
their value rapidly with the passage of time. As their inventories grow,
---------------------- producers of perishable goods often use pricing strategies to sell products
quickly.
----------------------
●● Lack of differentiation or switching costs :
----------------------
High switching costs, however, at least partially insulate the firm from
---------------------- rivals’ efforts to attract customers. Interestingly, the switching costs -
such as pilot and mechanic training - are high in aircraft purchases, yet
---------------------- the rivalry between Boeing and Airbus remains intense because the stakes
for both are extremely high.
----------------------
●● Capacity augmented in large increments :
----------------------
As per Industry standards, in case of Sugar Industry; every new setup
---------------------- of sugar factory must be of 1250 tonne crushing per day (TCD) or in
multiple of 1250 TCD that means a huge investment has to be made for
---------------------- every capacity expansion.

●● Diverse competitors : Notes
A business unit that is part of a vertical chain of businesses in its corporate
organization may well adopt different and perhaps contradictory goals ----------------------
than a free-standing firm competing in the same industry. Or a business ----------------------
unit that is a “cash cow” in its parent company’s portfolio of businesses
will behave differently than one that is being developed for long-run ----------------------
growth in view of a lack of other opportunities in the parent.
----------------------
●● High Strategic stakes :
Competitive rivalry is likely to be high when it is important for several ----------------------
of the competitors to perform well in the market. For example, although ----------------------
it is diversified and is a market leader in other businesses, Samsung has
targeted market leadership in the consumer electronics market. This ----------------------
market is quite important to Sony and other major competitors such as
Hitachi, Matsushita, NEC and Mitsubishi. Thus, we can expect substantial ----------------------
rivalry in this market over the next few years. ----------------------
●● High exit barriers :
----------------------
Sometimes companies continue competing in an industry even though
the returns on their invested capital are low or negative. Firms facing this ----------------------
situation face high exit barriers, which include economic, strategic and
emotional factors causing companies to remain in an industry when the ----------------------
profitability of doing so is questionable. Common exit barriers are: ----------------------
 specialised assets (assets with values linked to a particular business
----------------------
or location)
 fixed costs of exit (such as labour agreements) ----------------------
 strategic interrelationships (relationships of mutual dependence, ----------------------
such as those between one business and other parts of a company’s
operations including shared facilities and access to financial ----------------------
markets)
----------------------
 emotional barriers (aversion to economically justified business
decisions because of fear for one’s own career, loyalty to employees, ----------------------
and so forth) ----------------------
 government and social restrictions (more common outside the
United States, these restrictions often are based on government ----------------------
concerns for job losses and regional economic effects). ----------------------
3. Threat of substitutes
----------------------
Substitutes limit the potential returns by placing a ceiling an on the
prices. Identifying substitute products is a matter of searching for other ----------------------
products that can perform the same function. Substitutes that deserve the
----------------------
most attention are those that are subject to the trends improving the price
performance ratio trade-off & are produced by industries earning high ----------------------
profits.
----------------------

Notes 4. Bargaining power / threat of buyers
Buyers can also become a source of competition. The following factors
----------------------
would make the buyers stronger and thus have high competitive pressures.
---------------------- ●● uyers are concentrated or purchase large volumes relative to seller
B
sales
----------------------
●● he product buyers purchase from the industry represent a
T
---------------------- significant fraction of the buyer’s cost or purchases
---------------------- ●● The product buyers’ purchases from the industry are standard or
undifferentiated
---------------------- ●● Buyers face few switching costs
---------------------- ●● Buyer / Buyer’s industry earns low profits
---------------------- ●● Buyers pose a credible threat of backward integration

●● The industry’s product is unimportant to the quality of buyer’s
---------------------- products or service
---------------------- ●● Buyer has full information.
5. Bargaining power / Threat of Suppliers
----------------------
Like buyers suppliers can also become a source of competition. The
---------------------- following factors would make the suppliers stronger and add to the
competitive pressures :
----------------------
●● upplies are dominated by a few companies and is more concentrated
S
---------------------- than the industry it sells to
---------------------- ●● I t is not obliged to contend with other substitute products for sale to
the industry
----------------------
●● The industry is not an important customer of the supplier group
---------------------- ●● The suppliers product is an important to the buyer
---------------------- ●● The supplier’s products are differentiated or has built in switching
costs
----------------------
●● The supplier poses a credible threat of forward integration
---------------------- Structural analysis & Competitive Strategy Analysis
---------------------- ●● Helps in identifying strengths & weaknesses
●● Helps to take effective offensive & defensive strategy
----------------------
●● Helps in proper positioning to combat the forces
---------------------- ●● Helps to influence the balance to improve position
---------------------- ●● Anticipate shifts in the factors underlying the forces
---------------------- ●● Helps in diversification & exploit change
----------------------
----------------------

Michael Porter’s model of Competitive Strategy can explain M&M and its Notes
existing competitors, potential entrants, substitutes, suppliers and buyers. ----------------------
Inter firm/intra firm rivalry : The competitors of M&M include those who
are existing in the commercial vehicle segment; this includes Force Motors, ----------------------
Tata Motors, Toyota, Chevrolet etc. ----------------------
Threat of new entrants : The threat of new entrants is not much as the as
----------------------
the players existing are now quite established and a new entrant who wants to
come in has to have a lot of creditability and the capital to establish himself. ----------------------
Threat of substitutes : The threat of substitutes for M&M will be the
----------------------
alternative means of transportation like buses, motorcycles, three wheelers
etc. ----------------------
Threat by supplier : The threats in the Indian Automobile Industry is very
----------------------
high as the supplier who supplies crucial parts to M&M can gain significant
insider information about the company and could become a threat as a new ----------------------
entrant. Moreover if M&M does not support and encourage its value chain,
then it might loose the power of negotiations in procuring raw materials. ----------------------
Threat by buyers : Because of competition on a new high, price cuts and ----------------------
discounts are industry’s practice although it might be a good strategy but this
shall remain as a short time competitive advantage and later it might force the ----------------------
companies to surrender to customer’s demands thereby reducing profitability ----------------------
and reporting losses. The threat of buyer can become so high that it can make
a firm to liquidate. ----------------------
Clearly M&M has also applied three generic competitive strategies and uses ----------------------
a mix of all the three strategies:
●● Overall cost leadership - M&M is one of the best companies to achieve ----------------------
cost of leadership in the commercial segment. Further it is having its ----------------------
own forging companies which enable them to procure raw materials at
a low cost. ----------------------
●● Differentiation - M&M is able to differentiate to itself not only because ----------------------
of low cost but also a brand. It shares a significantly high brand recall
from its customers in the commercial vehicle segment. Pricing is also ----------------------
one of most valuable assets that differentiate them with others.
----------------------
●● Focus - Because M&M has concentrated its efforts in commercial
segments, it allows them to focus their R&D and other promotional ----------------------
efforts to this particular segment.
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
Fill in the blanks.
----------------------
1. ____________ can be defined as the pattern of basic assumptions that
---------------------- a given group has invented, discovered or developed in learning to
cope with its problems of external adaptation and internal integration.
----------------------
2. ________________ refers to all the rules, regulations and procedures,
---------------------- both formal and informal, which complement the company structures.
---------------------- 3. ________________ indicates the degree of differentiation or in other
words, to what extent the activities of the company are specialised.
----------------------
---------------------- Activity 3
----------------------
1. Choose any industry (except Food Industry) and apply Parenting-Fit
---------------------- Matrix.
---------------------- 2. Apply Michael Porter’s model to your industry type.
----------------------
Summary
----------------------
●● This unit is an attempt to understand various external factors and internal
---------------------- influencers of an Organization which play an important role in making
various strategic decisions in its course of action.
----------------------
●● It explains how different strategies are formulated by the organization
---------------------- keeping the known and the unknown factors that emerge during the course
of action. It is an attempt to make strategies as rational as possible, so that
----------------------
the unknown element wouldn’t be of much concern to the organization.
---------------------- ●● The strategies also focus on various points that should be kept in mind
and pondered upon to make the strategy a success. These strategies are
----------------------
basically to counteract the turbulent waves that an organization faces
---------------------- from market forces.
●● It also gives an insight on how organization can harness the market
----------------------
opportunities which can work in favour when organizations take relevant
---------------------- measures to position themselves in that industry.
---------------------- Keywords
----------------------
●● McKinsey’s 7-S Model: Suggested 7 s which are co-ordinated with each
---------------------- other-Skill, strategy, style, system, structure, staff and shared value
●● Industry analysis: Analysis of industry to assess its attractiveness and
----------------------
potential.
----------------------

Notes
----------------------
1. What do you understand by ‘Range of Futures’ level of decision making?
Illustrate with help of an example. ----------------------
2. Briefly explain various types of Strategic Postures. ----------------------
3. Briefly explain the ‘Residual Uncertainty’. ----------------------
4. Briefly explain Mckinsey 7-S framework.
----------------------
5. What is the difference between Postures and Moves?
----------------------
6. With the help of an industry example, illustrate how “creation of new
market space” can be achieved. ----------------------
7. How is it possible that one firm could see a condition in the external ----------------------
environment as an opportunity while a second firm sees it as a threat?
8. Select an industry that is of interest to you. What actions could firms take ----------------------
to erect barriers of entry to this industry? ----------------------
9. What conditions would cause a firm to retaliate aggressively against a
new entrant to the industry? ----------------------
10. How can production increase the competitiveness in a world dominated ----------------------
by changes and uncertainty?
----------------------

1. The uncertainty that remains after the best possible analysis is residual
----------------------
uncertainty.
2. Based on the residual uncertainty, there are four possible levels/scenarios ----------------------
for the future that can be used for decision-making.
----------------------
3. No-regrets moves are moves that will pay off no matter what happens.
----------------------

1. True ----------------------
2. True ----------------------
3. True
----------------------
----------------------
----------------------

Fill in the blanks.
----------------------
1. Culture can be defined as the pattern of basic assumptions that a given
---------------------- group has invented, discovered or developed in learning to cope with its
problems of external adaptation and internal integration.
----------------------
2. Systems refers to all the rules, regulations and procedures, both formal
---------------------- and informal, that complement the company structures.
---------------------- 3. Structure indicates the degree of differentiation or in other words, to what
extent the activities of the company are specialised.
----------------------
---------------------- Suggested Reading

---------------------- 1. Porter, M. E. 1981.“The Contributions of Industrial Organization to
Strategic Management.,” Academy of Management Review.
----------------------
2. Quinn, J. B., H. Mintzberg and R. M. James, eds. 1988. The Strategy
---------------------- Process. New Jersey: Prentice Hall
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Tools for Strategic Analysis and Choice : II
UNIT
8
Structure:
8.1 Introduction
8.2 Boston Consulting Group (BCG) Approach
8.3 General Electric (GE) Model
8.4 Introduction to Portfolio Analysis
8.5 Superposition of BCG Matrix on the GE Matrix
8.6 Profit Impact of Market Strategy Model (PIMS)
8.7 Game Theory
8.8 Delphi Method
8.9 Other Methods
Summary
Keywords
Suggested Reading
Tools for Strategic Analysis and Choice : II 179

Notes
Objectives
----------------------
----------------------
●● Apply the BCG & GE model for company analysis across various
---------------------- organisations
---------------------- ●● Appraise the significance of game theory
●● Analyse the process involved in the Delphi method
----------------------
---------------------- 8.1 INTRODUCTION

---------------------- Strategy formulation is the process of determining appropriate courses
of action for achieving organizational objectives and thereby accomplishing
---------------------- organizational purpose.
---------------------- The strategy you formulate should reflect environmental analysis, lead to
fulfillment of your organizational mission, and result in reaching organizational
---------------------- objectives.
---------------------- Special tools you can use to assist you in formulating strategies include
BCG Matrix, GE/Mckinsey Matrix, Delphi method and Game theory. These
---------------------- four strategy development tools are related but distinct. You should use the
---------------------- tool or combination of tools that is most appropriate for your organization and
business environment.
---------------------- With the growing number of tools to be used for strategic analysis it
---------------------- is getting more and more difficult to make a choice. This problem has been
tackled by working out different tools of strategic management and planning
---------------------- which include number of tools used for strategic analysis.
---------------------- Economy of Scale
Economy of scale is a phenomenon − higher the size of production lower
----------------------
is the unit cost. This is a commonly used tool to become competitive.
---------------------- a) The cost of production goes down as indirect cost goes down as the
production volumes increase.
----------------------
b) There is saving in better terms and conditions as well as administration
---------------------- costs.
---------------------- c) The cost of transportation goes down dramatically.
---------------------- To get advantage of economy of scale, we must use standardisation,
variety reduction and codification.
----------------------
Prof. L C Jhamb, in his book Advanced Material Management, tells how costs
---------------------- come down as production in percentage increases. If, for example, you increase
production by 300%, then unit cost of production comes down by 29.9%.
----------------------
It is with economy of scale that Chinese companies are crushing the
---------------------- competition in the world. For example, Chinese textile companies have 10,000

looms as compared to Indian textile companies, which have just 400 looms. Notes
We can solve much of India’s problems of poverty if we use economy of
----------------------
scale.
The companies, which have an advantage of economy of scale, are ----------------------
Reliance Industries Ltd (Jamnagar Refineries). They are the most profitable
----------------------
refineries in the world getting around 10 US$ for every barrel they refine. Jindal
Steel has commissioned four furnaces of three million tonnes capacity, which is ----------------------
just unbelievable.
----------------------
8.2 BOSTON CONSULTING GROUP (BCG) APPROACH ----------------------
In the 1970s, BCG’s experience-curve work led to an insight that had a ----------------------
significant impact on business thinking. Problems faced by the organizations were:
----------------------
●● I f rapid growth in market share was as important as the curve suggested,
then the usual approach to resource allocation-in which each business ----------------------
unit funded its own growth seemed a recipe for failure.
----------------------
●● usinesses with low market share, but high growth potential would never
B
generate enough cash to win the race down the Experience Curve. ----------------------
●● hose with high market share but few chances for growth would generate
T
----------------------
far more cash than they could use productively.
Need For Segregation ----------------------
Companies that are large enough to be organized into strategic business ----------------------
units face the challenge of allocating resources among those units. The BCG
model helped meet this challenge of allocating resources to different units or ----------------------
product lines. The model gave a way of showing the relationship of market
----------------------
growth and market share and the position of products within it.
About the Approach In brief ----------------------
BCG developed a simple conceptual framework, named the Growth- ----------------------
Share Matrix, to help corporate managers determine when they should consider
using profits from “cash cow” businesses to fund growth in other businesses. ----------------------
For the greater part of two decades it became the standard approach to ----------------------
capital allocation in multi-sector, multi-segment companies. ‘Stars,’ ‘Dogs,’
‘Cash Cows’ and ‘Question marks’ have become firmly embedded in the ----------------------
language of business. Even today, BCG’s Approach is used as a primer in the ----------------------
principles of portfolio management.
----------------------
----------------------
----------------------
----------------------
----------------------
Fig 8.1 The BCG Matrix

Notes The vertical axis represents the degree to which a market place for a
product is growing.
----------------------
The horizontal axis represents market share of a specific product in a
---------------------- specific market.
Products can be categorized into one of the four boxes on the diagram.
----------------------
Thus, products with a high market share of a rapidly growing market would be
---------------------- placed in the upper left box. By contrast, products with a low market share of a
slowly growing market would be placed in the lower right box. Products in each
---------------------- of the four boxes are described in terms of the picture in each box and decisions
regarding their management are made accordingly.
----------------------
Hero Honda Motors Limited is the world’s single largest two-wheeler
---------------------- motorcycle company. The product portfolio of Hero Honda has following names
- KARIZMA, ACHIEVER, CD DAWN, SPLENDER PLUS, GLAMOUR,
----------------------
PASSION PLUS, GLAMOUR PI, SUPER SPLENDER, CD DELUX, CBZ,
---------------------- PLEASURE.
---------------------- 1. Stars :
●● Star are products or Business Units
----------------------
●● They hold a high market share in a growing market.
---------------------- ●● Such products tend to require high investment in product advertising
---------------------- and brand management.
●● They are often new products and their management has to be quite
---------------------- intensive.
---------------------- ●● Stars may generate cash, but because the market is growing rapidly
they require investment to maintain their lead.
----------------------
●● If successful, a star will become a cash cow when its industry
---------------------- matures.
2. Cash Cows :
----------------------
●● Cash cows generate cash.
----------------------
●● They are products or business divisions with a high market share in
---------------------- a mature, slow growing industry.
●● They will normally be mature products and require limited
----------------------
advertising and management support. People tend to develop
---------------------- generic names for cash cow products, such as Xerox for copying
machine or Cadbury for chocolates.
---------------------- 3. Question Marks :
---------------------- ●● uestion marks are products or units which have low market share
Q
in high growth markets.
----------------------
●● trategic and hard decisions need to be made about such products.
S
---------------------- If there’s already an established leader in market, its better not to
invest in question mark products as the cost would be high. But, if
----------------------

there are a number of competitors but no dominant one, investment Notes
may be worth while.
●● uestion marks will need big investment in order to convert them
Q ----------------------
into star products. ----------------------
4. Dogs :
----------------------
●● ogs are products or units with a low market share in a slow
D
growing or even declining market, with limited scope for growth. ----------------------
●● s dog products require less cash, because of their low market
A ----------------------
share, we can use this cash for our other products.
●● Normally, it is advisable to liquidate/divest Dog products. ----------------------
●● owever, sometimes the organizations keep these dog products in
H ----------------------
their portfolio, so as to have completeness of product range.
----------------------
Cash-An Important Aspect :
●● tars will generate cash and should become cash cows in the future.
S ----------------------
However, stars also demand cash investment to manage their growth. ----------------------
●● ash cows, as their name implies, are cash generators but typically will
C
decline in the future. ----------------------
●● I f question marks are to become stars, cash needs to be invested and the ----------------------
investment decision needs to be made very carefully.
----------------------
●● company usually cannot invest in all its question marks and needs to
A
prioritize which of the question marks deserve the investment. ----------------------
●● ogs should normally be disposed off. Even though they demand less
D
----------------------
cash, the returns are very low or negligible.
The Product Portfolio ----------------------
To be successful and minimize risk, a company should have a portfolio of ----------------------
products with different growth rates and different market shares.
----------------------
The portfolio composition is a function of the balance between cash flows.
High growth products require cash inputs to grow. Low growth products should ----------------------
generate excess cash.
----------------------
Every company needs products that generate cash. And every product
should eventually be a cash generator; otherwise it is worthless. Only a ----------------------
diversified company with a balanced portfolio can use its strengths to truly
capitalize on its growth opportunities. ----------------------
Four Rules determining the Cash Flow of the Product ----------------------
●● argins and cash generated are a function of market share. High margins
M ----------------------
and high market share go together. This is a matter of common observation,
explained by the experience curve effect. ----------------------
●● rowth requires cash input to finance added assets. The added cash
G ----------------------
required to hold share is a function of growth rates.
----------------------

Notes ●● igh market share must be earned or bought. Buying market share
H
requires an additional increment of investment.
---------------------- ●● o product market can grow indefinitely. The payoff from growth must
N
---------------------- come when the growth slows, or it never will. The payoff is cash that
cannot be reinvested in that product.
---------------------- All products eventually become either Cash Cows or dogs
---------------------- The value of a product is completely dependent upon obtaining a leading
share of its market before the growth slows. Investment in market share during
---------------------- the growth phase can be very attractive, if you have the cash. Growth in market
---------------------- is compounded by growth in share and higher margins. This further result in
higher leverage with equal safety. The return on investment is enormous.
----------------------
The Star of the Portfolio
---------------------- A product which is a market leader, having a high growth rate is a Star.
Now, high relative share means high relative cash generation. But high growth
----------------------
also means high required reinvestment. Growth requires more of everything,
---------------------- but particularly assets. If the financial growth rate exceeds the return on net
assets employed, then even the star will not be self-financing. If a star is to be
---------------------- self-financed, then it’s after tax return on assets employed must equal physical
growth plus inflation. That is a high return where growth is high too in an
----------------------
inflationary environment.
---------------------- Reported profit, though not being net cash throw off, is the frame of
reference for decision making for many potential competitors. That is why the
----------------------
high growth, high share star of the portfolio is rarely allowed the opportunity to
---------------------- both hold market share and be self-financing.
---------------------- Stars are not cash generators. Challengers of the star must have deep
pockets full of cash.
---------------------- Growth above average is not forever
---------------------- With the passage of time all stars set. Cash input requirements subside with
growth. But cash generation capability does not change if the cost differential
---------------------- from competitors remains unchanged. However, if competition is real, many
---------------------- competitors become fewer and fewer competitors as the higher cost and under-
financed fall behind. The survivors gain that share. The leader can lose relative
---------------------- market share even if absolute market share is maintained.
---------------------- The ultimate value of any product or service must be the value of the
stream of cash it generates net of its own reinvestment.
----------------------
For the star, that stream of cash will be in the future, sometimes the
---------------------- distant future. For real value, that stream of cash must be discounted back to
the present at a rate equal to the return on alternate opportunities. It is the future
---------------------- payoff of the star that counts, not the present reported profit. For a future worth
the wait and the cost, the market share differential must be preserved. The star
----------------------
of the portfolio, which loses its market share differential, is a costly investment
---------------------- that will not pay off regardless of its interim reported profit.

Anatomy of Cash Cow Notes
Cash Cows, being the principal source of cash generations, should be
----------------------
protected. The cash cows fund their own growth. They pay the corporate
dividend. They pay the corporate overhead. They pay the corporate interest ----------------------
charges. They supply the funds for R&D. They supply the investment resource
for other products. They justify the debt capacity for the whole company. For ----------------------
a high cash generation, one requires high return and slow growth. Almost
----------------------
invariably the cash cow has a high market share relative to the next two or three
competitors. ----------------------
There is a limit to the market share of the cash cow. The total cost of
----------------------
buying market share gets greater and greater as the share increases since the
margin on total volume is affected. The total value of market share available ----------------------
becomes less and less as the remaining share becomes small.
----------------------
When market share exceeds twice the next largest competitor and four
times the second largest competitor, there is rarely any incentive to gain more. ----------------------
Conversely, market share of a cash cow can be sold off for a very high price in
near term cash flow. ----------------------
A price umbrella converts the entire higher price into cash flow and profit ----------------------
multiplied by total volume. However, the competition can increase their growth
under a price shelter. The result is a continuing loss of both volume and relative ----------------------
cost potential for the cash cow. Eventually the growing capability of competitors ----------------------
removes the value of the remaining market share until the cash cow goes dry.
The value of the cash cow’s market share is almost always higher than ----------------------
the value of any competitor’s market share, point for point. This is because the ----------------------
higher market share can and should produce a lower cost than competitors’ on
equivalent investment. If it is properly leveraged to equate risk with higher ----------------------
cost competitors, the cash cow can be a very high generator of cash and profit
on the net investment. Yet the decision to invest or disinvest in a cash cow’s ----------------------
market share depends upon the alternate opportunities for investment in other ----------------------
parts of the corporate portfolio. The real value of a cash cow is the discounted
present value of the projected cash generated. A high discount rate will almost ----------------------
invariably favour liquidation because of the emphasis on near term cash flow.
The reported profit and net cash flow tend to be parallel and near equal in a low ----------------------
growth business. Consequently, many cash cows are unwillingly liquidated by ----------------------
short time horizon profit budgets even though there is no alternate investment
which would yield the same net return on net assets. ----------------------
The real test of value of a cash cow is the net return on net investment ----------------------
when the cash cow has been leveraged with debt to the point at which its
breakeven cost as a percent of revenue is the same as the breakeven cost of ----------------------
the largest share alternate competitor. To be valid, this comparison must be
made after the competitor has also been leveraged to his optimum debt usage. ----------------------
This test will frequently show that both competitors have high potential returns ----------------------
on net investment. But if extended to each successively smaller competitor,
it will eventually reach the one whose net return is no greater than the GNP ----------------------

Notes growth including inflation. It is then possible to determine the true return for
each competitor. Rarely will more than three or four competitors be involved if
---------------------- the market is both stable and competitive.
---------------------- The marginal competitor whose net cash flow just finances the investment
required to maintain his market position is worthless except in liquidation. Yet
---------------------- such a competitor is the ultimate reference. All competitors with superior costs
---------------------- and margins can convert that margin differential into a net cash throw off. That
is how you determine the output of a cash cow. The value of a cash cow is
---------------------- determined by the rate of return on alternate corporate portfolio investments
which must be used as the basic discount rate on the cash cow’s output.
----------------------
What the Portfolio concept says :
----------------------
●● ost companies participate in a number of different “businesses”, even if
M
---------------------- all falls within one general industry category.
●● hese businesses were not created equal, are not equal at any point in
T
---------------------- time, and will never offer equal opportunities to earn high and sustained
---------------------- returns.
●● he portfolio concept asserts that one of the primary responsibilities of
T
---------------------- the chief executive is to make decisive investment choices for the benefit
---------------------- of shareholders. To make choices there must be alternatives.
●● he portfolio concept stresses the critical need to keep resources fully
T
---------------------- employed in the areas where they have the highest yield or potential yield.
---------------------- This means focusing technical and human resources where the company
can gain and hold an edge over competitors that are valued by customers.
---------------------- ●● or some companies having a number of products or business units, the
F
---------------------- challenge is finding a sound rationale for discrimination.
●● or companies having few products or business units, the challenge for
F
---------------------- them is creating opportunity.
---------------------- Companies must choose on the basis of the closely linked combination of :
---------------------- ●● Sustainable competitive advantage yields the high profits that convert
to high net cash flow as growth slows and investment requirements
---------------------- moderate. This in turn creates the high returns and high valuations that
satisfy shareholders and protect against take-overs.
----------------------
●● Potential financial contribution to the company.
---------------------- More positively, high returns and high valuation make raising new capital
relatively easy and cheap. They make acquisitions possible. The company
----------------------
has superior ability to repeat the process and invest to grow in pursuit of
---------------------- competitive advantage in new businesses.
---------------------- Real Advantage of the Portfolio Concept :

The portfolio concept is simple - but the application is not. The portfolio
---------------------- concept is a guide to action, not a substitute for detailed analysis and judgment.
---------------------- ●● First, there is the problem of sustainable competitive advantage.

Advantage may be based on superior technology, speed of response, Notes
quality, and attention to specific customer needs, location - many factors
that may or may not translate into overall market share leadership. ----------------------
The portfolio concept builds on the observation that superior profitability ----------------------
depends first and foremost on competitive advantage, and that growth is easiest
where the market itself is growing. ----------------------
What matters is not whether advantage fits some preconception or general ----------------------
rule, but that the company pursues advantages that are truly available to the
business, are valued by customers, provide a basis for competitive differentiation, ----------------------
and have lasting power. This almost always requires focus within the
----------------------
marketplace and thinking outside in, in this instance in the form of considering
the customers’ perspective. Thus the search for advantage must be serious, ----------------------
detailed, imaginative, and rigorous. The bigger the company and the further
removed the strategist from the business, the more likely it is that opportunity ----------------------
will be overlooked, and the greater the risk of oversimplifying what it will take
----------------------
to succeed. The portfolio concept works only when competitive advantage is
real, when all the homework has been done, and when the competitive nature ----------------------
and likely future evolution of the market have been ascertained.
----------------------
●● econd, there is the issue of growth. The long period of across-the-board
S
expansion through the sixties and into the seventies has given way to ----------------------
more localized patterns of growth. These often involve substitution - not
just product-for-product substitution, but the substitution of one (better) ----------------------
way of doing business for another. Latent customer needs must be
----------------------
uncovered before they become obvious. Creating and exploiting growth
opportunities in these conditions calls for more insight, better preparation, ----------------------
and greater risk taking than before. Growth is often where you make it.
Growth opportunities often lie dormant within what at first sight appear to ----------------------
be low growth, “mature” markets. This only heightens the importance of
----------------------
first-class, forward-thinking staff work closely combined with vigorous
and decisive management. Building and sustaining a strong portfolio is ----------------------
more difficult now, but more necessary than ever.
----------------------
Building new positions of advantage on top of old, calls for focus of
effort and intensity of application. That is what the portfolio teaches and ----------------------
experience confirms.
----------------------
Criticism :
The BCG matrix provides a framework for allocating resources among ----------------------
different business units and allows one to compare many business units at ----------------------
a glance. However, the approach has received some negative criticism for
the following reasons: ----------------------
●● he link between market share and profitability is questionable since
T ----------------------
increasing market share can be very expensive.
●● he approach may overemphasize high growth, since it ignores the
T ----------------------
potential of declining markets. ----------------------

Notes ●● The model considers market growth rate to be a given. In practice the firm
may be able to grow the market.
---------------------- Gap Analysis :
---------------------- Present
performance Desired
---------------------- performance Gap
---------------------- Performance
----------------------
Time
---------------------- T1 T2
----------------------
Fig 8.2
---------------------- Analyze gap between desired performance and projected performance to
find the right strategies.
----------------------
Example of a BCG Matrix for a Fastener Supplier in South East Asia
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig 8.3
---------------------- Note that the Anchoring System SBU is forecasted to move to new position

---------------------- 1. __________ is the process of determining appropriate courses of action
for achieving organisational objectives and thereby accomplishing
----------------------
organisational purpose.
---------------------- 2. The four special tools to assist in formulation of strategies include
________ , __________ , _________ method and ________ theory.
----------------------
3. Companies that are large enough to be organised into strategic
---------------------- business units face the challenge of allocating ____________ among
---------------------- those units.
----------------------
Activity 1
----------------------
Derive a BCG Model for the products (auto models) of Maruti Udyog Ltd.
---------------------- and for the products of Hero Honda and compare them.

8.3 GENERAL ELECTRIC (GE) MODEL Notes
In consulting engagements with General Electric in the 1970’s, McKinsey ----------------------
& Company developed a nine-cell portfolio matrix as a tool for screening GE’s
large portfolio of strategic business units (SBU). This business screen became ----------------------
known as the GE/McKinsey Matrix and has been explained through diagram.
----------------------
The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it
maps strategic business units on a grid of the industry and the SBU’s position ----------------------
in the industry. The GE matrix however, attempts to improve upon the BCG
matrix. Industry attractiveness and business unit strength are calculated by ----------------------
first identifying criteria for each, determining the value of each parameter in
----------------------
the criteria, and multiplying that value by a weighting factor. The result is a
quantitative measure of industry attractiveness and the business unit’s relative ----------------------
performance in that commerce.
----------------------
Table 8.1 Investment Strategies to be followed
PROTECT INVEST TO BUILD BUILD ----------------------
POSITION SELECTIVELY
HIGH - Invest at maximum - Challenge for - Specialize around ----------------------
digestible rate Leadership limited strengths
- Concentrate effort on - Build selectively on - Seek ways to overcome ----------------------
maintaining strength strengths weaknesses
- Reinforce vulnerable ----------------------
areas
INDUSTRY ATTRACTIVENESS
BUILD SELECTIVITY/ LIMITED ----------------------

SELECTIVELY MANAGE FOR EXPANSION OR
EARNINGS HARVEST
----------------------
MEDIUM - Invest heavily in most - Protect existing - rationalize operations
attractive segments program
- Emphasize profitability - Concentrate ----------------------
by raising productivity investments in
segments with good ----------------------
profits, low risk
PROTECT AND MANAGE FOR DIVEST ----------------------
REFOCUS EARNINGS
LOW - Manage for current - Protect position in most - Sell at time that will ----------------------
earnings profitable segments maximize cash value
- Concentrate on - Upgrade product line - Cut fixed costs and ----------------------
attractive segments Minimize Investment avoid investment
- Defend strengths
STRONG AVERAGE WEAK
----------------------
The McKinsey/GE Matrix overcomes a number of the disadvantages ----------------------

of the BCG Box. Firstly, market attractiveness replaces market growth as the
dimension of industry attractiveness, and includes a broader range of factors ----------------------
other than just the market growth rate. Secondly, competitive strength replaces ----------------------
market share as the dimension by which the competitive position of each SBU
is assessed. ----------------------
Fig 8.4 illustrates some of the possible elements that determine market ----------------------
attractiveness and competitive strength by applying the McKinsey/GE Matrix
to the UK retailing market: ----------------------
----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig 8.4

----------------------
8.4 INTRODUCTION TO PORTFOLIO ANALYSIS
----------------------
Portfolio Analysis is useful at different levels of decision making :
----------------------
●● Corporate
---------------------- ●● SBU
---------------------- ●● Product Line
It treats different SBU’S, Product Lines and SKU’s as Investment Units.
----------------------
It is used for guiding decisions related to :
----------------------
A. Achieving a Balanced Portfolio over Time :
---------------------- 1) Short vs. Long Term Returns
---------------------- 2) Providers and Users of Cash and Other Resources
---------------------- B. Investment Strategies for SBU’S, Product Lines, SKU’S (Invest to Grow,
Invest to Build, Maintain Position, Harvest, Divest)
---------------------- A need has been felt by the strategists to decide upon whether to continue
---------------------- with a particular business in a particular field or to continue with a particular
product from among a portfolio of businesses and products. For this purpose
---------------------- there have been attempts at plotting the position of the businesses or the products
with respect to certain factors. Further the two dimensional space has been
---------------------- divided into cells, thus resulting in the development of the matrix structure.
---------------------- One of the first Matrix structure to be developed was the BCG Growth
Matrix but it suffered from the limitation of too much simplification as it
----------------------
considers only two factors, the growth rate and the market share. For overcoming
---------------------- this limitation GE came up with the Multifactor Portfolio matrix in the 1970’s
for the assessment of their SBU’s. They have developed a nine- cell portfolio
---------------------- matrix as a tool for screening GE’s large portfolio of strategic business units

(SBU). Since its development the factors that go into deciding the position Notes
have been changed many times and they are context specific, i.e., dependent
on the company and its own environment. This has led to subjectivity in ----------------------
whole approach. General Electric Business Screen or GE Strategic Business
Planning Grid is very similar to the BCG matrix in the sense that the vertical ----------------------
axis represents industry attractiveness (one of the factors being the growth rate ----------------------
parameter of BCG Matrix) and the horizontal axis represents the company’s
strength in the industry or business position( the market share parameter of the ----------------------
BCG Matrix). The matrix uses two dimensions of three zones each.
----------------------
The most desirable SBU’s are those located in the highly attractive
industries where the company has high business strength (upper left cell). One ----------------------
difference is that the GE approach considers more than just market growth
----------------------
rate and relative market share in order to determine market attractiveness and
business strength. The industry attractiveness index is made up of such factors ----------------------
as market size, market growth, industry profit margin, amount of competition,
seasonally & cyclically of demand, and industry cost structure. Business strength ----------------------
is an index of factors like relative market share, price, competitiveness, product
----------------------
quality, customer & market knowledge, sales effectiveness, and geographic
advantages. ----------------------
For example, the Tata group . The Tata family of enterprises comprises
----------------------
93 companies in seven business sectors.
The seven business sectors are : ----------------------
Engineering, Materials, Energy, Chemicals, Services, Consumer products, ----------------------
Information systems, communications.
----------------------
Another example is Bharti Enterprises. It has the presence from telecom
to insurance, from agricultural to construction. ----------------------
Strategically, ----------------------
●● The SBU’s located in the upper left are those in which the company
----------------------
should invest and grow.
●● he SBU’s in the cells along the diagonal running from lower left to upper
T ----------------------
right are overall medium in attractiveness. The strategy is to protect or
----------------------
allocate resources on a selective basis.
●● he SBU’s in the cells on the lower right corner have low overall
T ----------------------
attractiveness. A harvest strategy should be used in the two cells just
below the three-cell diagonal. These SBU’s should not receive substantial ----------------------
new resources. ----------------------
●● he SBU’s in the lower right cell should not receive any resources
T
and should probably be divested or eliminated from an organization’s ----------------------
portfolio. ----------------------
----------------------
----------------------

Notes What Affects Market Attractiveness
Whilst any assessment of market attractiveness is necessarily subjective,
----------------------
there are several factors which can help determine attractiveness. These are
---------------------- listed below:
●● Market Size
----------------------
●● Market growth
---------------------- ●● Market profitability
---------------------- ●● Pricing trends
---------------------- ●● Competitive intensity / rivalry
●● Overall risk of returns in the industry
----------------------
●● Opportunity to differentiate products and services
---------------------- ●● Segmentation
---------------------- ●● Distribution structure (e.g. retail, direct, wholesale)
Factors that Affect Competitive Strength
----------------------
●● Strength of assets and competencies
----------------------
●● Relative brand strength
---------------------- ●● Market share
---------------------- ●● Customer loyalty
●● Relative cost position (cost structure compared with competitors)
----------------------
●● Distribution strength
---------------------- ●● Record of technological or other innovation
---------------------- ●● Access to financial and other investment resources
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig 8.5
----------------------

The matrix shows the relative position of each segment using ‘Relative Notes
Competitive Strength’ as the (horizontal) X-Axis and ‘Relative Segment
Attractiveness’ as the (vertical) Y-Axis. The diameter of each pie is proportional ----------------------
to the Volume or Revenue accruing to each Segment, and the solid slice of
each ‘pie’ represents the share of the market enjoyed by the Host Company. ----------------------
The arrows depict the future position of the SBU if the present startegies are ----------------------
followed and maintained constant. Thus it helps in evaluation of the efficacy of
the present strategies against the desired goals and objectives for the SBU. ----------------------
●● he host company should invest in Product / Market opportunities
T ----------------------
that appear to the top left of the matrix. The rationale is that the Host
Company should invest in segments that are both attractive and in which ----------------------
it has established some measure of competitive advantage.
----------------------
●● roduct / Market opportunities appearing in the bottom right of the matrix
P
are both unttractive to the host company and in which it is competitively ----------------------
weak. At best, these are candidates for cash management; at worst
candidates for divestment. ----------------------
●● roduct / Market opportunites appearing ‘in between’ these extremes

P ----------------------
pose more of a problem, and the host company has to make a strategic
decision whether to ‘redouble its efforts’ in the hopes of achieving market ----------------------
leadership, manage them for cash, or cut its losses and divest. ----------------------
1. Stars are products or units, which have low market share in high ----------------------
growth markets.
----------------------
2. Question marks are often new products and their management has to
be quite intensive. ----------------------
3. Dogs may generate cash, but because the market is growing rapidly, ----------------------
they require investment to maintain their lead.
----------------------
Activity 2 ----------------------
----------------------
With the help of the GE Model explained in the unit, derive a similar GE
model for any Indian limited company of your choice. ----------------------
----------------------
8.5 SUPERPOSITION OF BCG MATRIX ON GE MATRIX ----------------------
Note: The directional Policy discussed below is not much different from ----------------------
the GE Matrix except for the nomenclature. In essence both of them are Multi-
factor Matrices that help in Portfolio decisions. ----------------------
----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 8.6
----------------------
We have included a write-up on this for the sake of completeness of the topic of
---------------------- multi-factor Portfolio analysis.
Directional Policy Matrix
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig. 8.7

The Shell Oil Company developed the Directional Policy Matrix in the
---------------------- 1970s following the widespread implementation of the Boston Matrix. General
---------------------- Electric and the McKinsey Company also contributed to the development of
this technique, which resulted in what is now known as the GE- McKinsey, or
---------------------- Directional Policy Matrix.
---------------------- In the Directional Policy Matrix, the vertical axis is defined as ‘Market
Attractiveness’ and the horizontal axes as ‘Competitive Strength’. The
---------------------- individual factors that comprise market attractiveness may be referred to as
external variables, i.e. factors outside the control of the company. The individual
----------------------
factors that comprise ‘Competitive Strength’ may be referred to as internal

variables, i.e. factors within the control of the company. Selecting the factors is Notes
not a trivial matter and should involve collective effort from key managers and
senior executives. As the process is largely unscientific it is important that as ----------------------
many parties are involved as possible. When done properly the result will be a
consensus view that reflects organisational values. ----------------------
Strategic Implications of GE Matrix ----------------------

Unlike the Boston Matrix in which one is looking for a balance of business ----------------------
opportunities spread amongst growth and maturing markets, in the Directional
Policy Matrix the concentration of business opportunities should be focused ----------------------
around the ‘Leader’ domain, i.e. the top left hand area of the matrix. Under
----------------------
such circumstances, one is looking at a strong portfolio where the company is
focusing on markets that are attractive and where it is acknowledged as being ----------------------
competitive. Note that metrics relating to market size and growth may not
feature in the ‘Segment Attractiveness’ axis; it is quite possible for segments ----------------------
labelled as ‘Cash Cows’ (bottom right hand corner in the Boston Matrix) to
----------------------
appear in this domain.
The closer an opportunity is towards the bottom and the right hand corner ----------------------
of the matrix, the weaker the company is in relation to market requirements, and
----------------------
the less attractive the market. If the company finds significant elements of the
portfolio in the ‘Divest’ domain it needs to think quickly about what actions to ----------------------
take, e.g. to what extent should they be ‘milked’ and how quickly should they be
disposed of. Despite its potential, an opportunity labelled as a ‘Question Mark’ ----------------------
product in the Boston Matrix could fall into this domain if it is not strategically
----------------------
aligned with the holding group!
Areas in between are more problematic. The company will need to make ----------------------
a strategic decision on whether or not to keep the segment in the portfolio, the ----------------------
amount to invest in it, whether it can ever hope to achieve market leadership,
the extent to which it should generate cash and so on. Generally speaking the ----------------------
further towards the top and right, the more likely one is to invest, as one is
approaching markets that the company would deem as attractive, despite the ----------------------
fact that the company is not yet competitive. Conversely those opportunities ----------------------
towards the bottom and left are in areas that the company would find less
attractive, and should be managed diligently for cash. ----------------------
Leader Domain ----------------------
The strategy should be to maintain this position. At certain stages this may
imply a need for resources which cannot be met entirely from funds generated ----------------------
by the product, (resources to expand capacity), although earnings should be ----------------------
above average.
----------------------
Try harder Domain
The implication is that the product can be moved towards the leadership ----------------------
box by judicious application of resource. In these circumstances the company
----------------------
should certainly consider making available resources in excess of what the
product can generate. ----------------------

Notes Growth Domain
Investment should be made to allow the product to grow with the market.
----------------------
Generally, the product will generate sufficient cash to be self-financing and
---------------------- should not be making demands on other corporate cash resources.
Double or Quit Domain
----------------------
Tomorrow’s breadwinners among today’s R&D projects may come from
---------------------- this area. Putting the strategy simply, those with the best prospects should be
selected for full backing and development; the rest should be abandoned.
----------------------
Proceed with Care Domain
----------------------
In this position, some investments may be justified but major investments
---------------------- should be made with extreme caution.
---------------------- Cash GeneratorDomain

A typical situation in this matrix area is when the company has a product
----------------------
that is moving towards the end of its life cycle and is being replaced in the
---------------------- market by other products. No finance should be allowed for expansion, and so
long as it is profitable, the opportunity should be used as a source of cash for
---------------------- other areas. Every effort should be made to maximise profits since this particular
activity has no long-term future.
----------------------
Phased withdrawal Domain
----------------------
A product with an average to weak position with unattractive market
---------------------- prospects or a weak position with average market prospects is unlikely to be
earning any significant amounts of cash. The indicated strategy is to realise
---------------------- the value of the assets on a controlled basis to make the resources available for
redeployment elsewhere.
----------------------
Divestment Domain
----------------------
Products falling in this area will probably be losing money, not necessarily
---------------------- every year, but the losses in bad years will outweigh the gains in good years. It
is unlikely that management will be surprised by specific activities falling into
---------------------- this area since poor performance should already be known.
---------------------- A Comparison of the boston and directional Policy Matrix Techniques :
---------------------- Many major companies use the Boston Matrix technique and it is
apparent that Market Growth and Relative Market Share are very powerful and
---------------------- informative key business indicators. But it is equally clear that Market Growth
and Relative Market Shares are not necessarily the only determinants of
----------------------
commercial success. Likewise it may not be possible to clearly define specific
---------------------- competitors in segments. An IT company may find this difficult.
The Directional Policy Matrix overcomes these limitations by utilizing
----------------------
a multivariate approach and therefore provides an alternative technique when
---------------------- other factors are more important. Note that metrics relating to size, growth,
and share can be left out of the equation altogether! However, in providing this
---------------------- extra sophistication, the utility of the tool and its successful use are dependent

upon nominating the correct key determinants for success, i.e. correct Segment Notes
Attractiveness Criteria and Critical Success Factors.
----------------------
Whilst it is much easier to make accurate assessments of Market Growth
and the Relative Market Shares (of competing companies), the Directional ----------------------
Policy Matrix necessitates an assessment of the company’s relative strengths
and weaknesses compared to the norms of ‘best’ case and ‘worst case’ scenarios, ----------------------
or compared to the different types of competitor that it typically faces in each
----------------------
segment. Qualitative market research techniques can be of enormous help in
arriving at a view about what the criteria should be, the weightings and the ----------------------
relative performance of different types of competitor within the market.
----------------------
8.6 THE PROFIT-IMPACT OF MARKET STRATEGY ----------------------
MODEL (PIMS)
----------------------
The PIMS model is a major attempt to provide a quantified view of
business strategy. The PIMS model uses 30 variables to explain the comparative ----------------------
performance of firms. Of these, three of them most important areas are: the
----------------------
effects of quality, capital intensity and the impact of market evolution on
profitability. ----------------------
How the PIMS Model works ----------------------
The PIMS model is designed to enable firms to make quantitative
evaluations of their SBU’s strategic and budgetary plans. The model is based ----------------------
on some 30 strategic variables stored in an extensive computer based model ----------------------
& database. The variables are organized in the form of a series of regression
equations. This enables users to make predictions about the outcome of a series ----------------------
of structural changes as well as about changes in conditions affecting the SBU.
----------------------
The ‘database’ enables firms to evaluate the effects of their strategies that
they can contrast with a series of ‘norms for their industrial segments’. The ----------------------
initial system was developed by General Electric (USA) and was subsequently,
transferred to Harvard Business School in 1972. It was then set up in 1975 as ----------------------
the ‘Strategic Planning Institute’ (SPI). ----------------------
The PIMS database now includes financial and strategic information
----------------------
for approximately 3,000 business units operated by some 450 corporations,
primarily in North America and Europe, for periods that range from two to ----------------------
twelve years.
----------------------
Each PIMS “business” is defined as a division, product line, or other profit
center within its parent company, selling a distinct set of products or services ----------------------
to an identifiable group of customers in competition with a well-defined set of
companies. For each business, separate data are collected on revenues, operating ----------------------
costs, investments, and strategic plans.
----------------------
SPI collects PIMS data not only on traditional balance sheets and income
statements, but also on each ‘businesses’ relative product quality, market share, ----------------------
price, and direct cost. The database describes more than 200 characteristics for
----------------------

Notes each business and in addition documents its actions, the market it serves, its
competitive environment, and its financial results.
----------------------
In over 100 published studies, the PIMS database has been used to
---------------------- establish relationships between a variety of strategic and market environment
dimensions that might influence various measures of performance, e.g., ROI
---------------------- and cash flow. By means of a multi-industry, multiple regression model, SPI
has related profitability to 28 associative variables or “profit-influencing”
----------------------
factors and explained over 70 percent of the cross-sectional variance in ROI.
---------------------- “Universal laws of the marketplace” are used to explain why a business is
underperforming its “expected” ROI. A similar model has been developed that
---------------------- explains 70 percent of the variation in cash flow among these businesses in the
terms of 19 “cash-flow-influencing” factors.
----------------------
After the first PIMS research results were reported publicly in the mid-
---------------------- 1970s, the reaction of some of the writers and managers was as if universal laws
of strategy had been discovered. But those closely associated with PIMS warn
----------------------
against its over simplification.
---------------------- They emphasized that these principles could help managers understand
& predict how strategic choices & market conditions would affect business
----------------------
performance. Also, they believed that some of these principles apply to virtually
---------------------- all kinds of businesses whereas others apply only to specific types of businesses
or under certain conditions.
----------------------
We will examine two main aspects of the PIMS model.
---------------------- How the model :
---------------------- (a) Affects evaluations of the relative performance of Strategic Business
Units compared with industrial norms for their market segments.
----------------------
(b) Is used to evaluate the industrial and combined impacts of Quality
---------------------- Positioning and Market Share on the level of profits generated.
---------------------- Some Important Linkages
---------------------- There are six major principles that explain the linkages between strategy
and performance.
---------------------- 1. Quality of the products & services
---------------------- The most important single factor affecting a business unit’s performance
is the quality of its products and services, relative to those of competitors.
----------------------
The short-term effect of superior quality increases profits via premium
---------------------- prices. In the longer term, improving ‘relative’ quality is the most effective
way to grow a business. This works in two ways; it helps the market
----------------------
to grow, and it helps the firm to gain an increased share of that market.
---------------------- Even if there are initial costs associated with improving quality, these are
usually offset by improvements in the scale of production.
----------------------
----------------------

2. Market Share Notes
Market share and profitability are strongly related. Business units with
----------------------
very large market shares enjoy higher rates of return. This is because of
the economies of scale which lower costs of the big players. ----------------------
3. High investment
----------------------
High investment intensity acts as a powerful drag on profitability. This
is concerned with the situation where businesses have high investment ----------------------
intensity per value of sales, or per rupee added value, or per employee.
----------------------
Capital intensity occurs in two forms: Fixed assets or Working capital.
4. Cash-flow Position ----------------------
Many so called ‘dog’ and ‘question mark’ businesses generate cash, while ----------------------
many ‘cash cows’ are dry. One of the guiding issues in Portfolio models
is the cash-flow position. The PIMS model shows that the cash flows are ----------------------
complex and variable and will not be understood if only the Portfolio ----------------------
model is used.
5. Vertical integration ----------------------
Vertical integration can be a profitable strategy for some kinds of ----------------------

businesses whereas it can result in losses for others. The success of
----------------------
vertical integration depends on many factors, one of them being the cost
of its achievement. ----------------------
6. Return on Investment
----------------------
Most of the strategic factors that boost ROI also contribute to long-term
value ----------------------
Examples of application of some of the principles of PIMS : ----------------------
●● Pursue product quality ----------------------
 Australian Quality Council
----------------------
 Hong Kong Awards for Industry (Quality cat.)
----------------------
 Japan Quality Award
 Malaysia’s Prime Minister’s Quality Award (Private Sector) ----------------------
 Philippines Quality Award ----------------------
 Singapore Quality Award ----------------------
 Sri Lanka’s National Quality Award
----------------------
 Thailand Quality Award
----------------------
●● Pursue market share
 Nova Group and Europa Holdings of Singapore expanding ----------------------
their pubs and restaurants business (Source: The Straits
----------------------
Times; Dec 10, 1992; pp.2)
----------------------

Notes ●● High investment reduces profitability
 The acquisition of new machinery caused a reduction in
---------------------- SM Summit Holdings gross margin (Source: SM Summit
---------------------- Holding’s Annual Report 2000)
ROI is determined by :
----------------------
a. Investment intensity
---------------------- b. Relative market share
---------------------- c. Market growth
d. Stage of product life cycle
----------------------
e. Marketing expenses/sales ratio
---------------------- High ROI companies have the following characteristics :
---------------------- a. Low investment intensity
b. High market share
----------------------
c. High relative product quality
---------------------- d. High capacity utilization
---------------------- e. Low relative unit direct costs
f. High operating efficiency: actual/expected employment productivity
----------------------
The Use of PIMS
----------------------
The PIMS model helps to find universal relations and also answers more
---------------------- particular questions:
a. What rate of ROI or C/F is normal in a given type of SBU under given
----------------------
market conditions and pursuing a given strategy?
---------------------- b. How will ROI and other measures of performance change in a specific
---------------------- SBU given a specific change of strategy?
c. What are promising directions to explore in improving the performance
---------------------- of a given SBU?
---------------------- Pims is a General Management Tool
---------------------- The PIMS research data can be used as a ‘General Management tool’.
There are four common areas of application:
----------------------
●● Forecasting profits
----------------------
●● aking effective allocation of capital, manpower and other scarce
M
---------------------- resources
●● Assessing SBU managers’ performance - actual vs expected
----------------------
●● Appraising new business opportunities.
----------------------
Problems while using PIMS
---------------------- 1. Use of a large number of factors leads to certain statistical problems as the
factors can be inter-related.
----------------------

2. PIMS cluster the variables into relatively independent groupings. Notes
This makes it easier to evaluate the impact of a group of variables,
----------------------
(Multicollinearity) but difficult to asses the impact of a single factor
within the group. ----------------------
3. The data collected was in very different environments, for example, the
----------------------
early 1970s were highly inflationary. This would have had an impact on
the cash flow relationships. ----------------------
Limitations of PIMS
----------------------
1. PIMS only helps us to define the required strategic improvements, but it
doesn’t tell us how such improvements are to be achieved. ----------------------
For example, some factors required for strategic improvements are relative ----------------------
share, investment intensity etc. PIMS helps us to identify & define these
factors but it doesn’t tell us to what extent can they be directly controlled ----------------------
by management, at least in the short term. ----------------------
If we want to increase the market share, functional programmes must be
designed, but the PIMS model doesn’t help us in this regard. ----------------------
2. The PIMS model does not take explicit account of future changes in the ----------------------
market
----------------------
3. It can’t be used to explore the changing fit between a company’s skills
and resources and the changing environment. The PIMS model can assess ----------------------
today’s strategy and its adaptation in today’s market, but not in a changing
----------------------
market.
4. The model provides competitive insight into individual competitors. ----------------------
Comparisons can be made only in terms of average of three competitors. ----------------------
It is not possible to assess either the impact of an individual competitor’s
strategic moves over time, or the overall balance in terms of strong and ----------------------
weak positions in a competitors’ portfolio. ----------------------
5. There is mounting evidence that differences between industries are
sufficient to justify the use of separate models for each industry. This ----------------------
implies that relationships among strategic variables did not change if the ----------------------
business was a leader or a follower, a market pioneer or a late entrant, etc.
----------------------
6. An important question about the geographic scope of PIMS industries
has been raised. Since an industry’s competitive environment cannot be ----------------------
assumed to be either stable over time or easily ascertainable, is the PIMS
definition of market share/return on investment dangerously misleading? ----------------------
7. Although there have been other criticisms of PIMS, the crux of the ----------------------
criticism of the PIMS approach centers around the importance of market
share. ----------------------
8. The PIMS research has reinforced the long-held notion that market ----------------------
share is the key to profitability - a concept that seems to have gained
wide acceptance in recent years. For example, one study concluded that a ----------------------

Notes difference of ten percentage points in market share is accompanied by a
difference of about five points in pretax ROI.
----------------------
Despite numerous articles pointing out how many smaller companies are
---------------------- outperforming industry leaders, many managers continue to hold to the notion
that market share is the key to success.
----------------------
---------------------- 8.7 GAME THEORY
---------------------- Game theory is an alternative way of looking at competition.

Business is a game. A high stakes games. It is not about winning or losing as
----------------------
in war, nor how well you play it, but making sure you are playing the right game.
---------------------- Game theory creates a need for a shift in perception. The businesses
should change from egocentric, i.e. from focusing on your own position, to
----------------------
allocentric i.e. focusing on others. This helps the businesses in shifting from
---------------------- Lose - Lose to WIN - WIN situation. The Win-win situation is popularly termed
is COOPETITION.
----------------------
Imitation by your competitors is not always harmful. After all imitation is
---------------------- the sincerest form of flattery. Sometimes the best way to succeed is to let others,
including your competitors do well. A Win - Win situation has better chances
---------------------- of success for two reasons. Under an unexplored approach, there is a greater
potential to find opportunities. Since others are not forced to give ground,
----------------------
there is low resistance, thus making it easier to implement business strategies.
---------------------- Secondly, it does not force others to retaliate and therefore it is sustainable.
----------------------
----------------------
Fill in the blanks.
----------------------
1. _____________ are products or units with a low market share in a
---------------------- slow growing or even declining market, with limited scope for growth.
2. To be successful and minimise risk, a company should have a
----------------------
______________ of products with different growth rates and different
---------------------- market shares.
3. _____________ margins and ___________ market share go together.
----------------------
4. Portfolio analysis is done at _____________ levels of decision-
---------------------- making.
---------------------- 5. In the Directional Policy Matrix, the concentration of business
opportunities should be focused around the _______ domain.
----------------------
----------------------
Activity 3
----------------------
Do the portfolio analysis of Tata and Reliance Group.
----------------------

8.8 THE DELPHI METHOD Notes
The Delphi Method is based on a structured process for collecting ----------------------

and distilling knowledge from a group of experts by means of a series of
----------------------
questionnaires interspersed with controlled opinion feedback.
Delphi represents a useful communication device among a group of ----------------------
experts and thus facilitates the formation of a group judgement.
----------------------
Historical Background
----------------------
The Delphi Method was developed as a result of a technology forecasting
study done for the U.S. military. A company called Douglas Aircraft started a ----------------------
project called RAND (an acronym for Research and Development) to study
the broad subject of inter-continental warfare other than surface. This project ----------------------
was based on a study called ‘The Epistemology of the Inexact Sciences’, ----------------------
which provide a philosophical base for forecasting. The paper argued that in
fields that have not yet developed to the point of having scientific laws, the ----------------------
testimony of experts is permissible. The problem is how to use this testimony
and, specifically, how to combine the testimony of a number of experts into a ----------------------
single useful statement. ----------------------
The Delphi method recognizes human judgement as a legitimate and
useful input in generating forecasts. Single experts sometimes suffer biases; ----------------------
group meetings suffer from “follow the leader” tendencies and reluctance to ----------------------
abandon previously stated opinions. In order to overcome these shortcomings the
basic notion of the Delphi method, theoretical assumptions and methodological ----------------------
procedures developed in the 1950s and 1960s at the RAND Corporation.
----------------------
One of the very first applications of the Delphi method carried out at
the RAND Corporation was to assess the direction of long-range trends, with ----------------------
special emphasis on science and technology, and their probable effects on
----------------------
society. The study covered six topics - scientific breakthroughs, population
control, automation, space progress, war prevention, and weapon systems. ----------------------
The basics of the Delphi method
----------------------
The Delphi method is an exercise in group communication among a
panel of geographically dispersed experts. The technique allows experts to deal ----------------------
systematically with a complex problem or task. The essence of the technique is
----------------------
fairly straightforward.
It comprises a series of questionnaires sent either by mail or via ----------------------
computerized systems, to a pre-selected group of experts. These questionnaires ----------------------
are designed to elicit and develop individual responses to the problems posed
and to enable the experts to refine their views as the group’s work progresses in ----------------------
accordance with the assigned task. The main point behind the Delphi method
is to overcome the disadvantages of conventional committee action. The group ----------------------
interaction in Delphi is anonymous, in the sense that comments, forecasts, and ----------------------
the like are not identified as to their originator but are presented to the group in
such a way as to suppress any identification. ----------------------

Notes The main characteristics of the Delphi method are:
●● structuring of information flow.
----------------------
●● feedback to the participants.
---------------------- ●● anonymity for the participants.
---------------------- Advantages
---------------------- These characteristics offer distinct advantages over the conventional

face-to-face conference as a communication tool. The interactions among panel
---------------------- members are controlled by a panel director or monitor who filters out material
not related to the purpose of the group. The usual problems of group dynamics
---------------------- are thus completely by-passed.
---------------------- Process of the Delphi method
---------------------- Following are the ten steps to be followed in the Delphi method:
1. Formation of a team to undertake and monitor a Delphi on a given subject.
----------------------
2. Selection of one or more panels to participate in the exercise. Customarily,
---------------------- the panelists are experts in the area to be investigated.
---------------------- 3. Development of the first round Delphi questionnaire.
---------------------- 4. Testing the questionnaire for proper wording (e.g., ambiguities,
vagueness).
----------------------
5. Transmission of the first questionnaires to the panelists.
---------------------- 6. Analysis of the first round responses.
---------------------- 7. Preparation of the second round questionnaires (and possible testing).
---------------------- 8. Transmission of the second round questionnaires to the panelists.

9. Analysis of the second round responses (Steps 7 to 9 are reiterated as long
---------------------- as desired or necessary to achieve stability in the results.)
---------------------- 10. Preparation of a report by the analysis team to present the conclusions of
the exercise.
----------------------
The outcome of a Delphi sequence is nothing but opinion. The results of
---------------------- the sequence are only as valid as the opinions of the experts who made up the
panel. The panel viewpoint is summarized statistically rather than in terms of a
----------------------
majority vote.
---------------------- Issues to be Considered
---------------------- 1. The most important issue in this process is the understanding of the aim
of the Delphi exercise by all participants. If the aim of the exercise is
---------------------- not clear, the panelists may answer inappropriately or become frustrated
---------------------- and lose interest. The respondents to the questionnaire should be well
informed in the appropriate area but the literature suggests that a high
---------------------- degree of expertise is not necessary.
----------------------

2. Before deciding whether or not to use the Delphi method, it is necessary Notes
to thoroughly consider the context within which the method is to be
applied. A number of questions need to be asked before selecting the ----------------------
Delphi technique.
----------------------
●● hat kind of group communication process is desirable in order to
W
explore the problem at hand? ----------------------
●● Who are the people with expertise on the problem and where are ----------------------
they located?
●● What are the alternative techniques available and what results can ----------------------
reasonably be expected from their application?
----------------------
3. Failure to address the above questions may lead to inappropriate
applications of Delphi and discredit the whole creative effort. ----------------------
Criticism
----------------------
Some criticisms of the Delphi Model are:
●● A low level reliability of judgements among experts and therefore
----------------------
dependency of forecasts on the particular judges selected. ----------------------
●● The sensitivity of results to ambiguity in the questionnaire that is used for
data collection in each round. ----------------------
●● The difficulty in assessing the degree of expertise incorporated into the ----------------------
forecast.
●● Discounting the future: Future (and past) happenings are not as important ----------------------
as the current events, therefore one may have a tendency to discount the
----------------------
future events.
●● The simplification urge: Experts tend to judge the future of events in ----------------------
isolation from other developments. A holistic view of future events where
----------------------
change has had a pervasive influence cannot be visualized easily. At this
point cross-impact analysis is of some help. ----------------------
●● Sloppy execution: there are many ways to do a poor job. Execution of the
Delphi process may loose the required attention easily. ----------------------
●● Manipulation of Delphi: The responses can be altered by the monitors in ----------------------
the hope of moving the next round responses in a desired direction.
However, the Delphi Method has also proved to be more accurate than ----------------------
other methods. ----------------------
For instance, in a study of manpower forecasting conducted by Milkovich
in 1972, the results indicated high agreement between the Delphi estimate and ----------------------
the actual number hired and less agreement between quantitative forecasts and
----------------------
the number hired.
Another study by Basu & Schroeder (1977) reported similar results in ----------------------
a forecasting problem. They compared Delphi forecasts of five-year sales
with both unstructured, subjective forecasts and quantitative forecasts that ----------------------
used regression analyses and exponential smoothing. The Delphi forecasting ----------------------
consisted of three rounds using 23 key organization members. When compared
against actual sales for the first two years, errors of 3-4% were reported for ----------------------

Notes Delphi, 10-15% for the quantitative methods, and of approximately 20% for the
previously used unstructured, subjective forecasts.
---------------------- In general, the Delphi method is useful in answering one, specific, single-
dimension question. There is less support for its use to determine complex
----------------------
forecasts concerning multiple factors. Such complex model building is more
---------------------- appropriate for quantitative models with Delphi results serving as inputs.
---------------------- 8.9 OTHER MODELS

----------------------
There are other models that can be used for designing and developing
---------------------- strategies and plans.
1. Product Life Cycle Concept (PLC)
----------------------
The product life cycle concept suggests that a product passes through
---------------------- four stages of evolution. Introduction, growth, maturity and decline. As
a product evolves and passes through theses four stages profit is affected
---------------------- and different strategies have to be employed to ensure that the product is
a success within its market.
----------------------
Product life cycle stages
---------------------- a) Introduction :
---------------------- As a new product much time will be spent by the organisation to
create awareness of it presence amongst its target market. Profits
---------------------- are negative or low because of this reason.
---------------------- b) Growth :
If consumer clearly feels that this product will benefit them in some
---------------------- ways and they accept it, the organisation will see a period of rapid
sales growth.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig 8.8
---------------------- c) Maturity :
---------------------- Rapid sales growth cannot last forever. Sales slow down as the
product sales reach peak as it has been accepted by most buyers.
----------------------
d) Decline :
----------------------
Sales and profits start to decline, the organisation may try to change
---------------------- their pricing strategy to stimulate growth, however the product will
either have to be re-modified, or replaced within the market.
----------------------

2. Strategic Position and Action Evaluation (SPACE) Notes
Four-quadrant framework indicates the following type of strategies:
----------------------
a. Aggressive b. Conservative
----------------------
c. Defensive d. Competitive
The axes of the SPACE Matrix represent 2 internal dimensions ----------------------
●● financial strength (FS) ----------------------
●● competitive advantage (CA) and 2 external dimensions ----------------------
●● environmental stability (ES)
----------------------
●● industry strength (IS)
These four factors are the most important determinants of an organization’s ----------------------
overall strategic position. ----------------------
Table 8.2 ----------------------
Internal Strategic Position External Strategic Position
----------------------
Financial Strength (FS) Environmental Stability (ES)
Return on investment Technological changes ----------------------
Leverage Rate of inflation ----------------------
Liquidity Demand variability ----------------------
Working capital Price range of competing products
----------------------
Cash flow Barriers to entry into the market
----------------------
Competitive pressure
Ease of exit from the market ----------------------
Price elasticity of demand ----------------------

Risk involved in ----------------------
Competitive Advantage (CA) Industry Strength (IS)
Market share Growth potential ----------------------
Product quality Profit potential ----------------------
Product life cycle Financial stability
----------------------
Customer loyalty Technological know-how
----------------------
Capacity utilization Resource utilization
Technological know-how Ease of entry into the market ----------------------
Control over suppliers and distributors Productivity, capacity utilization ----------------------
----------------------
----------------------
----------------------

Notes Table 8.3 The SPACE Matrix
Conservative Aggressive
----------------------
+6 market penetration
---------------------- market penetration +5 market development
market development +4 product development
---------------------- product development +3 backward integration
concentric diversification +2 forward integration
----------------------
+1 horizontal integration
---------------------- conglomerate diversification
concentric diversification
---------------------- horizontal diversification
---------------------- -6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6
retrenchment -1 backward integration
---------------------- divestiture -2 forward integration
---------------------- liquidation -3 horizontal integration
concentric diversification -4 market penetration
---------------------- -5 market development
-6 product development
---------------------- Defensive Competitive
---------------------- 3. Directional Policy Matrix
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig. 8.9

---------------------- This matrix measures the health of the market and your strength to pursue
it. The results indicate the direction for future investment. The recommendation
---------------------- may be to invest, grow, harvest or divest.
---------------------- Characterise Your Enterprise
The expert system will position your enterprise on the chart based upon
----------------------
your description of :
---------------------- ●● Supplier Bargaining Power
---------------------- ●● Threat of Substitutes
●● Threat of New Entrants
----------------------
●● Competitive Rivalry
----------------------
●● Buyer Bargaining Power

●● Product Quality Notes
●● Product Value
----------------------
●● Relative Market Share
●● Reputation ----------------------
●● Customer Loyalty ----------------------
●● Staying Power
----------------------
●● Experience
----------------------
You can trace through the supporting analysis and its conclusions, adjusting
your input until you are satisfied your description accurately characterizes your ----------------------
enterprise.
----------------------
Table 8.4 Analysis of Your Enterprise Position
Invest Grow harvest divest ----------------------
High Market High Market Low Market Low Market ----------------------
Attractiveness Attractiveness Attractiveness Attractiveness
High Business Low Business High Business Low Business ----------------------
This is the ideal You are in an In this quadrant Think carefully ----------------------
quadrant. Your uncomfortable you have high about what you
strengths are quadrant. The strengths ina are doing to be ----------------------
directed at a market potential is market that in this quadrant.
----------------------
highly attractive attractive but you has lost its The market is
market. do not have the attractiveness in not particularly ----------------------
Invest your best business strengths terms offuture attractive and
necessary for potential. It is your business ----------------------
resources in
those parts of being really still good for strengths are
----------------------
your business successful. The near term profits, below average
which are inthis options facing so maintain the here. Keep in this ----------------------
quadrant. you are either to position foras segment only if it
take what you long as possible. supports a more ----------------------
can while it is profitable partof
----------------------
still possibleor your business(for
to invest in instance,if ----------------------
building a better this segment
competitive completes a ----------------------
position. product line
----------------------
You must be range) or if it
selective in your absorbs someof ----------------------
efforts here, as the overhead
costs of a more ----------------------
this segment
profitable
will cost you to ----------------------
segment.
invest in every ----------------------
aspect of the
business. ----------------------

Notes 4. Experience Curve Analysis
The application of the experience curve effect, to understand (1) how
----------------------
the components of the total cost of a company’s product are affected
---------------------- by cumulative experience, (2) the relationship of industry experience
and average industry prices and costs, and (3) how competitive cost
---------------------- comparisons relate to current costs of direct competitors to their cumulative
experience.
----------------------
Normally, it is advisable for a company to have Contingency plans. While
---------------------- designing any strategies, the managers must consider various scenarios,
namely the optimistic, realistic and pessimistic. They should have a back-
----------------------
up plan in case of events which they have not been able to predict.
---------------------- The Strategy Plan would have clear strategic intent, SWOT, assumptions
for the strategies, Resource allocation, structure and systems, evaluation
----------------------
parameters, etc.
---------------------- The uncertainty that remains after the best possible analysis is “residual
---------------------- uncertainty”.
Typical tools used in Level 2 level are decision analysis, option valuation
---------------------- models, game theory, etc.
----------------------
Summary
----------------------
●● Groups can help to more fully study the tools of strategic analysis, as well
---------------------- as their investigation, research and modification. The designed model
---------------------- makes it possible to form individual portfolios of the tools of strategic
analysis for the managers of various organizations according to the
---------------------- previously stated features or characteristics.
●● By means of the designed model, the managers would be able to choose
----------------------
such tools that would be more informative. Besides, the organization
---------------------- executives would also be able to more easily choose the tools that would
not duplicate the information of each other. This will allow the leaders to
---------------------- more effectively use the tools of strategic analysis.
----------------------
Keywords
----------------------
●● BCG Matrix: Division of organisations on the basis of their status as
---------------------- Stars, Cash cows, question mark and dogs.
---------------------- ●● GE Matrix: Detailed division of organisation and advantageous over
BCG matrix.
----------------------
●● Delphi method: Questionnaire are prepared and sent to experts which are
---------------------- not known to each other, after several rounds of revision the consensus is
attained.
----------------------
----------------------

Notes
----------------------
1. Explain BCG Model with graph.
2. Discus five competitive forces for decision strategy. ----------------------
3. Explain GE Model for strategy design. ----------------------
4. Develop and design a strategy for an SBU. ----------------------
5. What are the factors responsible for Japan’s success in productivity and
capacity? Discuss. ----------------------
----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. Strategy formulation is the process of determining appropriate courses of
action for achieving organisational objectives and thereby accomplishing ----------------------
organisational purpose.
----------------------
2. The four special tools to assist in formulation of strategies include BCG
Matrix, GE/ Mckinsey Matrix, Delphi method and game theory. ----------------------
3. Companies that are large enough to be organised into strategic business ----------------------
units face the challenge of allocating resources among those units.

1. False ----------------------
2. False
----------------------
3. False
----------------------
1. Dogs are products or units with a low market share in a slow growing or ----------------------
even declining market, with limited scope for growth.
----------------------
2. To be successful and minimise risk, a company should have a portfolio of
products with different growth rates and different market shares. ----------------------
3. High margins and high market share go together. ----------------------
4. Portfolio analysis is done at three levels of decision-making. ----------------------
5. In the Directional Policy Matrix, the concentration of business
opportunities should be focused around the Leader domain. ----------------------
----------------------
----------------------

Notes
Suggested Reading
----------------------
1. Hawawini, G., V. Subramanian and P. Verdin. 2003. “Is Performance
---------------------- Driven by Industry- or Firm-Specific Factors? A New Look at the
Evidence.” Strategic Management Journal.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Implementing Strategy : I
UNIT
9
Structure:
9.1 Introduction
9.2 Strategy Implementation
9.3 Decision Making
9.4 Organization Structure
9.5 Organization Levels
9.6 Departmentation
9.7 Entrepreneurial Structure
9.8 Matrix Organization
9.9 Strategic Business Units
9.10 Why Business Models Matter
9.11 Telling a Good Story
9.12 Tying Narrative to Numbers
9.13 Evolution and Revolution
Summary
Keywords
Suggested Reading
Implementing Strategy : I 213

Notes
Objectives
----------------------
----------------------
●● Discuss organisational structure
---------------------- ●● Describe different types of organisational structures
---------------------- ●● Analyse the process of making the right decision
---------------------- ●● Identify the need of a business model
●● Evaluate how organisations grow and change
----------------------
---------------------- 9.1 INTRODUCTION

----------------------
Organizational structure depends on the product to be developed.
---------------------- Wheelwright and Clark define a continuum of organizational structures between
two extremes, functional organizations and project organizations. Functional
---------------------- organizations are organized according to technological disciplines. Senior
functional managers are respnsible for allocating resources. The responsibility
----------------------
for the total product is not allocated to a single person. Coordination occurs
---------------------- through rules and procedures, detailed specifications, shared traditions among
engineers and meetings (ad hoc and structured). Products that need a high level
---------------------- of specialized knowledge require a functionally organized structure.
---------------------- A light-weighted matrix organization remains functional and the level
of specialization is comparable to that found in the functional mode. What is
---------------------- different, is the addition of a product manager who coordinates the product
creation activities through liaison representatives from each function. Their main
----------------------
tasks are: to collect information, to solve conflicts and to facilitate achievement
---------------------- of overall project objectives. Their status and influence are less as compared
to functional managers, because they have no direct access to working-level
---------------------- people.
---------------------- A heavy-weighted matrix organization exists of a matrix with dominant
the project structure and underlying the functional departments. The product
---------------------- manager has a broader responsibility. Manufacturing, marketing and concept
---------------------- development are included. The status and influence of the product manager,
who is usually a senior, is the same or higher as compared to the functional
---------------------- manager. compared to functional managers, because they have no direct access
to working-level people.
----------------------
A project organization exists of product oriented flows: project and teams.
---------------------- The project members leave their functional department and devote all their
time to the project. They share the same location. The professionals are less
---------------------- specialized and have brioader tasks, skills and responsibilities. The functional
---------------------- manager is responsible for the personnel development and the more detailed
technology research in the functional groups.
---------------------- Companies can be classified to their organizational structures. Another

variable companies can be classified to is the nature of the projects undertaken. Notes
We characterize projects by the number of employees needed to perform the
tasks, or workload, and the number of tasks that are fundamentally different ----------------------
in nature. An example of the latter aspect is PCB development and structural
design. ----------------------
----------------------
9.2 STRATEGY IMPLEMENTATION
----------------------
Strategies
----------------------
----------------------
Plans ----------------------
----------------------
Programmes ----------------------
----------------------
----------------------
Projects
----------------------
----------------------
Budgets ----------------------
----------------------
Policies / Procedures / Rules / Regulations ----------------------

Fig 9.1 ----------------------
As can be seen strategies lead to plans, which in turn lead to programmes to ----------------------
be undertaken, which would consists of “projects”, each with their own budgets.
This would be simplified at the operating level through Policies / Procedures / ----------------------
Rules / Regulations. From Budgets the flow starts in implementation. A Major
part of Strategy Implementation is Resource Allocation. ----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. ___________ can be defined as the selection of a course of action
from among alternatives. ----------------------
2. The ___________ manager is responsible for personnel development ----------------------
and more detailed technology research in the functional groups.
----------------------
3. Functional organisations are organised according to __________
disciplines ----------------------

Notes
Activity 1
----------------------
Note down how you look at decision-making in your personal life.
----------------------
---------------------- 9.3 DECISION MAKING

----------------------
Decision-making is the core of planning. It can be defined as the selection
---------------------- of a course of action from among alternatives. A plan cannot be said to exist
unless a decision - a commitment of resources, direction, or reputation - has
---------------------- had been made. Managers sometimes see decision making as their central job
because they must constantly choose what is to be done, who is to do it, when,
----------------------
where, and occasionally even how it will be done.
---------------------- Characteristics of decisions
---------------------- The following variables tend to make a decision more or less difficult :
---------------------- 1. Familiarity - knowledge of the relationships between choices, environment,

and outcomes.
---------------------- 2. Ambiguity - degree of clarity about the choices, controllable variables,
---------------------- and uncontrollable variables of the problem.
3. Complexity - number of alternatives, variables, and criteria to consider.
----------------------
4. Irreversibility - extent to which a decision, once made, can be reversed.
----------------------
5. Significance - magnitude of the decision outcomes and scope of their
---------------------- impact on the decision maker’s domain of activity.
---------------------- 6. Accountability - degree to which the decision maker is accountable for

the outcomes of the decision.
---------------------- 7. Time - the time constraint within which the problem must be solved.
---------------------- Leaders of small companies often find themselves facing difficult market
conditions without the staff or resources available to larger organizations.
---------------------- Responding to this challenge can stretch them to the limit and confront them
---------------------- with the risk of losing control of everything they have worked so hard to build.
Three decision Contexts :
----------------------
We may make decisions under three circumstances with regard to decision
---------------------- circumstances.
---------------------- 1. Certainty : A certainty decision situation exists when the decision maker
knows all of the available alternatives and the outcomes which will result
---------------------- from each.
---------------------- 2. Risk : A risk decision situation exists when the decision maker faces more
than one alternative, but he/she knows all of the alternatives, knows all
---------------------- of the possible outcomes associated with each of the alternatives, and can
---------------------- assign probabilities to each possible outcome.

3. Uncertainty : An uncertainty decision situation exists when the decision Notes
maker lacks knowledge of what all the alternatives are, what the outcomes
associated with each alternative are, or cannot assign probabilities to each ----------------------
of the possible outcomes.
----------------------
Role of Rationality in decision Making :
----------------------
1. Bounded Rationality : The manager’s limited mental capabilities and
emotional constraints that prevent completely rational decision-making. ----------------------
2. Subjective Rationality : The limits we impose on the alternatives we
----------------------
consider owing to our values, moral positions, and ethical standards.
3. Relative Risk Aversion : One’s tolerance of, or willingness to take, risks. ----------------------
Less tolerance would indicate greater risk aversion. ----------------------
It is frequently said that effective decision-making must be rational. Hence,
it becomes necessary for us to explore the connotations of ‘rationality’. People ----------------------
acting or deciding rationally must have a clear understanding of alternative ----------------------
courses by which a goal can be reached under existing circumstances and
limitations. They must also have the information and the ability to analyse and ----------------------
evaluate alternatives in light of the goal sought. Finally, they must have a desire
to come to the best solution by selecting the alternative that most effectively ----------------------
satisfies goal achievement. ----------------------
People seldom achieve complete rationality, particularly in the realm of
Management. Since no one can make decisions affecting the past, decisions ----------------------
must necessarily operate for the future, and the future almost invariably ----------------------
involves uncertainties. It is difficult to recognize all the alternatives that might
be followed to reach a goal; this is particularly true when decision-making ----------------------
involves opportunities to do something that have not been done before.
Moreover, in most instances, not all alternatives can be analyzed, even with the ----------------------
newest available analytical techniques and computers. ----------------------
Hence, a manager must settle for limited rationality or bounded rationality.
----------------------
In other words, limitations of information, time and certainty limit rationality,
even though a manager tries earnestly to be completely rational. Since managers ----------------------
cannot be completely rational in practice, they sometimes allow their dislike of
risk-that is, their desire to “play it safe”-to interfere with the desire to reach the ----------------------
best solution under the circumstances. Herbert Simon has called this satisfying,
----------------------
that is, picking a course of action that is satisfactory or good enough under the
circumstances. Although many managerial decisions are made with a desire ----------------------
to “get by” as safely as possible, most managers do attempt to make the best
decisions they can within the limits of rationality and in keeping in mind the ----------------------
size and nature of the risks involved.
----------------------
Nature of strategic decision-making
----------------------
●● Conventional decision making.
●● Strategic decision making. ----------------------
●● Issues in strategic decision making. ----------------------

Notes Approaches to strategic decision-making
1. Formal structured approach.
----------------------
2. Intuitive anticipatory approach.
----------------------
3. Entrepreneurial opportunistic approach.
---------------------- 4. Incremental approach.
---------------------- 5. Adaptive approach.
---------------------- Decision-making is defined as the selection of a course of action from
among alternatives; it is the core of planning.
----------------------
Strategic decision-making is the task of a senior manager. The important
---------------------- issues involved in it are :
1. Criteria for decision-making: the process involves objective setting. These
----------------------
objectives serve as yard sticks to measure the efficiency and effectiveness
---------------------- of the dm (decision making) process. There are 3 view points here:
---------------------- a) Concept of maximization of returns while achieving the objectives.

b) Concept of satisfying, i.e. the objectives are achieved realistically.
----------------------
c) Concept of incrementalism. According to this the behavior of the
---------------------- firm is complex and the process of decision-making, which includes
objective setting, is essentially a continually evolving political
---------------------- consensus building. The firm moves towards its objectives in small,
---------------------- logical and incremental steps.
2. Rationality in decision-making: it means exercising a choice from among
----------------------
various alternatives in such a way that it leads to the achievement of
---------------------- objectives in the best possible manner. Rationality takes into account the
constraints under which a decision maker operates.
----------------------
3. Creativity in decision-making: to be creative a decision must be original
---------------------- and different. It can be developed through techniques like brainstorming.
4. Variability in decision-making: given identical sets of conditions two
----------------------
decision makers may reach totally different conclusions. This also implies
---------------------- that every situation is unique and there are no set formulae that can be
applied in dm.
----------------------
5. Person related factors in decision-making: factors like: age, education,
---------------------- intelligence, personal values, cognitive styles etc affect decisions. Age,
knowledge, intelligence, risk taking ability and creativity are generally
---------------------- supposed to play a positive role. Cognitive style enables a person to
---------------------- assimilate a lot of information interrelate complex variables and develop
an integrated view of the situation. Values are important for ethics and
---------------------- social responsibility.
---------------------- 6. Individual versus group decisions: for bigger organizations groups

become important but can create friction when complex decisions are
---------------------- involved.

Types of Decisions Notes
1. Conventional decision-making: is the process of selecting an alternative
----------------------
from many.
a) Objectives are determined. ----------------------
b) Alternatives to achieve the objectives are identified. ----------------------
c) Each alternative is evaluated. ----------------------
d) Best alternative is chosen.
----------------------
Then the alternative has to be implemented.
----------------------
2. Programmed decisions: applied to structured or routine problems
3. Non-programmed decisions: are used for unstructured, novel and ill- ----------------------
defined situations of a non-recurring nature.
----------------------
4. Tactical decisions : which deal with medium term like a month. While
strategic decisions are of a longer term in nature tactical are relatively of ----------------------
a shorter duration and are made to fulfill pre-decided strategy. E.g.: for
----------------------
strategy of expansion, recruitment carried out (tactical).
5. Operational decisions: these relate to daily decisions like leave records ----------------------
etc. which are more of a mundane nature and highly routine and can be ----------------------
done at a junior level.
Now if we look at the organizational structure then the non-programmed ----------------------
decisions are taken at the top level however programmed decisions that have ----------------------
a lesser degree of ambiguity about them, are taken by the middle management
and the line staff. ----------------------
Decisions are made under uncertainty and risk and the 3 approaches to ----------------------
evaluate the degree of uncertainty are :
----------------------
Risk analysis : the decision is based on a number of variables. Risk associated
with each needs to be analyzed. ----------------------
Decision trees: this depicts pictorially the various outcomes of a decision. Each
----------------------
decision leads to certain conditions and each has its own benefits and costs we
need to select the best possible alternative. ----------------------
Preference theory : says that individuals attitude towards risk varies, some are ----------------------
risk averters and some are gamblers. Managers will avoid risk if the penalty is
particularly harsh. For example, even if the probability of success is 60% and ----------------------
failure is 40% it does not mean that the decision will be favorable. A manager
will look at the penalty involved. ----------------------
For gamblers, their size of commitment will be high if returns are high and ----------------------
they will not look at the probability of success at the lower levels, conversely
for a risk averter he will look at the probability of success and not so much at ----------------------
the gains, which are directly proportional to the level of risk. ----------------------
----------------------

Notes Steps in Problem Solving and decision Making :
1. Identify and diagnose the problem
----------------------
The first step in decision-making is identifying a gap between desired and
---------------------- actual conditions.
---------------------- Indicators of problems :
---------------------- a) Deviation from past performance: common indicators are declining

sales, increased employee turnover, higher scrap rates, increased
---------------------- customer complaints and increased number of bad checks cashed.
---------------------- b) Deviations from the plan: When the results you hoped to attain
with a plan are not forthcoming, then you have a problem. This
---------------------- type of problem identification requires one to see a deviation from
anticipated future performance.
----------------------
c) Criticism from outsiders: the sources include customers,
---------------------- government, regulators and stockholders.
---------------------- d) Competitive threats: the presence of competition can create troubles
for the organization.
----------------------
Diagnosis
---------------------- The ability to think critically helps a person get at the real problem. An
important part of the decision process for making the right diagnosis
----------------------
is how you frame the problem. Framing puts you on the right track by
---------------------- defining what must be decided, and separating out what is important.
---------------------- 2. Develop Alternate Solutions

All kinds of possibilities are explored even if they seem unrealistic. The
---------------------- difference between good and mediocre decision makers is that the former
---------------------- do not accept the first alternative that they think of. They continue digging
till they find the best solution.
----------------------
3. Evaluate alternate solutions
---------------------- The relative value of the alternatives needs to be compared. The problem
solver examines the pros and cons of each one and considers the feasibility
----------------------
of each. Some alternatives may appear attractive, but implementing them
---------------------- may be impossible or counterproductive. Evaluating alternatives is often
done by performing a cost-benefit analysis of each alternative.
----------------------
4. Choose an alternative solution
---------------------- A major factor influencing the choice of an alternative is the goal the
---------------------- decision should achieve. Despite careful evaluation of alternatives,
ambiguity remains in most decisions. Even when quantitative evidence
---------------------- is very strong for a particular alternative, the decision maker might be
uncertain. The alternative chosen should be one that appears to come
---------------------- closest to achieving desired goal.
----------------------

5. Implement the decision Notes
Until a decision is implemented, it’s not a decision at all. Many strategic
----------------------
decisions represent wasted effort because nobody is held responsible
for implementing them. Much of a manager’s job involves helping ----------------------
subordinates implement decisions. A decision is seldom a good one if
people resist its implementation or if it is too cumbersome to implement. ----------------------
6. Evaluate and control ----------------------
The final step is to investigate how effectively the chosen alternative
----------------------
solved the problem. Controlling means ensuring that the results the
decision obtained are the ones set forth during the problem identification ----------------------
step. After gathering feedback, the quality of the decision must be
characterized as optimum, satisfying or sub optimum. ----------------------
Optimum decisions lead to favorable outcomes. Satisfying decisions ----------------------
provide a minimum standard of satisfaction. They are adequate, acceptable or
passable. Many decision makers stop their search for alternatives when they ----------------------
find satisfying decisions. Accepting the first reasonable alternative may only ----------------------
postpone the need to implement a decision that really solves the problem.
Sub optimum decisions lead to negative outcomes. Their consequences are ----------------------
disruptive to the employees and the firm. By comparing what actually happened ----------------------
with what one thought would happen valuable insights could be gained.
Evaluation and control is very important because it provides valuable ----------------------
learning to the manager who can use the experience to their advantage while ----------------------
making future decisions.
----------------------
These steps must be followed if the organization is to benefit from the
decision. Decisions taken arbitrarily will prove harmful to the long-term health ----------------------
of the organization.
----------------------
Resource Allocation
Financial, physical, human and other resources need to be procured and ----------------------
allocated. This may be a one time as well as a continuos activity. Normally the
----------------------
senior management would allocate the resources, so it is a top - down approach.
With the advent of empowerment, companies are also using bottom-up approach ----------------------
and a combination of a top - down approach and bottom-up approach. There are
various methods used in Resource allocation - typically the following methods ----------------------
are used, which use budgeting as a base.
----------------------
●● Strategic Budgeting.
----------------------
●● Matrix Base Budgeting (on BCG, GE, Hofer, etc.).
●● PLC Based Budgeting. ----------------------
●● Capital Budgeting. ----------------------
●● Zero Based Budgeting.
----------------------
The factors that affect the budgeting process are : objectives, the dominant
coalition (explained later), politics, etc. ----------------------

Notes 9.4 ORGANISATION STRUCTURE
---------------------- Organization Charts are used to show people the intended structure of
the organization. This “formal” organization is supposed to reflect the power
---------------------- structure of the company. Sometimes the Org Charts only serve to confuse
people as to what the structure really is. This is usually not intentional, but
----------------------
rather REFLECTS the confusion of the people involved.
---------------------- However, it is also possible to use an Organisation Chart as a management
---------------------- tool, to further the achievement of your organization’s goals.
Organizing Process
----------------------
Steps in the organizing process :
----------------------
1. Formulate objectives, strategies, plans and policies.
---------------------- 2. Determine activities (work) needed to execute these plans and policies
and accomplish the objectives.
----------------------
3. Classify and group these activities in the best possible way:
----------------------
a) Grouping tasks (activities) to form individual jobs.
---------------------- b) Grouping of jobs and people into sections and departments into
---------------------- higher administrative units such as divisions.
4. Assign and delegate to the head of each group, section, department, etc.,
----------------------
the authority needed to perform these activities.
---------------------- 5. Co-ordinate or tie these group of activities:
---------------------- a) Through authority relationships - horizontally, vertically and
laterally &
----------------------
b) Through organized information or communication.
---------------------- By integration and co-ordination of activities we have unity of objectives,
---------------------- teamwork and team spirit.
Three factors of organization structures :
----------------------
Three ways to determine the organization structure for any business :
----------------------
1. Activity Analysis can find out what work has to be performed, what work
---------------------- belongs together and how each activity should be emphasized in the
organization structure.
----------------------
2. Decision analysis determines what kind of decisions are needed, where in
---------------------- the organization they should be made and how each managers should be
involved in them.
----------------------
3. Relation analysis involves finding the contribution each manager must
---------------------- make to programs, with whom he works and what contribution other
managers must make to him.
----------------------
----------------------

Notes
----------------------
----------------------
1. Products that need a low level of specialised knowledge require a
functionally organised structure. ----------------------
2. Accountability means degree to which the decision-maker is ----------------------
accountable for the outcomes of the decision.
----------------------
3. Familiarity means the knowledge of the relationships between
choices, environment and outcomes. ----------------------
----------------------
Activity 2
----------------------
What type of decision-making is used in your company/industry? ----------------------
----------------------
9.5 ORGANISATION LEVELS
----------------------
Organization levels exist because there is a limit to the number of persons
a manager can supervise effectively, even though this limit varies depending on ----------------------
situations. ----------------------
A wide span of management is associated with few organizational levels;
a narrow span with many levels. ----------------------
Organization with narrow spans : ----------------------

Advantages : ----------------------
1. Close supervision.
----------------------
2. Close control.
----------------------
3. Fast communication between subordinates and superiors.
Disadvantages : ----------------------
1. Superiors tend to get too involved in subordinates’ work. ----------------------

2. Many levels of management. ----------------------
3. High costs due to many levels.
----------------------
4. Excessive distance between lowest level and top level.
----------------------
Organization with wide spans :
Advantages : ----------------------
1. Superiors are forced to delegate. ----------------------

2. Clear policies must be made. ----------------------
3. Subordinates must be carefully selected. ----------------------

Notes Disadvantages :
1. Tendency of overloaded superiors to become decision bottlenecks.
----------------------
2. Danger of superiors’ loss of control.
----------------------
3. Requires exceptional quality of managers.
---------------------- Levels of Management or Organization :
---------------------- The organizational pyramid gives us a vertical hierarchy. Delegation of
authority based on span of control creates multiple levels of management.
----------------------
Comments
----------------------
1. Each level of management is an integral part of the chain of command
---------------------- and as such it acts as the channel for transmission of authority to the
succeeding lower level of the management. We have downward flow of
---------------------- authority.
---------------------- 2. Each level of management also serves as a primary vehicle for formal
communication, e.g. orders, instructions, explanations, requests
---------------------- for information, etc. similarly it can also act as a channel for upward
communication of reports on results achieved, complaints, protests and
----------------------
reactions in the form of feedback of information.
---------------------- 3. Power and authority are delegated downwards beginning at the top, from
each manager to his subordinates. Each position has a complete sphere of
----------------------
operation.
---------------------- 4. Lowest level positions are grouped together and assigned to the next
---------------------- higher office. In turn, each managerial position is under control of a higher
one. Each manager is accountable to his superior on the next higher level
---------------------- for his performance as well as for his subordinate’s actions and decisions.
All are accountable to the highest official, the chief executive, at the top
---------------------- management hierarchy.
---------------------- 5. Too many levels of management are not desirable.
---------------------- Board of directors :
The board of directors is a group of around 12 or 15 men elected by
----------------------
shareholders or nominated by certain special interest e.g. financial institution,
---------------------- labour or government. The board is the supreme policy framing and decision
making organization in charge of overall supervision and control of the affairs
---------------------- of the enterprise.
---------------------- Executive Committee :
---------------------- Next to the board of directors in the hierarchy, we have the executive
or working committee of a few directors to transact business more quickly. It
---------------------- usually transacts urgent business. It also funnels matters for board consideration
and decision. The other directors usually accept a proposal from the executive
---------------------- committee.
----------------------

Top management (level 1) : Notes
The board appoints the chief executive, e.g. president or managing director
----------------------
or general manager who is delegated the task of running entire business. We have
other few senior executives e.g., vice-presidents, deputy general managers or ----------------------
divisional managers to assist the chief executive. The small body of executives,
i.e. M.D. and few senior executives constitutes the top management in charge ----------------------
of all managerial functions and powers. The chief executive is accountable to
----------------------
the board and enjoys all managerial powers.
Functions of top management : ----------------------
1. Determination of goals or objectives. ----------------------
2. Policy framing.
----------------------
3. Formation of plan to carry out objectives and policies.
4. Building up an organization - framework for executive plans. ----------------------
5. Mobilization of resources to implement the plans. ----------------------
6. Motivating personnel for effective performance through appropriate
leadership. ----------------------
7. Co-ordination and communication. ----------------------
8. Controlling operations to ensure realization of set goal or objectives.
----------------------
Middle management (level 2) :
Similarly divisional managers in turn re-delegate to their subordinates ----------------------
e.g. departmental managers. Then we have a large group of middle managers ----------------------
consisting of heads of departments and superintendents. They are the assistants
to senior executives and act as their deputies. Middle management includes ----------------------
heads of specialized sections. Middle managers are also called junior executives
or administrators. Co-ordination is the central problem of management and ----------------------
the middle management provides the key people in achieving effective co- ----------------------
ordination upward, downward and also sideways in the management hierarchy.
----------------------
Lower management (level 3)
At the bottom of the management hierarchy, we have the lower management ----------------------
group called supervisory management consisting of supervisors or foremen and
----------------------
offer superintendents. Lower management puts the plans of management into
effective action, allocating individual work and seeing that it is accomplished ----------------------
as per schedule. It is a large group of first line supervisors and their managers at
the lower level are directly in charge of the operatives or employees. ----------------------
----------------------
Level 1
----------------------
Level 2
----------------------
Level 3 ----------------------
Fig 9.2
----------------------

Notes 9.6 DEPARTMENTATION
---------------------- Departmentation is the process of analyzing, dividing and arranging work
or activities into manageable portions for individuals, sections and departments.
---------------------- Thus departmentation is the organization-wide division of work. A section can
be defined as a group of workers under one supervisor. Sections are grouped to
----------------------
form larger units such as departments and departments in turn may be grouped
---------------------- into divisions.
---------------------- Basics of departmention

Function or Purpose :
----------------------
Departmentation by business function is a very familiar form of division
---------------------- of work. Activities are grouped around functions such as production, finance,
marketing and personnel. It is recommended on purely logical grounds.
----------------------
Specialized departments should not lose sight of their role in the total
---------------------- organization.
Advantages :
----------------------
1. Is logical reflection of functions.
----------------------
2. Maintains power and prestige of major functions.
---------------------- 3. Follows principle of occupational specialization.
---------------------- 4. Simplifies training.
---------------------- 5. Furnishes means of tight control at top.
Disadvantages :
----------------------
1. De-emphasize of overall company objectives.
----------------------
2. Overspecializes and narrows viewpoints of key personnel.
---------------------- 3. Reduces co-ordination between functions.
---------------------- 4. Responsibility for profits is at the top only.
---------------------- 5. Slow adoption to changes in environment.
6. Limits development of general managers.
----------------------
Types of departmentation :
----------------------
1. Departmentation by Product :
---------------------- Large companies with many product lines create managerial units based
---------------------- upon the product. This is sometimes called divisionalization. One division
is in charge of one line of products. It may an autonomous unit with its
---------------------- own functional departments. Each division should not lose sight of its
relationships with the entire organization.
----------------------
The Tata Family of Enterprises comprises 93 Companies in seven business
---------------------- sectors. These sectors include Engineering, Materials, Energy, Chemicals,
Services, Consumer Products, Information Systems, Communications.
----------------------

Advantages : Notes
1. Places attention and effort on product line.
----------------------
2. Facilitates use of specialized capital, facilities, skills and knowledge.
----------------------
3. Permits growth and diversity of products and services.
4. Improves co-ordination of functional activities. ----------------------
5. Places responsibility for profits at the division level. ----------------------
6. Furnishes measurable training ground for general managers. ----------------------
Disadvantages :
----------------------
1. Requires more persons with general manager abilities.
----------------------
2. Tends to make maintenance of economical central services difficult.
3. Presents increased problem of top management control. ----------------------
2. Departmentation by Process : ----------------------

At the plant level, we may have departmentation on the basis of process, ----------------------
e.g. departments for milling, lathe-work, painting etc. physically scattered
operations create difficulty of co-ordination. ----------------------
Nokia is the world’s largest manufacturer of mobile devices; a leader in ----------------------
equipment, services and solutions for network operators; and a driving
force in bringing mobility to businesses. ----------------------
Nokia comprises four business groups: Mobile Phones, Multimedia, ----------------------
Enterprise Solutions and Networks.
----------------------
Mobile Phones connect people by providing expanding mobile voice and
data capabilities across a wide range of mobile devices. They seek to put ----------------------
consumers first in our product-creation process and primarily target high-
volume category sales. ----------------------
Multimedia brings connected mobile multimedia experiences to ----------------------
consumers in the form of advanced mobile devices and applications.
These products give people the ability to create, access and consume ----------------------
multimedia, as well as share their experiences with others through a range ----------------------
of radio technologies.
Enterprise Solutions offers businesses and institutions a broad range ----------------------
of products and solutions, including enterprise-grade mobile devices, ----------------------
underlying security infrastructure, software and services. They also
collaborate with other companies to provide fixed IP network security, ----------------------
mobilize corporate email, and extend corporate telephone systems to
Nokia’s mobile devices. ----------------------
Networks provides network infrastructure, communications and networks ----------------------

service platforms, as well as professional services to operators and service
----------------------
providers. Networks focuses on the GSM family of radio technologies
and aims at leadership in three areas: GSM, EDGE and 3G/WCDMA ----------------------

Notes networks; core networks with increasing IP and multiaccess capabilities;
and services.
----------------------
Advantages :
---------------------- 1. Achieves economic advantage.
---------------------- 2. Uses specialized technology.
3. Utilizes special skills.
----------------------
Disadvantages :
---------------------- 1. Co-ordination of departments is difficult.
---------------------- 2. Responsibility for profits is at the top.
3. Is unsuitable for developing general managers.
----------------------
3. Departmentation by Customer :
----------------------
Grouping activities so that they reflect a primary interest in customers
---------------------- is common in a variety of the enterprises. General Electric Co. does
departmentation by customer in order to serve as a supplier for many
---------------------- different customers. This includes aerospace, construction, consumer
products and power generation.
----------------------
Retail stores may organize special departments to cater to teenagers,
---------------------- collegians, brides and adult people.
---------------------- Advantages :
---------------------- 1. Encourages concentration on customer needs.

2. Gives customers feeling that they have an understanding supplier.
----------------------
3. Develops expertness in customer area.
---------------------- Disadvantages :
---------------------- 1. May be difficult to co-ordinate operations between competing
customer demands.
---------------------- 2. Requires managers and staff expert in customers’ problems.
---------------------- 3. Customer groups may not always be clearly defined.
Infosys Technologies Ltd. provides consulting and IT services to clients
----------------------
globally. Infosys is organized around the following verticals which can
---------------------- cater to the customers need:
●● Aerospace and Defense ●● Automotive
----------------------
●● Banking and Capital Markets ●● Communication Services
---------------------- ●● Consumer Packaged Goods ●● Discrete Manufacturing
●● Energy ●● Healthcare
---------------------- ●● High Technology ●● Hospitality and Leisure
●● Insurance ●● Life Sciences
---------------------- ●● Media and Entertainment ●● Resources
---------------------- ●● Retail ●● Transportation Services
●● Utilities
----------------------

4. Departmentation by Geography : Notes
Due to poor transportation and communication, at one time,
----------------------
departmentation was justified on territorial or geographical basis. We may
have regional organizations for production and marketing. Life Insurance ----------------------
Corporation has zonal and regional departments.
----------------------
Advantages :
1. Places responsibility at the lower level. ----------------------
2. Places emphasis on local markets and problems. ----------------------
3. Improves co-ordination in a region. ----------------------
4. Takes advantage of economies of local operations.
----------------------
5. Better face-to-face communication with local interests.
----------------------
6. Furnishes measurable training ground for general managers.
Disadvantages : ----------------------
1. Requires more persons with general manager abilities. ----------------------
2. Tends to make maintenance of uneconomical central services such ----------------------
as personnel or purchasing at the regional level.
----------------------
3. Increases problem of top management control.
5. Mixed Departmentation : ----------------------
In practice, an organization may use one or more bases of ----------------------
departmentalization. For instance, a national multi product diversified
corporation may adopt geographical, product wise divisionalization and ----------------------
within the division we may have functional department like production,
----------------------
finance and marketing.
An example that can be taken is of that of Unilever. The company has an ----------------------
existence in more than 50 countries and it caters to both the markets (rural ----------------------
and urban). It has a big product line both depth and length wise. Now
the company has a country head for each country followed by a head of ----------------------
department of each product and market.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes 9.7 ENTREPRENEURIAL STRUCTURE
---------------------- OWNER
----------------------
----------------------
---------------------- EMPLOYEES
---------------------- LINE AND STAFF ORGANIZATION :
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig 9.3

---------------------- Line organization is the basic framework for the whole organization.
Line responsibilities are clear. A line manager has a direct role in the chain of
---------------------- authority or command and he is responsible to operate and execute the plans
---------------------- and program, to run the entire business and achieve performance or result as per
plan. Line authority is held responsible for achievement of corporate goals. Staff
---------------------- function and responsibility is to lend support to the line authority, offer services
of skilled and expert advice and guidance so that line manager performs his job
---------------------- effectively.Advice, evaluation and expert guidance are the attributes of staff
---------------------- function. Line represents operating departments and staff represents service or
auxiliary departments.
---------------------- In line relations, authority flows from top to bottom and we have superior
---------------------- - subordinate relationships through delegation. Staff has authority of knowledge
and may be granted functional authority over line executives.
----------------------
----------------------
9.8 MATRIX ORGANIZATION
---------------------- Also known as grid or project or product management. The essence

of matrix organization normally is the combining of functional and product
---------------------- patterns of departmentation, in the same organization structure.

This kind of organization occurs frequently in construction (building a Notes
bridge), in aerospace (designing and launching a weather satellite), in marketing
(an advertising campaign for a major new product), in the installation of an ----------------------
electronic data processing system, etc.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig 9.4 ----------------------

Why Matrix Management is used? ----------------------
As companies and customers have become increasingly interested in the ----------------------
end results, that is, in the final product or completed project, there has been
pressure to establish responsibility for ensuring such end results. The project ----------------------
may be of short duration. Although there is no logical reason why an organization
structure should not be changed daily or monthly, there is a practical reason that ----------------------
people; particularly highly trained professionals simply may not tolerate the ----------------------
insecurity of frequent organization change.
Advantages : ----------------------
1. It is oriented toward end-results. ----------------------

2. Professional identification is maintained. ----------------------
3. Pinpoints product-profit responsibility.
----------------------
Disadvantages :
1. A state of conflict exists between functional and project managers, as both ----------------------
compete for limited resources (financial and human). Moreover, member ----------------------
on the project may encounter role ambiguity.
2. Role conflict, role ambiguity and real overload may result in stress for the ----------------------
functional and project managers as well as for their team members.
----------------------
3. An imbalance of authority and power, as well as horizontal and vertical
influence of the project and functional mangers can also lead to problems ----------------------
in matrix organization.
----------------------
4. Because of potential conflicts, managers may want to protect themselves
against blame by putting everything in writing, which increases ----------------------
administration costs.
----------------------
5. It requires many time consuming meetings.

Notes 9.9 STRATEGIC BUSINESS UNITS
---------------------- More recently, companies have been using an organizational device
generally referred to as a strategic business unit. SBUs are distinct little business
---------------------- setup as units in a larger company to ensure that a certain product or product
line is promoted and as though it were an independent business.
----------------------
The major benefit of utilizing an SBU organization is to provide an assurance
---------------------- that a product will not get lost among other products (usually those with larger
---------------------- sales and profits) in a large company. It preserves the attention and energies of a
manager and staff whose job is to guide and promote a product or product line.
---------------------- It thus is an organizational technique for preserving the entrepreneurial
---------------------- attention and drive, so characteristic of the small company. In fact, it is an
excellent means of promoting entrepreneurship, which is likely to be so lacking
---------------------- in the large company.
---------------------- Top Management
----------------------
---------------------- SBU 1 SBU 2 SBU 3
---------------------- Fig 9.5
---------------------- In the earlier unit, we learnt about business models. Let us look at what
precautions need to be taken in application and how these models should be
---------------------- used, specially when a lot of sceptics say there is no use of these models.
---------------------- How organisation can select right structure?

How to choose a right structure for the organisation depends on many
---------------------- requirements.
---------------------- a) Entrepreneurial structure: It is suitable for start-ups with a small
resource base where rapid decision-making is required.
----------------------
b) Functional structure: A functional structure is suitable for firms with a
---------------------- single product or a related product, single-location company, medium in size.
---------------------- c) divisional structure: It is suitable for multiproduct, multi-location
company, vast in turnover and complex to control, in some cases
---------------------- multinational.
---------------------- d) Matrix structure: It suitable to make the organisation innovative, at the
same time spending low amounts.
----------------------
e) Strategic business unit: It suitable to make the organisation result
---------------------- oriented and profit oriented.
---------------------- Functional Structure
As the business grows in volumes, the turnover increases and the employee
----------------------
number grows large, and then there is a change from an entrepreneurial structure
---------------------- to a functional structure.

In the functional structure, the tasks are divided and regrouped by Notes
functions. It results in specialisation and depth of knowledge. Each of the
function is headed by a functional head who has requisite qualifications and ----------------------
experience as well as proven track record.
----------------------
The functional heads seek to distribute decision-making and operational
authority along the functional lines. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Advantages of Functional Structure ----------------------
a) Each of the functions are as per Fayol’s principles of division of work. It
----------------------
results in specialisation and depth of knowledge, which in turn promotes
efficiency. ----------------------
b) There is effective distribution of work.
----------------------
c) Since operational work is done by the functional heads, top management
can concentrate on strategic decision-making. ----------------------
Divisional Structure ----------------------
As the company, which has a functional structure, increases in size and ----------------------
grows in volumes and becomes a multiproduct, multi-location company, it has
to adopt to divisional structure. Most large corporates including more than 90 ----------------------
% of Fortune 500 companies have a divisional structure. The work is divided
based on product lines, types of customers served and geographical areas. ----------------------
The divisional structure tries to combine the recourses of a large ----------------------

organisation with nimbleness of a small organisation.
----------------------
The divisional heads in consultation with the top management can take
fast decisions to maximise profits and results. ----------------------
----------------------
----------------------
----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Advantages of divisional Structure

---------------------- a) Quick decisions can be taken to maximise results affecting various
divisions.
----------------------
b) It enables grouping of functions required for the performance activities
---------------------- related to a division.
----------------------
9.10 WHY BUSINESS MODELS MATTER
----------------------
“Business model” was one of the great buzzwords of the internet boom,
---------------------- as writer Michael Lewis put it, “to glorify all manner of half baked plans”. A
company didn’t need a strategy, or a special competence, or even any customers-
---------------------- all it needed was a web based business model that promised wild profits in some
---------------------- distant, ill-defined future. And as the inevitable counter reaction played out,
the concept of the business model fell out of fashion as quickly as the dot com
---------------------- appendage itself.
---------------------- The fault lies not with the concept of business model but with its distortion
and misuse. A good business model remains essential to every successful
---------------------- organization, whether it’s a new venture or an established player. But before
managers can apply the concept, they need a simple working definition that
----------------------
clears up the fuzziness associated with the firm.
----------------------
----------------------

Notes
----------------------
Fill in the blanks.
----------------------
1. An ___________ decision situation exists when the decision-maker
lacks knowledge of what all the alternatives are, what the outcomes ----------------------
are associated with each alternative or cannot assign probabilities to
----------------------
each of the possible outcomes
2. A ___________ decision situation exists when the decision-maker ----------------------
faces more than one alternative, but he/she knows all the alternatives,
----------------------
knows all of the possible outcomes associated with each of the
alternatives, and can assign probabilities to each possible outcome. ----------------------
3. A ____________ decision situation exists when the decision-maker ----------------------
knows all the available alternatives and the outcomes, which will
result from each alternative. ----------------------
4. ____________ is the manager’s limited mental capabilities and ----------------------
emotional constraints that prevent completely rational decision-
making. ----------------------
----------------------
Activity 3
----------------------
Explain the organisational structure, levels and span of management of your ----------------------
organisation.
----------------------
----------------------
9.11 TELLING A GOOD STORY
----------------------
Business models are stories that explain how enterprises work. A good
business model answers Peter Drucker’s age-old questions : Who is the ----------------------
customer? And what does the customer value? What is the economic logic that
explains how we can deliver value to customers at an appropriate cost? ----------------------
Consider the story of the most successful business models : During a ----------------------
vacation, J.C.Fargo, the president of American Express, had a hard time
translating his letters of credit into cash. If the president of American Express ----------------------
has that sort of problem, just think about the common travelers. What American ----------------------
Express did was to create the traveller’s check. The story was straightforward
for the customers. In exchange for a small fee they could buy both peace of ----------------------
mind and convenience. As for American Express they discovered a riskless
business. ----------------------
As this story shows, a successful business model represents a better ----------------------

way than the existing alternatives. It may offer more value to a discreet group
of customers. Or it may replace the old way of doing things and become the ----------------------
standard for the next process. Creating a business model is like creating a new ----------------------
story. All models are variations of the value chain, which has two parts. Part one

Notes includes all the activities associated with making something. Part two includes
all the activities associated with selling something.
----------------------
----------------------
9.12 TYING NARRATIVE TO NUMBERS
---------------------- The term “business model” first came into widespread use with advent of
the PC and the spreadsheet. Before the spreadsheet, business planning meant
---------------------- producing a single, base-case forecast. At best, a little sensitivity analysis was
done. The spreadsheet ushered in a much more analytic approach. Before the PC
---------------------- changed the nature of business planning, most successful models were created
---------------------- more by accident than by design and forethought. The business models then
became clear. By enabling companies to tie their market place insights much
---------------------- more tightly to the resulting economics-to link their assumptions about how
people would behave to the numbers of the P&L spreadsheets made it possible
---------------------- to model businesses before they were launched.
---------------------- The assumptions of the model are subjected to continuous test in the market
place. And success often hinges on management’s ability to apply the model.
---------------------- When EuroDisney opened its theme park in Paris, it borrowed the business
---------------------- model it used in the American Disney park. Europeans, the company thought
would spend the same amount of money and time as the Americans did. But
---------------------- these assumptions turned out to be wrong and because of these miscalculations,
EuroDisney was a disaster in its early years. It became a success only after it
---------------------- changed some key elements in its business model. Thus business modeling is
---------------------- the managerial equivalent of the scientific method you start with a hypothesis,
which you can test it in action and revise when necessary.
----------------------
Why business models fail
---------------------- Business models have to be well understood before they are applied. The
reason why they fail can be described due to two tests i.e. narrative tests and
----------------------
numbers test. Number test means that when the business doesn’t do well with
---------------------- P& L i.e. when company earns thin margins. Other reasons why company’s fail
is due to narrative tests, which can be explained with the help of an example,
----------------------
Priceline webhouse club introduced a system in which the customers had
---------------------- to decide the price at which they would buy the product and they would act as
brokers and charge a premium for their service for providing the customer the
---------------------- product they want. They in turn would go to various companies bidding and
trying for companies, which would offer discount. But this system didn’t work
----------------------
and they had to pay the discount to the customers from their own pocket. This
---------------------- e-business could not flourish because they didn’t realize what the customers
wanted. Thus a business models great strength lies as a planning tool that
---------------------- focuses attention on how the elements of the system fit into a working whole.
---------------------- Another example in assessing the business model in terms of narrative
test can be taken with respect to airline industry. For years, major carriers like
---------------------- American, Delta and Continental built their businesses around a “hub-and-
---------------------- spoke” system, in which all flights routed through a handful of big city airports.

By ensuring that seats were filled, the business model produced big profits for Notes
airlines.
----------------------
But the business model that was once a source of strength for the major
carriers became a burden. It turned out that competitive carriers like Southwest ----------------------
and JetBlue could shuttle planes between smaller centres at a lower cost -
in part because of lower labor costs, but also because they avoided some of ----------------------
the operational inefficiencies that occur in the hub-and-spoke structure. As ----------------------
competitive carriers drew away more customers, the old carriers were left to
support their large, extended networks with fewer passengers - a condition ----------------------
made even worse when traffic began to fall in 2001. To fill seats, the airlines
had to offer more and deeper discounts. No longer able to produce profits, the ----------------------
hub-and-spoke model no longer made sense. ----------------------
For examples of business models that failed the numbers test, we can
look at U.S. automakers. In 2003, to compete against foreign manufacturers, ----------------------
Ford, Chrysler and General Motors offered customers such deep discounts and ----------------------
interest-free financing that they effectively sold vehicles for less than it cost to
make them. That dynamic squeezed all the profits out of Ford’s U.S. operations ----------------------
and threatened to do the same for Chrysler and GM. To remain viable, the big
automakers had to revamp their business models. ----------------------
Relation between strategy and business model ----------------------

Business models can be described as a system and describe that how ----------------------
pieces of business fit together. All the organizations use these business models
for succeeding in their business. ----------------------
These business models used don’t cover one critical dimension of ----------------------
performance i.e. competition. All the companies enter into competitions which
are performance oriented. Business model is not same as strategy but many ----------------------
people take these two terms as interchangeable. Strategy is very essential which
----------------------
should be adopted by any organization which means organizations follow a
unique method and create a differential advantage over its competitors. ----------------------
To explain this with an example. Wal-Mart ‘s success was not a result of ----------------------
pioneering a new business model but due to difference in its providing service
to the customer i.e. it came up with idea of configuring the store to handle large ----------------------
no. of people and offering low prices as compared to general merchandise. It
targeted at a different set of customers i.e. rural markets. All the competitors were ----------------------
targeting at metropolitan cities but, Wal-Mart targeted at isolated rural towns .It ----------------------
promised to its customer’s national brands at low prices while competitors were
looking at price promotions, private label goods. Thus this business model of ----------------------
discount retailing gave rise to a superior performance i.e. it choose a model
which offers a different kind of value -chain and fashion. ----------------------
To further explain the relationship between a good model and strategy, ----------------------
an example of Dell computers can be considered. Michael Dell, owner of Dell
computers was a true business model pioneer. He created a model wherein he ----------------------
linked the model with a strategy of selling his product directly to the end users ----------------------

Notes instead of selling his product through the intermediaries. Thus he created a
differential advantage and it helped the company in removing a costly link from
---------------------- the value chain. This helped Dell in analyzing its customers more closely and
helped the company in increase in average selling price. The companies to deal
---------------------- in different way with the competitors can adopt this strategy.
---------------------- Another example describes the development of channel partnership
between a manufacturer (P&G) and a retailer (Wal-Mart). Both major players in
----------------------
their industries, found a way to leverage on information technology by sharing
---------------------- data across their mutual supply chains. The resulting channel has become
more efficient because channel activities are better coordinated. There are
---------------------- reduced needs for inventories but greater results by focusing on selling what
the customer wants. All in all , the supply chain between P&G and Wal-Mart
----------------------
has adopted the better customer focus through the channel partnership and it is
---------------------- mutually beneficial.
Any business model adopted should be clearly understood before
----------------------
application. All business models tells good stories, it can also be used to get
---------------------- everyone aligned in the organization around the kind of value a company wants
to create.
----------------------
Thus this relationship between strategy and business model can be utilized
---------------------- in efficient and effective manner if application is done with willingness.
---------------------- 9.13 EVOLUTION AND REVOLUTION

----------------------
Based on an article by Larry Greiner
---------------------- During the course of growth of companies the problems they face
have their roots in the past decisions rather than the present events or future
----------------------
considerations. However instead of introspecting and analyzing the past, the
---------------------- management looks outward for the solutions.
---------------------- A series of developmental phases can be identified through which

companies tend to pass as they grow. Each period begins with a phase of
---------------------- evolution, with steady growth and stability and ends in a revolutionary period,
marked by upheaval and change in the organization. The resolution of the
---------------------- revolutionary phase holds the key to the next period of evolutionary growth.
---------------------- Five key dimensions on which these phases depend have been arrived at
by empirical study of companies :
----------------------
1. Age of organization : Organizational practices keep changing with
---------------------- the passage of time. This contributes to managerial attitudes getting
institutionalized and rigid.
----------------------
2. Size of the organization : As the number of employees and sales volumes
---------------------- increases, problems of coordination and communication magnify, new
functions emerge, levels in the management hierarchy multiply and jobs
----------------------
become more inter-related.
----------------------

3. Stages of evolution : As organization grows, phases of stability and Notes
prolonged growth emerge after the resolution of crisis. These quiet periods
are termed as periods of evolution. ----------------------
4. Stages of revolution : periods of turbulence and displacement of ----------------------
prevalent management practices punctuate the quiet periods. The task is
to find a new set of practices to build the foundation for the next phase of ----------------------
evolutionary growth.
----------------------
5. Growth rate of industry : The speed at which an organization experiences
the two phases and the length of the phases depend on the rate of growth ----------------------
of the industry they operate in. In a high growth rate industry the phase of
----------------------
evolution are small and phases of revolution are longer and the cycles is
faster. ----------------------
Phases of growth : Against this background five phases of growth emerge,
----------------------
each phase having an evolution and revolution cycle.
Phase 1 : Creativity ----------------------
In the initial stage the emphasis is on creativity, communication is frequent ----------------------

and informal and the salaries modest. The management is sensitive to customer
reaction. The end of this phase is marked by a Crisis Of Leadership. To steer ----------------------
the company through this phase a strong and dynamic leader is needed, who ----------------------
understands the company and the industry better than the founders.
----------------------
Phase 2 : Direction
In this phase a capable manager takes charge and job specifications ----------------------
become more specialized and communication within the company becomes
----------------------
more formal. The company grows in size and the end of this phase is marked by
a Crisis Of Autonomy. To resolve this crisis the company adopts decentralization ----------------------
and the area managers get more power and autonomy to operate.
----------------------
Phase 3 : Delegation
A decentralized structure is achieved and harmonized with greater ----------------------
responsibility to the managers at plant and area levels. Motivation of the ----------------------
employees gains importance. The communication from the center becomes
less frequent and more formal and directional rather than ordering. This phase ----------------------
ends in a Crisis Of Control, where the area and plant level managers become
very autonomous and want to run the show on their own without any synergy ----------------------
with the rest of the organization. Then the top-level executives try to return ----------------------
the centralized structure to gain more control and look for focused growth.
Companies solve this problem by adopting measures for better coordination ----------------------
and the top man again gains importance and the autonomy is restricted and well
defined. ----------------------
Phase 4 : Coordination ----------------------
Formal systems are adopted for bringing coordination and amalgamation ----------------------
of decentralized units into product groups. Employees are encouraged to
identify with the organization as a whole. This phase ends in Red Tape Crisis. In ----------------------

Notes this phase the system becomes too bureaucratic, while procedures overshadow
problem solving and innovation takes a back seat.
----------------------
Phase 5 : Collaboration
---------------------- The red tape is overcome by having strong interpersonal collaborations.
Self-discipline and greater accountability replace formal control. Teamwork
----------------------
is encouraged and stress is laid on innovation and experimentation with
---------------------- new practices. The revolution at the end of this phase would be solved by a
structure that would allow employees to periodically rest, reflect and revitalize
---------------------- themselves.
----------------------
Summary
----------------------
●● The right design for each company or division is specific to situations,
---------------------- needs and goals. The right organizational structure for a company must be
tailored for it. Cookie cutter or textbook approaches never create the best
----------------------
results. To design the best organization structure, the company needs to go
---------------------- through a very participative process where an experienced management
consultant helps you do the analysis necessary to create the best structure.
---------------------- ●● A Strategic Business Unit can encompass an entire company, or can
---------------------- simply be a smaller part of a company set up to perform a specific task. It
also serves as a defined external market where management can conduct
---------------------- strategic planning in relation to products and markets.
---------------------- ●● When evaluating a company as a possible investment, learn exactly
how it makes its money. Then think about how attractive and profitable
---------------------- that business model is. Admittedly, the business model doesn’t tell you
everything about a company’s prospects, but investors with a business
---------------------- model frame of mind can make better sense of the financial data and
---------------------- business information. It simplifies the job of identifying the companies
that are the best investments.
----------------------
---------------------- Keywords
---------------------- ●● Strategic Implementation: Actual execution of the strategy.

●● Organisation Structure: The structure displaying the hierarchy position
---------------------- in the organisation.
---------------------- ●● Departmentation: Division of organisation on the basis various criteria.
Eg. Departmentation on the basis of product, customer, process, market,
---------------------- etc.
----------------------
----------------------
1. Write a short note on decision making.
----------------------
2. Explain organizational structure.
----------------------

3. Why are strategic business units created? Notes
4. Write a short note on Organization Levels.
----------------------
5. What are the various types of departmentation.
----------------------
6. Explain Entrepreneurial Structure.
7. Write a short note on ‘Matrix Organization’. ----------------------
8. Explain span of management. ----------------------

9. Describe the various steps involved in decision making. ----------------------
10. Why are business models important for an organization?
----------------------
11. Strategy and business model goes hand in hand. Comment.
----------------------
12. Explain five key dimensions on which companies evolve and grow.
13. Why is organizational structure important? ----------------------
14. Explain the various levels of management. ----------------------

15. Why is vertical relationship between the management important? ----------------------

1. Decision-making can be defined as the selection of a course of action ----------------------
from among alternatives.
----------------------
2. The functional manager is responsible for personnel development and
more detailed technology research in the functional groups. ----------------------
3. Functional organisations are organised according to technological ----------------------
disciplines.

1. False ----------------------
2. True
----------------------
3. True
----------------------
1. An uncertainty decision situation exists when the decision-maker lacks ----------------------

knowledge of what all the alternatives are, what outcomes are associated
----------------------
with each alternative or cannot assign probabilities to each of the possible
outcomes. ----------------------
----------------------

Notes 2. A risk decision situation exists when the decision-maker faces more than
one alternative, but he/she knows all the alternatives, knows all of the
---------------------- possible outcomes associated with each of the alternatives, and can assign
probabilities to each possible outcome.
----------------------
3. A certainty decision situation exists when the decision-maker knows all
---------------------- the available alternatives and the outcomes, which will result from each
alternative.
----------------------
4. Bounded rationality is the manager’s limited mental capabilities and
---------------------- emotional constraints that prevent completely rational decision-making.
----------------------
Suggested Reading
----------------------
1. Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing
---------------------- Industries and Competitors. New York: Free Press.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Implementing Strategy : II
UNIT
10
Structure:
10.1 Introduction
10.2 Data vs Information
10.3 Control Systems
10.4 Strategic Decision Making
10.5 Corporate Social Responsibility (CSR)
10.6 Values and Ethics
Summary
Keywords
Suggested Reading
Implementing Strategy : II 243

Notes
Objectives
----------------------
----------------------
●● State the differences between data and information
---------------------- ●● Explain the process involved in making strategic decisions
---------------------- ●● Identify corporate social responsibility and ethics
----------------------
10.1 INTRODUCTION
----------------------
This chapter deals the difference between data and information, further
---------------------- discusses the various control systems. It also talks about factors which affect
---------------------- how strategic decisions are made and what points need to be considered. The
different types of corporate social responsibility format which companies
---------------------- follows. It introduces the concept of values & ethics.
---------------------- Organizational structure provides the framework and mechanisms

for the distribution and responsibility within the organizations. We thus need
---------------------- systems that would bind the different units, so that performance takes place in
a coordinated manner.
----------------------
All managers need information to know what they need to grasp for
---------------------- strategizing and to coordinate their job with others. Typically this is known
as MIS – Management Information System. Effectiveness of any information
---------------------- depends on the timing and correctness of information presented. Information
---------------------- is required at all levels of management, but the same information is not useful
at every level. At the top management level , a very broad survey relating to
---------------------- areas where results have deviated from the plan i.e. management by exception,
whereas middle levels needs summary reports and lower level needs detailed
---------------------- information report.
----------------------
10.2 DATA VS INFORMATION
----------------------
Data and information are two separate things. Data are facts not being
---------------------- currently used in a decision process and generally take form of records and
---------------------- files, whereas information consists of data that have been retrieved, processed
and used for inference purposes or as a basis for forecasting or decision making.
---------------------- Available data or facts are collected, screened, collated and processed in order to
develop meaningful information for decision making. Raw facts about activities
---------------------- are called data, whereas meaningful presentation of data is called information.
---------------------- Different kinds of information systems
---------------------- Four main types of information systems serve different organizational
levels:
----------------------
1. Operational Level Systems.
---------------------- 2. Knowledge Level Systems.

3. Management Level Systems. Notes
4. Strategic Level systems.
----------------------
Operational level Systems support operational managers by keeping track of
the elementary activities and transactions of the organization, such as sales, ----------------------
receipts, cash deposits, payroll, credit decisions, and the flow of materials in a
----------------------
factory. Examples of operational level systems include a system to record bank
deposits from automatic teller machines or one that tracks the number of hours ----------------------
worked each day by employees on a factory floor.
----------------------
Knowledge Level Systems support knowledge and data workers in an
organization. The purpose of knowledge level systems is to help the business ----------------------
firms integrate new knowledge into the business and to help the organization
control the flow of paperwork. Knowledge level systems, especially in the ----------------------
form of workstations and office systems are the fastest growing applications in
----------------------
business today and they are the best example in this segment. Another example
for the same can be Research & Development Tools. ----------------------
Management Level Systems are designed to serve the monitoring, controlling, ----------------------
decision-making, and administrative activities of middle managers. The principle
question addressed by such systems is: Are things working well? These systems ----------------------
compare the current day’s output with that of a month or year ago. Here there is
less need for instant information but periodic reports are still required. ----------------------
Strategic Level Systems help senior management tackle and address strategic ----------------------
issues and long-term trends, both in the firm and in the external environment.
Their principle concern is matching changes in the external environment with ----------------------
existing organizational capability. For example, in today’s age almost anyone ----------------------
who can implement ERP systems has gone ahead and implemented it, so that
they can get the pulse of the situation in real time. ----------------------
----------------------
----------------------
Fill in the blanks.
1. _____________ consists of data that have been retrieved, processed ----------------------
and used for inference purposes or as a basis for forecasting or decision- ----------------------
making.
2. ______________ are facts not being currently used in a decision process ----------------------
and generally take form of records and files.
----------------------
3. Organisational structure provides the __________ and mechanisms for
the distribution and responsibility within the organisations. ----------------------
----------------------
Activity 1
----------------------
Make a standard performance table for any company. ----------------------
----------------------

Notes 10.3 CONTROL SYSTEM
---------------------- Establish standards of performance.
---------------------- Measure actual performance.

Evaluate performance against standards.
----------------------
Find out the reasons for variance.
----------------------
Determine and take corrective action.
---------------------- (Will be dealt in detail in Unit 8.)
---------------------- Information System for Management Control
---------------------- Management control information is required by the managers of various

departments, profit centers to measure performance, decide on control actions,
---------------------- formulate new decisions rules to be applied by operational personnel, and
allocate resources. For this summarized information is needed. It must be
---------------------- processed so that trends can be observed, reasons for performance variances
---------------------- understood, and solutions suggested. The control process requires the following
types of information:
---------------------- 1. Planned performance (standard, expected, budgeted).
---------------------- 2. Variances from planned performance.
---------------------- 3. Reasons for variances.
4. Analysis of possible decisions or course of action. The information can be
----------------------
tabulated as shown in Table 10.1
---------------------- Table 10.1
---------------------- Performance Variance Reasons Analysis
---------------------- Standard
Expected
---------------------- Budgeted
---------------------- The database for management control consists of two major elements:
---------------------- 1. The database provided by operations.

2. The plans, standards, budgets, etc, which define management expectations
----------------------
about performance.
---------------------- There may be some external data such as industry comparisons and cost
indices.
----------------------
The processing requirements to support management control activities
---------------------- are the following:
---------------------- 1. The planning and budget models to assist managers in finding problems
in direction and preparing and revising plans and budgets. This includes
---------------------- projections of effects of current actions.
----------------------

2. Variances reporting programs to process scheduled reports showing Notes
performance and variance from planned performance or other standards
such as competitor performance. ----------------------
3. Problem analysis models to analyze data to provide input for decision ----------------------
making.
----------------------
4. Decision models to analyze a problem situation and provide possible
solutions for management evaluation. ----------------------
5. Inquiry models to assist in responding to inquiries.
----------------------
The outputs from the management control information systems are plans
and budgets, scheduled reports, analyses of problem situations, decisions for ----------------------
review, and inquiry responses. ----------------------
Appraisal System
----------------------
Performs role of evaluation of managerial performance against
organizational objectives, so as to ensure that strategy implementation takes ----------------------
place. It also provides basis for salary, rewards, incentives, promotions, etc.
----------------------
Major issues :
----------------------
●● What factors must be used for appraisal? – Ideal to use multiple criteria
than a few or single criteria. ----------------------
●● Judge the relevance of the appraisal system to strategy; instead of the
----------------------
forms and the process, the relevance to strategy is more important.
●● The procedure of appraisal – who makes it and when? ----------------------
Motivation System ----------------------
It is to ensure a strategically desired behavior, especially as the individual
----------------------
objectives may not be in line with the organization objectives. There are no set
rules for this. ----------------------
Development System
----------------------
Management development is the outcome of the experience and
learning that takes place due to performance of managerial functions. Planned ----------------------
development takes place when new experience is provided in the form of ----------------------
education and training.
Planning System ----------------------
The extent to which managers participate in planning to the involvement ----------------------

in the implementation does matter in the effective implementation. It is observed
higher the involvement, the better the performance. Under decentralized ----------------------
planning, the involvement is normally higher. ----------------------
Leadership
----------------------
This is one of the most important features in implementation of strategic
management. Based on various studies, a leader should have the following ----------------------
capabilities :
----------------------

Notes ●● Ability to develop a vision, able to see patterns into the future.
●● A change initiator, highly adaptable to change and inspire change.
----------------------
●● Exemplify the values, culture and ethics.
---------------------- ●● Develop leaders at lower levels.
---------------------- ●● Ability to manage contradictions.
●● Ability to influence and inspire.
----------------------
●● Have a high level of emotional intelligence – Self Awareness, Self
---------------------- Regulation, Internal Motivation, Empathy, Social skills etc.
---------------------- ●● Able to diagnose problems and their real causes.
There is enough research that points out that leadership and management
---------------------- are not exactly the same.
---------------------- There is a lot of debate on emotional intelligence. Let us see what it is.
---------------------- Different leaders have various qualities in varying degrees. The one
quality that all great leaders share is that of emotional intelligence.
----------------------
Evaluating Emotional Quotient (EQ) :
---------------------- ●● Companies employ trained psychologists who develop ‘competency
---------------------- models’ in order to identify potential leaders.
●● Competency models reveal 3 types of capabilities:
----------------------
1. Technical Skills.
---------------------- 2. Cognitive Skills.
---------------------- 3. Emotional Intelligence/ Quotient.
---------------------- ●● EQ emerges as twice as important as the other two; more so at the highest
levels of the company.
---------------------- Components of Emotional Intelligence :
---------------------- 1. Self Awareness : a deep understanding of one’s emotions, strengths,
weaknesses, needs, drives and their effect on self and others.
----------------------
Typical behavioural characteristics :
----------------------
 Candid.
----------------------  Accurate and open.
----------------------  Self depreciating sense of humour.
----------------------  Recognition of strengths and weaknesses.
 Self confidence.
----------------------
 Misconstrued for wimpiness and not being tough enough.
----------------------
2. Self-Regulation : The ability to control and channelize positively one’s
---------------------- moods and impulses.
----------------------

 Creates an atmosphere of trust and fairness. Notes
 Better change management.
----------------------
 Enhanced integrity and thoughtfulness.
----------------------
 Misconstrued for total lack of emotion.
3. Motivation: The drive to achieve beyond one’s expectations. External ----------------------
and internal motivators can drive such a person. ----------------------
 Passion for work.
----------------------
 Unflagging energy.
----------------------
 Forever raising the performance bar.
 Commitment to the organization. ----------------------
 Likes to keep score. ----------------------
4. Empathy : Thoughtful consideration of the emotions/feelings of people ----------------------
while making intelligent decisions.
 Expertise in building and retaining talent. ----------------------
 Cross cultural sensitivity. ----------------------

 Services to clients and customers. ----------------------
 Ability to build and lead teams.
----------------------
 Coaching and mentoring.
----------------------
 Misconstrued as people think that leaders with empathy cannot
make hard decisions. ----------------------
5. Social Skills : It is the ability to manage relationships and moving people ----------------------
in the direction one desires.
----------------------
 Adept at managing teams.
 Persuaders. ----------------------
 Allows leaders to put their EI to work. ----------------------
 Misconstrued for whiling away their time when they are actually ----------------------
building a rapport with others.
----------------------
10.4 STRATEGIC DECISION MAKING
----------------------
Major strategic decision making is influenced by more than portfolio ----------------------
analysis and other decision making management tools. The other forces that
affect it are: ----------------------
●● Administrative Constraints. ----------------------
●● Financial Constraints
----------------------
●● CEO’s agenda & Management Approach.
----------------------

Notes Management
---------------------- Tools
----------------------
---------------------- Administrative Decision Financial

Constraints Making Constraints
----------------------
----------------------
CEO’s agenda &
---------------------- management approach
----------------------
Fig. 10.1
----------------------
Administrative Constraints :
---------------------- ●● First is opinion of the members of the dominant coalition – every company
---------------------- has a small set of people who are involved in most critical decisions. This
is the dominant coalition.
---------------------- ●● Second is the opinion and commitment of top managers of affected
---------------------- divisions – the view and consent / consensus is important as they are the
ones who will implement the decisions.
---------------------- ●● Third is ability and capacity to implement a particular strategy & politics
---------------------- – based on experience, expertise, competence.
Financial Constraints :
----------------------
●● Limited supply of capital, cost of capital – money is never in unlimited
---------------------- supply.
---------------------- ●● Dependence on external markets and amount of internal resources – more

the internal sources, the more comfortable the company.
---------------------- ●● Mental attitude towards debt, and probability of variation in the cash
flows – would like to be debt free, have high predictability in cash flows,
----------------------
which is not possible, so always very conservative.
---------------------- The Ceo’s Agenda and Management Approach :
---------------------- Main issues that the CEO is focused upon :
---------------------- ●● Whether the CEO chooses to manage the outcome of a strategic decision
or the CEO manages the process by which the decision is made.
---------------------- ●● The extent to which they give attention to administrative constraints.
---------------------- ●● The CEO’s agenda & Management Approach – over all the issues that
require attention, CEO chooses some he feels close to the heart and where
---------------------- he may have the skills, rest he delegates.
---------------------- ●● The extent of backing by the largest and influential stakeholders – if he
has the backing and the power, can make a lot of difference.
----------------------

●● Just appointed or at the last period of the position – in both he would like Notes
consensus, rather than confrontation.
●● The shaping of the dominant coalition. ----------------------
Social responsibilities of a Business : ----------------------
Like a feudal estate, a corporation is considered a piece of property, not a ----------------------
human community, so it can be owned and sold by the propertied class.
----------------------
Stockholders are “owners” of corporations, we’re often told – that’s why
their interests are paramount. It’s why they alone have a vote for the board of ----------------------
directors, and why maximizing their returns is the purpose of the corporation.
It’s a kind of magical incantation, “own.” It’s deceptively small, and might be ----------------------
worth unpacking. Because stockholders “own” corporations, implicitly :
----------------------
1) The corporation is an object that can be owned.
----------------------
2) Stockholders are sole masters of that object.
3) They can do, as they like with “their” object. ----------------------
Stockholders gain omnipotent powers: they can take massive corporations, ----------------------
break them apart, load them with debt, sell them, shut them down, and drive out
human beings – while employees and communities remain powerless to stop them. ----------------------
Johnson & Johnson turns to credo in crises ----------------------

“The public comes first” is the essence of the Johnson & Johnson Credo, ----------------------
a set of principles that governs the company’s actions. It was this credo that
led Johnson & Johnson to remove all boxes of extra strength Tylenol from ----------------------
retail shelves across the country at a cost to the company of $100 million after
----------------------
cyanide laced Tylenol capsules caused seven deaths in the Chicago area. The
overwhelmingly favorable response from the public proved that this socially ----------------------
responsible action was also a sound business decision.
----------------------

1. Effectiveness of any information depends on the timing and ----------------------
correctness of information presented.
----------------------
2. Same information is useful at every level.
3. Strategic level systems help senior management tackle and address issues ----------------------
of short-term trends, both in the firm and in the external environment.
----------------------
----------------------
Activity 2
----------------------
List a few points, which need to be considered for the appraisal, motivation
and development and planning systems in your company. ----------------------
----------------------

Notes 10.5 CORPORATE SOCIAL RESPONSIBILITY (CSR)
---------------------- The obligation of an organization/corporate to seek actions that protect
and improve the welfare of society along with its own interests. A business
---------------------- enterprise is a trust of the community. Social responsibilities of a business mean
the obligations, which it has to discharge towards the sections of the community.
----------------------
Major concerns about social responsibility are a relatively recent
---------------------- phenomenon. Social responsibilities began to emerge as an issue during the
---------------------- late 1800s when large organizations arose. Anti-competitive practices (e.g.
kickbacks and price-fixing) eventually led to Government regulations and
---------------------- labor movement pressures to reform. A few important figures such as Andrew
Carnegie became major donors to various social causes. The movement toward
---------------------- greater concern for Social responsibilities gained momentum during the great
---------------------- depression. General Robert E. Wood, CEO of Sears, had become one of the
first top managers to argue for managerial, rather than just Government actions
---------------------- in behalf of social concerns. The various social movements of the 1960’s(civil
rights, women’s liberation, and environmentalism) highlighted still further the
---------------------- public notion that organizations have Social responsibilities.
---------------------- These historical developments have led to three major contrasting
perspectives on corporate social responsibility:
----------------------
1. The invisible hand :
----------------------
A view that holds that the entire social responsibility of a corporation can
---------------------- be summed up as “make profits and obey the law”. In this way corporate
Social responsibilities will be guided by the invisible hand of free market
---------------------- forces, which ultimately ensure that resources are allocated efficiently
for the betterment of the society. Otherwise business executives will take
----------------------
on the right to allocate resources, thereby gaining excessive power while
---------------------- having little accountability to society for their allocation decisions.
2. The hand of the Government :
----------------------
A view that argues that the interests of the society are best served by
---------------------- having the regulatory hands of the law and the political process, rather
---------------------- than the invisible hand, guides those results of corporation’s endeavors.
Thus the undesirable side effects of business functioning can be overcome
---------------------- by passing laws. Neither the invisible hand nor the hand of Government
approach is willing to give corporate leaders latitude in the area of social
---------------------- issues.
---------------------- 3. The hand of Management :
---------------------- The hand of Management perspective states that corporations and their
managers are expected to act in ways that protect and improve the welfare
---------------------- of society as a whole as well as advance corporate economic interest.
Three major arguments are typically advanced in favor of organization
---------------------- social responsibility.
----------------------

●● The anti freeloader argument holds that since business benefits from a Notes
better society, they should bear part of the cost by improving it by actively
working to bring about solutions to social problems. ----------------------
●● The capacity argument states that the private sector, because of its ----------------------
considerable economic and human resources, must help in social
programs. ----------------------
●● The enlightened self interest argument holds that business exists ----------------------
at society’s pleasure and that, for their own legitimacy and survival,
businesses should meet their expectations of the public regarding social ----------------------
responsibility.
----------------------
The idea that managers have social responsibilities stems, in large part,
from the growing interdependencies at present times. Such interdependencies ----------------------
have created an intricate web of common interests between corporations and
the communities in which they exist. ----------------------
This broad view of social responsibilities of management encompasses ----------------------
economic, ethical, discretionary responsibilities.
----------------------
Discretionary responsibility
----------------------
Ethical responsibility
----------------------
Legal responsibility
----------------------
Economic responsibility
----------------------
Economic and legal responsibility : all the three perspectives recognize
the economic and legal responsibilities of management on social responsibility. ----------------------
These responsibilities include making a profit and obeying the law. ----------------------
Ethical and discretionary responsibility : Includes behaviors and activities ----------------------
that are expected of business from society’s members. Ethical responsibilities
tend to be somewhat ill defined, frequently controversial, and subject to change ----------------------
over time.
----------------------
As a result it is often difficult for business leaders to clearly identify these
responsibilities. ----------------------
On the other hand discretionary responsibility includes voluntary beneficial ----------------------
activity that is not strongly expected of business by society’s members. While
an organization would not generally be viewed as unethical per se if it declines ----------------------
to participate in them, elements of society may view such activity as highly
desirable. ----------------------
Examples of discretionary activities are making philanthropic contributions, ----------------------

sponsoring a clinic for AIDS victim, and training the economically disadvantaged.
----------------------
For instance, Merck decided to provide free supplies of its new drug, Ivermectin,
to millions of people in Africa, South America and the Middle East to protect them ----------------------
from a serious parasite disease called “river blindness”. The program means that the
drug company has millions of dollars in foregone profits. ----------------------

Notes Social Responsibility has been described in number of ways. Following
are 2 popular definitions :
----------------------
Bowen : “The obligation of managers to pursue those policies, to make those
---------------------- decisions, or to follow those lines of action which are desirable in terms of the
objectives and values of the society.”
----------------------
Koontz and O’donnell : “The personal obligation of the people as they act in
---------------------- their own interests to assume that the rights and legislative interests of others
are not infringed.”
----------------------
Doctrine of Social Responsibility :
----------------------
Philosophy Process Function Goal
----------------------
---------------------- Social Creative Socials Social Action or More Effective

Reponsibility decision by Reponse and Happy
----------------------
of Business M Management Society
----------------------
Fig 10.2
---------------------- Eminent Personalities on Social Responsibility
---------------------- Peter Drucker :
---------------------- “The first social responsibility of business is to make enough profit to
cover the costs of the future. If this first “Social Responsibility” is not met,
---------------------- no other social responsibility can be met…the proper “social responsibility”
of business is to tame the dragon, that is to turn a social responsibility into
----------------------
an economic opportunity and economic benefit, into productive capacity, into
---------------------- human competence, into well-paid jobs, and into wealth.”
Abraham Maslow :
----------------------
He has described the organization needs in terms of the need hierarchy
---------------------- as follows. The Basic and Security needs are satisfied by means of Economic
---------------------- Profits. Market structure, Conduct and Performance manifests the level of
Affiliation and Status needs. Industry Recognition and Leadership across a
---------------------- spectrum of assessment criteria satisfies the Self-Actualizing needs. It is along
this highest tier where organization is in position of voluntarily contributing to
---------------------- the welfare of all the constituencies.
---------------------- Organization in satisfying its physiological needs is answerable to its
stockholders, for affiliation needs it addresses its peers and in self-actualization,
---------------------- it appeases all its claimants.
---------------------- Adam Smith & Milton Friedman :
---------------------- They maintain that business should perform only the economic function of
generating profits. The social function like welfare of the society should be left
---------------------- to institutions like Government.
----------------------

Thus, with the exception of Smith and Friedman, both the other views Notes
recognize the obligation on the part of the business to contribute to the society.
Business is said to have two aspects : ----------------------
1. Individual ----------------------
2. Social
----------------------
Profit making represents the individual aspect and the social obligation of
supplying goods and services at the acceptable price. The social environment ----------------------
of any business is the combination of some material and human resources for
producing and exchanging value in the form of goods and services. ----------------------
So, it is important that business must recognize the concept of social ----------------------
responsibility and discharge their obligations in the best possible manner to
----------------------
the above mentioned factors. It is a part of business ethics. If businessmen are
not responsive to social need, a clash between the business community and ----------------------
the general society is inevitable. Such a clash is not desirable. In fact, it may
adversely affect the entire social structure. ----------------------
Society provides various facilities to businessmen. The government ----------------------
provides them protection and an orderly atmosphere for conducting business
activities. The means of business is possible because of the cooperation of the ----------------------
entire society. It is, therefore, necessary that businessmen should help the entire
----------------------
society. The function of business is to do business and thus, serve social and
economic ends of the society. ----------------------
Rationale of Social Responsibility :
----------------------
Business has a responsibility towards society due to the following reasons:
----------------------
1. As a result of the impact of its own operations, which might prove harmful
to the community, such as emission of soot, etc. ----------------------
2. Since it is the society which permits men and women to engage resources ----------------------
in business, the business in return makes contribution to the society
because it is what society demands from it. ----------------------
3. Social responsibility also emanates from social power which corporation ----------------------
possesses and develops, say as a result of being potential employers in the
society and wealth creators. ----------------------
4. Business can be viewed as a custodian of society’s resources, which it
----------------------
uses to accomplish its objectives.
5. Also through creative efforts business can convert the existing ----------------------
environmental ills into a better environment more responsive to the
----------------------
business operations.
6. With problems of society becoming increasingly complex and intractable, ----------------------
business is required to share responsibility of the government to alleviate
----------------------
social problems.
7. With the passage of time, the era of purely private business for private ----------------------
profit has given place to the new idea that business has a duty to the
----------------------
public, whose money it is utilizing in order to conduct business itself.

Notes Concept, Nature & Necessity of Social Responsibilities
We can define the concept of social responsibilities of business as
----------------------
its responsibilities and commitments to society beyond the basic, traditional
---------------------- economic functions of producing and supplying goods and services. As the
economic agents of society business enterprise are responsible to understand
---------------------- the nature of economic power they command, to recognize the limits of their
own and to exercise their power with restraint so as to promote social good,
----------------------
uphold public interest and preserve social values. Such responsibility is to be
---------------------- assumed on a voluntary basis in a gracious manner for the genuine benefit of
society. It is not mere responsiveness to social demands, pressures needs and
---------------------- aspirations of various interest groups.
---------------------- Models of Social Responsibility :
1. Austere Model : Owner is at the focus.
----------------------
2. householder’s Model : Owners as well as the employees are at the focus.
----------------------
3. Vendor’s Model : Customer is at the focus.
---------------------- 4. Investment Model : Fulfill social responsibility now, to reap benefits in
---------------------- the future.
5. Civic Model : Company attempts to behave as a law abiding corporate
----------------------
citizen.
---------------------- 6. Creative Model : Company’s resolution to improve the overall quality of
life.
----------------------
Area of Social Responsibility :
----------------------
The circle in Fig 10.3 shown defines the area covered by social
---------------------- responsibility.
----------------------  Inner Circle : It represents traditional responsibility of business

for its economic function. This traditional responsibility has some social
---------------------- implications like providing employment.
----------------------  Intermediate Circle : It represents wider area of responsibility arising
from the performance of basic economic function. Issues represent it like
---------------------- equal employment opportunities to all and preventing pollution.
----------------------  Outer Circle : It’s still not well defined but is associated with issues
like training of unemployed, employment for handicapped people and
---------------------- minorities, etc.
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
Responsibilities with general social
problems ----------------------
Responsibilities with arise from ----------------------
performance of basic function
Performance of basic function ----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 10.3
Types of Social Responsibilities of a business ----------------------
The important types of social responsibilities of a business can be ----------------------

classified in the following categories :
----------------------
Based on Primary / Economic Goals :
----------------------
●● Responsibilities towards shareholders (owners and depositors).
●● Responsibilities towards customers / consumers. Based on Social Goals : ----------------------
●● Responsibilities towards economic and social security for employees; ----------------------
and
●● Responsibilities towards services on the community and to society in ----------------------
general. ----------------------
Now let us see how each obligation is discharged.
----------------------
1. Economic Goals
----------------------
a) Responsibilities towards shareholders: The following are the
responsibilities of business enterprise to the shareholders that are ----------------------
the owners of the company.
----------------------
b) Keep the enterprise stable and enterprising with planned growth.
c) Supply accurate and full financial information about the company ----------------------
with effective communication. ----------------------
d) Provide fair and adequate returns for the capital provided and risks
undertaken with fair dividend and interest. ----------------------
e) Supply audited annual accounts in order that the public owners ----------------------
may be satisfied that their capital has been faithfully and fruitfully
utilized. ----------------------
The satisfactory fulfillment of these obligations inspires and induces a man ----------------------
to think of entering into a business or continuing with business, and contributing
----------------------
to the growth of ‘capital formation’.
----------------------

Notes 2. Responsibilities towards consumers : The following are the
responsibilities in relation to consumers.
----------------------
a) Provide maximum possible satisfaction to consumer by providing
---------------------- quality goods and services at reasonable prices.
b) Avoid all unfair trade practices, which are harmful to consumers.
----------------------
c) Allow free and fair competition in the market.
----------------------
d) Mention clearly the wide social responsibility in the Memorandum
---------------------- of Association of Companies.
---------------------- e) Introduce consumers’ advisory councils and give due consideration

to the complaints and suggestions of the consumers.
---------------------- f) Maintain a regular and continuous supply of goods and introduce
---------------------- better and new products through R&D.
g) Utilize scarce resources in the best possible manner, increase
----------------------
productivity and reduce prices.
---------------------- 3. Social Goals : The following are the responsibilities with regard to
employees.
----------------------
a) Payment of fair wages, recognition, appreciation and encouragement
---------------------- of special skills and promotions.
---------------------- b) Provide best possible working conditions for productive work in
the enterprise, meaningful work and job satisfaction.
----------------------
c) Creates conditions in which workers are able to put forward their
---------------------- best efforts in the common task as free men.
---------------------- d) Recognize the following rights of workers towards security of their
employment rights to fair wages, right to participate in decision
---------------------- affecting their working life, right of join a trade union, right to have
a collective bargaining agreement and right to strike.
----------------------
e) Provide opportunities to worker to develop their capabilities through
---------------------- training, education and promotion.
---------------------- f) Introduce a code of conduct for the workers and proper machinery
for setting the grievances of workers.
----------------------
g) Provide guarantee of religious, political and social independence
---------------------- to workers and provide reasonable facilities to enable them to
participate in welfare and civic activities, which benefit the
---------------------- community.
---------------------- h) Encourage the participation of workers in management at different
levels.
----------------------
These lead to industrial peace, team spirit, discipline, higher
---------------------- productivity and utilization of capacities.
----------------------

4. Responsibilities towards Society and Community : The following are Notes
the responsibilities towards the community.
----------------------
a) Create employment opportunities without discrimination and
provide a better standard of living and welfare to all the members ----------------------
of the society.
----------------------
b) Respect the commercial and industrial laws, pay taxes, etc., honestly
and keep up the business morality. ----------------------
c) Do not damage the amenities of the community and contribute
----------------------
towards social causes like promotion of education and population
control. ----------------------
d) Avoid bad, smoky chimneys, effluents and pollution of any kind. ----------------------
Abide by the Environment Protection Act.
----------------------
e) To keep company meetings open to the representatives of
the consumers, the worker, and the community as well as to the ----------------------
shareholders.
----------------------
f) To introduce a system of social audit by trained and professional
observers. ----------------------
g) Promote ancillary and small-scale industries in the backward areas. ----------------------
h) Improve the quality and volume of products, prevent traders ----------------------
diversion and ensure that whatever is produced reaches the
customers at affordable prices. ----------------------
Social Responsibility Functions Performed by Indian Companies ----------------------
A large number of Indian companies discharge their social responsibilities
quite satisfactorily. There are many companies, which have excelled in such ----------------------
activities but when seen in the light of the country’s vast needs, the achievements ----------------------
fall short of requirements. Here are few illustrations of the different social
responsibility functions that Indian companies typically perform. ----------------------
●● Asian Paints funded a large-scale community development project to ----------------------
enable farmers to use local resources effectively.
●● BHEL contributed to the development of the quality of life, health care ----------------------
and family welfare, etc. in rural areas. ----------------------
●● Brooke Bond had been interested in animal welfare providing vet services.
----------------------
●● Colgate-Palmolive did pioneering work in the promotion of the sports,
dental, health and small-scale industry development. ----------------------
●● Escorts Ltd. worked for farm mechanisation, agricultural development, ----------------------
health and other issues.
●● ITC Ltd. was actively involved in the areas of agriculture, culture, sports ----------------------
and pollution control.
----------------------
●● SAIL Ltd. contributed to the sectors of agriculture, industry, education, etc.
----------------------

Notes ●● TISCO has been a pioneer in discharging social responsibility and has
made several contributions in areas such as community development,
---------------------- agriculture and related activities, rural industrialization and so on.
----------------------
10.6 VALUES AND ETHICS
----------------------
Personal values are a conception of what an individual or groups regard
---------------------- as desirable. Value is a view of life and judgement of what is desirable, which
is very much a part of a person’s personality and a group’s morale.
----------------------
Business ethics is how personal norms apply to activities and goals of a
---------------------- commercial firm. A major task of leadership is to inculcate personal values and
impart a sense of business ethics. This requires creating consistency among
---------------------- the business values and ethics and the proposed strategy. Then you need to
---------------------- inculcate the right set of values, reconciling divergent values and modifying
values that are not consistent with the strategy.
---------------------- Ethics
---------------------- Ethics is defined as the “discipline dealing with what is good and bad and
with moral obligation.” Thus personal ethics has been referred to as “the rules
---------------------- by which an individual lives his personal life” and accounting ethics pertain
---------------------- to “the code that guides the professional conduct of accountants.” Business
ethics is concerned with truth and justice and has a variety of aspects such as
---------------------- the expectations of society, fair competition, advertising, public relations and
corporate behaviour.
----------------------
Managers especially top managers do have a responsibility to
---------------------- create an organizational environment that fosters ethical decision making by
institutionalizing ethics. Thus applying and integrating ethical concepts with
----------------------
daily actions. Theodore Purcell and James Webber suggested that this could be
---------------------- accomplished in three ways:
●● By establishing an appropriate company policy or code of ethics.
----------------------
●● By using a formally appointed ethics committee.
----------------------
●● By teaching ethics in Management Development Programmes.
---------------------- Managerial Ethics from Indian Perspective
---------------------- 1. Motivational strategies need to be based on a “giving model” rather than
a “needing” model of man.
----------------------
2. Ability for developing effective leadership style requires an understanding
---------------------- of the specialties of man: sattwa (righteousness), rajas(selfishness) and
tamas (laziness).
----------------------
3. All managerial decisions are subjective in the ultimate analysis and the
---------------------- effectiveness of such decisions depends critically on the purity of mind of
the decision-maker and many more.
----------------------
It proves that ethics and values are deeply rooted in Indian tradition.
---------------------- They are considered to integrate core values such as honesty, trust, respect and

fairness into strategic management, policy making, practicing management and Notes
decision making.
----------------------
Evolution of Ethics in India
It has been perceived as a set of legally driven codes. But a shift is ----------------------
occurring considering business ethics as central to managing organizations.
----------------------
Companies are formulating values based globally consistent codes for ethical
understanding and appropriate decision making at all levels even as they face ----------------------
immense external challenges.
----------------------
There was a survey conducted by KPMG India to gauge the state of business
ethics. Its findings are mentioned below : ----------------------
The major ethical concerns among Indian Companies were: ----------------------
1. Misuse of confidential information (77%).
----------------------
2. Poor quality of goods and services. (55%).
----------------------
3. Insider Trading (48%).
4. Receiving gifts from suppliers (47%). ----------------------
Only 21% companies felt that not communicating the core values of the ----------------------
organization would put it at a high risk.
----------------------
85% companies claimed to have a mission statement, but most of
these statements focused on customer satisfaction and very few companies ----------------------
considered ethical issues like sexual harassment, linguistic and regional biases
and castesism, as important. ----------------------
Types of Managerial Ethics ----------------------

An eminent researcher in the area of social responsibility Archie.B.Carroll ----------------------
has given three major levels of morality in management.
----------------------
1. Immoral Management
An approach that not only lacks ethical principles but also is actively ----------------------
opposed to ethical behavior. The key operating principle of immoral
----------------------
management is “Can we make money with this action, decision or
behavior other considerations matter little, if at all.” ----------------------
One example of immoral management involved three plant managers at ----------------------
a GM Chevrolet truck plant in Flint, Michigan. In a flagrant violation of
the company’s contract with the United Auto Workers, they used a secret ----------------------
control box to override a control panel that normally set the speed of
the assembly line. The managers, under heavy pressure from higher level ----------------------
executive because of missed deadlines, soon began meeting production ----------------------
goals and receiving praise from their bosses. When the scheme was
discovered, workers won a $1 million settlement because of the extra ----------------------
work they had been forced to do.
----------------------
----------------------

Notes 2. Moral Management
An approach that strives to follow ethical principles and percepts. The
----------------------
guiding principle here is, “Is this action, decision or behavior fair to us
---------------------- and all parties involved?”
McCulloch Corporation, a manufacturer of chain saws, showed ethical
----------------------
moral leadership, when it decided to use chain breaks on all its saws after
---------------------- the Consumer Product Safety Commission statistics highlighted acute
dangers of chain saws. This move was against the wishes of Chain Saw
---------------------- Manufacturers Association who argued that the statistics were inflated.
Later the company even withdrew from the association.
----------------------
3. Amoral Management
----------------------
An approach that is neither immoral nor moral but rather ignores or is
---------------------- oblivious to ethical considerations. The guiding principle here is whether
“Within the scope of the law can we make money with this action, decision
---------------------- or behavior?”
---------------------- One example of amoral management is Nestlé’s decision to market baby
formula in third world countries. The Switzerland-based company did not
---------------------- anticipate the negative effects on mothers and babies of marketing formula
---------------------- in areas with impure water, poverty and illiteracy. Its indifference eventually
led to a worldwide consumer boycott of all Nestle products. Similarly when
---------------------- PepsiCo used the Frito-Bandito theme to promote its corn chips, it did not
foresee the concept’s offensiveness to a group of Mexican-Americans who
---------------------- ultimately pressured the company into withdrawing the advertising.
---------------------- Situational Factors that Influence Ethical Behaviour
---------------------- A) External Factors
1. Environmental Competitiveness : It tends to encourage
----------------------
unethical behavior. Some industries in which price fixing is
---------------------- common like automobiles, paper, cartons, plumbing fixtures, and
heavy electrical equipments, tend to have strong competition,
---------------------- products that are fairly similar and frequent price changes and
negotiations. Competition can foster unethical behavior in not-
----------------------
for-profit organizations as well.
---------------------- 2. Environmental Munificence : When munificence is low then the
opportunities for success are limited. The struggle for financial
----------------------
performance in such an environment may cause some organizations
---------------------- to behave unethically. This happened with Beech Nut Nutrition
Corporation, 2nd largest U.S. baby food manufacturers. Their
---------------------- executives ignored the chemist warnings that the apple concentrate
that the company was buying at below market prices was extensively
----------------------
altered and sold the synthetic juice with a label of “100% fruit
---------------------- juice” since the company was bordering insolvency.
---------------------- Even high munificence may also lead to unethical behavior as

organization attempts to grow quickly and take advantage of a Notes
favorable situation.
----------------------
3. Extreme dependency of one organization over another : Which
creates pressures for bribers and payoffs. For example, before ----------------------
various drugs can be offered to the public, they must be approved by
the FDA. The efforts by some generic drug makers to expedite the ----------------------
approvals led to a scandal in which three FDA employees pleaded
----------------------
guilty to taking illegal gratuities from the drug makers and two drug
makers admitted submitting false data to the agency. ----------------------
B) Internal Factors
----------------------
Internal factors like pressure for high performance and output may induce
individuals to take shortcuts such as price fixing, secretly speeding up the ----------------------
assembly line, or releasing unsafe products. Labour dissatisfaction may
----------------------
also result in unethical behavior as anger replaces more constrained and
rational behavior. Ironically delegation of authority and encouragement ----------------------
of innovation may increase the likelihood of unethical behavior because
of the great latitude and creativity involved. ----------------------
Mechanisms for Ethical Management ----------------------
Top Management commitment ----------------------
Top Management can demonstrate their own commitment by instituting
----------------------
a variety of the mechanisms discussed below and by setting positive
examples through their own behaviour. ----------------------
Codes of ethics
----------------------
Guidelines to guide employees when they encounter an ethical dilemma.
These can be given to every new employee; can be displayed throughout ----------------------
the organization.
----------------------
Ethics committee
----------------------
Group charged with helping to establish policies and resolve major questions
involving ethical issues confronting employees. The committee may also ----------------------
oversee training programs on ethics. Often the committee consists of several
individuals from top management and/or board of directors. ----------------------
Ethics audit ----------------------

Systematic efforts to assess conformance to organizational ethics and ----------------------
help understanding of those policies, aid understanding of those policies,
and identify serious breaches requiring remedial action. Even with such ----------------------
efforts, ethical problems can be difficult to identify.
----------------------
Ethics training
----------------------
To encourage ethical behavior, it may focus exclusively on ethical
concerns or may be integrated into training programs that cover a variety ----------------------
of organizational issues. Ethical training can help align behavior in the
ethical arena with major organizational goals. ----------------------

Notes Ethics hotline
A special telephone line established to enable employees to bypass the
----------------------
normal chain of command in reporting grievances and serious ethical
---------------------- problems. The line is usually handled by an executive designated to
investigate and help resolve issues that are reported. A hotline facilitates
---------------------- the internal handling of problems and thus reduces the likelihood that
employees will become external whistle blowers.
----------------------

---------------------- 1. Management _______________ information is required by the managers
of various departments, profit centres to measure performance, decide on
---------------------- control actions, formulate new decision rules to be applied by operational
---------------------- personnel and allocate resources.
2. _____________ is the outcome of the experience and learning that takes
---------------------- place due to performance of managerial functions.
---------------------- 3. _____________ circle is associated with issues like training of
unemployed, employment for handicapped people and minorities, etc.
----------------------
4. _____________ circle represents wider area of responsibility arising
---------------------- from the performance of basic economic function.
---------------------- 5. _____________ circle represents traditional responsibility of business
for its economic function.
----------------------
---------------------- Activity 3
----------------------
Write the steps by which the administrative constraints can be reduced in
---------------------- your organisation.
----------------------
Summary
----------------------
●● In this unit we have learnt the various reasons based on which strategic
----------------------
decisions are made. We have also studied how corporate social
---------------------- responsibility plays a part in company decisions. Also the importance of
ethics and values in business scenario has been discussed in detail.
----------------------
---------------------- Keywords
---------------------- ●● Strategic Control: The evaluation of the output after the strategy is
implemented.
----------------------
●● CSR: Corporate Social responsibility is the responsibility of the
---------------------- organisation towards society.

Notes
----------------------
1. Explain the flow of Strategies to Policies, rules etc. and back again.
2. Write a note on organization structure. ----------------------
3. What are the different basis and factors on which an organization structure ----------------------
is based?
----------------------
4. Explain non-management factors that affect decision-making.
5. How are resources allocated? ----------------------
6. What are ethics and values? ----------------------

7. Write a detailed note on decision making. ----------------------
8. Explain the evolution as companies grow. ----------------------
9. What are the steps in problem solving and decision making?
----------------------
10. What are various types of decisions?
----------------------
11. What are the distinctive advantages and disadvantages of an the following:
●● An entrepreneurial structure ----------------------
●● A functional structure ----------------------
●● A division structure
----------------------
●● A holding company structure
●● A matrix structure ----------------------
----------------------
----------------------
----------------------
Fill in the blanks.
1. Information consists of data that have been retrieved, processed and used ----------------------
for inference purposes or as a basis for forecasting or decision-making. ----------------------
2. Data are facts not being currently used in a decision process and generally
take form of records and files. ----------------------
3. Organisational structure provides the framework and mechanisms for the ----------------------
distribution and responsibility within the organisations.
----------------------
----------------------
1. True ----------------------
2. False ----------------------
3. False ----------------------
----------------------

Fill in the blanks.
----------------------
1. Management control information is required by the managers of various
---------------------- departments, profit centres to measure performance, decide on control
actions, formulate new decision rules to be applied by operational
----------------------
personnel and allocate resources.
---------------------- 2. Management development is the outcome of the experience and learning
that takes place due to performance of managerial functions.
----------------------
3. Outer circle is associated with issues like training of unemployed,
---------------------- employment for handicapped people and minorities, etc.
---------------------- 4. Intermediate circle represents wider area of responsibility arising from
the performance of basic economic function.
----------------------
5. Inner circle represents traditional responsibility of business for its
---------------------- economic function.
----------------------
Suggested Reading
----------------------
1. Gadiesh, Orit and James Gilbert. 2001. “Frontline Action.” Harvard
---------------------- Business Review.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Implementing Strategy : III
UNIT
11
Structure:
11.1 Introduction
11.2 Functional Strategies
11.3 Manpower Planning
11.4 Planning Process
11.5 Capital Structure Planning
11.6 Marketing Plan
11.7 Research and Development Planning
11.8 The Knowledge Creating Company
11.9 Supply Chain Management
11.10 Customer Relationship Management
11.11 Outsourcing, Mergers and Acquisitions
11.12 Synergy
Summary
Keywords
Suggested Reading
Implementing Strategy : III 267

Notes
Objectives
----------------------
----------------------
●● Analyse functional strategies
---------------------- ●● Make various functional strategies
---------------------- ●● Identify the linkages among the strategies
----------------------
11.1 INTRODUCTION
----------------------
In order to anticipate the ever more rapid changes in society and in working
---------------------- life, it is necessary to instill a culture of life-long learning in all parts of society.
---------------------- In implementing strategies for life-long learning, emphasis must be placed on
strengthening the foundations for life-long learning, promoting coherent links
---------------------- between learning and work, and on defining the roles and responsibilities of
all parties involved. Employers therefore need to be consulted and heard by
---------------------- governments and public authorities on how to implement life-long learning
---------------------- strategies, including vocational guidance, so that they meet the needs of
businesses in order to bridge the skills gap and to help reduce unemployment.
----------------------
11.2 FUNCTIONAL STRATEGIES
----------------------
Functional strategies deal with the relative and restricted function for
----------------------
allocation of resources, enabling coordination for optimal contribution.
---------------------- An organisation needs vertical fit and horizontal fit.
---------------------- Vertical Fit - various functions like finance, marketing, HR, etc. which
have their own sets of strategy are coordinated to integrate.
----------------------
Horizontal Fit - looks at the process of strategy, which involves various
---------------------- functions in the value chain, which must be coordinated.
---------------------- There are various functions which encompass corporate planning. These
are as follows:
----------------------
1. Manpower Planning.
---------------------- 2. Production and Operations Planning.
---------------------- 3. Financial Planning.
---------------------- 4. Marketing Policies and Plans.

5. Research and Development Plans.
----------------------
All these functions are inter-related and need to work in sync with one another
---------------------- in order to help the organization achieve its short-term and long-term goals and
objectives. They have been discussed in detail below in the same order.
----------------------
Other than these broad, departmentalized sections, corporate planning
---------------------- also involved decision making with respect to several other functions that have

a major effect on the organization’s long-term growth and development. Notes
These are the other important factors that must be taken into consideration
----------------------
while planning the corporate strategy for an organization depending on its
mission statement and the strategic intent. Planning basically is involved with ----------------------
efficient use of scarce resources, the most important of which are the financial
resources. And thus Budgeting, as discussed below, plays a crucial role in the ----------------------
corporate planning of the organization.
----------------------
Budgeting :
----------------------
Budgets, quite simply, are plans expressed in numerical terms, usually
in financial terms. The will indicate how much should be spent, by which ----------------------
departments, when and for which purpose.
----------------------
There are basically three types of budgets:
1. Capital budgets concerning the investment of resources in buildings, ----------------------
plant and equipment. These new resources will be used to generate future ----------------------
revenues.
2. Sales budgets represent the anticipated flow of funds into the business ----------------------
based on forecasted sales; and ----------------------
3. Revenue or Expense budgets concerns the operating costs that will be
----------------------
incurred in production of these services and products.
Scope and Importance of budgeting : ----------------------
●● Budgeting the direct costs of producing certain products and services ----------------------
requires an estimate of the raw-materials, components, labour and
machine hours that are likely to be needed. Standard costing techniques ----------------------
usually form the basis of this, with analysis of any variances being used ----------------------
to measure the reliability and performance of standard costs. Work study
and other techniques will be used to establish the standard times required ----------------------
to complete particular tasks, which can then be costed.
----------------------
●● While such standards and the wage rates that are used to determine
the payment for these inputs are likely to be common throughout ----------------------
the organization, and in many cases agreed centrally, the selection and
training of the people concerned are likely to be decentralized. While ----------------------
the skills and capabilities of staff should be considered when the budgets
----------------------
are quantified, the process of budgeting can be useful for highlighting
weaknesses and deficiencies. ----------------------
●● Another expense that needs to be budgeted is training and management
----------------------
development programmes. This involves the utilization of funds, which
are currently available to improve the long-term contribution and value ----------------------
of people. Training and development must therefore be seen as an
investment. However, the anticipated returns will be difficult to quantify, ----------------------
and as a result the investment techniques considered earlier may be of
----------------------
only limited use.
----------------------

Notes The Budgeting Process: (Principles to be followed)
All managers who spend money, and whose departments consume
----------------------
resources, should ideally be given a budget. These budgets must represent
---------------------- agreed upon targets that relate closely to the manager’s objectives. Activities
that constrain other activities, because they involve scarce resources for which
---------------------- demand exceeds supply capability, should be budgeted early.
---------------------- Budgets and objectives are closely related, and consequently resources
should be allocated to those areas and activities that are seen as priorities. If
---------------------- important objectives are to be achieved, and priority strategies to be implemented,
resources must be provided. Where growth and profits are important
----------------------
organizational objectives, those business units and products that are best able to
---------------------- contribute to their achievement should be funded accordingly. Where resources
are available and new developments being considered, managers having and
---------------------- impressive track record for such implementation of projects must be given the
leash, rather than giving the responsibility based on seniority or merit.
----------------------
Drawbacks :
----------------------
●● However the process of budgeting can facilitate the ability of managers to
---------------------- pursue personal objectives.
●● Moreover, budgeting is perceived as a technique for short-term financial
----------------------
planning rather than a key aspect of strategy implementation.
---------------------- ●● Furthermore, the ability of certain managers to exercise control and power
over scarce resources could lead to their unfair and uneven allocation
----------------------
within the organization and deviation of resources from priority areas.
---------------------- Flexibility with budgets :
---------------------- The budgeting process will normally take place on an annual basis, but
as the targets will be utilized for regular performance reviews, there should be
---------------------- scope to adjust budgets either upwards or downwards.
---------------------- The allocation of resources to managers is dependent upon the strategies
that the organization has decided to continue and develop, but adaptive changes
---------------------- require flexibility, which must be accounted for. Flexible budgets are designed
---------------------- to allow for changes in the level of activity, which might result from adaptive
changes in functional and competitive strategies. The resources should only
---------------------- be diverted from activities which are either less profitable or strategically less
important to the organization in the long run.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
Fill in the blanks.
----------------------
1. _____________ fit looks at the process of strategy, which involves
various functions in the value chain, which must be coordinated. ----------------------
2. _____________ fit is related to various functions like finance, ----------------------
marketing, HR, etc. which have their own sets of strategy and they
are coordinated to integrate. ----------------------
3. _____________ strategies deal with the relative and restricted ----------------------
function for allocation of resources, enabling coordination for optimal
contribution. ----------------------
----------------------
Activity 1
----------------------
Observe the budgeting process followed by your organisation. ----------------------
----------------------
11.3 MANPOWER PLANNING
----------------------
This is the process of forecasting an organization’s future demands for
and supply of right type of people in right number. Human resource planning ----------------------
(HRP) facilitates realization of company’s objectives by providing right type ----------------------
and right no. of personnel.
----------------------
A lot of questions are answered by process of manpower planning like:
●● Will we have an adequate workforce? ----------------------
●● How much hiring and retraining are necessary? ----------------------
●● What should be standards for promotion- seniority or skills?
----------------------
●● To decide payment policies, incentive plans benefits, labour relations
policies, etc. ----------------------
Importance : ----------------------
●● Determining future personnel needs.
----------------------
●● Changes in competition, markets, technology, products and government
regulations. ----------------------
●● Creating highly talented personnel. ----------------------
●● Protection of weaker sections.
----------------------
●● International expansion strategies.
●● Foundation for other personnel functions like recruitment, training, etc. ----------------------
●● Increasing investments in HR as assets. ----------------------
 Coping with resistance to changes.
----------------------

Notes Factors determining HRP :
●● Type and strategy of organization.
----------------------
●● Organization growth cycles and planning.
---------------------- ●● Environmental uncertainties.
---------------------- ●● Time horizons- long or short term planning.
---------------------- ●● Type and quality of information.

●● Nature of jobs being filled.
----------------------
●● Off loading through sub contracting or ancillarisation.
----------------------
11.4 PLANNING PROCESS
----------------------
A) Human Resource (HR) demand
----------------------
The process of estimating future quantity and quality of people required.
---------------------- There are various techniques to forecast the demand for HR. These are
managerial judgment, ratio trend analysis, work study techniques, delphi
----------------------
technique, flow models, etc.
---------------------- HR Supply :
---------------------- To determine whether organization will be able to procure the required
number of personnel and sources for such procurement. Sources of supply
---------------------- are :
---------------------- 1) Present employees- to use this particular resource we need
to maintain skill inventories and management inventories. This
---------------------- analysis is also facilitated by HR audit.
---------------------- 2) Internal supply
---------------------- 3) External supply
HR Plan Implementation :
----------------------
A series of action programme are initiated like recruitment, selection,
---------------------- training & development, etc. as a part of HR plan implementation.
---------------------- Requisites for Successful HRP :
---------------------- 1) Recognition as an integral part of corporate planning.

2) Support of top management.
----------------------
3) Centralized responsibilities for co-ordination with different
---------------------- management levels.
---------------------- 4) Personnel records to be complete, up- to-date and readily available.
5) Time of plan should be flexible to allow any remedial action.
----------------------
6) Techniques should be accurate and suited to data available.
----------------------
7) Plan prepared by skill levels than by aggregates.
----------------------

8) Techniques for planning and data collection along with plans need Notes
to be revised and improved constantly.
----------------------
Caselet : NTPC
National Thermal Power Corporation Limited (NTPC), a public sector power ----------------------
major, bagged top positions in several workplace surveys conducted in 2004. ----------------------
It figured among the top ten ‘Best companies to Work for in India’ survey
conducted by Mercer HR Consulting . It was also ranked the third best ----------------------
employer for the second consecutive year in the ‘Best Employers in India’
survey by Hewitt Associates . ----------------------
In addition, it was also adjudged the third great place to work by Grow Talent ----------------------
Company in the ‘Great Places to Work’ Study, ahead of companies like
Johnson and Johnson, Cadbury, Philips Software, etc. This ranking was based ----------------------
on an international benchmark, the Great Place to Work Trust Index, used by ----------------------
Fortune magazine in preparing its 100 best companies to work for list.
The above surveys commended the company’s leadership commitment ----------------------
to employees; the alignment of its HR policies with corporate strategy; its ----------------------
learning and development efforts; its value-driven culture and its ability to
create work-life balance for its employees. ----------------------
Besides these, the company won several other awards for its HR practices. ----------------------
NTPC’s website glowed with a picture of its happy employees and a tag line
that read “Generating Smiles Beyond Megawatts.” ----------------------
The awards did not come as a surprise to its 20,971 employees , whose ----------------------
low attrition rate of 0.17% (for 2004) also testified to their fondness and
attachment to the company. ----------------------
NTPC had bagged top positions in these surveys over several multinational ----------------------
companies operating in India. NTPC was exceptional in being the only Public
Sector Undertaking (PSU) that ranked in these surveys. Analysts wondered ----------------------
what made NTPC so special that it could attract talent in an environment ----------------------
of high paying software companies and also other multinational players
operating in India. ----------------------
NTPC had a high focus on training and development and merit was an ----------------------
important consideration for career growth. Its achievement was particularly
noteworthy as it had successfully developed a challenging work culture even ----------------------
though it was 90% government-owned.
----------------------
B) Production Management Policies and Plans :
----------------------
Many critical questions need to be answered under planning for this part
of the corporate plan and some of the important ones are as follows : ----------------------
●● Can we handle the business with our present facilities and number
----------------------
of shifts? Must we add facilities, equipment and shifts? Where? Are
layoffs needed? Should we sub-contract? ----------------------
----------------------

Notes ●● What is the firm’s inventory safety level? How many suppliers do
we need for purchase of major supplies?
---------------------- ●● What level of productivity and costs should the firm seek?
---------------------- ●● How much emphasis to be given on quality control and maintenance?
---------------------- ●● Should we locate facilities in foreign countries or exit from where

they are at risk?
---------------------- These are some of the most important factors that need to be addressed
while planning the production policies.
----------------------
Capacity and Utilization : Plans for the desired levels of production and
---------------------- utilization of facilities are a must. Also if expansion in the future is planned
---------------------- then adequate capacity of space for additional capacity must also be planned.
Generally the firm has three options for scheduling its capacity usage :
----------------------
1. Demand matching - This kind of process requires the production levels
---------------------- to work in tandem with the level of demand during different seasons.
---------------------- 2. Operations smoothing - Under this the production levels are set
according to the average annual demand for the products.
----------------------
3. Sub-contracting - finally under this plan, the firm maintains a
---------------------- minimum optimum level of production and any excess requirements and
met through outsourcing the production services.
----------------------
Each of these decisions of course involve some trade-offs with respect
---------------------- to costs of equipment, overtime, inventories, labour, maintenance and sub-
contracting. For example, when there is a downturn in demand, a decision
---------------------- needs to be taken regarding level of production vis-à-vis the level of inventories
---------------------- to be maintained.
Long term addition to capacity is done mainly through normal expansion
---------------------- of capacity, merging with another producer or Joint Ventures. Naturally the
---------------------- overall size of the firm involved also plays a major role regarding the decisions
to be taken.
---------------------- Location of Facilities : Location of plants and facilities is also a major
---------------------- consideration. Facilities must be located keeping in mind various factors which
are of differing levels of importance to different firms depending on the industry
---------------------- they operate in. These factors are availability of raw-materials, transportation
facilities, availability of labour and energy, availability of land for further
---------------------- expansion, access to potential and existing markets and so on. In some cases
---------------------- location in foreign countries for benefiting from lower cost labour or lower
taxation etc is also implemented.
----------------------
Processes : The level of technology to be used, capital intensive or labour
---------------------- intensive, is a major decision to be taken with respect to the production policies
and plans. Many Japanese firms have gained significant competitive advantages
---------------------- by pursuing a high statistical quality control policy for their production and
processing systems.
----------------------

Equipment and Maintenance : The long-term capability of a firm to Notes
operate efficiently is determined by the condition and care of its machinery and
equipment. Mainly there are two policies the firm can follow with respect to ----------------------
its maintenance policies :
----------------------
1. Preventive maintenance under which the part of a machine or equipment
or the equipment itself is replaced after its projected or warrantied life is ----------------------
over, even if it is in a good working condition.
----------------------
2. Defer maintenance under this policy, the replacement of parts and
equipment is put off till actual failure of the part or machine. ----------------------
Of course the need for maintenance of facilities varies from firm to firm. ----------------------
Sourcing : Policies regarding the sources of inputs to be used, from whom to ----------------------
purchase and the number of suppliers also is a crucial question to be answered.
The speed of delivery would be an important criterion while selecting the ----------------------
source of inputs. Costs would also play a major role. High dependence on only
one or a very few vendors would lead to favourable treatment at the cost of ----------------------
flexibility. ----------------------
Therefore, as we can see, the choice of source of inputs involves many
benefits with associated costs. Nothing comes for free. ----------------------
POM is a crucial functional area in implementing strategies. Traditionally ----------------------

marketing and POM have been rivals but coexistence is important for
the common good of the firm, and their tasks must be coordinated though ----------------------
appropriate policies and plans, if any strategy is to succeed. ----------------------
C) Financial Planning
----------------------
Financial aspect of corporate planning deserves special consideration
because it is one of the major considerations that influences formulation and ----------------------
implementation of corporate strategy. At times a carefully developed and
----------------------
patently viable scheme has to be shelved because of non-availability of funds.
The overall objective of financial planning is to garner and utilize capital ----------------------
resources in such a way as to maximize the company’s wealth.
----------------------
11.5 CAPITAL STRUCTURE PLANNING ----------------------
Capital expenditure planning gets the most importance in almost ----------------------

all the organizations. The reason for this is large size of investments and the
----------------------
accompanying costs and risks, which calls for more deeper and systematic
analysis of the projects and their financial implications. ----------------------
The process of planning capital expenditure adopted by all the organizations
----------------------
involves 3 major steps :
●● Classification of capital expenditure proposals. ----------------------
●● Evaluation of capital expenditure proposals in terms of cash flows. ----------------------
●● Ranking of the proposals and then selection.
----------------------

Notes Capital Structure Planning
Capital structure planning is the cornerstone of financial planning process
----------------------
of all organizations primarily because of the cost, control and risk considerations
---------------------- which in turn influences overall value of the firm. Capital structure planning
provides the framework for the makeup of a firm’s long-term financing of debt,
---------------------- preferred stocks and equity stock. The central thrust is minimization of cost of
capital and maximization of value of stocks.
----------------------
General practice is that fixed capital needs are met through equity and long-
---------------------- term debt and current asset requirements were funded through bank borrowings
and other sources. Important sources of funding are equity, borrowing from
----------------------
financial institutions, lease financing, bonds/debentures and fixed deposits.
---------------------- According to the cost principle, ideal pattern of capital structure is one
that tends to minimize cost of financing and maximizes earning per share. From
----------------------
this angle debt should occupy a prominent place in the capital structure of an
---------------------- organization because it is the cheapest source of financing.
---------------------- The risk principle suggests that such a pattern of capital structure should
be devised so that the firm does not run the risk of bringing on a receivership
---------------------- with all its difficulties and losses. Since bond is a commitment for a long period,
it involves risk. Thus it places greater reliance on common stock for financing
---------------------- capital needs of the firm.
---------------------- According to the control principle, a pattern should be chosen which
does not disturb the controlling position of the residual owners. Management
---------------------- desiring to retain control must raise funds through bonds since equity stock
---------------------- carries voting rights, issue of new equity shares will dilute control of existing
shareholders.
---------------------- According to flexibility principle, an enterprise should strive towards
---------------------- achievement of such combination of resources, which the management finds
it easier to maneuver sources of funds in response to major changes in need of
---------------------- funds.
---------------------- Determination of optimal level of debt is of prime importance. Because
of tax deductibility of interest payments, use of financial leverage increases the
---------------------- potential earnings of the owners. However the firm is required to bear increasing
costs- explicit and implicit- in borrowing funds owing to increased financial
----------------------
risk. Up to a certain level tax benefits of leverage tend to be higher than the
---------------------- cost associated with debt financing. Beyond that limit cost of debt begins to
outweigh the tax benefits. Debt limit should be fixed at this point because total
---------------------- value of the firms stops rising with leverage. This level is the optimum level of
debt. EBIT-EPS analysis is a widely employed method to determine the most
----------------------
appropriate level of debt.
----------------------
----------------------
----------------------

Caselet : FHL banks Notes
Capital Structure of the FHLBanks : On March 15, 2006, the Federal Housing ----------------------
Finance Board published a proposed rule that changed the capital structure
of the FHLBanks by requiring a minimum level of retained earnings and ----------------------
restricting the amount of excess stock that an FHLBank can accumulate.
----------------------
Some of the key provisions of the proposed rule are :
----------------------
●● Each FHLBank would be required to hold retained earnings of at least
$50 million plus 1% of non- advance assets. ----------------------
●● Dividends would be limited to no more than 50% of net income until the
----------------------
FHLBank reaches its required level of retained earnings.
●● Payment of any dividends thereafter would be restricted if the FHLBank’s ----------------------
retained earnings drop below its required level.
----------------------
●● An FHLBank’s excess capital stock would be limited to no more than
1% of its total assets. ----------------------
●● An FHLBank would not be permitted to sell capital stock to a member ----------------------
in excess of the member’s minimum capital stock requirement.
●● The FHLBanks would be prohibited from paying dividends to their ----------------------
members in stock form. ----------------------
Cash Flow Planning ----------------------
Long term as well as short term cash forecasting is done. In long-term
cash forecasting, projection was made about cash receipts and payments for ----------------------
future period of 2 to 5 years. Short-term cash forecast is also prepared to ----------------------
include all cash receipts and payments expected to occur during the next one
year. The forecasts are prepared on the basis of information about estimated ----------------------
sales, production plan, purchasing plan, financing plan and capital expenditure
budget. Such forecasts enable the management to know in advance the cash ----------------------
status of the organization at different points of time and thereby aid them in ----------------------
evolving suitable strategy.
A firm should seek to receive cash in shortest possible time but not retain ----------------------
it for long time in order to avoid any additional cost to the firm. Adequate ----------------------
cash enables the firm to pay trade bill and take advantage of trade discounts.
It also meets the unexpected adversities and is useful for exploiting favorable ----------------------
opportunities. Also strong cash position ensures a high credit standing. But
keeping any excess stock of cash is largely a waste of resources because it is ----------------------
a non-earning asset and the same could be invested elsewhere to earn some ----------------------
income.. i.e. the firm will be failing to maximize its profits at the expense of
high liquidity. ----------------------
A cash planning exercise is undertaken to estimate the amount of cash ----------------------
needed for different purposes so that a business enterprise neither has surplus of
cash nor paucity of it. If cash inflows and outflows were perfectly synchronized ----------------------
and could be forecast with certainty, a company would need no cash balances
----------------------

Notes at all. Since such ideal situation does not exist at all, finance manager must
undertake the cash planning exercise.
----------------------
A business enterprise carries stock of cash primarily for transaction
---------------------- purposes and builds secondary reserves (highly liquid risk-less securities) to
meet precautionary and speculative motives. Factors influencing amount of
---------------------- cash holdings are terms of purchase and sales, collection period of receivables,
credit position of the company, nature of demand of the company’s product
----------------------
etc. With the help of cash budgets finance manager can predict inflows and
---------------------- outflows of cash during some future span of time and thereby determine cash
requirements of the company.
----------------------
For effective utilization of cash, the strategies fall under 2 major heads :
---------------------- ●● Strategy towards accelerating cash inflows.
---------------------- ●● Strategy towards decelerating cash outflows.
Suitable policy regarding investment of idle cash should be established.
----------------------
The idle cash should be invested so as to earn a reasonable amount of income
---------------------- without foregoing liquidity.
---------------------- Most mining businesses will be registered for Goods And Services Tax.
If it is mainly an exporter and thus does not have taxable supplies, it should
---------------------- still register for Goods And Services Tax, since an export is Goods And
Services Tax-free and the registration will entitle the mining entity to obtain
----------------------
a refund from the ATO on the input tax credits.
---------------------- If the mining entity is both an exporter as well as supplying its products
in Australia, it will be able to recoup all its input tax, but will only have to
----------------------
charge Goods And Services Tax on sales within Australia. This is because
---------------------- exports are Goods And Services Tax-free. Mining entities could restructure
before implementation of Goods And Services Tax, so that a separate entity
---------------------- conducts export sales. The export entity can then elect to lodge its return on
a monthly basis. This will enable the export entity to receive a refund three
----------------------
times faster than the entity making the quarterly Goods And Services Tax
---------------------- payments. Under the bill, a registered entity has to lodge a return with the
ATO on either a monthly or quarterly tax period (due 21 October, 21 January,
----------------------
21 April and 21 July) depending on the size of the business. Entities with
---------------------- total value of sales more than $20,000,000 must remit a payment electronically
on a monthly basis.
----------------------
Mining companies that are part of 90% group of companies, will be
---------------------- allowed to group the Goods And Services Tax returns. In this case inter-co
mpany charges will not attract Goods And Services Tax. If grouping is not
---------------------- possible for a mining company since it is not part o f a 90 % group, or the
---------------------- entity is not a company, then that mining company or entity should match the
return period with its associated companies or entities to minimise cash flow
---------------------- impact arising from inter-company/entity charges.
----------------------

Working Capital Planning Notes
A great thrust is given to working capital planning because of the
----------------------
management’s concern for high liquidity without impairing the profitability. The
determination of working capital required depends on operating cycle, current ratio, ----------------------
level of inventory, ratio of sundry debtors to sales and inventory turnover ratio etc.
----------------------
Inventory Planning
Efficient inventory management calls for minimization of investments in ----------------------
inventory and meeting the demand for different types of inventory efficiently,
----------------------
effectively and adequately so as to minimize the direct and indirect costs of
holding inventories, minimize the risks and losses due to stock out and to keep ----------------------
investment in inventories at a reasonable level. Hence management should
formulate a suitable inventory policy stating minimum inventory, size of ----------------------
production run or purchase orders, timing of reordering and inventory turnover.
----------------------
Receivables Planning
----------------------
The prime objective is to maximize value of the enterprise by striking a
mean between liquidity, risk and profitability. Credit sale bolster up sales but are ----------------------
attached with cost of dispensation of credit facilities and collection of accounts
receivables. ----------------------
It should also design an appropriate collection policy for the firm. The ----------------------
basic objective is to ensure the earliest possible payment on receivables without
any customer losses through ill will. The overall objective of minimization of ----------------------
investment in receivables and reduce bad debt losses will be accomplished only ----------------------
if the credit worthiness of applicants is evaluated to ensure that they confirm to
the credit standards prescribed by the firm. ----------------------
Dividend Planning ----------------------
Dividend decision should be formulated in such a way as to optimize
----------------------
price of the firm’s share in the market. The split between retention and dividend
should be such as to attract potential investors and raise the market price to the ----------------------
highest attainable level. The management should bear in mind environmental
factors such as: General condition of Economy, State of capital markets, State ----------------------
regulation & Tax policy. For eg. If the state of capital market is relatively
----------------------
comfortable and raising funds from different sources poses no problem,
the management may be tempted to declare high dividends to maintain the ----------------------
confidence of exiting stockholders and attract potential ones.
----------------------
Taxation Planning
Objectives of taxation planning pursued by companies are reducing ----------------------
long term tax liability, for future investment, for generating cash flows and for ----------------------
optimizing diversification decisions. The tax rates being very high, it is important
for the management to plan taxes. Also there are main provisions in the tax ----------------------
law, which could be availed to their advantage. Companies are guided in their
tax planning exercises by the consideration of tax incentives and concessions ----------------------
granted by the government to accelerate the rate of development. ----------------------

Notes
----------------------
----------------------
1. EBIT/EPS analysis is a least preferred method to determine the most
---------------------- appropriate level of debt.
---------------------- 2. Capital structure planning provides the framework for the makeup of a
firm’s short-term financing of debt, preferred stocks and equity stock.
----------------------
3. Capital expenditure planning gets the least importance in almost all
---------------------- organisations.
----------------------
Activity 2
----------------------
---------------------- Meet the Finance Manager and discuss the Capital Expenditure Planning
process followed by your organisation.
----------------------
---------------------- 11.6 MARKETING PLAN

---------------------- Is a report or document that provides a detailed formulation of the
---------------------- actions necessary to carry out the marketing program.
Purpose and Significance
----------------------
●● Explains both the present and future situation of the organization.
---------------------- This includes the environmental & SWOT analysis & the firm’s past
performance.
----------------------
●● Specifies the outcomes that are expected so that the organization can
---------------------- anticipate at end of planning period.
---------------------- ●● Describes the specific actions to be taken so that responsibilities can be
assigned.
---------------------- ●● Identifies resources that will be needed to carry out the planned actions.
---------------------- ●● Permits the monitoring of each action and its results so that the controls
may be implemented. Feedback from monitoring and control provides
---------------------- information to start the planning cycle again in the next time frame.
---------------------- MP is important to :
---------------------- ●● LINE MANAGERS who are responsible for ensuring the marketing
actions are implemented.
---------------------- ●● MIDDLE LEVEL MANAGERS who ensure making proper tactical
---------------------- changes.
●● TOP LEVEL EXECUTIVES who take critical decisions particularly
---------------------- regarding efficient and effective allocation of resources.
----------------------

Structure of a typical Marketing Plan : Notes
I. Executive Summary is a sypnosis of MP with an outline that conveys
----------------------
main thrust of marketing strategy and its execution.
II. Environmental Analysis ----------------------
●● External: economic, social, legal, political, technological. ----------------------
●● Customer: needs and passions of target market segment (TMS).
----------------------
●● Internal(organizational): availability and deployment of human
resources, technology, finances. ----------------------
III. SWOT analysis and matching, converting, minimizing and avoiding ----------------------
strategies.
----------------------
IV. Marketing goals and objectives.
V. Marketing Strategy on life cycle considerations (development, ----------------------
introduction, growth, maturity, or decline stage).
----------------------
●● Fix a target market segment and decide how to market your product
----------------------
 Mass/undifferentiated Marketing.
 Mass segmentation. ----------------------
 Niche Marketing. ----------------------

 Customized Marketing. ----------------------
 Marketing Mix for each target market.
----------------------
PRODUCT : Plans relating to characteristics of product formulated
----------------------
PRICE : There must be a right balance between customers needs, other
product alternatives, the firms need to cover its own direct and indirect ----------------------
costs, while also making an acceptable profit. The policy of setting High/
Low prices for products is used extensively by companies as a competitive ----------------------
tool Nirma uses low Price policy to compete with HLL, HCL. has low ----------------------
priced copiers as compared to its rivals Modi Xerox. Price is also used
for segmentation of the market as in case of Soaps (popular, premium ----------------------
segments, etc.)
----------------------
PLACE : The success of market oriented companies rests on efficiency
and effectiveness of the distribution system. Strategies regarding logistics ----------------------
and marketing channels (Exclusive/ Selective/ Intensive distribution
channels). ----------------------
PROMOTION is necessary to communicate features and benefits of ----------------------

product to its intended target market. MP must integrate elements of
promotion mix such as advertising, personal selling, publicity, sales ----------------------
promotion, etc. The type of promotional tool used should be specified. ----------------------
----------------------
----------------------

Notes VI. Marketing Implementation : Structural Issues
Approach to implementation
----------------------
Command approach (strategy evaluated and selected at top and forced
---------------------- downward to lower levels).
---------------------- Change approach (organization modified to ensure implementation).
Consensus approach (managers from different fields brainstorm to from
---------------------- strategy).
---------------------- Cultural approach (shape organization that enhance employee
participation).
----------------------
Internal marketing.
---------------------- Decision making authority/leadership forms. Employee motivation.
---------------------- Activities, responsibilities and budgets. Implementation timetable.
---------------------- VII. Evaluation and Control (financial assessment, marketing control).
Problems/Shortcoming in Creating MP
----------------------
 Hard to get enough information/making forecasts.
----------------------
 Not enough time to prepare properly.
----------------------  Plans not taken seriously enough.
----------------------  Market changes too fast.
----------------------  Inertia/resistance to change.
----------------------  Not enough commitment from top management.

 Inadequate performance measures.
----------------------
 Objectives not well defined.
----------------------
 Not integrated with other plans.
---------------------- The practice of creating the market plan has changed over the past
decade to include an increased emphasis on the customer, better analysis
----------------------
of the competition, more specific objectives and measurement and more
---------------------- reasoned and realistic planning.
---------------------- 11.7 RESEARCH AND DEVELOPMENT PLANNING

----------------------
R & D is a function that straddles both POM and Marketing. Especially
---------------------- in industries like pharmaceuticals where innovation is the key to customer.
Therefore, companies in today’s dynamic environment have to provide for R
---------------------- & D and need to plan accordingly. There are various questions, which arise in
front of a company…
----------------------
●● Will we emphasize process or product improvements?
----------------------
●● Should we encourage basic research or focus on commercial development?
----------------------

●● Are we going to be leaders or followers? Notes
●● How much will we spend on R & D?
----------------------
●● Which technology should we pursue, and when should we pursue it?
●● How can we manage the transition from one technology to other? ----------------------
●● How do we prepare the firm for technological change? ----------------------
These questions require research which consumes both time and money
----------------------
therefore research requires importance in today’s competitive scenario. A
proper planning process is carries out so as to ensure that all future policies are ----------------------
established well in advance taking care of innovation and growth needs of the
organization. ----------------------
R & D for Products and Processes : ----------------------
A lot of research is carried out to decide strategies regarding new product ----------------------
development, or strategy for turnaround to improve production processes
to reduce costs or vertical integration for backward or forward expansion in ----------------------
functions.
----------------------
Offensive or Defensive Strategies :
----------------------
There are various decisions, which require a lot of research work like -
1. For being first to market the product, the costs and risks associated can be ----------------------
high.
----------------------
2. For being a fast second or follower, approach by -
----------------------
●● Taking basic research of others and pursue product modifications.
●● Buying R& D efforts of others like Universities, government or ----------------------
independent research labs.
----------------------
3. Buy patents or pay license or royalty fees.
----------------------
4. Joint venture strategy policies for negotiating contracts or agreements.
Allocating R & D Resources : ----------------------
Policies as to amount of financial commitment in R & D can be based on ----------------------

the following guidelines.
----------------------
Maximum length - 5 to 20% of gross profit depending on industry.
----------------------
Minimum range depending on competitor’s actions.
However, these figures provide a wide range of discretion within which ----------------------
managers must subjectively determines how R & D activity fits as a component
----------------------
of overall strategy.
Integration of functional policies ----------------------
You need to first emphasize the need for consistency, then build the ----------------------
relevance to development of organizational capability, make trade-offs in
decisions, determine the linkages and intensity of linkages and then integrate. ----------------------
----------------------

Notes 11.8 THE KNOWLEDGE CREATING COMPANY
---------------------- Based on an article by Ikujiro Nonaka
---------------------- The one sure source of lasting competitive advantage in every company
under any kind of environment is knowledge. Successful companies are those
---------------------- which:
---------------------- ●● Consistently create new knowledge.

●● Discriminate it widely throughout the organization and
----------------------
●● Quickly embody it in new technologies and products.
---------------------- The conventional approach towards knowledge treats it as formal and
---------------------- systematic and also the key metrics for measuring the value of new knowledge
are similarly hard and quantifiable. However, the Japanese approach recognizes
---------------------- creating new knowledge as tapping the tacit and often highly subjective insights,
intuitions, and hunches of individual employees and making those insights
---------------------- available for testing and use by the company as a whole.
---------------------- An example of tacit knowledge is the struggle of Japanese engineers to
make a machine that bakes bread. According to, there were several trials to
---------------------- construct such a machine, but the bread simply did not taste as well as bread
---------------------- made by normal bakers. The company NEC decided to send people to a local
baker to see how the process of making bread was carried out, to find what went
---------------------- wrong in their attempt. The researchers returned with new insight on the baking
process, and later were able to replicate this in their machine. This is an example
---------------------- of tacit knowledge that is difficult to transfer by other means than looking
---------------------- at someone executing the process of baking bread, trying it out yourselves,
imitating and experiencing - often referred to as ‘socialization’ processes.
---------------------- Important prerequisites for knowledge creation are :
---------------------- 1. Employee sense of identity with enterprise and its mission.
---------------------- 2. Personal commitment.
These companies treat the organization not a machine but as living
----------------------
organism and are as much about ideals about ideas.
---------------------- Spiral of Knowledge
---------------------- New knowledge always begins with the individual and this has to be
transformed into organizational knowledge so as to make it valuable to the
---------------------- company as a whole.
---------------------- Knowledge is of two types :
---------------------- 1. Explicit knowledge is formal and systematic and can hence be easily
communicated and shared.
----------------------
----------------------
----------------------

2. Tacit knowledge is highly personal and consists of Notes
a) Technical skills or the ‘know-how’
----------------------
b) Mental models, beliefs and perspectives deeply ingrained in a
person. ----------------------
There can be four distinct patterns for creating knowledge in any ----------------------
organization :
----------------------
1. From tacit to tacit - An individual sharing his tacit knowledge with another.
However, neither of the two pair any systematic insight into their craft ----------------------
knowledge and thus the knowledge does not become explicit in order to ----------------------
benefit the organization.
2. From explicit to explicit - Combining discrete pieces of explicit knowledge ----------------------
into a new whole, e.g. making reports. This pattern does not extend the ----------------------
company’s existing knowledge base.
----------------------
3. From tacit to explicit - (Articulation)-Converting tacit knowledge into
explicit so as to benefit the organization. ----------------------
4. From explicit to tacit - (Internalization)-When other employees in the
----------------------
organization use this knowledge to broaden, extend and reframe their
own tacit knowledge. ----------------------
This internalization kick starts the process of knowledge creation all over ----------------------
again, though this time at a higher level.
From Metaphor to Model ----------------------
●● Conversion of tacit knowledge into explicit knowledge. Process involves ----------------------

the conversion of initial understanding in figurative language (metaphor)
to analogy and then to a model. ----------------------
●● Metaphor: merging of two different and distant areas of experience into a ----------------------
single inclusive image or symbol.
----------------------
●● importance lies in its ambiguity which starts creative process.
●● Employees Process a metaphor to reconcile the two conflicting meanings. ----------------------
Analogy - Process of reconciling contradiction and making distinctions. ----------------------
Model - contradictions are resolved and concepts are transferable. Managing
the Knowledge Creating Company ----------------------
Fundamental principle of ‘redundancy’ ----------------------
●● To design organizational structure ----------------------
●● To create organizational environment
----------------------
●● To give direction to knowledge creation
●● Product development is an overlapping process ----------------------
●● Rotation b/w technological and functional areas ----------------------
●● Free access to company information
----------------------

Notes Two tools that are must for a knowledge creating company are :
1. Conceptual umbrella: It is basically a vivid description of the mission of
----------------------
the company which is highly universal and the abstract terms identify the
---------------------- common features and link the seemingly disparate activities. It gives a
broader scope for knowledge creation within a defined framework.
----------------------
2. Standards defining the quality of knowledge created: It is important to
---------------------- set standards on the basis of which you justify the quality and value of
knowledge created. The writer justifies a qualitative standard in place of
---------------------- a quantitative one.
---------------------- Other factors to be considered are team building and encouraging team
work also middle managers role need to be acknowledged.
----------------------
Knowledge Creation comprises of activities associated with the entry
---------------------- of new knowledge into the system, and includes knowledge development,
discovery and capture.
----------------------
Knowledge Retention includes all activities that preserve knowledge
---------------------- and allow it to remain in the system once introduced. It also includes those
activities that maintain the viability of knowledge within the system.
----------------------
Knowledge Transfer refers to activities associated with the flow of
---------------------- knowledge from one party to another. This includes communication, translation,
conversion, filtering and rendering.
----------------------
Knowledge Utilization includes the activities and events connected with
---------------------- the application of knowledge to business processes.
---------------------- Business strategies related to knowledge management (KM)
KM has connections with several well-known management strategies,
----------------------
practices, and business issues, including
---------------------- ●● Change management.
---------------------- ●● Best practices.
●● Risk management.
----------------------
●● Benchmarking.
----------------------
There is a common thread among these and many other recent business
---------------------- strategies:
A recognition that information and knowledge are corporate assets, and
----------------------
that businesses need strategies, policies, and tools to manage those assets. The
---------------------- need to manage knowledge seems obvious, and discussions of intellectual
capital have proliferated, but few businesses have acted on that understanding.
---------------------- Where companies have taken action - and a growing number are doing so -
implementations of “knowledge management” may range from technology-
----------------------
driven methods of accessing, controlling, and delivering information to massive
---------------------- efforts to change corporate culture.
----------------------

What is “knowledge”? Notes
Knowledge has two basic definitions of interest. The first pertains
----------------------
to a defined body of information. Depending on the definition, the body
of information might consist of facts, opinions, ideas, theories, principles, ----------------------
and models (or other frameworks). Clearly, other categories are possible, too.
Subject matter (e.g., chemistry, mathematics, etc.) is just one possibility. ----------------------
Knowledge also refers to a person’s state of being with respect to some ----------------------
body of information. These states include ignorance, awareness, familiarity,
understanding, facility, and so on. ----------------------
The distinction between explicit knowledge (sometimes referred to ----------------------
as formal knowledge), which can be articulated in language and transmitted
among individuals, and tacit knowledge (also, informal knowledge), personal ----------------------
knowledge rooted in individual experience and involving personal belief,
----------------------
perspective, and values is important.
In traditional perceptions of the role of knowledge in business ----------------------
organizations, tacit knowledge is often viewed as the real key to getting things ----------------------
done and creating new value. Not explicit knowledge. Thus we often encounter
an emphasis on the “learning organization” and other approaches that stress ----------------------
internalization of information (through experience and action) and generation
of new knowledge through managed interaction. ----------------------
Some of the specific business factors which make KM necessary can be ----------------------
identified as including :
----------------------
●● Marketplaces are increasingly competitive and the rate of innovation is
rising. ----------------------
●● Reductions in staffing create a need to replace informal knowledge with ----------------------
formal methods.
●● Competitive pressures reduce the size of the work force that holds valuable ----------------------
business knowledge. ----------------------
●● The amount of time available to experience and acquire knowledge has
diminished. ----------------------
●● Early retirements and increasing mobility of the work force lead to loss of ----------------------
knowledge.
----------------------
●● There is a need to manage increasing complexity as small operating
companies are trans-national sourcing operations. ----------------------
●● Changes in strategic direction may result in the loss of knowledge in a
----------------------
specific area.
●● Most of our work is information based. ----------------------
●● Organizations compete on the basis of knowledge. ----------------------
●● Products and services are increasingly complex, endowing them with a
significant information component. ----------------------
●● The need for life-long learning is an inescapable reality. ----------------------

Notes In brief, knowledge and information have become the medium in which
business problems occur. As a result, managing knowledge represents the
---------------------- primary opportunity for achieving substantial savings, significant improvements
in human performance, and competitive advantage.
----------------------
It’s not just a Fortune 500 business problem. Small companies need formal
---------------------- approaches to knowledge management even more, because they don’t have the
market leverage, inertia, and resources that big companies do. They have to be
----------------------
much more flexible, more responsive, and more “right” (make better decisions)
---------------------- - because even small mistakes can be fatal to them.
Roadblocks to adoption of knowledge management solutions
----------------------
There have been many roadblocks to adoption of formal knowledge
---------------------- management activities. In general, managing knowledge has been perceived as
an unmanageable kind of problem - an implicitly human, individual activity -
----------------------
that was intractable with traditional management methods and technology.
---------------------- We tend to treat the activities of knowledge work as necessary, but ill-
---------------------- defined, costs of human resources, and we treat the explicit manifestations of
knowledge work as forms of publishing - as by-products of “real” work.
---------------------- As a result, the metrics associated with knowledge resources - and our
---------------------- ability to manage those resources in meaningful ways - have not become part of
business infrastructure.
---------------------- However, the nature of business itself has changed and :
---------------------- 1. Knowledge work is fundamentally different in character from physical
labor.
----------------------
2. The knowledge worker is almost completely immersed in a computing
---------------------- environment. This new reality dramatically alters the methods by which
we must manage, learn, represent knowledge, interact, solve problems,
----------------------
and act.
---------------------- One can’t solve the problems of Information Age business or gain a
---------------------- competitive advantage simply by throwing more information and people at the
problems. And you can’t solve knowledge-based problems with approaches
---------------------- borrowed from the product-oriented, print-based economy. Those solutions are
reactive and inappropriate.
----------------------
Applying technology blindly to knowledge-related business problems is a
---------------------- mistake, too, but the computerized business environment provides opportunities
and new methods for representing “knowledge” and leveraging its value. It’s
---------------------- not an issue of finding the right computer interface - although that would help,
---------------------- too.
Categorization of knowledge management approaches
----------------------
The term “knowledge management” is now in widespread use. Two
---------------------- “tracks” of knowledge management can be identified:
----------------------

●● Management of Information. To researchers in this track, “knowledge = Notes
Objects that can be identified and handled in information systems.”
●● Management of People. For researchers and practitioners in this field, ----------------------
knowledge consists of “… processes, a complex set of dynamic skills, ----------------------
know-how, etc., that is constantly changing.”
However there has often been a three-part categorization: (1) mechanistic ----------------------
approaches, (2) cultural/behaviorist approaches, and (3) systematic approaches ----------------------
to knowledge management.
1. Mechanistic approaches to knowledge management ----------------------
Mechanistic approaches to knowledge management are characterized by ----------------------

the application of technology and resources to do more of the same better.
----------------------
The main assumptions of the mechanistic approach include:
●● Better accessibility to information is a key, including enhanced ----------------------
methods of access and reuse of documents (hypertext linking,
----------------------
databases, full-text search, etc.)
●● Networking technology in general (especially intranets), and ----------------------
groupware in particular, will be key solutions.
----------------------
●● In general, technology and sheer volume of information will make
it work. ----------------------
Assessment : Such approaches are relatively easy to implement for ----------------------
corporate “political” reasons, because the technologies and techniques -
although sometimes advanced in particular areas - are familiar and easily ----------------------
understood.
----------------------
2. Cultural / behavioristic approaches to knowledge management
----------------------
Cultural / behavioristic approaches, with substantial roots in process
re-engineering and change management, tend to view the “knowledge ----------------------
problem” as a management issue. Technology - though ultimately
essential for managing explicit knowledge resources - is not the solution. ----------------------
These approaches tend to focus more on innovation and creativity (the
----------------------
“learning organization”) than on leveraging existing explicit resources or
making working knowledge explicit. ----------------------
Assumptions of cultural/behavioristic approaches often include :
----------------------
●● Organizational behaviors and culture need to be changed
… dramatically. In our information-intensive environments, ----------------------
organizations become dysfunctional relative to business objectives. ----------------------
●● Organizational behaviors and culture can be changed, but traditional
technology and methods of attempting to solve the “knowledge ----------------------
problem” have reached their limits of effectiveness. A “holistic”
----------------------
view is required. Theories of behavior of large-scale systems are
often invoked. ----------------------
●● It’s the processes that matter, not the technology.
----------------------

Notes ●● Nothing happens or changes unless a manager makes it happen.
3. Systematic approaches to knowledge management
----------------------
Systematic approaches to knowledge management retain the traditional
---------------------- faith in rational analysis of the knowledge problem: the problem
can be solved, but new thinking of many kinds is required. Some basic
---------------------- assumptions:
---------------------- ●● It’s sustainable results that matter, not the processes or technology
… or your definition of “knowledge.”
----------------------
●● A resource cannot be managed unless it is modeled, and many
---------------------- aspects of the organization’s knowledge can be modeled as an
explicit resource.
----------------------
●● Solutions can be found in a variety of disciplines and technologies,
---------------------- and traditional methods of analysis can be used to re-examine the
nature of knowledge work and to solve the knowledge problem.
----------------------
●● Cultural issues are important, but they too must be evaluated
---------------------- systematically. Employees may or may not have to be “changed,”
but policies and work practices must certainly be changed, and
---------------------- technology can be applied successfully to business knowledge
---------------------- problems themselves.
●● Knowledge management has an important management component,
---------------------- but it is not an activity or discipline that belongs exclusively to
---------------------- managers.
The Value of Knowledge Management
----------------------
In an organizational context, data represents facts or values of results,
---------------------- and relations between data and other relations have the capacity to represent
information. Patterns of relations of data and information and other patterns
---------------------- have the capacity to represent knowledge. For the representation to be of
---------------------- any utility it must be understood, and when understood the representation is
information or knowledge to the one that understands.
---------------------- Without associations we have little chance of understanding anything. We
---------------------- understand things based on the associations we are able to discern. If someone
says that sales started at $100,000 per quarter and have been rising 20% per
---------------------- quarter for the last four quarters, we can be somewhat confident that sales are
now about $207,000 per quarter. We can be confident because we know what
---------------------- “rising 20% per quarter” means and we can do the calculations.
---------------------- Yet, if someone asks what the sales are apt to be in the next quarter, we
may have to say, “It depends!” because although we have data and information,
----------------------
we have no knowledge. This is so, because data doesn’t predict trends of data.
---------------------- What predicts trends of data is the activity that is responsible for the data. To be
able to estimate the sales for next quarter, we would need information about the
---------------------- competition, market size, extent of market saturation, current backlog, customer
satisfaction levels associated with current product delivery, current production
----------------------
capacity, the extent of capacity utilization, and a whole host of other things.

In this example, what needs to be managed to create value is the data that Notes
defines past results, the data and information associated with the organization,
it’s market, it’s customers, and it’s competition, and the patterns which relate ----------------------
all these items to enable a reliable level of predictability of the future. What we
would refer to as knowledge management would be the capture, retention, and ----------------------
reuse of the foundation for imparting an understanding of how all these pieces ----------------------
fit together and how to convey them meaningfully to some other person.
----------------------
The value of Knowledge Management relates directly to the effectiveness
with which the managed knowledge enables the members of the organization ----------------------
to deal with today’s situations and effectively envision and create their future.
Without on-demand access to managed knowledge, every situation is addressed ----------------------
based on what the individual or group brings to the situation with them. With
----------------------
on-demand access to managed knowledge, every situation is addressed with
the sum total of everything anyone in the organization has ever learned about a ----------------------
situation of a similar nature.
----------------------
Caselet : INFOSYS
----------------------
Infosys provides end-to-end workforce collaboration and knowledge
management services including Knowledge Management Process Consulting, ----------------------
Collaboration and Knowledge Management Applications, Portals, Content
Management, Document Management, Enterprise Application Integration, ----------------------
Security and Workflow. Our Knowledge Management Services can help you
----------------------
assess your needs, evaluate technologies and recommend best-fit solutions in
the context of your business problems. ----------------------
Within a relationship, knowledge management processes operate at
----------------------
three levels:
1. Project Level: Teams have a project management coordinator for each ----------------------
project, and specific knowledge management related goals within ----------------------
projects. Periodic project reviews cover project management as well.
2. Account Level: Every Infosys account has a knowledge management ----------------------
roadmap drawn out for it. Teams within accounts draw heavily ----------------------
on the Infosys Knowledge management systems. Knowledge sharing
is strengthened by a range of methods such as orientation training ----------------------
programs, online discussion boards and collaborative environments
within projects. Also, a number of presentations and seminars foster ----------------------
knowledge sharing within client- and Infosys teams in an account. ----------------------
3. Organization Level: Infosys hosts K-Shop, an organization-wide
Knowledge Repository portal, on their intranet. An organization-wide ----------------------
knowledge sharing and management ethos has ensured that our teams ----------------------
have constant access to best practices and the collected learning from
working with the world’s best organizations. ----------------------
----------------------
----------------------

Notes 11.9 SUPPLY CHAIN MANAGEMENT
---------------------- A supply chain is a network of facilities and distribution options that
performs the functions of procurement of materials, transformation of these
---------------------- materials into intermediate and finished products, and the distribution of
these finished products to customers. Supply chains exist in both service and
----------------------
manufacturing organizations, although the complexity of the chain may vary
---------------------- greatly from industry to industry and firm to firm.
---------------------- Traditionally, marketing, distribution, planning, manufacturing, and

the purchasing organizations along the supply chain operated independently.
---------------------- These organizations have their own objectives and these are often conflicting.
Marketing’s objective of high customer service and maximum sales dollars
---------------------- conflict with manufacturing and distribution goals. Many manufacturing
---------------------- operations are designed to maximize throughput and lower costs with little
consideration for the impact on inventory levels and distribution capabilities.
---------------------- Purchasing contracts are often negotiated with very little information beyond
historical buying patterns. The result of these factors is that there is not a single,
---------------------- integrated plan for the organization-there were as many plans as businesses.
---------------------- Clearly, there is a need for a mechanism through which these different functions
can be integrated together. Supply chain management is a strategy through
---------------------- which such an integration can be achieved.
---------------------- Supply chain management is typically viewed to lie between fully

vertically integrated firms, where the entire material flow is owned by a single
---------------------- firm, and those where each channel member operates independently. Therefore
coordination between the various players in the chain is key in its effective
---------------------- management. Cooper and Ellram [1993] compare supply chain management to
---------------------- a well-balanced and well-practiced relay team. Such a team is more competitive
when each player knows how to be positioned for the hand-off. The relationships
---------------------- are the strongest between players who directly pass the baton, but the entire
team needs to make a coordinated effort to win the race.
----------------------
Knowing, even anticipating and fulfilling your customer’s needs is
---------------------- what SCM (supply-chain management) is about. It covers all stages-sourcing,
product design, production, planning, order processing, inventory management,
----------------------
transportation, warehousing, and customer service-involved in moving goods
---------------------- from the raw-material stage to the end user.
The supply-chain cycle begins as you enter a store to buy items. The store
----------------------
gives you pricing and availability information about the product, and stocks its
---------------------- shelves from a distributor. The distributor gets his stocks from a manufacturer
and may use trucks from a third party. The manufacturer receives raw materials
---------------------- from a variety of suppliers, who get them from other low-tier suppliers. When
you buy stuff from the store, you pay for it. The store conveys point-of-sale
----------------------
data and replenishment orders to the distributor, plus transfers funds to the
---------------------- distributor after the replenishment. The distributor sends the replenishment
order in trucks back to the store. Thus, there is a constant flow of money, orders,
---------------------- and information between various parties. It does not help if the product you

want is not available when you want, or if in its place, there is excess stock of Notes
things no one is ever going to buy. SCM manages the flow between different
stages to maximize productivity, and minimize stock outs and overstocking. ----------------------
An SCM solution spans across different companies involved, and the ----------------------
systems used by the different companies should be able to talk to each other.
An SCM system is a combination of many applications-demand, inventory, ----------------------
transportation planning-covering the stages in the supply chain. SAP, BAAN,
QAD, Peoplesoft, i2, and Manugistics provide supply-chain solutions. ----------------------
Sony, Mahindra, Asian Paints, Samsung, Maruti are some of the companies ----------------------
implementing a SCM solution.
There are, however, obstacles in implementing a successful supply-chain ----------------------
solution-the increase in product variety and demand for customized products.
----------------------
This increases demand uncertainty, making it difficult to forecast demands. Add
to this the ever shortening life cycle of products, and you have more and more ----------------------
companies using SCM to stay competitive.
----------------------
What is supply chain management?
Supply chain management is the combination of art and science that goes ----------------------
into improving the way your company finds the raw components it needs to
----------------------
make a product or service, manufactures that product or service and delivers
it to customers. The following are five basic components for supply chain ----------------------
management.
----------------------
1. Plan : This is the strategic portion of supply chain management. You need
a strategy for managing all the resources that go toward meeting customer ----------------------
demand for your product or service. A big piece of planning is developing
a set of metrics to monitor the supply chain so that it is efficient, costs less ----------------------
and delivers high quality and value to customers.
----------------------
2. Source : Choose the suppliers that will deliver the goods and services
you need to create your product or service. Develop a set of pricing, ----------------------
delivery and payment processes with suppliers and create metrics for
monitoring and improving the relationships. And put together processes ----------------------
for managing the inventory of goods and services you receive from ----------------------
suppliers, including receiving shipments, verifying them, transferring
them to your manufacturing facilities and authorizing supplier payments. ----------------------
3. Make : This is the manufacturing step. Schedule the activities necessary ----------------------
for production, testing, packaging and preparation for delivery. As the
most metric-intensive portion of the supply chain, measure quality levels, ----------------------
production output and worker productivity.
----------------------
4. Deliver : This is the part that many insiders refer to as “logistics.”
Coordinate the receipt of orders from customers, develop a network of ----------------------
warehouses, pick carriers to get products to customers and set up an
invoicing system to receive payments. ----------------------
5. Return : The problem part of the supply chain. Create a network ----------------------
for receiving defective and excess products back from customers and
supporting customers who have problems with delivered products. ----------------------

Notes Table 11.1
Strategic Level Tactical Level Operational Level
----------------------
●● Strategic network ●● Sourcing contracts ●● Daily production and
---------------------- optimization, including and other purchasing distribution planning,
the number, location, decisions. including all nodes in the
---------------------- and size of warehouses, supply chain.
distribution centers and
---------------------- facilities.
●● Strategic partnership with ●● Production decisions, ●● Production scheduling
---------------------- suppliers, distributors, including contracting, for each manufacturing
and customers, creating locations, scheduling, facility in the supply chain
---------------------- communication channels and planning process (minute by minute).
for critical information definition.
---------------------- and operational improve-
ments such as cross
---------------------- docking, direct shipping,
and third-party logistics.
---------------------- ●● Product design ●● Inventory decisions, ●● Demand planning and
coordination, so that new including quantity, forecasting, coordinating
---------------------- and existing products can location, and quality of the demand forecast of all
be optimally integrated inventory. customers and sharing the
---------------------- into the supply chain. forecast with all suppliers.
●● Information Technology ●● Transportation strategy, ●● Sourcing planning,
---------------------- infrastructure, to support including frequency, including current
supply chain operations. routes, and contracting. inventory and forecast
---------------------- demand, in collaboration
with all suppliers.
---------------------- ●● Where to make and what ●● Benchmarking of all ●● Inbound operations,
to make or buy decisions operations against including transportation
---------------------- competitors and from suppliers and
implementation of best receiving inventory.
---------------------- practices throughout the
enterprise.
---------------------- ●● Milestone Payments ●● Production operations,
including the consumption
---------------------- of materials and flow of
finished goods.
----------------------
●● Outbound operations,
---------------------- including all
fulfillment activities
---------------------- and transportation to
customers.
---------------------- ●● Order promising,
accounting for all
---------------------- constraints in the supply
chain, including all
---------------------- suppliers, manufacturing
facilities, distribution
---------------------- centers, and other
customers.
---------------------- ●● Performance tracking of
all activities
----------------------

What does supply chain management software do? Notes
Supply chain management software is possibly the most fractured group
----------------------
of software applications on the planet. Each of the five major supply chain steps
previously outlined composes dozens of specific tasks, many of which have ----------------------
their own specific software. There are some large vendors that have attempted
to assemble many of these different chunks of software together under a single ----------------------
roof, but no one has a complete package. Integrating the different software
----------------------
pieces together can be a nightmare. Perhaps the best way to think about supply
chain software is to separate it into software that helps you plan the supply ----------------------
chain and software that helps you execute the supply chain steps themselves.
----------------------
Supply chain planning (SCP) software uses fancy math algorithms
to help you improve the flow and efficiency of the supply chain and reduce ----------------------
inventory. SCP is entirely dependent upon information for its accuracy. If
you’re a manufacturer of consumer packaged goods for example, don’t expect ----------------------
your planning applications to be very accurate if you can’t feed them accurate,
----------------------
up-to-date information about customer orders from your retail customers, sales
data from your retailer customers’ stores, manufacturing capacity and delivery ----------------------
capability. There are planning applications available for all five of the major
supply chain steps previously listed. Arguably the most valuable (and complex ----------------------
and prone to error) is demand planning, which determines how much product
----------------------
you will make to satisfy your different customers’ demands.
Supply chain execution (SCE) software is intended to automate the ----------------------
different steps of the supply chain. This could be as simple as electronically
----------------------
routing orders from your manufacturing plants to your suppliers for the stuff
you need to make your products. ----------------------
What is the goal of installing supply chain management software? ----------------------
Before the Internet came along, the aspirations of supply chain software
devotees were limited to improving their ability to predict demand from ----------------------
customers and make their own supply chains run more smoothly. But the cheap, ----------------------
ubiquitous nature of the Internet, along with its simple, universally accepted
communication standards have thrown things wide open. Now, theoretically ----------------------
anyway, you can connect your supply chain with the supply chains of your
suppliers and customers together in a single vast network that optimizes costs ----------------------
and opportunities for everyone involved. This was the reason for the B2B ----------------------
explosion; the idea that everyone you do business with could be connected
together into one big happy, cooperative family. ----------------------
Of course, the reality behind this vision is that it will take years to come to ----------------------
fruition. But considering that B2B has only been around for a few years, some
industries have already made great progress, most notably consumer-packaged ----------------------
goods (the companies that make products that go to supermarkets and drug
stores), high technology and autos. ----------------------
When you ask the people on the front lines in these industries what ----------------------
they hope to gain from their supply chain efforts in the near term, they will
----------------------
all respond with a single word: visibility. The supply chain in most industries

Notes is like a big card game. The players don’t want to show their cards because
they don’t trust anyone else with the information. But if they showed their
---------------------- hands they could all benefit. Suppliers wouldn’t have to guess how much raw
materials to order, and manufacturers wouldn’t have to order more than they
---------------------- need from suppliers to make sure they have enough on hand if demand for
---------------------- their products unexpectedly goes up. And retailers would have fewer empty
shelves if they shared the information they had about sales of a manufacturer’s
---------------------- product in all their stores with the manufacturer. The Internet makes showing
your hand to others possible, but centuries of distrust and lack of coordination
---------------------- within industries make it difficult.
----------------------
----------------------
Fill in the blanks.
----------------------
1. Large size of investments and the accompanying costs and risks call for
---------------------- more deeper and systematic analysis of the projects and their financial
---------------------- implications. It is done through _______________ planning.
2. The practice of creating the ______________ has changed over the past
---------------------- decade to include an increased emphasis on the customer, better analysis
---------------------- of the competition, more specific objectives and measurement and more
reasoned and realistic planning.
---------------------- 3. _______________ knowledge is difficult to transfer by other means
---------------------- than looking at someone executing the process, trying it out yourselves,
imitating and experiencing.
----------------------
4. _______________ knowledge is formal and systematic and can hence be
---------------------- easily communicated and shared.
----------------------
Activity 3
----------------------
Observe the Marketing Plan followed by your organisation at present.
----------------------
----------------------
11.10 CUSTOMER RELATIONSHIP MANAGEMENT
----------------------
CRM stands for Customer Relationship Management. It is a strategy used
---------------------- to learn more about customers’ needs and behaviors in order to develop stronger
relationships with them. After all, good customer relationships are at the heart
---------------------- of business success. There are many technological components to CRM, but
---------------------- thinking about CRM in primarily technological terms is a mistake. The more
useful way to think about CRM is as a process that will help bring together
---------------------- lots of pieces of information about customers, sales, marketing effectiveness,
responsiveness and market trends.
----------------------
----------------------

What is the goal of CRM? Notes
The idea of CRM is that it helps businesses use technology and human
----------------------
resources to gain insight into the behavior of customers and the value of those
customers. If it works as hoped, a business can: ----------------------
●● provide better customer service.
----------------------
●● make call centers more efficient.
●● cross sell products more effectively. ----------------------
●● help sales staff close deals faster. ----------------------

●● simplify marketing and sales processes. ----------------------
●● discover new customers.
----------------------
●● increase customer revenues.
How does it happen? ----------------------
It doesn’t happen by simply buying software and installing it. For CRM ----------------------
to be truly effective, an organization must first decide what kind of customer
information it is looking for and it must decide what it intends to do with that ----------------------
information. For example, many financial institutions keep track of customers’ ----------------------
life stages in order to market appropriate banking products like mortgages to
them at the right time to fit their needs. ----------------------
Next, the organization must look into all of the different ways information ----------------------
about customers comes into a business, where and how this data is stored
and how it is currently used. One company, for instance, may interact with ----------------------
customers in a myriad of different ways including mail campaigns, Web sites,
brick-and-mortar stores, call centers, mobile sales force staff and marketing and ----------------------
advertising efforts. Solid CRM systems link up each of these points. Customer ----------------------
relationship management was developed as a way to help companies keep
track of their customers, improve customer interactions and engender customer ----------------------
loyalty and revenue through specifically targeted services and promotions. It
typically encompasses such applications as sales and field-service automation, ----------------------
call centers and help desks, and customer-database management. ----------------------
One of the key strategic capabilities that enable these businesses to
outperform their competitors is their ability to identify their most valuable ----------------------
customers and adjust their service based on customer requirements, lifetime ----------------------
potential and an intimate understanding of total supply-chain cost on a customer-
by-customer basis, says the study. “This enables supply-chain managers to know ----------------------
which orders should get preferential treatment based on real-time knowledge
about the customers that really count and which products, services and supply- ----------------------
chain capabilities are most important to these customers.” ----------------------
“The fact that CRM has been separate from SCM is a big problem for
----------------------
many companies because whatever the front-end commits somebody has to
deliver. This is an integration and a process issue.” ----------------------
Process and technological issues are only part of the equation. However,
----------------------
there also are cultural and organizational barriers to overcome. Implementing

Notes a CRM strategy can quickly raise governance issues around who owns the
customer, since truly understanding the customer has implications for both
---------------------- revenue generation and cost.
---------------------- Marketers and supply-chain people often have conflicting views and
conflicting incentives in this area. “You need someone fairly high up in the
---------------------- organization who has influence over customer processes as well as operational
processes to be a champion for integration if it is to succeed. But it’s certain
----------------------
that you can’t have an independent CRM solution and an independent SCM
---------------------- solution and expect to reap the benefits of understanding the true value of your
customer.”
----------------------
Caselet : DELL
----------------------
By leveraging the superb strengths of its internet transaction
---------------------- capabilities, Dell has not only reduced its own cost but has also helped
its clients to achieve the same kind of cost savings. Dell provides Premier
---------------------- pages to almost any organization with about 250 or more employees. These
Premier pages enable authorized employees to place any order. These pages
----------------------
keep track of their accounts, their billings and their history of orders. For
---------------------- customers this is a great advantage since they save all the bookkeeping cost.
Since March 2000, Dell has made 242 B2B deployments of these Premier
---------------------- pages across
---------------------- 150 companies; most of them are large or very large. Ninety percent of
these deployments have been in the United States, with the balance in Western
---------------------- Europe, Japan, and Australia. Companies with B2B deployments have come
from almost all industries. B2B Premier pages is Dell’s another major sales
----------------------
channel whose sales volume growing 20% quarter over quarter since 2000.
---------------------- This kind of mutual cost savings helped Dell to gain respect and reputation
as of customer caring firm. Dell has put tremendous capital in every point of
---------------------- interaction they have either with their customers or suppliers, though, the point
of interactions they have chosen are least expensive compare to traditional
----------------------
channels. For example, internet, direct phone-calls, mass catalog mailing,
---------------------- and B2B website compare to intermediate distributors and retailers. On client
side, with the help of CRM systems they have provided clients a single point
---------------------- of contact to solve their any kind of technical or issue oriented problems.
For example, each Dell product has a customer tag with the help of which
----------------------
customer support representative often pull more knowledgeable information
---------------------- from their CRM systems about owner’s product than herself, which in turn
solve customer’s problem fast. This increase customer satisfaction and
---------------------- loyalty. On the supplier side of their firm, their tightly coupled integrated
systems capture various important streams of data from various front
----------------------
ends; integrate those data and pass to each different vendor corresponding
---------------------- unique valuable information almost instantly. This excellent management
and instant distribution of information has helped Dell taking advantage of
---------------------- different vendors instead of manufacturing those pieces by themselves. That
has eliminated manufacturing cost as well as reduced its inventory cost.
----------------------

Beyond Connecting Notes
The resulting integration goes beyond mere “connecting.” It integrates on
----------------------
three levels:
●● On the presentation level, by bringing all the pieces of information needed ----------------------
about a customer together in one view, whether that information comes
----------------------
from CRM, SCM or financials;
●● On the business process level, by enabling such activities as reserving ----------------------
inventory for particular orders;
----------------------
●● On the access level, by allowing information to be shared with customers,
suppliers, partners, or others. ----------------------
Mass Customization ----------------------
The old paradigm of mass production is no longer suitable for today’s
----------------------
turbulent markets, growing product variety, and opportunities for e-commerce.
What is needed now is mass customization, which proactively manages product ----------------------
variety in the environment of rapidly evolving markets and products, many
niche markets, and individually customized products sold through stores or ----------------------
over the internet.
----------------------
Mass customization can customize products quickly for individual
customers or for niche markets at better than mass production efficiency and ----------------------
speed.
----------------------
The Mass Customization Spectrum
----------------------
There is a whole spectrum of ways that mass customization methodologies
can benefit companies. At the most visible end of the spectrum companies can ----------------------
mass customize products for individual customers.
----------------------
Further along the spectrum is the niche market customization. For
example, a company that makes telephones has only a few customers (telephone ----------------------
companies) who want several dozen models in many colors all with the specific
telephone companies logos. ----------------------
At the other end of the spectrum are companies that have tremendous ----------------------
varieties of “standard” products, for instance, industrial suppliers of valves,
switches, instruments, electrical enclosures or any company with a catalog ----------------------
over half an inch thick. As with product customization there is a great contrast ----------------------
between how mass producers and mass customizes manufacture a variety of
standard products. The mass producer has a dilemma of trying to keep large ----------------------
enough inventories to sell a wide variety of products from stock or alternatively
using the slow reactive process of ordering parts and building products in very ----------------------
small batches after receipt of orders. ----------------------
Need for Speed
----------------------
Mass customized goods compete with standard goods, which may
be available right now at stores or with dealers. The biggest appeal of mass ----------------------
customization is being able to
----------------------

Notes ●● Provide customized goods.
●● Quickly resupply goods with standard products that have just been sold
---------------------- with built to order replacements and
---------------------- ●● For industrial suppliers to be able to respond on demand to assemblers
pull signals, this may be part of the spontaneous supply chain for the first
---------------------- two cases.
---------------------- For all this speed is imperative to minimize mass customization’s biggest
vulnerability: waiting.
----------------------
Mass Customization depends on Flow of Manufacturing
---------------------- The trend to smaller batches is what is pushing savvy manufacturers
---------------------- toward flow manufacturing. Mass customization relies on flow manufacturing
to provide the batch-size-of-one capability. Mass customization depends
---------------------- on several elements of flow manufacturing to enable them to build products
economically in any order quantity, even as low one.
----------------------
Being able to build in a batch (or lot) size of one depends on the elimination
---------------------- of setup, for instance, to get parts, change dies and fixtures, download programs,
find instructions, or any kind of manual measurement, adjustment or positioning
----------------------
of parts. Mass producers are forced to make products in batches to spread
---------------------- setup costs among as many produces as possible. If setup can be eliminated
then products can be made to order, as orders come in. This is the essence of
---------------------- spontaneous build to order. Setup elimination is also an essential prerequisite
for mass customization since every product could be different.
----------------------
Setup and batches can be eliminated by distributing parts at all the points
---------------------- of use to eliminate the kitting or the batching of parts, eliminating tooling setup
with versatile tool plates or tooling that can be changed quickly, consolidating
----------------------
inflexible parts into very versatile standard parts, using CNC machine tools
---------------------- to programmably make a wide variety of parts from standard shapes of raw
materials.
----------------------
Spontaneous Supply Chains
---------------------- In order to build products on demand, mass customizers must be able
---------------------- to build parts on demand from materials that are always available. This will
require a spontaneous supply chain. The first steps in supply chain management
---------------------- must be supply chain simplification.
---------------------- 1. Supply chain simplification : The simplification steps for supply chain
management are standardization. Automatic resupply techniques, and
---------------------- rationalization of the product line to eliminate or outsource the unusual,
low- volume products that contribute to part variety way out of proportion
---------------------- to their profit generating ability.
---------------------- 2. Standardization : Most products are designed around too many parts
and materials for mass customization. Ironically a rampant proliferation
---------------------- of parts is quite unnecessary, but occurs simply because standardization
----------------------

is not emphasized. Part and material variety can be easily reduced in the Notes
design stage by one or two orders of magnitude.
----------------------
3. Automatic, spontaneous resupply : A key part of the spontaneous supply
chain is automatic resupply techniques such as kanban, “min-max”, or ----------------------
breadtruck (free stock).
----------------------
4. Spontaneous build-to-order (bTO) parts : For parts that do not qualify
for kanban suppliers or in-house sources would need to implement ----------------------
spontaneous BTO so that they could actually build on-demand to the
pull signals from assembly. Spontaneous BTO of parts may require the ----------------------
development of vendor-partner relationships for suppliers to establish the
----------------------
ability to build parts in any quantity on demand.
How Products are Customized ----------------------
There are three ways to customize products: modular, adjustable, and ----------------------
dimensional customization.
----------------------
1. Modular customization : Modules are building blocks. Usually modules
are literally building blocks that can customize a product by assembling ----------------------
various combinations of modules. Examples of modules would include
many components in automobiles: engines, transmissions, audio ----------------------
equipment etc. ----------------------
2. Adjustable customization : Adjustments are a reversible way to customize
a product such as mechanical or electrical adjustments. Adjustments ----------------------
could be infinitely variable. These adjustments and configurations make ----------------------
the product customizable by the factory, by the dealers, or by customers.
Software can be customized by user-defined settings or by table driven ----------------------
programming in which the software is specifically written to accommodate
variables that can be customized by entering customer data in to a table. ----------------------
3. dimensional customization : Involves a permanent cutting-to- fit, ----------------------

mixing, or tailoring. Dimensional customization could be infinite or
----------------------
have a selection of discrete choices. Examples of infinite dimensional
customization would include tailoring of clothes, drilling holes in bowling ----------------------
balls, grinding eye glasses etc.
----------------------
Knowledge Management System
Knowledge management can be defined as a business activity with two ----------------------
primary aspects: ----------------------
1. Treating the knowledge component of business activities as an explicit
concern of business reflected in strategy, policy, and practice at all levels ----------------------
of the organization. ----------------------
2. Making a direct connection between an organization’s intellectual assets
- both explicit [recorded] and tacit [personal know-how] - and positive ----------------------
business results. ----------------------
In practice, knowledge management often encompasses identifying and
----------------------
mapping intellectual assets within the organization, generating new knowledge

Notes for competitive advantage within the organization, making vast amounts of
corporate information accessible, sharing of best practices, and technology that
---------------------- enables all of the above - including groupware and intranets.
---------------------- Knowledge management is a discipline that seeks to improve the
performance of Individuals and organizations by maintaining and leveraging
---------------------- the present and future value.
---------------------- Knowledge management systems encompass both human and Automated
activities and their associated artifacts. From this perspective, knowledge
---------------------- management is not so much a new practice as it is an integrating practice. It
offers a framework for balancing the myriad of technologies and approaches
----------------------
that provide value, tying them together into a seamless whole. It helps analysts
---------------------- and designers better address the interests of stakeholders across interrelated
knowledge flows and, by doing so, better enables individuals, systems and
---------------------- organizations to exhibit truly intelligent behavior in multiple contexts.
----------------------
11.11 OUTSOURCING, MERGERS AND ACQUISITIONS
----------------------
Outsourcing :
----------------------
Manufacturing is considered too labour and capital intensive to support
---------------------- the high margins and fast growth that the investors demand. By shedding
assets, companies can take on a new life as designers, solution providers,
---------------------- industry innovators or supply chain integrators- and may succeed in quickly
boosting their return on invested capital. Such pressures and perceptions make
----------------------
outsourcing an almost irresistible impulse for manufacturers. Global access to
---------------------- vendors, falling interaction costs, improved technologies are giving them an
unprecedented amount of choice in their businesses.
----------------------
Through outsourcing the company can now dump operational headaches
---------------------- and bottlenecks downstream, make possible minimum costs and avoid labour
conflicts and management deficiencies. But, in doing so, companies may
---------------------- be ceding the very skills and processes that have distinguished them in
the marketplace. (Gibson Greetings outsourced its manufacturing and ran into
----------------------
supplier-management problems.)
---------------------- It has to be kept in mind that outsourcing is not an end in itself but rather, a
---------------------- strategic tool for enhancing the overall performance. The ability of outsourcing
to play this role depends partly on the form chosen. If it is not used strategically,
---------------------- it probably shouldn’t be used at all.
---------------------- Outsourcing can be defined as “the strategic use of outside resources to

perform activities traditionally handled by internal staff and resources. It is hence
---------------------- a strategy by which an organisation contracts out major functions to specialized
and efficient service providers who become valued business partners.”
----------------------
Companies have always hired contractors for particular types of work,
---------------------- or to level off the peaks and troughs in their workload, and formed long-
term relationships with firms whose capabilities complement or supplement
----------------------

their own. However, the difference between this ‘subcontracting’ and actual Notes
outsourcing is that the latter involves substantial restructuring of particular
business activities including, often, the transfer of staff from a host company to ----------------------
a specialist company with the required core-competencies.
----------------------
Reasons for Outsourcing :
----------------------
●● To reduce and control operating costs.
●● To improve the host company focus. ----------------------
●● To gain access to world-class capabilities. ----------------------
●● To free internal resources for other purposes.
----------------------
●● To deal with functions that are time-consuming to manage or out of
control. ----------------------
●● If internal availability of resources is low. ----------------------
●● To share risks with a partner company.
----------------------
In today’s world, the focus is on strategically outsourcing in such a manner as to
enable organisations to best utilize their core-competencies. ----------------------
Main Factors Influencing Successful Outsourcing : ----------------------
●● Understanding company goals and objectives.
----------------------
●● Strategic vision and plan.
●● Selecting the right vendor. ----------------------
●● Ongoing management. ----------------------
Mergers, Acquisitions, Takeovers and Restructuring :
----------------------
Merger : A merger is a strategy through which two firms agree to integrate on
a relatively co-equal basis because they have resources and capabilities that ----------------------
together may create stronger competitive advantage. ----------------------
Acquisition : This is a strategy through which one firm buys a controlling /
100% interest in another firm with the intent of using a core-competence ----------------------
more effectively by making the acquired firm a subsidiary business within its ----------------------
portfolio.
Acquisitions, which are unfriendly, are termed as takeovers. ----------------------
Reasons for acquisitions : ----------------------

●● Increased market power. ----------------------
●● Overcoming entry barriers.
----------------------
●● Cost of product development.
●● Increase speed to market. ----------------------
●● Lower risk compared to developing new products. ----------------------

●● Increased diversification. ----------------------
●● Avoid excessive competition.
----------------------

Notes Problems in achieving success :
●● Integration proves to be difficult.
----------------------
●● Inadequate evaluation of the target.
---------------------- ●● Large/extraordinary debt.
---------------------- ●● Inability to achieve synergy.
---------------------- ●● Too much diversification.

●● Managers overly focussed on acquisition.
----------------------
Types of acquisitions
---------------------- 1. Horizontal : Acquisition of firms competing in the same industry.
---------------------- It increases the firms market power by exploiting cost plus revenue
based synergy. It increases the performance of the firms with dissimilar
---------------------- characterstics.
---------------------- 2. Vertical : Acquiring a supplier or distributor of one or more of its goods

or services. Helps in controlling additional parts of the value-chain.
---------------------- 3. Related : Acquisition of a firm in a highly related industry.
---------------------- Restructuring :
---------------------- Restructuring could be defined as a strategy through which a firm changes
its set of business or financial structure.
----------------------
Failure of acquisition strategy is the driver of restructuring strategy.
---------------------- It is used because of the changes in the internal plus the external
---------------------- environment. Different opportunities surface in external environment that are
particularly attractive to the diversified firms in light of the core-competencies
---------------------- that have been developed in its internal environment. In such a case restructuring
may be appropriate to position a firm.
----------------------
Restructuring strategies are :
---------------------- 1. Downsizing : it is a reduction in number of firms, employees and number
---------------------- of operating units but it may or may not change the composition of
business in companies portfolio.
----------------------
2. Downsloping : it has more positive effect. It refers to divestiture or spin-
---------------------- off or some other means of eliminating business’ unrelated to firm’s core
business eg:- Walt-Disney sold its Fairchild publication unit to advanced
---------------------- publication for $ 650 mn.
---------------------- 3. Leveraged buyouts : it is a strategy whereby a firm buys all firms assets
in order to take firms private. Once the transaction is completed the
---------------------- companies stock is no longer traded public.
----------------------
----------------------
----------------------

Caselet : Outsourcing Notes
a) Bharti Airtel: India’s top cellular telephony operator Bharti Airtel ----------------------
(formerly Bharti TeleVentures) has extended its association with IT
major IBM with a $100 million deal to deliver a suit of new service ----------------------
products and applications under a single platform.
----------------------
Bharti, already has a $759 million contract signed with IBM in 2004
- an outsourcing deal under which IBM operates Bharti’s information- ----------------------
technology services, including billing and customer-management
----------------------
software, internal e-mail systems and the company’s intranet.
Bharti has partnered with IBM to deliver India’s first ‘service delivery ----------------------
platform’ to enable it to deliver a suit of new range of services to its over
----------------------
25 million customers.
b) DaimlerChrysler: Chrysler viewed engines as another component. Hence ----------------------
it outsourced it to Mitsubishi and Hyundai and became increasingly
dependent upon them. Between 1985 and 1987, Chrysler’s outsourced ----------------------
engines went from 252,000 to 382,000. ----------------------
Caselet : Mergers
----------------------
A flurry of merger activity revealed weaknesses in the pharmaceutical
industry’s R&D strength. Mergers mushroomed in the 1990s because the ----------------------
industry had excess capacity and too many players. Add to this scenario the
high risk of pharmaceutical R&D for a small company with a tiny pipeline, ----------------------
and it is not surprising that rationalization (i.e., consolidation) took place. ----------------------
The takeovers/mergers comprised three groups :
----------------------
●● Some companies were formed by mergers or takeovers of already large
companies. For example, GlaxoSmithKline was formed from Beecham, ----------------------
Wellcome, and Smith, Kline and French. Sanofi-Aventis was formed
----------------------
from Sanofi-Synthélabo and Aventis, which in turn had absorbed the
pharmaceutical interests of such giants as Hoechst and Rhône-Poulenc. ----------------------
Wyeth had absorbed Cyanamid, Lederle, and A.H. Robbins. Novartis
formed from a merger between Ciba-Geigy and Sandoz-at one time ----------------------
three of the big four Swiss pharmaceutical companies.
----------------------
●● The second group comprises companies that absorbed other companies
without ever losing their dominance. Pfizer, after a long period of ----------------------
M&A inactivity, took over Warner-Lambert and Pharmacia (which had
----------------------
absorbed Upjohn) but remained dominant throughout. Hoffmann-La
Roche absorbed Syntex and acquired 60% of Genentech over a ten-year ----------------------
period but was not involved in any major battles. AstraZeneca resulted
from a mega-merger of the Scandinavian powerhouse Astra with Zeneca, ----------------------
which had been spun off from ICI when the latter unbundled.
----------------------
●● The third group stood aside from M&A activity. Merck is the prime
example, and Eli Lilly another. While Johnson & Johnson bought many ----------------------
small companies, it was not involved in serious takeover battles.
----------------------

Notes 11.12 SYNERGY
---------------------- The word synergy is derived from Greek word “synergos” which means
working together. In business usage it refers to the ability of two or more units or
---------------------- companies to generate greater value working together than they could working
apart . Business synergies can take one of the following six forms :
----------------------
1. Shared know-how
----------------------
Units often benefit from sharing of knowledge or skills. They may
---------------------- improve their results by pooling their insights into a particular process,
function, or geographic area. The know-how they share may be written in
---------------------- form of manuals or in policies or procedure statements but very often it
---------------------- exists tacitly, without formal documentation.
2. Shared tangible resources
----------------------
Units can sometimes save a lot of money by sharing physical assets or
---------------------- resources. By using a common manufacturing or research lab. They may
gain economies of scale and avoid duplicated efforts.
----------------------
3. Pooled negotiating power
---------------------- By combining their purchases, different units can gain greater leverage
---------------------- over suppliers, reducing the cost or even improving the quality of the
goods they buy.
---------------------- 4. Coordinated strategies
---------------------- It sometimes works to a company’s advantage to align strategies of two
or more of its business. Dividing up the markets among the units may, for
---------------------- instance, reduce inter-unit competition.
---------------------- 5. Vertical integration
---------------------- Coordinating the flow of products or services from one unit to another
can reduce inventory costs, speed product development, increase capacity
---------------------- utilization and improve market access. In process industries such as
petrochemicals and forest products, well-managed vertical integration
---------------------- can yield particularly large benefits.
---------------------- 6. Combined business creation
---------------------- The creation of new businesses can be facilitated by combining know-
how from different units, by extracting discrete activities from various
---------------------- units and combining them in a new unit, or by establishing internal joint
ventures or alliances.
----------------------
However, the pursuit of synergy often represents an opportunity cost. It
---------------------- distracts manager attention from the nuts and bolts of their business. In other
words many synergy efforts end up destroying value rather than creating it.
----------------------
When a synergy program flounders, it is usually the business units that
---------------------- take the blame. Corporate executives chalk the failure upto the line managers’
incompetence. However, the blame is frequently misplaced. The true cause
---------------------- more often lies in the thinking of corporate executives themselves.

Companies are prone to four biases that distort their thinking : Notes
1. Synergy bias : It is overestimating the benefits and underestimating the
----------------------
costs of synergy. Many corporate executives, whether or not they have
any special insight into synergy opportunities or aptitude for nurturing ----------------------
collaboration, feel they ought to be creating synergy. In part, synergy
bias reflects executives’ need to justify the existence of their corporation. ----------------------
Desperately seeking synergy they make unwise decisions and investments.
----------------------
Ex:- in one international food company - worldwide foods- a newly
appointed CEO became convinced that the key to higher profits is the ----------------------
inter-unit co-operation so he decided to leverage the company’s brand
internationally. The category managers hence launched a high profile ----------------------
synergy initiative. The results were dismal and lead to an opposite result.
----------------------
2. Parenting bias : A belief that synergy will only be captured by compelling
or cajoling the business units to cooperate. They assume that the unit ----------------------
managers, overly focussed on their own unit and over-protective of their
----------------------
authority, disregard or undervalue the opportunities to collaborate with
others if business unit managers choose not to cooperate, they usually ----------------------
have good reasons. ex:- at worldwide foods one of the corporate category
managers attempted to create an advertising campaign that could be used ----------------------
throughout Europe but several local managers resoundingly rejected
----------------------
corporate advertisements since they believed that the campaign ignored
real differences in local market, cultures and customs. This merely lead to ----------------------
the excessive interference of the corporates.
----------------------
3. Skill bias : Corporate executives who believe they should intervene are
also likely to assume that they have the skills to intervene effectively. ----------------------
The members of the management team may lack operating knowledge,
personal relationships or facilitative skills required to achieve meaningful ----------------------
collaboration.
----------------------
4. Upside bias : Corporate executives look on the upsides and are convinced
but they forget to look at the downsides. There are unforeseen consequences ----------------------
known as the knock-on effects, which can be either beneficial or harmful. ----------------------
Infact collaboration is not always good.
Sizing the prize ----------------------
The goals of synergy programs tend to be expressed in broad, vague terms ----------------------
like “sharing best practices”. Clarifying the objectives and benefits of a potential
synergy initiative is the first and the foremost important discipline in making ----------------------
sound decisions on synergy. Overarching goals should be disaggregated into ----------------------
discrete, well-defined benefits and then each brand should be subject to hard-
nosed financial analysis. ----------------------
Once the overall synergy goal has been broken down into its main components, ----------------------
the next step is to estimate the size of the net benefits in each area. Order-of-
magnitude analysis will do rather than doing an exhaustive financial analysis. ----------------------
----------------------

Notes Even when a synergy prize is found to be sizable the corporate executives
should not necessarily rush in. Only when corporate executives can, first,
---------------------- point to a specific problem that is preventing the unit managers from working
together, second, show why their involvement should solve the problem, and
---------------------- third, confirm that they have skills required to get the job done.
---------------------- In that case, a parenting opportunity arises in four forms :
---------------------- ●● Perception opportunity arises when businesses are unaware of the
potential benefits of synergy. The parent can help fill that perception gap.
----------------------
●● Evaluation opportunities arise when businesses fail to assess correctly the
---------------------- costs and benefits of a potential synergy. In such cases the parent must
play a role in correcting unit’s thinking.
----------------------
●● Motivation opportunities which derive from a simple lack of enthusiasm
---------------------- by one or more units.
●● Implementation opportunities open up when unit managers understand
---------------------- and commit to a synergy program but, through lack of skills, people or
---------------------- other resources, can’t make it happen.
Bringing downsides to light
----------------------
If all of the above parameters are in place it still may not be a favourable
---------------------- time to go ahead with a synergy program. A final discipline is looking carefully
for any collateral damage that may occur from the synergy program.
----------------------
When executives manage synergy well it could be a boon, creating
---------------------- additional value with existing resources. But when it’s poorly managed, it can
undermine an organisation’s confidence and erode trust among business units
----------------------
and the corporate centre.
----------------------
----------------------
---------------------- Multiple Choice Multiple Response.

1. Knowledge is created through:
----------------------
i. Socialisation
----------------------
ii. Learning
---------------------- iii. Innovation
---------------------- iv. Discovery
----------------------
----------------------
----------------------
----------------------
----------------------

Summary Notes
●● To remain competitive in the world market place, companies need a ----------------------

quality workforce with high levels of qualifications and skills that meet
----------------------
their needs.
●● Foundation learning: Must develop the ability to learn how to learn ----------------------
to adapt to changes in the work place and on the labour market. Must
----------------------
provide individuals not only with basic knowledge but also with soft
skills, such as personal and social skills, that are needed in working life. ----------------------
Life-long learning must be geared towards business needs. Individuals
must be equipped with a range of qualifications and skills that are relevant ----------------------
to the needs of employers and of the labour market. Life-long learning
----------------------
has many benefits for companies and individuals alike. It empowers
individuals as regards their employability and their continuous training - ----------------------
formal and informal - throughout their working life.
----------------------
●● Life-long learning requires co-operation and partnership between all
stakeholders and is a shared responsibility between individuals, companies ----------------------
and governments. Life-long learning means building a solid basis for
continuous learning throughout an individual’s working life, underpinned ----------------------
by effective strategies and flexible systems and arrangements.
----------------------
Keywords ----------------------
●● Functional strategies: Strategies adopted by the functional department ----------------------

of the organisation.
----------------------
●● Supply chain management: The value chain which include all the
activities –right from procuring raw material to supply of finished goods. ----------------------
●● CRM: Customer relationship management ----------------------
●● Synergy: The impact the organisation brings when they join hands with
organisation to overcome their weaknesses. ----------------------
----------------------
----------------------
1. How can knowledge be transmitted in an organization?
----------------------
2. How and what factors affect functional strategies?
----------------------
3. What are the social responsibilities of a business?
4. Explain evolution and revolutions as organizations grow. ----------------------
5. What are the various systems in an organization? Write notes on a few ----------------------
organization systems.
----------------------
6. Write a note on Synergy.
----------------------
7. Write notes on application of SCM, CRM and outsourcing in strategic
management. ----------------------

Notes 8. How are strategies formulated at different levels?
9. Write a note on functional planning.
----------------------
10. What are the key dimensions of knowledge management?
----------------------
11. Describe four different modes of knowledge creation.
---------------------- 12. What is a supply chain and what makes the supply chain management
---------------------- difficult?
13. Why is supply chain management necessary?
----------------------
14. Why is it difficult for all the firms to improve their supply chain
---------------------- performance?
---------------------- 15. What are the key issues in supply chain management?
16. How is the supply chain structure evolving?
----------------------
---------------------- Answers to Check your Progress

---------------------- 1. Horizontal fit looks at the process of strategy, which involves various
functions in the value chain, which must be coordinated.
---------------------- 2. Vertical fit is related to various functions like finance, marketing, HR,
---------------------- etc. which have their own sets of strategy and they are coordinated to
integrate.
---------------------- 3. Functional strategies deal with the relative and restricted function for
---------------------- allocation of resources, enabling coordination for optimal contribution.
----------------------
----------------------
1. False
---------------------- 2. False
---------------------- 3. False
Fill in the blanks.
----------------------
1. Large size of investments and the accompanying costs and risks call for
---------------------- more deeper and systematic analysis of the projects and their financial
implications. It is done through capital expenditure planning.
----------------------
2. The practice of creating the market plan has changed over the past decade
---------------------- to include an increased emphasis on the customer, better analysis of
---------------------- the competition, more specific objectives and measurement and more
reasoned and realistic planning.
----------------------

3. Tacit knowledge is difficult to transfer by other means than looking at Notes
someone executing the process, trying it out yourselves, imitating and
experiencing. ----------------------
4. Explicit knowledge is formal and systematic and can hence be easily ----------------------
communicated and shared.
----------------------
Multiple Choice Single Response. ----------------------
1. Knowledge is created through: ----------------------
iv. Discovery ----------------------
----------------------
Suggested Reading
----------------------
1. Kaplan, R. S. and D. P. Norton. 1996. “Using the Balanced Scorecard as a
Strategic Management System.” Harvard Business Review. ----------------------
2. Kaplan, R. S. and D. P. Norton. 1993. “Putting the Balanced Scorecard to ----------------------
Work.” Harvard Business Review.
----------------------
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Notes
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Strategic Evaluation and Control
UNIT
12
Structure:
12.1 Introduction
12.2 Levels of Evaluation
12.3 Types of Strategic Controls
12.4 Types of Operational Controls
12.5 Evaluating Corporate Strategy
12.6 Reasons for Transformational Failure
12.7 Important Events having a Great Impact on India and Indian Industry
Summary
Keywords
Suggested Reading
Strategic Evaluation and Control 313

Notes
Objectives
----------------------
----------------------
●● Analyse Discuss the strategic evaluation levels
---------------------- ●● Describe the importance of evaluation
---------------------- ●● Evaluate the process of evaluation
---------------------- ●● Analyse corporate strategies
●● Examine the reasons for transformational effort failure
----------------------
12.1 INTRODUCTION
----------------------
---------------------- The unit describes how evaluation is done and what the requirements are
and other parameters to be kept in mind while forming a strategy. It also talks
---------------------- about how corporate strategy is evaluated and what are the various reasons for
failure even after the transformation in applied strategy.
----------------------
---------------------- 12.2 LEVELS OF EVALUATION

---------------------- Strategic evaluation operates at two levels: strategic evaluation and
operational evaluation. At the strategic level, we are concerned more with the
---------------------- consistency of strategy with the environment.
---------------------- At the operational level, the effort is directed at assessing how well the
organization is pursuing a given strategy.
----------------------
We describe four such types of strategic controls: premise evaluation,
---------------------- implementation evaluation, strategic surveillance evaluation, and emergency
alert control evaluation.
----------------------
Operational control consists of setting standards, measuring performance,
---------------------- analyzing variances, and taking corrective action, which is a process you are
familiar with.
----------------------
Nature of Strategic Evaluation
----------------------
The purpose of strategic evaluation is to evaluate the effectiveness
---------------------- of strategy in achieving organizational objectives, thus, it is the process of
determining the effectiveness of a given strategy in achieving the organizational
---------------------- objectives and taking corrective action wherever required.
---------------------- From this definition, we can infer that the nature of the strategic evaluation
and control process is to test the effectiveness of strategy. The strategist attempts
---------------------- to answer the following questions :
---------------------- ●● Are the premises and assumptions consistent as made during strategy
formulation? Is the strategy leading towards its intended objectives? Are
---------------------- the organization and its managers doing things which ought to be done?
---------------------- Is there a need to change and reformulate the strategy?

●● How is the organization performing? Are the time schedules being Notes
adhered to? Are the resources being utilized properly? What needs to be
done to ensure that resources are utilized properly and objectives met? ----------------------
Importance of Strategic Evaluation ----------------------
The importance of strategic evaluation lies in its ability to coordinate the
tasks performed by individual managers, divisions or SBUs, through the control ----------------------
of performance. In the absence of this, individual managers may pursue goals, ----------------------
which are inconsistent with the overall objectives. There is a need for feedback,
appraisal and reward; check on the validity of strategic choice; congruence ----------------------
between decision and intended strategy; and creating inputs for new strategic
planning. ----------------------
Strategic evaluation helps to keep a check on the validity of a strategic ----------------------

choice. An ongoing process of evaluation would, in fact, provide feedback on the
----------------------
continued relevance of the strategic choice made during the formulation phase.
This is due to the efficacy of strategic evaluation to determine the effectiveness ----------------------
of strategy.
----------------------
Participants in Strategic Evaluation
●● The Board of Directors enacts the formal role of reviewing and screening ----------------------
executive decisions in the light of their environmental, business and
----------------------
organizational implications.
●● Chief executives are ultimately responsible for all the administrative ----------------------
aspects of strategic evaluation and control.
----------------------
●● The SBU or profit-center heads may be involved in performance evaluation
at their levels and may facilitate evaluation by corporate-level executives. ----------------------
●● Financial controllers, company secretaries, and external and internal ----------------------
auditors form the group of persons who are primarily responsible for
operational control based on financial analysis, budgeting, and reporting. ----------------------
●● Audit and executive committees may be charged with the responsibility ----------------------
of continuous screening of performance.
●● The corporate planning staff or department may also be involved in ----------------------
strategic evaluation. ----------------------
Barriers in Evaluation
----------------------
●● The limits of control
●● Difficulties in measurement ----------------------
●● Resistance to evaluation ----------------------

●● Tendency to rely on short- term assessment, and ----------------------
●● Relying on efficiency versus effectiveness.
----------------------
Requirements for Effective Evaluation
●● Control should involve only the minimum amount of information. Too ----------------------
much information tends to clutter up the control system and creates ----------------------
confusion.

Notes ●● Control should monitor only managerial activities and results even if the
evaluation is difficult to perform.
---------------------- ●● Long-term and short-term controls should be used so that a balanced
---------------------- approach to evaluation can be adopted.
●● Controls should aim at pinpointing exceptions. The 80:20 principle,
---------------------- where 20 per cent of the activities result in 80 per cent of achievement,
---------------------- needs to be emphasized
●● Rewards for meeting or exceeding standards should be emphasized
---------------------- so that, managers are motivated to perform. Unnecessary emphasis on
---------------------- penalties tends to pressurize the managers to rely on efficiency rather than
effectiveness.
----------------------
----------------------

1. The strategic _________________ is the process of determining
---------------------- the effectiveness of a given strategy in achieving the organisational
---------------------- objectives and taking corrective action wherever required.
2. _____________ control consists of setting standards, measuring
----------------------
performance, analysing variances and taking corrective action.
----------------------
---------------------- Activity 1
----------------------
Analyse how your company applies strategy controls and operational
---------------------- controls in its strategy evaluation and control.
----------------------
12.3 TYPES OF STRATEGIC CONTROLS
----------------------
1. Premise Control
----------------------
Every strategy is based on certain assumptions about environmental and
---------------------- organizational factors. Some of these factors are highly significant and any
change in them can affect the strategy to a large extent. Premise control is
----------------------
necessary to identify the key assumptions, and keep track of any change
---------------------- in them so as to assess their impact on strategy and its implementation. It
enables the strategists to take corrective action at the right time.
----------------------
2. Implementation Control
---------------------- ●● Implementation control is aimed at evaluating whether the plans,
---------------------- programme and projects are actually guiding the organization
towards its predetermined objectives or not.
---------------------- ●● Implementation control may be put into practice through the
identification and monitoring of strategic thrusts.
----------------------

●● Another method of implementation control is milestone review. Notes
3. Strategic Surveillance
----------------------
●● The premise and implementation types of strategic controls are
specific in nature. Strategic surveillance is designed to monitor a ----------------------
broad range of events inside and outside the company that are likely
to threaten the course of a firm’s strategy. ----------------------
●● Broad-based, general monitoring on the bases of selected ----------------------

information sources to uncover events that are likely to affect the
strategy of an organization. ----------------------
4. Emergency Alert Control ----------------------
●● It is based on a trigger mechanism for rapid response and immediate ----------------------
reassessment of strategy in the light of sudden and unexpected
events. ----------------------
●● Emergency alert control can be exercised through the formulation of ----------------------
contingency strategies and assigning the responsibility of handling
unforeseen events to crisis management teams. ----------------------
●● Crises are critical situations that occur unexpectedly and threaten ----------------------
the course of a strategy. Organizations that hope for the best and
prepare for the worst are in a vantage position to handle any crisis. ----------------------
Crisis management follows certain steps, such as, signal detection,
preparation/prevention, containment/damage limitation, and ----------------------
recovery leading to organizational learning. ----------------------
●● The first step of signal detection can be performed by the emergency
alert control systems. ----------------------
Process of Evaluation ----------------------
The process of evaluation basically deals with four steps: ----------------------
1. Setting standards of performance
----------------------
2. Measurement of performance
----------------------
3. Analyzing variances
4. Taking corrective action ----------------------
----------------------
12.4 TYPES OF OPERATIONAL CONTROLS
----------------------
Operational control is concerned with action or performance. Used
extensively in organizations. ----------------------
Measurement of Performance ----------------------
●● Standards of performance act as the benchmark against which the actual ----------------------
performance is to be compared.
●● Understand how the measurement of performance can take place. ----------------------
●● The information system is the key element in any measurement exercise. ----------------------

Notes ●● Operationally, measuring is done through the accounting, reporting, and
communication systems.
---------------------- ●● Important to look at the difficulties, timing and periodicity in measuring.
---------------------- Difficulties in measurement : It is not so difficult to measure individual
effort as it is to assess departmental performance.
----------------------
Timing of measurement
----------------------
●● Delay in measurement can defeat the purpose of evaluation itself.
---------------------- ●● On the other hand measuring before time cannot serve the purpose either.
---------------------- ●● It is better to measure at critical points in a task schedule.
Periodicity in measurement : Periodicity deals with “how often to
---------------------- measure.” Should it be done in shorter duration, possibly on a monthly or a
---------------------- weekly basis?
Analyzing Variances
----------------------
Actual performance and its comparison with standard of budgeted
---------------------- performance lead to analysis of variances, which can be broadly categorised as :
---------------------- 1. The actual performance matches the budgeted performance = Zero Variance
2. The actual performance deviates positively over the budgeted performance
----------------------
= Positive Variance
---------------------- 3. The actual performance deviates negatively from the budgeted
---------------------- performance = Negative Variance
The first situation is ideal but not realistic. In practice, the actual
---------------------- performance rarely matches the budgeted performance. Here, the strategists
---------------------- would have to specify a range of tolerance limits can be acceptable and the
variance is considered as not significant.
---------------------- The second situation is welcome, as it is an indication of superior
---------------------- performance. But exceeding the target continually should be considered as
unusual and a check needs to be made to test the validity of standards and the
---------------------- efficiency of the measurement system.
---------------------- The third type of situation is alarming as it indicates a shortfall in
achievement. The strategists need to pinpoint the areas where performance is
---------------------- below standard and go into the causes of deviation. Corrective action is taken
on the basis of the analysis of the causes of deviation.
----------------------
After noting the deviations, it is now time to find the causes of deviations.
---------------------- The following questions can be helpful in determining the causes:
---------------------- ●● Internal or external?
●● Random or expected?
----------------------
●● Deviation temporary or permanent?
----------------------
●● Are the strategies (and plans and objectives) still valid?
----------------------

●● The capacity to respond to the change needed? Analysis of variances leads Notes
to a plan for corrective action.
Courses for corrective action : ----------------------
●● Checking of performance requires going into the details of organizational ----------------------

structure and systems as well as, behavioral implementation. Performance
can be affected adversely due to a number of factors such as distortions ----------------------
in resource allocation, inappropriateness of structure and systems, and ----------------------
wrong leadership and motivational styles. It is a significant part of the
day-to-day activities of managers. ----------------------
●● Checking of standards is less frequent but it has to be done as soon if ----------------------
there is nothing significantly wrong with performance. A standards check
may result in a lowering of standards if it is concluded that organizational ----------------------
capabilities do not match the performance requirements or may also lead
to an elevation of standards if the conditions have improved to allow ----------------------
better performance ----------------------
●● A more radical and infrequent corrective action is to reformulate strategies,
plans, and objectives. Strategic, rather than operational, control will lead ----------------------
to the conclusion whether strategies need reformulation, plans need to be ----------------------
remodeled, or objectives need to be redefined. Reformulation of strategy
will take us back to the process of strategic management where a fresh ----------------------
strategic choice has to be made.
----------------------

1. Premise control is necessary to identify the key assumptions and keep ----------------------
track of any change in them so as to assess their impact on strategy and
its implementation. ----------------------
2. Implementation control may be put into practice through the ----------------------
identification and monitoring of strategic thrusts.
----------------------
3. Crises are critical situations that occur unexpectedly and threaten the
course of a strategy. ----------------------
4. Operational control is concerned with action or performance. ----------------------
----------------------
Activity 2 ----------------------
Propose and justify any other criteria that you feel should be considered ----------------------
while evaluating a strategy in your organisation.
----------------------
----------------------
----------------------

Notes 12.5 EVALUATING CORPORATE STRATEGY
---------------------- Based on article by Seymour Tiles
---------------------- In management, we frequently find men deploying resources in a large

scale without any clear notion of what their strategy is. A company’s strategy is
---------------------- a vital ingredient in determining its future, which will yield growth, profit, or
whatever other objectives that have been established. An inappropriate strategy
---------------------- not only will fail to yield benefits, but also may result in disaster.
---------------------- Strategy is of course not the only factor determining a company’s success
or failure. The competence of its managerial leadership is significant as well.
---------------------- Luck can be a factor, too (although often what people call good luck is really the
---------------------- product of good strategy). As they say “One lion can lead a thousand donkeys to
victory in a battle, but not vice versa”. A valid strategy can gain extraordinary
---------------------- results for the company whose general level of competence is only average.
Strategy is significant also for the large organization faced with a wide range of
---------------------- choice in domestic and international operations.
---------------------- Identifying Goals :
---------------------- Corporate goals are what the company as a whole is trying to achieve and
trying to become. Both parts, the achieving and the becoming, are important for
---------------------- a full understanding of what a company hopes to attain.
---------------------- Achieving :
---------------------- It is important to state what it hopes to do with respect to its environment.

A statement of what a company hopes to achieve may be much more varied
---------------------- and complex than can be contained in a single sentence. A company operates in
more external “systems” than the market. The firm is part not only of a market
---------------------- but also of an industry, the community, the economy, and other systems.
---------------------- Becoming :
---------------------- This should not be done only in money terms. There is nothing wrong
with financial planning. But there is a basic fallacy in confusing a financial
---------------------- plan with thinking about the kind of company that you want yours to become.
The other major fallacy in stating what you want to become is to say it only
---------------------- in terms of a product. The lesson of these experiences is that a key element of
---------------------- setting goals is the ability to them in terms of more than a single dimension.
Both money and product policy are part of a statement of objectives, but it is
---------------------- essential that these be viewed as the concrete expressions of a more abstract set
of goals—the satisfaction of the needs of significant groups which cooperate
---------------------- to ensure the company’s continued existence – like the customers, managers,
---------------------- employees, and stockholders, to mention just the major ones.
The Growth Fad :
----------------------
“Bigger”, by itself, may not make economic sense. Companies, which are
---------------------- highly profitable at their present size, may grow into bankruptcy very easily;
many companies need to learn to manage growth. It may also be possible that, a
----------------------

company, which is not now profitable, may more successfully seek its survival Notes
in cost reduction than in sales growth.
----------------------
The manager whose corporate sales are not increasing, the number of
whose subordinates is not growing, whose plants are not expanding, feel that ----------------------
he is not successful, which is a dangerous mindset. More of the same is not
necessarily progress. ----------------------
Role of Policy : ----------------------
A policy says something about how goals will be attained, similar to what
----------------------
statisticians would call a “decision rule,” and what systems engineers would
call a “standing plan.” It contains what people should and should not do in order ----------------------
to achieve the goals. It should be helpful guide to making strategy explicit and
providing direction to subordinates. ----------------------
Need to be Explicit : ----------------------
Strategy, once made explicit, can quickly be evaluated and improved. But ----------------------
if no attempt is ever made to commit it to paper, there is always the danger that the
strategy is either incomplete or misunderstood. A company may achieve initial ----------------------
success without real awareness of its causes. However, it is much more difficult
to successfully branch out into new ventures without a precise appreciation ----------------------
of their strategic significance, which can lead to many established companies ----------------------
fail miserably when they attempt a program of corporate acquisition, product
diversification, or market expansion. Making strategy explicit helps to provide ----------------------
for delegation and for coordination.
----------------------
Caselet : Bacardi
----------------------
The Bacardi Corporation has always been in the rum business and, with the
exception of a local beer in one small market, it manufactured no other spirits ----------------------
besides rum. Bacardi’s corporate strategy was to be in the “light spirits”
business. Its business strategy focused on becoming the number-one-selling ----------------------
spirits brand in the world. It manufactured no vodka, scotch, or bourbon ----------------------
keeping its focus on differentiated, premium rum. Its corporate strategy was
simply to locate its production facilities in a few strategic locations (close to ----------------------
sugar cane or close to markets) and to allocate its rum distillate and marketing
talent to the most promising markets around the world. In this setting, notice ----------------------
how corporate and business strategies intermingle. ----------------------
However, Bacardi acquired Martini and Rossi, the Italian vermouth maker
----------------------
who had more than 100 brands and products in almost as many markets.
Now Bacardi had a portfolio of liqueurs, scotches, cordials, and wines, as ----------------------
well as a hotel and a foods distribution business. The attention of senior
management turned from the selling of rum to rationalizing a very diverse ----------------------
portfolio of products, brands, and operating companies (corporate strategy).
----------------------
Meanwhile operating management around the world focused on the specifics
of competing in their various markets and businesses (business strategy). ----------------------
----------------------

Notes MAKING AN EVALUATION
Is your strategy right for you? There are six criteria on which to base an answer.
----------------------
1. Internal consistency.
----------------------
2. Consistency with the environment.
---------------------- 3. Appropriateness in the light of available resources.
---------------------- 4. Satisfactory degree of risk.
---------------------- 5. Appropriate time horizon.
6. Workability.
----------------------
1. Is the strategy internally consistent?
----------------------
Internal consistency with corporate goals.
---------------------- Each policy fits into an integrated pattern.
---------------------- How it relates to other policies the company has established and to the
goals it is pursuing.
----------------------
2. Is the strategy consistent with the environment?
----------------------
Important test of strategy is whether the chosen policies are consistent
---------------------- with the environment—whether they really make sense with respect to
what is going on outside.
----------------------
Consistency with the environment, a static and a dynamic aspect. In a
---------------------- static sense, it implies judging the efficacy of policies with respect to
the environment as it exists now. In a dynamic sense, it means judging
---------------------- the efficacy of policies with respect to the environment, as it appears to be
changing.
----------------------
In one sense, therefore, establishing a strategy is like aiming at a moving
---------------------- target. You have to be concerned not only with present position but also
---------------------- with the speed and direction of movement.
3. Is the strategy appropriate in view of the available resources?
----------------------
Resources are those things that a company is or has and that help it to
---------------------- achieve its corporate objectives, like money, competence, and facilities;
there are two basic issues which management must decide in relating
---------------------- strategy and resources. These are:
---------------------- ●● What are our critical resources?
---------------------- ●● Is the propose a strategy appropriate for the available resources?
Critical Resources :
----------------------
Represent action potential, and its capacity to respond to threats and
---------------------- opportunities that may be perceived in the environment. They are the factors
limiting the achievement of corporate goals; and that which the company will
----------------------
exploit as the basis for its strategy. The three resources most frequently
----------------------

identified as critical are money, competence, and physical facilities. Let us look Notes
at the strategic significance of each.
----------------------
Money :
Particularly valuable resource because it provides the greatest flexibility ----------------------
of response to events as they arise and considered the “safest” resource, in that
----------------------
safety may be equated with the freedom to chose from among the widest variety
of future alternatives. Companies that wish to reduce their short-run risk will ----------------------
therefore attempt to accumulate the greatest reservoir of funds they can.
----------------------
Competence :
Organizations survive because they are good at doing those things, which ----------------------
are necessary to keep them live. Companies may be good at marketing, other ----------------------
especially good at engineering; still others depend primarily on their financial
sophistication. In determining a strategy, management must to determine ----------------------
where its strengths and weaknesses lie. It must then adopt a strategy, which
makes the greatest use of its strengths. ----------------------
Physical Facilities : ----------------------

Physical facilities have significance primarily in relationship to ----------------------
overall corporate strategy. Any appraisal of a company’s physical facilities
as a strategic resource must consider the relationship of the company to its ----------------------
environment. Facilities have no intrinsic value for their own sake. Their value
to the company is either in their location relative to markets, or to sources ----------------------
impending competitive installations. ----------------------
Achieving the Right balance :
----------------------
One of the most difficult issues in strategy determination is that of
achieving a balance between strategic goals and available resources. The most ----------------------
common errors are either to fail to make these estimates at all or to be excessively
----------------------
optimistic about them.
4. Does the strategy involve an acceptable degree of risk? ----------------------
Strategy and resources, taken together, determine the degree of risk, which ----------------------
the company is undertaking and this is a critical managerial choice. Each
company must decide for itself how much risk it wants to live with. Some ----------------------
qualitative factors to be used for evaluation of the degree of risk are: ----------------------
●● The amount of resources (on which the strategy is based) whose
continued existence or value is not assured. ----------------------
●● The length of the time periods to which resources are committed. ----------------------
●● The proportion of resources committed to a single venture. ----------------------
The greater these quantities, the greater the risk that is involved.
----------------------
5. Does the strategy have an appropriate time horizon?
A viable strategy reveals what goals are to be accomplished along with ----------------------
when the aims are to be achieved. Goals, like resources, have time-based ----------------------
utility.

Notes 6. Is the strategy workable?
It would seem that this is the simplest way to evaluate a corporate strategy.
----------------------
A better way of asking: Does it work? However, if we try to answer that
---------------------- question, we are immediately faced with criteria. What is the evidence of a
strategy “working”? Quantitative indexes on performance are a good start,
---------------------- but they really measure the influence of two critical factors combined; the
strategy selected and the skill with which it is being executed. Faced with
----------------------
the failure to achieve anticipated results, both of these influences must be
---------------------- critically examined.
---------------------- 12.6 WHY TRANSFORMATION EFFORTS FAIL

---------------------- Let us look at why change initiatives fail so often in many companies. The
---------------------- process of change is inevitable in any growing organization. In the efforts to
remake themselves into better and highly efficient organizations, the companies
---------------------- all over the world take up such concepts as: TQM, Re-engineering, right sizing,
restructuring and cultural change etc.
----------------------
But, there are certain lacunae in the “turnaround process”, which if not
---------------------- identified and rectified in time render the organization ineffective and stagnant.
---------------------- The errors that creep in during the transformation process include :
1. Not creating and establishing a great enough sense of urgency
----------------------
Usually a small group of dedicated individuals start off the transformation
---------------------- process in the organization. But, they face an uphill task in wake of
---------------------- resistance to change from the organizations’ complacent employees.
In such cases examining market and competitive realities and proactive
---------------------- approach to potential crises helps.
---------------------- 2. Forming a powerful guiding coalition

The guiding coalition, which leads change in the organization, needs
---------------------- support from the whole organization. So, it helps if we provide mechanisms
---------------------- to encourage the group to work together as a team.
3. Creating a vision for the change
----------------------
A dominant vision helps the company to align itself with it. A company
---------------------- with no vision can neither implement the re-engineering process, nor the
TQM implementation. Failed transformations usually involve plenty of
----------------------
plans and directives and programs but no VISION at all.
---------------------- 4. Under communicating the vision by a large factor
---------------------- The organizations’ investment in actually communicating the vision to
its employees is miniscule. Either one single communiqué is issued or
---------------------- a series of “esoteric” newsletters; but still the vision is not conveyed
---------------------- across. Thus people’s faith in the change process itself falls. Successful
----------------------

organizations use all possible communication channels to put forth their Notes
vision, plans and ways to implement them.
----------------------
5. Not removing obstacles in the new vision
To some employees, the new vision may seem blurred due to obstacles ----------------------
in the path. These obstacles maybe the inherent organizational structure
----------------------
or things like performance appraisals and compensation packages, which
distract them from focusing on the vision. ----------------------
6. Not systematically planning for and creating short term results / wins
----------------------
Long-term goals are unattractive due to the long gestation period of their
fruition. Short term ones, on the other hand, seem much attractive due ----------------------
the shorter time involved for the same. Successful companies actually ----------------------
plan for short-term successes, while not neglecting, long term goals. This
boosts the morale of the company and raises the credibility of the renewal ----------------------
process. Sense of urgency also increases the performance.
----------------------
7. Declaring victory too soon
Managers tend to relapse quickly into the “we’ve arrived syndrome”, ----------------------
once a small victory is achieved. The first unambiguous improvement ----------------------
is celebrated as if the goal has been reached, employees promptly lower
their guards and lose the sense of urgency so vitally required for success. ----------------------
Actually, the victory may be fragile and subject to regression. The
INNOVATORS in their zeal to celebrate may hand over the leverage to the ----------------------
RESISTORS. Successful organizations require a great quality – Patience. ----------------------
The leaders of successful companies, instead of premature celebration of
short-term victories, use the opportunity provided by them to spur growth ----------------------
initiatives and tackle bigger transformation problems.
----------------------
8. Not anchoring changes in the corporation’s culture
----------------------
Transformational changes must flow through the veins of the organization
as growth promoting hormones. When they get etched onto the ----------------------
organizations structures, it grows and accepts changes itself.
----------------------
This requires a two-step process :
a) A conscious attempt to show people how the new approaches, ----------------------
behaviors and attitudes aid their performance. Also, helping ----------------------
people see the right connections requires effective communication.
b) Taking sufficient time to make sure that the next generation of ----------------------
top management really personifies the new approach. Succession ----------------------
planning is the key to it as bad decisions at the top percolate down to
the organizations’ roots and saps them of their strength to incorporate ----------------------
change. Transformation efforts can be undone easily by the
successors of the INNOVATORS. ----------------------
----------------------
----------------------

Notes Therefore, an organization must be vigilant at all times to avert this risk.
Caselet : Firestone
----------------------
The Firestone Tire and Rubber company founded in 1900 in Akron. The U.S.,
---------------------- failed to be the market leader in the tire manufacturing business in years
---------------------- to come though they were the leaders in the tire industry because they did
fail to innovate and adapt to new technology for manufacturing radials that
---------------------- the other competitor like Michelin used and captured not only markets in
Europe but also U.S. Firestone’s management did not change strategy with
---------------------- the change in time and their wrong beliefs led to wrong actions. Thus, in due
---------------------- course of time the early victory over the industry and not anchoring changes
in culture of the organization led to their down fall.
----------------------
----------------------

1. A ______________ says something about how goals will be attained
----------------------
2. Corporate ______________are what the company as a whole is trying
---------------------- to achieve and trying to become.
---------------------- 3. Actual performance and its comparison with standard of budgeted
performance lead to analysis of _____________
----------------------
4. ______________ deals with “how often to measure.”
----------------------
---------------------- Activity 3
----------------------
Consider the example of Kingfisher Airlines in the Indian context and
---------------------- analyse how lack of transformation in the organisation has led it to trouble.
----------------------
---------------------- 12.7 IMPORTANT EVENTS HAVING A GREAT

IMPACT ON INDIA AND INDIAN INDUSTRY
----------------------
Indian Industry
----------------------
a) Tata as group became the first Indian company to cross 100 billion US$.
---------------------- It is because of overseas sales of Jaguar and Land Rover as well as global
sales of Tata Steel.
----------------------
b) Mahindra and Mahindra in India went ahead of Tata Steel in market
---------------------- capitalisation in India.
c) Joint ventures in the power sector will help India to reduce its power
----------------------
shortages. These are Larson and Toubro with Mitsubishi, Jindal Power
---------------------- with Toshiba, Thermax with Babcock Wilcox, BHEL with Alstom and
Bharat Forge with Areva as well as Alsthom. Each of these six joint
---------------------- ventures will be manufacturing 800 MW of power.

d) In aircraft manufacturing, a Medium Transport Aircraft (MTA) would be Notes
produced by Hindustan Aeronautics Ltd with United Aircraft of Russian
Federation. ----------------------
e) Tata Technology and Augusta Westland are going to manufacture
----------------------
helicopters in a joint venture in Hyderabad and Tata Technology
and Sikorsky Helicopters have started manufacturing cabins for S91 ----------------------
helicopters.
----------------------
f) Private shipyards like ABG Shipyard Ltd and Pipavav Defense Shipyard
have secured orders for export of more than 20000 crore worth of ships, ----------------------
primarily overseas supply vessels.
g) IT exports have crossed 75 billion US$ in software but IT Enabled services ----------------------
will be touching more than 21 billion US$ as a result of 23% growth. ----------------------
h) Indian stocks of food consisting of rice, wheat and sugar are 70 million
tons and rabbi crop will enter the market soon. ----------------------
i) Gold imports are at about 800 tons making gold the second commodity of ----------------------
imports.
j) Non-conventional energy will contribute more than 3000 MW every year. ----------------------
k) Production has started in Tummalpali in Andhra Pradesh to produce ----------------------
uranium domestically.
India’s Defense ----------------------
a) Launch of INS Arihant, a nuclear submarine and Agni IV and Agni V will ----------------------
put whole of China in the range of our missiles making a war more unlikely.
b) Induction of an aircraft carrier from Russia, INS Vikramaditya, will make ----------------------
Indian Navy a dominant power in Indian Ocean. ----------------------
c) Locally made Indian Light Combat Helicopter (LCH) handed over to the
Indian Air force. ----------------------
----------------------
Summary
----------------------
●● The unit explains the fundamental basics of what are strategies in a
corporate and what are the different controls that may relate to different ----------------------
strategies. It also talks about what is a corporate strategy and how they
----------------------
should be flexible so as to complete the objectives they have been formed
for. ----------------------
●● It also describes what are the different transformational changes that lead
----------------------
to strategy formation and how if not taken care off can lead to failure of
strategies that may relate to each other. ----------------------
Keywords ----------------------
----------------------
●● Operational control: Functional control.
●● Strategic and Strategic Control: The evaluation of the output after the ----------------------
strategy is implemented.
----------------------

Notes
----------------------
1. Discuss strategy control with examples.
---------------------- 2. What is meant by strategy evaluation?
---------------------- 3. What do you think are the reasons for transformational change failures?
---------------------- 4. What is degree of risk?

5. Conduct a strategy SWOT analysis of any company and state the measures
---------------------- for improvement.
----------------------
----------------------
----------------------
Fill in the blanks.
---------------------- 1. The strategic evaluation is the process of determining the effectiveness
of a given strategy in achieving the organisational objectives and taking
---------------------- corrective action wherever required.
---------------------- 2. Operational control consists of setting standards, measuring performance,
analysing variances and taking corrective action.
----------------------
1. True
----------------------
2. True
---------------------- 3. True
---------------------- 4. True
----------------------
Fill in the blanks.
---------------------- 1. A policy says something about how goals will be attained.
2. Corporate goals are what the company as a whole is trying to achieve and
----------------------
trying to become.
---------------------- 3. Actual performance and its comparison with standard of budgeted
performance lead to analysis of variances.
----------------------
4. Periodicity deals with “how often to measure.”
----------------------
---------------------- Suggested Reading
---------------------- 1. Hamel, Gary. 2009. “Strategy as Revolution.” Harvard Business Review.

2. Huffman, B. 2001. “What Makes a Strategy Brilliant?” Business Horizons.
----------------------
3. Ford, C. M. and D. M. Gioia. 2001. “Factors Influencing Creativity in the
---------------------- Domain of Managerial Decision Making.” Journal of Management.
----------------------

Annexure Notes
----------------------
HOW TO SOLVE A BUSINESS CASE WITH STRATEGIC OUTLOOK
----------------------
Eight-Step Model to solve a business Case with focus on Strategic Outlook
----------------------
Step 1: Brief summary of the case and important factors that brought the
organisation to current level of operations ----------------------
Step 2: Internal environmental analysis (strengths and weakness) Step 3:
----------------------
External environmental analysis (opportunities and threats) Step 4: SWOT
Analysis and Porter’s Five Forces of Competition ----------------------
Step 5: Appropriateness of the case and command and control system
----------------------
Step 6: Corporate level strategies
----------------------
Step 7: Business level strategies
Step 8: Suggestions and recommendations ----------------------
Guidelines to solve a business Case ----------------------

Step 1 ----------------------
Read the case till you grasp the issues and the sub-issues. What are the problems ----------------------
that the company is facing? Typical issues could be as under:
a) The firm/industry is facing recessionary conditions. The company ----------------------
is having a problem of marketing; the manifestations could be huge ----------------------
inventory of unsold goods.
b) There is ferocity of competition. The competitors are many and vigorously ----------------------
attack the company. ----------------------
c) There is a need to become result oriented and profit oriented.
----------------------
d) The management is traditional and is reluctant to change. There are too
many barriers to communication. ----------------------
e) There is a problem of high costs and the competitor’s products are more ----------------------
innovative.
----------------------
f) Firm’s trend is toward losses.
g) An MNC is about to enter the business in the same area. You feel it would ----------------------
be very difficult to compete with a reputed MNC. ----------------------
Step 2
----------------------
Internal Organisational Environment
----------------------
The following is a list of strengths:
a) A complete range of products/services. ----------------------
b) A good Marketing Information System and a good knowledge of the ----------------------
market.
----------------------
Annexure 329
Notes c) Innovative Products/Services.
d) Effective advertising and promotion.
----------------------
e) Excellent distributor network.
----------------------
f) Imaginative, efficient and effective sales promotion.
---------------------- g) Good pricing strategy and a good brand image.
---------------------- h) Feedback from the customers, which is used for developing new products/
services or improving the quality.
----------------------
i) Excellent after-sales services.
----------------------
Finance
---------------------- a) An ability to raise short-term capital.
---------------------- b) An ability to get cheapest loans through American Depository Receipts
(ADR) and Global Depository Receipts (GDR) and through Initial Public
---------------------- offers (IPOs).
---------------------- c) An ability to complete very large projects in short time at least costs. d)
Large number of shareholders.
----------------------
e) Excellent system of monitoring the funds.
----------------------
f) An ability to reduce the cost of production, for example, Japanese
---------------------- companies.
g) Tax benefits, for example, a company in C Zone or D Zone or No Industry
----------------------
Area.
---------------------- h) Company known for its trustworthiness, for example, Tata Group.
---------------------- i) Innovative financial instruments, for example, Reliance Industries Ltd
has converted a non-convertible debenture into shares.
----------------------
Production or Operation
---------------------- a) High degree of automation − CNC Machines, NC Machines, robots, etc.
---------------------- b) Modern production methods like LEAN method of production, flexible
method of production.
----------------------
c) Excellent inventory control system such as Just-In-time (JIT), for example,
---------------------- Toyota Kirloskar.
---------------------- d) Good location like Tata Steel where all the raw material is available within
50 km radius.
----------------------
e) High degree of vertical integration, both forward and backward.
---------------------- f) Excellent R&D Department.
---------------------- g) Cost and technological competencies relative to competitors. h) Patents,
trademarks, brands or copyrights.
----------------------
i) Value addition and profit margins.
----------------------

HRM Notes
a) An organisation that is considered the best place to work.
----------------------
b) Effective and efficient labour policies.
----------------------
c) Harmony between management, union and workers.
d) Low labour turnover and absenteeism. ----------------------
e) Excellent performance appraisal system and promotional policies. ----------------------

f) Effective training facilities and training calendar. ----------------------
g) High employee skills and morale.
----------------------
h) Experience
----------------------
i) An Ability to select, compensate and retain the best of employees.
Information Technologies ----------------------
a) High quality of computers and equipment, for example, IBM Mainframe. ----------------------
b) Wide use of computers throughout the organisation to store, retrieve and ----------------------
utilise the information.
----------------------
General Management
a) Excellent management consultants such as McKinsey’s, BCG, etc. ----------------------
b) Ability to select, compensate and retain best employees. ----------------------
c) Modern methods of performance appraisal like 360 Method, Assessment ----------------------
Centre Method, BARS and Management by Objective and promotional
policies. ----------------------
Step 3 ----------------------
External Environmental Changes
----------------------
Analyse the Environment using ETOP Analysis
----------------------
Step 4
SWOT Analysis and Porter’s Five Forces of Competition. Porter’s Five Forces ----------------------
of Competition ----------------------
a) Intense rivalry amongst existing players.
----------------------
b) Bargaining power of buyers.
----------------------
c) Bargaining power of sellers.
d) Threat of substitutes. ----------------------
e) New entrants (Indian companies, MNCs, Impact of free trade pacts, World ----------------------
Trade Organisation).
----------------------
----------------------
----------------------
Annexure 331
Notes Step 5
Command and Control System
----------------------
Appropriateness of structure
----------------------
a) Proprietary type of structure is appropriate when resources are limited
---------------------- and fast decision-making is required, for example, readymade garments,
shoes, accessories, etc.
----------------------
b) Functional structure is appropriate when the firm is a single product or a
---------------------- related product, single-location organisation, medium in size.
---------------------- c) Divisional structure is appropriate for multi-product, multi-location

organisation, vast in turnover and complex to control, in some cases
---------------------- multinational.
---------------------- d) Matrix structure is suitable when you want to make the organisation
innovative at the same time at a low cost.
----------------------
e) Strategic business unit is an appropriate structure when you want the
---------------------- organisation to be result oriented and profit oriented.
Appropriateness of command and control system
----------------------
a) If the problem is of decision-making, which has become too slow,
---------------------- then making the organisation flat by removing few layers will not only
make decision-making fast but also make communication fast and more
----------------------
accurate.
---------------------- b) If the problem is of communication, we can remove or reduce the
---------------------- physical barriers to communication, such as cabins, secretaries and peons
preventing employees to talk to top management. The organisation should
---------------------- go to open door policy. Everyone must wear a uniform and eat is the same
place and the same food. Some common activities such as exercise may
---------------------- be taken.
---------------------- c) Every week allow employees to directly communicate to top management
via internet.
----------------------
Step 6
----------------------
Corporate Level Strategies
---------------------- If there is a problem of marketing due to recession or there is severity of
competition, then launching products or services for the bottom of the pyramid
----------------------
would be useful. Even the masses have considerable purchasing power, so a
---------------------- smaller packet, which is affordable will help us to reach them. However, the
real advantage is that as the time passes people get promotions, their purchasing
---------------------- power increases and they can buy products in larger quantities.
---------------------- If competitors are attacking you or are going to enter your business, raise
the barriers to entry in business. Ruthlessly reduce the costs and pass the saving
---------------------- to your customers. The customers will buy more of your products and you can
---------------------- increase your production and have an economy of scale advantage (during the
recession, companies like Wal-Mart actually saw increase in turnover).
If the company is heading towards losses go in for turnaround strategies. Notes
If the industrial symptoms are severe, go rapidly for divestment strategies, sell
some non-performing assets and inject that money in the business judicially. ----------------------
If the company has too many employees as compared to competitor, ----------------------
rightsizing or downsizing must be undertaken.
----------------------
If you feel that your business will get hurt if suppliers do not give supply
quality product in time, go for backward integration. ----------------------
If competitors are gaining the market due to their product being innovative,
----------------------
then change the structure to matrix structure, strengthen R&D department or go
for technical collaboration or get technology through joint ventures. ----------------------
If you are threatened by a very strong MNC, you can merge with a ----------------------
technologically strong company.
If company is financially strong and has a big cash reserve, which cannot ----------------------
be deployed in current business, then think about opportunities in related ----------------------
diversification.
----------------------
Step 7
Business Level Strategies ----------------------
In case you analyse that the problem is regarding: ----------------------
a) Quality: Use quality measurement and improvement tools like Six ----------------------
Sigma, Benchmarking, Total Quality Management, Total Productivity
Maintenance, Poko Yoko, Value Analysis and Value Engineering to ----------------------
improve quality.
----------------------
b) Costs: If your costs are more as compared to the competitor, then use tools
like Just- In-Time (cost reduction can be up to 20 to 40%), Kaizen and 5-S ----------------------
(cost reduction of about 1%), Value Engineering and Value Analysis (cost ----------------------
reduction up to 3%).
----------------------
c) Innovative products of competitors: If your competitor has innovative
products, then become innovative by using the mantra of innovation or ----------------------
perish. You should promote and protect innovators in the company.
----------------------
d) Competitor’s analysis: Use Competitor Analysis tools like Porter’s Model
or Value Chain and identify the activities that the competitor is doing better ----------------------
than you. Use SWOT Analysis to identify the areas of improvements and
----------------------
put more resourses in your strengths.
Step 8 ----------------------
Suggestions and Recommendations ----------------------
(These are the sum total of Step 1 to Step 7. ) ----------------------
What are the Important Strategic Events that have changed the world.
----------------------
a) Breakup of the Soviet Union into Russian Federation. With this event the
World has become unipolar. ----------------------
Annexure 333
Notes b) Attack on Twin Towers in USA. Never in the history, has USA been
attacked on the mainland.
----------------------
c) Collapse of the Arab world due to Arab Spring, starting with Tunisia then
---------------------- spreading to Egypt, Libya. Now Syria is affected very gravely. Countries
like Afghanistan, Yemen are on the verge of economic collapse.
----------------------
d) USA is economically stabilising due to energy independence due to Shale
---------------------- Gas, withdrawal from Iraq and Afghanistan.
---------------------- e) PIGS nations namely Portugal, Ireland, Greece and Spain, which were on
the verge of collapse, but were saved by robust aid from Germany.
----------------------
f) China becoming the second biggest economy of the world and maintaining
---------------------- a growth rate of 8.5 %. New leadership for next 10 years has taken over
---------------------- China. China is facing industrial unrest and has to pay higher salaries,
therefore, India will get some business.
----------------------
g) As a result of their vast resources and low population, Canada, Australia
---------------------- and Brazil would become very important economically.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Book Review Notes
----------------------
Blue Ocean Strategy
----------------------
It is a book written by W Chan Kim and Renee Maubougne of the Blue
Ocean Strategy Institute at INSEAD. ----------------------
Blue Ocean strategy suggests that an organisation should create a demand ----------------------
in an uncontested marketplace or a Blue Ocean rather than compete head to
head with other suppliers in an existing industry. ----------------------
The book is divided in the under mentioned parts: ----------------------
a) The key concept of Blue Ocean Strategy is including Value Innovation -
----------------------
the simultaneous pursuit of differentiation ( Tata Jugaur/Land Rover) and
low cost Tata Nano. ----------------------
b) How to create uncontested marketplace by reconstructing market ----------------------
boundaries, focusing on big picture.
c) Reaching beyond the existing demand. ----------------------
d) Getting the strategic sequence right. ----------------------

e) It tries to align innovations with utility, price and cost positions. ----------------------
The Red Ocean companies try to outperform their competitors to grab a
----------------------
greater share of products or service demand.
As there is more competition for the same market, there is competition to ----------------------
grab the market share. Price cuts are used to hold the customers resulting in lower ----------------------
profits and growth. Ultimately, products become commodities. To stay alive the
companies resort to building competitive advantage over the competition. They ----------------------
try to do what the competitor is doing in a better way. Hence, the supply side of
the equation becomes the defining variable of strategy. ----------------------
On the other hand, Blue Ocean Strategy is based on the view that market ----------------------
boundaries and industry structure are not given and can be reconstructed by the
actions and beliefs of industry players. ----------------------
Blue Ocean believes that market boundaries exist only in the manager’s ----------------------
mind. The crux of the problem is how to create it. This, in turn, requires a shift
of attention from supply to demand, from a focus on value innovation, that is, ----------------------
creation of innovative value to unlock the new demand. ----------------------
By expanding the demand side of the economy, new wealth can be created.
----------------------
Such a strategy therefore allows firms to largely play a non-zero sum game with
high payoff possibilities. ----------------------
The cornerstone of the Blue Ocean Strategy is value innovation. A Blue
----------------------
Ocean is created when a company achieves value innovation that creates value
both to the buyer as well as to the company. ----------------------
----------------------
Book Review 335

Notes The innovation must raise and create value for the market (in product,
service or delivery) but at the same time reduce features that are less valued by
---------------------- the current or future models. For example, medium band in transistor is not
used from the time frequency-modulated band FM was introduced.
----------------------
Thus, the Blue Ocean Strategy criticises Michael Porter’s idea that
---------------------- successful businesses are either low cost producers or are niche players.
---------------------- Lastly, Blue Ocean Strategy proposes finding value that crosses
conventional market segment and offering value and lower costs.
----------------------
----------------------
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Caselet Notes
----------------------
Tata–Corus Case
----------------------
Tata Steel made a final bid for takeover of Anglo-Dutch giant Corus. However,
a Brazilian steel company CSN contested the deal. The process of auction was ----------------------
by increasing the share price generally by five pence each. Ultimately, Tata
Steel clinched the deal by bidding at 608 pence, The deal was valued at US$ ----------------------
12.04 billon. This was a biggest deal ever by an Indian company, which took ----------------------
over a firm that was three times the size of the Tata Steel.
----------------------
Tata Steel was formerly known as Tata Iron and Steel Ltd (TISCO) and was the
second largest steel producer in India, an old company which was in business ----------------------
for almost 100 years. It had a production capacity of 3.8 million tons.
----------------------
It was located in Jamshedpur and it was an ideal location as most of the
raw material namely iron ore, manganese and coal as well as limestone was ----------------------
available within a radius of 50 km. Tata or its subsidiaries has purchased most
of the mines in the vicinity. In steel industry, control over raw material gives ----------------------
a big competitive advantage. Tata Steel was a lowest cost producer of steel in
----------------------
the world.
Corus Steel was formed by merger of a Dutch company Koninlijke Hoogovens ----------------------
NV with British Steel in 1999. Its turnover was 10.142 pounds and its profit
----------------------
was 580 million pounds. However, the company was under pressure due to
high costs and lack of control over raw material especially over iron ore. ----------------------
Tata Steel was a lowest cost producer in the world whereas Corus was a ----------------------
high-value steel producer and produced steel such as automobile steel, ship
grade steel and special steels like maraging steel which is used in missiles and ----------------------
spacecrafts. One of the great advantages of Tata Steel was that it was having
control over raw material and had a better supply chain. In India, there was a fast ----------------------
growing automobile sector as well as a new sunrise industry, the shipbuilding ----------------------
industry. There was a great demand for high value steel in the far East Asia. The
combined entity could also benefit immensely from the extensive distribution ----------------------
network of the Tata Steel. Moreover, both companies could pool up their R&D
effort in areas of their expertise. Corus could manufacture furnaces of 2.8 ----------------------
million tons capacity. After the merger, the combined entity would become the ----------------------
fifth largest producer of steel in the world.
Both companies had very strong cultural fit, which is continuous improvement, ----------------------
integrity and trust. Lastly, both companies were strong in Corporate Social ----------------------
Responsibility (CSR). Tata had promised to pump about US$ 3.5 billion in equity
as well as to the Leveraged Buy Out (LBO) through loans of even more amounts. ----------------------
Questions ----------------------
1. What the strengths and weaknesses of Tata Steel and Corus Steel?
----------------------
2. What were the synergies, which prompted Tata Steel to take over Corus
Steel? ----------------------
Caselet 337
Notes
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References Notes
----------------------
1. Fortune at the bottom of the Pyramid – Prof. C.K.Prahalad.
----------------------
2. India 2020 – Dr. APJ Kalam.
----------------------
3. Envisioning the Empowered Nation – Dr. APJ Kalam.
4. GE Way – Jack Welch. ----------------------
5. Marketing Warfare – Al Rice and Jack Trout. ----------------------
6. Art of War – Sun Tzu. ----------------------
7. Competitive Strategy – Michel Porter.
----------------------
8. Competitive Advantage – Michael Porter.
----------------------
9. In Search of Excellence – Thomas Peters and Waterman.
10. Toyota Way. ----------------------
11. Kuatilya’s Arthshstra – Rangswamy. ----------------------
12. Future Shock – Allwyn Toffler. ----------------------
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References 339
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STRATEGIC

(FOR PRIVATE CIRCULATION ONLY)

COURSE DESIGN AND REVIEW COMMITTEE

Published by Symbiosis Centre for Distance Learning (SCDL),

Copyright © 2019 Symbiosis Open Education Society

Unit No. TITLE Page No.

Introduction to Strategic Management 1

---------------------- 1.1 INTRODUCTION

---------------------- 1.2 EVOLUTION OF STRATEGIC MANAGEMENT

Introduction to Strategic Management 3

Check your Progress 1 ----------------------

1.3 THE IMPORTANCE OF STRATEGIC MANAGEMENT ----------------------

Introduction to Strategic Management 5

Introduction to Strategic Management 7

Introduction to Strategic Management 9

 Resource- allocator role ----------------------

Introduction to Strategic Management 11

Introduction to Strategic Management 13

---------------------- Self-Assessment Questions

---------------------- 1. Explain the evolution of strategic management.

---------------------- Check your Progress 2

Suggested Reading ----------------------

Introduction to Strategic Management 15

---------------------- 2.1 INTRODUCTION

Corporate Level ----------------------

Corporate Level ----------------------

Operational Level ----------------------

---------------------- (e) Training of local labour

(h) Expectations and some concerns of host countries ----------------------

---------------------- Check your Progress 3

2.6 COMPETITOR ANALYSIS ----------------------

Strategic Management develops the ability in organizations to create a ----------------------

1. Size, growth, and profitability ----------------------

---------------------- ●● A tightly controlled organisation would be less aggressive in using

---------------------- 5. Cost structure

●● Cost structure ----------------------

---------------------- a) What will our competitors do in the future?

Need for Global Markets ----------------------

---------------------- The costs of storage have come down due to:

---------------------- ●● Strategic Business unit: Independently operating units.

The Strategic Management Process 43

---------------------- 3.1 INTRODUCTION

---------------------- Ansoff : “Strategic Management is the systematic approach to a major and

Company Vision & Mission/ ----------------------

Implement / Feedback / Control ----------------------

The Strategic Management Process 45

---------------------- 3.3 THE STRATEGIC PLANNING PROCESS

---------------------- Defining the business

3.4 COMPANY VISION AND MISSION ----------------------

The Strategic Management Process 47

---------------------- Fig. 3.2

The Strategic Management Process 49

The Strategic Management Process 51

5) It should be stated in terms sufficiently clear to be widely understood ----------------------

The Strategic Management Process 53

---------------------- The undertakings after nationalisation were then vested in HPCL.

Broadening horizons. Rewarding excellence. ----------------------

The Strategic Management Process 55

---------------------- As given by C.K. Prahlad and Gary hamel

4. resources can be quantified, whereas ----------------------