A

Strategic Management
N.CHANDRASEKARAN
Vice PresidentCorporate Affairs Take Solutions and Director Center for Logistics & SCM, LIB A, Chennai

P.S. ANANTHANARAYANAN
Management Consultant and Visiting Faculty

OXFORD
UNIVERSITY PRESS

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Preface v 1 2 4 4 6 9 10 11 .12 12 19 1. INTRODUCTION TO STRATEGIC MANAGEMENT Case Study: Path-breaking Strategic InitiativesReliance Industries Ltd 1 1.1 Introduction to Management and Strategy 1.2 Strategic Management 1.3 Evolution of Strategic Management 1.3.1 Schools of thought , . 1.4 Relevance of Strategic Management for an Organization 1.5 Challenges to Strategic Management 1.6 The Strategic Management Process 1.6.1 Deliberate and emergent strategies 1.7 Strategic Management in India Case Study: Growth in the Face of ChallengesIndian Oil Corporation Limited 15 2. OBJECTIVES OF STRATEGIC MANAGEMENT Case Study: Globalization Initiatives in Power and Related ProductNational Thermal Power Corporation 19 2.1 Developing a Vision Statement 2.1.1 Characteristics of a good vision statement 2.1.2 Defining a shared vision 2.2 Developing a Mission Statement 2.3 Developing Core Values . 2.4 Situational Analysis . . 2.4.1. Situational analysis through SWOT . . . 2.4.2 Situational analysis using TOWS matrix 2.5 Defining Organizational Goals and Objectives 2.5.1 Advantages in structuring objectives 2.5.2 Financial, non-financial, and social objectives . 2.6 Resolving Conflicts in Corporate Objectives 2.6.1 Ranking and comprehensiveness 2.6.2 Critical success factors . . Case Study: Changing Strategic ObjectivesProcter & Gamble Hygiene and Health Care Ltd 3. ENVIRONMENT AND STRATEGY Case Study: Management of the EnvironmentEID Parry India Ltd 3.1 Organizational EnvironmentCharacteristics and Dimensions 3.2 External Environment 3.2.1 Environmental sustainability 38 , 42 43 43

21 22 23 23 26 27 28 28 29 31 31 32 33 33 36 38

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3.2.2 Climatic determinism 3.2.3 Climate-related strategy 3.2.4 Impact of pollution on a firm's strategy 3.3 Political Environment 3.3.1 Communism 3.3.2 Capitalism 3.3.3 Democracy 3.3.4 Socialism 3.3.5 Impact of political environmental factors on firms' strategy 3.4 Economic Environment 3.4.1 Business cyclesmeaning and nature 3.4.2 Types of cycles , 3.4.3 Phases of a business cycle 3.4.4 Impact of economic factors on strategy 3.4.5 Economic downturn in 2008 3.5 Technological Environment 3.5.1 Impact of techological factors on strategy 3.6 Sociocultural Environment 3.6.1 Impact of sociocultural factors on strategy 3.7 List of External Factors 3.8 Environmental Scanning 3.8.1 External environment scanning 3.8.2 Internal environment scanning 3.9 Synthesis of External Factors 3.10 Synthesis of Internal Factors
Case Study: Successful Management of EnvironmentAshokLeyland 73

45 47 49 50 50 50 52 53 53 55 55 55 55 58 58 59 60 61 63 63 64 64 66 66 68 79 79 81 81 84 84 84 85 85 85 85 86 86 87 87

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STRATEGIC ANALYSIS: MODELS AND TECHNIQUES Case Study: Tools and Techniques for Investing in GrowthABC Consumer Products Ltd 4.1 Introduction 4.2 Forecasting Models 4.3 Strategic Models 4.4 Financial Models 4.4.1 Break-even model 4.4.2 Budget model 4.4.3 Pro forma financial projections 4.4.4 Ratio analysis 4.5 Econometric Models 4.6 Simulation Models 4.6.1 Types of simulation models 4.6.2 Applications and limitations 4.7 Decision Support Models

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4.7.1 Decision trees or multi-attribute utility analysis models 4.7.2 Analytical hierarchy process 4.7.3 Influence diagrams 4.8 Sensitivity Analysis . . 4.9 Porter's Five Forces Theory 4.10 Evaluating Current Product Portfolios ' 4.10.1 Product life cycle 4.10.2 Experience curves .. . 4.10.3 Product portfolio planning 4.11 Mckinsey's 7S Framework 4.12 Strategic Choice 4.12.1 Competitive strategies and competitive advantage 4.12.2 Product-market strategies ' 4.12.3 Institutional strategies and methods of growth 4.13 Contemporary Strategic ThoughtConcepts and Analysis .. 4.13.1 Blue ocean and red ocean strategies 4.13.2 Regenerating strategies 4.13.3 Confrontation strategies . . Case Study: Call for Analyst to Help with ToolsSachin's Dilemma 124 5. CORPORATE STRATEGY

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87 87 88 88 89 92 92 95 , 98 107 108 108 114 116 116 118 119 120 128

Case Study: India Expansion Strategies of Various FirmsTurn! Brands, Hyatt Hotels Corporation, Ambuja Cements Limited, and Maruti Suzuki India 128 5.1 Importance of Corporate Strategy 5.2 Four Levels of Corporate Strategy 5.2.1 Functional-level strategy 5.2.2 Business-level strategy ' 5.2.3 Global-level strategy 5.2.4 Corporate-level strategy 5.3 Performance Strategy . . Case Study: External Pressure and Internal Quality ChallengesUnique:Industries 166 6. FUSION OF STRATEGIC OPTIONS

130 131 131 143 148 152 161 171

Case Study: Joint Venture with a Chilean FirmCoromandel International Limited 171 . 6.1 Corporate Parenting 172 6.1.1 Parenting matrix 174 6.1.2 Business units and corporate structure 175 6.2 Corporate Restructuring 176 6.2.1 Motives for restructuring 17 7 6.3 Business Process Reengineering . 180 6.3.1 BPR and process improvements . . 1 8 1 6.3.2 BPR and inter-disciplinary linkages 182 6.3.3 Key characteristics of BPR 183

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6.3.4 BPR methodology 6.3.5 Criticisms of BPR 6.4 Joint Ventures 6.4.1 Motives of joint ventures/strategic alliances . 6.4.2 Rationale of joint ventures 6.4.3 Reasons for failure of joint ventures 6.5 Strategic Alliances 6.5.1 Forms of strategic alliances 6.6 Outsourcing 6.6.1 Need for outsourcing 6.6.2 Problems in outsourcing 6.6.3 Changing perspective towards outsourcing 6.7 Mergers and Acquisitions 6.7.1 Mergers 6.7.2 Acquisition 6.7.3 Causes for merger/takeover failures 6.8 Demergers and Divestitures 6.9 New Business Models with Technology and Digitalization ' 6.9.1 E-business models 6.9.2 Pure technology applications in business 6.9.3 People-led new business models 6.9.4 Challenges and learning process Case Study: Successful Inorganic GrowthOracle Corporation 217 Annexure I: Company Valuation and Models 225 Annexure II: Indicative Areas and Checklistfor Due Diligence Processes 225 7. STRATEGY FORMULATION: CHOICE AND ANALYSIS Case Study: India PlansStarwood Hotels and Resorts Worldwide Inc.' 232 7.1 Introduction 7.2 Steps for Making Strategic Choices 7.2.1 Relating intent to mission and vision 7.2.2 Generation of available options 7.2.3 Strategic assessment 7.2.4 Selection of strategic option 7.3 Strategy Formulation and Choice 7.4 Tools and Techniques 7.4.1 SWOT analysis and TOWS matrix 7.4.2 Product life cycle 7.4.3 Portfolio, market, and product strategies 7.5 Decision Stages 7.6 Subjective Factors in Strategic Choice -7.6.1 Cultural aspects ^

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183 185 186 186 187 188 188 189 190 192 192 193 193 195 198 203 204 206 210 211 213 213

232 234 236 236 238 . 238 239 240 246 246 247 247 249 249 250

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7.6.2 Political characteristics in strategy formulation 7.6.3 Role of directors and CEOs 7.6.4 Role of the chief executive office/managing director 7.7 Challenges Faced during Strategy Formulation 7.8 Strategy Formulation for Different Businesses ' Case Study: Strategy FormulationEasy Run 263 8. STRATEGY IMPLEMENTATION

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251 253 255 257 259 266 267 268 270 270 272 274 275 279 284 285 291 293 294 294 295 296 299 304 307 310 311 315 316 317 319 320 320 327 328 329 -330

Case Study: Responses to Counter Environmental ChangesITC Limited 266 8.1 Nature of Strategy Implementation 8.2 Models of Strategic Implementation 8.3 Procedural Implementation 8.3.1 Implementing formulated strategy 8.3.2 Structural implementation 8.4 Business Process Reengineering 8.5 Business Process Management 8.5.1 Future of BPM 8.6 Benchmarking 8.6.1 Process of benchmarking 8.7 Reverse Engineering 8.8 Adopting International Certifications 8.9 Implementing Kaizen 8.9.1 Ten ground rules of Kaizen 8.10 Strategy Implementation in Projects 8.11 Resource Allocation 8.12 Feedback Control System . Case Study: Achieving Excellence in QualitySundaram Clayton 302 9. ETHICS, SOCIAL RESPONSIBILITY, AND CORPORATE GOVERNANCE Case Study: Lapses in GovernanceSubhiksha Trading Services 304 9.1 Business Ethics 9.1.1 Ethics in human resource management 9.1.2 Ethics of finance 9.1.3 Ethics of sales and marketing > 9.1.4 Ethics of production . 9.1.5 Ethics of property, property rights, and intellectual property rights 9.1.6 Ethics in international business ' 9.2 Corporate Social Responsibility 9.2.1 uefinition of CSR ; 9.2.2 CSR implementation process and benefits ' 9.2.3 Challenges to CSR initiatives in India 9.3 Corporate Governance ' 9.3.1 Principles of corporate governance '

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9.3.2. 9.3.3 9.3.4 9.3.5 Case Study:

Business history and evolution of corporate governance Development of corporate governance in India Critical appraisal of corporate governance in India Corporate governance models across the world Arguingfor a Social Cause and Seeking FundsAlliswell Healthcare Ltd

332 333 343 343 348 351 353 355 357 359 363 364 365 366 368 377

10. EVALUATION AND CONTROL Case Study: Strategy ChangesReliance Natural Resources Limited 351 10.1 Nature and Importance of Evaluation and Control 10.2 Barriers to Evaluation 10.3 Measuring Performance, Strategic Information, and Systems 10.4 Types of Control 10.5 Tools Used for Evaluation and Control 10.5.1 Balanced scorecard 10.5.2 Budgets and budgetary controls 10.5.3 Economic value added 10.5.4 Ratio analysis Case Study: Structure, Control, and StrategyAsian Hotels 375 11. APPLICATIONS OF STRATEGIC COST MANAGEMENT Case 11.1 11.2 11.3 11.4

Study: Developing Integrated Companies across the Value ChainAlok Industries Limited 377 Nature and Importance of Strategic Cost Management 379 Steps in Strategic Cost Management Programme 379 Critical Success Factors for Strategic Cost Management 380 Alignment of Strategic Cost Management to Business Strategy 381 11.4.1 Total approach concept 381 11.4.2 Product strategy 381 11.4.3 Pricing strategies 382 11.4.4 Human resources strategy 383 11.4.5 Business cycles and strategic cost management 384 11.4.6 Value chain strategy . 385 11.4.7 Value reference model . . 388 11.5 Tools of Strategic Cost Management 389 11.5.1 Life cycle costing . 389 11.5.2 Target costing . 392 11.5.3 Pricing strategies 395 11.5.4 Kaizen costing x 396 11.5.5 Half life model 397 Tl75:6"Activity-based management/activity-based costing 399 11.5.7 Total cost management/enterprise cost management 404 11.5.8 Cost reduction programme ' " 409 11.6 Time Value of Money 410 11.6.1 Net present value method . " 410

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11.6.2 Benefit cost ratio 11.6.3 Internal rate of return 11.7 Money Value of Time 11.8 Value Engineering 11.9 Value Analysis Case Study: Improving Sales Realization through Application of Money Value of TimeASM Textile Company 421 12. RISK MANAGEMENT: PERSPECTIVES AND ISSUES Case Study: Risk Assessment Preparedness2004 Asian Tsunami 423 12.1 Introduction 12.2 Impact of Uncertainty and Risk 12.3 Identification and Classification of Different Types of Risk 12.3.1 Physical risk 12.3.2 Country risk 12.3.3 Business risk 12.3.4 Financial risk 12.4 Assessing and Measuring Risk 12.4.1 Sensitivity analysis 12.4.2 Scenario analysis 12.4.3 Decision trees 12.4.4 Monte Carlo simulation 12.4.5 Certainty equivalent 12.4.6 Risk adjusted discount rate method 12.4.7 Asset liability management model 12.4.8 Beta analysis 12.4.9 Probability analysis " 12.4.10 Value at risk ' 12.4.11 Black Scholes model 12.4.12 HAZOPhazard and operability study 12.4.13 Probability of ruin . 12.5 Identifying Various Risk Management Techniques Case Study: Risk Management in PracticeHealth Risk Assessment in China 454 13. CORPORATE RISK MANAGEMENT .

411 411 412 414 417

423 425 425 427 427 429 431 432 433 433 435 435 435 437 438 438 440 440 441 442 443 443 444 457 459 464 464 465 466 466 467

Case Study: Management of Strategic Operational RisksTata Chemicals Limited 457 13.1 Relationship between Risk and Strategy 13.2 Types of Corporate Risk 13.2.1 Industry risk 13.2.2 Transition risk 13.2.3 Stagnation risk 13.2.4 Unique competitor risk 13.2.5 Brand risk

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13.2.6 Project risk 13.2.7 Operational risk 13.3 Relating Corporate Risk to Management Principles 13.3.1 Industry risk 13.3.2 Transition risk 13.3.3 Stagnation risk 13.3.4 Unique competitor risk 13.3.5 Brand risk 13.3.6 Project risk 13.3.7 Operational risk Case Study: Mismanagement and CollapseLehman Brothers 481 14. CASE ANALYSIS 14.1 14.2 14.3 14.4 14.5 14.6

469 470 471 472 472 474 474 475 475 478 484

A Guide to Case Analysis 484 Significance of Case Method 484 Case Description 485 Procedure for Analysing Cases 486 Approaches to Different Formats of Case Study Analysis 486 Financial Analysis in a Case Study 487 14.6.1 Financial statements 487 14.6.2 Ratio analysis 489 14.7 Key Aspects for Designing Solutions to a Strategy Case 492 Case Study 1: In Quest of ExcellenceASAP Management Consultants Private Ltd 494 Case Study 2: Issues and PerspectivesIndia's Castings and Forging Industry 503 Case Study 3: Evaluating Strategic Investment OptionsThe Chennai Venus Hotel 513 Case Study 4: Ramp-up of SubsidiaryCore Life Science Technology Ltd 534 Case Study 5: Challenges in Building a Professional Service FirmAquatherm Engineering Consultants 543 Case Study 6: Passion and RiskCore Value Staffing Services 553 Case Study 7: Outbound Transportation ChallengesGujarat Engineering Company Ltd 559 Case Study 8: Oriental Bank of Commerce's Merger with Global Trust Bank The Role Played by RBI 566 Case Study 9: Managing Expectations and Challenges during Execution Oracle's Acquisition of Sun 573 Case Study 10: Building a Global Brand through Envisioning and Nurturing Ranbaxy Laboratories Limited 578 Case Study 11: Breaking the Mould in a Traditional IndustryShree Renuka Sugars Limited 586 Case Study 12: CSR Initiatives to Help the Less PrivilegedSakthi Masala Pot. Ltd 598 Case Study 13: Chief Architect's Vision and LeadershipSambandam Spinning Mills Ltd 603 Case Study 14: Strategic Options and Value Chain ManagementAn Independent Tourist Operator 610 Index 616