1:st

akehol
der
s:
Ever
yorgani
zati
oninvol
vesasy st em ofpri
marystakehol
dergroupswithwhom it
est
abli
shesandmanagesr el
ati
onships.100St akehol
der
sar ethei
ndivi
dualsandgroupswho
canaff
ectthef
irm’svi
sionandmi ssi
on, areaffect
edbythestrat
egicoutcomesachieved,
andhaveenfor
ceablecl
aimsont hefir
m’ sper f
ormance.

Cl
assi
ficat
ionsofStakeholder
sThepar
ti
esi
nvol
vedwi
thaf
ir
m’soper
ati
onscanbe
separ
atedint
oatleastthr
eegr oups.

1.capi
talmar
ketst
akehol
der
s(shar
ehol
der
sandt
hemaj
orsuppl
i
ersofaf
ir
m’s
capi
tal
):

Capit
alMarketStakeholdersShareholdersandl endersbothex pectaf i
rmto
pr
eserveandenhancet heweal ththeyhav eentrustedtoit.Ther etur
nsthey
expectar
ecommensur atewi t
hthedegr eeofr i
skaccept edwi t
ht hose
i
nvestments(i
.e.
,lowerreturnsareexpect edwithlow- r
iskinvestmentswhil
e
hi
gherret
urnsareex pectedwi t
hhigh-ri
ski nv
estment s).

2.productmarketst
akeholder
s( thef
irm’
spr
imarycust
omer
s,suppl
i
ers,
host
communi t
ies,
andunionsrepresent
ingt
heworkfor
ce)
:

Somemi ghtthinkthatproductmarketst
akeholders( customers, suppli
ers,host
communi ti
es, andunions)sharefewcommoni nterests.Howev er,allf
ourgr oups
canbenef i
tasf ir
msengagei ncompet i
ti
vebattles.Forex ample, dependingon
productandindust rycharact
eri
sti
cs,market
placecompet it
ionmayr esulti
n
l
owerpr oductpr i
cesbeingchargedt oafi
rm’scust omer sandhi gherpr i
cesbeing
paidtoitssuppl i
ers(t
hef i
rm mightbewil
li
ngtopayhi ghersuppl i
erpricesto
ensuredeliv
eryoft hetypesofgoodsandser vi
cest hatar eli
nkedwi thits
competiti
vesuccess) .

3.organi
zat
ionalst
akehol
der
s(allofafir
m’sempl
oyees,
incl
udi
ngbot
h
nonmanageri
alandmanageri
alpersonnel
).
:

Employees—t hef i
rm’ sorgani zationalstakehol ders—ex pectthefirmtopr ovidea
dynamic,st imul ating,andr ewar dingwor kenv ironment .Asempl oyees,wear e
usuall
ysat isfi
edwor kingf oracompanyt hatisgr owingandact ivel
ydev eloping
ourskil
ls,especi allythoseski l
lsrequiredt obeef fecti
v eteam member sandt o
meetorex ceedgl obal wor kst andar ds.Wor kerswhol earnhowt ousenew
knowledgepr oduct iv
elyar ecr i
ticaltoorgani zationalsuccess.I nacollective
sense,theeducat ionandski l
l
sofaf irm’swor kf orcear ecompet i
tiveweapons
aff
ecti
ngst rategyi mplement ati
onandf ir
m per f ormance. 114Assuggest edby
thefol
lowingst at ement ,
str at
egi cleadersar eul ti
mat elyresponsibl
eforser ving
theneedsofor gani zational stakeholdersonaday -t
o-daybasi s
2.v
isi
onmi
ssi
on:
1.VI
SION:

Visionisapi ctureofwhatt hef ir

m want st obeand, inbroadt er
ms, whati
twantsto
ult
imatelyachi ev e.Thus, avisi
onst atementar t
iculat
esthei deal descri
pt i
onofan
organizationandgi vesshapet oitsi ntendedf uture.I
not herwor ds,av i
sionst at
ementpoint
s
thefi
rmi nthedi rectionofwher eitwoul dev entuallyl
iket obei nthey earstocome.Vi si
onis
“bi
gpict ure”thinkingwi thpassiont hathel pspeopl efeelwhatt heyar esupposedt obedoing
i
nt heor ganization.Peopl efeelwhatt heyar et odowhent heirf
irm’sv i
sionissimple,
posit
ive, andemot ional.Howev er
,anef fecti
vev isi
onstretchesandchal lengespeopleas
well.

I
tisalsoimportanttonotethatvi
sionstatementsr
efl
ectafi
rm’
svaluesand
aspi
rat
ionsandar eint
endedt ocaptur
ethehear tandmindofeachempl
oyeeand,hopef
ull
y,
manyofitsotherstakeholder
s.Af i
rm’svi
siontendstobeenduri
ngwhi
lei
tsmi ssi
oncan
changeinli
ghtofchangingenv i
ronmentalconditi
ons.

Exampl
e:

1.Ourv
isi
oni
stobet
hewor
ld’
sbestqui
ckser
vicer
est
aur
ant
.(McDonal
d’s)

2.Tomaket heautomobil
eaccessi
blet
oever
yAmer
ican.(
For
dMot
orCompany
’s
vi
sionwhenestabl
ishedbyHenryFor
d)

2.
MISSI
ON:

Thev i
sionist hefoundationf orthef i
rm’smi ssion.Ami ssi onspeci fiest hebusiness
orbusi nessesi nwhi chthef i
rmi ntendst ocompet eandt hecust omer sitintendst oser ve.94
Thef irm’smi ssionismor econcr etet hanitsv i
sion.Howev er,li
ket hev i
sion, ami ssion
shoul dest abl
ishaf i
rm’ si
ndividualit
yandshoul dbei nspiri
ngandr elevanttoal l
stakehol ders.95Toget her,v
isionandmi ssionpr ovidet hefoundat i
ont hef ir
m needst o
chooseandi mplementoneormor est r
ategies.Thepr obabili
tyoff or minganef f
ective
mi ssionincreaseswhenempl oyeeshav east rongsenseoft heet hi calstandar dsthatwi ll
guidet heirbehav i
orsast heywor ktohelpt hef i
rmr eachi tsv i
sion.96Thus, busi nesset hics
areav i
talpar tofthef i
rm’sdiscussionst odeci dewhati twant stobecome( itsv i
sion)as
wel laswhoi tint
endst oser veandhowi tdesi r
est oser v
et hosei ndi vi
dualsandgr oups( its
mi ssion).

Exampl
e:
 Bethebestemploy
erf
orourpeopl
eineachcommunit
yaroundtheworl
danddel
i
ver
oper
ati
onal
excel
lencet
oourcust
omersineachofourr
est
aurant
s.(McDonal
d’s)

3. I
/omodelofAAR
TheI
/OModel
ofAbov
e-Av
erageRet
urns

Thei ndustri
alorgani
zat
ion(I/
O)model ofabov e-averagereturnsexplainstheext ernal
envir
onment ’
sdominantinf
luenceonaf i
rm’ sstrat
egi cact i
ons.Themodel specif
iest hatthe
i
ndust r
yorsegmentofani ndustr
yinwhichacompanychoosest ocompet ehasast ronger
i
nfluenceonper f
ormancethandot hechoicesmanager smakei nsidetheirorgani
z ati
ons.
Thef i
rm’sper f
ormanceisbeliev
edt obedet erminedpr imar i
l
ybyar angeofindustry
properti
es,incl
udingeconomiesofscale,bar r
ier
st omar ketentr
y,diversi
fi
cation,
pr oduct
di
fferenti
ati
on, andthedegreeofconcentrati
onoff i
rmsi ntheindust r
y.

First
,theext ernalenv i
ronmenti sassumedt oi mposepr essuresandconst r
aintsthat
determinethest rategiesthatwoul dresulti
nabov e-averager eturns.Second, mostf i
rms
compet i
ngwi thinani ndust ryorwi t
hinasegmentoft hati ndustryar eassumedt ocont rol
simil
arstrategicall
yrelevantr esourcesandt opursuesi mi larstrategiesi
nl i
ghtofthose
resources.Third,resourcesusedt oi mplementstrategiesar eassumedt obehi ghlymobi l
e
acrossfirms,soanyr esour cedifferencesthatmightdev elopbet weenf i
rmswi llbeshort-
l
ived.Fourth,organizat i
onal decisi
onmaker sar
eassumedt ober ationalandcommi tt
edto
acti
ngi nthefirm’sbesti nterests,asshownbyt heirprofit-
maxi mi zi
ngbehav ior
s.

Thef i
vefor cesmodel ofcompet iti
oni sananal y
ticalt
oolusedt ohel pf
irmsf indt he
i
ndust r
yt hatist hemostat tracti
veforthem.Fi r
msuset hefivefor cesmodel toident if
ythe
attr
acti
v enessofani ndustry(asmeasur edbyitsprofit
abil
it
ypot ent i
al)aswel last hemost
advantageousposi tionf orthef i
rmtot akeinthatindustry
,givent heindustry’sstruct ural
characterist
ics.Ty picall
y,themodel suggeststhatfir
mscanear nabov e-av
er ager eturnsby
producingeit herstandar dizedgoodsorser vi
cesatcost sbelowt hoseofcompet itors( acost
l
eadershi pstrategy )orbypr oduci
ngdi ff
erent
iatedgoodsorser vicesf orwhi chcust omers
arewill
ingt opayapr icepremi um.

above-
av er
ageretur
nsareearnedwhenfir
msar eabl
etoeff
ecti
vel
ystudyt
heext
ernal
envi
ronmentast hefoundat
ionfori
dent
if
yinganatt
ract
ivei
ndust
ryandimpl
ementi
ngthe
appr
opriatest
rategy.
4.r
esour
cebasedmodelofAAR
Resourcesarei
nputsintoafir
m’ sproduct i
onprocess,
suchascapit
alequipment,
theskil
ls
ofindi
vidual
employees,pat
ents, f
inances,andtal
entedmanagers.I
ngeneral
,afir
m’s
resour
cesarecl
assifi
edintothreecat egori
es:physi
cal
,human,andorgani
zati
onalcapi
tal
.
resour
cesareei
thertangibl
eori nt
angi bl
einnature.

Indi
vi
dualresour
cesalonemaynotyi
eldacompeti
ti
veadvant
age.I
nfact
,resour
ceshavea
great
erl
ikeli
hoodofbeingasour
ceofcompeti
ti
veadvant
agewhentheyareformedi
ntoa
capabi
li
ty.

Acapabili
tyi
sthecapacityforasetofr
esourcest
oper
for
m ataskoranact
ivi
tyinan
i
ntegrat
ivemanner.Capabil
i
t i
esevol
veovert
imeandmustbemanageddynamicall
yin
pursui
tofabove-
averagereturns.

Corecompet enci
esar eresourcesandcapabili
tiesthatserveasasour ceofcompet it
ive
advantagef oraf ir
m overitsrival
s.Corecompet enciesareoftenvisi
blei ntheform of
organizati
onal functi
ons.Forex ample,wenotedear l
ierthatBestBuyi spr ocessi
ngthe
extensi
v eamountofdat aithasabouti tscust
omer st oidenti
fypri
vate-labelconsumer
el
ectronicpr oductsitcanpr oducetomeetcust omer s’needs.BestBuyr el
iesonitsst
rong
customerser vi
ceandi nf
or mationtechnol
ogycapabi li
ti
estospotway st odothis.

Accordingtother esource-basedmodel,di
fferencesinf
irms’performancesacr osstimeare
duepr i
mar i
l
yt otheiruniqueresour
cesandcapabi li
ti
esrathert
hant heindustr
y’sst
ruct
ural
character
isti
cs.Thismodel al
soassumest hatfir
msacqui redi
fferentresourcesanddevelop
uniquecapabili
ti
esbasedonhowt heycombi neanduset heresour ces.

Thi
smodelsuggest
sthatthestrat
egyt
hef
ir
m choosesshoul
dal
l
owi
ttousei
tscompet
it
ive
adv
ant
agesinanattr
acti
veindustr
y.
5.Ext
ernalenv
ironment
:

Ext
ernal
env
ironmentanal
ysi
spr
ocess:

I
. Scanni
ng:
Ident
if
yingear
lysi
gnal
sofenv
ironment
alchangesandt
rends

I
I. Monitor
ing:
Detect
ingmeani
ngt
hroughongoi
ngobser
vat
ionsofenv
ironment
al
changesandtr
ends

I
II
. For
ecast
ing:
Dev
elopi
ngpr
oject
ionsofant
ici
pat
edout
comesbasedonmoni
tor
ed
 changesandt
rends

I
V. Assessi
ng:Det
ermini
ngthet
imi
ngandi
mportanceofenv
ironment
alchangesand
tr
endsforf
irms’st
rat
egi
esandt
hei
rmanagement

1.Gener
alenv
ironment
:

Thegener alenvi
ronmentiscomposedofdimensi
onsinthebroadersoci
etythat
i
nf l
uenceani ndust
ryandthefir
mswithi
nit
.11Wegr oupthesedimensi
onsinto
sevenenv i
ronmentalsegments:demogr
aphic,
economic,pol
it
ical
/l
egal
,soci
ocult
ural
,
technologi
cal,gl
obal,
andphysical
.

Fi
rmscannotdi r
ectl
ycont rolt
hegener al envi
ronment ’ssegment s.Therecent
bankrupt cyfil
ingsbyGener alMot orsandChr y sl
erCor porati
onhighli
ghtthi
sfact.
Thesef i
rmscoul dnotdirectl
ycont rolv
ar i
ouspar tsoft heirext
ernalenvi
ronment,
i
ncludi ngtheeconomi candpol i
ti
cal/l
egal segment s;howev er,t
hesesegmentsar e
i
nfluenci ngtheact i
onst hef i
rmsar etakingnowi ncludingtheformingofChrysl
er’
s
al
li
ancewi t
hFi at.
12Becausef i
rmscannotdi rectl
ycont rolthesegmentsoftheir
external envi
ronment ,successf uloneslear nhowt ogat hertheinfor
mationneededto
under standall segmentsandt hei
rimplicationsforsel ecti
ngandi mplementi
ngthe
fi
rm’sst rategi
es.
I
ndust
ryenv
ironment
:

Theindust ryenv ironmenti sthesetoff actorst hatdirectlyinfl

uencesaf ir
m andi ts
compet i
tiveact ionsandr esponses: 13t het hreatofnewent rants,thepowerofsuppl iers,t
he
powerofbuy ers,thethreatofpr oductsubst i
tutes,andt hei ntensityofrival
ryamong
compet i
tor s.Intot al
,theinteracti
onsamongt hesef i
vef actorsdet ermineanindust ry’
spr ofi
t
potenti
al; i
nt urn,theindust r
y’sprofi
tpot ential i
nfl
uencest hechoi ceseachf ir
m makesabout
i
tsstrategicact i
ons.Thechal l
engef oraf i
rmi stol ocateaposi t
ionwi t
hinani ndustrywher e
i
tcanf av orablyinfluencet hefivefactorsorwher eitcansuccessf ull
ydef endagai nsttheir
i
nfluence.Thegr eaterafirm’scapaci t
yt ofav orablyinfl
uencei t
si ndustryenvi
ronment ,the
greaterthel i
kelihoodt hatthef i
rm willearnabov e-averager eturns.Howcompani esgat her
andinterpreti nformat i
onaboutt heircompet itorsiscalledcompet i
toranalysi
s.
 1.Thr
eatofnewent
ry

i
) Bar
ri
erst
oent
ry

(
1)Economi
esofscal
e

(
2)Pr
oductdi
ff
erenci
ati
on

(
3)Capi
tal
requi
rement

(
4)Swi
tchi
ngcost

(
5)Accesst
odi
str
ibut
ionchannel

(
6)Costdi
sadv
ant
agei
ndependenceofscal
e

(
7)Gov
t.pol
i
cy

i
i
) Expect
edr
etal
i
ati
on

2.Bar
gai
ningPowerofSuppl
i
ers

3.Bar
gai
ningPowerofBuy
ers

4.Thr
eatofSubst
it
utePr
oduct
s

5.I
ntensi
tyofRi
val
ryAmongCompet
it
ors

i
) Numer
ousorEqual
l
yBal
ancedCompet
it
ors

i
i
) Sl
owI
ndust
ryGr
owt
h

i
i
i)Hi
ghFi
xedCost
sorHi
ghSt
orageCost
s

i
v)LackofDi
ff
erent
iat
ionorLowSwi
tchi
ngCost
s

v
) Hi
ghSt
rat
egi
cSt
akes

v
i)Hi
ghExi
tBar
ri
ers.

Compet
it
iveanal
ysi
s:
■Whatdr
ivest
hecompet
it
or,
asshownbyi
tsf
utur
eobj
ect
ives

■Whatt
hecompet
it
ori
sdoi
ngandcando,
asr
eveal
edbyi
tscur
rentst
rat
egy

■Whatt
hecompet
it
orbel
i
evesaboutt
hei
ndust
ry,
asshownbyi
tsassumpt
ions

■Whatt
hecompet
it
or’
scapabi
l
iti
esar
e,asshownbyi
tsst
rengt
hsandweaknesses.

Criti
caltoanef fectivecompet i
toranal ysi
sisgather i
ngdat aandi nformationt hatcanhel p
thefirm under standi tscompet i
tors’int
entionsandt hest rategicimpl i
cationsr esult
ingf r
om
them.121Usef uldataandi nformat i
oncombi netoform compet it
ori ntel
li
gence: t
hesetof
dataandi nf ormat i
ont hefir
m gat herstobet t
erunder standandbet terant i
cipatecompet it
ors’
objecti
ves, strategies,assumpt i
ons, andcapabi l
it
ies.Incompet it
oranal ysis,thefirm gathers
i
ntelli
gencenotonl yaboutitscompet it
ors,butalsoregar dingpubl i
cpol i
ci esincount ri
es
aroundt hewor ld.Suchi nt
ell
igencef acil
it
atesanunder standingoft hest rategicpost ureof
forei
gncompet itor
s.Thr ougheffectivecompet it
iveandpubl i
cpolicyintell
igence, t
hef ir
m
gainsthei nsight sneededt omakeef fecti
vest r
ategicdeci sionsabouthowt ocompet e
againstitsrivals.
6.Tr
ipl
ebot
tom l
ine:
Allbusinessesmustmakemoney.Butt
ripl
ebot t
om li
necompaniesreal
izet
hatthey
cando  more.Thisi
deahasonl
yrecent
lygainedtract
ioninthecor
porat
ewor l
d,but
nowt hatithas,
thetr
ipl
ebot
tom l
i
neisdriv
ingthedecisi
on-
makingoftheworl
d’stop
brands.

WhatI
stheTr
ipl
eBot
tom Li
ne?
Tradit
ionall
y ,
businessleadersconcernedthemselv
eswi t
ht heirbottom l
ines—or,t
he
monet ary profit
st heirbusinesses made.Today ,morel eaders have begun to
thi sust
nk  ainably.Thet r
ipl
ebot t
om linetheor
yexpandst het r
adit
ionalaccounti
ng
framewor kt oincludetwoot herper f
ormanceareas:thesoci alandenv i
ronmental
i
mpact soft heircompany .Thesethreebot
tom li
nesareoftenr efer
redtoast hethr
ee
P’s:people,planet,andprofi
t.

Her
eiseach“
P”i
nmor
edet
ail
.

Peopl
e
“
People”consi
dersempl oyees,thelaborinvol
vedinacor porat
ion’
swor k,andt he
wi
dercommuni t
ywhereacor por
ati
ondoesbusi ness.Anotherwayt olookat“people”
i
s,how muchdoesacompanybenef i
tsociety
?At r
ipl
ebot t
om linecompanypay s
f
airwages and takes steps to ensure humane wor ki
ng conditi
ons atsuppl i
er
f
actor
ies.

Tri
plebot t
om li
necompani esmakeanef fortt
o“ gi
veback”t ot hecommunity
.For
example,3M par t
nerswi t
hUni t
edWayt of undSTEM educat i
onacrossthewor l
d.
Thisinit
iati
veisanexampl eof“enlightened self
-i
nter
est”
—act ingtofurt
hert he
i
nterestsofot hers,ult
imately
,to serveone’ sownsel f
-i
nterest.Thecommuni t
y
benefi
ts,and3M pr ovi
desitsel
fawel l
-educatedsourceofsci enti
stsandi
nnovators
forgenerati
onstocome.
Pl
anet
A2016Gal luppollr
eveal
edt hat64percentofAmer i
cansar ewor ri
edaboutgl obal
war ming.Publ i
copinionhasdi ct
atedthatenter
pri
sest hatharmt heenv i
ronment
shouldal sobearthecost,andy oucanbetbusinessesaret aki
ngnot i
ce.The“ pl
anet”
pieceoft het r
ipl
ebot t
om linei ndi
cat
est hatanor ganizati
ont r
iest oreducei t
s
ecologicalfootpri
ntasmuchaspossi bl
e.Theseef f
ortscani ncl
uder educi
ngwast e,
i
nv est
ingi nr enewableenergy,managi ngnaturalresourcesmor eef f
ici
entl
y,and
i
mpr ov i
ngl ogi
sti
cs.

Forexampl e,Appl
ehasinv
est
edheavi
lyinenvir
onmentalsustai
nabi
li
ty.I
tsmassi
ve
U.S.dat acentersar
eLEED cer
ti
fi
ed.In2016,t hecompanyannouncedt hat93
percentofitsener
gycomesfr
om r
enewables.Theseacti
onshavenudgedothert
ech
gi
ant sli
keFacebookandGoogletowardusingmor erenewableener
gysourcesto
powerf aci
l
iti
es.

Pr
ofi
t
Whi l
eev erybusinesspur suesf i
nancialprofi
tabi
li
ty,t
ripl
ebot t
om li
nebusinessessee
i
tasonepar tofabusi nesspl an.Sustainabl
eor ganizationsalsor ecogni
zet hat
“prof
it”isn’tdiamet r
icall
yopposedt o“ people”or“planet.”Swedi shfurni
tur
egi ant
I
KEAr epor t
edsal esof$37. 6bi l
li
oni n2016.Thesamey ear ,thecompanyt urneda
profi
tbyr ecycl
ingwast eintosomeofi t
sbest -
sell
ingproduct s.Before,t
hiswast e
hadcostt hecompanymor et han$1mi l
li
onpery ear.Andt hecompanyi swellonits
wayt o“ zerowast etol andfil
l
”wor ldwide.AccordingtoJoannaYar r
ow,IKEA’shead
ofsust ai
nabili
tyfortheUK, “Wedon’ tdot hi
sbecausewe’ r
et reehuggers,wedot his
becausei t’
sv erycostef f
ective.
”
7.VUCAwor
ld
I
nourVUCA (
vol
ati
l
e,uncer
tai
n,compl
exandambi
guous)wor
ld,f
ast
,ef
fect
ive,
sust
ainabl
echangei
sthekeyt
osuccessf
ulor
gani
zat
ionaladapt
ati
on,sur
viv
al,r
e-
i
nvent
ionandgr
owt
h.Yett
hechangemet
hodol
ogi
esbequeat
hedt
ousf
rom t
he
r
ever
ed psy
chol
ogi
sts oft
he t
went
iet
h cent
urypr
ovet
oo sl
ow,t
oo l
i
near
,too
cumber
someandt
ooef
for
tfult
omeett
hechal
l
enge.
 Appr
eci
ati
veI
nqui
ryi
soneofa
number of whol
e sy
stems,co-
creat
ive,di
alogi
c met
hodol
ogi
es t
hat pr
ovi
de
al
ter
nat
iveappr
oachest
ocr
eat
ingor
gani
zat
ionalchange.Howev
er,achangei
n
met
hodol
ogydemandsachangei
nmi
ndset
.Bel
owar
efi
vet
ipsf
orhowt
oappr
oach
changef
rom anAppr
eci
ati
veI
nqui
ryPer
spect
ive.

 
1.I
nvol
veev
ery
onef
rom t
hebegi
nni
ng

Appr
eci
ati
veI
nqui
ryasanappr
oachunder
standst
heor
gani
zat
iont
obeal
i
ving
humansy
stem:ev
ery
onepl
ayst
hei
rpar
tincr
eat
ing,sust
aini
ngandchangi
ngt
he
sy
stem.Fort
hesy
stem t
ochangei
naf
ast
,ef
fect
iveandsust
ainabl
ewayev
ery
one
hast
othi
nkandbehav
edi
ff
erent
ly.Weneedt
ogi
veupourbel
i
eft
hatwecandi
ctat
e
changeoft
hisnat
uref
rom t
het
op-
downandt
orecogni
zei
nst
eadt
hatweneedt
o
gr
ow i
tfr
om t
hebot
tom-
up.I
nvol
veev
ery
onewhoi
sgoi
ngt
obeaf
fect
edbyt
he
change,i
sinv
est
edi
nthest
atusquo,orhasusef
uli
nfor
mat
ionorr
esour
cesf
rom
t
hev
eryst
art
.Formanyusedt
othest
andar
doper
ati
ngpr
ocedur
esf
orchange,t
his
wi
l
lfeelst
range:wear
eusedt
osmal
lgr
oupsmaki
ngt
hepl
ansf
orl
argergr
oups.
Wi
tht
hesenew appr
oachesl
argegr
oupsofpeopl
ecr
eat
easpi
rat
ion,pat
hsof
possi
bil
i
tyandagener
aldi
rect
ionoft
rav
el,
thensmal
l
ergr
oupsmakei
thappen.

 
2.Recogni
zet
hatmot
ivat
ionst
art
sint
hei
magi
nat
ion

Peopl
ebecomemot
ivat
edbyv
isi
onsoft
hemsel
vesi
nthef
utur
e.Somev
isi
onsf
or
somepeopl
ear
efor
medsost
rongl
ysoear
lyt
hatt
heydr
aw t
hem f
orwar
dov
er
obst
acl
esandset
backs,pul
loutunknownr
eser
vesoft
enaci
tyandr
esi
l
ienceov
er
manyy
ear
s:t
hinkofal
lthosespor
tspeopl
ewhodr
eamedf
rom ay
oungageof
hol
dinganOl
ympi
cGol
dMedal
.Whenpeopl
ear
einv
olv
edi
ncr
eat
ingv
isi
onsoft
he
f
utur
eoft
heor
gani
zat
iont
hatar
eat
tract
ive,f
easi
bleandof
fert
hem t
hingst
hatar
e
i
mpor
tantt
othem suchasachi
evement
,secur
it
y,chal
l
enge,
soci
alnet
wor
ks,
human
connect
ion,aut
onomyoramy
riadot
hert
hingspeopl
ecanf
indat
tract
iveatwor
k,
t
hent
heywi
l
lfi
ndt
hatv
isi
onoft
hef
utur
emot
ivat
ing.Theywi
l
lfi
ndener
gyand
r
esour
cest
hatt
heydi
dn’
tknowt
heyt
oachi
evet
hatf
utur
e.

 
3.Recogni
zet
hathowwef
eelaf
fect
swhatwecando

Whenwef
eelgr
eat
,wecant
akeont
hewor
ld,
whenwef
eeldef
eat
ed,
over
whel
med,
ov
erl
ooked,
under
val
ued,
upset
,di
scount
ed,
for
got
ten,
ormi
str
eat
edwewantonl
yto
wi
thdr
aw.Changei
sdi
srupt
ive;changecanbebr
utal
.Ifwedon’
tat
tendt
opeopl
e’
s
emot
ionalst
ate dur
ing change,we i
nadv
ert
ent
ly pr
oduce wi
thdr
awal
,apat
hy,
demor
ali
zat
ionanddemot
ivat
ion.Thekeyemot
ionst
hatweneedt
ogener
ateand
f
ost
erdur
ingchangear
ehope,
opt
imi
sm andef
fi
cacy
.Iti
sthebel
i
eft
hatt
hingscan
be bet
terand t
hatIcan make a di
ff
erence t
hatpr
oduce pr
o-act
ive,engaged
behav
iour
.Appr
eci
ati
veI
nqui
rydel
i
ber
atel
yfost
erst
hecr
eat
ionandr
e-cr
eat
ionof
t
heseemot
ional
stat
esdur
ingt
hechangepr
ocess.

4.Dol
eader
shi
pdi
ff
erent
ly
I
ntheol
dday
s,al
eaderwasexpect
edt
oleadf
rom t
hef
ront
,tobearal
lther
iskand
r
esponsi
bil
i
tyf
orcal
l
ingt
hef
utur
eri
ght
,tohav
eal
ltheanswer
s.I
fthi
sev
erwas
possi
blei
tcer
tai
nlyi
sn’
tnow:t
hewor
ldi
stoocompl
ex,
toouncer
tai
n,t
ooVUCA.So,
l
eader
s mustof necessi
ty become agent
s of f
aci
l
itat
ion who f
aci
l
itat
ethe
or
gani
zat
iont
ofi
ndawayf
orwar
d.Aski
ngchange-
gener
ati
ngquest
ionsbecomes
mor
eimpor
tantt
han knowi
ng answer
s;i
nvol
vementi
s mor
e pr
oduct
ivet
han
di
rect
ion.Thel
eaderneedst
ogi
veupt
hei
l
lusi
onofomni
pot
enceandi
nret
urnwi
l
l
beabl
etoaccesst
hecol
l
ect
ivei
ntel
l
igenceoft
hewhol
eor
gani
zat
iont
ogr
appl
ewi
th
t
heVUCAchal
l
enge.

 
5.Recogni
zechangeasapr
ocessnotanev
ent

Onceuponat
imechangewasahi
ghl
ydi
srupt
iveev
entv
isi
teduponanor
gani
zat
ion
atr
egul
ari
nter
val
s,usual
l
ywhenanewbr
oom ar
ri
ved,
rat
herl
i
ket
her
ippi
ngoutand
r
epl
acementofanol
dki
tchenbynew home-
owner
s.Ther
eexi
stedt
hef
ondbel
i
ef
t
hanoncet
hedustset
tl
edev
ery
onecoul
dgetbackt
onor
mal
.Wecannol
onger
af
for
dtot
hinkl
i
ket
hisal
thoughmanyst
il
ldo.Wehav
etodev
elopchange-
abl
eski
l
ls.
Fr
om t
hisper
spect
ivepeopl
ewho not
icepr
obl
emsar
ehar
binger
sofaf
urt
her
necessar
y adapt
ati
on.Rat
herl
i
ke t
he const
antadapt
ive,f
utur
e or
ient
ed gear
-
changi
ngwepr
act
icewhi
l
edr
ivi
ng,sowear
en’
tcaughtouti
nthewr
onggeari
fwe
suddenl
yhav
etoaccel
erat
eorbr
ake,
soweneedt
oconst
ant
lyat
tendt
othi
ngst
hat
needchangi
ngsowear
eint
hebestst
atepossi
blet
omeetwhatt
hef
utur
emayhol
d.

8.bl
ueoceanst
rat
egy
:
Blue oceans st r
at egyi st he approach thatsuggest s a companyi s bet t
erof f
searchingf orway st opl ayinuncontestedmar ketplacesinsteadofengagi ngwi th
compet i
ti
oni nexi sti
ngmar ket
ingspaces.I ti st heideaoft ryingt of indmar ket
spacest hatar ef r
eeofcompet it
orsbycr eat
ingandcapt uri
ngnewdemand,maki ng
thecompet it
ioni rrelevant.An exampl eofabl ueoceanst rategy  
i
sNet fli
x.Net fli
x
createduncont est edmar keti
ngspacebysel l
ingTVshowsov erthei nternetwhi chno
oneel sewascur rent l
ydoi ng.Bydoi ngthist heymadet hecompet itionirr
elevant ,
creati
ngandcapt ur enewdemandf oraser vi
cenotcur r
entlyav ai
lableont hemar ket.
Bydoi ngt histheywer eabl etobreakt hev alue-costtradeof fbypr ovi
dingbet ter
valuet hancabl eTV( becausey oucoul dwat chanyshow y ouwant edatanyt i
me,
withoutcommer cials)atal owercostt hancabl eTV.Byent eri
ngabl ueocean,t hey
wer e ablet o pur sue l ow costand di ffer
ent i
ation l
eadershi p compar ed tot he
alt
ernat i
vestot heirpr oduct.

a)Reasonsf
oroper
ati
ngi
nBl
ueOceanMar
ket
s
Blueoceansareareasofthemar ketwhereyourcompet it
ioni scur
rent
lynot.They
l
eadt oeasyuncontest
edgrowt h(from demandt hatiscr eatednotfoughtover)
,
rapi
dgrowthinsalesandpr ofi
tsduet oal ackofcompet it
ion,wi
deranddeeper
marketoppor
tuni
ti
esbecausethespaceisnoty etexpl
ored.
b)Reasonsf
orav
oidi
ngRedOceanMar
ket
s
Inar edoceanenv i
ronment,themar ketbecomesf i
ercerandmor ecrowdedas
compet itorstr
yt ostealsharef r
om eachot her.Ascompani escompet ewit
heach
otherpr i
cesarer educed,profi
tsfallandgr owthisli
mitedt othesizeofthecurr
ent
mar ket.Productsbecomecommodi ti
esorv erysmallni
chesegmentpl ay
ersandthe
cutthroatcompet i
tionturnstheoceanr edwi t
hblood.Iliketothinkofitasanav al
battl
ef ieldversusoceanst hatar euncont estedwithnoenemi es.Thosetypesof
oceansar ebl
oodf r
eeandl eadtoeasy ,safesaili
ng.
FourPr
inci
plesofBl
ueOceanSt
rat
egyFor
mul
ati
on
1.HowToCr
eat
eUncont
est
edMar
ketSpaceByReconst
ruct
ingMar
ketBoundar
ies
Thebooksuggest sy ouneedt olookatwhatt hemar keti sdoingandcompet ingon
andcr eat
east rategyt hatisvastlydiff
erentthant hatoft her estofthemar ket
.It
suggestsusingt heel i
minate,reduce,raise,createf ramewor kout l
i
nedbelow t o
develop a st
rategy t hatwi l
lcr eate uncontested mar ketspace.Basi call
y,this
approach isdecr easing thefocuson char acteri
sti
csofa pr oductthatcan be
reducedandi ncreasingt hefocusonpr oductchar acteri
sti
cst hatapor t
ionofthe
mar ketwoul
dv al
uebutcancur rentlynotfi
ndatt hishigherlevel
.

2.FocusonTheBi
gPi
ctur
e
Thei deaf r
om t hebookint hi
ssect ionisthatmoststrategiesi
ncl
udeal ar
geamount
ofdat aanal ysisandnumber st hattheact ualstr
ategyi slost
.Insteadt hebook
recommendsf ocusi
ngonunder standi
ngwhatt hecust omerwants,under st
anding
whatt hecur rentmar ket
ingisprov i
dingandwhatt hecur rentmar
ketisnotpr ovi
ding
thatiswant ed.Thei deaisthatt hiswi l
lleadtoideaf orblueoceansandi ti
st oo
diff
iculttoputexactnumber sont hesizeofabl ueocean.I nst
eadoffocusingont he
number s,t
hebooksuggest siti
smor eimpor t
anttofocusont hestr
ategythatwillbe
successf ul
.
 
3.Reachi
ngBey
ondExi
sti
ngDemand
Forthi
ssect ionthebooksuggeststhatacompanyshouldbefocusingonhowt oget
potent
ialfuturecustomersthatar
enotcurrent
lypur
chasi
ngfrom themarketforone
reasonoranot her.Thebooksuggestsfocusi
ngonunderstandi
ngwhati skeeping
potent
ialcust omersoutofthemarketandworktosolv
ethisiswherethereal
l
ylarge
growthpot ential
is.
 
4.Get
ti
ngt
heSt
rat
egi
cSequenceRi
ght
Inthissectionoft hebooki tsuggestsy ouneedt owal kallt hewayt hr
ough4key
stepst oensurethestrat
egyi svalid.Thef i
rstislookingatt hebuy erut i
l
itytomake
suret hepr oposedservice/pr
oducthasgoodut i
l
ityatev erystepoft hebuying
process( Purchase,Deli
very,Use,Suppl ements,Mai ntenance,Di sposal).Seet he
below chartforasampl e.Thebooksuggest sy oucompl et
eabuy erutil
itymapat
thisstepandconf irmthatthesecondst epispr i
ce,isthepr i
ceagoodv aluet
ot he
purchaser.Thethirdst
epi scost,cany ousellitatacostt hatal l
owsf orgoodpr of
its.
Thef ourt
hst episadopti
on,whatar etheadopt i
onhur dl
esf orr et
ail
ers,par t
ner
sand
customersandhowwi llyouovercomet hem.
9.JugaadI
nnov
ati
on

Leadingcompani esaroundthewor l
dsuchasGE,Googl e,Pepsi
Co,Phi
li
ps,Renaul t
-
Nissan,Si
emens, Facebook,Suzl
on,TataGroup,andYesBankar epr
acti
singv ari
ous
pri
ncipl
esofjugaadorf rugali
nnovat
ionandarelearni
ngfrom gr
assr
ootsinnov at
ors
i
nemer gi
ngeconomi essuchasI ndia,accor
dingtotheauthorsofthi
sinf ormati
ve
book.Thesepr inci
plesar eal
sobei ngadoptedbymanyNGOsandgov ernments
aroundtheworld.

Thoughmanyi nIndi
awoul darguet hatj ugaadisnotjustf rugalorf
lexi
bleinnovation
butsomet imesal soamakeshi ftwor karoundor‘ bandage’sol ut
ionandnott rue
i
nnov ati
on,thisterm seemst ohav est uckandisf indingaccept anceinWest ern
businessjargonaswel l
.Butevenf ort hosewhodonotat tachar omanticorposi t
ive
connotati
ont ojugaad,thisbookof ferssi xusef
ulpr inci
pl esoffrugalandf l
exible
i
nnov ati
on,andtwopr acti
calchaptersonscal i
ngthesepr incipl
esfr
om t heindi
vidual
totheorganisati
onalandnationall
ev els.

Jugaad innovati
on islessli
keWest er
n cl
assi
calmusi cand morel i
kejazz( an
analogyIlike,consi
deringIam alsoajazzRJ/edi
tor
!).Ihavesummedupt hese
pri
ncipl
esofi nnovat
ion,al
ongwit
hsomesampl eexamples,i
nTable1bel ow.Some
oftheseprinci
plesmayapplytobottom-
uporcust
omer-centr
ici
nnovat
ioningeneral
,
andnotjustjugaad.

Tabl
e1:Pr
inci
plesofJugaadI
nnov
ati
on

N Pr
inci
ple Exampl
es
o

1 Seek KanakDas(
gener
ati
ngener
gyf
rom shockabsor
ber
s),
 oppor
tunit OptimaEner gia(leasedsoluti
onsf orener gyeffi
ciency)
,
y in Suzlon (wind ener gy,wi t
hout fuel),SBI( Pari
v ar
tan
adver
sit
y trai
ning programme) ,Proctor& Gambl e’s Vocalpoi
nt
(socialmedi a engagement )
,Sal esForce.com,Danone
(l
assi,Fundooz),TCS( Co-
innovat
ionnetwor k)

2 Do mor e Airtel( outsourcing I Tt oI BM) ,Los Gr obo ( contr

act
wi
thl
ess farmi ng),Zhongxi ngMedi cal(low-costX- Raymachi nes)
,
M- Pesa ( mobi l
epay ments),Col gatePal mol i
v e( vi
ll
age
salesmen on bi cycl
es) , Mi cr
oVent urs ( sari
-
sari/mom&pop st ores in Phi l
ippines),KPI T Cummi ns
Rev olo(ener gygener at
ionfrom br akes),Embr ace( pouch
-l
ikei ncubat or
sf orbabi es),Renaul t( f
rugalengi neered
cars) ,Godr ej(Chot uKoolaf fordabl efridge,Chot uWash
l
ow- cost washi ng machi nes), Noki a ( 1100 model )
,
Pepsi Co( GlobalVal ueI nnovati
onCent reinIndia)

3 Think and Tata Nano ( relocati

on, r emar ket
ing), Hai er ( fl
at
actfl
exi
bly organisationalst ructure;low costwi ne cool er
s),Dr
Mohan’ s Di abetes Cent r
e ( t
elemedi cine cent r
e f or
diabetes,wi thv il
laget echnicians),SELCO ( ‘
j
usti ntime’
ener gysol utions),I BM ( r
e-definit
ion ofv alues:Smar t
Planeti ni
tiative),Googl e(70/ 20/10modelofwor k;fai
l
fast,learnf ast),SAPLabsI ndia( AppHaus,i deasdur ing
wor k),

4 Keep i
t Ushahidi(rapi
dr esponsepl atform basedonWeb/ SMS) ,
si
mple DrJeganat han( woodeni ncubat orwi t
hl ightbul bs),I
ll
ac
Diaz(solarbot t
lebul bs),Phil
ips( “
SenseandSi mpl i
cit
y ,
”
Simpl
icit
yAdv i
sor yBoar d),Si emens ( SMART:Si mple,
Maint
enance- Friendly,Af fordabl e, Reliable, Timel y
-to-
market),Oxo( universaldesign), GM (globalpl atformsf or
vehi
clemodel s), Facebook( si
mpl e‘social’design)

5 I
nclude NeuSof t(tel
emedici
nei nruralChina) ,ZoneV( cel
lphones
marginal fort he bl i
nd)
,Yes Bank ( forunder ser
ved I ndians),
gr
oups KidZania( t
heme par ks for under served kids),Zi ca
(salons forlow-i
ncome Br asi l
ian women) ,PayNear Me
(forunderbankedAmer icans) ,
Renaul t(Logan,Dar cialow
-
costcar s),EliLil
ly( Your Encore.com communi ty of
reti
rees),Johnson&Johnson( Text4BabySMSser vicef or
mot hers)

6 Foll
ow Big Bazaar (design li
ke a bazaar , not West ern
yourhear
t supermarket
),Steve Jobs ( i
Pad)
,INXS Technologies
(Market
Simpli
fi
edmobi l
et radi
ngplatf
orm),RuralChina
Educati
onFund( l
ocalcurr
iculaandteacher
s),Naray
ana
 Hruday
alay
a(hear
thospi
tali
nBangal
ore)
;Idi
om,I
DEO,
f
rogdesign

“Innov ationisgoi ngt obecr it

icalf
orI ndi
a–notonl yforgr owt handcompet i
ti
ve
adv antage,butal sot oensur eourfuturedev elopmentissust ai
nableandi ncl
usive,”
accor dingt oSam Pi t
roda,chairmanofI ndia’sNationalInnov ati
onCounci l
.The
i
nnov ati
ons need t o manage wi t
h scar ce r esour
ces,and be af f
ordable and
env i
ronment all
ysust ai
nable.“Todaywear eanat i
onofabi ll
ionconnect edpeopl e,”
say sPi troda,andt hiswi l
lchangei ndustry,educationandgov ernmenti nI ndia.
Jugaad t hr
ives in envir
onment s which ar e harsh,polit
icall
y and economi cally
unst able,bur eaucrati
c,cultur
allydi
verse,wi thpoori nfr
astructureandi nadequate
accesst of i
nanceandski l
ledhumanr esources.Butthisrequirescompani estosee
thepr ov erbi
al hal
f-emptyglassashalf-ful
l.

Theaut horsshow thatthe‘jugaad’modelalso exi

stsinothercountriesunder
di
ffer
entnames,eg.z i
zhu chuangxi
n( i
n China)and Systeme D orSy st
eme
Debroui
llar
d( i
nFrance)
.“Jugaadwasonceabi gpar tofWester
ni nnov
at i
ont oo,
”
accordi
ngt otheauthors,whoci t
eBenjaminFrankli
nandtheWr ightbrothersas
j
ugaadinnov at
ors.

10.r
esources,
capabi
li
ti
esandcor
e
competenci
es:
 Resour
ces:

Tangibleresourcesar eassetst hatcanbeobser vedandquant i

f i
ed.Producti
onequipment
,
manuf act
uringfacili
ti
es,distr
ibutioncenter
s,andf ormalreport
ingstructur
esareexamples
oftangibl
er esources.Int
angibler esour
cesareasset sthatarerooteddeeplyint
hefirm’
s
hist
oryandhav eaccumul atedov ertime.Becauset heyareembeddedi nuniquepatt
ernsof
routi
nes.

Ast angibleresources,af i
rm’sbor r
owi ngcapacityandt hestatusofit
sphy sicalfaci
lit
iesare
vi
sible.Thev alueofmanyt angibleresour cescanbeest abli
shedthroughfinancial
statement s,butthesest at
ement sdonotaccountf orthev alueofallt
hef i
rm’sasset s,
becauset heydi sr
egardsomei ntangibleresources.62Thev alueoftangibl
er esourcesi sal
so
constrainedbecauset heyar ehar dtolever age—i
tisdiffi
culttoderi
veadditi
onal businessor
valuefrom at angibleresource.Forex ampl e,anair
planeisat angi
bleresource,but“You
can’tuset hesameai r
planeonf ivedifferentrout
esatt hesamet i
me.Youcan’ tputt hesame
crewonf i
v edif
ferentroutesatthesamet ime.Andt hesamegoesf orthefi
nanci al
i
nv estmenty ou’vemadei ntheairpl
ane.
i
nt angi bleresourcesarerel
ati
vel
ydiff
icultforcompet it
orstoanaly
zeandi mitat
e.
Knowl edge, t
rustbetweenmanagersandempl oyees,manageri
alcapabilit
ies,or
ganizat
ional
routines( theuniqueway speopleworkt ogether)
, sci
enti
fi
ccapabil
it
ies,thecapacit
yf or
i
nnov ation,brandname, andthefi
rm’sreputationf ori
tsgoodsorservicesandhowi t
i
nter act swithpeople(suchasempl oyees,customer s,andsuppl
ier
s)ar eintangi
ble
resour ces.

Comparedt otangibleresources,
intangibleresour
cesareasuper i
orsourceofcor e
competencies.
65Inf act ,
inthegl
obal economy ,“t
hesuccessofacor porati
onliesmorein
i
tsint
ell
ectualandsy stemscapabi l
iti
est haninit
sphysicalasset
s.[
Mor eover]
,thecapaci
ty
tomanagehumani nt
ellect—andtoconv erti
tintousef
ul pr
oductsandser v
ices—isfast
becomingthecr i
ti
cal executi
veskil
loftheage. 6

 Capabi
l
iti
es:

Capabili
ti
esex i
stwhenr esourceshav ebeenpur poselyi ntegratedtoachi ev
easpeci f
ictask
orsetoft asks.Theset asksrangef r
om humanr esour cesel ecti
ont oproductmar keti
ngand
resear
chanddev el
opmentact i
viti
es.Cr i
ti
cal t
ot hebui ldingofcompet it
iveadvantages,
capabil
iti
esar eof t
enbasedondev eloping,carryi
ng, andexchangi nginformat i
onand
knowledget hrought hefir
m’shumancapi tal.Cli
ent-speci ficcapabili
ti
esof t
endev elopfrom
repeat
edi nteracti
onswi thcli
entsandt helearningaboutt heirneedsthatoccur s.Asar esul
t,
capabil
iti
esof tenev ol
veanddev elopov erti
me.Thef oundat i
onofmanycapabi li
ti
esliesin
theuniqueski l
lsandknowl edgeofaf i
rm’sempl oyeesand, oft
en,theirf
unctionalexperti
se.
Hence, t
hev alueofhumancapi tal i
ndev elopingandusi ngcapabi l
iti
esand, ul
timately,
core
compet enciescannotbeov erstated.

Whileglobalbusi
nessleadersincreasi
nglysupportthev i
ewthattheknowledgepossessed
byhumancapi tali
samongt hemostsi gni
fi
cantofanor gani
zation’
scapabil
it
iesandmay
ult
imatelybeattherootofallcompet i
ti
veadvantages, f
ir
msmustal sobeablet out
il
izethe
knowledgetheyhaveandt ransferitamongtheirbusinessunit
s.

Exampl
es:
Di
str
ibut
ion:
Eff
ect
iveuseofl
ogi
sti
csmanagementt
echni
ques-
Wal
-Mar
t

HumanResour
ces:
Mot
ivat
ing,
empower
ing,
andr
etai
ningempl
oyees-
Micr
osof
t

 Cor
ecompet
enci
es:

corecompetenci
esarecapabi
l
iti
esthatser
v easasour
ceofcompet
it
iveadvant
agefora
fi
rm overi
tsri
val
s.Cor
ecompet enci
esdist
ingui
shacompanycompet
it
ivel
yandref
lecti
ts
personal
it
y.

4Asthecapacitytotakeacti
on,cor
ecompetenciesare“cr
ownjewelsofacompany,
”the
act
ivi
ti
esthecompanyper for
msespeciall
ywell
compar edwit
hcompet i
tor
sandthr
ough
whi
cht hefi
rm addsuniqueval
uetoitsgoodsorservi
cesoveralongperi
odoft
ime

FourCr
it
eri
aofSust
ainabl
eCompet
it
iveAdv
ant
age:

11.v
aluechai
nanal
ysi
s:
Valuechai
nanal ysi
sal
lowst hef
ir
mtounderst
andthepartsofitsoperat
ionsthatcr
eate
val
ueandt hosethatdonot.98Under
standi
ngt
heseissuesisimportantbecausethefi
rm
earnsabove-av
erageretur
nsonlywhentheval
uei
tcreatesisgreat
erthanthecostsincur
red
tocreat
ethatvalue.

Theval
uechai
nisatemplat
ethatfi
rmsuset oanal
yzet
hei
rcostposi
ti
onandtoident
ifyt
he
mult
ipl
emeansthatcanbeusedtofaci
l
itat
eimplement
ati
onofachosenbusi
ness-l
evel
st
rat
egy.

afi
rm’svaluechainissegmentedint
opr i
maryandsupportacti
vi
ties.Pri
maryacti
vi
tiesare
i
nvolvedwithaproduct’sphysi
cal
creati
on,i
tssaleanddi
stri
buti
ont obuyer
s,anditsservi
ce
aft
erthesale.Supportact
ivi
ti
esprovi
detheassist
ancenecessaryforthepr
imaryactivi
ti
es
totakepl
ace.
Cr eat
ingv al
uethroughv aluechai nactivi
ti
esof t
enr equi resbui l
dingeffecti
vealli
anceswi th
suppl i
ers(andsomet imesot herst owhicht hefir
m out sour cesact ivi
ti
es,asdiscussedint he
nextsect i
on)anddev el
opingst rongpositi
ver el
ationshi pswi t hcustomer s.Whenf i
rmshav e
suchst rongpositiv
er el
ationshipswi thsupplier
sandcust omer s,theyaresaidt ohave
“socialcapit
al.
”Ther elati
onshipst hemselveshav ev aluebecauset heyproduceknowl edge
transferandaccesst or esourcest hatafir
m maynothol di nternall
y.Tobui l
dsocialcapital
wher ebyresourcessuchasknowl edgear etransferredacr ossor ganizati
onsr equi
restrust
bet weenthepar t
ies.Thepar tnersmustt rusteachot heri nor dert oall
owt hei
rresourcest o
beusedi nsuchawayt hatbot hpar t
ieswillbenefitov ertimeandnei therpart
ywi l
ltake
adv antageoftheot her.
12.out
sour
cing:
Concer nedwi thhowcomponent s,
finishedgoods, orserv i
ceswi l
lbeobtained, outsourci
ng
i
st hepur chaseofav al
ue- creatingact ivi
tyfr
om anext er
nal suppli
er.
108Not -f
or -prof
it
agenci esaswel lasfor-profitor ganizati
onsact i
velyengagei noutsourci
ng.109Fi rms
engagi nginef f
ecti
veout sour cingincr easetheirf
lexibil
it
y,mi ti
gateri
sks,andreducet hei
r
capital i
nvestments.110Inmul t
ipleglobal i
ndustri
es, t
het rendtowardout sourcingcont i
nues
atar apidpace. 111Mor eov er,insomei ndustri
esv ir
tuall
yal lfi
rmsseekt hevaluet hatcanbe
capturedt hrougheffectiveout sour ci
ng.Aswi t
hot herstrategicmanagementpr ocess
decisions,carefulanaly
sisi sr equiredbef or
et hefirm decidest oengageinout sour ci
ng.

13.
Busi
ness-
Lev
elSt
rat
egy(
not
es)
Abusiness-l
evelst
rat
egyi
sanint
egrat
edandcoor
dinat
edsetofcommi
tmentsandact
ions
thefi
rm usestogainacompet
it
iveadv
ant
agebyexploi
ti
ngcor
ecompet
enciesi
nspeci
fic
productmarkets.
14.Acqui
sit
ionsandRest
ruct
uri
ng
 Acqui
sit
ionst
rat
egi
esar
eincr
easi
ngl
ypopul
arduet
o

 Gl
obal
i
zat
ion

 Der
egul
ati
onofmanyi
ndust
ri
esi
ndi
ff
erenteconomi
es

Amer geri
sastrat
egythr
oughwhi
cht
wof
ir
msagr
eet
oint
egr
atet
hei
roper
ati
onsona
r
elat
ivel
ycoequalbasi
s.

Anacquisi
ti
onisastrat
egythr
oughwhichonefi
rm buy
sacont
roll
i
ng,or100percent,
i
nter
esti
nanot herf
ir
m wit
htheint
entofmaki
ngtheacqui
redf
ir
m asubsidi
arybusiness
wi
thi
nitsportf
oli
o.

Atakeoverisaspeci
alt
ypeofacquisi
ti
onwherei
nthetargetf
ir
m doesnotsol
i
citt
he
acqui
ri
ngf i
rm’
sbid;t
hus,t
akeover
sareunfr
iendl
yacquisi
ti
ons

Reasonsf
oracqui
sit
ionst
rat
egi
es
 I
ncr
easemar
ketpower

 Ov
ercomeent
rybar
ri
erst
onewmar
ket
sorr
egi
ons

 Av
oidpr
oductdev
elopmentcost
;incr
easedspeedt
omar
ket

 Reducet
her
iskofent
eri
nganewbusi
ness

 Becomemor
edi
ver
sif
ied

 Av
oidexcessi
vecompet
it
ion

 Pr
obl
emswi
thusi
nganacqui
sit
ionst
rat
egyi
ncl
ude

 I
ntegr
ati
ondi
ff
icul
ti
es

 I
nadequat
eev
aluat
ionoft
arget

 Lar
georext
raor
dinar
ydebt

 Toomuchdi
ver
sif
icat
ion

 Manager
sov
erl
yfocusedonacqui
sit
ions

Restr
uctur
ingi
sast
rat
egyt
hroughwhi
chaf
ir
m changesi
tssetofbusi
nessesori
tsf
inanci
al
st
ructur
e.
Downsi
zi
ng
Downsi
zingisareduct
ioninthenumberofafi
rm’
sempl oy
eesand,someti
mes,i
nthe
numberofit
soperati
ngunits,buti
tmayormaynotchangethecomposi
ti
onofbusi
nesses
i
nthecompany’sportf
oli
o.
downsizi
ngmaybenecessarybecauseacquisi
ti
onsoftencr
eat
easit
uati
oni
nwhichthe
newl
yf or
medfi
rm hasdupli
cat
eor gani
zat
ionalf
uncti
onssuchassal
es,
manufact
uri
ng,
di
str
ibuti
on,
humanresourcemanagement, andsofor
th.
Downscopi
ng
Downscopi
nghasamor
eposi
ti
veeffectonf
ir
m perfor
mancethandoesdownsizi
ng
becausef
ir
mscommonl
yfi
ndthatdownscopingcausest
hem toref
ocusonthei
rcore
busi
ness.
Restr
uct
uri
ngt
hroughdownscopi
ngshoul
dreducet
hef
ir
m’sl
evel
ofdi
ver
sif
icat
ionand
ref
ocusoncor
ebusinesses.
A.Fi
rmsof tenusethedownscopingandthedownsizi
ngstr
ategiessi
multaneousl
y.
Howev er,whendoingthi
s,fi
rmsavoi
dlayof
fsofkeyemployees,i
nthatsuchlayof
fs
mightleadtoalossofoneormor ecorecompetenci
es.I
nstead,afi
rmt hati
s
si
mul t
aneouslydownscopinganddownsizi
ngbecomessmal l
erbyreducingthe
di
versi
tyofbusinessesinit
sport
foli
o.1

l
ever
agedbuy
out(
LBO)
Tradit
ional
ly
,lev
er agedbuyoutswereusedasarestr
uct
uri
ngstr
ategyt
ocorrectf
or
manager i
almistakesorbecausethefi
rm’smanagersweremaki
ngdecisi
onsthatpr
imar
il
y
servedthei
rowni nterest
srathert
hanthoseofshar
ehol
ders.
Alever
agedbuyout(LBO)i
sarestr
ucturi
ngstrategywherebyaparty(t
ypi
cal
l
yapr
ivat
e
equi
tyfi
rm)buy
sal l
ofaf i
rm’
sassetsinordertotakethefi
rm pr
ivate.
Si
gni
fi
cantamount
sofdebtar
ecommonl
yincur
redt
ofi
nanceabuy
out
;hence,
thet
erm
l
ever
agedbuy
out
.

t
hreet
ypesofLBOs……….
.
Managementbuy
out
s(MBOs)
,
empl
oyeebuy
out
s(EBOs)
,
whole-
fi
rm buy
outs,i
nwhi
chonecompanyorpar
tner
shi
ppur
chasesanent
ir
ecompany
i
nst
eadofapar tofi
t,

15.BCGMat
ri
x(Gr
owt
hMar
ketShar
eMat
ri
x)

TheBostonConsul t
inggr oup’sproductpor
tfol
iomat
rix(
BCGmat ri
x)isdesi
gnedt
o
hel
pwithlong-t
erm strategicplanni
ng,tohelpabusi
nessconsi
dergrowth
oppor
tunit
iesbyreviewingi t
spor t
fol
ioofproduct
stodeci
dewheretoi nv
est
,to
di
sconti
nueordev el
oppr oducts.

1.Dogs:
 Thesearepr
oduct
s
wit
hlowgr owt
hormarket
shar
e.

2.QuestionmarksorProblem
Child:
 Pr
oductsi
nhighgrowth
marketswit
hlowmar ketshar
e.

3.St
ars: 
Productsinhi ghgrowt h
marketswithhighmar ketshare.
4.Cashcows:  Productsin
l
owgr owthmar ket swit
h
highmar ketshar e

Benef
it
soft
hemat
ri
x:

 Easytoperf
orm;
 Helpstounder
standthestrat
egicposi
ti
onsofbusi
nessport
fol
i
o;
 I
t’
sagoodst ar
tingpointf
orfurt
hermorethor
oughanaly
sis.

Gr
owt
h-shar
eanal
ysi
shasbeenheav
il
ycr
it
ici
zedf
ori
tsov
ersi
mpl
i
ficat
ionandl
ack
ofusef
ulappl
i
cat
ion.Fol
l
owi
ngar
ethemai
nli
mit
ati
onsoft
heanal
ysi
s:

 Busi
nesscanonl
ybecl
assi
fi
edt
ofourquadr
ant
s.I
tcanbeconf
usi
ngt
o
classifyanSBUt hatfall
srightint hemi ddle.
 Itdoesnotdef inewhat‘ market’is.Businessescanbeclassif
iedascashcows,
whilet heyar eactuall
ydogs, orvicev ersa.
 Does noti ncl
ude ot herex ternalf actorsthatmay change t he si
tuat
ion
compl etely
.
 Mar ketshar eandi ndustrygr owt har enott heonlyfactor
sofpr ofi
tabi
li
ty.
Besi des, hi
ghmar ketsharedoesnotnecessar i
lymeanhighprofi
ts.
 Itdeni es thatsy ner
gies bet ween di ff
erentunit
s exist
.Dogs can be as
i
mpor tantascashcowst obusi nessesi fithel
pstoachi evecompet i
ti
ve
adv antagef ortherestofthecompany .

Usi
ngt
het
ool

Al
thoughBCGanalysi
shaslostit
simport
anceduetomanyl
i
mit
ati
ons,
itcanst
il
lbe
auseful
tool
ifper
formedbyfol
lowingt
hesesteps:

 St
ep1.Chooset
heuni
t

Whichunitwi
llbechosenwillhav
eanimpactonthewholeanal
ysi
s.Ther
efor
e,i
tis
essent
ial
todefi
netheunitf
orwhichy
ou’l
ldotheanal
ysi
s.

 St
ep2.Def
inet
hemar
ket

I
ncorrectl
ydefinedmarketmayl eadt opoorcl assifi
cati
on.Forexampl e,ifwewoul d
dotheanal y
sisfortheDaimler’
sMer cedes-Benzcarbr andint hepassengerv ehicl
e
marketitwouldendupasadog( itholdslesst han20%r elati
vemarketshar e)
, buti
t
wouldbeacashcow i nt heluxurycarmar ket.Itisimportanttoclearlydefi
net he
markettobetterunder
standfir
m’ sportfol
i
oposi t
ion.

 St
ep3.Cal
cul
ater
elat
ivemar
ketshar
e(x-axi
s)

Rel
ati
vemar
ketshar
ecanbecal
cul
atedi
nter
msofr
evenuesormar
ketshar
e.

Forexampl
e,ify
ourcompetit
or’
smarketsharei
nref
ri
gerator’
sindustr
ywas25%and
yourfi
rm’
sbrandmarketsharewas10%int hesameyear,
y ourrel
ati
vemarketshar
e
wouldbeonl
y0.4

 St
ep4.Fi
ndoutmar
ketgr
owt
hrat
e(yaxi
s)
Theindustr
ygr owthrat
ecanbefoundi nindustr
yrepor
ts,
whi chareusuall
yavai
l
able
onl
ineforfree.Itcanal
sobecal
culatedbyl ooki
ngataveragerevenuegrowthofthe
l
eadingindustryfi
rms.Mar
ketgr
owt hrateismeasuredinpercentageter
ms.

 St
ep5.Dr
awt
heci
rcl
esonamat
ri
x

Aft
ercalcul
atingal
lthemeasur es,youshouldbeabl etoplotyourbrandsont he
matri
x.Youshoulddot hi
sbydrawi ngacir
cleforeachbrand.Thesizeofthecir
cle
shoul
dcorrespondt
ot hepropor
tionofbusi
nessrevenuegenerat
edbythatbrand.

16.McKi
nsey7s
i
tcanhelpyout
oimpr
ovetheper
for
manceofy
ouror
gani
zat
ion,
ort
odet
ermi
net
he
bestwaytoi
mpl
ementapr
oposedstr
ategy
.

Thef r
ameworkcanbeusedtoexaminethelikel
yeffect
soff
uturechangesint he
organi
zat
ion,
ort
oali
gndepar
tmentsandprocessesduri
ngamergeroracqui
sit
ion.

Har
del
ement
srel
ati
vel
yeasyt
oident
if
y,andmanagementcani
nfl
uencet
hem di
rect
ly

four"soft
"elements,ontheot
herhand,canbehardertodescri
be,l
esstangi
ble,andmor
e
i
nfluencedbyy ourcompanycult
ure.Butthey
'r
ejustasimport
antasthehardelementsi
fthe
organizat
ionisgoingtobesuccessful
.

Below showshow t
heel
ement
sdependoneachot
her
,andhow achangei
none
aff
ectsallt
heot
her
s

 St
rat
egy
: 
thi
sisy
our or
gani
zat
ion'
s pl
an f
or bui
l
ding and mai
ntai
ning a
competi
ti
veadvant
ageoveri
tscompet
it
ors.
 Str
uct
ure: 
thi
show yourcompanyisorgani
zed(
thati
s,how depar
tment
sand
 teamsar estructured,i
ncludingwhor eportstowhom) .
 Systems: t
hedai lyacti
viti
esandpr oceduresthatstaffusetogetthejobdone.
 Sharedv alues: t
hesear et hecor evaluesoft heor ganizat
ion,asshowni nits
corporatecultureandgener alworkethic.Theywer ecall
ed"superordi
nategoal
s"
whent hemodel wasf i
rstdev el
oped.
 Styl
e: t
hest y
leofl eadershi
padopt ed.
 Staff:
 t
heempl oyeesandt heirgener
alcapabili
ti
es.
 Skil
ls:
 theactualskill
sandcompet enciesoftheorganizat
ion'
sempl oyees.

St
rat
egy :
 Wh atisourstr
ategy?
 Howdowei ntendtoachieveourobj ect
ives?
 Howdowedeal withcompetit
ivepressure?
 Howar echangesi ncustomerdemandsdeal twi
th?
 Howi sstrat
egyadjustedforenvir
onment ali
ssues?

St
ruct
ure:
 Howi sthecompany /t
eam di
vi
ded?
 Wh atisthehier
archy
?
 Howdot hevari
ousdepar
tmentscoor di
nateact ivi
ti
es?
 Howdot heteam membersorganizeandalignt hemselves?
 Isdecisionmaki ngandcontrolli
ngcentralizedordecent r
ali
zed?I
sthi
sasi
t
shouldbe,givenwhatwe'
redoing?
 Wh erearetheli
nesofcommuni cati
on?Explicitandimplici
t?

Systems:
 Wh atarethemai nsyst
emst hatruntheorganizat
ion?Considerfi
nanci
alandHR
systemsaswel lascommuni cat
ionsanddocumentst or
age.
 Wh erearethecontr
olsandhowar etheymonitoredandevaluated?
 Wh atint
ernalr
ulesandprocessesdoestheteam usetokeepont r
ack?

Shar
edValues:
 Wh atar
ethecorevalues?
 Wh ati
sthecorpor
ate/team cul
tur
e?
 Howst r
ongarethevalues?
 Wh atar
ethefundament al
valuesthatt
hecompany
/team wasbui
l
ton?

St
yle:
 Ho wparti
cipat
iveisthemanagement /l
eader
shipstyl
e?
 Ho weff
ectivei
st hatleadership?
 Doe mployees/team member stendt
obecompet it
iveorcooperat
ive?
 Arether
er ealteamsf unct
ioningwit
hintheorgani
zati
onorar etheyjustnomi
nal
 gr
oups?

St
aff
:
 Wh atposi
ti
onsorspeci
ali
zat
ionsar
erepr
esent
edwi
thi
nthet
eam?
 Wh atposi
ti
onsneedtobefil
l
ed?
 Aretheregapsi
nrequir
edcompetenci
es?

Ski
ll
s:
 Wh atar
ethestr
ongestski
l
lsr
epr
esent
edwi
thi
nthecompany
/team?
Arether
eanyski
l
lsgaps?

 Whati
sthecompany
/team knownf
ordoi
ngwel
l
?
 Dot
hecur
rentempl
oyees/
team member
shav
etheabi
l
ityt
odot
hej
ob?
 Howar
eski
l
lsmoni
tor
edandassessed?

17.GEMat
ri
x
I
magi
nethatwear
epl
ott
ingj
ustt
wobusi
nessuni
ts,Busi
nessUni
tAandB,ont
he
GEMat
ri
x.

St
ep1.Det
ermi
net
hei
ndust
ryat
tract
ivenessofeachbusi
nessuni
t

Li
stthefactors:
 Todetermi nei
ndustryatt
racti
veness,t
hefoll
owingareamongfactorst
aken
i
nto considerat
ion:the i ndust
ry growthr ate,mar ketsize,industr
y pr
ofi
tabil
i
ty,low
competit
ion,andPESTf actors.
Decideweights:
 Tokeepi tsimple,l
etustakejustthreeofthefact
orsthatmakeanindustr
y
att
ract
iveforinv
estments: Highprof
it,i
ndustr
ygrowt h,
andlowcompet i
ti
on.
Now,weneedtodecidethewei
ghtofeachf
actor
—thatis,
howi
mpor
tanteachf
act
ori
s—by
gi
vi
ngitpoi
ntsf
rom 1(noti
mport
ant)t
o10(ver
yimportant
).

Rat
et hef actor
s: 
Now,r ateeachf actorforeachbusinessunitonascaleof1( not
at
tract
ive)to10( veryattract
ive)
.Letussayt hatforUnitA,low compet
it
ioni
st he
mostattracti
vefactor
.itisputat6( forexample)onthescale

Weightedscor e:
 Togetthewei ght
edscor eforeachf act
orofindust
ryat
tract
iveness,
wemul t
ipl
ythewei ghtoft hefactorbyther at
ef ortheunit.Herearet
hewei ght
ed
scoresforUnitA
UnitA:Lowcompet it
ion:2(weight)x6( r
ate)=12.I ndustr
ygrowth:3x4=12.Hi gh
profi
t:5x1=5.Tot alweightedscoreforUnitA=12+12+5=29.

Samet
ouni
tB

St
ep2.Det
ermi
net
hecompet
it
ivest
rengt
hofeachbusi
nessuni
t

Step2i ssimil
artoSt ep1,butinsteadofi
ndustr
yatt
racti
veness,wetrytofi
ndout
thecompet i
ti
vestrengthsofUnitsAandBf ortheFacorsli
kemar ketshar
e,gr
owth
rate,
profi
tabi
li
ty,
brandr eput
ati
on,andcust
omerservi
ce.

St
ep3.Det
ermi
net
heposi
ti
onoft
heuni
tsont
hemat
ri
x

Oncewehav
ethewei
ght
edscor
esoft
heuni
ts,
wecanpl
ott
heuni
tsont
hemat
ri
x.

St
ep4.Det
ermi
net
hest
rat
egyopt
ionf
ort
heuni
ts

Dependi
ngont heposit
ionoftheunitont hematrixandtheboxonthematri
xi n
whichithasbeenplaced,t
hreecat
egoriesofinvestmentordi
vest
mentdeci
sions
canbemade:(1)i
nvest;(
2)hol
d;(
3)harvestordi
vest.

Corpor
ati
onsar
eadvi
sedtoharvestordi
vestuni
tsint
he“harv
est/div
est”cat
egory
”
i
ftheyarenotshowi
nganypr omise.I
ftheseunit
saresti
llgenerati
ngcash,thi
s
rev
enuecanbeusedt
ofundthepromisi
ngunit
s.

St
ep5.For
ecastt
hef
utur
eoft
heuni
ts

Thewi
sdom ofbusi
nessanal
yst
sisnecessar
ytopr
edi
ctt
heout
lookf
oranyi
ndust
ry.
Forexampl
e,t
hemat
ri
xshowst
hatUni
tBi
sint
hei
nvestcat
egor
y.

18.St
rat
egi
cAl
li
anceandJoi
ntVent
ures,
Astr
ategi
call
iancei
sacooper
ati
vestrat
egyinwhichf
ir
mscombi
nesomeoft
hei
rresour
ces
andcapabi
li
ti
estocreat
eacompeti
ti
veadvantage.

Thr
eeTy
pesofSt
rat
egi
cAl
l
iances

Ajointvent
ureisastr
ategi
call
i
anceinwhicht
woormor efi
rmscr
eateal
egal
l
yindependent
companyt osharesomeofthei
rresour
cesandcapabi
l
iti
est
odevel
opacompeti
ti
ve
advantage.

Anequitystr
ategical
li
ancei
sanal l
i
anceinwhi
chtwoormorefi
rmsowndiffer
ent
percent
agesofthecompanyt heyhavefor
medbycombini
ngsomeofthei
rresour
cesand
capabil
i
tiest
ocr eat
eacompet i
ti
veadvant
age.

Anonequitystr
ategical
li
ancei
sanal
li
anceinwhicht
woormor efi
rmsdevel
opa
cont
ract
ualr
elat
ionshipt
osharesomeofthei
runi
queresour
cesandcapabi
li
ti
est
ocr
eat
ea
competi
ti
veadvantage.

Q-
….Cooper
ati
veSt
rat
egi
es(
not
es)
Gl
obal
Str
ategy

19.I
nter
nat
ionalCor
por
ate-
lev
el
I
nternat
ionalcorpor
ate-
levelstr
ategyfocusesonthescopeofaf i
rm’soperati
onst hrough
bothproductandgeographicdiversi
fi
cati
on.48Int
ernat
ional
corporat
e-l
evelstr
ategyi s
requi
redwhent hefi
rm operatesinmulti
pleindust
ri
esandmul t
ipl
ecountri
esorr egions.

Thethreei
nter
nat
ional
cor
por
ate-
lev
elst
rat
egi
esar
emul
ti
domest
ic,
global
,and
tr
ansnati
onal

Amul ti
domesti
cstrategyfocusesoncompet i
ti
onwit
hineachcountry
.Itassumesthatthe
marketsdif
ferandtherefor
ear esegmentedbycount
ryboundar
ies.Themul t
idomesti
c
str
ategyusesahighlydecentrali
zedappr
oach,al
lowi
ngeachdivi
siontofocusona
geographi
carea,r
egion,orcount r
y.

I
not herwords,consumerneedsanddesir
es,i
ndust
rycondi t
ions( e.
g.,
thenumberandt ype
ofcompet i
tor
s),pol
iti
calandl
egalst
ruct
ures,
andsoci
al normsv arybycountr
y.With
multi
domest i
cstrat
egies,t
hecountr
ymanagershavetheaut onomyt ocustomizethefi
rm’s
productsasnecessarytomeetthespeci
fi
cneedsandpref erencesoflocalcustomers.

global
str
ategyi
snotasr
esponsi
vet
olocalmarket
sandi sdi
ff
icul
ttomanagebecauseof
theneedtocoor
dinat
est
rat
egi
esandoperat
ingdeci
sionsacr
osscountr
yborder
s.

Forexampl e,eBaywasunsuccessf uli

nboththeJapaneseandChinesemarketswhen
att
empt i
ngt oexpor ti
tsbusinessmodelandapproachfrom Nor
thAmeri
catothesetwo
countr
ies.Ithasr eenter
edChinabutMegWhi tman,for
merCEOofeBay ,suggest
edthatshe
hadnopl anst oreentertheJapanesemarket
.

Atr
ansnati
onalst
rategyi
saninternati
onalst
rategyt
hroughwhi
cht
hef
irm seekst
oachi
eve
bot
hglobalef
fici
encyandlocal
r esponsi
veness.

Thet
ransnat
ional
str
ategyi
sdi
ff
icul
ttousebecauseofi
tsconf
li
cti
nggoal
s

Ontheposit
iveside,t
heeffect
iveimpl ement ati
onofatransnati
onalst
rat
egyoft
enproduces
hi
gherperf
ormancet handoesthei mpl ement at
ionofei
therthemult
idomesti
corgl
obal
i
nter
nati
onalcorporat
e-l
evelst
rategies, al
thoughiti
sdif
ficul
ttoaccompli
sh.

20.Bal
ancedScor
ecar
d
Abalancedscor
ecardisa st
rat
egicmanagement 
perf
ormancemetri
cusedto
i
denti
fyandimprovevari
ousint
ernalbusi
nessf
uncti
onsandthei
rresul
ti
ngext
ernal
out
comes.
Bal
ancedscor
ecar
dsar
eusedt
omeasur
eandpr
ovi
def
eedbackt
oor
gani
zat
ions.
Datacoll
ectioniscruci
altoprov
idi
ngquant
it
ati
ver
esul
tsasmanager
sand
executi
vesgat herandi
nterpr
etthei
nfor
mati
onanduseitt
omakebett
erdeci
sions
fortheorganizati
on.
Compani
escaneasi
l
yident
if
yfact
orshi
nderi
ngbusi
nessper
for
manceand
out
li
nest
rat
egi
cchangestr
ackedbyfut
urescor
ecar
ds.
Thebal
ancedscorecar
dcanpr
ovi
deinfor
mat
ionaboutt
hecompanyasa
whol
ewhenv i
ewingcompanyobj
ect
ives.
Anorgani
zat
ionmayuset
hebal
ancedscorecar
dmodel t
oi mpl
ementst
rat
egy
mappingt
oseewhereval
uei
saddedwithi
nanor gani
zat
ion.
Acompanyalsousesabal
ancedscor
ecar
dtodev
elopst
rat
egi
cini
ti
ati
vesand
st
rat
egi
cobject
ives.

Char
act
eri
sti
cs
I
nfor
mat
ioni
scol
l
ect
edandanal
yzedf
rom f
ouraspect
sofabusi
ness:

1.Lear
ningandgrowt h 
areanalyzedthroughtheinv
esti
gat
ionoftrai
ning
andknowledgeresources.Thisfi
rstl
eghandleshowwellinfor
mationis
capt
uredandhowef f
ecti
v el
yemployeesuset hei
nfor
mationtoconvert
i
ttoacompet i
ti
veadv antageovertheindustr
y.

2.Businessprocesses ar
eev al
uatedbyinvest
igat
inghowwell
pr oduct
s
aremanufactured.Operat
ionalmanagementi sanal
yzedt
otrackany
gaps,del
ays,bottl
enecks,short
ages,orwaste.

3.Customerperspecti
ves 
arecoll
ectedtogaugecustomersati
sfact
ion
wit
hqualit
y,pri
ce,andavail
abi
l
ityofproduct
sorservi
ces.Customers
pr
ovidefeedbackaboutthei
rsati
sfact
ionwithcur
rentpr
oducts.

4.Fi
nancialdat
a, 
suchassal es,expendi
tur
es,andincomeareusedto
underst
andfi
nancialperf
ormance.Thesef i
nancialmet
ri
csmayi nclude
dol
laramounts,f
inancial
ratios,
budgetvari
ances,ori
ncometargets.
21.Bl
ueOceanSt
rat
egy
Iti
sthei
deaoftr
yingt
ofi
ndmarketspacest
hatarefr
eeofcompet
it
orsbycr
eat
ing
andcapt
uri
ngnewdemand,maki
ngthecompeti
ti
onir
rel
evant
.
An exampl e ofa bl ue ocean st rategy i
s Net f
li
x.Net f
lix cr eated uncontested
mar keti
ngspacebysel l
ingTV showsov ert hei nternetwhi chnooneel sewas
currentl
ydoi ng.Bydoingt histheymadet hecompet it
ioni rrelevant
,creati
ngand
capturenew demandf oraser vi
cenotcur rentlyav ail
ableont hemar ket.Bydoi ng
thi
st heywer eabletobreakt hev alue-costtr
adeof fbypr ov idingbet t
erv al
uet han
cableTV ( becausey oucoul dwat chanyshow y ouwant edatanyt i
me,wi thout
commer ci
als)atalowercostthancabl eTV.Byent eringabl ueocean, theywereabl e
topur suelow costanddi ffer
entiati
onl eadershipcompar edt ot heal t
ernati
vest o
thei
rpr oduct.

A.Reasonsf
oroper
ati
ngi
nBl
ueOceanMar
ket
s
Blueoceansareareasofthemar ketwhereyourcompet it
ioni scur
rent
lynot.They
l
eadt oeasyuncontest
edgrowt h(from demandt hatiscr eatednotfoughtover)
,
rapi
dgrowthinsalesandpr ofi
tsduet oal ackofcompet it
ion,wi
deranddeeper
marketoppor
tuni
ti
esbecausethespaceisnoty etexpl
ored.
B.Reasonsf
orav
oidi
ngRedOceanMar
ket
s
Inar edoceanenv ir
onment ,t
hemar ketbecomesf i
ercerandmorecrowdedas
compet it
orst r
yt ostealsharefrom eachot her
.Ascompani escompet
ewi t
heach
otherpr i
cesarer educed,pr
ofit
sf al
landgrowt hisl
imitedtothesi
zeofthecurr
ent
mar ket.Productsbecomecommodi ti
esorv erysmallni
chesegmentpl
ayersandthe
cutthroatcompet i
ti
ont ur
nstheoceanr edwithblood

C.FourPr
inci
plesofBl
ueOceanSt
rat
egyFor
mul
ati
on

1.
How To Creat
e Uncont
est
ed Mar
ketSpace By Reconst
ruct
ing Mar
ket
Boundar
ies

youneedt olookatwhatt hemarketi

sdoingandcompet ingonandcr eateast r
ategy
thatisv astl
ydifferentt hanthatofther estoft hemar ket
.Itsuggest susingt he
eli
minate,reduce,raise,createfr
amewor kout l
inedbelowtodevelopast rategythat
willcreateuncont estedmar ketspace.Basi call
y,thi
sapproachisdecr easingt he
focusonchar acteristicsofaproductthatcanber educedandincreasingthef ocus
onpr oductcharacteristi
csthataport
ionoft hemar ketwouldval
uebutcancur rentl
y
notf
indatt
hishi
gherl
evel
.
2.FocusonTheBi
gPi
ctur
e
focusing on under
standi
ng whatt
he customerwants,under
standing whatt he
currentmarketi
ngisprovi
dingandwhatthecurr
entmarketi
snotpr ovi
dingthatis
want ed.
3.Reachi
ngBey
ondExi
sti
ngDemand
companyshouldbef ocusi
ngonhowt ogetpot
enti
alfuturecustomer
sthatar
enot
currentl
ypur
chasi
ngfrom themarketf
oroner
easonoranot her
.Thebooksuggests
focusingonunderst
andingwhatiskeepi
ngpotent
ialcustomersoutofthemarket
andwor ktosol
vethi
siswherethereal
l
ylar
gegrowthpotenti
ali
s.
4.Get
ti
ngt
heSt
rat
egi
cSequenceRi
ght
busi
nessneedt
owal
kal
lthewayt
hrough4keyst
epst
oensur
ethest
rat
egyi
sval
i
d.
Thefirsti
sl ookingatthebuy erut
il
it
ytomakesur etheproposedservi
ce/pr
oduct
has good ut i
l
ityatev erystep ofthe buy
ing pr
ocess (
Purchase,Del
iver
y,Use,
Supplements,Mai nt
enance,
Disposal
).
Thesecondst
epi
spr
ice,
ist
hepr
iceagoodv
aluet
othepur
chaser
.
Thet
hir
dst
epi
scost
,cany
ousel
li
tatacostt
hatal
l
owsf
orgoodpr
ofi
ts.
Thefour
thst
episadopti
on,
whatar
etheadopt
ionhur
dlesf
orr
etai
l
ers,
par
tner
sand
cust
omersandhowwill
youover
comethem.

D.The4St
epsofVi
sual
izi
ngSt
rat
egy
1.Vi
sual
Awakeni
ng:
SeeWher
eYouAr
e
Getaclearsenseofwher
ey ouar
einter
msofwhaty
ouact
ual
l
yof
ferand
howthatcompar est
oyourcompeti
ti
on.
2.Vi
sual
Expl
orat
ion:
SeeHowOt
herSeeYou
Getasenseforhowyourcustomers,
suppl
ier
sandcompeti
ti
onseeyou.Use
feedbackandr
esear
chmet hodssuchassurv
eyst
odeter
minethi
s.
3.Vi
sual
Str
ategy
:SeeWher
eYouCoul
dBe
Workonbrai
nst
ormingandvisual
i
zingwher
ey oucoul
dbeusi
ngt
hest
rat
egy
canv
asandthe6boundar
iesofcompeti
ti
onframework.
4.Vi
sual
Communi
cat
ion:
DrawAMapForEv
ery
one
22.Bl
ueOceanShi
ft
BlueOceanShi
ftisaroadmaptomoveyou,y
ourteam,
andy
ouror
gani
zat
iont
onew
height
sofconf
idence,
marketcr
eat
ionandgr
owth.

Whet heryouareacash- strappedst

art
-uporlar
ge,establ
i
shedcompany ,non-
profi
t
ornat i
onalgover
nment ,
y oucanSHIFTf r
om cut
thr
oatmar kets–r
edoceanstowide-
opennew mar ket
s–blueoceansofuncont estedmar ketspace– byf oll
owinga
si
mpl ef i
ve-
stepprocesst hatbri
ngsyourpeoplealongsot heyownanddr iv
et he
process.

1.GetStart
ed( Chooset her ightpl
acet ost artyourblueoceani ni
ti
ati
veand
const
ructtherightteam. )
2.Underst
andWher eyouar eNOW (Getcl earont hecurrentst
ateofplay.
)
3.Imagi
neWher eYouCoul dBe( Uncov ert hehiddenpai npointsimposedby
youri
ndustryandDi scov ertheoceanofnoncust omers)
4.FindHowYouGetTher e( Reconstructmar ketboundar i
es– syst
ematical
l
y
andDevelopalternati
vebl ueoceanpoi nts)
5.MakeYourMOVE ( Selectandr apidlyt esty ourblueoceanmov eand
Formali
zey ourbig-
picturebusinessmodel andl aunchyourmov e

TheThr
eeKeyComponent
sofaSuccessf
ulBl
ueOceanShi
ft

1.Thefir
stcomponenti
sadopti
ngablueoceanper
spect
ive,
sothatyouexpand
yourhori
zonsandshi
fty
ourunder
standi
ngofwher
eopportuni
tyr
esides.

2.The second component ,t her

efor
e,i
s havi
ng practi
caltool
sformar ket
creati
onwi t
hpr opergui
danceonhowt oappl
ythem totr
ansl
ateablueocean
perspecti
vei nt
oacommer cial
lycompel
li
ngnew offeri
ngthatcr
eatesnew
mar ketspace.

3.Accor
dingl
y,t
hethi
rdcomponentishav i
ngahumani st
icprocess,somethi
ng
wehavecomet ocall“
humanness”intheprocess,whichi
nspiresandbuil
ds
peopl
e’
sconfi
dencetoownanddrivetheprocessforef
fect
iveexecuti
on.

23.I
nnov
ati
on:Gr
assr
oot
s
Grassr
ootsinnovat
ion 
isdefi
nedas 
innovat
ive 
productorprocesscreatedatt
he
bott
om oft
hepy r
amid,usual
l
yduetonecessi
ty,har
dshipandchall
enges.
Yet innovat
ion is al
iv
ei nIndia,says Prof. Ani
lGupt a;si
mpl
ei nvent
ions
l
ike wheel
chair
sthatal
socl
imbstair
s,aher
baldrugthatcancur
easki
ninf
ecti
on,or
alight
weight
/wearabl
edevi
cet
hatcanconvertspeechtotext
.

Itiscommont oconf useouri nnovati

onswi t
h‘ j
ugaad’,butProfAnilKumarGuptais
quicktopoi ntoutt hedi ff
erence–‘ j
ugaad’i samakeshi f
tapproachthathelpsyou
temporari
lymakedo, butbywhi chyoucan’ tgof ar.Thereissomuchr eali
nnovati
on
outtherethatnooneknowsaboutandt hathasn’thadachancet oscal
e,hesays.
Getti
nginnov ationstogobey ondt he“ ahamoment ”tosomet hi
ngthatisvi
ableand
repli
cabl
eiswhatPr ofGupt aiswor ki
ngont hrough manymov ementsandHisfocus
hasal waysbeenar oundpr ov i
dingpeopl eatt hegr assrootswithrecogni
ti
onand
rewardfortheirknowl edgeandi nnovations,andt heHoneyBeeNet work(HBN),was
setupparticularlyf
ort his.
Peopl
ewhoar eoft
enknowledgerichbuteconomicall
ypoor.Thesepeopl
eknow al
otof
usef
ulthi
ngs,
buti
tdoesn’
ttr
ansl
atetoanysortofbenefi
ttot
hem.
Thisisnodoubtusefuli
nfor
mat i
on,andi
fthesepeopl
e’
sknowledge,
val
ues,
etc.
,ar
e
takenawaywithoutanyreci
proci
ty,
wearemer el
yexpl
oit
ingt
hem.
Theyar eal
readyexpl
oit
ed inresources,l
and mar
ket
,et
c.,and now we’
real
so
expl
oit
ingt
hem int
heknowledgemar ket
.
wehav esitesl
ike 
techpedi
a wherewepl acetheprobl
emsofpeopl e(orenterpri
ses)we’ve
metinfrontof 
youngtechnologystudentsfr
om acr
ossthecountry.Someti
mest hestudents
areabletocomeupwi t
hasol ut
ionbutev enincaseswheret heycan’
t,workingont hese
probl
emspr ovi
desadi r
ecti
ont ot
heirresear
chandhelpsthem becomebet t
ertechnologi
sts
andbetterhumanbeings.

24.St
rat
egi
cLeader
shi
p
Theabi
l
ityt
oantici
pateevent
s,envi
sionpossi
bil
i
ties,
mai
ntai
nfl
exi
bil
i
ty,
and
empowerother
stocreatestr
ategi
cchange.
Managementt
eams
 Topmanagementt
eams

 Consi
stsofkeymanager
swhoplayacr
it
ical
rol
einsel
ect
ingand
i
mplementi
ngthefi
rm’sst
rat
egi
es.

 General
l
y ,
theyar
eof
fi
cer
soft
hecor
por
ati
onormember
soft
heboar
d
ofdi
rector
s.

 Di
ver
semanagementt
eams

 Thetopmanagementteam’schar
acteri
sti
cs,afi
rm’sstrat
egi
es,andi
ts
per
formanceareall
int
err
elat
edso,over
all
,havi
ngdi ver
seski
l
ls
i
ncreasesmosttopmanagementteams’effect
iveness.

5Maj
orcomponent
sofef
fect
ivel
eader
shi
p
1.Det
ermi
net
hef
ir
m’sst
rat
egi
cdi
rect
ion

a.Thest
rat
egi
cdirect
ionspeci
fi
est
hei
mageandchar
act
ert
hef
ir
m
want
stodevel
opov ert
ime.
 b.Toformt hestrat
egicdi
recti
on,str
ategicl
eaderseval
uatethe
condit
ions(suchasopportunit
iesandthreatsi
ntheexternal
envi
ronment )t
hattheyexpectthei
rfir
mt ofaceovert
henext3-5y
ear
s.

2.Ef
fect
ivel
ymanaget
hef
ir
m’sr
esour
cepor
tfol
i
o

a.Fi
rm’
sresour
ces

i
.Financial
capit
al,
humancapit
al,
social
capit
al,
and
or
ganizat
ional
capit
al(
incl
udi
ngorgani
zat
ionalcul
tur
e)

3.Sust
ainanef
fect
iveor
gani
zat
ional
cul
tur
e

a.Anappropri
ateorgani
zat
ionalcul
tur
eencour
agesthedevel
opmentof
anentr
epreneuri
alori
ent
ati
onamongempl oyeesandanabi
li
tyt
o
changethecult
ureasnecessary.

4.Emphasi
zeet
hical
pract
ices

I
net
hicalor
gani
zations,empl
oyeesar
eencour
agedt
oexer
ciseet
hical
judgmentand
t
oal
way sactet
hicall
y.
I
mpr
ovedet
hical
pract
icesf
ost
ersoci
alcapi
tal
.
5.Est
abl
i
shbal
ancedor
gani
zat
ional
cont
rol
s

Thebal
ancedscorecardi
satoolthatmeasur
est
heef
fect
ivenessoft
hef
ir
m’s
st
rat
egi
candfinancial
contr
ols.
Aneff
ect
ivebal
ancebetweenstr
ategi
candfi
nanci
alcont
rol
sal
lowsforfl
exi
bleuse
ofcor
ecompetenci
es,
butwithi
ntheparamet
ersofthefi
rm’
sfi
nanci
alposi
ti
on.