Professional Documents
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Business Strategy II
Business Strategy II
Strategy
Style
Structure
Shared
Values
Skills
Systems
Staff
II. Re-engineering (BPR)
Aim – Performance improvements by redesigning
operational processes in order to maximize value
while minimizing costs. BPR has wider uses than just
redesigning operating processes; it may even include
skill enhancement, team-working, review of the reward
systems to improve competitiveness and more co-
operative working, implementation of new matrices of
performance and even a cultural change.
The Key Tenets of BPR:
Ambition: Targets large scale improvements; seeks
redesign of current process configurations and not just
optimization
Process Focus: It is concerned with fundamental
bus. processes that underlie the operations of the
orgn; does not change or tamper with the org. focus
Questioning fundamental assumptions: it
identifies, questions and recasts fundamental
assumptions and beliefs concerning the design
of the orgn.
IT as an enabler: It uses the advantages used
by IT to achieve improvements which were not
available when done manually.
Measurement of results and not activities: BPR
focuses on new measures of performance. It
stresses on the outcomes and not the individual
activities that are part of the processes.
III. Reverse Engineering - is the process of
learning by deconstruction. The process
involves dismantling of a product, analyzing it
to understand how it was designed and
manufactured. The advantage to the reverse
engineer is that he can avoid costly and risky
investments in R&D for a new product. While
reverse engineering can be a threat to the
innovator, the innovator can have two forms of
protection (1) by having a first mover advantage
and exploiting the market and creating a brand
equity and (2) licensing or patenting the
technology or process or product.
IV. Quality As A Strategy-The TQM Approach
The approach is built around an intense focus on
customer satisfaction; on accurate measurement of
every critical variable in a business’s operation; on
continuous improvement of products, services and
processes, and on work relationship based on trust &
teamwork. Or it is viewed as virtually a new
organizational culture and way of thinking.
Essential elements of TQM:
1.Define quality and customer value from a total
company perspective rather than leaving it to
individual interpretation. Value is derived from quality,
price and speed (responsiveness)
2.Develop a customer orientation- customer value is
what customer says it is. Rather than relying on
secondary information, talk to customers directly to
collect hard data.
3.Focus on company’s business processes. Break
down every process and look at ways of improving
each one of them.
4.Develop customer and supplier partnerships. Include
them as partners rather than external entities.
5.Take a preventive approach. Rather than “fire
fighting”, aim for fire prevention.
6.Adopt an “error-free” attitude at every level and in
every process
7.Get facts first .Decisions shall be based on facts
rather than opinions.
8.Encourage every manager & employee to
participate. An inclusive culture to be created
9.Create an atmosphere of total involvement.
Quality is not a department’s job. It is
everybody’s responsibility.
10.Strive for continuous improvement
INTERNAL DEVELOPMENT
Caution
Restructuring shall not be attempted for short
term gains or because that is the trend. There
must be a genuine rationale for initiating one.
Divestitures
Reasons for divestment
To improve efficiency& performance by getting rid of
non-performing units
To better manage internal operations
To achieve focus: excessive diversification can result
in management difficulties (fitness problem)
There is a buyer for whom value addition happens
whereas it doesn’t add much value to the existing co
portfolio
Release resources (financial as well as managerial )
locked in non-attractive businesses and use them in
other or new opportunities
Large ,complex organizations are difficult to manage;
spin-offs can result in better managerial efficiencies
In response to changing environment:
consequent to globalization, it has become
necessary to operate on a global scale for
maximizing returns-spun-off units can have
greater focus and hope to get adequate
resources for growth initiatives.
To avail of tax-advantages, depending on tax
laws.
To facilitate better valuation by stock markets:
markets usually value highly focused
companies over conglomerates
Someone is ready to buy at a price which is
very attractive
Methods of divestment
Spin-offs: done with subsidiaries, allots shares
the company owns to its shareholders on a pro-
rata basis; no money changes hands and
subsidiary assets are not revalued.
Split-off: this is a kind of sell-off where willing
shareholders of the parent company receive a
subsidiary’s shares in exchange of shares held
in the parent company. This is usually found in
family owned businesses, where there are
complex cross-holdings to separate the
interests of different family factions
Split-ups: a case of sell-off involving all of a co’s
subsidiaries and the parent co no longer exists.
All the shares held by the parent company in all
the subsidiaries are distributed among its
shareholders in the ratio in which they hold its
shares.
Equity Carveouts: defined as the first public
offering by a parent co of a % of stock held in
its wholly owned subsidiary
While restructuring can help, a large number of
companies resort to restructuring to achieve short
term results. The problem as Prahalad & Hamel says
“the urgent drives out the important; the future goes
largely unexplored; and the capacity to act, rather than
the capacity to think and imagine, becomes the sole
measure of leadership”. According to them ,when a
competitiveness problem (stagnant growth, declining
margins, and falling market share) finally becomes
inescapable, most executives pick up the knife and
begin the brutal work of restructuring. The goal is to
carve away layers of corporate fat, jettison
underperforming businesses, and raise assets
productivity. Whatever be the names-refocusing,
delayering, decluttering or right-sizing-restructuring
always has the same result: fewer employees.
Numerator & Denominator Management
Any measure of firm profitability will have two
components: a numerator (net profit) and a
denominator (investments, assets-at gross level or net
level, or capital employed). The measure can be
improved either by increasing the numerator
(denominator remaining constant or more than
proportionate increase in the numerator than
denominator) or reducing the denominator (numerator
remaining constant or more than proportionate
decrease in the denominator). To grow the numerator
is a difficult task for any manager as it requires lot of
hard and smart work – in finding out where
opportunities lie, anticipate customer needs, building
new competencies etc. Hence the onus falls on
trimming the denominator. Managers under
pressure to show improved profitability every
quarter hence do the easiest thing meet the
expectations- by manipulating the denominator.
This is known as denominator management
whereas attempt to improve the numerator by
forward thinking is known as numerator
management.
Turn-around Management
Many a time in the life of a firm, it may face severe
tests even with respect to its survival. Changes in the
environment, changes in the customers’ perceptions,
poor management, extreme competition etc may lead
to very difficult times for a firm. Its profitability may
decrease and may even become negative, products
may be rejected by the customers due to poor quality,
not able to meet working capital requirements even
while being asset rich, poor liquidity leading to defaults
in mandatory payments etc etc leading to a crisis.
Such a situation will call for what is generally termed
as “Turn-around Management”. Managers may have
to take clearly identified steps after a thorough
analysis of the scenario. Sometimes turn-around may
be simple and quick but sometimes it takes many
years before the firm turns around. A number of steps
discussed under the restructuring may have to
employed.
Time ………………………
The Turnaround Process
Stage 1:Decline-starts from equilibrium and reaches a
nadir; two perspectives exist; decline due to macro or
external factors like decline of the industry or decline
due to reduction or shortage of resources within the
firm, independent of external environment. But both
can contribute to the reduction of resources and
financial performance , eventhough magnitudes of
influences may vary.
Stage 2:Response Initiation- management initiates
corrective actions; responses can be strategic and
operating. Strategic response looks at the business
itself (diversification, vertical integration, divestment
etc) while operational response focus on the way the
firm conducts its business (revenue generation, cost
cutting etc)
Stage 3:Transition- firm experiments with different
strategies, structures, cultures and
technologies. Turn around strategies get
implemented while improvements may only
happen in future. It takes many years to show
performance improvement.
Stage 4:Outcome-activities undertaken during the
3rd stage produces outcomes. Outcomes could
be either successes or failures. Measures of
outcome are same as the measures used to
identify the decline.
Managing Strategic Change
Most people consider change as threat. That is the
reason why people resist changes. When changes are
strategic, it may even affect the ways we do business
in order to achieve our goals. And such changes could
pose even more threats. But changes can bring in lots
of opportunities for the company and its people and
companies may be required to adopt changes that
are strategic during the course of running the
business. Leadership abilities will have to be stretched
to the people of the necessity for changes. Leaders
will have to effectively communicate the message of
change and inspire people with a vivid vision of the
outcome of changes. Leaders themselves will have to
be role-models of change or they will have to walk the
talk. They should keep in mind that it is very difficult to
bring about changes and sustain the change
momentum. Changes may be required to be
implemented now, the results of which will
be available or seen much later. Hence, it is better to
use the term “leading strategic change” rather than
“managing strategic change”. And leading change is
a very difficult process. Leaders will have to face lots
of risks. They have to come out of their comfort
zones. They should very clearly understand that an
“organizational approach” dealing with structure,
processes and systems will not result in lasting
changes. Such changes may bring in temporary
changes but lasting changes will happen only if
changes happen in people and that too at individual
levels. Or the approach has to shift from an
“organization in” approach to “individual out”
approach. This is what leaders like Andy Grove, Jack
Welch, Herb Kellegher, or Roberto Goizueta did in
their respective organizations and this is what
Narayana Murthy or Bill Gates trying to do in their
respective organizations.
“There is at least one point in the history of any
company when you have to change
dramatically to rise to the next level of
performance. Miss that moment and you start
to decline”
Andy Grove
“Change does not happen when circumstances
improve; change happens when you decide to
improve your circumstances”
PAUL McGEE in
S. U. M. O (Shut Up, Move On)
“It’s not that ‘an old dog can’t learn new tricks‘.
Rather it is that an old dog has a devil of a time
unlearning old tricks”
J. Stewart Black& Hal B. Gregersen
in Leading Strategic Change
This is true of any organizational change too.
Leadership & Role of CEO in implementation
The ultimate responsibility of the strategy
implementation rests with the top management and
the CEO of the organization. They are the ones who
are accountable. While everybody in the organization
can be said to working towards the goal, the
accountability rests with the CEO and top
management. Leader will have to use power in
enforcing the decisions on strategy. They will ensure
that they systematically motivate and encourage
people to drive towards the goal. They might use the
7S-framework in order to achieve this. The source of
power for any leader can be either of the three namely
coercive, incentive or normative
Coercive- through the use of force for the
accomplishment of tasks and goals
Incentive – through the offering of incentives for
successful completion of tasks
Normative – through articulation of values and a
vision
In organizations which show sustained winning
over long periods of time, it is observed that
leaders usually use the third method for the
exercise of power since they have created a
culture with solid foundation on values.
Ghoshal & Bartlett have argued that the role of top
management has undergone a dramatic change: from
Strategy, Structure and Systems(3S s) to Purpose,
Process and People. The strategy, structure and
systems doctrine emerged in US through pioneering
efforts by people like Alfred Sloan of GM. At the time it
was a revolutionary discovery which yielded excellent
outcomes. Business schools also taught this model,
consultants made it popular. According to Ghoshal &
Bartlett, the great power- and fatal flaw- of the 3S
doctrine lay in its core objective: to create a
management system that would minimize a
company’s reliance on the idiosyncracies of
individuals. It was assumed that strategy making was
a monopoly of the top people and once they make a
strategy and communicated down the line, it will get
implemented because a structure and systems were
in place. People were mere implementation tools. But
over a period of time thinking changed. As Andy
Grove recalls of the period “We were fooled by
strategic rhetoric. But those on the front lines could
see that we had to retreat from memory chips…..
People make strategy with their fingertips. Our most
important strategic decision was made not in response
to some clear-sighted corporate plan but by the
marketing and investment decisions of the front-line
managers who really knew what was going on.”
This has happened because knowledge is replacing
capital as the critical scarce resource, and
management is being challenged to create an org.
environment that can develop, leverage, and diffuse
this new competitive asset.
Or, in order to manage the transformational change,
leaders are recognizing the need for a different
management philosophy and approach. According to
Ghoshal & Bartlett, the leader’s greatest challenge is
to create a sense of meaning within the company,
which its members can identify, in which they share a
feeling of pride, and to which they are willing to
commit themselves. Or, the top management must
convert the contractual employee of an economic
entity into a committed member of a purposeful
organization.
According to Ghoshal & Bartlett, management in the
earlier context conformed to the framework given
below (4Cs):
CONSTRAINT
CONTROL CONTRACT
COMPLIANCE
Winning companies follow a different framework
for management practice which is more
individual-centred:
STRETCH
SUPPORT TRUST
DISCIPLINE
5 Stages of Organizational Experience in in change-
related problem-solving based on BM
Stage 1- Ignore –The person ignores the problem
Stage 2- Deny –the person actively denies the
existence of the problem rather than ignoring
Stage 3 – Blaming others – (competition, environment,
lack of resources, policies of the organization etc)- the
person admits that there is a problem but maintains
that it is not his problem. He applies the defense
mechanism and continues to avoid responsibility of
remedying the situation. This usually happens with
people whose past performance has been good but
the present performance is nothing much to write
about.
Stage 4- Assuming responsibility – the biggest step a
person has to take. He has to gather courage not only
to admit that there is a problem and that it is his
problem. This is the crucial stage in problem solving
as once the responsibility has been assumed,
the next (final step) is easy.
Stage 5 – Finding the solution – relatively easy
because the move from blaming others to
assuming responsibility constitutes an
emotional step, while the move from assuming
responsibility to finding the solution is an
intellectual one, and hence is easier.
The control process:
Four types of Str. Control
1.Premise control
2.Implementation control
3.Strategic surveillance
4.Special alert control
1.Premises means assumed conditions. The strategy is
designed around the predicted conditions. Premises
control means checking systematically & continually
whether the premises are still valid or not.
2.Implementation control is to assess whether overall
strategy should be changed in light of unfolding events
& results associated with incremental steps & action
that implement the overall strategy. Two types of imp.
Control-1.Monitoring strategic thrusts
2.Milestone reviews
3.Strategic surveillance is to monitor a broad range of
events inside & outside the company that are likely to
threaten the course of the firm’s strategy
4.Special alert control is needed to reconsider the firm’s
basic strategy based on a sudden unexpected event-
some sort of a crisis management
The control process may use some of the methods/tools
like
@Budgeting
@Scheduling
@Focusing on key success factors( learnt in BS I)
@Rewarding system in line with achievement of
objectives & goals
Competing for the Future
Alternative View of Competitive Strategy
Cooking Sweet & Sour: Every organization and its
top management has to deal with two “symbiotic”
forces - the need for ongoing improvement in
operational performance as provided by continuous
rationalization and the need for growth and expansion
as generated by continuous revitalization of the
organization. Companies must see these as
complementary rather than conflicting, leveraging
each to drive and energize the other. Rationalization is
a must for improving resource productivity and
ensures that assets and resources are used most
effectively. But at the same time, the new strategy
may need to challenge and change the existing rules
of the game and creating new competencies and
businesses rather than refinement and rationalization
of the old ones. Creating a new business may involve
risks which may result in failure while existing
businesses are less risky. While rationalization calls
for grit & tenacity, new ventures demand courage &
commitment. Ghoshal & Bartlett calls this
rationalization “sour” medicine few managers enjoy
administering or taking because when the competition
catches up they may be forced to another round of
rationalization while neglecting the “sweet” agenda of
revitalization through continuous search for growth
and expansion. Still other companies indulge in the
agenda of revitalization and concentrate only on the
need for growth and expansion. Many mangers
consider rationalization and revitalization as mutually
exclusive. According to Ghoshal & Bartlett, these two
aspects should not be seen as conflicting but
complementary and organizations must take efforts to
implement both rationalization and revitalization on a
continuous basis or mix both sweet and sour in the
recipe
The Sweet & Sour Cycle
RADICAL PERFORMANCE
IMPROVEMENT
Eliminate Create
Which of the factors that the A New Which factors should
industry takes for granted Value Curve be created that the
should be eliminated? Industry has never offered?
Raise
Which factors should
Be raised well above
the industry’s standard?
1.Eliminate: There are certain factors that companies
in one’s industry have long competed on. Those
factors are often taken for granted even though they
no longer have value or may even detract from value.
There can be even fundamental change in what
buyers value but companies hell-bent on
benchmarking on one another do not act or even
sense the change.
2.Reduce :One has to determine whether products or
services have been overdesigned in the race to
match and best the competition. While companies
overserve at a higher cost which the customer does
not value.
3.Raise :One uncovers or eliminates the compromises
one’s industry forces customers to make. Sets new
standards well above competitors.
4.Create :One discovers entirely new sources of value
for buyers and create new demand and shift the
strategic pricing of the industry.
According to BOS, there are three characteristics of a
good strategy, namely,
1.Focus-the firm doesn’t diffuse its efforts across all
key factors of competition
2.Divergence-don’t benchmark competitors but
instead look across alternatives
3.Compelling tagline-which makes the strategic profile
clear
Focus
The company’s strategic profile will clearly show
focus. SWA, for eg, emphasizes only three factors:
friendly service, speed and frequent point-to-point
departures. By focusing like this, SWA has been able
to price against car transportation, by not investing in
meals, lounges and seating choices. By contrast,
SWA’s traditional competitors invest in all the airline
industry’s competitive factors, making it very difficult
for them to match SWA’s prices.
Divergence
When a firm’s strategy is the result of reaction as it
tries to take on competition, it loses it’s uniqueness.
On the strategy canvas, conventional airlines share
the same strategic profile by having similarities in
meals, lounges etc making the value curve of them
more or less identical. SWA, by applying the four
principles of elimination, reduction, raise and creation,
differentiated their profile from the conventional ones
by going for point-to-point travel as against hub-and-
spoke system of others.
Compelling Tagline
A good strategy must have a clear-cut & compelling
tagline. It must not only deliver a clear message but
also advertise an offering truthfully-otherwise
customers will lose interest and trust. For eg: SWA
uses a tagline “The speed of a plane at the price of a
car-whenever you need it”
Reconstructing Market Boundaries
Six Paths Framework
1.Look across alternative industries
Broadly speaking, a company competes not only with
other firms in its industry but also with companies in
those other industries that produces alternative
products or services. Alternatives are broader than
substitutes. While substitutes are products or services
that have different forms, but offer the same
functionality or core utility, alternatives are products or
services that have different functions and forms but
the same purpose. Eg: Restaurants and cinemas.
Because of difference in form and function, they are
not substitutes but are alternatives to choose from. In
making every purchase decisions, buyers implicitly
weigh alternatives, often unconsciously.
2.Look Across Strategic Groups Within
Industries
Strategic groups refers to a group of companies within
an industry that pursue a similar strategy. In most
industries, the fundamental strategic differences
among industry players are captured by a small
number of strategic groups. For eg. Merc, BMW and
Jaguar focus on outcompeting one another in the
luxury segment within the auto industry as economy
car makers focus on excelling over one another in
their strategic group. A pursuit of BOS requires a firm
to break out of this narrow tunnel vision by
understanding which factors determine customers’
decisions to move from one group to another. Eg.
Lexus by Toyota or Sony’s Walkman
3.Look across the chain of buyers
There are different buyer groups. There are buyers
who are users too and there are buyers who are
different from users and there may also be a group
of influencers. Eg: A corp purchase man may be
more concerned about the costs than a corporate
user, who may be concerned with the ease of use.
Challenging an industry’s conventional wisdom
about which buyer group to target can lead to the
discovery of new blue ocean. For eg: purchase
decision on insulin-traditional focus was on doctors
and producers produced vials of insulin. The focus
shifted to the users (patients) which resulted in user-
friendly insulin pens (Novo Nordisk)
4.Look across complementary product and
service offerings
Products and services are not used in vacuum.
In most cases, other products and services affect their
values. But in most industries, competitors converge
within the bounds of their industry’s product and
service offerings. Eg: Movie theatre. The availability
and cost of complementary services like baby sitting
and car park can affect the perceived value. But few
theatres are ready to break the traditional definition of
the product offering
5.Look across functional or emotional appeal to
buyers
Some industries compete on price and function
focusing on utility while others compete largely on
feelings or their appeal is emotional. BOS strategy will
require companies to challenge the functional-
emotional orientation of their industry. For eg, Swatch
transformed the functionally driven budget watch
industry into an emotionally driven fashion statement,
whereas The Body Shop transformed the emotionally
driven industry of cosmetics into a functional one.
6.Look across time
This means looking at the value a market delivers
today to the value it might deliver tomorrow. It is not
an easy proposition and is not predicting the future; it’s
about developing insights based on trends of today.
Eg: Apple observed the rampant illegal music file
sharing that happened in the late 1990s. The
recording industry was the worst sufferer. Nobody
wanted to buy a CD at a price. But the trend was
clearly to digital music. So Apple offered a very
economically viable solution in agreement with 5 major
music companies, Sony, BMG, EMI, Universal Music
Group and Warner Bros. Records in the form of
iTunes which offered legal, easy-to-use, and flexible
song downloads.
Business Model Innovation
A business model depicts how a firm delivers value to
the customers. Every business exists because of their
ability to meet certain needs of the customer. In the
process of meeting the needs of the customer, the firm
indulges itself in the transformation of certain inputs
into certain outputs that satisfy the needs of the
customer. Depending on the activities the firm
undertakes, the business model can vary. For
example, the firm may do everything internally or
outsource part of the processes; they may add
products or services which results in enhancement of
value to the customer. For example, a textile company
can think of making everything from yarn to finished
textiles after weaving. Or it may outsource the yarn,
bleaching and dyeing, reach the customer through
wholesale/retail chain(without necessarily owning
them; decide to offer more value to the customers by
entering into apparel making, design services, special
event-related need satisfaction (of not only textile and
related items) etc etc.
The foundation stone of the business model is the
business definition; the business definition gives the
scope for a firm to meet variety of needs of the
customers.
Business models have to be dynamic and not static .
As the environment changes, changes have to be
incorporated in the business model too. (Ref reading
material: Static Business Models); they also have to
be innovated to meet the ever-increasing needs of the
customers (not always articulated). (Eg:P&G)
Strategy Mapping
A strategy map is a visual presentation of the cause-
and-effect relationships among the components of an
organization’s strategy.
It is evolved from the BSC; it illustrates the time-based
dynamics of a strategy by adding a second layer of
detail, thus giving improved clarity and focus.
Regardless of the type of strategic approach, the
strategy map provides a uniform and consistent way to
describe the strategy enabling us to establish and
manage objectives and measures.
Competitive Innovation (Ref: Reading material)
Scenario Planning
Value Capture Vs. Value Creation
Strategy Map is based on 5 principles:
1.Strategy balances contradictory forces. The dominant
objective of the firm being the sustained growth in
shareholder value which implies and necessitates a
commitment to the long-term. All the same, the firm
must show improved results in the short-term. Better
short term results can always be achieved by
sacrificing the long-term investments. Also investing in
intangible assets for long-term growth (like brand
building etc) usually conflicts with cutting costs for
short-term financial performance. Thus, the starting
point in describing any strategy is to balance and
articulate the ST financial objective of cost reduction
and productivity improvements with the LT objectives
of revenue growth.
2.Strategy is based on a differentiated customer value
proposition. Strategy requires a clear articulation of
targeted customer segments and the value proposition to
satisfy them. Clarity of this is the single most important
dimension of strategy. Common value propositions found
in practice are :(1).Low total cost(2) Product leadership (3)
Complete customer solutions and (4) system lock-in. Each
of these value propositions clearly defines the attributes
that must be delivered if the customer is to be satisfied.
3.Value is created through internal business processes. What
the firm wants to achieve through strategy as creation and
sustenance of values are driven by the internal business
processes like (a) Operations Mgt. (producing and
delivering products/services to customers) (b) Customer
Mgt. (establishing& leveraging relationships with
customers) (c) Innovation (developing new products /
services / processes /relationships) (d) Regulatory & Social
(conforming to regulations & societal expectations)
4.Strategy consists of simultaneous, complementary
themes. The outcomes derived from the processes
mentioned under 3 above may be in confrontation with
each other and hence attempts shall be made for
arriving at balance.
5.Strategic alignment determines the value of intangible
assets like human capital, information capital and
organization capital. None of these intangible assets
has value considered in isolation. But all of these
derive value from their ability to help the organization
implement its strategy.
“Jack Welch believed that US manager’s
preoccupation with management tools, such as
strategic planning, led to a loss of global
competitiveness. It is not that planning is bad or that
giving timely feedback to employees is destructive. It
clearly I not. Neither of these techniques, however, is
the answer to all organizational problems. The
problem that arises is that people become enamored
of techniques they master and skills they acquire so
that they look for situations in which they can be
applied. What results is the “little boy with hammer
phenomenon”- if you give a little boy a hammer he will
soon find that everything broken could be fixed by
hammering it”
Noel Tichy & Mary Anne Devanna in
Transformational Leader