Report on Case Study

The Fundamentals of Strategy Formulation

Submitted to Submitted by
Prof. V.S. Pai Amulya Sharma -12
Anshulika Singh- 19
Sangram Kacharia - 58
 Case Facts
 This case is about an automotive ancillary named Auto Components that produces
Zebra brand of shock absorbers.

 Auto component is formed by Dhanvantri Abhayankar in 1984 and currently (1986)

headed by his son Vinod Abhayankar who is the CEO of the company.

 Lalit Desai is the chairman of the Auto components.

 Auto components is a preferred supplier of Original Equipment manufacturers (OEM)

in Indian automobile sector.

 Both CEO (Vinod Abhayankar) and Chairman (Lalit Desai) are present for the
meeting of Young Presidents Organisation (YPO) agenda of which is “ The need for
Strategic Planning”

 In the meeting Vinod Abhayankar is discussing about the need of strategic planning
as he is confused on the following two question:

 Do we need a strategy planning?

 How should the company formulate strategy?

 Currently Auto components is working well which is quite evident from their
financial figures and their increased productivity which has grown from 1 million
shock absorbers per annum to 3.20 million units per annum (while the total output in
the country is 21 million units per annum).

 Since 1991 they also have had collaboration with Sephantu which is a Japanese
component manufacturer.
 They get their financial and technical assistance from their OEM (Original
Equipment Manufacturers) partners.

 They found that the external environment is progressively discontinuous with the past
and therefore they are thinking about formulating strategy.

 They decided to take help from an outsider and shortlisted two consultancy firms:

 Strategic Consultants.
 Transformation Consulting.

 The company asked both the consultancies to submit proposals for formulating a
strategy.
 Both consultancies have different approaches of strategy formulation. Details of
companies are given below:

 Strategic Consultants-:

1) It is a transnational company headquartered in New York with 32 offices

and over 500 consultants on its payroll.
2) It enjoys formidable reputation in strategy formulation.
3) They have done a substantial work on automotive industry and has a
senior partner based in Frankfurt, who focuses exclusively on automotive
industry.
4) Their approach is top driven and they don’t believe in involving the
employees at different levels in formulating a strategy.
5) Their approach is solely depends on the CEO’s vision.
6) They focus on present and their approach is an underlying belief that
strategy must be based on present data not on future trends.
7) They will appoint one principle and two associates on part time basis but
their partner will be flown from Frankfurt for all major discussions.
8) They have denied involving themselves in implementation of strategy
made by them.
9) They have quoted a price of Rs.17 lakh for a three month project.
  Transformation Consulting-:

1) It is a local firm.
2) Their approach is top driven and bottom up. It seeks active involvement of
employees (senior managers) in strategy formulation.
3) Their purpose was not only to enable the Auto component to compete
today but also to ensure that it remain competitive in fluid market.
4) They build a vision for the future as a part of their strategy.
5) Their methodology is comprises of four phases:

 Envisioning
 External Analysis
 Internal Analysis
 Action.

6) In their process of strategy formulation through above methodology they

will work towards finding Auto Components’ strength, weaknesses,
opportunities and threats along with finding core competencies of the
company.
7) Their approach is radical departure from the conventional route to strategy
formulation.
8) Their methodology is untested.
9) They have quoted a price of Rs.12 lakh for a three month project.

 Going through the proposals for strategy formulation of both the companies Vinod
Abhayankar is confused and not able to decide that which one to choose for
formulating strategy.
 QUESTIONS

Q:1 Which are the potential sources from which auto components can expect
competition in future? Based on this how should it position itself?

Ans: The potential sources from which Auto Components can expect competition in future
will be:

a) Foreign companies- One of the greatest threats that the component making ancillary
units face is the competition from the foreign suppliers. A number of large
multinationals are eyeing production opportunities in India and this will mean an
increase in resources being poured into the sector. Also going off the list of small
scale industries will uncap the limits set on investment in the components
manufacturing industry Since Auto Components are a tier 2 unit which supplies to the
OEMs it might face threat from the foreign companies when it comes to price. Since
these industries can go for mass production the price of the products which they
would sell to the OEMs would be much lower than the price quoted by Auto
Component. Therefore for them scale will be a big factor and as a result of which the
price factor will also come into play. The manufacturing infrastructure of these
companies would also be of high standard thereby giving stiff competition to Auto
Components. These new players would also bring cutting technology that would also
 lower the price of the components that would be supplied by them. The CEO of Auto
Components mentions that this industry is capital intensive. When foreign players
enter into the market they would be able to pour in much capital into the industries
they would be setting up. They would be able to manufacture high end components at
a lesser price and of greater quality. They would also have a very effective supply
chain infrastructure that would pose formidable competition for the Auto Components
which shall not be able to match it.

b) OEMS - The OEMS can themselves form to be a formidable threat to Auto

Components. If they might realise that they can manufacture the required components
at a price lower than what they are paying to Auto Components now. In case of such a
scenario they can go for backward integration i.e. they would set up their own
manufacturing unit and manufacture the components which till now was being
supplied by Auto Components.

c) Tier 3 units- Tier 3 units can also form a serious threat to Auto Components. Till
then they had been supplying different components to the Tier 2 organisations. In
order to expand their area of operations and in order to directly deal with the OEMs
they might prefer to manufacture the components the raw material for which they
supply to Auto Components.

d) Threats can also come from industries which are related to the automobile industry
which are not manufacturing shock absorbers now. One example can that be of
Sephantu which had diversified into automobile related industries. These kind
companies can pose a threat to Auto Components if they aim at expanding and
diversifying from their original area of production.

Auto Components can position itself as an organisation with a global outlook. The
effort should cost leadership coupled with offering high end technology. It should
emphasise on innovation. It should follow a pro active policy when it comes to
adapting itself to the changing requirements of the external environment. The
majority of small suppliers in this industry will be shedding their low tech garb and
increasing their capacities to benefit from economies of scale. It also means adapting
its production lines to the needs and demands of a changing customer base. The
company also has to consider how to inculcate a culture of innovation, product
research and development and enterprise in the organization. The changes the it
would have to face would be in terms of technology, customer preferences,
government regulations, the entrance of global players in the local market. As it has
already done it should enter into partnerships with organisations with a global
 outlook. This would enable it be updated with the latest changes in the automobile
industry. It would also enable it to assess the requirements of the industry. It would be
able to leverage the technological knowhow of the organisation that it had entered
into partnership with. It would enable it to expand its area of operations into the
global arena and have access to the international market in addition to the Indian
market. With the competition going global, it would have to align component design
and manufacturing facilities with global standards and comply with more stringent
product specifications. It could establish production lines that can be easily scaled up
and is flexible enough to accommodate model upgrades. The future belongs to
partnerships. In an industry that is scale driven and technologically dependant, joint
ventures, acquisitions, mergers and strategic alliances are going to be the way ahead.
Like all Indian companies Auto Components will find itself looking closely at an
array of deals. It has to take into consideration the pros and cons and decide the path
that suits it the best.

Q:2 Which of the two consultants should company choose? Justify your group’s choice.

Ans: Auto components, a leading Tier-II company which supplies shock absorbers to many
of the Original Equipment Manufacturer companies is looking forward to hire a strategic
consultant for the company. They have two options - Strategic Consultants or Transformation
Consulting.
According to the group, Auto Components should hire the Transformation Consulting group
because of the following reasons-

1. Organizational Approach

The organizational approach of Strategic Consultants is top driven. They do not

believe in involving employees at different levels in formulating a strategy. This
company is too much focused on the present.

But for Transformation Consulting, the approach is both top down and bottom up. It
believes in building a vision for future as a part of its strategy.

The main features of a strategy are that it is future oriented and it should also take
into consideration the long term prosperity of a company. Transformation Consulting
follows this novel organizational approach which is a radical departure from the
conventional strategy formation.

2. Environmental Analysis :

Environmental analysis gives ample time for the strategists to anticipate opportunities
and plan operational responses. It helps them to develop an early warning system
which can neutralize/ turn threats to a firm’s advantage.

Transformational Consultings’ methodology comprises of four phases and in each

phase they would be dealing with each of the aspects of environment in the following
manner

a) Phase II- The External Analysis which consists of main features of Mega
Environment and some features of Micro environment as well. The analysis examines
the impact of technology, government policies, changes in demographics and cultural
trends and other social and economic aspects of the environment. It also puts a light
on opportunities and threats that would be facing in the future.

b) Phase III- The Internal Analysis which covers the remaining portion of the Micro
environmental analysis and includes all the financial and non financial parameters
ranging from profitability and sales to supplier relationships and customer
satisfaction.

In all it tells the company about its strength and weaknesses.

So we can say that this procedure would leave a little scope for the events which cannot be
predicted and can be dealt with in the future.

3. Implementation

As far as the implementation is concerned, Strategic Consultants made clear they

won’t be involved in the implementation process but Transformation Consulting will
provide the fully functional support for implementing the strategy. Any consulting
firm not taking part in the implementation procedure is not a favourable approach for
the company implementing that approach. Any consulting firm taking part in
implementation can plan, guide and stabilize it according to the requirements of the
company or according to the desired goals that needs to be achieved.

Successful implementation of the client strategy is the main aim of any good
consulting firm. Transformation Consulting is in complete sync with what we can call
the proper way of consulting in the market hence it should be given the preference.

Thus we can say that all these processes if take place would leave very few events non-
anticipated and therefore they can be dealt with under the time pressure. So according to the
group Transformation Consulting should be given the preference for strategic planning.