BUSINESS STRATEGY II

Strategy Implementation Framework

Strategy Implementation
It is the process by which the top managers assure that
strategic choice is communicated to the enterprise &
executed by the people of the enterprise.
Two Steps, related but distinct, in the implementation process
1.Organizational implementation of the choice
2.Policy implementation of the choice
The first involves examination of the firm’s org. structure &
climate- to ensure that it is set up to make the strategy work.
Structural adjustment is essential for economic efficiency.
While there are no hard & fast rules regarding the structure,
the right organ. will make it more effective. Structure will
depend on factors like Size, Volatility, Complexity, Personal
characteristics & Dependence on the envt.
The org. structure can be
a. Simple
b. Functional
c. Divisional
4. SBU
5. Matrix
(Ref organizational analysis on slide 8)
The policy implementation of strategy:
Different Approaches:
1.McKinsey 7S Framework
offers a useful tool for focusing on certain policy areas
which are vital in implementation & control. The basis
of this model is to match the “hardware” to the
“software” to achieve the goals.
1.Strategy-the means to accomplish org. purpose
2.Structure-the basic framework to designate
responsibilities and functions
3.Systems- deals with the tools of planning, decision
making, communicating& controlling
4.Staff-the HR who carries out the process
5.Skills-organizational & individual capabilities in getting
things done.
6.Style-the management style- the motivation,
the reward system, the overall HR policies &
management policies
7.Shared values-the superordinate goals of the
organization-the objectives, the goals, the
values-shared by everybody.
The first three are ”hardware” related &
remaining four are said to be the “software” ;all
are interlinked
7S Framework-All 7Ss interlinked

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

Mergers & Acquisitions

And
Joint Ventures & Strategic Alliances
Framework for successful merger-making M&A work
#Look for synergies-a combination of assets must create more
value when they are together than separate; synergies come
from cost savings or revenue enhancements with cost
synergies essential to the strategic logic of a deal. While,
virtually all acquisitions are predicated on realizing cost or
revenue synergies, making that happen is quite another
matter.
#All synergies are not created equally-synergies are almost
always much more difficult to realize than they appear. The
more significant the synergy potential, the more momentous
the challenge.
#The time factor-one has to remember that immediate savings
have more value than savings materializing three years
after.
#Synergies don’t come free-making synergies happen is
not without cost-downsizing expenses, time spent on co-
ordination and interaction to realize synergies, additional
training & relocation costs, and even higher OH during
integration; these are directly related to achieving
synergies even though included in the costs associated
with cost of mergers.
#Negative synergies-In a number of takeovers, the core
competences of the two entities may be different and
sometimes may lead to negative synergies. For example,
consider the merger between Sony & Columbia Pictures.
Sony had strengths in H/W but not in S/W, which was the
necessary competence for Columbia .
Is the acquisition wise? Ask following questions:
 Is your acquisition justified? Absolute clarity on the
purpose and its importance within the orgn.
Can serve as a beacon to lead the way during
problems, complexity and confusion that are inevitable
during integration.
 Is your core competence in M&A? Just like successful
companies develop critical core competencies that
drive their competitive strategy, successful M&A
companies must develop competencies that make
them superior acquirers. The experience people gain
from one deal should be captured , disseminated to
others & built upon with subsequent deals
 Is your M&A strategy tailored to your
organization? The appropriate strategy for any
company is one that is tailored to its own
capabilities, people, and overall competitive
strategy; what is needed in another company is
not necessarily the same as in yours
Key Implementation Issues
 Lack of appreciation by managers of the complexities in the post-
merger scenario
 Leadership related issues
 Cultural differences
 Differences in HR processes
 Differences in compensation levels
 The nature of organizational structures
 Geographical issues
 Technology issues
 Competency related issues
 Head count issues
All these may be very serious if the companies are located in two
different countries
Steps for effective pre-acquisition planning
Due-diligence
Assessment of strategic & financial implications
Negotiation & announcement
Assessment of culture
Assessments of impediments to future integration
Assessment of competencies of key managers of
the target firm
Develop communication strategies
Select integration manager
Closure of deal
A JV is a co-operative business agreement between two
or more firms that want to attain similar objectives. It
allows participating firms to share specific technological
skills and knowledge. Eg: The JV between M&M &
Renault to make cars
A strategic alliance is a relationship that allows firms to
create more value than they could individually. The
firms come together to attain agreed upon goals, while
still maintaining their independence. Eg: IBM, Siemens
& Toshiba are working together to create new generation
memory chips.
JVs require direct investment, training , management
assistance and technology transfer. JVs can be equity
(where both partners have equal stakes) or non-equity
(where one partner has a greater stake).
Some countries insist on a JV arrangement for a
foreign company to start operations.
The Rationale for JVs.
JVs enable the partners to achieve synergies. For
example, one firm may have excellent tech.
capabilities while deprived of financial muscle while
another may have the financial capabilities but lack
the tech. skills. Individually they may not be able to
any worthwhile goal, a JV can pave way for the
achievement of goals.
Another reason could be the sharing of risk. Easy
approval possibility from antitrust regulators could be
another reason. Availing of tax benefits could be
another as JVs may be able to use the intellectual
property of one of the partners through licensing of
patents which attracts lesser taxes compared to the
tax implications in the case of royalties earned thro’ a
tech licensing agreement. There may be other
reasons also like –sharing of tech, know how and
management skills, having access to the input supply
or distribution channels, gaining economies of scale,
extending business by sharing investments etc.
Reasons for failure
JVs, like any contracts, are prone to difficulties.
Studies conducted by McKinsey & Co and Coopers &
Lybrand point to disbanding or falling short of
expectations. Reasons cold be: Inflexible terms of the
contract, lack of commitment by partners, failure or
inability to develop the desired tech, lack of adequate
pre-planning, failure to reach agreements on issues
where partners differ, changes in the strategies
of the partners etc.
International JVs.
Main Reasons
-to learn the partner’s skills
-upgrading and improving skills
-to avail of certain advantages of operating a
JV (eg. Mahindra & Renault, Bajaj & Nissan
etc)
 Strategic Alliances (SAs)
A SA is a cooperative agreement between actual or
potential competitors. Eg: SA between Siemens &
Philips to develop new semiconductor tech; or the SA
between Eastman Kodak and Canon of Japan whereby
Canon mfers a line of copiers for sale under Kodak’s
name.
Generic Motives for a SA
 design new products
 minimize costs
 enter new markets
 pre-empt competitors
 generate higher revenues
 transfer of technology
Advantages & disadvantages of SA
Advantages
-helps in entering into specific areas of technology,
markets
-helps in sharing high costs and risks in the
development of new processes or products
-helps in combining skills that neither partner can
develop on its own
Disadvantage
-give competitors a low cost route to new technology
and markets
Corporate Restructuring
Why?
-primarily (1)to improve efficiency and
effectiveness of the firm from a shareholder value
point of view(2) to meet the changes & challenges
in the competitive environment
-secondary reasons
1.to facilitate division of assets among partners,
promoters /family members
2.to meet the requirements of regulators to come
out of anti-trust /monopoly issues
What it means and its scope
Encompasses a broad range of activities like
acquisition and divestiture of businesses and assets,
acquiring controlling stake in other companies,
alteration in capital structure thro’ a variety of financial
engineering initiatives, and also effecting internal
streamlining and business process re-engineering to
improve efficiency and effectiveness of the firm
In short, restructuring can lead to changes in one or
more of the following three (Forms of Restructuring):
1.Assets and portfolio
2.Capital structure and
3.Organization & management
1.Portfolio & asset restructuring
a. Mergers & acquisitions
 Merger of two or more legal entities or companies
 Purchase of assets /business of another firm as a going
concern
 Substantial acquisition of shares leading to change of control
in the same
b. Divestitures
 Divestment of assets/business as a going concern
 Divestment of a controlling stake leading to change of control
 Spin-off of a division or a subsidiary into a separate legal
entity
 Split-off
 Split-up
 Equity carveout
2.Financial engineering (leading to cap. Str.
Changes
Alteration in D-E mix / D-E swaps
Issue of difft. Classes of shares (Pref, Non-
voting etc)
Issue of difft. Types of debts to meet Fixed &
Working capital needs
Infusion of foreign debts and equity
Buyback of shares
3.Internal Streamlining and BPR (leading to changes
in organization & management structure of the
firm)
Down-sizing or Right-sizing
Cost reduction programmes
Closure of uneconomic units
Disposal of idle assets
BPR
Changes in structure, systems and processes,
skills and culture to facilitate implementation of
various change programmes
One of the major restructuring aim is to improve shareholder
value. Hence, financial parameters assume lot of
importance in any restructuring exercise. The objectives
under this aim may be
(a) Operating Margin & Volume Growth
• Portfolio & asset restructuring
1.M&A leads to greater economies of scale, growth in
volume & market share, more bargaining power with
customers and suppliers, better efficiency in operations all
leading to creation of greater surplus
2.divestment of non-profitable business leading to
improvement in margin and releasing of scarce resources
• Internal streamlining and re-engineering leading to
improvement in cost competitiveness, quality, delivery &
services
(b) Asset/Resource productivity
Both the points above leads to improved usage of
invested capital
(c) Cost of Capital & Risk
Financial re-engineering helps by changing D/E
mix, debt composition and risk exposures

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.

Stage1 Stage 2 Stage 3 Stage 4

Decline Response Transition Outcome
P Initiation
e
r
f Success
o
r
m
a Failure
n
c Nadir
e Indeterminate

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

IMPROVING RESOURCE CREATING & EXPLOITING

PRODUCTIVITY NEW OPPORTUNITIES
(SOUR) (SWEET)

• Portfolio choice • Growth Opportunities

(eliminating low-return activities)
• Improving labour productivity
(revenues & profits per employee)
• Improving operating efficiency
(speed, reducing waste)
• Improving capital productivity
(ROCE)
(new products & markets expanding
share)
• Building competencies
(new capabilities and resources)
• Organizational capabilities
(revitalizing organization and people)
Strategy As Stretch & Leverage
Just having a strategy isn’t enough. One has to
achieve more with less. One has to leverage the
resources better. According to Prahalad & Hamel, it
hasn’t much to do with resource constraints but is the
result of aspirations. It is this aspiration, the stretch-
which outpaces resources-that fuels the engine of
advantage creation. Exploiting every possible
opportunity for resource leverage takes creativity and
persistence. A firm with outsized ambition but
underdeveloped capacity for resource leverage will be
just a dreamer. Alternatively, a firm with capacity for
resource leverage, but possesses no galvanizing
ambition will be a sleeper. A firm with neither
aspiration nor capacity for resource leverage will be a
loser and those with both will be winners.
 Hamel & Prahalad cite Japanese companies as good
examples.
Mfg Labour Productivity (Per Hour):
1988 89 90 91
US 118 119 120 122
Germany 115 118 122 124
Japan 125 135 143 150
Overhead Costs(1991)
US 26%
Germany 21%
Japan 17%
A Comparison of R&D Spending In Absolute
Terms ($Millions,1993)

Siemens 5322 Philips 2079

Hitachi 3907 Sony 1809

GM 5917 Xerox 922

Honda 1447 Canon 794

AT&T 2911 IBM 5083

NTT 2157 NEC 2274
Comparison Of R&D Spending In Relative
Terms (R&D As % Of Sales, Fiscal 1993)
Siemens 10 Hitachi 6.7
ABB 8.1 Mitsubishi 4.6
Thomson 8.3 Sharp 6.5
Philips 6.8 Sony 6.1
IBM 7.9 Matsushita 5.6
NTT 11.1 NEC 8.0
Bayer 7.5 Toray 3.4
Kodak 7.9 Fuji 6.6
Xerox 5.4 Canon 5.2
Japanese Companies Topping US Patent
Awards, 7th Consecutive Year(1992)
1.Canon
2.Toshiba
3.Mitsubishi
4.Hitachi
The statistics provided above shows how
Japanese companies were able to better
leverage the resources at their disposal by
applying stretch principles. Notwithstanding the
fact that US companies were spending more
resources, in absolute and relative terms, it
was not reflected in terms of better outputs.
“Stretch essentially means using dreams to set
(business) targets –with no real idea as to how to get
there. If you know how to get there, it is not a stretch
target. It requires one to break out of both
conventional thinking & conventional performance
expectations. Stretch allows organizations to set the
bar higher than they ever dreamed possible”
(Welch, 2001)
“Stretch means really challenging yourself and
believing there is infinite capacity to improve upon
everything you do”
Robert L. Nardelli,
CEO, Chrysler, former CEO, Home
Depot & Former CEO,
GE Power Systems
Strategic Intent
Incumbent players usually tend to dismiss or ignore
competitors with meager resources. Hamel &
Prahalad concludes that starting resource
positions are a very poor predictor of future industry
leadership. The basic problem in strategic
management is that too often competitors are
judged in terms of resources rather than
resourcefulness. According to H&P, getting to the
future is more a function of resourcefulness than
resources, don’t sprout from an elegantly structured
architecture, but from a deeply felt sense of
purpose, a broadly shared dream a truly seductive
vision of future opportunities.
Such a dream energizes the company and is more
sophisticated, and more positive than a simple mission
or vision. H&P calls this dream the strategic intent
.While strategic architecture may point the way to the
future, it’s the ambitious and compelling strategic intent
that provides emotional and intellectual energy for the
journey. If strategic architecture is the brain, strategic
intent is the heart. According to H&P, strategic intent
implies a significant stretch for the organization. Current
capabilities and resources are not sufficient for the task.
While the traditional view of strategy focuses on the “fit”
between existing resources and emerging opportunities,
the strategic intent , by design, creates a substantial
“gap” between resources and aspirations.
Direction, Discovery & Destiny: The
attributes of Strategic Intent
A strategic intent implies a particular point of view
about the long-term market or competitive position
that a firm hopes to build over the future or it
conveys a sense of direction
A strategic intent is differentiated or implies a
competitively unique position about the future. It
offers the employees the promise of exploration of
new competitive territory or it conveys a sense of
discovery.
A strategic intent also has an emotional edge to
it; employees perceive it as a goal inherently
worthwhile or it implies a sense of destiny.
Contemporary Concepts
Balanced Scorecard (BSC)
The BSC provides managers with an instrument that
can help them to navigate to future competitive
success. Today , all organizations compete in complex
environments; they vitally need an understanding of
their goals and the methods for attaining them. BSC
helps an organization to translate its mission and
strategy into a comprehensive set of performance
measures that provides a framework for strategic
measurement and management system from four
balanced perspectives: Financial, Customers, Internal
Business Processes, and Learning & growth. BSC
thus enables companies not only to track financial
results but monitoring the progress of building non-
financial capabilities and intangible assets required for
future growth. The essential difference or advantage is
that while traditional
financial measures tell the story of past events or
history, BSC includes in addition to financial
measures, measures that will monitor the progress of
developing or acquisition of non-financial capabilities
or intangible assets which will be adding or delivering
value to the organization in the future. It helps to
capture the critical value-creation activities by the
organizational participants, thereby revealing the value
drivers for superior long-term financial and competitive
performance.
The BSC Framework
To succeed Financial
financially, how
should we 1 2 3 4
appear to
our share-
holders?

Customer To satisfy our Internal Bus.

To achieve shareholders Process
our vision, how 12 3 4 VISION and customers 1 2 3 4
should we & What busin-
appear to STRATEGY ess process
our must we
customers? excel at?

To achieve our Learning & Growth

Legend vision, how will
1.Objectives we sustain 1 2 3 4
our ability to
2.Measures change and
3.Targets improve?
4.Initiatives
The BSC emphasizes that financial and non-financial
measures must be part of the information system for
employees at all levels of organization. It should
translate a business unit’s mission and strategy into
tangible objectives and measures. The measures
represent a balance between external measures for
shareholders and customers, and internal measures of
critical business processes, innovation, and learning
and growth. The measures are balanced between the
outcome measures-the results from past efforts- and
the measures that drive future performance.
Innovative companies use the scorecard as a
strategic management tool, to manage strategy
over their long run. They use the scorecard to
accomplish critical management processes of
1.Clarify and translate vision & strategy
2.Communicate & link strategic objectives and
measures
3.Plan, set targets, and align strategic initiatives
4.Enhance strategic feedback & learning
Using BSC as
Clarifying and
Framework for Translating Vision
and Strategy
Strategy •Clarifying the vision
•Gaining consensus

Communicating & Strategic Feedback &

Linking learning
•Communicating & •Articulating the shared
Educating Balanced Vision
•Setting goals Supplying strategic
Scorecard
•Linking rewards to feedback
Performance measures •Facilitating strategy
review & learning

Planning & Target

Setting
•Setting targets
•Aligning strategic
Initiatives
•Allocating resources
•Establishing milestones
Blue Ocean Strategy (BOS) (W. Chan Kim and
Renee Mauborgne)
Companies have long engaged in head-to-head
competition in search of sustained, profitable growth.
They have always fought for competitive advantage,
battled over market share, and struggled for
differentiation. All strategic thrusts were aimed at the
above. Professors Chan Kim and Renee Muagborgne
say that in today’s overcrowded industries the strategy
of competing head-on results in nothing but a bloody
“red ocean” of rivals fighting over a shrinking profit
pool and is increasingly unlikely to create profitable
growth in future. They argue that tomorrow’s
winners will succeed not by battling
competitors, but by creating “blue oceans”
of uncontested market space ripe for
growth.
Such strategic moves-termed “value innovation”-
create powerful leaps in value for both the firm and
its buyers, rendering rivals obsolete and unleashing
new demand. It is a systematic approach to
make the competition irrelevant. In the
earlier context, the overriding focus of strategic
thinking has been on competition-based red ocean
strategies which had its roots in military strategy.
Described in military way, strategy is about confronting
an opponent and fighting over a given piece of land
that is both limited and constant. But the authors
argue that unlike war, industrial history points to a
market universe that has never been constant or blue
oceans have continuously been created over time.
A focus on red ocean is akin to accepting the constraining
factors of war-limited terrain and the need to beat the enemy
to succeed- and to deny the distinctive strength of business-
the capacity to create new market space that is
uncontested.
Value Innovation: The cornerstone of BOS
The strategic approach consistently separated winners from
losers in the creation of BOS. While companies caught in
the red ocean followed a conventional approach of beating
the competition by building a defensible position within the
existing industry order, creators of blue oceans, didn’t
benchmark on competition but followed a different strategic
logic , value innovation .The term coined because BOS
focus on making competition irrelevant by crating a leap in
value for buyers and the
company, opening up new and uncontested market
space. The value innovation by BOS defies the value-
cost trade-off dogma of the competition-based
strategy. In the earlier context, the choice was
between creating greater value at higher cost or
reasonable value at low cost – or looking at strategy
as making a choice between differentiation & low cost
whereas BOS pursue differentiation and low cost
simultaneously.
 The Four Actions Framework for creating a new
value proposition
Reduce
Which factors should
be reduced well below
the industry’s standard

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