SESSION V & VI

FORMULATING LONG TERM OBJECTIVES & GRAND STRATEGY –

•Long term objectives are results which a firm seeks to achieve in 3 –5 yrs
•Grand Strategies are comprehensive policies & action plans to achieve long term objectives
Long term objectives are established in following seven areas
•Profitability - generally measured as return on equity or profit per share
•Productivity of resources- 6 M’s – Men, Machine, Material, Money, Methods & Marketing
•Competitive Position – Product range & Quality, Sales & market share growth
•Employees Development – Training, Improvement of skill, Organizational efficiency
•Employee Relation – Working environment, Safety Programs, Employees Participation &
Industrial Relations
•Technology Status – positioning yourself in the market based on product, quality & supply,
product USP’s
•Public Responsibility – towards share holders, society, customers & employees – this
parameter is gaining importance day by day
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Balanced ScoreCard Developed by Prof Kaplan & Norton of Harvard Business School USA
•It links a company’s long term strategy with tangible goals & actions
•It helps Managers to evaluate co’s performance from following four perspectives
* Financial performance * Customer knowledge
* Business processes * Learning & growth
• Score Card is a balance between short term & long term measures, financial & non
financial measures, internal & external performance criteria

Financial- to succeed financially for satisfaction

of share holders Objectives Measures
Targets Action Plan

Customers- to satisfy customer Internal business processes-to

as per co’s vision VISION & excel so as to satisfy share holders
STRATEGY / customers
Objectives Measures
Objectives Measures
Targets Action Plan
Targets Action Plan

Learning & Growth- to change & improve as vision

Objectives Measures
Target Action Plan 2
 GENERIC STRENGTH
•It means that long term grand Strategies of a co must be based on its core strength so as to
help the co to compete best in market place – this core strength is called Generic Strategy
•Prof Michael Porter, famous Harvard School scholar states that a firm can derive competitive
advantage based on any / combination of following 3 generic strategies
• Striving for overall low cost leadership in industry eg Deccan, Spice Jet Airlines, Sahara
Mall
•To create & market unique products thru’ differentiation thereby build customer loyalty
& charge premium thru’ brand building eg Mercedes, BMW, Rolls Royce cars. Parker &
Cross Pen, Rolex & Omega Swiss watches.
•To create special appeal to one or more industrial buyers focusing on their cost or
differentiation concern like meeting typical customer needs, focus on somewhat unique
demands of small & medium size customers eg creation of consumer stores, Super Bazaars
for middle class working people, tiffin service for office goers, pavement & roadside
bazaars
GRAND STRATEGY
•Also called master / business strategy provide the firms basic direction for strategic
actions directed towards achieving long term business objectives
•Grand strategies indicate time periods over which long range objectives are achieved
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•Principal grand strategies normally used in business are
•Concentrated growth
•Market development
•Product development
•Innovation
•Horizontal integration
•Vertical integration
•Concentric diversification
•Conglomerate diversification
•Turn around
•Divestiture
•Liquidation
•Bankruptcy
•Joint ventures
•Strategic alliances
•Consortiums 4
Concentrated Growth
It is a strategy of a firm that concentrates on profit growth of a single product in a single market
with single dominating technologies, this approach is also called market penetration & is used in
a market where demand is continuous & competition is limited.
Risks in this strategy are the demand may go down or may shift to other & better alternatives &
therefore requires lot of vigilance to remain healthy & profitable
Eg are Bajaj Motors & Hero Honda who till 2002 were making only scooters & motor bikes
respectively, there was change in the business environments with Honda co of Japan coming in
India & other players like TVS, Kinetic modernizing their products to become equally fuel
efficient there was also shift in market demand of motor bikes market growing 3 times that of
scooter. Bajaj who enjoyed no 1 position in 2 wheeler industry in volume started sliding down &
Hero Honda did not want to stay on single product. Keeping in mind the environmental changes
Bajaj entered the motor bike & Hero Honda the scooter market recently.
In fast food industry Mc Donald's & Barista adding lot of cheaper / items of Indian taste to meet
the local taste
Market development
Consist of looking for new applications / new customers, it is often achieved by making
cosmetic changes, new / additional channels of distribution to reach new markets, new customers
or by altering advertisement & promotion strategy to reach other geographical markets eg are
Polaroid instant cameras to digital cameras, use of Aspirin to lower heart attacks, Gati Transport
to handle time bound parcel service by road
Product Development
Involves modification of existing products or creation of new ones related to original product
that can be marketed to current customers thru’ established channels, this is normally done to
prolong life cycle of current products or to take advantage of its brand image. The idea is to
attract, satisfy customers as a result of positive experience of initial offerings
Eg are Diet Coke, family pack drinks, on tap supply of cold drinks in restaurants & bars,
revised addition of a text book, new look of a old model car
Innovations
Consumer & industrial markets expect changes & improvements in existing products. Co’s reap
high profits associated with customer acceptance & as the competition picks up & prices fall
they look for new ideas to create a new product lifecycle by making existing product obsolete
classic eg are from electronic industry, Intel a leader in semi conductor industry brought
Pentium I, II, III & IV in their micro processors to continue capturing the market thru’ better
processing capabilities. Gillette brings in 40% new innovations every year in their shaving
products to keep skimming the market thru’ innovations, mobile phones bring in new features
every few weeks
Horizontal Integration
This strategy is based on expansion or growth thru’ acquisition of one or more similar firms
operating in the same production- marketing chain
Eg are in Petroleum industry, Indian Oil taking over IBP, again a joint venture Sri Lankan Oil
Co in Sri Lanka & similar venture in Malaysia 6
Vertical Integration
To acquire a business which supplies the parent co with raw material or inputs
Eg are in petroleum industry Indian Oil getting into exploration & ONGC getting into refining
/ marketing operations, the idea is to get better control of business / profit / market share.
Arvind Mill of Ahmedabad known for making cotton & denim textile has got into export of
shirts & jeans for US market
Concentric Diversification
Growth related fields – this type of growth has common business thread or synergy to make
more profit by combining activities eg Indian Oil moving to oil & gas exploration & ONGC
into refining & marketing.
Some of the common reasons besides synergy could be, increased rate of growth &
profitability, tax savings on new investments, extended life cycle etc
Conglomerate Diversification
It is diversification in unrelated business lines, usually done by large co’s who have surplus
cash / profit & where existing business lines become less profitable or more competitive,
diversification may be undertaken in unrelated fields. Reliance moved from Petroleum to
telecom to power, Bhartiya from telecom to agro industries, UB group from liquor to air
travel.
Turn Around
This is used to cope up with fast changing business environment, specially increased
continuous losses. As a turn around strategy drastic steps are taken to revamp the organizational
structure, manufacturing processes, marketing strategy to cut down costs drastically, improve
productivity & make the business viable / profitable
Classic eg in the case study of Maruti discussed in the class, the co ran into losses in 2001 –
2002 when Japanese took over control & took several drastic steps to cut down costs 30 – 35%
like VRS scheme, value engg, inventory & supply chain management, vendor rating & make &
buy analysis. On marketing front several new models were introduced increasing the offering
by almost double, re pricing & repositioning the products the co came back to no 1 position on
most of the parameters in less than 3 yrs
Divestiture
It means subjecting the entire project range to a critical analysis of profitability & shedding off
such product lines which have nil or marginal contribution & retaining only those lines which
are profitable & good market potential
Eg Crompton Greaves Ltd, the biggest electrical co in the pvt sector had 58 products in their
kitty, gathered over a period of 50 yrs of their existence with the result they had to spend lot of
resources to market such products as a result of intense competition on account of globalization
the co which was always profitable during the previous 40 yrs ran into losses in 2000- 01. The
co was restructured & the product lines were analyzed from profitability angle as a result 30%
of the products were found unviable & sold off to smaller businesses, generating sufficient cash
to revitalize the other product lines, over the last 4 yrs the co once again has become a
profitable unit of blue chip category. 8
Liquidation / Bankruptcy
This is generally the last option available in any business strategy & is opted when co’s get into
the worst situation of having wiped out the entire capital base & are unable to pay to the banks
& other creditors. In such cases the co applies to BIFR (Board of Industrial Finance &
Reconstruction ) a Govt body set up to approve liquidation / bankruptcy for genuine business
losses, their approval gives amenities to co’s against litigations & other criminal cases. After
BIFR’s approval the co’s assets / realization of assets are distributed amongst creditors in the
ratio of their outstanding. In India on an average about 100 co’s go for liquidation.
Joint Ventures
JV’s are commercial co’s set up jointly by 2 separate co’s to do business together by pooling
their resources together, mostly this is done by domestic co’s to join hands with foreign co’s to
do business together in case of large projects, generally power plants, refineries, oil
exploration, large infrastructure facilities like ports, express highways & transportation
system.Each partner contributes their special skills / core strengths to make the project
successful. In most of the foreign JV’s. foreign partner generally contributes technical know
how, supply of imported equipment, process know how & foreign currency.Whereas domestic
partner does execution, project infrastructure co ordination with State & Central Govt, man
management & domestic currency & timely completion of the project.Also collection of money
if the project is being done on behalf of a third party, could be State / Central Govt or large
undertaking
Eg in India lot of co’s of USA; UK & Russian co’s have joined hands with Indian Oil co’s for
oil exploration, recently airport modernization of metro towns is being done by a joint venture,
Strategic Alliances
It is differentiated from joint ventures where generally co’s involved, do not take take equity
participation in each other. Strategic alliance exists for a defined period during which partners
contribute their skills to make the project work – one may give technical know how, plant &
equipment specs & process details & control & second may do the execution, running the plant
& marketing activities
Eg in India these alliances are more known for foreign know how / licensing agreements with
Indian partners to manufacture or market a product in India as per international brands.With
globalization & opening of economy there are hundreds of foreign co’s in all the sectors
manufacturing, marketing & service industry operating in India under licensing agreements in
most of the cases the Indian partner pays a lump some fee initially & there after certain % on
sales revenue as royalty for a specific period – eg Hero Honda, Lucas TVS, Maruti Suzuki,
Munjal Showa, Sona Koyo Steering are examples of manufacturing units. Pepsi, Coca cola, Mc
Donald’s, Bosch & laumb, Dominoes are some of the marketing licensing examples, & Hilton,
Hyatt, Holiday Inn are examples of service industries.
In IT industry numerous call centers / BPO’s are operating in India under strategic alliance
system, with Indian partners. Even GE in India have handed over management & control of
their BPO / call centers to a team of Indian partners who were earlier GE employees.
Major advantages of strategic alliances are specialized focus world class technology, benefits of
R & D use of established Brand to give international standards 10
Consortium / Cooperative agreements
This is a much bigger form of strategic alliance & is generally entered between 2 countries or
continents for improving R & D, Scientific research, higher level of education & learning.
Broad scope, terms & conditions are laid down in between the two bodies, could be scientific
associations, relevant ministries of the Govt & private bodies like NGO’s for exchange of
information, training, knowledge & execution of projects including sharing of financial
resources eg are
•Recently concluded agreement between USA & India, whereby USA would assist in putting
up Nuclear power plants in India, including enrichment of uranium which is a highly guarded
process know how (which can also be used in development of nuclear bomb / weapons)
•Top most management schools of USA like Harvard, Kellogg's, Wharton & many others
establishing management education centers in India jointly with reputed Indian business
houses. Indian School of Business Hyderabad (ISB) is an example, on the same lines IIM
Ahmedabad, Ban galore are planning to put up management institutes in Middle East Countries
•In oil exploration ONGC, Indian Oil & Reliance forming consortium with the Russian, USA
& UK based petroleum MNC’s for joint exploration of oil & gas in India on agreed cost &
revenue sharing basis
•ONGC & Indian Oil forming consortium with local co’s in African countries & doing
exploration for oil & gas, on agreement of profit sharing after oil & gas is found on risk sharing
basis
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