imt 56 strategic management m1
DESCRIPTION
ffTRANSCRIPT
1
IMT-56: STRATEGIC MANAGEMENT
PART – A
Q1. ‘What do you mean by strategy? What are the strengths and
weaknesses of formal strategic planning?
Ans. Strategy is a word of military origin, refers to a plan of action designed to
achieve a particular goal, while in military usage strategy is distinct from tactics,
which are concerned with the conduct of an engagement, as well as concerned with
how different engagements are linked.
Strategies exist at several levels in any organization, ranging from the overall
business (or group of businesses) through to individuals working in it.
Corporate Strategy is concerned with the overall purpose and scope of the business
to meet stakeholder expectations which is a crucial level since it is heavily
influenced by investors in the business and acts to guide strategic decision-making
throughout the business, often stated explicitly in a "mission statement".
Business Unit Strategy is concerned more with how a business competes
successfully in a particular market regarding strategic decisions about choice of
products, meeting needs of customers, gaining advantage over competitors,
exploiting or creating new opportunities etc.
Operational Strategy is concerned with how each part of the business is organized
to deliver the corporate and business-unit level strategic direction thus focuses on
issues of resources, processes, people etc.
Once management has organized the strategic planning process, the next step in
the process is to assess the current situation. The organization needs to take a hard
look at itself - Where are they going? Where they are now? What are their choices?
And in order to assess the current situation, it will need to collect information so
that everyone understands the current situation. This will involve a review of past
history, a critique of the current mission statement, analysis of organizational
strengths, weaknesses, opportunities, and threats, as well as the need to
understand the external environment, current competition, customer trends,
technology trends, demographic changes, etc.
2
Q2. Do you view Vision and Mission as distinct guidelines for strategic
planning? If so, discuss the subtle differences with examples.
Ans. Strategic planning process is used in the service and manufacturing sectors,
by which the organization uses the total quality system to accelerate progress in
achieving the vision. A systematic and fact based strategic planning process is
introduced as shown in the figure below.
The Strategic Quality Planning Process includes:
• Alignment with the organization’s Vision, Mission, Policies and Values;
Business operating plans; Strategic Business intent.
• Input from all employees, functions, suppliers, customers and society.
• Focus on our partners.
• Implementation Deployment to work units.
The objectives of each and every executive, is being planned in the beginning of the
year in the form of a X-Matrix which transpires from the vision (or guidelines) of
the organization. Action plans are prepared, which can also be in the form of
projects, by the executive with relationship so as to achieve their objectives. The
3
action plan/projects are also linked with the guidelines/company’s vision. All of the
objectives and action plans have distinct targets.
Therefore, it is important to have an awareness of those issues and elements that
will influence how one does business, and while the strategic plan is certainly
adaptable, it also needs an unambiguous end vision. Members of the organization
need to know why and what they are striving for, like working with an outdated or
non-applicable mission statement, because as times change, missions change.
This is not to say that the core of why an organization exists should be abandoned.
Rather, it’s a good practice to review the current Strategic Planning, along with the
mission statement, in light of the times, and see if there needs to be any revisions
based on current social, economic or even technological issues.
Q3. Under what environmental conditions are price wars most likely to
occur in an industry? What are the implications of price wars for a
company? How should a company try to deal with the threat of price
war?
Ans. Price wars are a fact of life, whether it is talking about the fast-paced world
of knowledge products, the marketing of Internet appliances, or the staid,
traditional business of aluminum sidings.
Price wars are not simply a matter of responding to a competitor's aggressive price
move with one of its own. Instead companies should consider all of their options,
including defusing the conflict, retreating or, if a battle is unavoidable, fighting it
with an arsenal of weapons beyond just price cuts themselves.
It is necessary to understand why a price war is occurring or may occur, but it is
also critical to recognize where to look for resources in battle, and is important to
carefully analyze the customers, company, competitors, and other players within
and outside the industry that may have an interest in how the price war plays out.
A thoughtful evaluation of customers and their price sensitivities can provide
valuable insights about whether one should fight a competitor's price cut with a
price cut in kind or with some other strategy, since consumers are frequently
unaware of substitute products and their prices, or they may find it difficult to make
comparisons among functionally equivalent alternatives.
Some consumers are more sensitive to quality than price, for a variety of reasons,
and industrial buyers are often willing to pay more for on-time delivery or
4
consistent quality because they need those features to make their businesses run
smoother and more profitably.
An analysis of competitors, their cost structures, capabilities, and strategic
positioning, is equally valuable. Industry-wide price reductions may be appropriate
under certain circumstances, but many unprofitable price wars happen because a
company sees an opportunity to increase market share or profits through lower
prices, while ignoring the fact that competitors will respond.
Q4. Discuss the five basic competitive forces on which the state of
Moreover, in the fight for market share,
competition is not manifested only in the other
players, but rather, competition in an industry
is rooted in its underlying economics, and
competitive forces exist go well beyond the
established combatants in a particular
industry. Customers, suppliers, potential
entrants, and substitute products are all
competitors that may be more or less
prominent or active depending on the industry.
The state of competition in an industry
depends on five basic forces, which are
diagrammed in the figure of Porter’s model
which attempts to analyze the attractiveness of an industry by considering five
forces within a market.
According to Porter, the likelihood of firms making profits in a given industry
depends on five factors: (1) barriers to entry and new entry threats, (2) buyer
power, (3) supplier power, (4) threat from substitutes, and (5) rivalry.
The collective strength of these forces determines the ultimate profit potential of an
industry that ranges from intense in industries like tires, metal cans, and steel,
where no company earns spectacular returns on investment, on mild industries like
oil field services and equipment, soft drinks, and toiletries, where there is room for
high returns.
competition in an industry depends.
Ans. The essence of strategy formulation is coping with competition, but it is easy
to view competition too narrowly and too pessimistically, while one sometimes
hears executives complaining to the contrary, intense competition in an industry is
neither coincidence nor bad luck.
5
Whatever their collective strength, the corporate strategist’s goal is to find a
position in the industry where the company can best defend itself against these
forces or can influence them in its favor. The collective strength of the forces may
be painfully apparent to all the antagonists, but to cope with them, the strategist
must delve below the surface and analyze the sources of each.
Q5. Distinguish between:
A. Merger, acquisition and takeover
Ans. Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate
strategy, corporate finance and management dealing with the buying, selling,
dividing and combining of different companies and similar entities that can aid,
finance, or help an enterprise grow rapidly in its sector or location of origin or a
new field or new location without creating a subsidiary, other child entity or using a
joint venture.
Although often used synonymously, the terms merger and acquisition mean slightly
different things which does not make a clear distinction between the legal concept
of a merger (with the resulting corporate mechanics, statutory merger or statutory
consolidation, which have nothing to do with the resulting power grab as between
the management of the target and the acquirer) and the business point of view of a
"merger", which can be achieved independently of the corporate mechanics through
various means such as "triangular merger", statutory merger, acquisition, etc.
When one company takes over another and clearly establishes itself as the new
owner, the purchase is called an “acquisition”. While in business view, a “takeover”,
is the act of purchase of one company (the target) by another (the acquirer, or
bidder) or the acquisition of a public company whose shares are listed on a stock
exchange, in contrast to the acquisition of a private company.
6
B. Strategy, goals and targets
Ans. The distinction between these marketing foundations comes up often in
discussions with small business owners, such as knowing the differences between
goals, objectives, strategies, and tactics.
Relatively, a GOAL should be directed toward a vision and consistent with the
mission which is something the organization wants and expects to accomplish in the
future.
An OBJECTIVE is a specific measurable result expected within a particular time
period, consistent with a goal and strategy, by which a clear milepost along the
strategically chosen path to the goal.
While STRATEGY is the action path the organization has chosen to realize goals
which are established broad themes for future actions and should reflect reasoned
choices among alternative paths
Finally, TARGETS are the definitive actions to take which is the work that will take
place based upon the previously defined objectives, goals, strategies.
Moreover, goals are high-level planning targets that an organization’s marketing
plan will achieve, usually somewhat abstract and un-measurable. While a strategy
is the broad plan to fulfill an objective, and like goals, these are more abstract than
targets. Thus, targets are actionable tasks to support the strategy, and concrete
things that can be done.
Once an organization has a clear vision in mind for the direction of the business,
management can plan through the necessary steps to bring about the realization of
the company’s vision.
7
PART – B
Q1. Why is it difficult for a company in one strategic group to change to a
different strategic group?
Ans. A strategic group is a concept used in strategic management that groups
companies within an industry that have similar business models or similar
combinations of strategies. The number of groups within an industry and their
composition depends on the dimensions used to define the groups.
Strategic management often make use of a two dimensional grid to position firms
along an industry's two most important dimensions in order to distinguish direct
rivals (those with similar strategies or business models) from indirect rivals, since
strategy is the direction and scope of an organization over the long term which
achieves advantages for the organization while business model refers to how the
firm will generate revenues or make money.
According to Hunt (1972), the existence of subgroups within the industry that
competed along different dimensions makes tacit collusion more difficult because
these asymmetrical strategic groups causes the industry to have more rapid
innovation, lower prices, higher quality and lower profitability than traditional
economic models would predict. While as for Michael Porter (1980), he explained
strategic groups in terms of what he called "mobility barriers” which are similar to
the entry barriers that exist in industries, except they apply to groups within an
industry, and because of these mobility barriers, a company can get drawn into one
strategic group or another.
Strategic groups are neither elites nor social classes because they cut across
hierarchies, its members do not carry cards or identification tags, and they may
follow different lifestyles and follow different beliefs.
They are, however, united by one common goal which is to secure present and
future chances to gain access to resources; to share chances of appropriation of
resources and their distribution, but are not necessarily members of a network nor
members of an organization, though this is not excluded either.
8
Q2. When is a company likely to choose related diversification and
unrelated diversification? Discuss with suitable examples.
Ans. Diversification is a form of corporate strategy for a company that seeks to
increase profitability through greater sales volume obtained from new products and
new markets which can occur either at the business unit level or at the corporate
level. At the business unit level, it is most likely to expand into a new segment of
an industry that the business is already in. At the corporate level, it is generally
very interesting, entering a promising business outside of the scope of the existing
business unit.
Diversification is part of the four main growth strategies defined by the
Product/Market Ansoff matrix that pointed out that a diversification strategy stands
apart from the other three strategies. The first three strategies are usually pursued
with the same technical, financial, and
merchandising resources used for the original
product line, whereas diversification usually
requires a company to acquire new skills,
new techniques and new facilities. Thus, the
notion of diversification depends on the
subjective interpretation of “new” market
and “new” product, which should reflect the
perceptions of customers rather than
managers, since products tend to create or
stimulate new markets that promote product innovation.
There are also four categories of diversifying investments classified as related
diversification:
1. When new investments involve similar products;
2. When they lead to the vertical integration of complementary activities
(corresponding to backward or forward integration)
3. When firms internationalize by adding operations in foreign markets which
involve similar products (even if these investments take place in culturally and
geographically distant markets);
4. When the new business shares intangible assets such as marketing knowledge,
patent protected technology, product differentiation, superior managerial
capabilities, or routines and repertoires.
In addition to the four types of related diversifying investments, four different levels
of diversification are considered: non-diversification or low diversification, medium
diversification, high diversification and conglomerate or unrelated diversification.
9
Q3. An analysis of each significant existing and potential competitor can
be used as an important input to forecast future industry conditions.
Discuss.
Ans. An analysis of each significant existing and potential competitor can be used
as an important input to forecasting future industry conditions when the knowledge
of each competitor's probable moves and capacity to respond to change can be
summed up, and competitors can be seen as interacting with each other on a
simulated basis to answer questions such as the following:
• What are the implications of the interaction of the probable competitors' moves
that have been identified?
• Are firms' strategies converging and likely to clash?
• Do firms have sustainable growth rates that match the industry's forecasted
growth rate, or will a gap be created that will invite entry?
• Will probable moves combine to hold implications for industry structure?
Competing for the same customers and thus being influenced by how customers
value location and firm capabilities in their decisions is referred to as the market
microstructure. In addition to focusing on customers rather than specific industry
boundaries to define markets, geographic boundaries are also relevant. Other than
that, firms choosing to enter a new market and those producing products that are
adequate substitutes for existing products can become competitors of a company.
The likelihood that firms will enter an industry is a function of two factors: barriers
to entry and the retaliation expected from current industry participants. Entry
barriers make it difficult for new firms to enter an industry and often place them at
a competitive disadvantage even when they are able to enter. Unless the demand
for a good or service is increasing, additional capacity holds consumers’ costs down,
resulting in less revenue and lower returns for competing firms. As such, high-entry
barriers increase the returns for existing firms in the industry.
Q4. Discuss the four basic strategic approaches for competing in
declining market.
Ans. Developing a strategy is described as being based on the way in which the
process of strategy is developed and the desired outcome of that strategy. The
process of strategy development is either deliberate or emergent (or adaptive)
while the desired out-come is to maximize profit or to achieve multiple purposes.
10
These form a matrix of four basic approaches that may be taken to make a strategy
which are:
CLASSICAL
The classical approach to strategy making is the deliberate process of developing a
strategy to maximize profit, and relies on the strategic capability being
concentrated in the organizational leader and his or her ability to suitably command
the organization.
EVOLUTIONARY
The evolutionary approach to strategy is based on the view that the organization is
operating within an economic environment that is ever changing. The role of
strategy in this case is to respond to the environment for survival and profit.
PROCESSUAL
The processual view, with this approach, there is an acknowledgement that
decision-makers lack the ability to act with pure reason and that only a few factors
affecting a decision can be dealt with.
SYSTEMIC
The systemic approach is taken by those that understand the need to “play by the
local rules”, and it is the deliberate development of strategy to meet cultural and
societal needs while maintaining sufficient profit.
In determining which approach to strategy-making will be taken within an
organization it is important to first understand who the strategist or strategists are
within the organization, and the more modern approach is not only the acceptance
but the goal of engaging each individual within an organization as a strategist.
Q5. A. Explain how Value Chain Analysis helps in identifying a company’s
strength & weakness
Ans. The Value Chain Analysis is a useful tool for working out how one can create
the greatest possible value for the customers, as well as identifying a company’s
strengths and weaknesses, since in business, they are paid to take raw inputs, and
to add value to them by turning them into something of worth to other people.
Value chain analysis helps identify the ways in which a company creates value for
its customers, and then helps one think through how to maximize this value:
whether through superb products, great services, or jobs well done.
11
Furthermore, value chain analysis has been successfully used also as a tool for
helping Change Management as it is seen as more user friendly than other business
process tools, that offers a meaningful alternative to valuate private or public
companies when there is a lack of publically known data from direct competition,
where the subject company is compared with. An example of which is a known
downstream industry that in order to have a good feel of its value by building useful
correlations with its downstream companies.
Knowledge of these underlying sources of competitive pressure provides the
groundwork for a strategic agenda of action which highlight the critical strengths
and weaknesses of the company, animate the positioning of the company in its
industry, clarify the areas where strategic changes may yield the greatest payoff,
and highlight the places where industry trends promise to hold the greatest
significance as either opportunities or threats.
B. Under what conditions is market penetration the main strategy of a firm?
Ans. Market penetration is an effort to increase company sales without departing
from an original product-market strategy, and a company seeks to improve
business performance either by increasing the volume of sales to its present
customers or by finding new customers for present products.
While a market penetration strategy seeks to increase market share of the current
product or services in the existing market, it becomes the main strategy and
adopted by the firms to raise their sales revenue without making changes in the
products or services.
The other dimension of market penetration is the existing market which means firm
already offering products or services to the customer but can forecast that the
existing sales figures can be improved by working on marketing penetration
strategy.
Market penetration starts with the entry strategy, which has to provide access to
local resources, such as distribution networks and access to local businesses and
authorities, and in emerging economies, investors have to think beyond the
conventional entry modes, acquisition and joint venture (JV).
A more differentiated typology of acquisition strategies introduced that provides
better support for managerial decisions, particularly, distinguishing between entry
modes suitable for foothold strategies, and aggressive ones aimed at market
12
leadership. Thus, the creative designing of entry modes allows MNEs to achieve
their objectives in idiosyncratic host environments.
Market penetration strategy can be implemented by offering sales, increasing sales
force, increase distribution and promotion of products, more expenditure in
marketing and advertising activities will results in increasing sales.
13
• One can use the opinions of the most powerful stakeholders to shape the
projects at an early stage, and their input can also improve the quality of the
project;
• Gaining support from powerful stakeholders can help to win more resources
which makes it more likely that the projects will be successful;
• By communicating with stakeholders early and frequently, one can ensure that
they fully understand what is being done and understand the benefits of the
project which means they can support actively whenever necessary;
• One can anticipate what people's reaction to the project may be, and build into
the plan the actions that will win people's support.
B. Explain how is it possible to reconcile the diverse and conflicting
interests of various stakeholders in an organization though having shared
and empowering vision and mission statement?
Ans. Defining that social contract, such as defining the extent of a company’s
responsibilities, as well as reconciling the interests of the various stakeholders in a
business is an undertaking that has become a much larger and more visible part of
the management task of any large company.
The general point is that reconciling the diverse and conflicting interests must be
done with a view to the long-term interest of the company, and with regard to the
differing interests of the organization’s various stakeholders. As such, balancing
PART – C
Q1. A. What is the meaning of a stakeholder in an organization?
Ans. A stakeholder (corporate) may refer to a person, group, organization, or
system, which affects or can be affected by an organization's actions, whereas a
consumer stakeholder is a person or group with an interest in a business or
organization. While a project stakeholder, is a person, group or organization with
an interest in a project.
These types of stakeholders are the people who will be affected by an endeavor and
can influence it, but who are not directly involved with doing the work. Thus, the
stakeholders’ influence programs, products, and services, by which any
organization, governmental entity, or individual that has a stake in or may be
impacted by a given approach to environmental regulation, pollution prevention,
energy conservation, etc.
The benefits of using a stakeholder-based approach are that:
14
these responsibilities, and managing sometimes conflicting interests, is inevitably a
matter of judgment.
The different types of stakeholders may consist of employees, local people,
interests and pressure groups etc. that will act and react in forceful ways such as
through lobbying and petitions which is a real challenge for the public managers to
strike a balance towards those competing interests.
Nonetheless, despite the various kinds of demands to be addressed, there are no
obvious rules for setting satisfactory levels of performance for all groups.
In addition, some issues related are like no stakeholders are identified, or no forum
exists for exchanging views with stakeholders, stakeholders themselves are not
accountable in the sense that individual views may be out of step with others, and
stakeholders’ are not empowered. As a result, the fluctuation and the nature of
volatile issues really put the stakeholder analysis to the test.
15
Q2. What are the problems constraining emerging industry development?
Ans. Emerging industries usually face limits or problems, of varying severity, in
getting the industry off the ground that stem from the newness of the industry, its
dependence for growth on other outside economic entities, and externalities in its
development that result from its need to induce substitution by buyers to its
product. The development of an emerging industry requires that new suppliers be
established or existing suppliers expand output and/or modify raw materials and
components to meet the industry's needs. In the process, severe shortages of raw
materials and components, is a very common problem in emerging industries.
Confronted with burgeoning demand and inadequate supply, prices for key raw
materials often skyrocket in the early phases of an emerging industry, which is
partly, simple economics of supply and demand and partly the result of suppliers
realizing the value of their products to the desperate industry. As suppliers expand,
however, prices for raw materials can fall off just as sharply.
Emerging industries are also often faced with difficulties like those of material
supply caused by the lack of appropriate infrastructure, such as, distribution
channels, service facilities, trained mechanics, complementary products, and the
like. Inability to agree on product or technical standards accentuates problems in
the supply of raw materials or complementary products, and can impede cost
improvements, since lack of agreement is usually caused by the high level of
product and technological uncertainty that still remains in an emerging industry.
An emerging industry's growth will be impeded if buyers perceive that second or
third generation technologies will significantly make obsolete currently available
products, thus buyers will wait instead for the pace of technological progress and
cost reduction to slow down. Moreover, emerging industries are often beset by
customers' confusion, which results from the presence of a multiplicity of product
approaches, technological variations, and conflicting claims and counterclaims by
competitors.
Q3. What kind of companies stand to gain the most from entering into
strategic alliances with potential competitors? Why?
Ans. Discussing the ongoing changes in the global competitive environment and
discussing also the models that managers use for analyzing competition in different
national and international markets, one can determine it as International Strategy,
based on the kind of enterprises which are selling their products universally, and
have no significant competitors, nor also confronted pressures to reduce their cost
structure.
16
Accordingly, strategic alliances such as Joint Ventures Mode, has its major
disadvantages. As of licensing, a firm that enters a joint venture risks giving control
of its technology to its partner, and does not give a firm the tight control over
subsidiaries that it might need to realize experience-curve or location economies.
Licensing proprietary technology, is not the best way to give a company the
competitive advantages, primarily driven by the risk associated with this action,
under this modality of entry mode, because for many multinational companies, the
know-how forms the core of their competitive advantage, and consequently they
would want to keep the control over this, but there are a few ways to avoid or
reduce this type of risks, like that of a cross-licensing agreement with the referred
foreign firm, which enable firms to hold each other hostage, thereby reducing the
probability to be opportunistic.
Finally, the companies that can stand to gain the most from entering into strategic
alliances with potential competitors are the ones that share the fixed cost and risk
associated with their proper markets, new products and processes, and those that
facilitate the transfer of complementary skills between companies, and help each
other to establish technical standards.
When a company is entering into an alliance, a company must take some measures
to ensure that it learns from its alliance partner and then puts that knowledge to
good use within its own organization, by which a suggested approach is to educate
all operating employees about the new partner SWOT’s and make them clear how
acquiring particular skills will boost their company’s competitive position.
Q4. A): What is the relationship between organizational structure,
control and culture?
Ans. Organizational Structure in one sense is the arrangement of duties used for
the work to be done which is best represented by the organization chart. While
some believe that certain factors, such as size, environment, or technology,
determine an organizational structure, and these factors impose economic or other
constraints on organizations that force them to choose certain structure over
others.
Thompson said that structure is the internal differentiation and patterning of
relationships, as well as the means by which the organization sets limits and
boundaries for efficient performance by its members, by delimiting responsibilities,
control over resources, and other matters.
17
The relationship between organizational culture and organizational structure is an
important theme that is often overlooked, and the two can be difficult to clearly
distinguish from one another, even more so to clearly define within an institution.
Organizational structure works within an organizational culture, but it is not
completely separate, since the two are very much intertwined which makes the
structure an integral part of any organizational culture, but also narrows out a very
specific segment of the culture as its own responsibility. As such, organizational
culture is defined as a complex set of values, beliefs, assumptions, and symbols
that define the way which a firm conducts its business, and it is the accepted,
patterned and distinctive designs of living.
Therefore, the organization is a meeting place for these long wave broad cultural
patterns, and because their coexistence within the organization is a cultural
characteristic, it may also explain some ambiguities.
Q4B). What kind of structure, control and culture would you find in a chain
store?
Ans. Control has interesting implications for work, how work is performed, and its
organizational structure, particularly in a chain store. Thus, a narrow span of control
in a chain store describes a low number of workers under a manager, while a tall
pyramid structure is created by the hierarchical layering required to maintain a low
manager-to-employee ratio, and work is performed under tight controls, little
variability of tasks is permitted, and there is high specialization or
departmentalization. Less hierarchy with a larger number of employees per
manager means that workers have more autonomy or freedom to perform their
tasks, thereby control is sacrificed for creativity.
While culture affects the chain store at several levels, since the larger culture
values the business, provides its legal context, and, importantly, provides the broad
meanings by which interpreted to business events, and such groups include ethnic,
racial, religious, political, geographical, occupational, age, and gender groupings.
The prevalence of multiple groups provides diversity to values and understanding.
Starbucks as an example of a chain store, is one of the numerous large
organizations that successfully developed the matrix structure supporting their
focused strategy with the design that combines functional and product based
divisions, with employees reporting to two heads, by which the company empowers
employees to make their own decisions and train them to develop both hard and
soft skills.
18
Q5. Explain the strategic alternatives in Global industries.
Ans. Depending on the size of the firm, there are two levels of strategic
alternatives that a firm must consider. The first level, global strategic alternatives
(applicable primarily to MNCs), determines what overall approach to the global
marketplace a firm wishes to take. While the second level, entry strategy
alternatives, applies to firms of any size, where these alternatives determine what
specific entry strategy is appropriate for each country in which the firm plans to
operate.
There are a number of basic strategic alternatives in a global industry:
Broad Line Global Competition:
This strategy is directed at competing worldwide in the full product line of the
industry, taking advantage of the sources of global competitive advantage to
achieve differentiation or an overall low cost position. Implementing this strategy
requires substantial resources and a long time horizon.
Global Focus:
This strategy targets a particular segment of the industry in which the firm,
competes on a worldwide basis, by which a segment is chosen where the
impediments to global competition are low and the firm's position in the segment
can be defended from incursion by broad line global competitors. The strategy
yields either low cost or differentiation in its segment.
National Focus:
This strategy takes advantage of national market differences to create a focused
approach to a particular national market that allows the firm to outcompete global
firms. This variation of the focus strategy aims at either differentiation or low cost
in serving the particular needs of a national market, or the segments of it most
subject to economic impediments to global corn petition.
19
CASE STUDY-1
Educomp Solutions Limited
"By all conventional yardsticks of corporate evaluation - return on equity, return on
capital employed, and cash flow - ESL's numbers are excellent. The company's
business model is unique and unprecedented. It lacks peers for comparison
purposes."
- Prashanth Nayak, Manager, IL&FS Invest Mart, August 2008.
On September 29, 2008, India based Educomp Solutions Limited (Educomp) was
listed in Forbes ‘200 Best under a Billion' for Asia-Pacific region. For this list, Forbes
selected those companies which had pre-tax profits of at least 5% in that year and
five years returns on capital of at least 5%. These companies were then judged on
sustained gains in sales, return on equity, and earnings. Analysts said that with
sales of US$ 71 million for the fiscal year 2007-08, Educomp had been selected
because of its promising growth potential and its unique business model.
Founded in 1994 Educomp operated in the education sector by providing
Information Technology (IT) enabled solutions to the students, parents and schools.
Educomp served the K-12 segment of academia both in India and other countries
like the US, Singapore, China and Sri Lanka. The company also operated schools
through its subsidiaries and joint ventures with other institutions. Educomp offered
products that helped teachers and parents to make the process of educating
children more effective. Besides the K-12 segment, Educomp also expanded into
developing educational products that were employment oriented like courses in
business management, marketing, accounting, insurance and interior design.
Educomp categorized its offerings into business- to- business (B2B) and retail &
consulting. Its B2B division comprised SmartClass, ICT and Professional
Development products.
Educomp's retail & consulting division included of Mathguru, ETEN, Millennium
Schools, TMS, Vidya Prabhat schools, learninghour.com, learnhub, RTW and
EuroKids. Educomp's B2B division contributed 91.7% and retail & consulting
division contributed 8.3% to the company's sales of Rs. 5011.7 million for FY 2008-
09.
SmartClass was a digital initiative aimed at private schools. It was an instructor led
content system. SmartClass helped teachers in private schools in using digital
resources such as graphics, 3D images and video clips in addition to the traditional
chalk and board method for teaching.
20
Educomp had products like CD-ROMs and platforms like websites and schools that
catered to the retail segments. The company's RTW and EuroKids catered to the
preschool segment of education. Educomp followed the franchising route to expand
these pre-schools. RTW was the first structured and process driven IP in early child
education in India.
Educomp recognized the scope and opportunity for providing IT-enabled learning
solutions in Indian schools in the mid-1990s. As usage of computers in schools
during early 1990s was at a nascent stage, Educomp started its operations by
setting up computer labs at schools.
Educomp entered into contracts with its customers binding them for certain period
of time. Such a contract based business provided visibility to Educomp's revenues,
and reliable estimates of cash flows, analysts felt, would enable Educomp to plan its
capital outlays more effectively.
As of June 2009, Educomp provided services to 23,000 schools and 12 million
learners and educators across the world. It was the leading K-12 online education
company in India. Educomp expanded through both organic and inorganic routes. It
acquired equity stakes in various companies in the education sector in several
countries as a part of its global expansion strategy.
It collaborated with several renowned institutes like Indian Institute of Technology
(IIT) to develop content relevant for the target segment of the company.
Educomp planned to serve 15 million learners by 2010 and aimed to be in the top
five K-12 education companies worldwide by 2012. Its tie up with Raffles Education
Corporation to provide K-12 solutions in China would help it in working towards this
goal as China was one of the world's largest K-12 education markets.
"Our children are not equipped with the right kind of skill-sets which would make
them employable candidates in the future. Therefore, we need to make sure that all
children are made part of this digitally aware generation and have the same levels
of exposure to IT."
- Soumya Kanti, President, ICT Division, Educomp, May 2009.
Questions:
Q1. Discuss how a strong product and first mover advantage could help a
startup become a market leader in context of Educomp.
21
Ans. In marketing, first-mover advantage or FMA is the advantage gained by the
initial ("first-moving") significant occupant of a market segment which may be
referred to as Technological Leadership, that may stem from the fact that the first
entrant can gain control of resources that followers may not be able to match.
However, sometimes, the first mover is not able to capitalize on its advantage,
leaving the opportunity for another firm to gain second-mover advantage.
First-mover advantages can arise from three primary sources, where each category
is then separated into a variety of different other mechanisms which are theoretical
and assume that other competitors trying to merge into the market are being
exploited and overpowered by the first-mover company.
A firm can gain FMA when it has had some sort of upper-handed breakthrough in its
research and development (R&D) resulting from a direct breakthrough in
technology. A learning curve can provide sustainable cost advantage for the early
entrant if learning can be kept proprietary and the firm can maintain leadership in
market share. The diffusion of innovation can diminish the first-mover advantages
over time, and can be triggered via workforce mobility, publication of research,
informal technical communication, reverse engineering, plant tours, etc. R&D
expenditures can also provide technological leadership.
This case examines how India based Educomp Solutions Limited (Educomp), grew
in a short span of time to emerge as a leader in the IT-enabled education solutions
industry, explaining Educomp's strategy of developing product portfolios and
expanding its geographical presence. The company is the pioneer in providing IT-
enabled education solutions for the K-12 segment in India which has created a wide
base of customers including government and private schools. The company
expanded into foreign countries mostly through inorganic route which saved costs
related to market research and marketing, and even diversified into running pre
and formal schools which were viewed as its way of forward integration and risk
diversification by industry observers.
Q2. Analyze growth strategies of Educomp.
Ans. Educomp expects robust growth across all its business segments on the back
of organic and inorganic initiatives in the domestic as well global market, and will
further strengthen its position as the only company catering to the full "Education
Value Chain" through further IP consolidation, innovation and investment in R&D
and focus on its current breadth of products and services with major emphasis on
SmartClass business, K-12 business, and Vocational & Supplementa lbusinesses.
22
The company expects rapid growth in the SmartClass segment due to the change in
its business from BOOT to the "Outright Sale" basis, in order to rapidly penetrate
the large addressable market as well as to make it a free cash flow positive
business.
The Company changed the nomenclature and composition of its business segments
to better reflect the present state of its business evolution and the contribution
from various businesses across the entire education value chain. The classification
would help stakeholders understand the performance of the Company much better.
As the Company expanded in recent years to provide educational services for pre-
schools, higher education, skill-based vocational and supplemental business space
in India, a large part of our business is outside of the standalone entity. Hence, the
Company has re-grouped its business segments to better reflect the contribution of
its various businesses into four segments, including School Learning Solutions
(comprising SmartClass & Edureach (ICT) business), K-12 Schools (comprising
preschools & high schools).
Educomp also made significant strides in establishing a stronghold in the K-12
Schools segment, and in the pre-school space, the Company continues to occupy
leadership position, with 775 pre-school sign-ups, including 220 franchisees under
Roots to Wings and 555 pre-schools under Eurokids.
To strengthen its position in the highly profitable and rapidly growing high school
business, the subsidiary of the Company, Educomp Infrastructure and School
Management Limited, started delivery of both Educational Infrastructure and
Content/IP/Services to various independent run schools.
23
Q3. Examine the challenges Educomp faces in the near future.
Ans. Educomp, in the execution of its business operations, faces several external
and internal risks, which it regularly monitors and endeavors to minimize through
focused policy measures.
External risks faced by the Company relate to possible changes in Government
policies, decline in India's foreign exchange reserve, inflation, violence and social
unrest, natural calamities, slowdown in economic growth, among others.
Internally, the risks faced by the Company relate to regulatory requirements and
contractual obligations, and its ability to acquire companies located outside India
may depend on the approval of the RBI, and a failure to obtain such approvals
could negatively impact the Company's business and financial prospects. Delay in
payments from Government of India (including state Governments) contracts may
affect business cash flow. Further, Educomp faces risks and uncertainties associated
with the implementation of its expansion projects, within and outside India.
However, the Company has successfully implemented expansion projects in the
past, & is confident about executing the future projects on time & with greater
efficiency, through suitable procedures & MIS developed in this regard.
The Company undertakes certain projects through joint ventures with third parties
and may in the future undertake further projects through additional joint ventures,
by which the success of such joint ventures depends significantly on the satisfactory
performance by the joint venture partners and the fulfillment of their obligations.
The Company's services and products may become outdated and not be compatible
with industry standards and requirements in the future, which may adversely affect
its business and financial condition.
24
CASE STUDY-2
Maruti Suzuki India Limited
The Government of India had entrusted the company a responsibility of building low
cost, fuel efficient cars for the people of India as also building firm foundation for
the modernization and growth of Indian automobile industry. Thanks to the support
of our stakeholders, we have successfully led the automobile revolution in India. We
are positioning India as the global small car manufacturing hub, in line with the
government's vision."
- Shinzo Nakanishi, Managing Director and CEO, Maruti Suzuki India Limited, in
December 2008.
It was in the 1970s that the Indian government decided to develop an affordable
small car or a 'people's car' in India. Its target customers would be the burgeoning
middle class. Maruti Limited was set up in 1971. However, in 1978, the company
was liquidated. In the early 1980s, the small car project was brought back to life by
the government. The government entered into a joint venture agreement with
Suzuki. The joint venture company, Maruti Udyog Limited was incorporated in
1981, to take over the assets of Maruti Limited.
Founded in 1981, Maruti was India's leading car manufacturer. Since the late
1980s, the company had been the market leader in the passenger car industry in
India. However, the liberalization of the Indian economy in 1991 changed the
dynamics of the Indian passenger car industry.
From the mid 1990s, foreign automobile companies started entering the Indian
passenger car market. Maruti started losing market share as competitors began
taking over their space with the launch of models that proved very popular with
Indian buyers. Between the financial years 1997-98 and 1999-2000, Maruti's
market share declined from 83.1 percent to 60.8 percent.
To counter the competition, Maruti started a major restructuring exercise. The
company focused on improving its operational efficiency by upgrading
manufacturing using new manufacturing techniques, increasing capacity, using
information technology (IT) in manufacturing, focus on new product launches at
regular intervals and venturing into other related businesses like car finance,
insurance and buying and selling used Maruti cars. Maruti's restructuring exercise
paid off as the company was able to hold its market leadership position with a 55
percent market share in 2008-09. The new products launched by the company were
well accepted by the market. However, there was no room for complacency and so
the company formulated a careful plan for its future direction. The company
decided that it would upgrade all its products with its new KB series engine.
25
The Indian automobile industry was regulated by the government till 1990. Indian
consumers had little choice as there were only a few players in the industry
including Maruti, Hindustan Motors, and Premier Automobiles. In 1991, several
sectors of the Indian economy including the automobile industry were delicensed
with the announcement of the 'New Industrial Policy'. Over the years, the norms of
foreign investment in the automobile industry and import of technology were also
eased.
In an effort to counter competition from local and foreign players, Maruti started
restructuring its operations. The continuous decline in market share and sales
forced the company to rethink its strategy and formulate a new competitive
strategy. Maruti upgraded its manufacturing facilities to meet the foreign challenge
with its claims of high-end technology. It broadened its product portfolio and
expanded its sales and service network to reach all over India.
Within a year of its launch of its Challenge 50 plan, Maruti's restructuring efforts
started reflecting in its financial performance. In the financial year 2003-04, Maruti
reported a 25.2 percent increase in net sales to Rs 90.81 billion as compared to Rs
72.53 billion in the preceding fiscal year.
The net profit of the company for 2003-04 also increased from Rs 1.46 billion in
fiscal 2002-03 to Rs 5.42 billion in fiscal 2003-04. The company was able to
increase its net profit riding on the high sales growth of Alto, which increased by
over 130 per cent in fiscal 2003-04 as compared to fiscal 2002-03.
Maruti announced plans to invest Rs 18 billion in the fiscal 2009-10 on launching
new models and upgrading plants. In July 2009, the company launched a new
version of Grand Vitara. Maruti would also launch a Multiutility vehicle (MUV) in
October 2009. The MUV would be built on the Maruti Versa platform.
"The car market is growing increasingly competitive. This is not surprising as global
manufacturers are bound to come where they see a growing market. Maruti has a
strategy for the future."
- RC Bhargava, Chairman, Maruti Suzuki India Limited, in August 2008
Questions:
Q1. Examine the growth strategies of Maruti over the decades.
Ans. Maruti Suzuki is one of India's leading automobile manufacturers and the
market leader in the car segment, both in terms of volume of vehicles sold and
26
revenue earned. Thus, through the years, over six million Maruti cars are on Indian
roads since the first car was rolled out on December 14, 1983.
This case examines the competitive strategies of Maruti Suzuki India Limited
(Maruti), a subsidiary of Japan based Suzuki Motor Corporation (Suzuki), the
market leader in the Indian passenger car industry since it was founded in 1981.
After the liberalization of the Indian economy in 1991, several foreign players had
entered the Indian passenger car market. Since then, Maruti started losing market
share as the competitors firmly established their foothold in the car market with the
launch of several new models that became popular with the Indian buyers.
To counter the competition, Maruti started a major restructuring exercise in 2003
that helped the company hold its market leadership position and retain its market
share, along with the deregulation of the Indian automobile industry which had an
adverse impact on the company’s market share, and how its competitive strategies
helped to sustain its market leadership.
The company focused on upgrading manufacturing, increasing capacity, launching
new products at regular intervals so as to cater to all the segments of the Indian
passenger car market and venturing into other related businesses like car finance,
insurance and buying and selling used Maruti cars.
Since then, the company targeted middle income groups, who were first time car
buyers, looking for low ownership cost with basic need of a family vehicle. Then
came the other various hatchback models of Maruti like Zen, Wagon, and Alto etc.
which again targeted the middle income groups, but this time the positioning was
not as the basic need, it was comfort at comparatively lower price. And putting
another step forward, they came into Sedan’s which targeted SEC A as well as B.
Q2. Evaluate the competitive strategies of Maruti to retain its market share in the recent years.
Ans. Competitive advantage comes not from imitation, but from using
organizational processes and design to identify emerging competencies and build
them into capabilities. Again, such disproportionate, asymmetric, advantages are
hard-to-imitate ways in which an organization like Maruti, differs from its rivals,
differences that could ultimately bring huge economic benefit which may consist of
outputs, relationships and alliances, processes, nascent skills and knowledge,
provided that competitors cannot imitate these within practical time and cost
constraints.
27
Increasingly, the competencies that afford companies such sustainable edge over
rivals are moving from the realm of tangibles to intangibles.
Over the last couple of decades, many of the traditional tangible sources of
competitive advantage such as technology, access to capital and product
development have become commoditized in most industries and, the source of
competitive advantage has shifted to the intangible strengths of an organization like
organizational speed, culture and people.
Maruti Suzuki, emphasized the importance of intangibles, since their competitive
edge will emerge from intangibles like speed, responsiveness, commitment and
people excellence. In the past, core competency used to emerge from tangibles like
technology, product road-map, quality control etc., but today, all these tangibles
are replicable by competitors across the world.
As such, it becomes crucial for leaders and organizations to constantly look for
emerging competencies, shortlist ones that could be built into market-beating
capabilities, nurture these by building organizational structures and processes
around them and finally, pursue market opportunities that build and leverage on
these capabilities, and even more so for large organizations, such as Maruti.
To do well, Maruti needs to develop important capabilities or resources that their
rivals cannot. It is, however, hard for them to develop these resources unless they
already have some realized or potential edge. The first step lies in discovering the
competencies that underlie that edge.
Maruti Suzuki’s evolution into a company known for superior after-sales service,
and its developing a comprehensive customer service network over the last decade
began with both an inward and outward search.
28
Q3. Examine the future plans of Maruti to improve its competitive
position.
Ans. Maruti has some ambitious plans, since the company has launched the
Escudo, the replacement for the Grand Vitara, already available in international
markets. The Escudo, based on the GM-Suzuki Chevy Equinox platform, is a
handsome looking vehicle and would be a good flagship and image builder,
something which the aging Vitara could not do.
After all this, Maruti wants to have a look at the Corolla-Octavia-Optra line, with the
all new sedan, that Suzuki is developing, together with Maruti's diesel plant and its
new facility in Manesar.
The Wagon R will get an overhaul, given that the Solio that Maruti showcased at the
Auto Expo is already an indicator to things of the future. The reworked Wagon R will
have more legroom and a new face as well, likewise expecting a diesel to be slotted
in when Suzuki is ready with Fiat's 1.3-litre Multi-jet.
The Zen will finally be put to rest, a hard act to do with a model that is still selling a
few thousands every month, but the Zen brand name will still carry on. It is also
expected that the MR Wagon will be introduced in India with the Zen brand name.
The MR Wagon is a nifty small car powered in Japan by a 660cc engine, but the
Indian version has a bigger engine. The Swift sedan is also on the anvil, with petrol
and the new Multi-jet diesel. The Swift itself will get the diesel shot as well.
Maruti Suzuki which controls slightly over half of the domestic car market in the
country has said that it would design small cars suitable for the Indian conditions as
a strategy to beat the stiff competition with the entry of global auto makers. It
would be launching compact cars with more features to meet the needs of the
customers locally.