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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.

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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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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.

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• 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:

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.