Session vi

Prof.SushilIITDSession-VI 1
MANAGEMENT POLICY AND STRATEGY
SESSION - VI
Generic and Grand Strategies
Prof. Sushil
Department of Management Studies
Indian Institute of Technology, Delhi
INDIA
Email: sushil@dms.iitd.ernet.in

Generic Strategies
Differentiation
Low-cost
leadership
Focus

PORTER’S GENERIC STRATEGIES
1. Cost
Leadership
2. Differentiation
3 A. Cost Focus 3 B. Differentiation
FocusNarrow
Target
Broad
Target
DifferentiationLower Cost
Competitive
Advantage
Competitive Score

REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES
Generic Commodity Required Common Organizational
Strategy Skills and Resources Requirements
Overall cost • Sustained capital investment • Tight cost control
leadership access to capital • Frequent, detailed control
reports
• Process engineering skills • Structured organization
and responsibilities
• Intense supervision of labour • Incentives based on
• Products designed for ease meeting strict quantitative
• Low-cost distribution system targets in manufacture
Differentiation • Strong marketing abilities • Strong coordination
• Product engineering among functions in R&D,
• Creative flare product development, and
marketing

REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES
CONTD…
• Strong capability in basic • Subjective measurement and
research incentives instead of
quantitative measures
• Corporate reputation for • Amenities to attract highly
quality or technological skilled labour, scientists, or
leadership creative people
• Long tradition in the industry
or unique combination of skills
drawn from other businesses
• Strong cooperation from
channels
Focus • Combination of the above • Combination of the above policies
policies directed at the directed at the regular strategic
particular strategic target target

RISKS OF THE GENERIC STRATEGIES
Risks of Cost Leadership Risks of Differentiation Risk of Focus
Cost of leadership is not Differentiation is not The focus strategy is
sustained initiated
sustained: • Competitors imitate The target segment
Competitors imitate: • Bases for differentiation becomes structurally
unattractive
Technology changes becomes less imported to • Structure erodes
Other bases for cost buyers • Demand disappears
leadership erode
Proximity in differentiation Cost proximity is lost Broadly targeted
is lost competitors overwhelm
the segment:
• The segment’s differences
from other segments narrow
• The advantages of a broad
line increase
Cost focusers achieve Differentiation focusers New Focusers sub-segments
even lower cost in segments achieve even greater the industry
differentiation in segments

STAGE OF `INDUSTRY’ DEVELOPMENT
Keeping
ahead of the
field
Cost leadership
Raise barriers
Deter
competitors
Redefine scope
Divest
peripherals
Encourage
departures
Imitation at
lower cost Joint
ventures
Differentiati
on Focus
Differentiation
New
opportunities
Leade
r
Follower
Growth Maturity Decline
Strategic
position of
organizatio
n

Types of Grand Strategies
ConsortiaConsortia
Concentrated GrowthConcentrated Growth
Market DevelopmentMarket Development
Product DevelopmentProduct Development
InnovationInnovation
Horizontal IntegrationHorizontal Integration
Vertical IntegrationVertical Integration
Concentric DiversificationConcentric Diversification
Conglomerate DiversificationConglomerate Diversification
TurnaroundTurnaround
DivestitureDivestiture
LiquidationLiquidation
BankruptcyBankruptcy
Joint VenturesJoint Ventures
Strategic AlliancesStrategic Alliances

Characteristics of a Concentrated Growth
Strategy
Involves focusing resources on the profitable growth of a
single product, in a single market, with a single dominant
technology
Rationale - Firm develops and exploits its expertise in a
delimited competitive arena
Determinants of competitive market success
– Ability to assess market needs
– Knowledge of buyer behavior
– Customer price sensitivity
– Effectiveness of promotion

Conditions Favoring a Concentrated Growth
Strategy
Firm’s industry is resistant to major technological
advancements
Firm’s industry is resistant to major technological
advancements
Firm’s targeted markets are not product saturatedFirm’s targeted markets are not product saturated
Firm’s markets are sufficiently distinctive to dissuade
competitors in adjacent markets from entering firm’s segment
Firm’s markets are sufficiently distinctive to dissuade
competitors in adjacent markets from entering firm’s segment
Firm’s inputs are stable in price and quantity and available in
amounts and at times needed
Firm’s inputs are stable in price and quantity and available in
amounts and at times needed
Firm’s industry is stableFirm’s industry is stable
Firm’s competitive advantages are based on efficient
production or distribution channels
Firm’s competitive advantages are based on efficient
production or distribution channels
Success of market generalistsSuccess of market generalists

Strategies of Market and Product
Development
Market development
– Consists of marketing present products, often with only
cosmetic modifications, to customers in related market areas
by
Adding channels of distribution or
Changing content of advertising or promotion
Product development
– Involves substantial modification of existing products or
creation of new but related products
– Based on penetrating existing markets by
Incorporating product modifications into existing items or
Developing new products connected to existing products

Specific Options for Selected Grand
Strategies
Concentration: Increasing use of present products in present
markets
1. Increasing present customers’ rate of use:
a. Increasing size of purchase
b. Increasing rate of product obsolescence
c. Advertising other uses
d. Giving price incentives for increased use
2. Attracting competitors’ customers
a. Establishing sharper brand differentiation
b. Increasing promotional effort
c. Initiating price cuts
3. Attracting nonusers to buy the product
a. Inducing trial use through sampling, price incentives, and
so on
b. Pricing up or down
c. Advertising new uses

Strategies (continued)
Market Development: Selling present products in new markets
1. Opening additional geographic markets
a. Regional expansion
b. National expansion
c. International expansion
2. Attracting other market segments
a. Developing product versions to appeal to other
segments
b. Entering other channels of distribution
c. Advertising in other media

Strategies (concluded)
Product Development: Developing new products for present markets
1. Developing new product features
a. Adapt (to other ideas, developments)
b. Modify (change color, motion, sound, odor, form, shape)
c. Magnify (stronger, loner, thicker, extra value)
d. Minify (smaller, shorter, higher
e. Substitute (other ingredients, process, power)
f. Rearrange (other patterns, layout, sequence, components)
g. Reverse (inside out)
h. Combine (blend, alloy, assortment, ensemble; combine
units, purposes, appeals, ideas)
2. Developing quality variations
3. Developing additional models and sizes (product
proliferation)

Innovation Strategy
Involves creating a new product life cycle,
thereby making similar existing products
obsolete

Strategies of Horizontal and Vertical
Integration
Horizontal integration
– Based on growth via acquisition of one or more similar
firms operating at the same stage of the production-
marketing chain
– Involves eliminating competitors, providing acquiring firm
with access to new markets
Vertical integration
– Involves acquiring firms
To supply acquiring firm with inputs - backward integration or
Are customers for firm’s outputs - forward integration

Acquisitions or mergers of suppliers or customer
businesses are vertical integrationsvertical integrations
Acquisitions or mergers of competing
businesses are horizontal integrationshorizontal integrations
Textile producer
Shirt manufacturer
Clothing store
Textile producer
Shirt manufacturer
Clothing store
Vertical and Horizontal Integrations

Motivations Related to Diversification
Strategies
Increase growth rate of firm
Investment is better use of funds than using them for
internal growth
Improve stability of earnings and sales
Balance or fill out product line
Diversify product line
Acquire a needed resource quickly
Achieve tax savings
Increase firm’s stock value
Increase efficiency and profitability

Diversification Strategies
Concentric diversification
– Involves acquisition of businesses related to acquiring
firm in terms of technology, markets, or products
Conglomerate diversification
– Involves acquisition of a business because it represents
a promising investment opportunity
– Primary motivation is profit pattern of venture
Difference between the approaches
– Concentric diversification emphasizes commonality
whereas conglomerate diversification emphasizes
profits for each individual unit

Turnaround Strategy
Involves a concerted effort over a period of
time to fortify a firm’s distinctive
competencies, returning it to profitability

Declinin
g sales
or
margins
Imminent
bankruptc
y
Low
High
Cost
reductio
n
Asset
reductio
n
Efficiency
maintenanc
e
Entrepreneuria
l
reconfiguratio
n
Stability
Recovery
Internal
factors
External
factors
Turnaround situation Turnaround response
Cause SeverityRetrenchment phase Recovery phase
(operating)
(strategic)
A Model of the Turnaround Process

Divestiture and Liquidation Strategies
Divestiture strategy
– Involves selling a firm or a major component of a firm
– Reasons for divestiture
Partial mismatches between acquired firm and parent firm
Corporate financial needs
Government antitrust action
Liquidation strategy
– Involves selling parts of a firm, usually for its tangible asset
value and not as a going concern

The Strategy of Bankruptcy
Two approaches
– Liquidation - Involves complete distribution of a firm’s
assets to creditors, most of whom receive a small
fraction of amount owed
– Reorganization - Involves creditors temporarily
freezing their claims while a firm reorganizes and
rebuilds its operations more profitably
Advantage of a reorganization bankruptcy
– Proactive option offering maximum repayment of a
firm’s debt in the future if a recovery strategy is
successful

Corporate Combination Strategies
Joint venture
– Involves establishing a third company (child), operated for
the benefit of the co-owners (parents)
Strategic alliance
– Involves creating a partnership between two or more
companies that contribute skills and expertise to a
cooperative project
Exists for a defined period
Does not involve the exchange of equity
Consortia, Keiretsus, and Chaebols
– Defined as large interlocking relationships between
businesses of an industry

The Top Five Strategic Reasons for
Outsourcing
1. Improve Business Focus1. Improve Business Focus
2. Access to World-Class Capabilities2. Access to World-Class Capabilities
3. Accelerated Reengineering Benefits3. Accelerated Reengineering Benefits
4. Shared Risks4. Shared Risks
5. Free Resources for Other Purposes5. Free Resources for Other Purposes

INDIAN BUSINESS HOUSES
TATA GROUP
Group Overview
India’s largest business house
More than 85 companies
39 listed
8% of India’s market capitalization
2.6 Million shareholders
2,70,000 employees
Turnover Rs 343 billion (1996-1997)

TATA GROUPContd...
1996-97 Rs (Billion)
322
343
30
23
40
% change Over 1995-
96
18.8
18
-7.1
- 16
19
Financial Highlights
Assets
Turnover
PBT
PAT
Exports

TATA GROUPContd...
Metals
Automobiles
Energy
Engineering
Chemicals
Pharmaceuticals
Consumer Products
Services
Agro Industries
IT and Communication
Exports
Finance

TATA GROUPContd...
Tata Heritage
Jamsetji Tata
– Started textile mill in 1877
– Inspired steel and power industry
– Technical education and philanthropy
JRD Tata
– Pioneered civil aviation
– Funded Hom Bhabha’s nuclear programme
– Guided the Tata group for over half a century
Ratan Tata
– Present Chairman since 1991

TATA GROUPContd...
Holding Companies
Tata Sons
– Founded by Jamsetji Tata
– Promoted many of the present Tata companies
– 63% held by Tata philanthropic trusts
Tata Industries
– 100% subsidiary of Tata Sons founded in 1945
– Managing agency till 1970
– Promoted new Tata companies in technology based
businesses
Cross holdings among other Tata companies

TATA GROUPContd...
Restructuring
Prompted by post 1991 changing environment
Need to identify and focus on core businesses
Resistance from satraps
– Russi Mody, Darbari Seth, Ajit Kerkar
Shrink number of companies
– From over 85 to about 30
Shrink number of core businesses
– From about 25 to around 10 or 12
Mergers and divestments
McKinsey hired as a consultants

TATA GROUPContd...
Restructuring Strategy
Keep and grow
– Power, watches, metals, chemicals, telecom, hospitality,
financial services, infotech, emerging services,
infrastructure, automobiles
Forge strategic tie ups
– Tea and beverages, retailing
Remain only as strategic investors
– Luxury cars, infotech, printing, cosmetics
Sell
– Refrigeration, paints, textiles, trading, electronics, oil drilling,
petrochemicals, pharma, specialty chemicals

TATA GROUPContd...
Recent Developments
Voltas focus on air conditioning and engineering
business
– Hive off pesticides business to Ralchem Pesticides (wholly
owned subsidiary of Rallis - largest integrated agrochemical
company in India)
Electrolux Voltas - JV between Voltas and AB
Electrolux
– Refrigerators
– Washing machines
– Compressors for refrigerators

TATA GROUPContd...
Recent Developments
Tata Tea focusing on global agro business
– Manages 32 tea gardens in Sri Lanka
– Adding tea gardens inTurkey
– Acquired a 9.5% stake in Asian Coffee
Overseas Operations
– Automobile assembly in Bangladesh
– Instant tea operations in the US
– Chain of hotels across the world
– Precision tooling operations in Singapore

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