Strategies and Models August 2013

Strategies and

Implementation Models

ImplementationChallenges

Of Change

Strategy Formulationvs.

Implementation• Strategy Formulation

Stage of strategic management that involves planning and decision making on Vision, Mission, Corporate Objective and strategies for a specific strategic plan

• Strategy Implementation

Stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes

Managing Change

“Change is not merely necessary to life. It is life“

Alvin Toffler

Introduction

• Change is the singly most important element of successful management

• To remain effective, organizations (and individuals in them) have to adopt a positive attitude to change

• Ignoring or trivialising change can be costly

Change• No organization is

immune to change • To cope with new

external and internal forces, leaders have sought to fundamentally alter the way their organizations work

Sources of Resistance to Change

• Ignorance: a failure to understand the situation or the problem

• Mistrust: motives for change are considered suspicious

• Disbelief: a feeling that the way forward will not work

• “Power-Cut”: a fear that sources of influence and control will be eroded.

• Loss: change has unacceptable personal costs

• Inadequacy: the benefits from the change are not seen as sufficient

• Anxiety: fear of being unable to cope with the new situation.

• Comparison: the way forward is disliked because an alternative is preferred

• Demolition: change the destruction of existing social networks.

Types of Resistance

Functional Resistance:

• critically assessing whether change will lead to improvements

• exploring the consequences of change.

Dysfunctional Resistance:

• avoiding dealing with urgent and pressing issues

• declining to work on what really needs to be done.

Types of Resistance

Functional Resistance:

• feelings of regret, anxiety or fear

• to a previous history of non-disclosure and poor working relations.

Dysfunctional Resistance

• blaming and criticising without proposing alternatives sabotaging change

• non-collaboration with others.

Scepticism• Causes are complex• Often slow to overcome• Sceptics often dislike the “language” change is expressed and want and benefits• Not wholly negative - can

constructive in “reality-testing” change.

The change process involves Nine critical stages

1. Establish a Sense of Urgency

• Examine external realities • Identify and discuss crises, potential

crises, or major opportunities

2. Form a Powerful Guiding Coalition

• Assemble a group with enough power to lead the change effort

• Encourage the group to work as a team

3. Create a Vision

• Create a vision to help direct the change effort

• Develop strategies for achieving that vision

4. Communicate the Vision • Use everything possible to

communicate the new vision and strategies

• Teach new behaviors by the example of the guiding coalition

5. Empower Others to Act on the Vision

• Get rid of obstacles to change

• Change systems or structures that seriously undermine the vision

• Encourage risk taking and nontraditional ideas, activities, and actions

• Bucks Stop Here - Roosevelt

He was the only president elected four times—in 1932, 1936, 1940, and 1944. During his first presidential speech

Roosevelt gave his uttered the famous quote,

"The only thing to fear, is fear itself".

6. Plan for and Create Short-Term Wins

• Plan for visible performance improvements

• Create those improvements • Recognize and reward employees

involved in the improvements

7. Consolidate Improvements

and Produce Still More Change

• Use increased credibility to change systems, structures, and policies that don't fit the vision

• Hire, promote, and develop employees who can implement the vision

• Reinvigorate the process with new projects, themes, and change agents

8. Implement Agreed changes and

wait until politically acceptable• Firstly, Implement agreed changes • By pointing out the benefits of initial changes,

implement the rest.• Otherwise, wait until the powerful informal group

accepts the changes Lakshmi Mittal

9. Institutionalize New Approaches

• Articulate the connections between the new behaviors and organizational success

• Develop the means to ensure leadership development and succession

• Samsung Focus on memory chips, LCDs, monitors, and Braun tubes instead of traditional cheap copycats products..

• “ Change every thing except your spouse and children” – Kun Hee Lee CEO of Samsung

Four Mistakes

The source of most failures of change

1. Writing a memo instead of lighting a fire

• Change efforts fail at the first critical step - establishing a sense of urgency

• Too often leaders launch their initiatives by calling a meeting then expect people to “buy-in”

• It doesn't happen “ Success breeds Success” The statement is not always true. Loss of market share by arrogant GM due to ignorance of aggressive efforts of Japanese.JC Penny and Sears, retail giants was humbled by Pretty effective job of Wal-MartMotorola, giants of semiconductors and analog cell phones was humbled by digital market

2. Talking too much and saying too little

• Most leaders under communicate their change vision by a factor of 10

• An effective change vision must include new, aligned behaviors on the part of senior executives

• Leading by example• People watch their bosses very closely• Inconsistent behavior by a manager fuel the

cynicism and frustration

3. Declaring victory before the war is over

• It is important to celebrate results but underestimating the difficulty and duration of organizational transformation can be catastrophic

• If you settle for too little too soon, you will probably lose it all• Celebrating incremental improvements is good to mark

progress and sustain commitment - but don't forget how much work is still needed

Sale of Siemens Cell PhoneTo BenQ

4. Looking for villains in all the wrong places

• The perception that large organizations are filled with middle managers who resist all change is not only unfair but untrue

• People at every level are engaged in change processes

• The biggest obstacles to change are not middle managers but, more often, those who work just a level or two below the CEO - vice presidents, directors, general managers, and others who may have the most to lose in a change

• That's why it is crucial to build a guiding coalition that represents all levels of the organization

Sacking high level managers and empowering Lower level Managers by Samsung CEO

Good Reasons Why change is Unnecessary

We've never done it before Nobody else have ever done it It has never been tried before We tried it before Another company/person tried it before We've been doing it this way for 25 years It won't work in a small company It won't work in a large company It won't work in our company Why change — it's working OK The boss will never buy it It needs further investigation

Good Reasons Why change is Unnecessary

Our competitors are not doing it It's too much trouble to change Our company is different The ad department says it can't be done The sales department says it can't be done The service department won't like it The janitor says it can't be done It can't be done We don't have the money We don't have the personnel We don't have the equipment The union will scream

Good ReasonsWhy change is Unnecessary

I don't like it You're right, but ... We're not ready for it It needs more thought Management won't accept it We can't take the chance We'd lose money on it It takes too long to pay out We're doing all right as it is It needs a committee study Competition won't like it It needs sleeping on It won't work in this department It's impossible

Good Reasons Why change is unnecessary

It's too visionary You can't teach an old dog new tricks

It's too radical a change It's beyond my responsibility

It's not my job We don't have the time

It will obsolete other procedures Customers won't buy it It's contrary to policy

It will increase overhead The employees will never buy it

It's not our problem

Current situation in the worldThe fortunes of the bottom of the pyramid

• One billion people live on less than $1 a day• Another 2.7 billion survive on less than $2 a day• 6 million children a year die from malnutrition before their fifth birthday• Every 3.6 seconds, someone dies of starvation• 11 million children die – most under the age of five every year,

and more than 6 million of them from completely preventable causes like, malaria, diarrhoea and pneumonia

• 114 million children do not get even a basic education• More than 2.6 billion people lack basic sanitation• 5 million, mostly children, die every year from water-borne

diseases

Change for Better1. Eradicate extreme poverty and hunger2. Achieve universal primary education3. Promote gender equality and empower women4. Reduce child mortality5. Improve maternal health6. Combat HIV, AIDS, Malaria and other diseases7. Ensure environmental sustainability8. Develop a global partnership for development9. Ensure sustainability

Changes

ChangesThe Fortunes of the Bottom of the Pyramid

A Proven Change Agent

Obama poses as a change agentand wins D Seat

You must be the change you wish to seeIn the world

Mahathma Gandhi

You must be the change you wish to seeIn the world

Mahathma Gandhi

Forward IntegrationhangesModels for Implementation

Forward IntegrationImplementation Models

1. Demand Chain2. Transportation Model3. Customer Relationship Management4. Customer Life Cycle5. Activity Based Costing

Demand ChainImplementation Models

Transportation Model Implementation Models

Linear Programming

1. When used2. When Demand exceed the Supply3. When Supply exceed demand

Details to be considered4. Origin Points with Supply Capacity5. Destination Points with demand details6. Cost of distribution from each origin point to

destination

Transportation Model

Customer Relationship Management

1. Exploration2. Acquisition3. Retention of core customers4. Retrieval of Core Defectors5. After Sales service6. Customer Life Cycle – Prospects, First Time

Buyer, Early Repeat Buyer, Core Customer, Core Defectors

Activity Based CostingImplementation Models

1. Analysis of Activities2. Ordering3. Receiving4. Assembly5. Quality Control6. Systems Loading7. Shipping8. Delivery9. After Sales Service

Backward IntegrationImplementation Models

Inputs1. Men – Learning Curve2. Machine – NPV, Pay Back Period3. Materials – TQM, JIT, Vendor Rating4. Methods – Systems Life Cycle5. Money - Alternative Capital Structure

Men – Learning Curve Implementation Models

Machines – NPV, PBPImplementation Models

Materials Implementation Models

1. TQM – Zero Defects, Six Sigma of Motorola, PDG of Intel, Quest by Dell, TPS Toyota

2. Just in Time – Nortel, Cycle time of the Supplier

3. Vendor Rating – Honey Well

MethodsImplementation Models

1. Systems of Marketing2. Systems of operations3. Financial Control Systems4. Systems Life Cycle

MoneyImplementation Models

Details 100% 75% 50% 25% 10%Equity 100 75 50 25 10

Debt 10% 0 25 50 75 90

Total 100 100 100 100 100

EBIT 20% 20 20 20 20 20

Less Interest

0 2.5 5 7.5 9

EBT 20 17.5 15 12.5 11

Tax 30% 6 5.25 4.5 3.75 3.33

Net Profit 14 12.25 10.5 8.75 7.67

ROE 14% 16% 21% 35% 77%

Horizontal IntegrationImplementation Models

1. Competitors Profile Matrix2. Competitors Map3. GE/ McKenzie Matrix4. Game Theory – Zero Sum Game

Competitor Profile MatrixImplementation Models

1. Critical Success Factors2. Major Competitors3. Industry Weights4. Company Rating

Market PenetrationImplementation Models

1. Pricing Matrix2. Dimensions of Quality3. Demand and Supply Theory4. Bricks and Clicks Model5. 4 Cs6. Cash Breakeven Point

Pricing MatrixImplementation Models

Margin Volume Profits Products

HM HV HP BMW Mercedes

Apple iPhone

HM LV HP Rolls Royce car

LM HV HP Kellogg’s Policy

LM LV LP Cigarette companies

LM LV Loss Philips

8 Dimensions of QualityImplementation Models

Demand and Supply AnalysisImplementation Models

Bricks and Clicks ModelImplementation Models

4 CS Implementation Models

1. Cost2. Convenience –PU PE3. Customisation4. Competition

Cash Breakeven PointImplementation Models

Details per Unit BEP Cash BEP

Selling Price 10 10

Variable cost - 6 - 6

Contribution 4 4

Fixed CostDepreciation

Salary40002000 2000

Total Fixed Cost 6000 2000

Breakeven Point 6000/4 =1500 units

2000/4 =500units

Market Development Implementation Models

1. SEPT Analysis2. Forecasting3. Customer Profile Matrix4. Blue Ocean5. Red Ocean6. Porter’s Diamond Model

SEPT Analysis Implementation Models

1. SEPT Analysis2. PEST Analysis3. LEAST Analysis4. ETOP 5. Scenario Planning

Forecasting Implementation Models

Customer Profile Matrix Implementation Models

1. Demographic Factors (Who they are)2. Geographic Factors (Where they are)3. Psychographic Factors (How they think)4. Behavioural Factors (What they do)5. Environmental Factors (SEPT)

Blue Ocean Strategy Implementation Models

Porter’s Demand Model Implementation Models

Product Development Implementation Models

1. Technology Acceptance Model2. PLC and Product Adoption3. BCG Matrix4. New Product Opportunities5. Brand Development6. Arthur D Little

Technology Acceptance Model

PLC and Product Adoption Implementation Models

BCG Matrix Implementation Models

Arthur D Little Matrix Implementation Models

New Product Opportunities Implementation Models

Brand Development Implementation Models

Concentric Diversification Implementation Models

1. Resource Based View of the Firm VRIN2. Sustainable Competitive Advantage3. Delta Model4. Corporate level strategy& Controls5. Management Excellence6. Core Competence and Markets

Resource Based View VRIN Implementation Models

1. Valuable: source of greater value, in terms of relative costs and benefits, than similar resources in competing firms

2. Rare: scarce relative to demand for its use and what it produces

3. Inimitable: it is difficult and costly to copy4. Non-substitutable: other different types of

resources cannot be functional substitutes.

Sustainable Competitive Advantage Implementation Models

Delta Model Implementation Models

Corporate Level Strategy and Controls

Management Excellence Implementation Models

Eight Attributes of Management Excellence1. A bias for action – “getting on with it”2. Close to the customer – learning from the people served by the business3. Autonomy and entrepreneurship – fostering innovation and nurturing “champions”4. Productivity through people: treating rank and file employees as a source of quality5. Hands-on, value-driven: management philosophy that guides everyday practice – management showing its commitment6. Stick to the knitting: stay with the business that you know7.Simple form, lean staff: some of the best companies have minimal headquarter staff8. Simultaneous loose-tight properties – Autonomy within shop-floor activities plus centralized

Core Competence and Market

Conglomerate Diversification Implementation Models

1. GE / McKinsey Matrix2. Scenario Planning3. Conglomerate Configuration4. Relative Competitive Strength5. Value Chain

GE/ Mckinsey MatrixImplementation Models

Scenario Planning Implementation Models

Conglomerate Configuration Implementation Models

1. Holding Company2. Subsidiary Company3. Sub-Subsidiary Company4. Associate Company

Value Chain Implementation Models

Relative Competitive Strengths Implementation Models

Joint Venture Implementation Models

1. Merger & Acquisition2. Synergy3. Co-opetition4. Strategic Alliance5. Strong Vs Weak

Merger & Acquisition Implementation Models

There are four types of value creation:1. Resource sharing by combining the companies at the operating level2. Functional skills transfer by moving people or sharing information, knowledge and knowhow3. General management skill transfer through improved insight, coordination or control4. Combination benefits by leveraging cash resources, borrowing capacity, added purchasing power or greater market power

Synergy Implementation Models

Co-Opetition Implementation Models

Strategic AllianceImplementation Models

1. Sale and Lease Back2. Outsourcing

Strong Vs Weak Implementation Models

Tax Benefit

Retrenchment Implementation Models

1. Down Sizing of Resources2. Right Sizing of Resources3. Business Process Reengineering4. Value Engineering5. Automation6. Chrysler’s Score Model

Downsizing Implementation Models

Down Sizing Implementation Models

1. Work force Reduction2. Closing Unprofitable Plants

3. Outsourcing Unprofitable activities4. Implementation of tighter Cost or quality Control

5. New Policies on Quality Efficiency

Right Sizing or Reengineering

Reengineering is the fundamental rethinking and radical redesign of business processes to achievedramatic improvements in critical, contemporary measures of performance such as cost, quality, service andspeed

Value Engineering Implementation Models

Automation

– Half the Work force, Double the wages, Triple the Output

Score Model

Suppler Cost Reduction Effort by Chrysler

Divestment or Divestitures

1.Sell offs, 2.Spin offs,

3.Carve outs 4. Tracking stock

Sell Off

Subsidiary B

Company A without Subsidiary B

Company C

Sell Off

Company A w/o subsidiary B

Old Sub B

Company C

Cash, securities or assets as consideration

Spin offs• Typically parent corporation distributes on

pro rata basis, all the shares it owns in subsidiary to its own shareholders.

• No money generally changes hands• Non taxable event

– as long as it jumps through substantial hoops

Spin offs

Subsidiary B

Shareholders own shares of combined company. Own the equity in subsidiary implicitly.

Spin offs

Company A after spinoff

New company BShareholders receive Shares of company

Old shareholders still own shares of company A, which now only represent ownership of A without B.

Equity carve outs• Also called partial IPO• Parent company sells a percentage of the

equity of a subsidiary to the public stock market

• Receives cash for the percentage sold• Can sell any percentage, often just less

than 20%, just less than 50%, are chosen.

Equity carve out (partial IPO)

Company A without subsidieary B

Subsidiary B

Shareholders implicitly own 100% of equity of subsidiary B through their Company A shares.

Portion ofSub B equity

Not soldX % of sub B equity sold

To market for cashIn IPO

Shareholders now own 100% of Company A (without B)And (1-X)% of Company B implicitly

Through their company A shares

X % ofCompanyB shares

Motivations for transactions• Market for corporate control

• Asset are more valuable to alternative management team» Divestiture, spin off, carve out, tracking stock

• Unlocking hidden value• Stock market problem or management problem?

• Improving management incentives» Divestiture, spin off, carve out, tracking stock

• Agency costs» Divestiture, spin off, carve out, tracking stock

Moving assets to more highly valued user

– Division no longer has a “strategic fit”– Returning to the core business

(undiversifying)– Buyers might simply be willing to pay too

much!– Spin off, carve out, may set up a subsequent

control transaction– Or the threat may improve incentives

Focus management• Part of undiversification

• Easier to run, more able to focus efforts

• Superior performance measurement– Because you can use direct equity for compensation

(divestiture?)– By the stock market?

• Reduction in bureaucracy/Decision making authority – Internal capital markets/external cap markets

Liquidation Implementation Models

1. Chapter 112. Compulsory Liquidation3. Voluntary Liquidation

Venture Capitalists Implementation Models

1. Their Role2. Financial Gamblers3. Venture Capitalists or Vulture Capitalists?

Differentiation Implementation Models

1. USP2. Innovation Diffusion Theory3. Distinctive Capabilities

USP Implementation Models

1. Unique Selling Proposition2. Unique – Distinctive Difference of the product from

that of the competitor Offering totally a new product with inimitable features to Customers 3. Selling – Transfer of ownership from buyer to Seller4. Proposition – Distinctive promise of the facts of the

product or service to be delivered to the customer

Innovation Diffusion Theory• Innovation = An idea, practice, or object

perceived as new by an individual or other unit of adoption– Software (necessary)– Hardware (optional)

• The Diffusion of Innovations Theory attempts to predict adoption of innovations. . . Typically, the adoption follows a standard pattern:

Attributes of Innovations that Impact on Rate of Adoption

The corresponding Classic Bell-Shaped Adopters Curve

Many studies have looked at how these groups differ:Innovators are highly cosmopolite and open to new things.Early adopters tend to be opinion leaders.Early majority provide “legitimization” of the innovation.Late majority are skeptical.Laggards put trust in the status quo.

Distinctive Capabilities Framework - John Kay

1. Architecture – Structure of relationship with employees, customers and suppliers

2. Reputation built around customers’ own experience, quality, warranty, guarantee, word of mouth

3. Translation of innovation into competitive advantage

Cost LeadershipImplementation Models

1. TQM2. JIT3. Autonomation4. Cybernetics 5. Lean Management

In search Cost Control with six sigma

Six Sigma Quality (TQM)

1. A high level of quality associated with approximately 3.4 defective parts per million

2. Six Sigma was coined by Motorola in the 1980s. Sigma stands for number of std deviations of the process

3. Before a product is designed, marketing ensures that product characteristics are exactly what customers want.

4. Operations ensure s that exact product characteristics can be achieved through product, design, the manufacturing process and the materials used.

5. The six sigma is integral part of other functions as well

6. At Motorola it is six sigma, at Xerox it is called leadership through quality, at Intel it is PDQ ( Perfect Design Quality ) or Pretty Dam Good) at HP, it is Total Quality control

Elements to support Just In Time

1. Production of goods shortly before they are needed to keep inventories low2. Limited varieties with in a factory3. Uniform production rate4. Pull Vs Push method of coordinating work centers5. Kanban System6. Production, ordering and procurement in small lots

7. Quick, inexpensive set ups8. Multi skilled workers and flexible facilities9. High quality levels - Acceptable quality levels 10. Effective preventive and predictive maintenance11. Continuos monitoring and improvement12. Theory of constraints and limiting factors

Autonomation “JIDOKA”1. Autonomation and JIT are two key aspects of Toyota Production system2. Jidoka is a reliable system that is cheaper to operate and produced the

expected quality3. Whenever defect is spotted, Jidoka becomes operational.

4. It stops operation and triggers a switch to show red light Andon.5. The red light alerts the work force to the problem and its location6. The machine or batch of machines will remain shut down until the

workforce can identify the cause and correct the problem.

7. Problem correction is the responsibility of all employees in the vicinity of the work station.

8. In most instances, the Andon (red light) remains on only for seconds9. If longer delays were to occur in a plant, that plant would just not be

ready for the JIT Process

Cybernetics

1. Basically a scientific method of control of problems and communications.

2. This science is useful in every area of production but particularly in psychological motivation and reducing the cost of operations.

2. An emerging field of study that explores the integration of the human nervous system and human-made technological devices, such as microchips, robotic components, “nano” machines and electronics to reduce cost and to increase production efficiency .

Lean Manufacturing Origination from Toyota production system Taiichi Ohno.

Its relationship with frugal manufacturing:

Improve capability to modify, customize and simplify Automate only when benefits are clear Factories within factories Split plants when they become too large

JIT and TQM at Northern Telecom

Achievement of JIT and TQM in NT

Area Percentage Prior After JIT JIT Manufacturing Cycle Time 100% 25%Aggregate Inventory 100% 70%Operational Overhead 100% 65%

Conclusion

Peter Drucker’s Next Society

1. Tomorrow is closer than you think. Peter Drucker explains how it will differ from today and what needs to done to prepare for it2. The new demographics How to live with aging population ?3. The new workforce Knowledge workers are the new capitalists

4. The manufacturing paradox How do you get far more output with far fewer workers5. Will corporations survive ? Yes, but not as we know it6. The way ahead The time to get ready for next society is now

Knowledge Workers Vs Knowledge Technologists

1. Present Knowledge Worker - People with considerable theoretical knowledge and learning: doctors, lawyers, teachers, accountants, chemical engineers

2. Most striking growth - Emergence of Knowledge Technologists: Computer technicians, software designers, analysts in chemical labs, manufacturing technologists, paralegals etc

3. Just as unskilled manufacturing workers were dominant social and political force in the 20th Century, knowledge technologists are likely to

dominate as social and political force over the next decades

The Manufacturing Paradox How do you get far more output with far fewer workers?

1/2 x 2 x 3 Half the work force, Double the wages, Triple the output

1. Between 1960 and 1999, manufacturing jobs is reduced to half as against

doubling or tripling of manufacturing output 2. Labor cost was around 30% of manufacturing cost in 1960 and now it

is down to 15%

3. The contribution of manufacturing towards GNP is reduced to less than half as

against the contribution of services sector is increased to more than half of

total employment ( In fact, in USA, it is 75%)

Will Corporation Survive ?

Yes, but not as we know it ?Since the invention of Corporation in 1870, the following five basic points have been

assumed to apply..

1. Corporation is the master and employee is the servant.

2. Full time employment for corporation.

3. Production under one management or one company concept lowers transaction cost. Rockefeller’s successful experiment of putting exploration, production, transport, refining and selling under one corporate structure resulted into lowest cost petroleum operation. So also Ford’s experiment.

4. Market power with manufacturers and brand loyalty

5. To any one particular technology pertains to only one industry and any one particular industry pertains to only one technology.

Above assumptions remained valid for whole century, but from 1970 onwards every one of them turned upside down.

The New Workforce Knowledge workers are the new capitalists

1. Steady shrinkage of factory workers and emergence of knowledge workers in

developed countries.

2. Coining of words “ Knowledge Industry”’ “ Knowledge work”’ “Knowledge

Worker” firstly by a Princeton Economist Fritz Machlup the second and third by

Peter Drucker.

3. Emergence of knowledge workers as new capitalists due to their massive and

majority stakes in pension and mutual funds.

Yes, but not as we know it ?The five assumptions remained valid for whole century, but from 1970 onwards

every one of them turned upside down

1. The highly portable knowledge worker and knowledge technologist provide capital just as provider of money making them as equal partner.

2. Emergence of part time, temporaries, consultants or contractors.

3. Instead of costly and complex integration of various activities, outsourcing to professional organizations. Even HRD functions in USA is outsourced

4. Market power is shifting from manufacturer to customer who can have full information of the market through internet.

5. Any technology to any industry. Transistor invented by Bell telephone largely used by Japanese electronic companies like Sony.

Information Revolution

1. 16th Century to 19th Century – First and Second Industrial revolution were most innovative and most fertile periods for creation of new institutions.

2. The First industrial revolution brought forth intellectual property, universal incorporation, limited liability, trade union, the co-operative, the

technical university and news paper.

3. The second industrial revolution produced the modern civil service and modern corporation, the commercial bank, the business schools and office going women.

4. What next ? Information Revolution once again emerges into new theories, new

institutions and new money which totally beyond the control of any country.

5. In Information Revolution. IT will, of course, will be important, but it will be only one of several important new technologies.

Forward Integration Ownership or Control over outputs -5 Ms

• Expensive or unreliable Distributors or outputs • Competes in a growing industry• Surplus capital and human resource• Need to maintain stable supply price• High Profit margin ouput providers• Models: Bricks and Clicks, ABC, Delta Model

Forward Integration

Successes Failures

GM Reliance Petroleum

Dell Dell in China

Levi’s Kripsy Cream Doughnuts

Las Vegas Casino Machine Co Mary Kay’s in China

Amway P&G and its E Stores

Forward IntegrationImplementation Models

1. Demand Chain2. Transportation Model3. Customer Relationship Management4. Customer Life Cycle5. Activity Based Costing

Demand ChainImplementation Models

Transportation Model Implementation Models

Linear Programming

1. When used2. When Demand exceed the Supply3. When Supply exceed demand

Details to be considered4. Origin Points with Supply Capacity5. Destination Points with demand details6. Cost of distribution from each origin point to

destination

Transportation Model

Customer Relationship Management

1. Exploration2. Acquisition3. Retention of core customers4. Retrieval of Core Defectors5. After Sales service6. Customer Life Cycle – Prospects, First Time

Buyer, Early Repeat Buyer, Core Customer, Core Defectors

Activity Based CostingImplementation Models

1. Analysis of Activities2. Ordering3. Receiving4. Assembly5. Quality Control6. Systems Loading7. Shipping8. Delivery9. After Sales Service

Backward Integration

Ownership or Control over inputs -5 Ms

• Expensive or unreliable input providers• Competes in a growing industry• Surplus capital and human resource• Need to maintain stable supply price• High Profit margin input providers• Models: Performance Appraisal, NPV, JIT,TQM, • Systems life Cycle, Cost of Capital

Backward Integration

Successes Failures

Amazon.com AOL with Time Warner

Starbucks GM with Dlphi Automotives

Arcelor Mittal Lockeed Martin with NOC

Pepsi Cola Ford Location owning 16 coal mines

Fed Express Boeing and Airbus in 90s

Backward IntegrationImplementation Models

Inputs1. Men – Learning Curve2. Machine – NPV, Pay Back Period3. Materials – TQM, JIT, Vendor Rating4. Methods – Systems Life Cycle5. Money - Alternative Capital Structure

Men – Learning Curve Implementation Models

Machines – NPV, PBPImplementation Models

Materials Implementation Models

1. TQM – Zero Defects, Six Sigma of Motorola, PDG of Intel, Quest by Dell, TPS Toyata

2. Just in Time – Nortel, Cycle time of the Supplier

3. Vendor Rating – Honey Well

MethodsImplementation Models

1. Systems of Marketing2. Systems of operations3. Financial Control Systems4. Systems Life Cycle

MoneyImplementation Models

Capital Structure - Alternatives

Details 100% 75% 50% 25% 10%Equity 100 75 50 25 10

Debt 10% 0 25 50 75 90

Total 100 100 100 100 100

EBIT 20% 20 20 20 20 20

Less Interest

0 2.5 5 7.5 9

EBT 20 17.5 15 12.5 11

Tax 30% 6 5.25 4.5 3.75 3.33

Net Profit 14 12.25 10.5 8.75 7.67

ROE 14% 16% 21% 35% 77%

Horizontal Integration

Ownership or Control over competitors

• Desire to become near monopoly • Competes in a growing industry• Surplus capital and human resource• Need to maintain stable supply price• Need for Economies of scale• Lack of managerial expertise of faltering competitors• Models: Red Ocean, Cost – Benefit Analysis,

Acquisition Integration Approach

Horizontal Integration

Successes Failures

Compaq & HP Compaq & DEC

AT&T and Comcast BMW & Rolls Roye

Air France &KLM Daimler &Chrysler

Tata & Corus Nestle and Rowntree

Kraft and Cadbury Bank America a& Merrill Lynch

1. Competitors Profile Matrix2. Competitors Map3. GE/ McKenzie Matrix4. Game Theory – Zero Sum Game

Competitor Profile MatrixImplementation Models

1. Critical Success Factors2. Major Competitors3. Industry Weights4. Company Rating

Market Penetration Existing markets with existing Products for

increased market share

• Non Saturated current markets (PLC)• Need to increase usage rate of current customers• Increase in industry sales and decline of competitor’s

sales – Nokia• Need for Economies of scale• High ratio of marketing expenditure on sales• Models: Ansoff, PLC, BCG, Pricing Matrix

Market Penetration

Successes Failures

Wal-Mart K Mart

Pepsi Vs Coke E-Bay in China

Intel Starbucks in Australia

GM Vs Ford Motorola in US

Toyota in US AMD in US

Market PenetrationImplementation Models

1. Pricing Matrix2. Dimensions of Quality3. Demand and Supply Theory4. Bricks and Clicks Model5. 4 Cs6. Cash Breakeven Point

Pricing MatrixImplementation Models

Margin Volume Profits Products

HM HV HP BMW Mercedes

Apple iPhone

HM LV HP Rolls Royce car

LM HV HP Kellogg’s Policy

LM LV LP Cigarette companies

LM LV Loss Philips

8 Dimensions of QualityImplementation Models

Demand and Supply AnalysisImplementation Models

Bricks and Clicks ModelImplementation Models

4 CS Implementation Models

1. Cost2. Convenience –PU PE3. Customisation4. Competition

Cash Breakeven PointImplementation Models

Details per Unit BEP Cash BEP

Selling Price 10 10

Variable cost - 6 - 6

Contribution 4 4

Fixed CostDepreciation

Salary40002000 2000

Total Fixed Cost 6000 2000

Breakeven Point 6000/4 =1500 units

2000/4 =500units

Market Development New markets with existing Products

• Reliable, inexpensive channels• Existence of untapped or unsaturated markets• Surplus capital and human resource• Excess Production capacity• Rapid global growth of basic industries• Models: Positioning Trout, Experience or learning

Market Development

Successes Failures

Airtel Entry into Africa K Mart, Wal mart

Nestle McDonald in Jamaica

Philips Walt Disney into France

IKEA entry into China Whirlpool in Japan

Toyota in US Nokia in Japan

Market Development Implementation Models

1. SEPT Analysis2. Forecasting3. Customer Profile Matrix4. Blue Ocean5. Red Ocean6. Porter’s Diamond Model

SEPT Analysis Implementation Models

1. SEPT Analysis2. PEST Analysis3. LEAST Analysis4. ETOP 5. Scenario Plaaning

Forecasting Implementation Models

Customer Profile Matrix Implementation Models

1. Demographic Factors (Who they are)2. Geographic Factors (Where they are)3. Psychographic Factors (How they think)4. Behavioural Factors (What they do)5. Environmental Factors (SEPT)

Blue Ocean Strategy Implementation Models

Portor’s Demand Model Implementation Models

Product Development

Existing markets with New Products to increase sales

• Maturity Stage of PLC• Rapid Technology Development of the industry• Better quality and pricing by competitors• Industry in high growth• Strong R & D Base• Models: PLC, BCG Product Port Folio

Product Development

Successes Failures

SONY Window Vista

Apple RJ Reynold Premier Cigarettes

Gillette Campbell Soup's beverage

Intel 286,386,486, 586, Pentium New Coke

Ford Sportsman Car Blackberry Play Book

Product Development Implementation Models

1. Technology Acceptance Model2. PLC and Product Adoption3. BCG Matrix4. New Product Opportunities5. Brand Development6. Arthur D Little

Technology Acceptance Model

PLC and Product Adoption Implementation Models

BCG Matrix Implementation Models

Arthur D Little Matrix Implementation Models

New Product Opportunities Implementation Models

Brand Development Implementation Models

Concentric Diversification

Related Diversification – Adding new but

related products

• No Growth or slow growth industry• Need to new, but related products• New to introduce related products to match with

seasonal sales• Decline stage of PLC• Presence of strong management Team• Models: GE, BCG, Porter’s Value Chain

Concentric Diversification

Successes Failures

AT&T entry into internet video service by acq Bell South

McDonald - McPizza

Google Acquisition of You Tube Apple Game Sole

Sea Gate – from disk drive to data storage thro Evault

HP Touch Pad a tablet computer

CisCo – from computer routers to online conferencing services

Pond’s Toothpaste

Sime Darby Maggie Atta Noodles

Concentric Diversification Implementation Models

1. Resource Based View of the Firm VRIN2. Sustainable Competitive Advantage3. Delta Model4. Corporate level strategy& Controls5. Management Excellence6. Core Competence and Markets

Resource Based View VRIN Implementation Models

1. Valuable: source of greater value, in terms of relative costs and benefits, than similar resources in competing firms

2. Rare: scarce relative to demand for its use and what it produces

3. Inimitable: it is difficult and costly to copy4. Non-substitutable: other different types of

resources cannot be functional substitutes.

Sustainable Competitive Advantage Implementation Models

Delta Model Implementation Models

Corporate Level Strategy and Controls

Management Excellance Implementation Models

Eight Attributes of Management Excellence1. A bias for action – “getting on with it”2. Close to the customer – learning from the people served by the business3. Autonomy and entrepreneurship – fostering innovation and nurturing “champions”4. Productivity through people: treating rank and file employees as a source of quality5. Hands-on, value-driven: management philosophy that guides everyday practice – management showing its commitment6. Stick to the knitting: stay with the business that you know7.Simple form, lean staff: some of the best companies have minimal headquarter staff8. Simultaneous loose-tight properties – Autonomy within shop-floor activities plus centralized

Core Competence and Market

Conglomerate Diversification

Unrelated Diversification – Adding new

unrelated products

• Dire Need to increase the revenue• Low industry profit margin• Usage of present channels for unrelated products• Surplus capital and managerial talent• Attractive investment opportunity• Anti Trust Laws• Models: GE, BCG, Porter’s Value Chain

Conglomerate Diversification

Successes Failures

All Korean Conglomerates Samsung entry into automobiles

GE from bulb to oil &gas, finance, aviation, health

Sime Darby in ASEAN

Toyota from sericulture to Automobiles

Harley Davidson to aftershave lotion

Nokia from Forestry to Telcom Colgate to Frozen food

Tata – a cotton trading Co 1856ITCEssar

Bic Corporation from disposable pen to cigarettes, women underwear Citi Bank

Conglomerate Diversification Implementation Models

1. GE / McKinsey Matrix2. Scenario Planning3. Conglomerate Configuration4. Relative Competitive Strength5. Value Chain

GE/ Mckinsey MatrixImplementation Models

Scenario Planning Implementation Models

Conglomerate Configuration Implementation Models

1. Holding Company2. Subsidiary Company3. Sub-Subsidiary Company4. Associate Company

Value Chain Implementation Models

Relative Competitive Strengths Implementation Models

Joint Venture Co-operative arrangements thro strategic

alliances

• Crisis management• Synergy effect • Domestic company with foreign company• Profitable risky projects – Alaska pipelines • Joint venture of small firms against big rival

• Models: Profit Pools Method, Theory of Strategic Thrust

Joint Venture

Successes Failures

Product of Nestle and distribution capabilities of CocaCola

GM Daewoo in Korea

Tata and AIG GE Appliances and Godrej

Maruthi and Suzuki Intel and Sap due high cost of SAP

Honda and Hero France Telcom and Sprint Germany - Culture

Sony Ericsson Mahindra and Renault

Joint Venture Implementation Models

1. Merger & Acquisition2. Synergy3. Co-opetition4. Strategic Alliance5. Strong Vs Weak

Merger & Acquisition Implementation Models

There are four types of value creation:1. Resource sharing by combining the companies at the operating level2. Functional skills transfer by moving people or sharing information, knowledge and knowhow3. General management skill transfer through improved insight, coordination or control4. Combination benefits by leveraging cash resources, borrowing capacity, added purchasing power or greater market power

Synergy Implementation Models

Co-Opetition Implementation Models

Strategic AllianceImplementation Models

1. Sale and Lease Back2. Outsourcing

Strong Vs Weak Implementation Models

Tax Benefit

Retrenchment Regrouping the resources to reverse

downward trend

• Failure of distinctive competencies • Organization as a Weaker competitor • Inefficiency, low profits, low employee morale • Failure to capitalize external opportunities• Growing Big

• Models: PLC, BCG, BP Reengineering, Value Engineering

Retrenchment

Successes Failures

British Petroleum RBS – 2009

Citi Bank PAN AM

Thomson and Reuters Jet Airways / Air India

GM Nortel

Rolls Royce – cutting tem work force and work shops – Xmas Shut down

Maruti Udyog of Sanjay Gandhi – Court order to reemploy

Retrenchment Implementation Models

1. Down Sizing of Resources2. Right Sizing of Resources3. Business Process Reengineering4. Value Engineering5. Automation6. Chrysler’s Score Model7. Demerger

Downsizing Implementation Models

Down Sizing Implementation Models

1. Work force Reduction2. Closing Unprofitable Plants

3. Outsourcing Unprofitable activities4. Implementation of tighter Cost or qualityControl

5. New Policies on Quality Efficiency

Right Sizing or Reengineering

1.Fundamental rethinking and radical redesign of business processes

2. Achievement of dramatic improvements in critical areas

3. Contemporary measures of performance such as cost, quality, service and speed

Value Engineering Implementation Models

Automation

– Half the Work force, Double the wages, Triple the Output

– Peter F.Drucker

Score Model

Suppler Cost Reduction Effort by Chrysler

Divestment Selling a division or a part of a company

• Failure of Retrenchment strategy• Need for more resources • Poor performance of a division• Misfit of a division

• Models: Cost-Benefit Analysis, PLC, BCG

Divestment

Successes Failures

Kodak sale of health care PAN AM sale of air craft to Delta

L & T sale of cement division Tyco sale of Capital group and health care

Du Pont sale of Textile unit TATA Telcom divests hardware to AVAYA – Now TATA pays high charges for its requirements

Motorola - Outsourcing Kellogg’s divest non core assets in Argentine snack foods

IBM sale of PC unit CBS Seven TV stations

Divestment or Divestitures

1.Sell offs, 2.Spin offs,

3.Carve outs 4. Tracking stock

Sell Off

Subsidiary B

Company C

Sell Off

Company A w/o subsidiary B

Old Sub B

Company C

Cash, securities or assets as consideration

Spin offs• Typically parent corporation distributes on

pro rata basis, all the shares it owns in subsidiary to its own shareholders.

• No money generally changes hands• Non taxable event

– as long as it jumps through substantial hoops

Spin offs

Subsidiary B

Shareholders own shares of combined company. Own the equity in subsidiary implicitly.

Spin offs

Company A after spinoff

New company BShareholders receive Shares of company

Old shareholders still own shares of company A, which now only represent ownership of A without B.

Equity carve outs• Also called partial IPO• Parent company sells a percentage of the

equity of a subsidiary to the public stock market

• Receives cash for the percentage sold• Can sell any percentage, often just less

than 20%, just less than 50%, are chosen.

Subsidiary B

Shareholders implicitly own 100% of equity of subsidiary B through their Company A shares.

Portion ofSub B equity

Not soldX % of sub B equity sold

To market for cashIn IPO

Shareholders now own 100% of Company A (without B)And (1-X)% of Company B implicitly

Through their company A shares

X % ofCompanyB shares

Motivations for transactions• Market for corporate control

• Asset are more valuable to alternative management team» Divestiture, spin off, carve out, tracking stock

• Unlocking hidden value• Stock market problem or management problem?

• Improving management incentives» Divestiture, spin off, carve out, tracking stock

• Agency costs» Divestiture, spin off, carve out, tracking stock

Moving assets to more highly valued user

– Division no longer has a “strategic fit”– Returning to the core business

(undiversifying)– Buyers might simply be willing to pay too

much!– Spin off, carve out, may set up a subsequent

control transaction– Or the threat may improve incentives

Focus management• Part of undiversification

• Easier to run, more able to focus efforts

• Superior performance measurement– Because you can use direct equity for compensation

(divestiture?)– By the stock market?

• Reduction in bureaucracy/Decision making authority – Internal capital markets/external cap markets

1. Chapter 112. Compulsory Liquidation3. Voluntary Liquidation

Venture Capitalists Implementation Models

1. Their Role2. Financial Gamblers3. Venture Capitalists or Vulture Capitalists?

Differentiation

• Diverse needs of customers • Strong differentiated rival firms• Competition revolves around technology• Nature of industry• Insensitive price customers

• Models: Porter’s Generic Model

Differentiation

Successes Failures

Mountain Dew – Root beer taste HD DVD by Toshiba

Blue Ray Disc of Warner Brothers Maruthi Luxury NPV minibus shape

Fed Express guaranteed Delivery Coco-Cola Vanilla Flavor

Toyota Qualis BMW with Rolls Royce

Apple iPhone 1 Black Berry

USP Implementation Models

1. Unique Selling Proposition2. Unique – Distinctive Difference of the product from

that of the competitor Offering totally a new product with inimitable features to Customers 3. Selling – Transfer of ownership from buyer to Seller4. Proposition – Distinctive promise of the facts of the

product or service to be delivered to the customer

Innovation Diffusion Theory• Innovation = An idea, practice, or object

perceived as new by an individual or other unit of adoption– Software (necessary)– Hardware (optional)

• The Diffusion of Innovations Theory attempts to predict adoption of innovations. . . Typically, the adoption follows a standard pattern:

Attributes of Innovations that Impact on Rate of Adoption

The corresponding Classic Bell-Shaped Adopters Curve

Many studies have looked at how these groups differ:Innovators are highly cosmopolite and open to new things.Early adopters tend to be opinion leaders.Early majority provide “legitimization” of the innovation.Late majority are skeptical.Laggards put trust in the status quo.

Distinctive Capabilities Framework - John Kay

1. Architecture – Structure of relationship with employees, customers and suppliers

2. Reputation built around customers’ own experience, quality, warranty, guarantee, word of mouth

3. Translation of innovation into competitive advantage

Cost Leadership

Lesser cost at a better quality and price & better than competitor

• Rigorous competition with rivalry • Product differentiation• Similar usage of products by most buyers• Large buyers with significant bargaining power• Reduced cost of raw materials with better quality• Price and quality better than the competitor

• Models: Pricing matrix, Six Sigma, Value Engineering

Cost Leadership

Successes Failures

Samsung LCD and mobiles Sharp LCD

IKEA / HP Printers Texas Instruments Electronic Digital Watches

South West Airlines Skybus Airlines

Toyota – TPS – Lean Ford Motors Model T like Tata Nano

Japanese Watch Industry and Swiss

SONY Betamax

Cost LeadershipImplementation Models

1. TQM2. JIT3. Autonomation4. Cybernetics 5. Lean Management

In search Cost Control with six sigma

Six Sigma Quality (TQM)

1. A high level of quality associated with approximately 3.4 defective parts per million

2. Six Sigma was coined by Motorola in the 1980s. Sigma stands for number of std deviations of the process

3. Before a product is designed, marketing ensures that product characteristics are exactly what customers want.

4. Operations ensure s that exact product characteristics can be achieved through product, design, the manufacturing process and the materials used.

5. The six sigma is integral part of other functions as well

6. At Motorola it is six sigma, at Xerox it is called leadership through quality, at Intel it is PDQ ( Perfect Design Quality ) or Pretty Dam Good) at HP, it is Total Quality control

Elements to support Just In Time

1. Production of goods shortly before they are needed to keep inventories low2. Limited varieties with in a factory3. Uniform production rate4. Pull Vs Push method of coordinating work centers5. Kanban System6. Production, ordering and procurement in small lots

7. Quick, inexpensive set ups8. Multi skilled workers and flexible facilities9. High quality levels - Acceptable quality levels 10. Effective preventive and predictive maintenance11. Continuos monitoring and improvement12. Theory of constraints and limiting factors

Autonomation “JIDOKA”1. Autonomation and JIT are two key aspects of Toyota Production system2. Jidoka is a reliable system that is cheaper to operate and produced the

expected quality3. Whenever defect is spotted, Jidoka becomes operational.

4. It stops operation and triggers a switch to show red light Andon.5. The red light alerts the work force to the problem and its location6. The machine or batch of machines will remain shut down until the

workforce can identify the cause and correct the problem.

7. Problem correction is the responsibility of all employees in the vicinity of the work station.

8. In most instances, the Andon (red light) remains on only for seconds9. If longer delays were to occur in a plant, that plant would just not be

ready for the JIT Process

Cybernetics

1. Basically a scientific method of control of problems and communications.

2. This science is useful in every area of production but particularly in psychological motivation and reducing the cost of operations.

2. An emerging field of study that explores the integration of the human nervous system and human-made technological devices, such as microchips, robotic components, “nano” machines and electronics to reduce cost and to increase production efficiency .

Lean Manufacturing Origination from Toyota production system Taiichi Ohno.

Its relationship with frugal manufacturing:

Improve capability to modify, customize and simplify Automate only when benefits are clear Factories within factories Split plants when they become too large

JIT and TQM at Northern Telecom

Achievement of JIT and TQM in NT

Area Percentage Prior After JIT JIT Manufacturing Cycle Time 100% 25%Aggregate Inventory 100% 70%Operational Overhead 100% 65%

Focus on Cost leadership or Differentiation or both

• Niche market with prospects of growth • Market leaders do not consider niche to be crucial• Too costly or difficult to meet the needs of specialist* Models: Test Marketing Model