11020241102_vishal kasi vishwanath
TRANSCRIPT
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GSM
March 25
2012Scavenging Report
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Vishal Kasi
Vishwanath
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Contents
Key Concepts ................................................................................................................................................. 3
How local is your global growth strategy? .................................................................................................... 5
New Strategy Directions ............................................................................................................................... 7
Strategic bets .............................................................................................................................................. 10
C.K. Prahalad: the man who knew strategy ................................................................................................ 11
References .................................................................................................................................................. 12
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Global Strategic Management
Key Concepts:
Learnings: Strategic management deals with deciding a long-term course for an organization. This Is
based centrally on achieving a sustainable competitive advantage. In practice, the 3 stages of strategic
management i.e. analysis, development and implementation happen simultaneously. Analysis means
scanning the environment, development is developing a strategy to enter the market and
implementation is executing the same. Erstwhile, entering a global market was done when the home
market became unattractive or unprofitable, whereas today simply focusing on the home market cannot
guarantee strategic competitiveness. The difference between an international and a global strategy is
that in an international strategy different subsidiaries have autonomy of decision making whereas in aglobal strategy, decision-making is done centrally. Talking about the 3 dimensions of global strategy:
Configuration and co-ordination: This dimension talks about taking advantage of the synergies between
nations in terms economies of scale and scope. Also, taking advantage of the resources inherited like the
location, climate, the stock of natural deposits. There are also resources that have been gained by
investment over a period of time e.g education, labour productivity, infrastructure , technical
capabilities and other such skills.
Standardization: It talks about to what extent can an organization standardize its offerings to different
countries with minor advantages to suit the local people. What IKEA did was that they offered the same
standard products globally but when they realized that the US local market needs were different, theyadapted it. This is a good example of adaptive strategy.
Integration: talks about taking decisions for the firm as a whole instead of a particular country. An
example given is attacking a competitor in one country to drain its resources for another country or
countering a competitor attack in another country.
Excerpts from the reading material:
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Source: Global Strategic Management
By Kamel Mallehi
J. George Frynas
Paul Finlay
How local is your global growth strategy?
Learnings: This article focuses on 2 aspects: adapting to local markets and shifting of power to
emerging markets. It takes the example of the US corporate strategy as being dependent on the
rural-urban divide and the high income-low income segmentation. Strategy in every market
depends on the costs, opportunities and risks associated with that market. It also includes the
uncertainty in terms of government regulation, demographics and ultimately finding out what
adds most value to a market.
Excerpts from article read:
As CEOs focus on getting their business models right for an interconnected global economy,
many recognize that the sources of growth are very much local. Consider changing customerdemand, the biggest driver of change to US corporate strategy. Success involves understandingcustomer segmentationsuch as rural-urban and high income-low income -- and the dynamics
driving it.
Even the vast markets of China and India are hardly monolithic, as evident from their cultural
diversity, inconsistent provincial government policies, etc. Having a truly global strategy is about
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continuously rebalancing opportunities and risks, encompassing business imperatives such as
talent, innovation, and regulation, at local levels.
About balancing costs, risks and opportunities: Ongoing volatility and uncertainty means
companies are keeping a close eye on costs and risks. But going local focuses on activities that
add the most value in each market and making selective, rational choices can help balance costs,risks and opportunities.
Source:http://www.pwc.com/gx/en/issues/strategy-growth.jhtml
Source:http://www.pwc.com/gx/en/issues/strategy-growth.jhtml
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New Strategy Directions
The following article talks about the fact that the post crisis world demands a much more flexible
approach to global strategy and organization.
Learnings:
Strategies and Competition: Most companies have been basing their global strategies banking on
an integrated world economy, but now they realize that they have to adapt themselves to national
differences becoming more pronounced. Strategies emphasizing smoothing out the nationalistic
differences and focusing on economies of scale have to change and adapt to local needs. Some
firms have also tried out allocating resources according to their strategic priorities. A number of
large companies have directed their investment priorities to fast growing economies like China
and to a certain extent India while tightening the financial taps elsewhere. In these developing
nations, their home-grown firms have grown like anything to present formidable rivals to ever
larger size and reach.
Markets and Products: Customer targeting for multinationals from advanced economies willhave to change. In large emerging economies earlier, companies used to target the urban elite by
offering premium products. Now, they have to explore more channels and offer a wider variety
of products to take care of regional differences. The differences include taste, price sensitivities,
infrastructure for service and delivery, It is hard enough to know how what New York wants is
different from what Mumbai wants. Now its even harder to know how Mumbai is different from
Nagpur in terms of demand and behavior patterns. With rural penetration and targeting, falling
prices lead to frugality being valued more than excess. But the savvier players are already trying
this approach.Nokias 1,000-plus-employee R&D force in India has engaged in extensive
product adaptation, some of it focused on rural and other lower-income markets. The results
include a basic mobile phone that doubles as a flashlight for use during power outages and a
phone designed to be shared by multiple people.
Operations and Innovation: The US global giants that were heavily bent towards offshoring have
post crisis stressed that they have made many investments at home. Even when companies
continue to do offshoring managing the discourse around it is important. The need to reduce
global trade imbalances, protectionism and protecting the environment have undermined the
traditional Chimerica relationship wherein America used to heavily import from China. The
need to reduce supply chains have arisen. Where processing used to happen at 12 different places
in parts, efforts are being made to reduce the chain length. The projected shortfall in the globalsupply of engineers have led to high-tech firms with interest in emerging markets are starting to
think hard about basing their R&D facilities in these countries. The flow of knowledge and
innovation has also reversed with plants in Mexico becoming models for plants in the US.
Identity and Reputation: Establishing a one-firm identity will be crucial.The firms that
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Will be likely to deal with cultural differences are the ones that have clear and well-understood
values communication norms yet respecting diversity. Post-crisis, with the government taking on
an expanded role of an investor, customer, regulator and tax collector, corporate diplomacy is
becoming an important component of strategy in the post-crisis world. CEOs and other
executives will have to spend more time managing government relationships. Another interesting
fact is that companies need to come to grips with the fact that the general reputation of business
is low post crisis. Companies who have faltered need to reinstate their reputation.
That concludes our whirl around the strategy wheel. If there is one overarching message to take
away from the trip, its that for the typical multinational the post-crisis world requires a
somewhat looser approach to strategy and organization than was popular just a few years
ago. A second important message is that multinationals must increase diversity in their ranks
but, at the same time, build cohesive corporate cultures and tighten their talent managementpractices. That creates a tension, of course. Nevertheless, developed-world companies
have to become more cosmopolitan in their worldview and more discriminating in their
investment choices. They still have timebut not muchto make that adjustment and to exploitwhat remain strong advantages in many sectors.
Organization structures: Even in terms of organization structure which was focused on being
integrated pre-crisis, the occurrence of the crisis warrants a different style. We may see more
powers conferred upon country managers in order to look to adapt to local conditions.
Companies may move some of their functions from their headquarters. E.g. IBMs global
procurement office is now located in Shenzhen, China. Cisco set up its second headquarters-
Cisco East in Bangalore. Then there is a dramatic example of the GM reorganization. The
companys Mexican and Canadian operations continue to report to the person overseeing them,in the US. Whereas except for Europe their remaining operations report to the head of their
China operation. In terms of the number of vehicles supplied, China overtook the US as the
largest market. The management of MNCs need to be more diverse. As per a Boston Consulting
Group study, the amount of growth targeted in certain geographies is not in proportion to the
percentage of top personnel from them.
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Diagram from article read:
Source:http://www.exed.hbs.edu/assets/Documents/hbr-strategy-new-landscape.pdf
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Strategic betsLearnings: This article illustrates the concept of strategic bets wherein sometimes, the entire enterprise
has to be put on risk by its business leader. It shows the example of Dows acquisition of Rohm & Haas.
This decision was taken by CEO Andrew Liveris as he wanted a fundamental shift in Dows business
model prevalent that entailed a high reliance on low margin, highly volatile, highly cyclical commodities
to more differentiation through specialty products. He felt this offered global opportunities and high
margins. Thus, a short term risk was needed for a long term success. Andrew stuck to his decision inspite
of huge odds and made it a success. This is the example of a business leader who took a correct decision
from a long term perspective to gain a competitive advantage and saw it through to the end that the
decision was implemented.
The majority of large global corporations will probably have to make this sort of strategic bet sometimein the next 10 years. A number of companies are ahead of the curve, including some from emerging
markets. Brazil's Vale, Mexico's Cemex, India's United Breweries, South Africa's SABMiller, and
Luxembourg's Arcelor Mittal have already become world leaders in their industries through strategic
bets. Other companies, including major corporations from the U.S., Canada, Europe, and Japan, are
facing big changes or maturity in their markets. They will, from time to time, find themselves forced into
strategic bets as their best option for thriving in the future.
The 3 basic reasons for a strategic bet could be:
1) To acquire a controlling interest over resources or competencies
2) To escape a declining industry before others see it demise. Example given:In 1996, Allied Signal CEO Lawrence A. Bossidy made exactly that sort of clear-eyed assessment of the
company's auto parts business, which was responsible for almost 15 percent of its total sales. The
company sold off the lion's share of its car parts business for $2.1 billion, moving instead to concentrate
on aerospace and chemical products. Two years later, Bossidy led the purchase of Honeywell, which was
about half the size of Allied Signal, for a stock swap worth approximately $14 billion, creating a goliath in
the global aerospace and chemical products markets.
3) This means acquiring core competencies needed to be successful in an emerging form of an
enterprise.e.g. Bharti Airtel Ltd.s global expansion strategy.
Source:http://www.ram-charan.com/articles/Strategy_and_Business_Strategic_Bets.pdf
http://www.ram-charan.com/articles/Strategy_and_Business_Strategic_Bets.pdfhttp://www.ram-charan.com/articles/Strategy_and_Business_Strategic_Bets.pdfhttp://www.ram-charan.com/articles/Strategy_and_Business_Strategic_Bets.pdfhttp://www.ram-charan.com/articles/Strategy_and_Business_Strategic_Bets.pdf -
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C.K. Prahalad: the man who knew strategy
C.K Prahalad has theorized a great deal on strategy.
A few learnings from this article would be:
According to Prahalad and Hamel, a company should figure out what its core competence is , become
undefeatable in that particular area and then produce a slew of products based on that core
competence. Furthermore, creating competing strategic business units was harmful for the organization
leading to unhealthy competition and instead of it, the resources of an organization should be utilized
where they could be most useful.
The duo also spoke about strategic intent wherein there needs to be a strategic intent for a business onwhich its long term strategy should be based and around which all its activities could revolve. Hence, the
intent had to be clear and easily articulated.
Prahalad and Hamel also spoke about how a firm could pursue its long-term strategy by incrementally
improving its capabilities. They used examples such and Canon and Sony entered into adjacent markets.
CK Prahalad also gave an important concept of Bottom of the Pyramid wherein the consumers in
poorer countries could be targeted by designing products specifically for them. These products needed
to cater to their being price conscious yet of a certain quality.
Excerpts:
Strategic intent:The duo followed this up with the even more stunning paper on "strategic intent" a
true HBR classic. Impressed by the then seemingly-unstoppable Japanese invasion of the automobile
sector and the electronics sector, Prahalad and Hamel argued that unlike short-term-focused Americans,
Japanese planned a long-term strategy based on an intent that was clear, easily articulated, and around
which all its activities could revolve.
This research led to a resource-based perspective of a firm's strategic direction, which nicely
complemented the incumbent theory of competitive advantage as articulated by Harvard's Michael
Porter. Porter's theory held that a firm's competitive strategy was determined by external, market
issues: the bargaining power of suppliers and customers, the threat of new entrants and substitutes, etc.
Prahalad and Hamel articulated the resource-based perspective of how a firm could pursue its long-term
by incrementally improving its capabilities. They used examples such as Canon (core competence in
optics) and Sony (in miniaturisation and packaging) which used them to expand into adjacent markets -
such as laser printers and video recorders respectively.
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Thus, by deciding a priori on where they would invest their resources, and by working towards
ambitious stretch goals (for instance earth-moving equipment maker Komatsu had the singular goal to
"Beat Caterpillar", its entrenched and much bigger competitor), Japanese firms outsmarted their
American rivals who were more focused on short-term goals related to stock price and thence executive
compensation.
Intriguingly, the idea of intent can be applied to nations too: those that have strategic intent do well,
those that do not flounder about with no direction. The contrast between the performance of China and
India can be explained by their respective strategic intents (China intends to be number one, India
lamely wants to be an also-ran).
Fortune at the Bottom of the Pyramid: He popularised the idea of the Bottom of the Pyramid, in
eponymous books and essays.
The idea is that even though individual consumers in poorer countries may not be able to afford much
by way of discretionary spending, in aggregate they do form a tempting market. Therefore, if you were
able to create products that made sense to them, packaged in ways that they could afford, you mightopen up a whole new class of consumers.
It turns out that many of the world's potential consumers - and certainly India's - fall into this category.
And firms which succeeded in reaching out to them have demonstrated that these are viable customers.
Examples include Nirma in detergents, and others who have created tiny one-rupee sachets of health-
and-beauty products, which would fall into the discretionary spending power of even relatively poor
people.
Prahalad was the prime mover behind the idea that large firms including multinational companies could
profitably target these customers: a version of "doing well by doing good". There has been criticism insome circles who maintained that Prahalad over-estimated the profits that could be made; others
suggested that there was something unethical about the very idea of, as it were, exploiting the poor.
Source:http://business.rediff.com/column/2010/apr/21/guest-c-k-prahalad-the-man-who-knew-
strategy.htm
References:
http://business.rediff.com/column/2010/apr/21/guest-c-k-prahalad-the-man-who-knew-
strategy.htmhttp://www.ram-charan.com/articles/Strategy_and_Business_Strategic_Bets.pdf
http://www.exed.hbs.edu/assets/Documents/hbr-strategy-new-landscape.pdf
http://www.slideshare.net/jpisapia/finding-the-future-and-making-it-happen-5091575
http://www.pwc.com/gx/en/issues/strategy-growth.jhtmlGlobal Strategic Management-By Kamel Mallehi, J. George Frynas, Paul Finlay
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