57518078 television industry

1. INTRODUCTION AND OVERVIEW

In the last five years colour televisionindustry (CTV) has witnessed drasticchanges in the intensity of competition.Exchange schemes, free gifts, price offs,prizes, deferred payment schemes andother incentives as promotional tools havebeen deployed by the players, whichcertainly have made the market, vibrantand pulsating. A major factor contributingto the growth has been availability ofconsumer financing schemes.Concomitantly, the industry has been

Indian Television Industry: A StrategicAnalysis*

Seema Gupta1

Abstract

The Indian Television industry is going through turbulent transformation. Companies are relooking attheir strategies and are desperate for growth. The entrenched position of the Indian market leaders inCTVs like Videocon, BPL and Onida has been challenged by the MNCs such as LG, AIWA, Akai,Panasonic, Samsung, Sony, Philips and Sharp; some in a perceptible way and others threatening to doso. The changing environment demands fresh thinking to gain the cutting edge advantage. This paperattempts to look at the various macro and micro environmental factors operating in the industry usingthe model of strategic analysis by George Day, i.e. to analyse the bargaining power of buyers andsuppliers, the threat of new entrants, threat of substitutes, intensity of rivalry, impact of technologicalchanges, growth and volatility of the market and the influence of government and regulatory interventions.These variables affecting the industry have been categorised as favourable or adverse depending on theinfluence on the profitability of the industry. Some strategic initiatives, which can be adopted, to leveragethe favourable forces and prevent the adverse ones have been identified.

* Received June 23, 2006, Revised August 17, 2006The author acknowledges the anonymous reviewer for valuable comments.

1 Visiting Faculty (Marketing), Indian Institute of Management, BangaloreEmail: [email protected]

witnessing a new scenario with a newmarket profile. The entrenched positionof the Indian market leaders in CTVs likeVideocon, BPL and Onida has beenchallenged by MNCs such as LG,Samsung, Sony, Philips, AIWA, Akai,Panasonic, Sansui and Sharp; some in aperceptible way, others threatening to doso. The industry is going throughturbulent transformation. Companies arerelooking at their strategies and aredesperate for growth. This paper attemptsto analyse the various macro and micro

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environmental factors operating in theindustry to provide a basis for devisingstrategy.

2. INDUSTR Y PERFORMANCE

The performance of the ConsumerElectronics industry comprisingtelevision, audio equipment, DVD, VCRhas been analysed from 1998-99 to 2002-03 (Exhibit 1). Important performanceindices such as Debt-Equity ratio (D/E),Return on Net Worth (RONW) (Post tax),Net Sales/Total Assets and OperatingProfit/Net Sales are as depicted in charts1-4. Chart 1 depicts the declining trend ofD/E till 2001, but rising trend thereafter,showing that the industry is shoulderingan increasing debt burden. This may bebecause of the need to pump more fundsfor aggressive marketing. RONW (Posttax) as depicted in chart 2, has increasedfrom 7.3 in 1998-99 to 10.2 in 2001 butplummeted to 7.6% in 2001-02 andbecame 3.3 in 2002-03. Profit margins ofall the players have decreased due tofalling prices and increasing marketingand R&D costs. This indicates that theindustry, in general, is in a state ofturbulence and there are fluctuations infinancial performance driven by changesin competition and consumer centricpromotions. In chart 3, the ratio ofOperating profit/Net Sales exhibits thefluctuating pattern over the years withdrop to an all time low of 4.4 in 2002-03.This indicates increasing pressure onbottom line due to heightenedcompetition. Chart 4 shows a more or lessstable Net Sales/ Total Assets (Asset

Turnover ratio) hovering between 1.09-1.22. This indicates that there is relativelystable utilisation of assets (CMIE-Financial aggregates, 2004; CMIE-Corporate sector, 2004).

These four indices taken together showthat the consumer electronics industry ispassing through a difficult phase fromyear 2000 onwards, characterised byincreasing debt, erosion of net worth,declining profits and low asset utilisation.The industry is undergoing changes in thelevels of competition and hence there arefluctuations in financial performance. Theentry of MNCs in the market has givenrise to aggressive marketing and thuseroding the profitability of well-entrenched Indian players. Given theturbulence in the environment there is aneed for an in-depth analysis to decipherthe impact of various factors.

3. INDUSTRY ANALYSIS- 5 FORCES MODEL

Michael Porters Five Forces Modelprovides a robust and time-testedframework for analysing any industry,reflected in the strength of the five forces(industry competitors, potential entrants,threat of substitutes, power of buyers andpower of suppliers). The collectivestrength of the five forces determines theultimate profit potential in an industry,where profit is measured in terms of longterm returns on capital invested (Porter,1980). The elements of each of the aboveforces and the extent and /or effect of eachelement in the context of the televisionindustry have been analysed andenumerated below.

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Porters framework, however, does notaddress three important variables-Government and RegulatoryInterventions, Technological Changes,and Growth and Volatility of MarketDemand. These variables have beenincluded in the model proposed byGeorge Day (Day, 1990), which evolvedfrom Porters model and have beenanalysed in this study (Exhibit 2).

3.1 Degree of Rivalry

Degree of rivalry denotes the intensity ofcompetition within the industry. LG is themarket leader with 26% market sharefollowed by Samsung and Onida (Exhibit3). Although LG is the market leader, itsaverage realisation is lower than theindustry average due to competitivepricing. India is one of the biggest globalmarkets for LG, therefore its strategies aremuch more aggressive to ensure hugegrowth. On the other hand, Samsung isfar stronger than LG globally, and whileIndia is a key market, there is no crushingneed to ensure immediate big growthnumbers. The company expects the Indianarm to contribute 10% of the totalworldwide turnover by 2010. Accordingto Crisil, the company has been growingat CAGR of 24% between 2001 and2004.The Company sells a large portionof its wares on a cash-and-carry basis, andhas a return on capital employed of 43%.Despite being big in size, the company isoperating in a tough market, whichexplains why it has a net profit margin ofonly 5%. Videocon, another major playerhas managed to hold its own in the midst

of the onslaught from the Korean majors,though profits have suffered. Other largeIndian companies in the top of the list areMirc Electronics. While Mirc Electronicsis managing to hold its share by adoptingvalue for money strategy, BPL is facingtough time, experiencing drastic declinein market share. Sony, Philips, Akai,Sansui, Aiwa, Toshiba and now Hyundaiare the other foreign brands in the market.The industry is based on numbers gameand companies will have to maintain afine balance between catering to lifestylerequirements and meeting the needs ofaverage consumer. The sales value of thetop six CTV players (Exhibit 3) hasincreased more than proportionately tothe corresponding increase in their marketshares. Although the top players havedrastically reduced prices, they havegained more volume due to increasingmarket size and higher penetration levels,coupled with conscious shift towards flatcolour televisions (FCTVs).

3.1.1 Competitor Analysis

A detailed analysis of some of the majorplayers is done below:

LG ELECTRONICS

LG Electronics rightly understood theconsumer motivations to create magneticproducts, price them strategically,position them sharply and keep makingthe magnetism more potent. Havingunderstood the finer differences inconsumer motivations, it opted for sharp-arrow reasons-to-buy differentiationover the blanket-all approach taken by

Gupta, Indian Television Industry...


most of the other players. It is anaggressive marketer. It focuses on low andmedium price products.

SAMSUNG

Initially the strategy of Samsung in Indiawas to create premium image byemphasising global brand. After facingstiff competition from another Koreanmajor- LG, Samsung also started playingprice game. In 2004 it reverted back to itspremium positioning, although it resultedin some loss of market share. In line withthe Global Digital Initiative of the ParentCompany, Samsung India is seeking toacquire digital leadership in India byintroducing its digital ready televisionslike the 40" LCD Projection TV, 43"Projection TV and the Plano series of FlatColour televisions.

ONIDA (MIRC ELECTRONICS)

Its popular devil ad although hadengendered a strong emotional pulltowards the brand, technologically itrepresented no advancement. Thecompany plugged the gap by touting itsdigital technology. Like Videocon, it hasalso been able to hold its market share.The world-class quality of Onida hasenabled the company to make abreakthrough on the export front. Onidais a leading brand in Gulf market and alsoexports its models to Africa, Bangladesh,Sri Lanka and Nepal. It has technical tie-up with the Japan Victor Company, betterknown as JVC. So focused is Onida onpositioning itself on the premium, high-tech plank that it is even planning to push

its own envelope on obsolescence, muchlike Intel has been doing in its ownindustry. The strategy is aimed at furtherbroad basing the product offering of thecompany, which has largely dominatedthe top-end of the television market,across multiple market segments.

Besides understanding the strategyadopted by different players, severalother factors- industry growth,concentration and balance, corporatestakes, fixed cost, and product differencesneed to be analysed to determine theextent of rivalry between the existingplayers.

VIDEOCON

Videocon has always been a price playerand has an image of a low price brand.This entails providing more features at agiven price vis--vis competitors. It hastaken over multinational brands to caterto unserved segments, like Sansui- toflank the flagship brand Videocon in thelow to mid priced segment, essentially tofight against brands like BPL, Philips,Onida and taken over Akai- tail end brandfor brands like Aiwa. Videocon is one ofthe largest manufacturers of televisionand its components in India and thus hasadvantages of economies of scale and lowcost due to indigenisation. It has thewidest distribution network in India withmore than 5000 dealers in the major cities.It also has a strong base in the semi-urbanand rural markets.

Due to its multi-brand strategy, it has atpresent multiple brands at the same price

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point. This has led to a state of diffusedpositioning for its brands. It has also ledto a cannibalisation of sales among thesebrands. The flagship brand Videocon haslost market share due to the presence ofSansui in the same segment. Because ofreduction in import duties on CPT the costadvantage of Videocon is also on thedecline. Hence it is facing rough weatherand also trying to boost exports.

3.1.2 Industry Growth

The industry has been witnessing robustdemand; fuelled by revival in economy,increase in individual disposable incomeand liberal incentive schemes by banksand financial institutions. The demand forCTV grew at 15% during 1985-89 butwitnessed a slump from 1990-94. With theentry of MNCs and thereby aggressivemarketing, the period between 1995-96 to1999-00 saw a surge in growth rate to 29%.Thereafter the market has been growingbut at a decreasing rate due to increasingpenetration and near saturation in urbanhouseholds (Exhibit 4). This is in spite ofthe fact that CTV penetration in India isas low as 23%, more so in rural marketsand hence has potential for growth(Exhibit 5). According to the Francis Kanoireport CTV in India in 2010, the possibledemand for CTVs in India in 2010 is likelyto be at least 18.2 mn or 12 mn in the worstscenario. This figure is not very far fromthat in Europe with a market size of 30mn sets and China at 24 mn sets as of 1999.It has been further predicted that if powerceases to be an impediment in the growthof CTV market, especially in the rural

sectors, a GDP growth of 7% could takethe CTV demand in 2010 to 20 million. Thereport also assumes that economicexpansion will lead to increase inprosperity levels down the income strataand the technological advances intransmission, reception etc. will compelreplacement (Financial Express, 2001).

The entry of Star TV, Zee TV, BBC, CNNamong a host of other private channels hasgiven choice to the consumer.Proliferation of niche as well as massentertainment channels has led to thepurchase of multiple television sets perhousehold. World cup and crickettournaments are key drivers in theincrease of CTV sales. Host of crickettournaments like Series with Australiaand Pakistan, Mini World Cup, WorldCup are a major attraction for cricketcrazy India and companies are tappingthis opportunity by sponsoring cricketrelated events and running promotionsaround them.

3.1.3 Concentration and Balance

The Herfindahl Index of concentration is0.092 for the year 2002-03, which meansthat the market share is dispersed andthere is low concentration. Hence manyrivals none of whom has a significantmarket share characterise the industry.(The index takes values between 0 and 1,where 0 indicates no concentration at alland 1 indicates monopoly) This meansthat the industry is not disciplined andhas high degree of rivalry (CMIE-Industry: Market size & shares, 2004).



3.1.4 Corporate Stakes

In the year 2002-03, the gross fixed assetsof consumer electronics industry were Rs.5994.3 cr, net worth Rs. 2823.7 cr andcapital employed Rs. 6077.6 cr. Thuscorporate stakes in the consumerelectronics industry are quite substantial(CMIE- Corporate sector, 2004; CMIE-Industry Financial aggregates & ratios,2004).

3.1.5 Fixed Cost and Value Added

The television industry is highly capital-intensive due to the requirement oftechnology and costly components likepicture tubes. The fixed cost as aproportion of value added is quitesignificant and had gone down from 45%in 1998-99 to 37% in 2000-01 but againincreased to 45.4% in 2002-03 (Exhibit 6).For the purpose of analysis, Fixed Chargeshave been taken as (Employee Cost +Interest + Depreciation). Value Added hasbeen defined as (Net Sales- Cost ofMaterial- Cost of Power & Fuel). Thevalue addition is slowly increasing dueto decreasing costs of input material andhigher sales realisation due to aggressivemarketing. But at the same timeDepreciation doubled in 2002-03 from2001-02, which is the major reason forincrease in the fixed cost as a proportionof value added. Selling costs haveincreased drastically from Rs567 cr in1998-99 to Rs1518 cr in 2002-03. (CMIE-Industry: Financial Aggregates & Ratios,2004).

3.1.6 Product Differences & BrandIdentity

In a competitive environment substantialinvestments in brand building becomes anecessary condition for survival as it is thevalue and perceptions related to the brandthat act as differentiators. Onida launched14 TV sets named Candy withcoloured cabinets. The product isessentially customised for the 12-25 yearolds who are increasingly looking out forpersonalised products to cater to theirtastes. BPL launched a convergence TVunder the name BPL digital thatcombined the Internet and cellularservices with the televisions traditionalfeatures. LG introduced Golden Eyeseries, incorporating advancedtechnology. While Sony and Samsunghave managed to create premium image,LG offered compelling reasons topurchase. Onida and BPL have laidemphasis on quality and innovation andVideocon has been perceived as value formoney brand. Akai, Aiwa, Sansui, Philipshave the image of providing good bargainto the consumers.

3.2 Threat of Entry

Threat of entry is determined by the entrybarriers, which act to prevent new firmsfrom entering the industry. A lower entrybarrier makes it difficult for the existingproducers to remain profitable for long.When profits increase, additional firmswill enter the market to take advantageof the high profit levels and over timedrive down profits of all firms in theindustry. When profits decrease, some

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firms will exit the market, thus restoringthe market equilibrium. Barriers to entryarise from several sources:

3.2.1 Access to Distribution Channels

A strong distribution network isabsolutely essential to compete in thisindustry. Not only does it guarantee acountry wide reach for a companysproducts but is also necessary forproviding good after sales service. LGElectronics sells in 1800 towns and citieswith a population of 1,00,000 and above.Samsung also has a widespread servicenetwork, which includes 123 exclusiveservice centres and 200 distributors in anytown with more than 1 lakh population.All BPL dealers are linked via VSATnodes, ensuring online availability ofinformation on inventory status and salesmovement. Videocon has implementedERP system, which helps in integratingthe manufacturing, marketing,procurement and distribution serviceswith the corporate office. BPLsdistribution network is a combination of37 C&FAs, 33 Branch Offices, above 300Service Centres with 400 sales personnelacross product groups working to reachover 2500 dealers and distributors.Distribution hence is difficult and costlyas established firms dominatedistribution. Large incentives are requiredto gain entry into the distributionchannels and further gainrecommendation to retailers from thedealers. As exhibit 7 shows, marketleaders LG and Samsung have highest

sales per dealer and hence gain crucialcompetitive advantage over their rivals.

3.2.2 Brand Salience

With little product differentiation andparity products, it is imperative thatdistinct images are created in the mindsof consumers through positioning andbrand building. MNCs have been able tocompress the cost of brand building byamortising the cost of sponsoringinternational events across a largerfootprint straddling multiple countries.LG sponsored ICC World Cup 2003 alongwith Pepsi and Hero Honda and gottremendous mileage in terms of increasedsales and brand building. SimilarlySamsung sponsored the Indo-Pak seriesin 2004. Domestic players are constrainedin their brand building due to not beingglobal in their operations.

3.2.3 Capital Investment andEconomies of Scale

Television industry is capital intensiveand players have made huge investmentsin putting up state of the artmanufacturing facilities. Sony India hada production capacity of 300,000 CTV setswith capacity utilisation of 66%. But sincethe demand for its products in India wasmuch less than the plant capacity, Sonyfinally closed down its plant. Samsung isinvesting $4 mn to expand its CTVmanufacturing capacity at Noida to800,000 units per year. The existingcapacity of the plant is around 600,000units. Other players like Videocon, Mirc



Electronics, LG have also set upmanufacturing facilities in India. Themarket players need sales volume toachieve economies of scale, which isdifficult because of large number ofcompetitors. Apart from investments inmanufacturing the industry requires hugeworking capital to manage inventories.Supply chain management and inventorymanagement thus becoming crucial todetermining profitability. With regard tosourcing funds, MNCs are better placedthan their Indian counterparts as theymanage to get funds from their parentcompanies at low rates of interest. Hugecapital requirement thus can act as barrierto entry.

3.3 Threat of Substitutes

In Porters model, substitute productsrefer to products in other industries.Internet though emerging as aninfotainment medium is very low inpenetration. Moreover the industry hasresponded to the future threat byintroducing a TV that can providefunctions of the Internet along withregular features, e.g., BPL digital thatincludes Internet and cellular facilities.

3.4 Buyer Power

The power of buyers is the impact thatconsumers can have on a producingindustry. Buyer power influences theprices that a firm can charge. Thetelevision market can be broadlysegmented into following categories(Project Report, 2002):

A. THE UPGRADERS

This segment of buyers has upgradedfrom Black and White TV to Colourtelevision. This segment is by far thelargest in the Indian TV market andconstitutes approximately 62% of themarket. The principal reason behind theup gradation is the C&S (cable andsatellite) boom that has hit India and theincreasing coverage of major sports eventslike cricket tournaments and Olympics.The consumer in this segment usuallygoes for active information search. Thissegment normally builds its productknowledge from advertising and otherproduct communication that it getsexposed to & the dealer. This segment alsonormally shows a distinct preference formulti brand outlets and the primaryreason for this is to compare brands andprocess relative and unbiasedinformation.

Interestingly, the 14 CTV, which isprimarily positioned as a secondpurchase, is a big favourite with thissegment. 14CTV which accounted for 20per cent of the total CTV demand in 2005-06, is expected to witness a gradualdecline to 10-12 per cent of total sales by2010-11 (Exhibit 8). Demand would comefrom buyers upgrading from B/W sets toCTVs; commercial enterprises & shops;and multiple CTV set purchasers.However the extent of price reduction byindustry players would depend on themarket leader-LG-, which dominates salesin this segment. Vis-vis the 20 and 21CCTVs, the 14 CTV has a loyal following,

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which is expected to continue, though ata slower pace (CRIS INFAC, 2006).Certain attributes that are common acrosssegments are evaluated and are cable TVcompatibility, number of channels, soundsystem and fully operational remote.Some of the influencers that act asclinchers are discount offers, deals, trade-in offers and instalment offers.

B. FIRST TIME BUYERS

This constitutes people who arepurchasing a colour television for the firsttime. They comprise 18 per cent of themarket. They primarily belong to nuclearfamilies. The structure of these families iseither DINK (double income and no kids)or SINK (single income and no kids). Theother section that makes up this segmentis the bachelors living alone for thepurpose of jobs or higher studies. Thefixed or planned budget and thecompatibility with the smallestablishment are two major factors thatdrive the nature and direction ofinformation search in this segment.

In this situation, the wide screen modelsare mostly out of the consideration set ofthe purchasers in this segment. The roleof the wife in the information processingand decision-making stages is asignificant characteristic of this segment.There is preference for technicallyintensive data that come from aprofessional source and not necessarily ablind preference for personal datasources. Interestingly, the technical,largely feature and benefit basedevaluation gets interspersed with

aesthetic considerations like shape, etc.because of the influencing role that thewife plays in the decision making process.Hence, important differentiating factorsin this segment are: shape; colour of thecabinet; size of the speakers; position ofspeakers and other accessories. Althoughprice plays an important part in thedecision making process, discounts andtrade-ins do not enjoy as much popularitywith this segment as with the previousone.

The inclusion of a warranty contract or thepromise of after sales service do not playa very important role in the decisionmaking process. Brand loyalty is not veryhigh as loyalty is more to the technologyand its rapid development and upgradation (implying rapid obsolescence ofexisting technology) than to any singlebrand. This implies that the brandclaiming to offer the latest and mostconsumer friendly technology will bepreferred more.

C. MULTIPLE SET PURCHASERS

This segment represents those people thatare purchasing more than one set and arelooking for specific need gaps to fill. Theycomprise the lowest share of the marketin terms of volume with just 8% beingcommanded. The family demographics ofthis segment are mostly joint families andfull nests. The principal reason behindmost of the purchases is an increasingfamily size and desire to own a personalTV set. The credibility of the dealer is nothigh at all in this segment and thecompany sources of information with a



high technical content are mostlypreferred. Price is not the most importantcriterion for purchase decision-making.This segment was more prone to purchasefrom the grey market till 1995, as theywanted to purchase foreign brands thatwere not available through popularchannels at that time. However, thischaracteristic has changed over time andthese people patronise the foreign labelsappreciably. Warranty and after salesservice do not play an important part inthis segment.

D. REPLACEMENT PURCHASERS

This segment usually trades in its old CTVfor the new models. It forms around 12%of the market and holds immensepotential in the future. The expansion ofinnovative technology and cablecompatibility has thrown the old sets,with their eight programmable channels,completely out of favour. This segmentalso shows a keen interest in the greymarket and is not completely against theidea of purchasing a feature-laden brandfrom the unorganised market. Neither theprice of the set nor the offers of warrantyperiods and promotional sops, is animportant criterion. With increasingdisposable incomes and the introductionof new models and declining prices,replacement demand has surged over theyears. Replacement demand is expectedto account for 55-57 per cent of total CTVsales by 2010-11. With increasedpenetration levels of CTVs in semi-urbanas well as rural areas, the growth in thenumber of first time CTV purchasers

would be lower in these areas, ascompared to the growth in replacementdemand (CRIS INFAC, 2006). Buyerpower is influenced by various factors asfollows:

3.4.1 Buyer Concentration

The industry is akin to consumer durableswhose end users are fragmented. Hencebuyers do not have any specific influenceon producers.

3.4.2 Buyer Switching Cost

The cost incurred by consumer inswitching from one television brand toanother is practically zero. Brand loyaltyis low. Hence the companies cannot reston their laurels and have to be on theirtenterhooks to retain the customers.

3.4.3 Price Sensitivity

Market is highly price conscious andpromotion driven. With the onslaught ofAkais major price cuts and promotionalschemes, this market has now become apromotion driven one. To successfullycompete in this industry, even premiumplayers like Sony, LG have had to comeup with schemes. LG and Philips havebeen the most aggressive amongstindustry leaders as far as pricing isconcerned and hence their realisationshave been lower than industry average.Industry leaders like LG focus on low-medium priced CTV, while Samsung hasmoved gradually towards higher pricedCTVs (Exhibit 9). The domestic high-endCTV prices will follow the global pricetrend of declining prices. However, the

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prices of domestic products would behigher than those of global products dueto negligible demand in the domesticmarket and hence most likely to be metthrough imports. Exhibit 10 indicates thatthe market is highly price sensitive as thedemand has increased with fall in prices.

3.5 Supplier Power

Suppliers bargaining power influencesthe cost and quality of input material.Higher supplier power raises the inputcost, thereby reducing the industryprofitability.

The most critical component inmanufacturing television is the picturetube. It constitutes around 50% of the costof television. While Black and Whitepicture tubes are made in India, manymanufacturers still need to import colourpicture tubes. The other importantcomponents include electronic circuitboards, tuners, high-tension transformersand moulded plastic casings. The demandfor colour picture tubes (CPT) has beenrising steadily. But at the same time owingto customs and import liberalisation, theyhad to face competition from importsduring 1993-1997. A sharp reduction inimport duty from 85% to 40% between1994-96 and further down to 20% by 2004was announced to gear the manufacturersof picture tubes to face competition fromforeign players. As a result of spurt indemand in 1990s, the CPT manufacturersexpanded capacities, which resulted in

excess capacity in the domestic market.Samtel Colour, LG Hotline and JCTElectronics are the major domestic CPTmanufacturers (Exhibit 11).

The picture tube industry is bothtechnology and capital-intensiveindustry. Samtel India importstechnology from Mitsubishi and JCTEfrom Hitachi. Uptron had collaborationwith Toshiba. BPL has entered into astrategic alliance with ToshibaCorporation of Japan to manufacture pureflat picture tubes for the first time in India.Philips Electronics and LG Electronicshave formed a joint venture to become aglobal giant with almost $6 bn sales (CIER,2002). Hence manufacturers aredependent on suppliers for importantcomponents and hence suppliers enjoyhigh bargaining power. Manymanufacturers have integratedbackwards to gain cost advantage overtheir competitors. At the same time bulkorders in raw material procurement fetchmore discounts, which gives the largerplayers an advantage over their smallercounterparts. The CPT, the most criticalcomponent in a CTV has no alternate useand therefore, the CPT industry is solelydependent on CTV players, mainlydomestic and partly exports. Hence largerplayers like LG, Samsung and Mirc etc.are able to negotiate better deals unlikeother players.



4. INDUSTR Y ANALYSIS- GOVERNMENTAND REGULATORY INTERVENTIONS

The role of the government as the supra-environment for business, creating therules for competition is crucial. It createsboundaries within which the industrymust operate. Following its policy ofliberalisation, the Indian governmentcompletely delicensed the televisionsector in November 1996. In the year 2004,custom duty on television sets wasreduced from 25% to 20% and the SpecialAdditional duty of 4% was dispensedwith. Reduction in customs duty isunlikely to affect the industry in a majorway because a substantial chunk of theindustrys products is manufactured inIndia. The key benefit will be to the brandowners with high-end models that areprimarily imported. Abatement rate onCTV has been hiked from 35% to 40%.Excise duty on CTV was brought downfrom 18% to 16% in 2001 whereas on B&WTV it has been hiked from 4% to 8%.Companies may benefit marginally fromincrease in excise duty on B&W TVs to8%, as they would now be able to claimCENVAT credit for the excise paid on rawmaterials. Hence so long as the industryis vigilant against large scale dumping oftelevision sets from countries like China,these measures are largely positive for theindustry in bringing down the cost. Thecustoms duty and excise duty oncomponents has been reduced to 20% and16% respectively. But this is unlikely tobe major benefit because of the relatively

low import content in most products(except high-end products) but willbenefit MNCs more as they rely more onimports. Colour picture tube players aretaken aback due to recent rollback incustoms duty in glass parts. Glass partsare being used in manufacturing picturetubes. Imports of glass parts were leviedwith a uniform 20% basic customs duty.Following the Free Trade Agreement withThailand, the import duty on CPT andCTV was fixed at 10% and for its inputsglass parts the duty was 20%. In theprocess there is a lopsided duty structurewherein the import duty on inputs arehigher than the output, which is notconducive for domestic manufacture/value addition. Except Sony, all majordomestic colour TV manufacturers likeSamsung, LG and Videocon source theirrequirements from Samtel. Thus the dutystructure favours brands like Aiwa,Sansui and also the top-end CTV models,which are imported. Hence Indian playerslike Onida, BPL, Videocon are at adisadvantageous position vis--vis theirmultinational counterparts.

Industry wants that there should becustoms duty differential of 5% betweenCTV, colour picture tube and colour glassparts to encourage value addition.Industry also wants that excise duty onnon-dual use components of B&W TV i.e.B&W picture tube, B&W glass shell, B&Wdeflection yoke and mechanical tunershould be reduced from 16% to 8%, i.e. atpar with B&W TV.

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5. INDUSTRY ANALYSIS- TECHNOLOGICALCHANGES

The manufacturing of electronic itemsrelate mainly to assembly line operations.Since this is a technology driven industry,companies need to constantly improvise,innovate and customise their products.Coloured cabinets, headphones, 3-D 360degree sound technology and e-mail TV,plasma TV and golden eye technology arejust a few examples.

Till now, TV makers have played with oneor more of the three elements of a TV-picture, sound, features- on an analogsignal. So one had a sharper picture withPhilips Powerchip, flatter screens inplasma TV, increased channels inhyperband, programme summary onscreen, cordless headphones, top domespeakers and Nicam stereo sound inputs.Digital gives marketers a fresh platformto play with all of these features. Thepromotion strategies and product featuresof a majority of the players haveemphasised more and more on the latesttechnology factors. All the playerswhether domestic or multinational areintroducing technologically advancedand feature rich products. SaloraInternational launched high-endtelevisions under brand name Promaxwhich had 250-programme memory, 250personal preference channels and a videolock to block undesirable content. Sony(Wega series) enjoys good brand equity,mainly because of its Trinitron picturetube. Samsung flat TV models areequipped with the 100 Hz scan, which

reduces flickering of the screen andvisibility of scanning lines. These are alsoequipped with game mode, a child lockand a sleep timer. LG Flatron models havefeatures like PIP-2 tuner and woofer with350 watts and 3 graphic games. Anothermodel that the company is launching hasswing speakers, advanced multi windowPIP, a digital virtual Dolby, a PC andteletext. BPL has also launched flat TVmodels under sub brand name matrixwhich have all the features that come withsystems of this range. Philips India haslaunched 29 inch TV incorporating itspioneering digital natural motiontechnology and priced it higher thanindustry levels following the strategy oflow market share but high revenues.Hence the market players are investing inR&d and improving technology on aconstant basis to offer innovativeproducts. In the fiscal 2004-05, the marketfor high-end televisions witnessed aphenomenal growth over 2003-04, thoughthe market base still remains very small.The market for projection TVs is estimatedat 13, 500 units followed by plasma TVsand LCD TVs at 6, 700 and 2, 850 unitsrespectively. The projection TV market ishighly competitive. At present, Sony leadsthe projection TV segment with sales of4,000 units in 2004-05. LG occupies thesecond position with sales of 3000 units.Samsung and Philips closely follow withsales of 2,500 and 2,200 units respectively.Onida and Toshiba are then other majorplayers in this segment. LG is the leaderin plasma TV segment with a marketshare of 30 per cent, followed by Samsung



at 22 per cent. LG and Samsung have beenengaged in competition for numero unoposition for LCD TV, which has also beengrowing significantly. For the next fewyears, the markets for high-end televisionswill continue to grow phenomenally andit is estimated that by the end of 2007 themarket for high-end TVs would cross100,000 units milestone.

In view of the higher technical nature oftelevision and rising expectations ofconsumers in general, marketers nowneed to strengthen the service networksince there is a paucity of service facilitiesand consumer dissonance is built aroundservice facilities. Most Indian consumersare techno phobic and are uncomfortablewith instruction manuals. Thus assuranceof comprehensive service to theseconsumers is a strategy that a number ofthese marketers use effectively to sell.

6. GROWTH AND VOLA TILITY OF MARKET

The last few years have seen a quantitativeand qualitative change in TV technologyand software. With the advent of severallocal and foreign satellite channels,demand for CTVs has seen a rise. Exhibit12 shows the increase in sales value forCTVs over the years. Aggressive andinnovative marketing strategies andtechnological advances have led to strongbrand differentiation and prices. In theprocess the industry has evolved withproducts available at different pricepoints at all levels. This process was alsofacilitated by growth in production in theorganised segment and domesticavailability of multinational brands due

to lowering of import duties and otherliberal measures. The television industryappears to have two clearly differentiatedsegments. The MNCs have an edge overtheir Indian counterparts in terms oftechnology, aggressive marketingstrategy, economies of scale in brandingthrough international events andassociations combined with a steady flowof capital. The sale of TVs also tends to beevent driven. During the Cricket WorldCup in 1999, CTV sales recorded aphenomenal rise of 40-50% after which theindustry has grown at around 10-12%.Rural market is expected to grow by 25%compared to expected growth of 7-10%for urban area. One of the notabledevelopments have been that the rate ofgrowth in production has been more interms of quantity or in volume termsrather than the growth in value terms.This has happened because of theconstantly falling prices over the yearsdue to competition among major players,aggressive marketing strategies anddeclining import tariffs. With penetrationlevels being deplorably low, the industryis focusing on semi urban and ruralsegment for scaling up demand. For basicmodels, the market is reaching saturationlimit in urban market, and hence valueaddition, differentiation and superior andnew product introduction only can bringhigh growth in urban areas. Exhibit 13indicates market segmentation regionwise. Despite the robust volume growthexpected over medium to long term, theprofitability of CTV players is likely toremain strained. The reduction in raw

209

material costs, the declining CPT pricesand chassis costs will be partially offsetby the increase in selling costs resultingfrom the intense competition.

7. CONCLUSION

The variables affecting the industry withregard to each of the five forces have beencategorized as favourable or adverse(Exhibit 14). Favourable variables havethe potential to improve profitability,while adverse variables reduceprofitability of the industry.

Some strategic initiatives, which could beadopted to leverage the favourable forcesand protect themselves from the adverseones, are as follows:

R&D and Marketing will have towork closely together. R&D will haveto play a role in cost innovation,which can cut component cost andraise performance. The number ofdefectives has to be reduced atnegligible levels. The quest should beto do even better. Each assembly linecan be made to compete with theother.

Vital to the spread out is the re-haulof distribution network. Homeappliances have necessitated separatedealers, many of them specialists. Forsharper focus on all categoriesindividually, the market has to beopened wider.

Brand building will be important, soas to ensure brand preference.Marketers will have to strategise to

pull the consumer up the valueescalator. A good fraction of sales ifcome from high margin products asflat TVs and projection TVs wouldimprove profitability of companies.Sharply differentiated products witheffective communication on acontinuous basis would be the key forfuture. Challenge lies in creatinghigher order universal benefits andsensitising the larger audiences to it.LG and Samsung are likely to retaintop positions

Buyers are easily swayed by costs,which are also verified by thepresence of large number of productofferings. Focus would be onproviding value for money to theconsumer, with more brands in theeconomy segment. The challengebefore marketers is to span out, andaddress a wider set of needs. Theywill have to identify segments notaddressed by them so far and alsointroduce low price-point productsaimed at rural markets. For instance,LG has launched Cineplus, a lowpriced TV to compliment its brandSampoorna in the same category.

Besides catering to the cost conscioussegment, marketers need to segmentthe market on the basis ofpsychographics, which will help ininducing brand loyalty throughlifestyle and experiential marketing.LG has attempted it by sponsoringICC Cricket World Cup 2003.



Marketers need to generate demandand let dealers service it, rather thanshunting products down thedistribution system. This will requireclose consumer proximity.

The industry has a number of playersbut there will be shakeout triggeredby ever increasing intensity ofcompetition. Some of the nationalbrands may exit the market withinfew years. Unorganised CTV brandslike Oscar, Weston and Texla havealmost exited the market. Ruralconsumers will play an increasinglyimportant role and that sales fromthese markets are expected to exceed75% of the industrys total turnoverin future. CTV companies need tolaunch low priced models and tap theswitch over of black and white TVbuyers to colour televisions. Therationalisation of sales tax andadditional excise levies has madeblack and white sets highly unviable.CTV companies need to pricecompetitively and get into organizeddistribution in rural and semi-urbanmarkets. Companies operating inhigher end segments will have tochallenge commoditisation. Marketshares are expected to consolidate.Leading players like LG andSamsung are likely to continue tooccupy the top slots, competition isexpected to intensify among theplayers vying for third to sixth slot-Mirc, Videocon, Philips and Sansui.The recent entry of players like

Hyundai and Haier is not expectedto affect significantly the marketshares of leading players.

The increase in disposable incomes,more number of households abovethe threshold income, decliningprices, shortened replacement cycleand the demand for multiple TV, allthese factors are expected to sustainthe growth momentum at 10-12 percent during 20067 to 2010-11. Thedemand for 21-inch and 29-inch CTVsis likely to be robust. Despite theprojected growth momentum in salesvolume, sales value growth isexpected to remain low at 4.5 percent. But the price reductions will belower than have been in the past andthe sales volume will be high.Average realisation is likely to godown as prices of 21-inch and 29-inchFlat CTV should decline in future.There is a likelihood of the 21-inchFCTVs being cannibalised by the 29-inch FCTVs by 2009-10 when theprice differential between the twosegments is expected to reach Rs5000-6000. Market leaders like LG,Samsung, Mirc and Videocon wouldbe future beneficiaries since theircurrent product prices are lower thanindustry average (CRIS INFAC,2006). The demand for FCTV will riseas has been the trend since 2001(Exhibit 15).

The share of 21-inch and 29-inchFCTV is likely to increase to 75-80

211

percent of total CTV sales by 2010-11.Players like, Samsung, LG, Sony andMirc who are focusing on thesecategories and pricing themcompetitively are expected to gain inthe long term. The reducing pricedifferential, the prime reason for theshift to FCTVs is expected to narrowfurther, almost wiping out the marketfor the 20-inch and 21-inchconventional CTVs by 2010-11.Regional and small players likeCrown, Salora, Texla, Oscar andBeltek who sell primarilyconventional and small sized CTVsare expected to lose further. If LGcontinues with its aggressivemarketing and distribution, it is likelyto retain the top slot with marketshare of 25-30 per cent. Although LGcommands a clear lead, further fastpaced growth in market share wouldbe restricted a s the industry playerslike Samsung, Onida, Videocon,Philips and Sony would probablymove towards similar pricing andproduct mixes. Lead players likeSamsung and Onida differ on marketshares by mere 350-400 basis points,hence the situation between the twois likely to remain competitive. Entryof new players like TCL, Haier, andHyundai etc will intensifycompetition but such players will

have to establish their presencethrough a robust distributionnetwork, which can only be built overa period of time (CRIS INFAC, 2006).

REFERENCES

Centre for Industrial and Economic Research(CIER) and INTECOS (2002), Market Forecastand Indicators: emerging market in India 2002-2012, New Delhi: Industrial Techno-Economic Services P Ltd, pp 798

Centre for Monitoring Indian Economy (CMIE),(April 2004), Corporate Sector

Centre for Monitoring Indian Economy (CMIE),(May 2004), Industry: Financial Aggregates andRatios

Centre for Monitoring Indian Economy (CMIE),(July 2004), Industry: Market size and shares

CRIS INFAC Colour Television Annual Review(2006), CRISIL Product & Services:www.crisinfac.com

Day, G.S. (1990), Market Driven Strategy: Processfor Creating Value, The Free Press: NY, pp 110-123, Financial Express, Mumbai, May 2001

Porter, M.E. (1980), Competitive Strategy:Techniques for Analyzing Industries andCompetitors, The free Press: NY, pp 129-130

Project Report (2002) on Analysis of ColourTelevision Industry submitted by studentsof MICA in partial fulfillment of therequirements of Strategic Marketing course

ISI Emerging Markets: www.securities.com

India Infoline: www.indiainfoline.com



EXHIBIT 1

Consumer Electronics Industry Performance

Chart 1: Debt/Equity

1.19 1.18 1.14 1.351.64

00.5

11.5

2

1998-99 1999-2000 2000-01 2001-02 2002-03

Years

Deb

t/Equ

ity

Chart 2: PAT/Net Worth

7.310.3 10.2

7.6

-3.3-5

0

5

10

15

1998-99 1999-2000 2000-01 2001-02 2002-03

Years

PA

T/N

et W

ort

h

Chart 3: Operating Profit/Net Sales

6.67.8

6.4 7.24.4

0

5

10

1998-99 1999-2000

2000-01 2001-02 2002-03

Years

Op

erat

ing

pro

fit/

N

et S

ales

Chart 4: Net Sales/Total Assets

1.27

1.161.22

1.091.13

11.11.21.3

1998-99 1999-2000

2000-01 2001-02 2002-03

Years

Net

sal

es/T

ota

l A

sset

s

213

EXHIBIT 2Industry Analysis Model


Inter-firm rivalry

Threat of Newentrants

TechnologicalChanges

Government &RegulatoryIntervention

Bargainingpower ofsuppliers

Bargainingpower of buyers

Threat of substitutes

Growth & Volatility of Market

(Source: Day, G S, 1990, Market-Driven Strategy: Process for creating Value, Free Press: NY)

EXHIBIT 3Realisation and Sales Value Market Share (2005-06)

Lead Players Average Realisation Market share

LG 8690 26.4Samsung 9237 15.1Onida 9234 11.0Videocon 8190 7.9Philips 9163 7.4Sony 15439 9.4Industry Average 8814 100

Source: CRIS INFAC Colour Television Annual Review, 2006, CRISIL Product & Services

Period Growth Rate (%)

1985 to 1989 15.01990 to 1994 3.01995-96 to 1999-00 29.02001-02 to 2004-05 11.02004-05 to 2005-06 7.1


EXHIBIT 4CTV Industry Demand over the years


Urban Rural

1992-93 16.0 1.61995-96 21.2 2.61999 23.5 2.92003-04 Composite-110 Target 2008 Composite 225

EXHIBIT 5Penetration of CTVs (per 1000 households)

(Source: Economic Times 28 April 2001: NCAER for first two rows, ORG-MARG for thirdrow and ISI Emerging Markets for last two rows; figures not strictly comparable)

Players Sales per Dealer

LG 1182Samsung 809Onida 547Videocon 391Sansui 379Sony 372Philips 305

EXHIBIT 7Dealer Efficiency of key CTV Players

(2004-05)

Source: CRIS INFAC Colour Television AnnualReview, 2006, CRISIL Product & Services

(Rs Crore)

1998-99 1999-00 2000-01 2001-02 2002-03

Net Sales 7885.0 8783.4 10809.2 10947.3 12472.8Raw Material & Stores 5907.9 6562.5 7974.0 7723.2 8934.4Power & Fuel 55.2 55.0 59.9 60.4 82.3Wages & Salaries 276.9 298.3 359.0 360.9 403.9Interest 358.9 407.1 434.5 512.4 535.1Depreciation 217.2 209.0 240.9 313.8 629.6Value added 1921.9 2165.9 2775.3 3163.7 3456.1Fixed Charges 853.0 914.4 1034.4 1187.1 1568.6FC/VA 44.4 42.2 37.3 37.5 45.4Selling Costs 567.0 614.6 1130.9 1096.9 1517.7

(Source: CMIE Industry: Financial Aggregates & Ratios May 2004)

EXHIBIT 6Cost Structure of Television Industry

Type Share (%)

14 2120 3321 4225 229 2

EXHIBIT 8Size Variation

(Source: Centre for Industrial and EconomicResearch (CIER) and INTECOS (2002), MarketForecast and Indicators: emerging market in

India 2002-2012)

215Gupta, Indian Television Industry...

EXHIBIT 10CTVs: Price vs Demand

Nominal DemandPrice* (Rs) (million units)

2000-01 12,200 5.12001-02 10,000 5.42002-03 9000 7.32003-04 8500 6.72004-05 8000 7.82005-06 7500 8.4

*Nominal Price is the street price of 21 CTVsSource: CRIS INFAC Colour Television Annual

Review, 2006, CRISIL Product & Services

Source: CMIE, Industry: Market Size & Shares, August 2003)

Television Picture Tubes (per cent)

1998-99 1999-00 2000-01 2001-0

Samtel Color 32.95 30.59 29.71 31.62L G Hotline CPT 17.85 17.75 20.05 20.26BPL Display Devices 7.62 11.51 13.07 17.91JCT Electronics 13.08 19.05 18.37 11.26Hotline Teletube & Components 2.70 2.02 2.06 3.20Samtel (India) 5.35 3.55 2.79 2.97Prakash Industries 4.79 3.09 2.47 2.50Rama Vision 2.42 2.05 1.87 1.68Bestavision Electronics 1.29 0.50 0.15 0.16Import 9.93 9.89 9.44 8.45Herfindahl Index of Concentration 0.170 0.178 0.181 0.189

EXHIBIT 11Trends in Market Shares: 1997-2001

Source: CRIS INFAC Colour Television AnnualReview, 2006, CRISIL Product & Services

Low Medium High

LG Y Y -Samsung Y Y -Onida - Y -Videocon Y Y -Sansui Y Y -Philips - Y YSony - Y Y

EXHIBIT 9Player-wise focus on Price

(Rs. Crore)Year Sales Value

2000-01 7500.02001-02 7500.02002-03 8000.02003-04 8500.002004-05 9000.00

EXHIBIT 12Sales Value for Television including Spares & Kits

(Source: CMIE, Industry: Market Size & Shares, Feb 2006)


Segment Share (%)

North 28East 17West 29South 26Rural 40Urban 60

EXHIBIT 13Market Segmentation

(Source: Centre for Industrial and Economic Research (CIER) and INTECOS (2002), MarketForecast and Indicators: emerging market in India 2002-2012)

Conventional CTVs Flat CTVs(per cent) (per cent)

2001-02 97.3 2.72002-03 92.4 7.62003-04 85.9 14.12004-05 71.4 28.62005-06 53.1 46.9

EXHIBIT 15CTV Industry Composition- Conventional CTVs v/s Flat CTVs


Forces acting on Industry Favourable Adverse

Degree of Rivalry Healthy growth rate Fragmented industry High brand identity High fixed cost/ value

added High Corporate stakes

Threat of Entry Low economies of scale Limited access to Brand salience distribution channels High capital investment Liberalization

Threat of Substitutes Unique infotainment Low switching costBuyer Power Fragmented buyers High price sensitivity

Supplier Power Reduction in High input costs import duty

Feasible backward Technology driven integration supplies

EXHIBIT 14

1. INTRODUCTION

The notion that in different stages oforganisation different types of leadershipis required has been around for sometime. Chandler (1962) identified two typesof leadership that are required in differentstages of organisation growth. He calledthe type required in the beginning of anorganisation life as empire building andthe type required in the latter part of theorganisations life as organisationbuilding. In the first type the emphasiswas on growth, getting resources to grow

Organisational Life Cycle: LeadershipRoles and Competencies*

Manu Parashar1

Perspective

Abstract

Life cycle metaphor has been extensively used to describe the birth, growth, maturity and eventualdecline of organisations. The life cycle model identified in this paper has four stages - inception, growth,maturity and elaboration\renewal. In each of these stages organisational priorities are different. Leadershiproles and competencies need to evolve to match organisational priorities in each of the evolutionarystages. These priorities lead to different leadership roles for each stage. Four roles are identified:entrepreneur, coordinator, integrator and visionary. Competencies are attached with each of these roles.The competencies are divided into strategic\ transformational and operational competencies. A leadershipdevelopment approach to developing these competencies is suggested. The main contribution of thiswork is to link literature from organisational life cycle, leadership competencies and leadership developmentstreams. The framework developed here would be especially useful in fast evolving organisations. Giventhat competencies have a learned element, leadership development can play a major role in helpingorganisations to have effective leadership in evolving conditions.

* Received July 10, 20061. Fellowship (Doctoral) Student, Indian Institute of Management, Bangalore, India,

e-mail: [email protected]

and on creativity. The second type wasfocused around building structures,processes and systems that would ensurelong term survival of the organisation. Auseful metaphor that has been used inliterature has been that of organisationallife cycle (OLC). A number of authorshave used this metaphor (Ichak, 1979;Mintzberg, 1973; Gailbraith, 1982;Greiner, 1972; Quinn and Cameron, 1983;Smith et. al. 1985; Mintzberg, 1984;Cameron and Whetten, 1981) to describethe birth, growth, maturity and eventual


decline of organisations. The basicfeatures of these models have beenchanges that occur in organisations in apattern of developmental stages; thesestages happen sequentially; have a uni-directional progression not easilyreversed and involve a wide range oforganisational processes and activities(Quinn and Cameron, 1983).

The roles and competencies expected ofthe leadership in these developmentalstages would be different depending onthe needs of the organisation. OLCconceptualizations to a certain extent havebeen used to determine organisationsstructures and leadership roles thatorganisations need at each evolutionarystage. However, this literature has notbeen translated into implementableimplications for organisations. This paperseeks to achieve an integration betweenthe OLC\ leadership roles literature andthe competency literature, which wouldbe further integrated to the leadershipdevelopment literature. Competencies bydefinition have a learned component tothem and are amenable to leadershipdevelopment. The framework ofcompetencies developed for eachevolutionary stage would be of greatimportance to fast evolving organisations.This is extremely important in the currentcontext where OLCs are getting shorter.For example Google Inc. launched in 1998with $100000 capital (http://www.google.com/intl/en/corporate/history.html) in less than 8 years has risento a market capitalization of $128 billion(NASDAQ on 30/01/2006 share pricequoted at $426.82).

This paper would survey representativeliterature on the topic of organisationallife cycle (OLC) and develop anunderstanding of the needs of theorganisation in each of the stages. On thebasis of these organisation needs the rolesand competencies of leadership requiredto fulfil these needs would be developed.The outcome of this exercise would be aleadership development programmebased on the leadership roles andcompetencies required in each of thedevelopmental stages. The leadershipdevelopment literature looks at largelytwo ways of leadership development,through training or through experience.Yukl (2002) speaks of three distinct waysof developing leadership competencies.These are leadership training,developmental activities and self helpactivities (Yukl, 2002). This frameworkwould be used to develop a leadershipdevelopment programme for variousstages in the life-cycle of an organisation.

2. ORGANISATIONAL LIFE CYCLE

There are multiple models oforganisational life cycle. Adizes (1979)laid out seven stages of organisationaldevelopment. These were courtship stage;infant organisation; go-go stage;adolescent stage; prime stage; maturestage and aristocratic stage. He suggesteda constellation of four roles that wouldresult in effective management at eachstage. These were production role(produce results on the basis of goals);administrative role (timely andappropriate decision making);

219

entrepreneurial role (adaptation throughcreativity and risk taking) and integrationrole (team building role). The roles werepresented as a constellation (PAEI). Theroles that dominated in any stage hadcapital letters. In the early stagesproduction and entrepreneurial rolesdominated and in the latter stages theadministrator and integration roles.

Mintzberg (1973) spoke of three stages ofdevelopment in any organisation. Thefirst stage is the inception stage where theentrepreneurial mode characterized byactive search for new opportunitiesdominates. The second stage is the growthphase where the analyst plays a major rolein strategy making and the focus is onsystematic decision making andintegration. The last stage is maturitywhere the adaptive mode (science ofmuddling through as Mintzberg puts it)dominates. Smith et al (1985) also used athree stage model comprising inception,high growth and maturity. They lookedat the priorities that the top managementwould have at each of these stages. Atinception and maturity the technicalpriority (concern with efficiency and goalachievement) is important. Theorganisational coordination priority(concern with building organisationalsynergies) dominates in the high growthphase and political support priority(maintaining personal power andsupport) is important at the maturitystage.

Another interesting model oforganisational life cycle is from Gailbraith

(1982). This is a five stage modelcomprising the stages of prototyping,model shop, start-up natural growth andstrategic manoeuvring. For leadershiproles sports metaphor is used. The rolesare quarterback, player\coach, coach,manager and strategist respectively.Greiner (1972) also came up with a fivestage model comprising creativity (focuson creating products and markets),directive (sustaining growth throughdirective leadership), delegation(decentralized structure for continuedgrowth), coordination (formal systems toachieve coordination) and collaboration(inter-personal and team management).

Quinn and Cameron (1983) afterreviewing nine models of organisationdeveloped a four stage model oforganisational life cycle. The first stagewas creativity and entrepreneurshipwhere the focus was on marshallingresources, creating an ideology andforming an ecological niche. In the secondstage the collectivity stage focus was onbuilding high commitment and cohesionand on face to face communication andinformal structures. The formalizationand control stage comprised puttingprocedure and policies in place,increasing conservatism and reducedflexibility. The last stage was elaborationof structure where decentralization,domain expansion and renewedadaptability are key elements. Mintzberg(1984) used a model comprising fourstages. The four stages are stage of

Parashar, Organisational Life ...


formation; stage of development, stage ofmaturity and stage of decline. The majordifference from Quinn and Cameron is thelast stage, Mintzberg sees it as the stageof decline while the Quinn and Cameronsee it as a stage of renewal. Miller andFriesen (1984) after an extensive reviewpostulate five stages birth, growth,maturity, revival and decline. However,the characteristics of their decline stageare very similar to maturity. Anorganisation after maturity will either gointo decline or will attempt a revival.

Overall if you closely look at the modelspresented above then the life cycle modelsbroadly have four stages. The first stageis the inception stage that is characterisedby entrepreneurial activity with the firmtrying to find its ecological niche. Thesecond phase is the phase of rapid growthwhere attendant problems administrationand coordination come in. In the maturityphase the focus shifts to developingefficiencies, building synergies andintegration of strategies and systems. Thelast stage the author chooses tocharacterize as the renewal\elaborationstage where the organisation looks fornew opportunities and monitors theexternal environment to renew itself.These four stages will be used to decipherorganisational priorities at each of thesestages. These priorities will then translateinto leadership imperatives. Theseimperatives would then be translated intoroles that leadership needs to play and thecompetencies it needs to deploy.

3. ORGANISATIONAL LIFE CYCLE:ORGANISATIONAL PRIORITIES &LEADERSHIP ROLES

Organisational priorities would differ atevery stage in the organisational life cycle.Leadership roles would vary as per theorganisational priority at that moment.Leadership role is said to emerge from thetotal organisational characteristics(Moqvist, 2002) which would vary indifferent stages of the organisation.

In the inception stage the key prioritieswould be creativity and entrepreneurship(Quinn & Cameron, 1983; Adizes, 1979);creating products & markets (Greiner,1972), acquisition of resources (Quinn &Cameron, 1983) and effiency (Smith et al1985). The leadership here has to beextremely creative as well as has very littleslack available to it. Also required is a risktaking and ability to explore new product-market spaces. Some of the rolessuggested in the literature are:Entrepreneur (Mintzberg, 1973, Adizes,1979); Key Player (Gailbraith, 1982) andProducer (Adizes, 1979). In summary therole here is clearly that of an entrepreneur.

In the high growth stage the organisationwould be growing at a rapid pace andwould require increasing amounts offormalization and centralization.Processes and systems hitherto notneeded would need to be put in place. Thekey organisational priorities would becoordination (Smith et. al. 1985);commitment and cohesion (Quinn &Cameron, 1983), systematic decision

221

making (Mintzberg, 1973) andadministration (Adizes, 1979). Herecoordination between continuing on thepath of growth and developing anefficient organisation would be required.Some of the roles defined in the literatureare: Enterpreneur-Administrator (Adizes,1979); Coach (Gailbraith, 1982) andPlanner (Mintzberg, 1973). In sum, therole seems to be that of a coordinator.

In the maturity stage the growth slowsdown, the firm starts to operate in a verycompetitive market and the slackdisappears (Smith et al, 1985). The focusthen turns to efficiency. The keyorganisational prioties at this point are:Integration (Adizes, 1979; Greiner, 1972);efficiency through planning and control(Smith et al, 1985) and administration(Adizes, 1979). The leadership role hereis to deliver efficiency by integratingvarious systems, processes and strategiesto discover synergies. The roles that theliterature describes in this stage are:Administrator-Integrator (Adizes, 1979)and Strategist\ manager (Gailbraith,1982). Overall, the role here is that of anintegrator.

In the renewal stage the firm faces crisisof survival. Growth slows down or startsto decline. The organisational priorities atthis stage are: Domain expansion,renewed adaptability, environmentmonitoring (Quinn & Cameron, 1983) andinnovation (Miller and Friesen, 1984). Thechallenge here is of two kinds, to be ableto maintain the current business and runit efficiently while looking for new

opportunities. This is the time for change.The leadership role required here is thatof a change agent and a strategist. Theoverall role is that of a visionary who canhandle the ambiguity of this phase andprovide forward looking vision.

4. ORGANISATIONAL LIFE CYCLE:LEADERSHIP COMPETENCIES

Competencies consist of knowledge,skills and other behavioural dispositionsnecessary to reach desired standards ofjob performance, and these are developedthrough formal education and training orinformal work experience (Nybo, 2004).Organisations can also have competenciesin terms of abilities or capabilities. If acompetency view of leadership is taken,leadership becomes a wholly learned skill(Kroek et al, 2004). This brings leadershipdevelopment to the centre of leadershipin organisations. Competencies can bethen matched to leadership roles andprogrammes put in place to developthem. This is where this paper seeks tocontribute.

There is a lot of literature on leadershipcompetencies. However the challenge isto identify competencies that will allowthe leadership to play the role requiredin each stage of organisationaldevelopment.

Competencies both in the technical areaand leadership competencies are seen asimportant ingredients of leadership(Moqvist, 2002). The leadershipcompetencies identified by Moqvist (2002)are communication ability, delegation



ability, technical competence, managingcustomer relations, dealing with customerexpectations and formulating a vision.Buene and Tubbs (2004) identified thefollowing as the most important globalleadership competencies: communicationskills, motivation to learn, flexibility,open-mindedness, respect for others, andsensitivity. De Vries (2005) identifiestwelve leadership competenciesincluding: visioning, empowering,energizing, designing and aligning,rewarding and feedback, teambuilding,outside orientation, tenacity, global mind-set, and emotional intelligence. He hasalso included resilience to stress and lifebalance as competencies (De Vries, 2005).Scholtes (1999) identified six leadershipcompetencies including, thinking systemsand leading systems, understandingvariability, leading learning,understanding human behaviour,interactions and interdependencies andgiving the organisation direction andfocus. Krejci and Malin (1997) identifiedthe following competencies: effectivecommunication, effective conflictresolution, accurate problem diagnosis,systems thinking, personal power,effective group dynamics, change agency,overcome oppressed group behaviours,decision making\ reframing, articulationand enactment and impact.

There have been attempts at groupingcompetencies to make them more usefulin varied organisational situations. Ladoand Wilson (1994) grouped organisational

competencies into managerial, inputbased, visionary and output basedcompetencies. In an organisational setting3M has looked specifically at leadershipcompetencies grouping them intovisionary, essential and fundamentalcompetencies (Alldredge and Nilan,2000). However, this classification doesnot take into consideration the fact thatorganisations are continuously evolving.

Here, the attempt would be look at asimpler way of classifying competenciesand then overlaying them on evolutionarystages. Looking at Allredge and Nilans(2000) classification, the competencies canbasically be compressed into twocategories:

Strategic\ transformational:Competencies that drive high levelorganisational priorities. Thesepriorities emerge out of the outlinedstrategic vision of the organisation.

Operational: These are competenciesthat drive operational efficiencies ofthe organisation.

For effective leadership to exist in anorganisation, competencies need to bebuilt in both these categories. An attempthas been made to identify competenciesfor each of the stage of organisational de-velopment. These are the divided into thetwo categories of strategic\ transforma-tional and operational. These competen-cies have been short-listed on the basis ofleadership roles and organisational priori-ties (see Table 1).

223Parashar, Organisational Life ...

Table 1: Leadership roles and competencies

Maturity

Slowing

Very Formal;planning &control (Smith etal, 1985)

S t r a t e g i s t s \planners (Smith etal, 1985)D e c e n t r a l i s e dformal (Smith etal, 1985)

Characteristics

Growth

Processes

People

Structure

Inception

Inconsistent butimproving (Smithet al, 1985)

Informal(Adizes, 1979(Smith et al, 1985)

Generalists (Smithet al, 1985)

No formalstructure (Smith etal, 1985; Miller andFriesen, 1984)

High Growth

Rapid Positive(Smith et al, 1985)

Moderately formal;systems &procedures (Smithet al, 1985)

Specialists (Smith etal, 1985)

Centralised formal(Smith et al, 1985)

R e n e w a l \Elaboration

S l o w i n g \Declining

C o n s e r v a t i v e(Miller andFriesen, 1984)

Status Quoseekers (Adizes,1979)

B u r e a u c r a t i c(Miller andFriesen, 1984;Adizes, 1979)

OrganisationalPriorities

Creativity & entre-p r e n e u r s h i p(Quinn &Cameron, 1983;Adizes, 1979); cre-ating products &markets (Greiner,1972), acquisitionof resources(Quinn &Cameron, 1983),effiency (Smith etal 1985)

C o o r d i n a t i o n(Smith et. al. 1985);commitment andcohesion (Quinn &Cameron, 1983),systematic deci-sion making(Mintzberg, 1973);a d m i n i s t r a t i o n(Adizes, 1979)

I n t e g r a t i o n(Adizes, 1979;Greiner, 1972);e f f i c i e n c yt h r o u g hplanning &control (Smith etal, 1985);administration(Adizes, 1979)

Domain expan-sion, renewedadaptability, en-vironment moni-toring (Quinn &Cameron, 1983),I n n o v a t i o n(Miller andFriesen, 1984)

L e a d e r s h i pRoles

Entrepreneur(Mintzberg, 1973,Adizes, 1979);KeyPlayer(Gailbraith,1982) ; Producer(Adizes, 1979)

Enterpreneur-Administrator(Adizes, 1979);Coach(Gailbraith,1982); Planner(Mintzberg, 1973)

Administrator-Integrator(Adizes, 1979),Strategist\manager(Gailbraith,1982)

Change agent;strategist


Inception: Strategic\ transformational: Risk

taking, opportunity spotting, Operational: Resource

mobilisation, technical compe-tence

Growth: Strategic\ transformational: Team

building, empowering, Operational: Delegation, designing

systems and processes, effectivegroup dynamics

Maturity: Strategic\ transformational:

Conflict resolution, systemsthinking

Operational: Understandinginteractions and interdependencies

Elaboration\Renewal: Strategic\ transformational:

Political savvy, vision, risk taking,change agency

Operational: Problem diagnosis

SynthesisedL e a d e r s h i pRole

Entrepreneur Co-ordinator Integrator Visionary

L e a d e r s h i pCompetenciesS t r a t e g i c \T r a n s f o r m a -tional

Risk taking,o p p o r t u n i t yspotting

Team building,empowering

Systems think-ing; understand-ing interactionsand interdepen-dencies

Political savvyvision, risktaking, changeagency

Operational Resourcemobilisation,technicalcompetence

Delegation,designing systemsand processes,effective groupdynamics

Conflictresolution

Problemdiagnosis

These competencies are the ones that anyleadership development programmeshould seek to address. These leadershipcompetencies, if inculcated, could resultin superior and effective performance fororganisations. The next section looks at thevarious leadership developmentparadigms in operation today.

5. LEADERSHIP DEVELOPMENT

Leadership has been defined differentlyover a period of time. In the recent yearsKotter (1990) has sought to differentiateit from management by defining it assomething that is aimed at generatingchange by developing a vision of thefuture and strategies for making requisitechanges to fulfil the vision.Communicating, explaining vision andmotivating\inspiring people are seen askey ingredients. Yukl (2002) provides abroader definition. It is seen as a processof influencing others to understand andagree about what needs to be done andhow it can be done effectively, and theprocess of facilitating individual and

225

collective efforts to accomplish sharedobjectives (Yukl, 2002:7).

Leadership development has manydimensions to it. If we strictly stay withYukls definition of leadership as aninfluencing process, things likeinterpersonal intelligence (Gardner, 1999)become important. The interpersonalintelligence consists of social skills andsocial awareness (Zacarro, 2002). This iswhere the difference between leaderdevelopment and leadershipdevelopment comes in. In case of leaderdevelopment the emphasis is onknowledge, skills and abilities associatedwith formal leadership roles (Day, 2001).While in leadership developmentemphasis is on building and usinginterpersonal competence (Day, 2001).Dixon (1993) says that leadershipdevelopment involves building thecapacity for groups of people to learn theirway out of problems that could not havebeen predicted. Day (2001) in keepingwith the social view of leadership as aninfluencing process puts the emphasis onbuilding and using inter-personalcompetencies as far as leadershipdevelopment is concerned.

There are various views on the wayleadership development should be done.Research suggests that successfulperformance in most forms of workendevours can be attributed to experienceand coaching, rather than simply to in-born talent or early life experiences(Conger, 2004:137). Experience is seen asan important contributor to leadershipdevelopment. Pernick, (2002) believes that

as far as possible leadership developmentshould occur on the job not away from it.

Feedback (Smither et. al., 2005) , 360degree review (Conger, 2004); stretchgoals (Kerr and Landauer, 2004), groupcoaching (De Vries, 2005), experience(Kerr, 2004), action learning (Fulmer andWagner, 1999) are seen as some of theimportant on job components ofleadership development. Day (2001) seesthe following as the key inputs toleadership development: 360 degreefeedback, coaching, mentoring, networks,job assignments, and action learning.

McCall (2004) sees only a limited role fortraining. In his conceptualization,experience leads to leadershipdevelopment depending on individualcompetency. Training is just a way to buildon experience by reflecting and makingbetter sense of experience, substitutingexperience that is not easily available, andproviding experiences not available online(McCall, 2004). This is an important viewbecause it provides a clear role for trainingin leadership development.

Yukl (2002) after an extensive literaturereview summarized leadershipdevelopment methods into three types:

Formal Training comprisingbehaviour role modelling, casediscussion, simulation andmanagement games

Developmental activities variety oftasks & assignments, multisourcefeedback, challenging assignments,job rotation, action learning,mentoring and coaching



Self Help activities like practitionerbooks, video tapes and interactivecomputer programmes.

The role of experiential developmentprogrammes is seen as the most important(eg. Day 2001; Pernick, 2002). Training isseen as a backup to on the jobdevelopment to provide experiences thatan organisation cannot easily provide(McCall, 2004). The next sectionspecifically looks at these leadershipdevelopment techniques in the context ofa fast evolving organisation. An approachto leadership development is put in place.

6. ORGANISATIONAL LIFE CYCLES A N DLEADERSHIP DEVELOPMENT

Fulmer and Wagner (1999) believe thatleadership development should have a clearlink to organisational strategy and priorities.This is of great importance as far as differentlife stages of the organisation is concerned.Fulmer (1997) sees leadership developmentmaking the move from being an uniqueevent to being an ongoing process. Fiedlerand Macaulay (1998) as also Fiedler (1972)have propounded that leadership situationkeeps on changing and leadership trainingneeds to reflect that.

There are two problems with theleadership development approach usingorganisational life cycles. The one bigchallenge that is would be faced in theprocess of leadership development fordifferent lifecycle stages in theorganisation would be that of makingpeople effortlessly change from one set ofroles to another. Conger (2004) hasgrappled with the same dilemma:

There are many topics that couldadvance our knowledge of leadershipdevelopment, but one of the mostintriguing is whether managers andexecutives can develop a leadershipcapacity for great versatility in style orapproach. In other words, can managersvary their leadership styles significantlygiven changing circumstances? Or isleadership style such a product ofpersonality and ingrained behaviours thatvariations in style are confined toincremental changes? (Conger, 2004)

However, there is some evidence thatLeadership Development programmeshave a positive impact on competencies(Krejci and Malin, 1997).

The other big problem is that theorganisation is itself in a state of evolution.To simplify things let us consider anorganisation that is in a single line ofbusiness that is evolving. Now the problemis that the organisation cannot provideonline experiences for leadership rolesrequired in the subsequent stages. This justleaves out the options of formal trainingand self help activities as the mainstay forleadership development. The only optionopen for the organisation for liveexperiences is to outplace employees tocompanies that are going through the nextphase of organisational development or doan inter-company coaching or mentorshipprogramme. The menu that an evolvingorganisation can use for leadershipdevelopment is as follows:

Formal Training: Simulation ofconsequent life stages, ManagementGames, behaviour role modelling,

227

appreciation of role andcompetencies required at variousstages of organisational development

Developmental Activities: Out-placement to organisations which areexperiencing subsequent stages ofdevelopment, inter-companycoaching or mentorship programme

Self-Help: Exposure to case studies,appreciation of role andcompetencies required at variousstages of organisationaldevelopment.

The job of leadership development in anorganisation that is evolving is quitetough. The organisational leadershipwould find it tough to adjust from onestage to the other stage. Competenciesthat would be valuable in one stage mayturn out to be of little use in subsequentstages. Also the leadership has to developan appreciation for roles andcompetencies required in each subsequentstage and show flexibility of approach.However, behaviours tend to getingrained due to their success in any onestage. The leadership then has to unlearnfor the next evolutionary stage and re-learn new ways of doing things.

Training in itself may not be enough tolearn new competencies or changebehaviours. At best training can inculcatean appreciation for changing requirementas far as leadership is concerned. It canprovide a tool kit, however usage of thetool kit is not guaranteed. A change inbehaviours and learning of newcompetencies would require online

experience. Some of it can be labexperience like simulation, but real lifeexperience would be required. This iswhere the challenge for organisations lies.

A composite developmental programmewill have to be put in place. Trainingcould be the base of this developmentalprogramme. However, some radicalsolutions like inter-company mentoringor even outplacement in companies in thesubsequent stages of evolution will berequired. Live online experience makesfor strong learning. This would beespecially required in organisations thatare evolving at a fast pace.

7. CONCLUSION

The approach to leadership developmentthrough organisational lifecycles has ledto important insights. First, leadershiproles have been synthesised for each of theevolutionary stages based onorganisational priorities. This is animportant step for leadershipdevelopment in fast evolvingorganisations. Leadership roles provide abasis for developing a leadershipdevelopment plan that is focussed.

Second and the most importantcontribution of this paper is in the area ofidentifying competencies that go witheach of the leadership roles andorganisational priorities in each of theevolutionary stages. Competencies can bedeveloped through a variety of trainingprogrammes and online job experiences.This makes them an important factor forleadership development in anorganisation. There is an increasing focus



on competency based approach to jobsand roles in organisations (Alldredge andNilan, 2000; Nybo, 2004). Theidentification of both strategic\transformational and operationalcompetencies extends the application toleadership in fast evolving organisations.

Third, the integration of the insights fromthe OLC, leadership roles andcompetencies with the actual process ofleadership development leads tointeresting conclusions. There is anappreciation that leadership developmentin an evolving organisation is a tough taskbecause behaviours have been ingrainedthrough feedback in people. This happensbecause of positive feedback from successattributed to certain competencies andbehaviours. These have to be unlearnedbefore fresh learning can take place.

Fourth, a composite developmentprogramme needs to be put in place todevelop leadership along with theevolutionary phases. Dependence on justtraining might not be enough. A mix oftraining initiatives that include simulationand management games that give anappreciation of evolutionary phases alongwith developmental initiatives thatachieve strong online experience has to beput in place. The challenge is to developleadership through providing them withexperiences that can help them developcompetencies to play the roles requiredin the next stage of development.

Overall, in this paper, an integration ofdiverse fields of literature is achieved,thus providing important insights for

organisations. The implications of theseinsights are brought out withrecommendations for organisations in thearea of leadership development.

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