mb0052 assignment answer sheet

7/25/2019 MB0052 Assignment Answer Sheet

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Drive Fall 2015Program MBA SEM 4

Subject code & ame MB0052 ! Strategic Maagemet adBu"ie"" Polic#

$ue"tio 1% a' De(ie )Strategic Maagemet* ad )Strategic Plaig*+b' Di"cu"" t,e bee(it" o( Strategic Maagemet+

A"-er%Strategic Maagemetmeans set of decisions and actions which leads to the development ofa corporate organization. All the management functions of a company can be broadly classifiedinto two categoriesstrategic and operational.Plan or planning should precede action. And, strategic planning should precede strategicmanagement. An organization can derive many benefits from strategic management.

Strategic .la al"o called a cor.orate .la or .er".ective .la'% A blue.rit or documetStrateg#% The combination of competitive moves and business approaches that managersemploy to please customers, compete successfully, and achieve organizational objectives whichincorporates details regarding different elements of strategic management.Plan or planning should precede action and strategic planning should precede strategicmanagement. Strategic planningalso called corporate planningprovides the framewor!some call it a tool" for all major decisions of an enterprisedecisions on products, marets,investment and organizational structure.#enefits of strategic management are manyboth financial and nonfinancial. S trategicmanagement are more profitable and successful than those which do not.Strategic management has its limitations alsoanalysing a comple$ environment% plans,framewors and systems mean rigidity% limitation in implementation% and inade&uate

appreciation by the management.

'ie strategy, strategic management also has been defined differently by different authors andstrategy analysts. (e give below three definitions of strategic management, which together givecompleteness to the concept of strategic management.)Strategic management is that set of decisions and actions which leads to the development ofan effective strategy or strategies to help achieve corporate objectives.*)Strategic management is defined as the set of decisions and actions in formulation andimplementation of strategies designed to achieve the objectives of an organization+*)Strategic management is primarily concerned with relating the organization to its environment,formulating strategies to adapt to that environment, and, assuming that implementation ofstrategies taes place.*

All the management functions of a company can be broadly classified into two categories+strategic and operational. Strategic functions are performed more at the senior and topmanagement level, and operational functions are discharged more by middle and lowermanagement levels. n other words, it can be said that, as the level of management moves up,the managers perform more strategic functions and less operational functions. Also, in anycompany, operational functions constitute a higher percentage of total managementfunctions than strategic functions.but, they are closely interrelated and must be integrated in the

total management process.


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Strategic Plaig ad Strategic Maagemet Plan or planning should precede action. And,

strategic planning should precedestrategic management. Strategic planning !also called

corporate planning"provides the framewor !some call it a tool" for all major decisions of an

enterprisedecisions on products, marets, investments and organizationalstructure. n a

successful organization, strategic planning or strategic planningdivision acts as the nerve

centre of business opportunities and growth. t alsoacts as a restraint or defence mechanismthat helps an organization foreseeand avoid major mistaes in product, maret, or investment

decisions.

A strategic plan, also called a corporate plan or perspective plan, is ablueprint or document

which incorporates details regarding different elementsof strategic management. This includes

vision-mission, goals, organizationalappraisal, environmental analysis, resource allocation and

the manner in whichan organization proposes to put the strategies into action. The concept and

roleof strategic planning would be clear if we mention the major areas of strategic planning in

an organization. irst, strategic planning is concerned withenvironment or rather, the fit

between the environment, the internal competenciesand business!es" of a company. Second, it

is concerned with the portfolio ofbusinesses a company should have. /ore specifically, it isconcerned withchangesadditions or deletionsin a company*s product0maret postures.

Third, strategic planning is mostly concerned with the future or the long0termdynamics of an

organization rather than its day0to0day tass or operations.ourth, strategic planning is

concerned with growthdirection, pattern and timingof growth. ifth, strategy is the concern of

strategic planning. 1rowth prioritiesand choice of corporate strategy are also its concerns.

inally, strategic planningis intended to suggest to an organization, measures or capabilities

re&uired toface uncertainties to the e$tent possible.

A characteristic feature of the starting plans of many large ndian companies is that the long0term planning horizons of these companies generally coincide with the national planning period.

This means that many of these companies follow a five0year planning period whichsynchronizes with the 20year plans of the country. This is particularly true of public sectorenterprises in the core sector.or the preparation of the plan, a strategic planning team was formed consisting of si$managers from different functional areas-disciplines. The planning team made some forecastsabout the general macroeconomic environment during 3443546 and how the ndianeconomy would perform during the period in terms of aggregate demand, technologydevelopment and availability of raw materials. n addition to these, the company had consideredother environmental factors also. #ased on an analysis of the major strengths and weanessesof the company and the environmental factors !opportunities and threats", a detailed S(7Tanalysis !discussed later in 8nit 6" of the company was undertaen. The objective ofS(7T analysis was to identify growth and e$pansion possibilities in e$isting and new

products-businesses. These were finally translated into projected volumes, turnover andprofitability. 7nce a strategic plan is prepared, the same is submitted to the seniormanagement-top management for their consideration and approval. n /arico ndustries also,the strategic business plan prepared by the planning group was submitted to the seniormanagement and finally to the top management !9:7".;eliberations too place at different levels and the business plan was finalized. This becamemore lie an annual plan which was to be revised and updated every year during the referenceperiod !3443546" as per the strategic business plan. /arico*s target was to increase its turnover


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to > crore by 3442546. The business plan also stipulated that /arico should add a newproduct to its portfolio every year and see technology tie0up for introduction of new products.Strategic planning and strategic management are intimately related to each other. (herestrategic planning ends, strategic management taes over% but, both are complementary to eachother. They form vital lins in an integrated chain in corporate management. #oth arecontinuous processes. Strategic management may be more continuous, because it involves

implementation and monitoring also.Bee(it" o( Strategic Maagemet

An organization can derive many benefits from strategic management. Strategic managementallows an organization to be more proactive than reactive in shaping its own future. t allows anorganization to initiate and influence rather than just respond to activities or situations% and, thisenables the organization to e$ercise control over its present activities and give directions togrowth and development.The benefits of strategic management can be both financial and non0financial. ;ifferentresearch studies indicate that organizations using strategic management are more profitableand successful than those which do not.9ompanies using strategic management techni&ues show significant improvement inproductivity, sales and profitability compared to the ones without systematic planning. ?igh0

performing companies do more systematic planning to prepare for future changes in theenvironmentboth internal and e$ternal.9ompanies with properly organized planning system and strategic management generally showsuperior long0term performance relative to the industry average. ?igh0performing companiesusually have more informed decision0maing system with good anticipation of both short0termand long0term conse&uences.9ompanies, which perform poorly, often remain busy in activities that are shortsighted and donot reflect good forecasting of future conditions. Planners of low0performing organizations areoften preoccupied with resolving internal problems and conflicts and meeting routine or paperdeadlines. They tend to underestimate their competitors* strengths and overestimate their ownstrengths overlooing the weanesses. They often attribute their poor financial performanceto uncontrollable factors such as a stagnant economy, poor industrial climate, technological

change and domestic or foreign competition.These business failures include banruptcies,foreclosures and li&uidations. Although many factors contribute to business failure, strategicplanning and management can help in the prevention of failures in many cases by anticipatingsituations or developments and recommending or taing appropriate timely actions.n addition to the financial benefits, companies can derive a number of non0financial benefitsfrom strategic management such as better awareness of e$ternal threats, clearer understandingof competitors* strategies, reduced resistance to change, better analysis of performance0rewardrelationship, etc.Strategic management may renew confidence in the current business strategy or focus on theneed for corrective actions. t helps managers to view change as an opportunity rather thanthreat.1reenley !34@6" has analysed various non0financial benefits of strategic management. ?e has

enunciated the benefits of strategic management as given below+t provides for an objective view of management problems.t allows for identification, prioritization and e$ploitation of opportunities.t allows for more effective allocation of time and resources to identified opportunities.t provides a framewor for improved coordination and control of activities.t minimizes the effects of adverse conditions and changes.t scans resources and time to be devoted to correcting erroneous or ad hoc decisions.t enables major decisions to support established objectives and priorities better.t provides a framewor for improved coordination and control of activities.


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t helps to integrate the behaviour of individuals into a total effect.t provides a cooperative and integrated approach to tacling problems and opportunities.t creates a framewor for internal communication among managers.t encourages forward thining.t imparts a degree of discipline, formality and positiveness to the management of a business.t encourages a favourable attitude towards change.

$ue"tio 2% Di"cu"" t,e di((erece bet-ee de(e"ive "trategie" ad .re!em.tive "trategie"+ /iv"u..ort #our a"-er+A"-er% De(e"ive Strategie"The classic form of retaining e$isting !civil" territory is to mount aposition defence #yconstructing strong ramparts to eep out the enemy. n business, positiondefence istypicallybuilt by developing high levels of customer loyalty. #ut, the problem with many organizations isthat the defender often becomes complacentand, does not realize that the enemy is maingslow, but steady, inroads intothe customer base. 7ne of the unfortunate e$amples of thissituation is #/.The company built a big global business in the computer industry based on unmatchedcustomer loyalty. #ut, #/ ignored the threats, may be unnowingly, posed by the advent of the

networed P9 and more powerful operating systems.The company realized, rather late in the 344>s, that customer loyalty had been completelyeroded by competitors who were more strongly committed to fulfilling the changing needs ofcustomers.Counter-offensive strategy has a different advantage. t has the advantage of not having torespond before one measures up the real nature of the competitive threat. Bevertheless, it is abelated response, and there is always the ris that by waiting until )you see the whites of theenemy*s eyes*, a company may be forced to spend massive resources to recover lost grounds.Cero$ 9orporation is an e$ample. Cero$ had been forced to mae large investments in DE;,technology, manufacturing process and organizational structure during the last few years toregain some of the lost ground in the photocopier maret to competitors such as 9anon.Retreat is sometimes a good defence. After a careful review of circumstances, if it is evident

that the competitor has the potential to overwhelm the company, then there may be very littlelogic in defending a position which will be eventually lost to the enemy. 8nder these conditions,the defender may well withdraw to a more protected segment of the maret% and in themeantime,try to determine how the development of new superior product-service pacages might mae arecovery of the lost maret position possible at a later stage.'otus is a good e$ample of this. ;uring the 34@>s, 'otus lost its dominant position in thecomputer0based spreadsheet maret to new software products such as /icrosoft*s e$celpacage. After being ac&uired by #/, 'otus is now using its world beating 'otus Botes as aplatform from where it can reposition itself as the leading provider of nternet0based group warecommunication systems.Pre!em.tive Strategie"

)Attac is the best form of defence* is the basis of pre-emptive defence strategies. As the nameindicates, in pre0emptive defence strategies, companies, after having identified a possiblethreat, tae action ahead of competitors. An e$cellent e$ample of this strategy is /icrosoft./icrosoft watches advances made by competitors in the software industry and &uicly moves tointroduce another upgrade to sustain its maret leadership position.Pre0emption is considered by many as one of the smartest strategies. Pre0emption, as astrategy, re&uires a close understanding of the planned and potential moves of competitors forslowing down or blocing those moves. To develop pre0emptive strategies, companies need toconsider five steps.


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3. Ascertain where the maret or competitors are moving or might move%F. dentify potential strategies for getting there first or for blocing the competitor*s moves%=. Ascertain whether these strategies are consistent with the company*s current strategic goals%G. ;etermine whether these strategies are feasible in terms of resources and competences%2. ;etermine whether and how far they are liely to affect the competitors* objectives, actionsand reactions.

The ability to pre0empt re&uires companies to be creative or innovative. n fact, creativity orinnovation is often a ey resource in pre0emption. t allows companies to see the une$pectedopportunity, threat or competition and design the strategy in advance.

$ue"tio a' ,# 3uraroud "trateg# i" "ometime called a" a ete"io o(re"tructurig "trateg#6b' Di((eretiate bet-ee "urgical ad o!"urgical turaroud+ /ive eam.le"+

A"-er%uraroud Strateg#9orporate turnaround may be defined as organizational recovery from business decline orcrisis. #usiness decline for a company means continuous fall in turnover or revenue, erodingprofit, or accrual or accumulation of losses. So, business or organizational decline, lie business

performance, is understood in relative terms, that is, compared with the past. #ut, somestrategy analysts describe business decline in terms of current comparisons also% for e$ample,relative to industry rates or averages or even relative to economic growth of the country.9orporate crisis means deepening or perpetuation of a decline. Turnaround strategies areusually re&uired for crisis situations. f organizational decline is not continuous or severe,corporate restructuring can provide the solutions. That is why turnaround strategy may be saidto be an e$tension of restructuring strategy. (hen restructuring is very comprehensive andleads to corporate recovery, it almost becomes a turnaround strategy as mentioned above in thecase of Holtas.9orporate or business decline manifests itself in many forms or symptoms, including profitability.These symptoms are actually different performance criteria of companies. /ajor symptoms orcriteria or situations which signal towards the need for a turnaround strategy are+

Steadily declining maret share%9ontinuous negative cash flow%Begative profit or accumulating losses%Accumulation of debt%alling share price in a steady maret%/ismanagement and low morale.

(ith some or all these symptoms becoming clearly visible !these symptoms are generallyinterrelated" for a company, a turnaround or recovery becomes highly imperative. #ut, thesituation should be carefully reviewed to assess the e$tent of recovery possible beforeundertaing any such programmes.1iven a strategy, in some situations, recovery may be more or less successful than in others.Slatter !34@G" contends that there are four recovery situations in terms of feasibility or success.

These situations are+!a" Dealistically non0recoverable situation%!b" Temporary recovery situation%!c" Sustained survival situation %!d" Sustained recovery situation.

Realistically non-recoverablesituation is one in which chances of survival are very little,because the company is not competitive, the potential for improvement is low, clear cost


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disadvantage e$ists and demand for the company*s product is in decline stage. n such asituation, divestment or li&uidation may be a better option.Temporary recoverysituation e$ists when there can be initial successful recovery, but,sustained turnaround is not possible. This can happen because repositioning of the product ispossible. Some cost reduction programmes may be successful, and revenue generation is alsopossible at least for some time.

Sustained survivalsituation means that recovery is possible but potential for future growthdoes not e$ist. This may happen primarily because the industry is in a declining phase !say,blac and white TH, audio cassettes, H9D". A company in such an industry or situation caneither go for divestment or turnaround if it foresees or can create a niche in the industry and ifthe growth prospects can be created.Sustained recoverysituation is one in which successful turnaround is possible for sustainedgrowth. n such cases, business decline might have been caused by internal organizationalfactors or e$ternal or environmental conditions which the company is able to deal witheffectively. nherently, the company is strong in terms of competence.F3

Surgical uraroud ad 7o!"urgical uraroudThe surgical method, more commonly practiced in the (est, involves sweeping changes lie

firing of staff, managers, wholesale reshuffling of portfolios, closing down operations, etc. Somecall it bloodbath or bloodshed. Bon0surgical turnaround adopts the opposite approach, that is,peaceful meansrevamping or recovery through meetings, discussions, persuasions,consensus, etc.The operations in surgical turnaround are lie this+ the first step is to replace the chief e$ecutiveof the ailing company by a new )iron* chief. The new chief promptly gets into action% he assertshis authority. ?e issues pre0emptory orders, centralizes functions and spears some convenientscapegoats. Then he goes about firing employees en masse and auctioning-selling whole plantsand divisions )until the fat is satisfactorily cut to the bone*. The bloodbath over, the product mi$is revamped, obsolete machinery is replaced, mareting is strengthened, controls aretoughened, accountability for performance is focussed and so on. ?ow )bloody* this sort ofturnaround can be may be seen from the e$amples of companies lie the 8S video games

manufacturer Atari, which, among other actions, cut its labour force by two0thirds to =2>> to turnitself around. Turnaround management of the humane type may involve negotiated and humanelayoffs and divestiture, but, not a bloodbath. This type of turnaround also is generally broughtabout by the new helmsman. #ut, he spends a great deal of time in trying to understandorganizational problems and deliberating on them. ?e taes all the staeholders includingunions into confidence% forms groups within the organization to brainstorm together on whatneeds to be done to get over the crisis% tries to create a new wor culture% and, generally infusesa strong sense of participation among the employees and many critical decisions becomeparticipative decisions. There are many e$amples of successful turnarounds of the humane typeincluding :nfield, Holswagen, 'ucas, Air ndia, SP9, #?:' and SA'.

$ue"tio 4% rite ",ort ote" o t,e (ollo-ig e.a"io "trategie"%

a' Peetratio "trateg# (or gro-t, i ei"tig mar8et"b' E.a"io t,roug, Diver"i(icatio

A"-er% Peetratio Strateg# (or /ro-t, i Ei"tig Mar8et"

A company has a number of ways for penetrating into the e$isting marets and generatinggrowth. The most obvious way to grow is to increase maret share. 9ompanies lie #ajaj Autohave successfully penetrated the e$isting maret and sustained their maret share. #ut, thisgenerally happens in a high growth maret or industry !lie two0wheelers". Also, one company*s


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share gain is another company*s share loss. Therefore, maret share battle increasescompetitive pressures, and, maret share gain may soon be neutralized, or, in the least,may be difficult to sustain.

An alternative strategy which may pose lesser threat from competitors !and which may alsoultimately lead to increase in maret share" is to increase the product usage. There are threeways to increase product usage, namely, the fre&uency of use, the &uantity used and new

applications and users. 7f the three ways, the last one, that is, new applications and users, maybe the most effective. 9adbury had shown this. 9adbury ;airy /il 9hocolate !9;/" wasthe maret leader. #ut, with a maret share of already I> per cent, winning away customersfrom competitors in the slow0moving maret was almost impossible. 9adbury found the solutionin new users among parents !elderly people" who were earlier eeping away from 9;/.3The best way to identify new uses or applications is to conduct maret research or surveys.Such research or survey would include ascertaining details about applications of competingproducts and brands, that is, substitutes. 9ost of such research or studies, and, also,subse&uent advertising and promotion should be taen into consideration to determine the costeffectiveness of such programmes. nvestment in research should be justified by returns interms of results or findings, and, applicability of the results.

E.a"io t,roug, Diver"i(icatio%

;iversification, as a strategy, may generate growth in a number of ways. Productdevelopment

and maret development are two different methods to diversify,and, we had discussed these

two methods earlier. ;iversification can also taeplace through both new products and new

marets. And, a diversification strategy,whether through product development, maret

development or both or any otherway, may, mean a new business venture of the company, a

joint venture, etc.(e shall discuss here the related issues of diversification and their

implications. t is useful to distinguish between )related diversification* and )unrelated

diversification*.

Related diversification means that the new business has commonalities with the core businessor core competence of the company% and, these commonalities provide the basis or strength forgenerating synergies or economies of scale or higher returns by e$ploiting e$isting resourcesand sills in DE;, production process, distribution process, etc.Unrelated diversification, on the other hand, is less related to the present business and sillsand resources !e$cept financial" and, may mean venturing into an entirely new area. Thecompany may have to ac&uire new sills and e$pertise for this. The main reason or motivationfor unrelated diversification may be high growth potential in terms of revenue, maret share orprofitability. There can be a number of other reasons also.n strategic management literature, related diversification is more commonly nown asconcentric diversification and unrelated diversification, as conglomerate diversification, although

some analysts may lie to mae some distinction between the two.Eteral E.a"io or Diver"i(icatio :$pansion or diversification, related or unrelated

!concentric or conglomerate",into new products or businesses may be )internal or e$ternal, i.e.,

it may taeplace within the company without involving any other company% or, it mayassociate

another company as part of the e$pansion or diversificationprogramme. :$ternal diversification

is a common characteristic of corporatestrategy in the developed countries, particularly in the

8S. n counties lie ndiaalso, such diversification is taing place. :$pansion or diversification,


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whichinvolves another company as part of the e$pansion-diversification programme,can be of

four major types+

3. Strategic allianceF. Joint venture !JH"

=. Taeover-ac&uisition G. /erger

$u"tio 5 %Di"cu"" t,e com.etitive "trateg# i%a' Emergig idu"tr#b' Decliig idu"tr#A"-er %9om.etitive advatage%A position of superiority of an organization in relation to itscompetitors9om.etitive Strateg# i Emergig :du"trie";ue to the structural characteristics of uncertainty and associated ris, formulation of strategy inemerging industries becomes a very difficult tas. As Porter puts it+ )the rules of the competitivegame are largely undefined, the structure of the industry unsettled and probably changing andcompetitors hard to diagnose. #ut, these also imply the other side of the emerging industries+ lot

of freedom, fle$ibility and leverage e$ist for companies in these industries for choice of strategybecause the industry is in the formative stage. And, entrepreneurial and aggressive companiescan e$ploit these leverages to formulate competitive strategies for improved operations whichcan lead to more efficient performance and better results. The entrepreneurial pioneer can, infact, design the structural form, build the structure of the industry in terms of product policy,mareting approach !pricing in particular" and competition strategy in such a way that itcan secure the strongest position in the long run. This is what companies lie Cero$ did when itemerged in the photocopier industry. The pioneering leader, however, will face problems as theindustry develops, competitors emerge and the course of competition becomes unpredictable. Acommon problem in emerging industries is that the pioneer may spend e$cessive resources indefending high maret share as Cero$ did. t may be generally appropriate to respond tocompetitors aggressively in the emerging phase, but, a company should concentrate more on

building its own strength and consolidating its position. n practice, as e$periences show, it maynot be feasible to defend a monopoly maret share for long because competitors will emergeand some of them may be very strong lie 9anon in the photocopier maret. n such situations,the pioneer leader should be prepared for shifts in strategy orientation including redefinition ofroles of linage agents lie suppliers and distributors or distribution channels.9ompanies which enter emerging industries during the course of their development also have achoice to mae about which industries to enter. ?ere, again, they often have a choice betweenalternative emerging industries. The choice in such cases would depend on current returns orprofitability and liely future growth of the industry. The best alternative is one which promiseshighest long0term growth and profitability.

9om.etitive Strateg# i Decliig :du"tr#

n terms of strategic choice in declining industries, companies are confronted with the decisionabout whether to continue in the industry or harvest or divest. There are implications of both interms of strategic details and their impacts on organizations. Porter has given a perspective oncompetitive strategies in declining industries which should be mentioned here. ?e hassuggested four possible alternative strategies+ leadership, niche, harvesting and divesting&uicly. Alternative Strategies in ;eclining ndustries'eadership Biche ?arvest ;ivest &uicly See a leadership 9reate or defend a /anage acontrolled 'i&uidate the position in terms of strong position in a disinvestment using business ormaret share particular segment strengths investment as early as possible.


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The leadership strategy may wor out as below. n a declining industry, many unprofitable orloss0maing units divest and e$it. 7ne of the remaining companieswho are not many innumber may have the potential to achieve above0average profitability, and leadership positionis possible for such a company. The company strives to be the only one or one of the fewcompetitors remaining in the industry. Porter suggests a number of strategic steps fore$ecuting the leadership strategy+

Investment in aggressive competitive actions in mareting !focus on pricing" and other areas toincrease maret share%

Purchasing maret share by ac&uiring competitors or competitors* business%Purchasing and retiring competitors* production capacity. This also reduces e$it barriers%Reducing competitors* e$it barriers in different ways to induce or force them to e$it%

Demonstrating superior strengths through competitive moves in the maret%Demonstrating a strong commitment to continue in the business through public statements or

pronouncements.n niche strategy, it may be possible for a company to identify a segment or a sub0segment in adeclining industry which will not only sustain stable demand but, may also allow high returns ormargins. The company then invests to consolidate its position in this segment or sub0segment.or this, a company may also adopt some of the leadership strategies mentioned before. The

primary objective of these strategies is to reduce e$it barriers or induce e$it of competitors.The company is then secure in the niche for some time. 8ltimately, however, companiesadopting a leadership strategy or a niche strategy may have to switch over to a harvestingstrategy or divesting strategy.

Question 6: Benchmarking is the process by which companies look at the best! in theindustry and try to imitate their styles and processes"Evaluate t,e ratioale (or bec,mar8ig eerci"e" ad di"cu"" t,e (eature" ad t#.e" o(bec,mar8ig+ Plea"e e"ure to iclude a eam.le to "u..ort #our a"-er+

Answer + Bec,mar8ig+ 9omparison with, and adherence to, prescribed norms, standards orpractices

An organization*s strategic capability or strategic choice is to be alwaysunderstood in relative

terms because it involves comparison with competitors or industry norms. This implies thatorganizations need to understand and analyse performance standards, i.e., what constitutesgood and bad performance. Since performance is intrinsically related to strategy formulationand implementation, the )relativity* factor should be ept in mind during the process of selectionof the strategy itself. A strategy, along with resource base, should be so selected that it candeliver results of high standards or standards which can compare with the best in the industry.This necessitates an analysis of benchmaring and best practices.

Benchmarking is comparison with, and adherence to, prescribed norms, standards or practices.#enchmaring can also be defined in a more functional way+ #enchmaring is a process ofidentifying, understanding, and adopting outstanding practices from the same organization orfrom other businesses to help improve performance.

#ased on the above definitions, five important (eature"or characteristics can be identified+

!a" #enchmaring enables an organization to analyse where it stands in comparison to otherorganizations, where it e$cels or lags behind. So, benchmaring is a useful diagnostic tool.!b" #enchmaring involves identification of two things+ first, what is to be compared, i.e.,product, process, performance, etc.% and, second, whom to compare with, i.e., competitors,organizations in the same industry, organizations outside the industry, etc.


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!c" #enchmaring is applicable to all facets of business products, processes, services, methods,etc. t goes beyond traditional competitor analysis and focusses on understanding what are thebest practices and, how the best practices can be emulated, if not improved upon further.!d" #enchmaring is not confined to comparison only with direct product competitors but, allthose businesses or organizations which are recognized as industry leaders or the best.!e" #enchmaring is a continuous process and not just one0off initiative. ndustry standards and

practices constantly change, and an effective benchmaring initiative has to regularly monitorthese changes and accordingly adapt itself.

#.e" o( Bec,mar8ig

#enchmaring can be broadly divided into two major types or categories+ the first category isprimarily based on what i" to be bec,mar8ed, and the other type is dominantly based owhom to bec,mar8 agai"t+What is to be benchmarked whom to benchmark against

!;ominant factor" !;ominant factor"Product bec,mar8ig iteral bec,mar8igProce"" bec,mar8ig 9om.etitive bec,mar8ig

Fuctioal bec,mar8ig geeric bec,mar8igPer(ormace bec,mar8igStrategic bec,mar8igProduct benchmarking is a comparison of product!s" with competitors or industry leader toascertain what customers value most.Process benchmarking means emulating best processes, i.e., corporate practices and methods.unctional benchmarking involves comparison of major functions production, mareting,logistics, distribution, etc., with competitors or non0competitors.Performance benchmarking is overall comparison of organizational performance includingprocesses, functions, and results with competitors or industry participants.!trategic benchmarking is the adoption of strategy5building system, planning process, strategicdecision maing, etc.

Internal benchmarking involves comparison among units and developments within the sameorganization to improve unit level or departmental performance.Competitive benchmarking is a direct comparison of an organizations*s competitive strengthsand weanesses with the best of competitors."eneric benchmarking means comparing organizational methods and practices with the bestpractices anywhere in any type of organization within or outside the industry.

/ore common forms of benchmaring, however, are based on comparison with competitors andsuccess factors within the same industry. 7rganizations which are more progressive and strivefor e$cellence adopt generic benchmaring. n practice, benchmaring often involves combiningdifferent types !or more than one type" to improve organizational performance and results.

Bec,mar8ig% 9om.ari"o -it, 9om.etitor"A major and very common, benchmaring practice is to develop an organization*s resourcesand competences in comparison with e$isting and potential competitors. ;ifferent companies inthe same industry have different financial resources, technical now0how, managerial talent,mareting sills, operating facilities, etc. These resources and competences can becomerelative strengths or weanesses depending on the strategy a company chooses. n selecting astrategy, the management should compare the organizations*s ey capabilities with those ofcompetitors for securing competitive advantage.


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Sears and 1: are major competitors in home appliance industry in the 8S. Sears* principalstrength is its retail networs. #ut, for 1:, the distribution systemthrough independentfranchised dealershas been a relative weaness. 7n the other hand, 1:*s resource base,particularly financial resources, to support its modern production system, has enabled thecompany to maintain both cost and technological advantage over its competitors, particularlySears. This major strength of 1: is a relative weaness of Sears.

/aintenance and repair services are important in the appliance business. Sears always hadstrength in this area because it maintains fully staffed service components and distributes thecost of components over various departments in different retail locations. 1:, in contrast, has todepend on regional service centres and franchised local dealers. The comparison betweenSears and 1: shows that benchmaring efforts of the two companies should focus ondistribution networ, technological capabilities, operating costs and service facilities./anagement in both companies, in fact, developed successful strategies based on relativebenchmaring. #y benchmaring each other, they have developed ways to build on relativestrengths, and at the same time, avoiding dependence on capabilities in which the othercompany e$cels.9omparison with ey competitorsessentially process benchmaring or competitivebenchmaringcan be very useful in ascertaining whether resources and capabilities of an

organization are competitive strengths or weanesses.dentification of differences !strengths and weanesses" with competitors provide importantinputs for choice and development of strategy. Also, through competitive benchmaring, acompany can concentrate on those strategies which it can effectively use to its advantage.

Be"t!i!cla"" Bec,mar8ig9omparison with competitors or benchmaring against industry success factors has a majorshortcoming. They only help an organization to succeed or e$cel within the industry. #ut, bestmethods or practices need not be confined to only within one*s own industry. These can easilye$ist in some other business or industry which may be really e$emplary. As mentioned earlier,organizations which aspire to be comparable to the best among all businesses or strive fore$cellence should adopt generic or best0in0class benchmaring.

Best-in-class benchmarking is a comparison of an organization*s methods and practices orperformance against the best in any business or industry and adoption of the same. #est0in0class benchmaring urges organizations to search for best practices wherever those may befound. n best0in0class benchmaring, the potential for change is enhanced, and the forces anddirection of change are facilitated by locating practices or forming partnerships across industriesor sectors. or e$ample, #ritish Airways improved aircraft maintenance, refueling andturnaround time by studying the processes used in ormula 7ne 1rand Pri$ motor racing pitstops.A police force wanting to improve the way it responds to emergency telephone callsstudied call centre operations in the baning and T sectors for benchmaring the responsepattern.#est0in0class benchmaring becomes particularly relevant for service organizations. Acharacteristic feature of service organizations is that improved performance in one sector

particularly in factors lie speed and reliabilityraises the general level of e$pectations amongcustomers about the same !speed and reliability" from all companies in all sectors. So, in theservice sector, best in0class benchmaring urges organizations to stretch their core competenceor develop newer capabilities to e$ploit opportunities in different fields or marets.

Bec,mar8ig Practice" i :dia 9or.orate(ith the increase in competitive intensities and e$posure to globalization, ndian companies,lie many others in different parts of the world, are constantly seeing to improve theirperformance. #enchmaring, therefore, is becoming a logical strategic initiative. ;ifferent


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companies are trying to benchmar themselves in different ways to suit their performancere&uirements and benchmaring objectives.#enchmaring practices followed by majority of the ndian companies can be broadly dividedinto three types+A' Product or ;ualit# bec,mar8ig%Kuality benchmaring has been adopted by companieslie #?:', BTP9, 79, Tata /otors, J9T :lectronics and Johnson E Bicholson.

B' 9u"tomer "ervice bec,mar8ig !an e$tension of competitive benchmaring"+ 9ompanieswhich have used benchmaring to improve customer service are ?;9, nfosys, /odi Cero$,Titan and Airtel, among others. These companies focus on those practices which help them toserve their customers better.

9' com.re,e"ive or combiatio bec,mar8ig+ 9ompanies lie Deliance ndustries,Danba$y, /aruti Suzui, ?ero ?onda and ?onda /otors have resorted to comprehensive orcombination benchmaring, i.e., emulating good or best practices in different areas to improveoverall performance.

These companies have not confined themselves to benchmaring only against ndianorganizations. /any of them have gone for global benchmaring.Some, lie /aruti Suzui havebenchmared their technology suppliers% others lie ?ero ?onda and /odiCero$ havebenchmared their joint venture partners% and some others lie ?onda /otors !ndia" havebenchmared their overseas parents.Some of these companies have adopted benchmaring practices as they e$ist. Some othershave modified or improved upon the e$isting practices for better results or competitiveadvantage% Deliance and nfosys are among such companies. Deliance has this to say abouttheir global benchmaring+ )1lobal benchmaring has always been a mantra for all of us here atDeliance. (e have now geared ourselves up to raise our levels of productivity and efficiencyfor capital, assets, people and the entire organization well beyond comparable globalbenchmars*

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