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PROJECT REPORT ON STRATEGIC MANAGEMENT

Project report submitted in partial fulfilment of the requirement of South Asia University for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION 2012

Submitted By

NAME ENROLLMENT NO

: :

Lavanya.D SAA04F146ELB1HA3

SOUTH ASIA UNIVERSITY LONDON

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This is to certify that project entitled PROJECT REPORT ON STRATEGIC

MANAGEMENT

is submitted

by Lavanya.D (ENROLMENT NUMBER -

SAA04M146ELB1HA3), GEMS B SCHOOL, Bangalore. in partial fulfillment of the sixth trimester requirement in STRATEGIC MANAGEMENT for the award of the degree master of business administration and is certified to be an original and bonafide work.

INTRODUCTION
Process Strategic management is a combination of three main processes which are as follows: Strategy formulation

Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental. Concurrent with this assessment, objectives are set. These objectives should be parallel to a timeline; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.

This three-step strategy formulation process is sometimes referred to as determining where you are now, determining where you want to go, and then determining how to get there. These three questions are the essence of strategic planning. SWOT Analysis: I/O Economics for the external factors and RBV for the internal factors. Strategy implementation

Allocation and management of sufficient resources (financial, personnel, time, technology support) Establishing a chain of command or some alternative structure (such as cross functional teams) Assigning responsibility of specific tasks or processes to specific individuals or groups It also involves managing the process. This includes monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary. When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes.

Strategy evaluation

Measuring the effectiveness of the organizational strategy. It's extremely important to conduct a SWOT analysis to figure out the strengths, weaknesses, opportunities and threats (both internal and external) of the entity in question. This may require to take certain precautionary measures or even to change the entire strategy.

General approaches In general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management:

The Industrial Organizational Approach

based on economic theory deals with issues like competitive rivalry, resource allocation, economies of scale o assumptions rationality, self discipline behaviour, profit maximization The Sociological Approach o deals primarily with human interactions o assumptions bounded rationality, satisfying behaviour, profit sub-optimality. An example of a company that currently operates this way is Google
o

Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organization. This is often accomplished by a capital budgeting process. Proposals are assessed using financial criteria such as return on investment or cost-benefit analysis. Cost underestimation and benefit overestimation are major sources of error. The proposals that are approved form the substance of a new strategy, all of which is done without a grand strategic design or a strategic architect. The top-down approach is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take. Some organizations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions. The strategy hierarchy In most (large) corporations there are several levels of strategy. Strategic management is the highest in the sense that it is the broadest, applying to all parts of the firm. It gives direction to corporate values, corporate culture, corporate goals, and corporate missions. Under this broad corporate strategy there are often functional or business unit strategies. Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each departments functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies. Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have reengineered according to processes or strategic business units (called SBUs). A strategic business unit is a semi-autonomous unit within an organization. It is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters. Each SBU is responsible for developing its business strategies, strategies that must be in tune with broader corporate strategies. The lowest level of strategy is operational strategy. It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategy was encouraged by Peter Drucker in his theory of management by objectives (MBO). Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies. Business strategy, which refers to the aggregated operational strategies of single business firm or that of an SBU in a diversified corporation refers to the way in which a firm competes in its chosen arenas.

Corporate strategy, then, refers to the overarching strategy of the diversified firm. Such corporate strategy answers the questions of "in which businesses should we compete?" and "how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole?" Since the turn of the millennium, there has been a tendency in some firms to revert to a simpler strategic structure. This is being driven by information technology. It is felt that knowledge management systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. Most recently, this notion of strategy has been captured under the rubric of dynamic strategy, popularized by the strategic management textbook authored by Carpenter and Sanders [1]. This work builds on that of Brown and Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing ongoing strategic change, and the seamless integration of strategy formulation and implementation. Such change and implementation are usually built into the strategy through the staging and pacing facets. Historical development of strategic management Birth of strategic management Strategic management as a discipline originated in the 1950s and 60s. Although there were numerous early contributors to the literature, the most influential pioneers were Alfred D. Chandler, Jr., Philip Selznick, Igor Ansoff, and Peter Drucker. Alfred Chandler recognized the importance of coordinating the various aspects of management under one all-encompassing strategy. Prior to this time the various functions of management were separate with little overall coordination or strategy. Interactions between functions or between departments were typically handled by a boundary position, that is, there were one or two managers that relayed information back and forth between two departments. Chandler also stressed the importance of taking a long term perspective when looking to the future. In his 1962 groundbreaking work Strategy and Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction, and focus. He says it concisely, structure follows strategy.[3] In 1957, Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances.[4] This core idea was developed into what we now call SWOT analysis by Learned, Andrews, and others at the Harvard Business School General Management Group. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment. Igor Ansoff built on Chandler's work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a strategy grid that compared market penetration strategies, product development strategies, market development strategies and horizontal and vertical integration and diversification strategies. He felt that management could use these strategies to systematically prepare for future opportunities and challenges. In his 1965 classic Corporate Strategy, he developed the gap analysis still used today in which we must understand the gap between where we are currently and where we would like to be, then develop what he called gap reducing actions.[5] Peter Drucker was a prolific strategy theorist, author of dozens of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important. Firstly, he stressed the importance of objectives. An organization without clear

objectives is like a ship without a rudder. As early as 1954 he was developing a theory of management based on objectives.[6] This evolved into his theory of management by objectives (MBO). According to Drucker, the procedure of setting objectives and monitoring your progress towards them should permeate the entire organization, top to bottom. His other seminal contribution was in predicting the importance of what today we would call intellectual capital. He predicted the rise of what he called the knowledge worker and explained the consequences of this for management. He said that knowledge work is non-hierarchical. Work would be carried out in teams with the person most knowledgeable in the task at hand being the temporary leader. In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements of strategic management theory by the 1970s:[7]

Strategic management involves adapting the organization to its business environment. Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses. Strategic management affects the entire organization by providing direction. Strategic management involves both strategy formation (she called it content) and also strategy implementation (she called it process). Strategic management is partially planned and partially unplanned. Strategic management is done at several levels: overall corporate strategy, and individual business strategies. Strategic management involves both conceptual and analytical thought processes.

Growth and portfolio theory In the 1970s much of strategic management dealt with size, growth, and portfolio theory. The PIMS study was a long term study, started in the 1960s and lasted for 19 years, that attempted to understand the Profit Impact of Marketing Strategies (PIMS), particularly the effect of market share. Started at General Electric, moved to Harvard in the early 1970s, and then moved to the Strategic Planning Institute in the late 1970s, it now contains decades of information on the relationship between profitability and strategy. Their initial conclusion was unambiguous: The greater a company's market share, the greater will be their rate of profit. The high market share provides volume and economies of scale. It also provides experience and learning curve advantages. The combined effect is increased profits.[8] The studies conclusions continue to be drawn on by academics and companies today: "PIMS provides compelling quantitative evidence as to which business strategies work and don't work" - Tom Peters. The benefits of high market share naturally lead to an interest in growth strategies. The relative advantages of horizontal integration, vertical integration, diversification, franchises, mergers and acquisitions, joint ventures, and organic growth were discussed. The most appropriate market dominance strategies were assessed given the competitive and regulatory environment. There was also research that indicated that a low market share strategy could also be very profitable. Schumacher (1973),[9] Woo and Cooper (1982),[10] Levenson (1984),[11] and later Traverso (2002)[12] showed how smaller niche players obtained very high returns. By the early 1980s the paradoxical conclusion was that high market share and low market share companies were often very profitable but most of the companies in between were not. This was sometimes called the hole in the middle problem. This anomaly would be explained by Michael Porter in the 1980s.

The management of diversified organizations required new techniques and new ways of thinking. The first CEO to address the problem of a multi-divisional company was Alfred Sloan at General Motors. GM was decentralized into semi-autonomous strategic business units (SBU's), but with centralized support functions. One of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. In the previous decade Harry Markowitz and other financial theorists developed the theory of portfolio analysis. It was concluded that a broad portfolio of financial assets could reduce specific risk. In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. Each of a companys operating divisions were seen as an element in the corporate portfolio. Each operating division (also called strategic business units) was treated as a semi-independent profit center with its own revenues, costs, objectives, and strategies. Several techniques were developed to analyze the relationships between elements in a portfolio. B.C.G. Analysis, for example, was developed by the Boston Consulting Group in the early 1970s. This was the theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Shortly after that the G.E. multi factoral model was developed by General Electric. Companies continued to diversify until the 1980s when it was realized that in many cases a portfolio of operating divisions was worth more as separate completely independent companies. The marketing revolution The 1970s also saw the rise of the marketing oriented firm. From the beginnings of capitalism it was assumed that the key requirement of business success was a product of high technical quality. If you produced a product that worked well and was durable, it was assumed you would have no difficulty selling them at a profit. This was called the production orientation and it was generally true that good products could be sold without effort, encapsulated in the saying "Build a better mousetrap and the world will beat a path to your door." This was largely due to the growing numbers of affluent and middle class people that capitalism had created. But after the untapped demand caused by the second world war was saturated in the 1950s it became obvious that products were not selling as easily as they had been. The answer was to concentrate on selling. The 1950s and 1960s is known as the sales era and the guiding philosophy of business of the time is today called the sales orientation. In the early 1970s Theodore Levitt and others at Harvard argued that the sales orientation had things backward. They claimed that instead of producing products then trying to sell them to the customer, businesses should start with the customer, find out what they wanted, and then produce it for them. The customer became the driving force behind all strategic business decisions. This marketing orientation, in the decades since its introduction, has been reformulated and repackaged under numerous names including customer orientation, marketing philosophy, customer intimacy, customer focus, customer driven, and market focused. The Japanese challenge By the late 70s people had started to notice how successful Japanese industry had become. In industry after industry, including steel, watches, ship building, cameras, autos, and electronics, the Japanese were surpassing American and European companies. Westerners wanted to know why. Numerous theories purported to explain the Japanese success including:

Higher employee morale, dedication, and loyalty; Lower cost structure, including wages; Effective government industrial policy; Modernization after WWII leading to high capital intensity and productivity;

Economies of scale associated with increased exporting; Relatively low value of the Yen leading to low interest rates and capital costs, low dividend expectations, and inexpensive exports; Superior quality control techniques such as Total Quality Management and other systems introduced by W. Edwards Deming in the 1950s and 60s.[13]

Although there was some truth to all these potential explanations, there was clearly something missing. In fact by 1980 the Japanese cost structure was higher than the American. And post WWII reconstruction was nearly 40 years in the past. The first management theorist to suggest an explanation was Richard Pascale. In 1981 Richard Pascale and Anthony Athos in The Art of Japanese Management claimed that the main reason for Japanese success was their superior management techniques.[14] They divided management into 7 aspects (which are also known as McKinsey 7S Framework): Strategy, Structure, Systems, Skills, Staff, Style, and Supraordinate goals (which we would now call shared values). The first three of the 7 S's were called hard factors and this is where American companies excelled. The remaining four factors (skills, staff, style, and shared values) were called soft factors and were not well understood by American businesses of the time (for details on the role of soft and hard factors see Wickens P.D. 1995.) Americans did not yet place great value on corporate culture, shared values and beliefs, and social cohesion in the workplace. In Japan the task of management was seen as managing the whole complex of human needs, economic, social, psychological, and spiritual. In America work was seen as something that was separate from the rest of one's life. It was quite common for Americans to exhibit a very different personality at work compared to the rest of their lives. Pascale also highlighted the difference between decision making styles; hierarchical in America, and consensus in Japan. He also claimed that American business lacked long term vision, preferring instead to apply management fads and theories in a piecemeal fashion. One year later The Mind of the Strategist was released in America by Kenichi Ohmae, the head of McKinsey & Co.'s Tokyo office.[15] (It was originally published in Japan in 1975.) He claimed that strategy in America was too analytical. Strategy should be a creative art: It is a frame of mind that requires intuition and intellectual flexibility. He claimed that Americans constrained their strategic options by thinking in terms of analytical techniques, rote formula, and step-bystep processes. He compared the culture of Japan in which vagueness, ambiguity, and tentative decisions were acceptable, to American culture that valued fast decisions. Also in 1982 Tom Peters and Robert Waterman released a study that would respond to the Japanese challenge head on.[16] Peters and Waterman, who had several years earlier collaborated with Pascale and Athos at McKinsey & Co. asked What makes an excellent company?. They looked at 62 companies that they thought were fairly successful. Each was subject to six performance criteria. To be classified as an excellent company, it had to be above the 50th percentile in 4 of the 6 performance metrics for 20 consecutive years. Forty-three companies passed the test. They then studied these successful companies and interviewed key executives. They concluded in In Search of Excellence that there were 8 keys to excellence that were shared by all 43 firms. They are:

A bias for action Do it. Try it. Dont waste time studying it with multiple reports and committees. Customer focus Get close to the customer. Know your customer. Entrepreneurship Even big companies act and think small by giving people the authority to take initiatives.

Productivity through people Treat your people with respect and they will reward you with productivity. Value-oriented CEOs The CEO should actively propagate corporate values throughout the organization. Stick to the knitting Do what you know well. Keep things simple and lean Complexity encourages waste and confusion. Simultaneously centralized and decentralized Have tight centralized control while also allowing maximum individual autonomy.

The basic blueprint on how to compete against the Japanese had been drawn. But as J.E. Rehfeld (1994) explains it is not a straight forward task due to differences in culture.[17] A certain type of alchemy was required to transform knowledge from various cultures into a management style that allows a specific company to compete in a globally diverse world. He says, for example, that Japanese style kaizen (continuous improvement) techniques, although suitable for people socialized in Japanese culture, have not been successful when implemented in the U.S. unless they are modified significantly. Gaining competitive advantage The Japanese challenge shook the confidence of the western business elite, but detailed comparisons of the two management styles and examinations of successful businesses convinced westerners that they could overcome the challenge. The 1980s and early 1990s saw a plethora of theories explaining exactly how this could be done. They cannot all be detailed here, but some of the more important strategic advances of the decade are explained below. Gary Hamel and C. K. Prahalad declared that strategy needs to be more active and interactive; less arm-chair planning was needed. They introduced terms like strategic intent and strategic architecture.[18][19] Their most well known advance was the idea of core competency. They showed how important it was to know the one or two key things that your company does better than the competition.[20] Active strategic management required active information gathering and active problem solving. In the early days of Hewlett-Packard (H-P), Dave Packard and Bill Hewlett devised an active management style that they called Management By Walking Around (MBWA). Senior H-P managers were seldom at their desks. They spent most of their days visiting employees, customers, and suppliers. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted. The MBWA concept was popularized in 1985 by a book by Tom Peters and Nancy Austin.[21] Japanese managers employ a similar system, which originated at Honda, and is sometimes called the 3 G's (Genba, Genbutsu, and Genjitsu, which translate into actual place, actual thing, and actual situation). Probably the most influential strategist of the decade was Michael Porter. He introduced many new concepts including; 5 forces analysis, generic strategies, the value chain, strategic groups, and clusters. In 5 forces analysis he identifies the forces that shape a firm's strategic environment. It is like a SWOT analysis with structure and purpose. It shows how a firm can use these forces to obtain a sustainable competitive advantage. Porter modifies Chandler's dictum about structure following strategy by introducing a second level of structure: Organizational structure follows strategy, which in turn follows industry structure. Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies. Although he did not introduce these terms, he showed the importance of choosing one of them rather than trying to position your company between them. He also challenged managers to see their industry in terms of a value chain. A firm will be

successful only to the extent that it contributes to the industry's value chain. This forced management to look at its operations from the customer's point of view. Every operation should be examined in terms of what value it adds in the eyes of the final customer. In 1993, John Kay took the idea of the value chain to a financial level claiming Adding value is the central purpose of business activity, where adding value is defined as the difference between the market value of outputs and the cost of inputs including capital, all divided by the firm's net output. Borrowing from Gary Hamel and Michael Porter, Kay claims that the role of strategic management is to identify your core competencies, and then assemble a collection of assets that will increase value added and provide a competitive advantage. He claims that there are 3 types of capabilities that can do this; innovation, reputation, and organizational structure. The 1980s also saw the widespread acceptance of positioning theory. Although the theory originated with Jack Trout in 1969, it didnt gain wide acceptance until Al Ries and Jack Trout wrote their classic book Positioning: The Battle For Your Mind (1979). The basic premise is that a strategy should not be judged by internal company factors but by the way customers see it relative to the competition. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. Several techniques were applied to positioning theory, some newly invented but most borrowed from other disciplines. Perceptual mapping for example, creates visual displays of the relationships between positions. Multidimensional scaling, discriminant analysis, factor analysis, and conjoint analysis are mathematical techniques used to determine the most relevant characteristics (called dimensions or factors) upon which positions should be based. Preference regression can be used to determine vectors of ideal positions and cluster analysis can identify clusters of positions. Others felt that internal company resources were the key. In 1992, Jay Barney, for example, saw strategy as assembling the optimum mix of resources, including human, technology, and suppliers, and then configure them in unique and sustainable ways.[22] Michael Hammer and James Champy felt that these resources needed to be restructured.[23] This process, that they labeled reengineering, involved organizing a firm's assets around whole processes rather than tasks. In this way a team of people saw a project through, from inception to completion. This avoided functional silos where isolated departments seldom talked to each other. It also eliminated waste due to functional overlap and interdepartmental communications. In 1989 Richard Lester and the researchers at the MIT Industrial Performance Center identified seven best practices and concluded that firms must accelerate the shift away from the mass production of low cost standardized products. The seven areas of best practice were:[24]

Simultaneous continuous improvement in cost, quality, service, and product innovation Breaking down organizational barriers between departments Eliminating layers of management creating flatter organizational hierarchies. Closer relationships with customers and suppliers Intelligent use of new technology Global focus Improving human resource skills

The search for best practices is also called benchmarking.[25] This involves determining where you need to improve, finding an organization that is exceptional in this area, then studying the company and applying its best practices in your firm.

A large group of theorists felt the area where western business was most lacking was product quality. People like W. Edwards Deming,[26] Joseph M. Juran,[27] A. Kearney,[28] Philip Crosby,[29] and Armand Feignbaum[30] suggested quality improvement techniques like Total Quality Management (TQM), continuous improvement, lean manufacturing, Six Sigma, and Return on Quality (ROQ). An equally large group of theorists felt that poor customer service was the problem. People like James Heskett (1988),[31] Earl Sasser (1995), William Davidow,[32] Len Schlesinger,[33] A. Paraurgman (1988), Len Berry,[34] Jane Kingman-Brundage,[35] Christopher Hart, and Christopher Lovelock (1994), gave us fishbone diagramming, service charting, Total Customer Service (TCS), the service profit chain, service gaps analysis, the service encounter, strategic service vision, service mapping, and service teams. Their underlying assumption was that there is no better source of competitive advantage than a continuous stream of delighted customers. Process management uses some of the techniques from product quality management and some of the techniques from customer service management. It looks at an activity as a sequential process. The objective is to find inefficiencies and make the process more effective. Although the procedures have a long history, dating back to Taylorism, the scope of their applicability has been greatly widened, leaving no aspect of the firm free from potential process improvements. Because of the broad applicability of process management techniques, they can be used as a basis for competitive advantage. Some realized that businesses were spending much more on acquiring new customers than on retaining current ones. Carl Sewell,[36] Frederick Reicheld,[37] C. Gronroos,[38] and Earl Sasser[39] showed us how a competitive advantage could be found in ensuring that customers returned again and again. This has come to be known as the loyalty effect after Reicheld's book of the same name in which he broadens the concept to include employee loyalty, supplier loyalty, distributor loyalty, and shareholder loyalty. They also developed techniques for estimating the lifetime value of a loyal customer, called customer lifetime value (CLV). A significant movement started that attempted to recast selling and marketing techniques into a long term endeavor that created a sustained relationship with customers (called relationship selling, relationship marketing, and customer relationship management). Customer relationship management (CRM) software (and its many variants) became an integral tool that sustained this trend. James Gilmore and Joseph Pine found competitive advantage in mass customization.[40] Flexible manufacturing techniques allowed businesses to individualize products for each customer without losing economies of scale. This effectively turned the product into a service. They also realized that if a service is mass customized by creating a performance for each individual client, that service would be transformed into an experience. Their book, The Experience Economy,[41] along with the work of Bernd Schmitt convinced many to see service provision as a form of theatre. This school of thought is sometimes referred to as customer experience management (CEM). Like Peters and Waterman a decade earlier, James Collins and Jerry Porras spent years conducting empirical research on what makes great companies. Six years of research uncovered a key underlying principle behind the 19 successful companies that they studied: They all encourage and preserve a core ideology that nurtures the company. Even though strategy and tactics change daily, the companies, nevertheless, were able to maintain a core set of values. These core values encourage employees to build an organization that lasts. In Built To Last (1994) they claim that short term profit goals, cost cutting, and restructuring will not stimulate dedicated employees to build a great company that will endure.[42] In 2000 Collins coined the

term built to flip to describe the prevailing business attitudes in Silicon Valley. It describes a business culture where technological change inhibits a long term focus. He also popularized the concept of the BHAG (Big Hairy Audacious Goal). Arie de Geus (1997) undertook a similar study and obtained similar results. He identified four key traits of companies that had prospered for 50 years or more. They are:

Sensitivity to the business environment the ability to learn and adjust Cohesion and identity the ability to build a community with personality, vision, and purpose Tolerance and decentralization the ability to build relationships Conservative financing

A company with these key characteristics he called a living company because it is able to perpetuate itself. If a company emphasizes knowledge rather than finance, and sees itself as an ongoing community of human beings, it has the potential to become great and endure for decades. Such an organization is an organic entity capable of learning (he called it a learning organization) and capable of creating its own processes, goals, and persona. The military theorists In the 1980s some business strategists realized that there was a vast knowledge base stretching back thousands of years that they had barely examined. They turned to military strategy for guidance. Military strategy books such as The Art of War by Sun Tzu, On War by von Clausewitz, and The Red Book by Mao Zedong became instant business classics. From Sun Tzu they learned the tactical side of military strategy and specific tactical prescriptions. From Von Clausewitz they learned the dynamic and unpredictable nature of military strategy. From Mao Zedong they learned the principles of guerrilla warfare. The main marketing warfare books were:

Business War Games by Barrie James, 1984 Marketing Warfare by Al Ries and Jack Trout, 1986 Leadership Secrets of Attila the Hun by Wess Roberts, 1987

Philip Kotler was a well-known proponent of marketing warfare strategy. There were generally thought to be four types of business warfare theories. They are:

Offensive marketing warfare strategies Defensive marketing warfare strategies Flanking marketing warfare strategies Guerrilla marketing warfare strategies

The marketing warfare literature also examined leadership and motivation, intelligence gathering, types of marketing weapons, logistics, and communications. By the turn of the century marketing warfare strategies had gone out of favour. It was felt that they were limiting. There were many situations in which non-confrontational approaches were more appropriate. The Strategy of the Dolphin was developed in the mid 1990s to give guidance as to when to use aggressive strategies and when to use passive strategies. A variety of aggressiveness strategies were developed.

In 1993, J. Moore used a similar metaphor.[43] Instead of using military terms, he created an ecological theory of predators and prey (see ecological model of competition), a sort of Darwinian management strategy in which market interactions mimic long term ecological stability. Strategic change In 1970, Alvin Toffler in Future Shock described a trend towards accelerating rates of change.[44] He illustrated how social and technological norms had shorter lifespans with each generation, and he questioned society's ability to cope with the resulting turmoil and anxiety. In past generations periods of change were always punctuated with times of stability. This allowed society to assimilate the change and deal with it before the next change arrived. But these periods of stability are getting shorter and by the late 20th century had all but disappeared. In 1980 in The Third Wave, Toffler characterized this shift to relentless change as the defining feature of the third phase of civilization (the first two phases being the agricultural and industrial waves).[45] He claimed that the dawn of this new phase will cause great anxiety for those that grew up in the previous phases, and will cause much conflict and opportunity in the business world. Hundreds of authors, particularly since the early 1990s, have attempted to explain what this means for business strategy. In 1997, Watts Waker and Jim Taylor called this upheaval a "500 year delta."[46] They claimed these major upheavals occur every 5 centuries. They said we are currently making the transition from the Age of Reason to a new chaotic Age of Access. Jeremy Rifkin (2000) popularized and expanded this term, age of access three years later in his book of the same name.[47] In 1968, Peter Drucker (1969) coined the phrase Age of Discontinuity to describe the way change forces disruptions into the continuity of our lives.[48] In an age of continuity attempts to predict the future by extrapolating from the past can be somewhat accurate. But according to Drucker, we are now in an age of discontinuity and extrapolating from the past is hopelessly ineffective. We cannot assume that trends that exist today will continue into the future. He identifies four sources of discontinuity: new technologies, globalization, cultural pluralism, and knowledge capital. In 2000, Gary Hamel discussed strategic decay, the notion that the value of all strategies, no matter how brilliant, decays over time.[49] In 1978, Dereck Abell (Abell, D. 1978) described strategic windows and stressed the importance of the timing (both entrance and exit) of any given strategy. This has led some strategic planners to build planned obsolescence into their strategies.[50] In 1989, Charles Handy identified two types of change.[51] Strategic drift is a gradual change that occurs so subtly that it is not noticed until it is too late. By contrast, transformational change is sudden and radical. It is typically caused by discontinuities (or exogenous shocks) in the business environment. The point where a new trend is initiated is called a strategic inflection point by Andy Grove. Inflection points can be subtle or radical. In 2000, Malcolm Gladwell discussed the importance of the tipping point, that point where a trend or fad acquires critical mass and takes off.[52] In 1983, Noel Tichy recognized that because we are all beings of habit we tend to repeat what we are comfortable with.[53] He wrote that this is a trap that constrains our creativity, prevents us from exploring new ideas, and hampers our dealing with the full complexity of new issues. He

developed a systematic method of dealing with change that involved looking at any new issue from three angles: technical and production, political and resource allocation, and corporate culture. In 1990, Richard Pascale (Pascale, R. 1990) wrote that relentless change requires that businesses continuously reinvent themselves.[54] His famous maxim is Nothing fails like success by which he means that what was a strength yesterday becomes the root of weakness today, We tend to depend on what worked yesterday and refuse to let go of what worked so well for us in the past. Prevailing strategies become self-confirming. In order to avoid this trap, businesses must stimulate a spirit of inquiry and healthy debate. They must encourage a creative process of self renewal based on constructive conflict. In 1996, Art Kleiner (1996) claimed that to foster a corporate culture that embraces change, you have to hire the right people; heretics, heroes, outlaws, and visionaries[55]. The conservative bureaucrat that made such a good middle manager in yesterdays hierarchical organizations is of little use today. A decade earlier Peters and Austin (1985) had stressed the importance of nurturing champions and heroes. They said we have a tendency to dismiss new ideas, so to overcome this, we should support those few people in the organization that have the courage to put their career and reputation on the line for an unproven idea. In 1996, Adrian Slywotsky showed how changes in the business environment are reflected in value migrations between industries, between companies, and within companies.[56] He claimed that recognizing the patterns behind these value migrations is necessary if we wish to understand the world of chaotic change. In Profit Patterns (1999) he described businesses as being in a state of strategic anticipation as they try to spot emerging patterns. Slywotsky and his team identified 30 patterns that have transformed industry after industry.[57] In 1997, Clayton Christensen (1997) took the position that great companies can fail precisely because they do everything right since the capabilities of the organization also defines its disabilities.[58] Christensen's thesis is that outstanding companies lose their market leadership when confronted with disruptive technology. He called the approach to discovering the emerging markets for disruptive technologies agnostic marketing, i.e., marketing under the implicit assumption that no one - not the company, not the customers - can know how or in what quantities a disruptive product can or will be used before they have experience using it. A number of strategists use scenario planning techniques to deal with change. Kees van der Heijden (1996), for example, says that change and uncertainty make optimum strategy determination impossible. We have neither the time nor the information required for such a calculation. The best we can hope for is what he calls the most skillful process.[59] The way Peter Schwartz put it in 1991 is that strategic outcomes cannot be known in advance so the sources of competitive advantage cannot be predetermined.[60] The fast changing business environment is too uncertain for us to find sustainable value in formulas of excellence or competitive advantage. Instead, scenario planning is a technique in which multiple outcomes can be developed, their implications assessed, and their likeliness of occurrence evaluated. According to Pierre Wack, scenario planning is about insight, complexity, and subtlety, not about formal analysis and numbers.[61] In 1988, Henry Mintzberg looked at the changing world around him and decided it was time to reexamine how strategic management was done.[62][63] He examined the strategic process and concluded it was much more fluid and unpredictable than people had thought. Because of this, he could not point to one process that could be called strategic planning. Instead he concludes that there are five types of strategies. They are:

Strategy as plan - a direction, guide, course of action - intention rather than actual Strategy as ploy - a maneuver intended to outwit a competitor Strategy as pattern - a consistent pattern of past behaviour - realized rather than intended Strategy as position - locating of brands, products, or companies within the conceptual framework of consumers or other stakeholders - strategy determined primarily by factors outside the firm Strategy as perspective - strategy determined primarily by a master strategist

In 1998, Mintzberg developed these five types of management strategy into 10 schools of thought. These 10 schools are grouped into three categories. The first group is prescriptive or normative. It consists of the informal design and conception school, the formal planning school, and the analytical positioning school. The second group, consisting of six schools, is more concerned with how strategic management is actually done, rather than prescribing optimal plans or positions. The six schools are the entrepreneurial, visionary, or great leader school, the cognitive or mental process school, the learning, adaptive, or emergent process school, the power or negotiation school, the corporate culture or collective process school, and the business environment or reactive school. The third and final group consists of one school, the configuration or transformation school, an hybrid of the other schools organized into stages, organizational life cycles, or episodes.[64] In 1999, Constantinos Markides also wanted to reexamine the nature of strategic planning itself. [65] He describes strategy formation and implementation as an on-going, never-ending, integrated process requiring continuous reassessment and reformation. Strategic management is planned and emergent, dynamic, and interactive. J. Moncrieff (1999) also stresses strategy dynamics.[66] He recognized that strategy is partially deliberate and partially unplanned. The unplanned element comes from two sources: emergent strategies (result from the emergence of opportunities and threats in the environment) and Strategies in action (ad hoc actions by many people from all parts of the organization). Some business planners are starting to use a complexity theory approach to strategy. Complexity can be thought of as chaos with a dash of order. Chaos theory deals with turbulent systems that rapidly become disordered. Complexity is not quite so unpredictable. It involves multiple agents interacting in such a way that a glimpse of structure may appear. Axelrod, R.,[67] Holland, J.,[68] and Kelly, S. and Allison, M.A.,[69] call these systems of multiple actions and reactions complex adaptive systems. Axelrod asserts that rather than fear complexity, business should harness it. He says this can best be done when there are many participants, numerous interactions, much trial and error learning, and abundant attempts to imitate each others' successes. In 2000, E. Dudik wrote that an organization must develop a mechanism for understanding the source and level of complexity it will face in the future and then transform itself into a complex adaptive system in order to deal with it.[70] Information and technology driven strategy Peter Drucker had theorized the rise of the knowledge worker back in the 1950s. He described how fewer workers would be doing physical labour, and more would be applying their minds. In 1984, John Nesbitt theorized that the future would be driven largely by information: companies that managed information well could obtain an advantage, however the profitability of what he calls the information float (information that the company had and others desired) would all but disappear as inexpensive computers made information more accessible. Daniel Bell (1985) examined the sociological consequences of information technology, while Gloria Schuck and Shoshana Zuboff looked at psychological factors.[71] Zuboff, in her five year

study of eight pioneering corporations made the important distinction between automating technologies and infomating technologies. She studied the effect that both had on individual workers, managers, and organizational structures. She largely confirmed Peter Drucker's predictions three decades earlier, about the importance of flexible decentralized structure, work teams, knowledge sharing, and the central role of the knowledge worker. Zuboff also detected a new basis for managerial authority, based not on position or hierarchy, but on knowledge (also predicted by Drucker) which she called participative management.[72] In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch Shell, borrowed de Geus' notion of the learning organization, expanded it, and popularized it. The underlying theory is that a company's ability to gather, analyze, and use information is a necessary requirement for business success in the information age. (See organizational learning.) In order to do this, Senge claimed that an organization would need to be structured such that:[73]

People can continuously expand their capacity to learn and be productive, New patterns of thinking are nurtured, Collective aspirations are encouraged, and People are encouraged to see the whole picture together.

Senge identified five components of a learning organization. They are:

Personal responsibility, self reliance, and mastery We accept that we are the masters of our own destiny. We make decisions and live with the consequences of them. When a problem needs to be fixed, or an opportunity exploited, we take the initiative to learn the required skills to get it done. Mental models We need to explore our personal mental models to understand the subtle effect they have on our behaviour. Shared vision The vision of where we want to be in the future is discussed and communicated to all. It provides guidance and energy for the journey ahead. Team learning We learn together in teams. This involves a shift from a spirit of advocacy to a spirit of enquiry. Systems thinking We look at the whole rather than the parts. This is what Senge calls the Fifth discipline. It is the glue that integrates the other four into a coherent strategy. For an alternative approach to the learning organization, see Garratt, B. (1987).

Since 1990 many theorists have written on the strategic importance of information, including J.B. Quinn,[74] J. Carlos Jarillo,[75] D.L. Barton,[76] Manuel Castells,[77] J.P. Lieleskin,[78] Thomas Stewart,[79] K.E. Sveiby,[80] Gilbert J. Probst,[81] and Shapiro and Varian[82] to name just a few. Thomas A. Stewart, for example, uses the term intellectual capital to describe the investment an organization makes in knowledge. It is comprised of human capital (the knowledge inside the heads of employees), customer capital (the knowledge inside the heads of customers that decide to buy from you), and structural capital (the knowledge that resides in the company itself). Manuel Castells, describes a network society characterized by: globalization, organizations structured as a network, instability of employment, and a social divide between those with access to information technology and those without. Stan Davis and Christopher Meyer (1998) have combined three variables to define what they call the BLUR equation. The speed of change, Internet connectivity, and intangible knowledge value, when multiplied together yields a society's rate of BLUR. The three variables interact and reinforce each other making this relationship highly non-linear.

Regis McKenna posits that life in the high tech information age is what he called a real time experience. Events occur in real time. To ever more demanding customers now is what matters. Pricing will more and more become variable pricing changing with each transaction, often exhibiting first degree price discrimination. Customers expect immediate service, customized to their needs, and will be prepared to pay a premium price for it. He claimed that the new basis for competition will be time based competition.[83] Geoffrey Moore (1991) and R. Frank and P. Cook[84] also detected a shift in the nature of competition. In industries with high technology content, technical standards become established and this gives the dominant firm a near monopoly. The same is true of networked industries in which interoperability requires compatibility between users. An example is word processor documents. Once a product has gained market dominance, other products, even far superior products, cannot compete. Moore showed how firms could attain this enviable position by using E.M. Rogers five stage adoption process and focusing on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries and pragmatists (See Crossing the Chasm). If successful a firm can create a bandwagon effect in which the momentum builds and your product becomes a de facto standard. Evans and Wurster describe how industries with a high information component are being transformed.[85] They cite Encarta's demolition of the Encyclopedia Britannica (whose sales have plummeted 80% since their peak of $650 million in 1990). Many speculate that Encartas reign will be short-lived, eclipsed by collaborative encyclopedias like Wikipedia that can operate at very low marginal costs. Evans also mentions the music industry which is desperately looking for a new business model. The upstart information savvy firms, unburdened by cumbersome physical assets, are changing the competitive landscape, redefining market segments, and disintermediating some channels. One manifestation of this is personalized marketing. Information technology allows marketers to treat each individual as its own market, a market of one. Traditional ideas of market segments will no longer be relevant if personalized marketing is successful. The technology sector has provided some strategies directly. For example, from the software development industry agile software development provides a model for shared development processes. Access to information systems have allowed senior managers to take a much more comprehensive view of strategic management than ever before. The most notable of the comprehensive systems is the balanced scorecard approach developed in the early 1990's by Drs. Robert S. Kaplan (Harvard Business School) and David Norton (Kaplan, R. and Norton, D. 1992). It measures several factors financial, marketing, production, organizational development, and new product development in order to achieve a 'balanced' perspective. The psychology of strategic management Several psychologists have conducted studies to determine the psychological patterns involved in strategic management. Typically senior managers have been asked how they go about making strategic decisions. A 1938 treatise by Chester Barnard, that was based on his own experience as a business executive, sees the process as informal, intuitive, non-routinized, and involving primarily oral, 2-way communications. Bernard says The process is the sensing of the organization as a whole and the total situation relevant to it. It transcends the capacity of merely intellectual methods, and the techniques of discriminating the factors of the situation. The terms

pertinent to it are feeling, judgement, sense, proportion, balance, appropriateness. It is a matter of art rather than science.[86] In 1973, Henry Mintzberg found that senior managers typically deal with unpredictable situations so they strategize in ad hoc, flexible, dynamic, and implicit ways. He says, The job breeds adaptive information-manipulators who prefer the live concrete situation. The manager works in an environment of stimulous-response, and he develops in his work a clear preference for live action.[87] In 1982, John Kotter studied the daily activities of 15 executives and concluded that they spent most of their time developing and working a network of relationships from which they gained general insights and specific details to be used in making strategic decisions. They tended to use mental road maps rather than systematic planning techniques.[88] Daniel Isenberg's 1984 study of senior managers found that their decisions were highly intuitive. Executives often sensed what they were going to do before they could explain why.[89] He claimed in 1986 that one of the reasons for this is the complexity of strategic decisions and the resultant information uncertainty.[90] Shoshana Zuboff (1988) claims that information technology is widening the divide between senior managers (who typically make strategic decisions) and operational level managers (who typically make routine decisions). She claims that prior to the widespread use of computer systems, managers, even at the most senior level, engaged in both strategic decisions and routine administration, but as computers facilitated (She called it deskilled) routine processes, these activities were moved further down the hierarchy, leaving senior management free for strategic decions making. In 1977, Abraham Zaleznik identified a difference between leaders and managers. He describes leadershipleaders as visionaries who inspire. They care about substance. Whereas managers are claimed to care about process, plans, and form.[91] He also claimed in 1989 that the rise of the manager was the main factor that caused the decline of American business in the 1970s and 80s. Lack of leadership is most damaging at the level of strategic management where it can paralyze an entire organization.[92] According to Corner, Kinichi, and Keats,[93] strategic decision making in organizations occurs at two levels: individual and aggregate. They have developed a model of parallel strategic decision making. The model identifies two parallel processes both of which involve getting attention, encoding information, storage and retrieval of information, strategic choice, strategic outcome, and feedback. The individual and organizational processes are not independent however. They interact at each stage of the process. Reasons why strategic plans fail There are many reasons why strategic plans fail, especially:

Failure to understand the customer o Why do they buy o Is there a real need for the product o inadequate or incorrect marketing research Inability to predict environmental reaction o What will competitors do Fighting brands

Price wars o Will government intervene Over-estimation of resource competence o Can the staff, equipment, and processes handle the new strategy o Failure to develop new employee and management skills Failure to coordinate o Reporting and control relationships not adequate o Organizational structure not flexible enough Failure to obtain senior management commitment o Failure to get management involved right from the start o Failure to obtain sufficient company resources to accomplish task Failure to obtain employee commitment o New strategy not well explained to employees o No incentives given to workers to embrace the new strategy Under-estimation of time requirements o No critical path analysis done Failure to follow the plan o No follow through after initial planning o No tracking of progress against plan o No consequences for above Failure to manage change o Inadequate understanding of the internal resistance to change o Lack of vision on the relationships between processes, technology and organization Poor communications o Insufficient information sharing among stakeholders o Exclusion of stakeholders and delegates

Criticisms of strategic management Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity can be more important than a finely tuned strategic compass. When a strategy becomes internalized into a corporate culture, it can lead to group think. It can also cause an organization to define itself too narrowly. An example of this is marketing myopia. Many theories of strategic management tend to undergo only brief periods of popularity. A summary of these theories thus inevitably exhibits survivorship bias (itself an area of research in strategic management). Many theories tend either to be too narrow in focus to build a complete corporate strategy on, or too general and abstract to be applicable to specific situations. Populism or faddishness can have an impact on a particular theory's life cycle and may see application in inappropriate circumstances. See business philosophies and popular management theories for a more critical view of management theories. In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. He lamented that strategies converge more than they should, because the more successful ones get imitated by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation.[94]

Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not dominate action. "Just do it!", while not quite what he meant, is a phrase that nevertheless comes to mind when combatting analysis paralysis.

CASE STUDY ON MARUTI UDYOG LIMITED Managing competition successfully

MARUTI UDYOG LIMITED Managing competition successfully

Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament, to meet the growin demand of a personal mode of transport caused by the lack of an efficient public transport system. It was establish with the objectives of - modernizing the Indian automobile industry, producing fuel efficient vehicles to conser scarce resources and producing indigenous utility cars for the growing needs of the Indian population. A license and Joint Venture agreement were signed with the Suzuki Motor Company of Japan in Oct 1983, by which Suzuki acquire 26% of the equity and agreed to provide the latest technology as well as Japanese management practices. Suzuki w preferred for the joint venture because of its track record in manufacturing and selling small cars all over the worl There was an option in the agreement to raise Suzukis equity to 40%, which it exercised in 1987. Five years later, 1992, Suzuki further increased its equity to 50% turning Maruti into a non-government organization managed on t lines of Japanese management practices.

Maruti created history by going into production in a record 13 months. Maruti is the highest volume car manufactur in Asia, outside Japan and Korea, having produced over 5 million vehicles by May 2005. Maruti is one of the mo successful automobile joint ventures, and has made profits every year since inception till 2000-01. In 2000-01, althoug Maruti generated operating profits on an income of Rs 92.5 billion, high depreciation on new model launches resulte in a book loss.

COMPANY HISTORY AND BACKGROUND The Evolution

Marutis history of evolution can be examined in four phases: two phases during pre-liberalization perio (1983-86, 1986-1992) and two phases during post-liberalization period (1992-97, 1997-2002), followed by the fu privatization of Maruti in June 2003 with the launch of an initial public offering (IPO). The first phase started wh Maruti rolled out its first car in December 1983. During the initial years Maruti had 883 employees, a capital of R 607 mn and profit of Rs. 17 mn without any tax obligation. From such a modest start the company in just about decade (beginning of second phase in 1992) had turned itself into an automobile giant capturing about 80% of th market share in India. Employees grew to 2000 (end of first phase 1986), 3900 (end of second phase 1992) and 5700 1999. The profit after tax increased from Rs 18.67 mn in 1984 to Rs. 6854.54 mn in 1998 but started declining durin 1997-2001. During the pre-liberalization period (1983-1992) a major source of Marutis strength was the wholeheart willingness of the Government of India to subscribe to Suzukis technology and the principles and practices Japanese management. Large number of Indian managers, supervisors and workers were regularly sent to the Suzu plants in Japan for training. Batches of Japanese personnel came over to Maruti to train, supervise and manag Marutis style of management was essentially to follow Japanese management practices. The Path to Success for Maruti was as follows: (a) teamwork and recognition that each employees future growth and prosperity is totally dependent on the company growth and prosperity (b) strict work discipline for individuals and the organization (c) constant efforts to increase th productivity of labor and capital (d) steady improvements in quality and reduction in costs (e) customer orientation ( long-term objectives and policies with the confidence to realize the goals (g) respect of law, ethics and human being The path to success translated into practices that Marutis culture approximated from the Japanese manageme practices.

Maruti adopted the norm of wearing a uniform of the same color and quality of the fabric for all its employees th giving an identity. All the employees ate in the same canteen. They commuted in the same buses without an discrimination in seating arrangements. Employees reported early in shifts so that there were no time loss in-betwee shifts. Attendance approximated around 94-95%. The plant had an open office system and practiced on-the-jo training, quality circles, kaizen activities, teamwork and job- rotation. Near-total transparency was introduced in th decision making process. There were laid-down norms, principles and procedures for group decision making. The practices were unheard of in other Indian organizations but they worked well in Maruti. During the pre- liberalizatio period the focus was solely on production. Employees were handsomely rewarded with increasing bonus as Maru produced more and sold more in a sellers market commanding an almost monopoly situation. INDUSTRY ANALYSIS GLOBAL FOUR WHEELER INDUSTRY

Evolution The automobile industry has undergone significant changes since Henry Ford first introduced the assembly lin technique for the mass production of cars. Production concepts, processes and the associated technologies have change dramatically since the first cars were built. Some 70 years ago, car assembly was primarily manual work. Today, th process of car assembly is almost fully automated. In the old days, firms attached importance to the production virtually every part in a single plant, while today, carmakers concentrate on only a few specific production stages (i. car assembly). Parts and module production, services and related activities have been shifted to other, specialised firm (outsourcing of production steps).Since the 1980s, it has become clear that further productivity gains to reta competitiveness can be possible only by outsourcing and securing greater flexibility. For example, firms, especial

small car producers whose markets have been threatened by imports, have diversified their production programmes (e. by building off-road cars or convertibles) thereby introducing greater flexibility in the production process. Also, firm and their production have become more internationalized in lieu of outsourcing.

Current Scenario The global passenger car industry has been facing the problem of excess capacity for quite some time now. For t year 2002, the global capacity in the automotive industry was 75 million units a year, against production of only 5 million units (excess capacity estimated at 25%). Efforts to shore up capacity utilization have prompted severe pric competition, thus affecting margins and forcing fundamental changes in the industry. The pressure on sales an margins is driving players to emerging markets in pursuit of better growth opportunities and/or access to low-co manufacturing bases. The concept of selling in the passenger car industry is changing from original sales towards lifecycle valu generation, encompassing financing, repairs & maintenance, cleaning, provision of accessories, and so on. Vehicle manufacturers are moving into completely new materials and technologiespartly guided by environment legislationin striving to come up with radically different products. Some of these new technologies involve par that can be bolted on to an existing vehicle with relatively few implications for the rest of the vehicle. Others a much more fundamental, and are likely to have a profound impact throughout the supply chain. The examples includ battery, electric or hybrid power trains, and alternatives to the all-steel body. Carmakers are increasingly outsourcin component production, and focusing on product design, brand management and consumer care, in contrast to th traditional emphasis on manufacturing and engineering. The increasing need to attain global scales underscores the importance of platform sharing among carmakers. A original equipment manufacturers (OEMs) are trying to reduce the number of vehicle platforms, but raise the numb of models produced from each platform. This means producing a number of seemingly distinct models from common platform. As in manufacturing, distribution in the automobile industry is undergoing significant changes, involving Intern use, retailer consolidation, and unbundling of services provided by retailers. INDIAN FOUR WHEELER INDUSTRY

Evolution The Indian automobile industry developed within the broader context of import substitution during the 1950s. Th distinctive feature of the automobile industry in India was that in line with the overall policy of State intervention the economy, vehicle production was closely regulated by an industrial licensing system till the early 1980s th controlled output, models and prices. The cars were built mostly by two companies, Premier Automobiles Limited an HM. However, the Indian market got transformed after 1983 following the relaxation of the licensing policy and th entry of MUL into the car market. In 1991, car imports were insignificant, while component imports were equivale to 20% of the domestic production, largely because of the continuing import of parts by MUL. The liberalization the Indian automotive industry that began in the early 1990s was directed at dismantling the system of controls ov investment and production, rather than at promoting foreign trade. Multinational companies were allowed to invest the assembly sector for the first time, and car production was no longer constrained by the licensing system. Howeve QRs on built-up vehicles remained and foreign assemblers were obliged to meet local content requirements even export targets were agreed with the Government to maintain foreign exchange neutrality. The new policy regime an large potential demand led to inflows of foreign direct investment (FDI) by the mid-1990s. By the end of 199 Daewoo, Ford India, GM, DaimlerChrysler and Peugeot had started assembly operations in India. They were followe by Honda, HMIL, and Mitsubishi. Current Scenario

Major Players Bajaj Tempo Limited, DaimlerChrysler India Private Limited, Fiat India Automotive Private Limited, Ford Ind Limited, General Motors India Limited, Hindustan Motors Limited, Honda Siel Cars India Limited, Hyundai Mot

India Limited, Mahindra & Mahindra Limited, Maruti Udyog Limited, Skoda Auto India Limited, Tata Moto Limited, Toyota Kirloskar Motors Limited.
SOUCE: ICRA 2004

Current scenario in Passenger C Category The dominant basis of competition in t Indian passenger car industry has chang from price to price-value, especially in t passenger car segment. While the Indi market remains price sensitive, t stranglehold of Economy models has be slackening, giving way to higher-pric products that better meet customer need Additionally, a dominant trend in the Indi passenger car segment is the increasin fragmentation of the market into sub-segments, reflecting the increasing sophistication of the Indian consumer. Wi the launch of new models from FY2000 onwards, the market for MUVs has been redefined in India, especially at t upper-end. Currently, the higher-end MUVs, commonly known as Sports Utility Vehicles (SUVs), occupy a niche the urban market, having successfully shaken off the tag of commercial vehicles attached to all MUVs till recentl Domestic car manufacturers are now venturing into areas such as car financing, leasing and fleet management, an used-car reconditioning/sales, to complement their mainstay-business of selling new cars.

COMPETITIVE FORCES IN INDIAN PASSENGER CAR MARKET Critical Issues and Future Trends The critical issue facing the Indian passenger car industry is the attainment of break-even volumes. This is related the quantum of investments made by the players in capacity creation and the selling price of the car. The amount investment in capacities by passenger car manufacturers in turn depends on the production

Threat from the new players: Increasing Most of the major global players are present in the Indian market; few more are expected to enter. Financial strength assumes importance as high are required for building capacity and maintaining adequacy of working capital. Access to distribution network is important. Lower tariffs in post WTO may expose Indian companies to threat of imports. Market strength of consumers: Increasing Rivalry within the Increased awareness among industry: High consumers has increased Market strength of There is keen expectations. Thus the ability to suppliers: Low competition in select innovate is critical. A large number of segments. (compact Product differentiation via automotive components and mid size new features, improved suppliers. segments). performance and after-sales Automotive players are New support is critical. rationalizing their vendor multinational players Increased competitive base to achieve may enter the market. intensity has limited the pricing consistency in quality. power of manufacturers.

Threat from substitutes: Low to medium With consumer preferences changing, inter product substitution is taking place (Mini cars are being replaced by compact or mid sized cars).

strategies of the car manufacturers. Setting up integrated manufacturing facilities may require higher capit investments than establishing assembly facilities for semi knocked down kits or complete knocked down kits. In rece years, even though the ratio of sales to capacity (an important indicator of the ability to reach break-even volumes) the domestic car manufacturers have improved, it is still low for quite a few car manufacturers in India. India is al likely to increasingly serve as the sourcing base for global automotive companies, and automotive exports are likely gain increasing importance over the medium term. However, the growth rates are likely to vary across segment Although the Mini segment is expected to sustain volumes, it is likely to continue losing market share; growth in th medium term is expected to be led largely by the Compact and Mid-range segments. Additionally, in terms of engin capacity, the Indian passenger car market is moving towards cars of higher capacity. This apart, competition is likely intensify in the SUV segment in India following the launch of new models at competitive prices. COMPETITOR ANALYSIS HYUNDAI MOTOR INDIA LIMITED Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor Company, South Korea and the second largest and the fastest growing car manufacturer in India . HMIL presently markets over 25 variants passenger cars in six segments. The Santro in the B segment, and Getz in the B+ segment.

HYUNDAI SANTRO We are mainly going to concentrate on the various marketing and positioning strategies of Hyundai Santro as again that of Maruti Zen and Alto and Hyundai Getz as against Maruti Swift.

POSITIONING OF SANTRO The old positioning of the Santro was that pf a family car, this positioning strategy was changed in around 2002 an Santro was repositioned as to that of a smart car for young people. The target age group for the car had now shifte from 30-35 years to 25-30 years. The repositioning followed the face-lifts the car has been getting from time to time the form of engine upgradation, new power steering, automatic transmission, etc, to keep the excitement around it aliv in the highly competitive small car market. The repositioning also comes ahead of the possible launch of a new desig Santro, and the super B-segment car Getz, sometime in 2003. The Santro was given a fresh new positioning from a complete family car to a sunshine car denoting a fre new attitude and a changing your life positioning.As the average age of a car owner has declined from around 30-3 three years ago to 25-30, primarily because of changing lifestyles, cheap and easily available finance, etc. the compan thought that instead of promoting the Santro as a family car, it should be promoted as a car that can change the life of young person since many of the buyers were young buyers. HYUNDAIS PRICING STRATEGY

With the launch of Maruti Swift recently a price war was expected to kick in . Immediately after maruti raised pric on its debutante Hyundai Motor India hit back with a Rs 16,000-19,000 markdown on three new variants of Sant Xing. The company has introduced the XK and XL variants at a lower tag of Rs 3,26,999 and Rs .3,45,999 respectively.Th new price variants are likely to give Marutis existing B-segment models, Zen and WagonR a run for their mone Hyundai has also launched a new non-AC variant of the Santro at Rs 2.79 lakh, a tad higher than what the existing no Ac Santro costs. The next offensive is due from Maruti. With the Santros new price positioning, Zen and particular WagonR may be due for a correction, or at least a limited-period subvention. If that happens the domino effect w kick in across the B-segment. Hyundai is positioning its new variants on the tech platform. Strapped with 1.1 litre engine with eRLX Activ Intelligence technology, the new variants also come with new colour-coordinated interiors, a new front grill and a speed AC blower that makes the air conditioning more efficient. TATA MOTORS

Established in 1945, Tata Motors is India's largest and only fully integrated automobile company. Tata Motors bega manufacturing commercial vehicles in 1954 with a 15-year collaboration agreement with Daimler Benz of Germany.

TATA INDICA Tata motors flagship brand The company's passenger car range comprises the hatchback Indica, the Indigo sedan and the Marina, its station wago variant, in petrol and diesel versions.The Tata Indica, India's first indigenously designed and manufactured car, w launched by Tata Motors in 1999 as part of its ongoing effort towards giving India transport solutions that we designed for Indian conditions. Currently, the company's passenger cars and multi-utility vehicles have a 16-per ce market share.

POSITIONING OF INDICA Tata has positioned Indica as `more car per car'. The new car offers more space, more style, more power and mo options. Emphasizing the delivery of world class quality. They have tried to redefine the small car market as it has bee understood in India.True to its "More car per car" positioning, the Indica CNG offers all the core benefits of the Indic combined with the advantage of CNG. One of the most popular advertisements on television currently, is the one whe the guy portrayed as the loveable liar, gets socked everytime he lies ; but not when he speaks about the Indica th implying- must be true. Elaborating on the campaign, the new ad was launched with the intention of giving t Indica V2 brand a touch of youthfulness.

TATAS PRICING STRATEGY After the price war being triggered off by Hyundai being the first company to introduce what came to be known a pricing based on customer's value perceptions , all others followed suit.Telco's Indica came in the range of Rs 2.56 lak to Rs 3.88 lakh with 4 models. The price-points in the car market were replaced by price-bands. The width of a pric band was a function of the size of the segment being targeted besides the intensity of competition. The thumb ru being 'the higher the intensity, the wider the price-band.' KEY STRATEGIC INITIATIVES BY MARUTI A) TURNAROUND STRATEGIES MARUTI FOLLOWED

Maruti was the undisputed leader in the automobile utility-car segment sector, controlling about 84% of the market t 1998. With increasing competition from local players like Telco, Hindustan Motors, Mahindra & Mahindra and foreig players like Daewoo, PAL, Toyota, Ford, Mitsubishi, GM, the whole auto industry structure in India has changed in th last seven years and resulted in the declining profits and market share for Maruti. At the same time the Indi government permitted foreign car producers to invest in the automobile sector and hold majority stakes.

In the wake of its diminishing profits and loss of market share, Maruti initiated strategic responses to cope wi Indias liberalization process and began to redesign itself to face competition in the Indian market. Consultancy firm such as AT Kearney & McKinsey, together with an internationally reputed OD consultant, Dr. Athreya, have bee consulted on modes of strategy and organization development during the redesign process. The redesign process sa Maruti complete a Rs. 4000 mn expansion project which increased the total production capacity to over 3,70,00 vehicles per annum. Maruti executed a plan to launch new models for different segments of the market. In its redesig plan, Maruti, launches a new model every year, reduce production costs by achieving 85-90% indigenization for ne models, revamp marketing by increasing the dealer network from 150 to 300 and focus on bulk institutional sales, brin down number of vendors and introduce competitive bidding. Together with the redesign plan, there has been a shift business focus of Maruti. When Maruti commanded the largest market share, business focus was to sell what w produce. The earlier focus of the whole organization was "production, production and production" but now the foc has shifted to "marketing and customer focus". This can be observed from the changes in mission statement of t organization: 1984: "Fuel efficient vehicle with latest technology". 1987: "Leader in domestic market and be among global players in the overseas market". 1997: "Creating customer delight and shareholders wealth".

Focus on customer care has become a key element for Maruti. Increasing Maruti service stations with the scope one Maruti service station every 25 km on a highway. To increase its market share, Maruti launched new car mode concentrated on marketing and institutional sales. Institutional sales, which currently contributes to 7-8% of Maruti total sales. Cost reduction and increasing operating efficiency were another redesign variable. Cost reduction is bein achieved by reaching an indigenization level of 85-90 percent for all the models. This would save foreign currency an also stabilize prices that fluctuate with exchange rates. However, change in the mindset was not as fast as required b the market. Maruti planned to reduce costs, increase productivity, quality and upgrade its technology (Euro I& MPFI). In addition, it followed a high volume production of about 400,000 vehicles / year, which entailed a smoo relationship between the workers and the managers.

Post 1999, the market structure changed drastically. Just before this change, Maruti had wasted two crucial yea (1996-1998) due to governmental interventions and negotiation with Suzuki of Japan about the break-up of the sha holding pattern of the company. There was a change in leadership, Mr. Sato of Suzuki became the Chairman in Jun 1998, and the new Mr.J. Khatter was appointed as the new Joint MD. Khatter was a believer in consensus decisio making and participative style of management.As a result of the internal turmoil and the changes in the extern environment, Maruti faced a depleting market share, reducing profits, and increase in inventory levels, which it ha not faced in the last 18 years.

After their fall in market share they redesigned their strategies and through their parent company Suzuki they learned lot.The organizational learning of Maruti was moderately successful, the cost was relatively inexpensive as Maruti h its strong Japanese practices to fall back upon. With the program of organizational redesign, rationalization of cost an enhanced productivity, Maruti bounced back to competition with 50.8% market share and 40% rise in profit for t FY2002-2003. B) CURRENT STRATEGIES FOLLOWED BY MUL I. PRICING STRATEGY - CATERING TO ALL SEGMENTS

Maruti caters to all segment and has a product offering at all price points. It has a car priced at Rs.1,87,000.00 which the lowest offer on road. Maruti gets 70% business from repeat buyers who earlier had owned a Maruti car. The pricing strategy is to provide an option to every customer looking for up gradation in his car. Their sole motive

having so many product offering is to be in the consideration set of every passenger car customer in India. Here is ho every price point is covered.
Sl.No. 1 2 BRAND GRAND VITARA MARUTI BALENO VARIANTS XL7 LXi VXi LX VX DX DX2 LXi VXi ZXi LX LXi AX VXi VXi ABS ST HT 8 MARUTI ZEN D LX LXi VXi CARGO CARGO LPG 5 SEATER 8 SEATER XL 5 SEATER XL 8 SEATER STANDARD LX LXi STD. MPFI A/C MPFI PRICE IN DELHI (Rs.) 16,97,000.00 5,72,000.00 6,42,000.00 4,66,000.00 5,39,000.00 4,19,000.00 4,58,000.00 3,95,000.00 4,05,000.00 4,85,000.00 3,35,000.00 3,62,000.00 4,63,000.00 3,87,000.00 4,20,000.00 5,06,000.00 5,29,000.00 3,58,000.00 3,41,000.00 3,68,000.00 3,93,000.00 2,05,000.00 1,83,000.00 2,27,000.00 2,21,000.00 2,19,000.00 2,31,000.00 2,38,000.00 2,74,000.00 2,94,000.00 2,14,000.00 2,37,000.00

MARUTI ESTEEM

MARUTI VERSA

MARUTI SWIFT

MARUTI WAGON-R

MARUTI GYPSY

MARUTI OMNI

10

MARUTI ALTO MARUTI ALTO

11

MARUTI 800

II. OFFERING ONE STOP SHOP TO CUSTOMERS OR CREATING DIFFERENT REVENUE STREAMS

Maruti has successfully developed different revenue streams without making huge investments in the form of MD N2N, Maruti Insurance and Maruti Finance. These help them in making the customer experience hassle free and hel building customer satisfaction.

Maruti Finance: In a market where more than 80% of cars are financed, Maruti has strategically entered into this an has successfully created a revenue stream for Maruti. This has been found to be a major driver in converting a Maru car sale in certain cases. Finance is one of the major decision drivers in car purchase. Maruti has tied up with 8 finan companies to form a consortium. This consortium comprises Citicorp Maruti, Maruti Countrywide, ICICI Bank, HDF Bank, Kotak Mahindra, Sundaram Finance, Bank of Punjab and IndusInd Bank Ltd.( erstwhile-Ashok Leylan Finance).

Maruti Insurance : Insurance being a major concern of car owners. Maruti has brought all car insurance needs und one roof. Maruti has tied up with National Insurance Company, Bajaj Allianz, New India Assurance and Roy Sundaram to bring this service for its customers. From identifying the most suitable car coverage to virtually hassl free claim assistance it's your dealer who takes care of everything. Maruti Insurance is a hassle-free way for custome to have their cars repaired and claims processed at any Maruti dealer workshop in India. True Value Initiative to capture used car market

Another significant development is MUL's entry into the used car market in 2001, allowing customers to bring the vehicle to a 'Maruti True Value' outlet and exchange it for a new car, by paying the difference. They are offered loyal discounts in return.This helps them retain the customer. With Maruti True Value customer has a trusted name to entru in a highly unorganized market and where cheating is rampant and the biggest concern in biggest driver of sale is tru Maruti knows its strength in Indian market and has filled this gap of providing trust in Indian used car market. Maru has created a system where dealers pick up used cars, recondition them, give them a fresh warranty, and sell the again. All investments for True Value are made by dealers. Maruti has build up a strong network of 172 showroom across the nation. The used car market has a huge potential in India. The used car market in developed markets was 2 times as large as the new car market.

N2N: Car maintenance is a time-consuming process, especially if you own a fleet. Marutis N2N Fleet Manageme Solutions for companies, takes care of the A-Z of automobile problems. Services include end-to-end backups/solutio across the vehicles life: Leasing, Maintenance, Convenience services and Remarketing.

Maruti Driving School (MDS): Maruti has established this with the goal to capture the market where there inhibition in buying cars due to inability to drive the car. This brings that customer to Maruti showroom and Maru ends up creating a customer. III. REPOSITIONING OF MARUTI PRODUCTS

Whenever a brand has grown old or its sales start dipping Maruti makes some facelifts in the models. Other chang have been made from time to time based on market responses or consumer feedbacks or the competitor moves. He are the certain changes observed in different models of Maruti.

Omni has been given a major facelift in terms of interiors and exteriors two months back. A new variant called Om Cargo, which has been positioned as a vehicle for transporting cargo and meant for small traders. It has received a ve good response from market. A variant with LPG is receiving a very good response from customers who look for lo cost of running.

Versa prices have been slashed and right now the lowest variant starts at 3.3 lacs. They decreased the engine pow from 1600cc to 1300cc and modified it again considering consumers perception. This was a result of intensive surve done all across the nation regarding the consumer perception of Versa. Esteem has gone through three facelifts. A new look last year has helped boost up the waning sales of Esteem.

Baleno was launched in 1999 at 7.2 lacs. In 2002 they slashed prices to 6.4 lacs. In 2003 they launched a lower varia as Baleno LXi at 5.46 lacs. This was to reduce the price and attract customers.

Wagon-R was perceived as dull boxy car when it was launched. This made it a big failure on launch. Then furth modifications in engine to increase performance and a facelift in the form of sporty looking grills on the roof. Now it of the most successful models in Maruti stable.

Zen has been modified four times till date. They had come up with a limited period variant called Zen Classic. Th was limited period offer to boost short term sales.

Maruti 800 has so far been facelifted two times. Once it came with MPFi technology and other time it came up wi changes in front grill, head light, rear lights and with round curves all around. IV. CUSTOMER CENTRIC APPROACH

Marutis customer centricity is very much exemplified by the five times consecutive wins at J D Power CSI Award Focus on customer satisfaction is what Maruti lives with. Maruti has successfully shed off the public- sector laid bac attitude image and has inculcated the customer-friendly approach in its organization culture. The customer centr attitude is imbibed in its employees. Maruti dealers and employees are answerable to even a single customer complai There are instances of cancellation of dealerships based on customer feedback.

Maruti has taken a number of initiatives to serve customer well. They have even changed their showroom layout so th customer has to walk minimum in the showroom and there are norms for service times and delivery of vehicles. Th Dealer Sales Executive, who is the first interaction medium with the Maruti customer when the customer walks Maruti showroom, is trained on greeting etiquettes. Maruti has proper customer complain handling cell under the CR department. The Maruti call center is another effort which brings Maruti closer to its customer. Their Market Researc department remains on its toes to study the changing consumer behaviour and market needs.Maruti enjoys seven percent repeat buyers which further bolsters their claim of being customer friendly. Maruti is investing a lot of mone and effort in building customer loyalty programmes. V. COMMITTED TO MOTORIZING INDIA

Maruti is committed to motorizing India. Maruti is right now working towards making things simple for India consumers to upgrade from two-wheelers to the car. Towards this end, Maruti partnerships with State Bank of Ind and its Associate Banks took organized finance to small towns to enable people to buy Maruti cars. Rs. 2599 schem was one of the outcomes of this effort.

Maruti expects the compact cars, which currently constitute around 80% of the market, to be the engine of growth the future. Robust economic growth, favorable regulatory framework, affordable finance and improvements infrastructure favor growth of the passenger vehicles segment. The low penetration levels at 7 per thousand and risin income levels will augur well for the auto industry.

Maruti is busy fine-tuning another innovation. While researching they found that rural people had strange notions abo a car - that the EMI (equated monthly instalments) would range between Rs 4,000 and Rs 5,000. That, plus another R 1,500-2,000 for monthly maintenance, another Rs 1,000 for fuel (would be the cost of using the car). To counter th apprehension, the company is working on a novel idea. Control over the fuel bill is in the consumer's hands. Bu maintenance need not be. Says Khattar: "What the company is doing now is saying how much you spend on fuel is your hands anyway. As far as the maintenance cost is concerned, if you want it that way, we will charge a little extra the EMI and offer free maintenance." VI. DISINVESTMENT AND IPO OF MARUTI UDYOG LIMITED

It was a long and tough journey, but a rewarding one at the end. A reward worth Rs 2,424 crore, making it the bigge privatization in India till date. The size of Marutis sell- off deal is proof of its success. On the investment of Rs 6

crore it made in 1982, when Maruti Udyog Limited (MUL) was formally set up, the sale represents a staggering retu of 35 times The best part of the deal is the Rs 1,000 crore control premium the Government has been able to extra from Suzuki Motor Corporation for relinquishing its hold over Indias largest car company. Now looking at the strateg point of it for Suzuki, of course, complete control of MUL means a lot. Maruti is its most profitable and the large car company outside Japan. Suzuki will now be in the drivers seat and will not have to mind the whims and fancies ministers and bureaucrats. Decisions will now become quicker. The response to changing market conditions an technological needs will be faster, says Jagdish Khattar, managing director, MUL. After the disinvestment Suzu became the decision maker at MUL. They flowed fund in India for the major revamp in MUL. Quoting from the repo that appeared in The Economic Times, 4th April 2005, The Indian car giant Maruti Udyog Limited has finalized its two mega investment plans a new car plant and a engine and transmission manufacturing plant. Both the projects will be implemented by two different companies. At i meeting the company's board approved a total investment of Rs3,271.9 crore for these two ventures, which will located in Haryana.

The above signifies when GOI was a major stakeholder in the MUL strategies which lead to investment have had bureaucracy factor in it but after the disinvestment strategy followed is a TOP DOWN approach with a fa implementation.

Suzuki's proposed two-wheeler facility in India, would start making motorcycles and scooters by the end of 200 through a joint venture, in which Maruti has 51 per cent stake. The two-wheeler unit will have a capacity of 250,00 units a year.

The disinvestment followed by IPO gives the insight in the fact that now all the strategic decisions are taken by Maru Suzuki Corporation. Disinvestment had helped by removing the red tape and bureaucracy factor from its strateg decision making process. VII. REALISATION OF IMPORTANCE OF VEHICLE MAINTENANCE SERVICES MARKET

In the old days, the company's operations could be boiled down to a simple three-box flowchart. Components cam from the 'vendors' to the 'factory' where they were assembled and then sent out to the 'dealers'. In this scheme, yo know where the company's revenues come from. The new scheme is more complicated. It revolves around the tot lifetime value of a car.

Work on this began in 1999, when a MUL team, wondering about new revenue streams, traveled across the world. Sa R.S. Kalsi, general manager (new business), MUL: "While car companies were moving from products to service trying to capture more of the total lifetime value of a car, MUL was just making and selling cars." If a buyer spends R 100 on a car during its entire life, one-third of that is spent on its purchase. Another third went into fuel. And the fin third went into maintenance. Earlier, Maruti was getting only the first one-third of the overall stream. As the India market matured, customers began to change cars faster. Says Kalsi: "So the question was, if a car is going to see thre users in, say, a life span of 10 years, how can I make sure that it comes back to me each time it changes hands ? S Maruti has changed gears to take a big share of this final one-third spent on maintenance. Maintenance market has huge market potential. Even after having fifty lakh vehicles on road Maruti is only catering to approximately 2000 vehicles through its service stations everyday.

For this they are conducting free service workshops to encourage consumers to come to their service stations. Maru has increased its authorized service stations to 1567 across 1036 cities. Every regional office is having a separa services and maintenance department which look after the growth of this revenue stream. VIII. PLAYING ON COST LEADERSHIP

Maruti is the price dictator in Indian automobile industry. Its the low cost provider of car. The lowest car on road from Maruti stable i.e. Maruti 800. Maruti achieves this through continuous improvements in operational efficien and productivity. The company has set itself (and its vendors) the target of a 50% improvement in productivity and a 30% reduction costs in three years. The ability to keep lowering the prices sets Maruti apart from other players in the league. Maru spread the overheads over a larger base. The impressive sales and profits were the result of major efforts within the company. Maruti also increased focus o vendor management. Maruti consolidated its vendor base. This has provided its vendors with higher volumes an higher efficiencies. Maruti does that by working with vendors, assuring them that for every drop in price, volumes w go up. Maruti is now encouraging its vendors to develop R&D capability for specialized components. Based upon su activities, product competitiveness in the market will further increase. Maruti also made strides in applying IT to manufacturing. A new Vehicle Tracking System improved efficiency on th shop floor and enhanced quality control. The e Nagare system, adopted from Suzuki Motor Corporation, smoothene Marutis Just In Time operations. C) MAJOR FUTURE STRATEGIES I. PHASING OUT ZEN IN 2007

The launch of Swift and phasing out Zen is a strategic move. Alto was launched keeping in mind that it will take ov Maruti 800 market in future. Perhaps being the flagship product phasing out of Maruti 800 faced lots of resistance fro dealers all over. Another reason behind not phasing out Maruti 800 was the fear of brand shift of customers to oth competitors product. Swift was launched in May, 2005 in the price band starting from 4 lacs. Before launch of Swi Maruti management had decided that they will phase out Zen since it had already came up with two modifications. Th major reason behind this decision was cannibalization of Wagon R and Swift due to overlapping of price band. It is rational decision to kill a product before it starts facing the decline stage in product cycle. Maruti is offering R 3000.00 more margins to dealer on the sale of Wagon-R as compared to Zen. This is to let dealer push Wagon instead of Zen. II. MARUTI PLANS FOR A BIG DIESEL FORAY

The new car manufacturing company, called Maruti Suzuki Automobiles India Limited, will be a joint venture betwee Maruti Udyog and Suzuki Motor Corporation holding a 70 per cent and 30 per cent stake respectively. The Rs1,524 crore plant will have a capacity to roll out 1 lakh cars per year with a capacity to scale up to 2.5 lakh units per annum The new car manufacturing plant will begin commercial production by the end of 2006.

Maruti would set up a diesel engine plant at Gurgaon in line with its plan to become a major player in diesel vehicles a couple of years. This has been done in the wake of major competition from Tata Indica and meets the growin demand of diesel cars in India. While the annual growth in the diesel segment was 13 per cent in the last three years, was 19-20 per cent in the first quarter (April-June) of the current fiscal. Maruti has currently an insignificant presen in diesel vehicle. It will manufacture new generation CRDI (common rail direct injection) engines in collaboration wi Fiat-GM Opel and engines will be of 1200 cc. The plant with a capacity to produce one lakh diesel engines would operational in 2006. At present, Peugeot of France, supplies diesel engines for Maruti's Zen and mid-sized Estee models. This will further reduce the imported component in Maruti vehicles, making them more competitive in th Indian market. III. MARUTI PLANS FOR A NEW ENGINE AND TRANSMISSION PLANT

The engine and the transmission plant will be owned by Suzuki Powertrain India Limited in which Suzuki Mot Corporation would hold 51 per cent stake and Maruti Udyog holding the balance. The ultimate total plant capaci would be three lakh diesel engines. However, the initial production would be 1 lakh diesel engines, 20,000 petr

engines and 1.4 lakh transmission assemblies. Investment in this facility will be Rs.1,747.7 crore. The commerci production will start by the end of 2006. IV. INDIA AS EXPORT HUB FOR MARUTI

Three years back as an experiment, based on the increasing design capabilities of suppliers in countries like Indi McKinsey did an exercise to figure out just how much money could be saved if automobiles were to be made overseas locations like India, Mexico and South Africa -- an automobile BPO, so to speak. The result was staggerin the industry stands to gain $ 150 billion annually in cost savings, and an additional $ 170 billion annually in ne revenues once demand shoots up following the drop in prices, and the combination of which means a 25 per ce increase in existing revenue levels.

According to the study, over 90 per cent of automobiles today are sold in the countries they are made in, so there's a l of money to be made by shifting the production overseas. Till recently, just 100,000 cars produced in low-co countries were exported to high-cost ones -- presumably this figure is going up now that Altos from Maruti, Santr from Hyundai, Indicas from Tata Motors, and Ikons from Ford, among others, are being regularly exported out India.

Yet, as McKinsey points out, since it just costs $ 500 and just three weeks (and both figures are falling) to ship out car to anywhere in the world, why produce cars in high-wage islands? If a car was produced in India instead of Japan, the study says, it will cost 22-23 per cent less, after factoring in higher import duties for components/steel, low levels of automation, and transport costs.

In August, 2003 Maruti crossed a milestone of exporting 300,000 vehicles since its first export in 1986. Europe is th largest destination of Marutis exports and coincidentally after the first commercial shipment of 480 units to Hunga in 1987, the 300,00 mark was crossed by the shipment of 571 units to the same country. The top ten destination of th cumulative exports have been Netherlands, Italy, Germany, Chile, U.K., Hungary, Nepal, Greece, France and Poland that order.

The Alto, which meets the Euro-3 norms, has been very popular in Europe where a landmark 200,000 vehicle we exported till March 2003. Even in the highly developed and competitive markets of Netherlands, UK, Germany, Fran and Italy Maruti vehicles have made a mark. Though the main market for the Maruti vehicles is Europe, where it selling over 70% of its exported quantity, it is exporting in over 70 countries.

Maruti has entered some unconventional markets like Angola, Benin, Djibouti, Ethiopia, Morocco, Uganda, Chil Costa Rica and El Salvador. The Middle-East region has also opened up and is showing good potential for growt Some markets in this region where Maruti is, are Saudi Arabia, Kuwait, Bahrain, Qatar and UAE.

The markets outside of Europe that have large quantities, in the current year, are Algeria, Saudi Arabia, Srilanka an Bangladesh. Maruti exported more than 51,000 vehicles in 2003-04 which was 59% higher than last year. In th financial year 2003-04 Maruti exports contributed to more than 10% of total Maruti sales.

V. MARUTI EMERGING AS R&D HUB FOR SUZUKI MOTOR CORPORATION

Japanese auto major Suzuki is all set to convert Maruti Udyog Ltds research and development (R&D) facility as i Asia hub by 2007 for the design and development of new compact cars, according to a top official of the firm. Th countrys leading car manufacturer will make substantial investments to upgrade its research and development centre Gurgaon in Haryana for executing design and development projects for Suzuki. This includes localisatio modernisation and greater use of composite technologies in upcoming models.

The company will be hiring more software engineers and technocrats to handle Suzukis R&D projects. Investme would be more in terms of manpower than in infrastructure, which is already in place. Apart from working o innovative features, the R&D teams will focus on latest technologies using CAD-CAM tools to roll out new mode that will meet the needs of MULs diverse customers in the future. The reasons as to why it can be good for R&D is that

Firstly the cost involved in R&D and infrastructure is low in India as compared to other countries. Al the technical skills are abundantly available; again at a cheaper cost. Secondly, India is growing as an export hub along with the Indian market growing aggressively in becoming an attractive one for investors. Thirdly, Suzukis investment in India, is also important as it has completely divested now as a resu MUL will now become a 100% subsidiary of Suzuki in the coming year. KEY SUCCESS FACTORS (1)The Quality Advantage

Maruti Suzuki owners experience fewer problems with their vehicles than any other car manufacturer in India (J.D Power IQS Study 2004). The Alto was chosen No.1 in the premium compact car segment and the Esteem in the ent level mid - size car segment across 9 parameters. (2)A Buying Experience Like No Other

Maruti Suzuki has a sales network of 307 state-of -the-art showrooms across 189 cities, with a workforce of over 600 trained sales personnel to guide MUL customers in finding the right car. (3)Quality Service Across 1036 Cities

In the J.D. Power CSI Study 2004, Maruti Suzuki scored the highest across all 7 parameters: least problem experienced with vehicle serviced, highest service quality, best in-service experience, best service delivery, best servi advisor experience, most user-friendly service and best service initiation experience. 92% of Maruti Suzuki owners feel that work gets done right the first time during service. The J.D. Power CSI stud 2004 also reveals that 97% of Maruti Suzuki owners would probably recommend the same make of vehicle, while 90 owners would probably repurchase the same make of vehicle. (4)One Stop Shop

At Maruti Suzuki, customers will find all car related needs met under one roof. Whether it is easy finance, insuranc fleet management services, exchange- Maruti Suzuki is set to provide a single-window solution for all car relate needs.

(5) The Low Cost Maintenance Advantage

The acquisition cost is unfortunately not the only cost customers face when buying a car. Although a car may b affordable to buy, it may not necessarily be affordable to maintain, as some of its regularly used spare parts may b priced quite steeply. Not so in the case of a Maruti Suzuki. It is in the economy segment that the affordability of spar is most competitive, and it is here where Maruti Suzuki shines. (6)Lowest Cost of Ownership

The highest satisfaction ratings with regard to cost of ownership among all models are all Maruti Suzuki vehicles: Ze Wagon R, Esteem, Maruti 800, Alto and Omni. (7) Technological Advantage

It has introduced the superior 16 * 4 Hypertech engines across the entire Maruti Suzuki range. This new technolog harnesses the power of a brainy 16-bit computer to a fuel-efficient 4-valve engine to create optimum engine deliver This means every Maruti Suzuki owner gets the ideal combination of power and performance from his car.

FUTURE CHALLENGES

Maruti has always been identified as a traditional carmaker producing value-for-money cars and rig now the biggest hurdle Maruti is facing is to shed this image. Maruti wants to change it for a mo aggressive image. Maruti Baleno has failed due to one of the major reasons being that customers cou not identify Maruti with a car as sophisticated as Maruti Baleno. Maruti is looking forward to brin about a perception change about the company and its cars. Maruti started the exercise with the new look Zen, and Suzuki's decision to pick India as one of the first markets for this radically differen looking car gave this endeavor a new thrust. Maruti has also changed its logo at the front grill. It h replaced the traditional Maruti logo on grill stylish M with S. The major thrust in the facel endeavour is with the launch of 1.3 litre Swift. Its a style statement from Maruti to Indian market.

The next threat Maruti faces is the growing competition in compact cars. Companies like Toyota, For Honda and Fiat are planning to come out with small segment cars in near future.Ford is launching Foc and Fiesta, GM is launching Aveo in 2006, Chevrolet is launching Spark in 2006, Hyundai is launchin its new compact car in 2006, Honda is launching Jazz in 2006, GM is has reduced prices of its Cors Fiat is coming up with Panda and new Fiat Palio, Skoda is launching Fabia. All this will pose a maj threat to Maruti leadership in compact cars.

New emission norms like Bharat Stage 3 which has come into effect from April 2005 has increased c prices by Rs.20000 and Bharat Stage 4 which is coming into force in 2007 will contribute in increasin car prices further. This could be of concern to Maruti which is low cost provider of passenger cars.

Rise in petrol prices and growing popularity of other substitute fuels like CNG will be another threat Maruti. There is also a threat to Suzuki from R&D investment by Toyota and Honda in Hybrid car Hybrid cars could run on both petrol and gaseous fuels. There is a threat to Maruti models ageing. Maruti models like Maruti 800 which is in market for the last twenty years and others like Zen and Esteem which have also entered the decline phase are the other threats. Maruti is planning phasing out Zen in 2007 and there were rumors of phasing out Maruti 800 also. This all makes Suzuki to replace these brands with new launches . As Swift and Wagon R are replacing the Zen market. Maruti will have to keep on making modifications in its present models or its models will face extinction.