Consulting

Preparatory Material 2016
Consulting and Strategy
Table of Contents
CHAPTER 1 : ENVIRONMENT & INDUSTRY ANALYSIS .................................................................... 1-4
1. EXTERNAL ANALYSIS ....................................................................................................................... 1-4
1.1 PESTEL ANALYSIS ........................................................................................................................ 1-4
1.2. PORTERS FIVE FORCES ANALYSIS ................................................................................................... 1-6
2. INTERNAL ANALYSIS ..................................................................................................................... 1-10
2.1 RESOURCES, CAPABILITIES AND CORE COMPETENCIES ...................................................................... 1-10
2.2 VRIO FRAMEWORK .................................................................................................................... 1-12
CHAPTER 2 : BUSINESS LEVEL STRATEGIES ................................................................................. 2-13
1. COST LEADERSHIP ........................................................................................................................ 2-13
2. DIFFERENTIATION......................................................................................................................... 2-14
3. DIVERSIFICATION ......................................................................................................................... 2-15
CHAPTER 3 : GLOBAL STRATEGIES .............................................................................................. 3-17
1. WHY GO GLOBAL? ....................................................................................................................... 3-17
1.1 INCREASED MARKET SIZE ............................................................................................................. 3-17
1.2 RETURN ON INVESTMENT ............................................................................................................. 3-17
1.3 ECONOMIES OF SCALE ................................................................................................................. 3-17
1.4 LOCATIONAL ADVANTAGES .......................................................................................................... 3-17
2. INTERNATIONAL ENTRY MODE ....................................................................................................... 3-17
2.1 EXPORTING ................................................................................................................................ 3-18
2.2 LICENSING ................................................................................................................................. 3-19
2.3 STRATEGIC ALLIANCES ................................................................................................................. 3-20
2.4 FRANCHISING ............................................................................................................................. 3-20
2.5 ACQUISITIONS ............................................................................................................................ 3-20
2.6 GREENFIELD INVESTMENTS........................................................................................................... 3-21
2.7 BROWNFIELD INVESTMENTS ......................................................................................................... 3-21
3. RISKS IN INTERNATIONAL ENVIRONMENT ........................................................................................ 3-21
CHAPTER 4 : THE BUSINESS MODEL CANVAS .............................................................................. 4-22
CHAPTER 5 : THE BALANCED SCORECARD ................................................................................... 5-23
1. OBJECTIVES, MEASURES, TARGETS, AND INITIATIVES .......................................................................... 5-24
2. BALANCED SCORECARD AS A STRATEGIC MANAGEMENT SYSTEM ......................................................... 5-24
CHAPTER 6 : FIVE ELEMENTS OF STRATEGY ................................................................................ 6-25
CHAPTER 7 : MCKINSEY 7S MODEL .............................................................................................. 7-27
CHAPTER 8 : BLUE OCEAN STRATEGY .......................................................................................... 8-30
1. RED OCEAN STRATEGY VS. BLUE OCEAN STRATEGY ........................................................................... 8-30
2. FOUR ACTIONS FRAMEWORK ......................................................................................................... 8-31
Indian Institute of Management Raipur
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CHAPTER 9 : BCG MODEL............................................................................................................. 9-32

1. STARS ......................................................................................................................................... 9-32
2. CASH COWS ................................................................................................................................ 9-32
3. DOGS ......................................................................................................................................... 9-32
4. QUESTION MARKS ........................................................................................................................ 9-33
5. LIMITATIONS ................................................................................................................................ 9-33
CHAPTER 10 : G.E. - MCKINSEY MATRIX .................................................................................... 10-34
1. UNDERSTANDING THE MATRIX ...................................................................................................... 10-34
2. MEASUREMENT AND PLOTTING .................................................................................................... 10-35
3. INVESTMENT STRATEGIES ............................................................................................................. 10-35
4. LIMITATIONS .............................................................................................................................. 10-36
CHAPTER 11 : BENCHMARKING ................................................................................................. 11-37
1. TYPES OF BENCHMARKING: ......................................................................................................... 11-37
1.1 STRATEGIC BENCHMARKING: ...................................................................................................... 11-37
1.2 PERFORMANCE BENCHMARKING: ................................................................................................ 11-37
1.3 PROCESS BENCHMARKING: ......................................................................................................... 11-37
CHAPTER 12 : VALUE CHAIN ANALYSIS ...................................................................................... 12-38
1. PRIMARY ACTIVITIES ................................................................................................................... 12-38
2. SUPPORT ACTIVITIES ................................................................................................................... 12-39
CHAPTER 13 : PROFIT POOL ANALYSIS ...................................................................................... 13-40
CHAPTER 14 : PARENTING STRATEGY ........................................................................................ 14-42
1. THE PARENTING ADVANTAGE ....................................................................................................... 14-42
2. FIT ASSESSMENT: ....................................................................................................................... 14-42
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Chapter 1 : Environment & Industry Analysis

1. External Analysis
1.1 PESTEL Analysis
1. Political: These factors determine the extent to which a government may influence the
economy or a certain industry. [For example] a government may impose a new tax or duty
due to which entire revenue generating structures of organizations might change. Political
factors include tax policies, Fiscal policy, trade tariffs etc. that a government may levy
around the fiscal year and it may affect the business environment (economic
environment) to a great extent.
2. Economic: These factors are determinants of an economys performance that directly
impacts a company and have resonating long term effects. [For example] a rise in the
inflation rate of any economy would affect the way companies price their products and
services. Adding to that, it would affect the purchasing power of a consumer and change
demand/supply models for that economy. Economic factors include inflation rate, interest
rates, foreign exchange rates, economic growth patterns etc. It also accounts for the FDI
(foreign direct investment) depending on certain specific industries whore undergoing
this analysis.
3. Social: These factors scrutinize the social environment of the market, and gauge
determinants like cultural trends, demographics, population analytics etc. An example for
this can be buying trends for Western countries like the US where there is high demand
during the Holiday season.
4. Technological: These factors pertain to innovations in technology that may affect the
operations of the industry and the market favorably or unfavorably. This refers to
automation, research and development and the amount of technological awareness that
a market possesses.
5. Environmental: These factors include all those that influence or are determined by the
surrounding environment. This aspect of the PESTLE is crucial for certain industries
particularly for example tourism, farming, agriculture etc. Factors of a business
environmental analysis include but are not limited to climate, weather, geographical
location, global changes in climate, environmental offsets etc.
6. Legal: These factors have both external and internal sides. There are certain laws that
affect the business environment in a certain country while there are certain policies that
companies maintain for themselves. Legal analysis takes into account both of these angles
and then charts out the strategies in light of these legislations. For example, consumer
laws, safety standards, labor laws etc.

The following diagram summarizes the way to conduct PESTEL Analysis:
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Political
Economic
Social
Govenment Regulation
Exchange Rate
Literacy Rate
Taxation
Unemployment Rate
Demographics
Governmental Decisions
Consumers' Trust
Sex Ration
Consumer Protection
Technological Environmental Legal

Energy Costs
Carbon footprint
Labour Laws
Access to internet
Environmental
Regulations
Employee Statutory
Benets
Mobile Telephony
penetration

Example 1: PESTEL Analysis of a Pharmaceutical Company

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1.2. Porters Five Forces Analysis

Bargaining Power of Suppliers
Brand Reputation
Geographical Coverage
Product/Service Quality
level
Number of Suppliers
Geographical Factors
Barriers to Entry
Ease of entry/exit
Product differentiation
Initial Capital Requirement
Routes to market
Cost disadvantages
Government policies
Rivalry
Number and Size of firms
Industry size and trends
Fixed vs. Variable cost
Differentiation vs. Cost
Leadership strategy
Bargaining Power of Customers

Buyer Choice
Buyer Size/Number
Switching Costs
Product/Service importance
Volumes
Threat of Substitutes
Alternates price/quality
Market Distribution
changes
Fashion and trends
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Barriers to entry
New entrants to an industry bring new capacity, the desire to gain market share, and oftensubstantial resources.
If barriers to entry are high and newcomers can expect sharp retaliation from the entrenched
competitors, obviously the newcomers will not pose a serious threat of entering.
There are six major sources of barriers to entry:

1. Economies of scale: These economies deter entry by forcing the aspirant either to come in on
a large scale or to accept a cost disadvantage. Scale economies in production, research,
marketing, and service are probably the key barriers to entry in the mainframe computer
industry, as Xerox and GE sadly discovered.
2. Product differentiation: Brand identification creates a barrier by forcing entrants to spend
heavily to overcome customer loyalty. Advertising, customer service, being first in the industry,
and product differences are among the factors fostering brand identification. Eg. soft drinks,
over-the-counter drugs, cosmetics, investment banking, and public accounting.
3. Capital requirements: The need to invest large financial resources in order to compete creates
a barrier to entry, particularly if the capital is required for unrecoverable expenditures in upfront advertising or R&D. E.g. computer manufacturing and mineral extraction, limit the pool of
likely entrants.
4. Cost disadvantages independent of size: The cost advantages for the incumbents can stem
from the effects of the learning curve, proprietary technology, access to the best raw materials
sources, assets purchased at pre-inflation prices, government subsidies, or favorable locations.
These increase the barriers to entry.
5. Access to distribution channels: The more limited the wholesale or retail channels are and the
more that existing competitors have these tied up, obviously the tougher that entry into the
industry will be. Sometimes this barrier is so high that, to surmount it, a new contestant must
create its own distribution channels, as Timex did in the watch industry in the 1950s.
6. Government policy: The government can limit or even foreclose entry to industries with such
controls as license requirements and limits on access to raw materials. Eg. of regulated
industries- trucking, liquor retailing, and freight forwarding
The potential rivals expectations about the reaction of existing competitors also will influence its
decision on whether to enter. The company is likely to have second thoughts if incumbents have
previously lashed out at new entrants or if:
Bargaining Power of Suppliers
Suppliers can exert bargaining power on participants in an industry by raising prices or reducing
the quality of purchased goods and services. Powerful suppliers can thereby squeeze profitability
out of an industry unable to recover cost increases in its own prices. By raising their prices, soft
drink concentrate producers have contributed to the erosion of profitability of bottling
companies because the bottlers, facing intense competition from powdered mixes, fruit drinks,
and other beverages, have limited freedom to raise their prices accordingly.
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A supplier group is powerful if:
It is dominated by a few companies and is more concentrated than the industry it sells
to.
Its product is unique or at least differentiated, or if it has built up switching costs.
It is not obliged to contend with other products for sale to the industry. For instance, the
competition between the steel companies and the aluminum companies to sell to the
can industry checks the power of each supplier.
It poses a credible threat of integrating forward into the industrys business. This
provides a check against the industrys ability to improve the terms on which it
purchases.
The industry is not an important customer of the supplier group. If the industry is an
important customer, suppliers fortunes will be closely tied to the industry, and they will
want to protect the industry through reasonable pricing and assistance in activities like
R&D and lobbying.
Bargaining Power of Customers

Customers likewise can force down prices, demand higher quality or more service, and play
competitors off against each otherall at the expense of industry profits.
A buyer group is powerful if:
It is concentrated or purchases in large volumes.

The products it purchases from the industry are standard or undifferentiated. The
buyers, sure that they can always find alternative suppliers, may play one company
against another, as they do in aluminum extrusion.
The products it purchases from the industry form a component of its product and
represent a significant fraction of its cost.
It earns low profits, which create great incentive to lower its purchasing costs. Highly
profitable buyers, however, are generally less price sensitive.
The industrys product is unimportant to the quality of the buyers products or services.
Where the quality of the buyers products is very much affected by the industrys
product, buyers are generally less price sensitive. Industries in which this situation
obtains include oil field equipment, where a malfunction can lead to large losses, and
enclosures for electronic medical and test instruments, where the quality of the
enclosure can influence the users impression about the quality of the equipment inside.
The industrys product does not save the buyer money. Where the industrys product or
service can pay for itself many times over, the buyer is rarely price sensitive; rather, he is
interested in quality. This is true in services like investment banking and public
accounting, where errors in judgment can be costly and embarrassing, and in businesses
like the logging of oil wells, where an accurate survey can save thousands of dollars in
drilling costs.
The buyers pose a credible threat of integrating backward to make the industrys
product.
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Threat of Substitutes
By placing a ceiling on prices it can charge, substitute products or services limit the potential of
an industry. Unless it can upgrade the quality of the product or differentiate it somehow (as via
marketing), the industry will suffer in earnings and possibly in growth.
Manifestly, the more attractive the price-performance trade-off offered by substitute products,
the firmer the lid placed on the industrys profit potential. Sugar producers confronted with the
large-scale commercialization of high-fructose corn syrup, a sugar substitute, are learning this
lesson today.
Substitutes not only limit profits in normal times; they also reduce the bonanza an industry can
reap in boom times. In 1978 the producers of fiberglass insulation enjoyed unprecedented
demand as a result of high-energy costs and severe winter weather. But the industrys ability to
raise prices was tempered by the plethora of insulation substitutes, including cellulose, rock
wool, and Styrofoam. These substitutes are bound to become an even stronger force once the
current round of plant additions by fiberglass insulation producers has boosted capacity enough
to meet demand (and then some).
Substitute products that deserve the most attention strategically are those that (a) are subject to
trends improving their price-performance trade-off with the industrys product, or (b) are
produced by industries earning high profits. Substitutes often come rapidly into play if some
development increases competition in their industries and causes price reduction or
performance improvement.
Rivalry
Rivalry among existing competitors takes the familiar form of jockeying for positionusing
tactics like price competition, product introduction, and advertising slugfests. Intense rivalry is
related to the presence of a number of factors:
High number of competitors

Industry growth is slow.
The product or service lacks differentiation or switching costs.
Fixed costs are high or the product is perishable, creating strong temptation to cut
prices.
Exit barriers are high. Exit barriers, like very specialized assets or managements loyalty
to a particular business, keep companies competing even though they may be earning
low or even negative returns on investment. Excess capacity remains functioning, and
the profitability of the healthy competitors suffers as the sick ones hang on.1 If the entire
industry suffers from overcapacity, it may seek government helpparticularly if foreign
competition is present.
The rivals are diverse in strategies, origins, and personalities. They have different ideas
about how to compete and continually run head-on into each other in the process.
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2. Internal Analysis
2.1 Resources, Capabilities and Core Competencies
1. Resources
Broad in scope, resources cover a spectrum of individual, social and organizational phenomena.
Typically, resources alone do not yield a competitive advantage. In fact, a competitive advantage
is generally based on the unique bundling of several resources.
Some of a firms resources (defined as inputs to the firms production process) are tangible,
while others are intangible.
Tangible resources are assets that can be observed and quantified. Production
equipment, manufacturing facilities, distribution centres and formal reporting structures
are examples of tangible resources. The four types of tangible resources are financial,
organizational, physical and technological. The value of many tangible resources can be
established through financial statements; but these statements do not account for the
value of all the firms assets, because they disregard some intangible resources. The
value of tangible resources is also constrained because they are difficult to leverageit is
difficult to derive additional business or value from a tangible resource. For example, an
airplane is a tangible resource, but You cant use the same airplane on five different
routes at the same time. You cant put the same crew on five different routes at the
same time. And the same goes for the financial investment youve made in the airplane.

Intangible resources are assets that are rooted deeply in the firms history and have
accumulated over time. Because they are embedded in unique patterns of routines,
intangible resources are relatively difficult for competitors to analyze and imitate. The
three types of intangible resources are human, innovation and reputational. Knowledge,
trust between managers and employees, managerial capabilities, organizational routines
(the unique ways people work together), scientific capabilities, the capacity for
innovation, brand name, and the firms reputation for its goods or services and how it
interacts with people (such as employees, customers, and suppliers) are intangible
resources.
For example, Ford hired a well-respected Indian actor, Sunil Shetty, to serve as the brand
ambassador for the Ford Endeavour launched in India. The Endeavour had the highest sales of
SUVs in 2008. Similarly, Studio Ghibli, the Japanese animation company that has produced films
including Princess Mono-noke and Ponyo has successfully exploited blockbusters, especially after
forming an alliance with Pixar and Walt Disney to distribute Ghibli products.
2. Capabilities
Capabilities exist when resources have been purposely integrated to achieve a specific
task or set of tasks.
These tasks range from human resource selection to product marketing and research
and development activities.
Critical to the building of competitive advantages, capabilities are often based on
developing, carrying and exchanging information and knowledge through the firms
human capital.
Capabilities often evolve and develop over time. The foundation of many capabilities lies
in the unique skills and knowledge of a firms employees and, often, their functional
expertise.
The firms challenge is to create an environment that allows people to integrate their
individual knowledge with that held by others in the firm so that, collectively, the firm
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has significant organizational knowledge. Eg. GE has been effective in developing its
human capital and in promoting the transfer of their knowledge throughout the
company. Building important capabilities is critical to achieving high firm performance.
3. Core competencies
Core competencies are capabilities that serve as a source of competitive advantage for a
firm over its rivals.
Core competencies distinguish a company competitively and reflect its personality.
They emerge over time through an organizational process of accumulating and learning
how to deploy different resources and capabilities.
The activities the company performs especially well when compared with competitors,
and through which the firm adds unique value to its goods or services over a long period
of time.
McKinsey & Co. recommends that its clients identify no more than three or four
competencies around which their strategic actions can be framed. Supporting and
nurturing more than four core competencies may prevent a firm from developing the
focus it needs to fully exploit its competencies in the marketplace.
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2.2 VRIO Framework

Valuable:
o Attractive Features
o Lower costs (and higher profits)
o Eg. Hondas Engines
Rare:
o Only a few firms possess
o Eg. Toyota Lean Manufacturing
Costly to Imitate:
o Unable to develop or buy at reasonable price
o Eg.
Supported by Organization
o Exploit competitive potential by organizing the firm
o Eg. McDonalds

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Chapter 2 : Business Level Strategies

Michael Porters Generic Strategies:

Porter's generic strategies describe how a company pursues competitive advantage across its
chosen market scope. There are three/four generic strategies, either lower cost, differentiated,
or focus.
A company chooses one of two types of scope, either focus (offering its products to selected
segments of the market) or industry-wide, offering its product across many market segments
either using cost leadership or differentiation strategy.

1. Cost Leadership
This strategy also involves the firm winning market share by appealing to cost-conscious or
price-sensitive customers.
This is achieved by having the lowest prices in the target market segment, or at least the
lowest price to value ratio (price compared to what customers receive).
The firm must be able to operate at a lower cost than its rivals. There are three main ways to
achieve this.
o Achieving a high asset utilization. In manufacturing, it will involve production of high
volumes of output. These approaches mean fixed costs are spread over a larger
number of units of the product or service, resulting in a lower unit cost, i.e. the firm
hopes to take advantage of economies of scale and experience curve effects.
o Achieving low direct and indirect operating costs. This is achieved by offering high
volumes of standardized products, offering basic no-frills products and limiting
customization and personalization of service. Production costs are kept low by using
fewer components, using standard components, and limiting the number of models
produced to ensure larger production runs. Overheads are kept low by paying low
wages, locating premises in low rent areas, establishing a cost-conscious culture, etc.
Outsourcing, controlling production costs, increasing asset capacity utilization, and
minimizing other costs including distribution, R&D and advertising are some ways to
achieve this.
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Control over the value chain encompassing all functional groups (finance,
supply/procurement, marketing, inventory, information technology etc..) to ensure
low costs. For example Dell Computer initially achieved market share by keeping
inventories low and only building computers to order via applying Differentiation
strategies in supply/procurement chain. This will be clarified in other sections.
Cost leadership strategies are only viable for large firms with the opportunity to enjoy
economies of scale and large production volumes and big market share. Small businesses
can be cost focus not cost leaders if they enjoy any advantages conducive to low costs.
Disadvantages:
-
Lower customer loyalty, as price-sensitive customers will switch once a lower-priced

substitute is available.
A reputation as a cost leader may also result in a reputation for low quality, which may
make it difficult for a firm to rebrand itself or its products if it chooses to shift to a
differentiation strategy in future.
2. Differentiation
Differentiate the products/services in some way in order to compete successfully.

Examples of the successful use of a differentiation strategy are Hero, Asian Paints, HUL, Nike
athletic shoes (image and brand mark), BMW Group Automobiles, Apple Computer
(product's design), Mercedes-Benz automobiles.
A differentiation strategy is appropriate where the target customer segment is not pricesensitive, the market is competitive or saturated, customers have very specific needs which
are possibly under-served, and the firm has unique resources and capabilities which enable it
to satisfy these needs in ways that are difficult to copy.
Successful differentiation is displayed when a company accomplishes either a premium price
for the product or service, increased revenue per unit, or the consumers' loyalty to purchase
the company's product or service (brand loyalty).
Successful brand management also results in perceived uniqueness even when the physical
product is the same as competitors.
Fashion brands rely heavily on this form of image differentiation.
Differentiation strategy is not suitable for small companies. It is more appropriate for big
companies.
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3. Diversification
Market Penetration
In this strategy, there can be further exploitation of the products without necessarily changing
the product or the outlook of the product.
-
This will be possible through the use of promotional methods, putting various pricing
policies that may attract more clientele, or one can make the distribution more extensive.
- In Market Penetration, the risk involved in its marketing strategies is usually the least
since the products are already familiar to the consumers and so is the established market.
Another way in which market penetration can be increased is by coming up with various
initiatives that will encourage increased usage of the product.
A good example is the usage of toothpaste. Research has shown that the toothbrush head
influences the amount of toothpaste that one will use. Thus if the head of the toothbrush
is bigger it will mean that more toothpaste will be used thus promoting the usage of the
toothpaste and eventually leading to more purchase of the toothpaste.

Product Development
In product development growth strategy, new products are introduced into existing markets.
- Product development can differ from the introduction of a new product in an existing
market or it can involve the modification of an existing product.
- By modifying the product one would probably change its outlook or presentation, increase
the products performance or quality. By doing so, it can appeal more to the already
existing market.
- A good example is car manufacturers who offer a range of car parts so as to target the car
owners in purchasing a replica of the models, clothing and pens.

Market Development
The third marketing strategy is Market Development. It may also be known as Market
Extension. In this strategy, the business sells its existing products to new markets.
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- This can be made possible through further market segmentation to aid in identifying a
new clientele base. This strategy assumes that the existing markets have been fully
exploited thus the need to venture into new markets.
- There are various approaches to this strategy, which include: New geographical markets,
new distribution channels, new product packaging, and different pricing policies.
- In New geographical markets, the business can expound by exporting their products to
other new countries. It would also mean setting up other branches of the business in
other areas that the business had not ventured yet. Various businesses have adopted the
franchise method as a way of setting up other branches in new markets. A good example
is Guinness. This beer had originally been made to be sold in countries that have a colder
climate, but now it is also being sold in African countries.
- The other method is via new distribution channels. This would entail selling the products
via e-commerce or mail order. Selling through e-commerce will capture a larger clientele
base since we are in a digital era where most people access the internet often.
- In New Product packaging, it means repacking the product in another method or
dimension. That way it may attract a different customer base. In Different pricing policies,
the business could change its prices so as to attract a different customer base or so create
a new market segment.
- Market Development is a far much risky strategy as compared to Market Penetration. This
is so as it is targeting a new market and one may not quit tell how the outcome may be.

Diversification
This growth strategy involves an organization marketing or selling new products to new
markets at the same time.
-
It is the riskiest strategy among the others as it involves two unknowns, new products
being created and the business does not know the development problems that may
occur in the process.
A new market being targeted, which will bring the problem of having unknown
characteristics. For a business to take a step into diversification, they need to have
their facts right regarding what it expects to gain from the strategy and have a clear
assessment of the risks involved.
There are two types of diversification.

o
Related diversification means that the business remains in the same industry in
which it is familiar with. For example, a cake manufacturer diversifies into a
fresh juice manufacturer (food industry).
In unrelated diversification, there are usually no previous industry relations or

market experiences. One can diversify from a food industry to a mechanical
industry for instance.

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Chapter 3 : Business Level Strategies

1. Why go Global?

1.1 Increased Market Size
A small home market usually means customers are short supply. Which in turn affects a
companys potential for growth. Bigger market = more customers.
Finland for example is a small country with a population of approximately 5.5 million.
And while it has experienced great success with games like Clash of Clans and Angry
Birds its success has been down to their global reach.
1.2 Return on Investment
Sometimes it's just a matter of cost. It's cheaper to do business abroad because the companies
can reduce production costs and pay employees in more affordable countries less. There's a
reason why Apple outsources the bulk of its iPhone production to Asia.
1.3 Economies of Scale
Expanding will enable the firms to produce more units. The more units being produced the
lower the per unit cost. This can increase profit margins, but to get the best of this is possible
only through selling to more customers, which can only come through expanding to more
countries.
1.4 Locational Advantages

In some industries like advertising, customers want their suppliers to have international
presence so that suppliers can contribute in most of the markets where the buyer is operating.
For instance, a multinational will choose an advertising agency that has a presence in all the
markets where the multinational is selling its product. The customer does not want the hassle
of hiring a separate advertising agency for each of its markets. This process will be replicated in
more industries.
2. International Entry Mode
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2.1 Exporting
Direct Exports
Direct exports represent the most basic mode of exporting made by a (holding) company,
capitalizing on economies of scale in production concentrated in the home country and affording
better control over distribution. Direct export works the best if the volumes are small. Large
volumes of export may trigger protectionism. The main characteristic of direct exports entry
model is that there are no intermediaries.
Passive exports represent the treating and filling overseas orders like domestic orders.

Advantages
-
Disadvantages
Control over selection of foreign

markets and choice of foreign
representative companies
Good information feedback from
target market, developing better
relationships with the buyers
Better protection of trademarks,
patents, goodwill, and other
intangible property
Potentially greater sales, and
therefore greater profit than the
indirect exportation
Higher start-up costs and higher risks

as opposed to indirect exporting
Requires higher investments of time,
resources and personnel and also
organizational changes
Greater information requirements
Longer time-to-market as opposed to
indirect exporting

Indirect Exports
Indirect export is the process of exporting through domestically based export intermediaries.
The exporter has no control over its products in the foreign market.

Export Trading Companies
Export Management
Companies
Export Merchants
Conrming Houses
Non-conforming Purchasing
houses
Provide support services to the entire export process to the suppliers
Similar to ETCs
Do not take on the export credit risks
They are the wholesale companiesthat buy unpackages products from the
suppliers for export overseas under their own brand names
They are the intermediate sellers that work for the foreign houses
They recieve the product requirements from the clients, negotiate purchases
and make deliveryand pay suppliers/manufacturers
Similar to conifrming houses except that they do not pay the suppliers
directly
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Advantages
Disadvantages
Fast market access
Concentration of resources towards production
Little or no financial commitment as the clients'
marketing, etc. as opposed to direct exporting
Wrong choice of distributor, and by effect,
exports usually covers most expenses associated
market, may lead to inadequate market feedback
with international sales.
affecting the international success of the
Low risk exists for companies who consider their
company
domestic market to be more important and for
Little or no control over distribution, sales,
Potentially lower sales as compared to direct
companies that are still developing their R&D,
exporting (although low volume can be a key
marketing, and sales strategies.
aspect of successfully exporting directly). Export
Export management is outsourced, alleviating
partners that incorrectly select a specific
pressure from management team
distributor/market may hinder a firm's functional
No direct handling of export processes.
ability.

2.2 Licensing
It allows foreign firms, either exclusively or non-exclusively to manufacture a proprietors
product for a fixed term in a specific market.
A licensor in the home country makes limited rights or resources available to the licensee in the
host country like patents, trademarks, managerial skills, technology, and others that can make it
possible for the licensee to manufacture and sell in the host country a similar product to the one
the licensor has already been producing and selling in the home country without requiring the
licensor to open a new operation overseas. The licensor earnings take forms of one-time
payments, technical fees and royalty payments usually calculated as a % of sales.
Advantages:
Obtain extra income for technical know-how and

services
Reach new markets not accessible by export from

existing facilities
Disadvantages:
Lower income than in other entry modes
Quickly expand without much risk and large capital

investment
Pave the way for future investments in the market
Risk of having the trademark and reputation

ruined by an incompetent partner
The foreign partner can also become a competitor

by selling its production in places where the
parental company is already in.
Is highly attractive for companies that are new in

international business.
Retain established markets closed by trade restrictions

Political risk is minimized as the licensee is usually
100% locally owned
Loss of control of the licensee manufacture and

marketing operations and practices leading to loss
of quality
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2.3 Strategic Alliances

This is a type of cooperative agreements between different firms, such as shared research,
formal joint ventures, or minority equity participation. It has three distinguishing characteristics:
1. They are frequently between firms in industrialized nations.
2. The focus is often on creating new products and/or technologies rather than distributing
existing ones.
3. They are often only created for short-term durations.
Advantages:
- Technology Exchange
- Global Competition
- Industry Convergence
- Economies of Scale and reduction of risk
- Alliance as an alternative for merger
Disadvantages:
- Difficult to find a good partner
- Risk of unequal partnership
- Loss of control
- Relationship management across borders

2.4 Franchising
It is a system in which semi-independent business owners (franchisees) pay fees and royalties to
a parent company (franchiser) in return for the right to become identified with its trademark, to
sell its products or services, and often to use its business format and system."
Compared to licensing, franchising agreements tend to be longer and the franchisor offers a
broader package of rights and resources which usually includes: equipment, managerial systems,
operation manual, initial trainings, site approval and all the support necessary for the franchisee
to run its business in the same way it is done by the franchisor. In addition to that, while a
licensing agreement involves things such as intellectual property, trade secrets and others while
in franchising it is limited to trademarks and operating know-how of the business.
Disadvantages:
Advantages:
Low political risk
Well selected partners bring financial investment as

well as managerial capabilities to the operation.
Low cost
Allows simultaneous expansion into different
regions of the world
Maintaining control over franchisee may be difficult
Requires monitoring and evaluating performance of

franchisees, and providing ongoing assistance
Franchisees may take advantage of acquired knowledge

and become competitors in the future
Conflicts with franchisee are likely, including legal disputes

Preserving franchisor's image in the foreign market may be
challenging
2.5 Acquisitions
An acquisition or takeover is the purchase of one business or company by another company or

other business entity.[1] Such purchase may be of 100%, or nearly 100%, of the assets or
ownership equity of the acquired entity. Consolidation occurs when two companies combine to
form a new enterprise altogether, and neither of the previous companies remains
independently. Acquisitions are divided into "private" and "public" acquisitions, depending on
whether the acquiree or merging company (also termed a target) is or is not listed on a public
stock market. Some public companies rely on acquisitions as an important value creation
strategy.
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2.6 Greenfield Investments

Greenfield investment is the establishment of a new wholly owned subsidiary. It is often
complex and potentially costly, but it is able to provide full control to the firm and has the most
potential to provide above average return. "Wholly owned subsidiaries and expatriate staff are
preferred in service industries where close contact with end customers and high levels of
professional skills, specialized know how, and customization are required." Greenfield
investment is more likely preferred where physical capital intensive plants are planned. This
strategy is attractive if there are no competitors to buy or the transfer competitive advantages
that consists of embedded competencies, skills, routines, and culture
Greenfield investment is high risk due to the costs of establishing a new business in a new
country. A firm may need to acquire knowledge and expertise of the existing market by third
parties, such consultant, competitors, or business partners. This entry strategy takes much time
due to the need of establishing new operations, distribution networks, and the necessity to learn
and implement appropriate marketing strategies to compete with rivals in a new market.

2.7 Brownfield Investments
Brown field investing covers both the purchase and the lease of existing facilities. At times, this
approach may be preferable, as the structure already stands. Not only can it result in cost
savings for the investing business, it can also avoid certain steps that are required in order to
build new facilities on empty lots, such as building permits and connecting utilities.
The term brown field refers to the fact that the land itself may be contaminated by the prior
activities that have taken place on the site, a side effect of which may be the lack of vegetation
on the property.
3. Risks in International Environment

The Companys expansion strategy includes expansion into various countries around the world.
While the Company endeavors to limit its exposure by entering only countries where the
political, social and economic environments are conducive to doing business, there can be no
assurances that the respective business environments will remain favorable. The various risks it
faces are:

Political and economic risks, including political instability;

Various forms of protectionist trade legislation that currently exist, or have been proposed;
Expenses associated with customizing products;
Local laws and business practices that favor local competition;
Dependence on local vendors;
Multiple, conflicting and changing governmental laws and regulations;
Potentially adverse tax consequences;
Local accounting principles, practices and procedures and limited familiarity with US GAAP;
Foreign currency exchange rate fluctuations;
Communication barriers, including those arising from language, culture, custom and times
zones; and supervisory challenges arising from distance, physical absences and such
communication barriers.
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Chapter 4 : The Business Model Canvas

The Business Model Canvas (BMC) gives you the structure of a business plan without the
overhead and the improvisation of a back of the napkin sketch without the fuzziness (and
coffee rings).
The Canvas has nine elements:
Together these elements provide a pretty coherent view of a business key drivers
1. Customer Segments: Who are the customers? What do they think? See? Feel? Do?
2. Value Propositions: Whats compelling about the proposition? Why do customers
buy, use?
3. Channels: How are these propositions promoted, sold and delivered? Why? Is it
working?
4. Customer Relationships: How do you interact with the customer through their
journey?
5. Revenue Streams: How does the business earn revenue from the value
propositions?
6. Key Activities: What uniquely strategic things does the business do to deliver its
proposition?
7. Key Resources: What unique strategic assets must the business have to compete?
8. Key Partnerships: What can the company not do so it can focus on its Key Activities?
9. Cost Structure: What are the business major cost drivers? How are they linked to
revenue?
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Chapter 5 : The Balanced Scorecard

Robert Kaplan and David Norton developed the Balanced Scorecard, a performance
measurement system that considers not only financial measures, but also customer, business
process, and learning measures. The Balanced Scorecard framework is depicted in the following
diagram:
The balanced scorecard translates the organization's strategy into four perspectives, with a
balance between the following:
between internal and external measures
between objective measures and subjective measures
between performance results and the drivers of future results
Beyond the Financial Perspective

In the industrial age, most of the assets of a firm were in property, plant, and equipment, and
the financial accounting system performed an adequate job of valuing those assets. In the
information age, much of the value of the firm is embedded in innovative processes, customer
relationships, and human resources. The financial accounting system is not so good at valuing
such assets.

The Balanced Scorecard goes beyond standard financial measures to include the following
additional perspectives: the customer perspective, the internal process perspective, and the
learning and growth perspective.
Financial perspective includes measures such as operating income, return on capital employed,
and economic value added.
Customer perspective includes measures such as customer satisfaction, customer retention, and
market share in target segments.
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Business process perspective includes measures such as cost, throughput, and quality. These are
for business processes such as procurement, production, and order fulfillment.
Learning & growth perspective includes measures such as employee satisfaction, employee
retention, skill sets, etc.
Objectives, Measures, Targets, and Initiatives

Each perspective of the Balanced Scorecard includes objectives, measures of those objectives,
target values of those measures, and initiatives, defined as follows:
Objectives - major objectives to be achieved, for example, profitable growth.
Measures the observable parameters that will be used to measure progress toward reaching
the objective. For example, the objective of profitable growth might be measured by growth in
net margin.
Targets the specific target values for the measures, for example, +2% growth in net margin.
Initiatives action programs to be initiated in order to meet the objective.

These can be organized for each perspective in a table as shown below.
Balanced Scorecard as a Strategic Management System

The Balanced Scorecard originally was conceived as an improved performance measurement
system. However, it soon became evident that it could be used as a management system to
implement strategy at all levels of the organization by facilitating the following functions:
1. Clarifying strategy, the translation of strategic objectives into quantifiable measures
clarifies the management team's understanding of the strategy and helps to develop a
coherent consensus.
2. Communicating strategic objectives, the Balanced Scorecard can serve to translate high
level objectives into operational objectives and communicate the strategy effectively
throughout the organization.
3. Planning, setting targets, and aligning strategic initiatives ambitious but achievable
targets are set for each perspective and initiatives are developed to align efforts to reach
the targets.
4. Strategic feedback and learning executives receive feedback on whether the strategy
implementation is proceeding according to plan and on whether the strategy itself is
successful ("double loop learning").
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Chapter 6 : Five Elements of Strategy

The strategy diamond provides executives and consultants a concise, coherent way to analyse,
integrate, summarize, and communicate product, business, and corporate level strategies. The
model covers strategy formulation -- that is, it helps answer questions about what the strategy is
and what it will be in the future.

The strategy diamond is more a checklist than a model. It suggests that good strategies include
answers to a series of related questions spanning target markets, growth vehicles, speed and
path of strategic change, and financial deliverables.

1. ARENAS
Arenas encompass choices made about where to compete: the external environment such as
product or service markets, geographic markets or channels. Arenas also identify value chain
activities or value creation stages that are in sourced or outsourced.

2. DIFFERENTIATORS
Differentiators are those factors that are believed to allow the firm to "win" in its targeted
arenas, particularly external arenas. Differentiators can include image, price, reliability, and
other key inputs.

3. VEHICLES
Vehicles identify the degree to which the strategy relies on internal development efforts relative
to partnering with or acquisition of external parties.

4. STAGING
Staging and pacing refer to the sequence and speed of strategic moves. This element helps
identify decision points since strategic moves don't have a single possible pathway.

5. ECONOMIC LOGIC
The economic logic element reflects how all the pieces tie together in a way that satisfies key
stakeholders. Economic logic for profit-oriented firms can take the form of scale economies,
scope economies, premium pricing or some combination of these.

Ideally, application of the strategy diamond begins by answering questions about arenas and
differentiators. The vehicles dimension is considered an essential element because historically it
was treated somewhat as an afterthought. Staging build strategic change into the strategy.
Economic logic, as the last step in the strategy formulation process, summarizes how the four
other elements work together to maximize profits (or otherwise benefit its stakeholders). It tells
us why all the pieces add up in a way that yields near-term and long term positive performance.

Arenas - Where will we be active?
Vehicles - How will we get there?
Differentiators - How will we win in the marketplace?
Staging - What will be our speed and sequence of moves?
Economic logic - How will we obtain our returns?
6-25
Example: Strategy Diamond of Vistara
6-26
Chapter 7 : McKinsey 7s Model

McKinsey 7s model is a tool that analyzes firms organizational design by looking at 7 key
internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to
identify if they are effectively aligned and allow organization to achieve its objectives.
It sought to present an emphasis on human resources (Soft S), rather than the traditional mass
production tangibles of capital, infrastructure and equipment, as a key to higher organizational
performance. The key point of the model is that all the seven areas are interconnected and a
change in one area requires change in the rest of a firm for it to function effectively.
The model can be applied to many situations and is a valuable tool when organizational design is
at question. The most common uses of the framework are:
To facilitate organizational change.

To help implement new strategy.
To identify how each area may change in a future.
To facilitate the merger of organizations.
7S Factors

Strategy, structure and systems are hard elements that are much easier to identify and manage
when compared to soft elements. On the other hand, soft areas, although harder to manage, are
the foundation of the organization and are more likely to create the sustained competitive
advantage.
7-27
Strategy is a plan developed by a firm to achieve sustained competitive advantage and

successfully compete in the market. A sound strategy is the one thats clearly articulated, is longterm, helps to achieve competitive advantage and is reinforced by strong vision, mission and
values. But its hard to tell if such strategy is well-aligned with other elements when analyzed
alone.
Structure represents the way business divisions and units are organized and includes the
information of who is accountable to whom. In other words, structure is the organizational chart
of the firm. It is also one of the most visible and easy to change elements of the framework.
Systems are the processes and procedures of the company, which reveal business daily
activities and how decisions are made. Systems are the area of the firm that determines how
business is done and it should be the main focus for managers during organizational change.
Skills are the abilities that firms employees perform very well. They also include capabilities and
competences. During organizational change, the question often arises of what skills the company
will really need to reinforce its new strategy or new structure.
Staff element is concerned with what type and how many employees an organization will need
and how they will be recruited, trained, motivated and rewarded.
Style represents the way the company is managed by top-level managers, how they interact,
what actions do they take and their symbolic value. In other words, it is the management style of
companys leaders.
Shared Values are at the core of McKinsey 7s model. They are the norms and standards that
guide employee behaviour and company actions and thus, are the foundation of every
organization.
Using the tool

7s Framework is often used when organizational design and effectiveness are at question. It is
easy to understand the model but much harder to apply due to common misunderstanding of
what should a well-aligned elements be like.
7-28
7-29
Chapter 8 : Blue Ocean Strategy

Blue Ocean Strategy was developed by W. Chan Kim and Rene Mauborgne. They observed that
companies tend to engage in head-to-head competition in search of sustained profitable growth.
Yet in todays overcrowded industries competing head-on results in nothing but a bloody red
ocean of rivals fighting over a shrinking profit pool. Lasting success increasingly comes, not from
battling competitors, but from creating blue oceans of untapped new market spaces ripe for
growth.

8 key points of blue ocean strategy
It is backed by historical data.

It pursues differentiation and low cost: Blue ocean strategy is based on the
simultaneous pursuit of differentiation and low cost. It is an and-and, not an either-or
strategy
It creates uncontested market space: Blue ocean strategy doesnt aim to out-perform
the competition. It aims to make the competition irrelevant by reconstructing industry
boundaries
It empowers through tools and frameworks
It provides a step-by-step process: From assessing the current state of play in an
industry, to exploring the six paths to new market space, to understanding how to
convert noncustomers into customers. Blue ocean strategy provides a clear four-step
process to create your to-be blue ocean strategy
It maximizes opportunity while minimizing risk: The blue ocean idea index allows
testing the commercial viability of ideas and shows how to refine ideas to maximize
upside while minimizing downside risk
It builds execution into strategy: The process and tools are inclusive, easy to understand
and communicate, and visual all of which makes the process non-intimidating and an
effective path to building execution into strategy and the collective wisdom of a
company
It shows you how to create a win-win outcome: As an integrated approach to strategy,
blue ocean strategy shows how to align the three strategy propositions value, profit,
and people to ensure organization is aligned around the new strategy and that it
creates a win for buyers, the company, and for employees and stakeholders
Red Ocean Strategy Vs. Blue Ocean Strategy
8-30

W. Chan Kim & Rene Mauborgne coined the terms red and blue oceans to denote the market
universe. Red oceans are all the industries in existence today the known market space, where
industry boundaries are defined and companies try to outperform their rivals to grab a greater
share of the existing market. Cutthroat competition turns the ocean bloody red. Hence, the term
red ocean.
Blue oceans denote all the industries not in existence today the unknown market space,
unexplored and untainted by competition. Like the blue ocean, it is vast, deep and powerful in
terms of opportunity and profitable growth.
Four Actions Framework
The Four Actions Framework developed by W. Chan Kim and Rene Mauborgne is used to
reconstruct buyer value elements in crafting a new value curve or strategic profile. To break the
trade-off between differentiation and low cost in creating a new value curve, the framework
poses four key questions, shown in the diagram, to challenge an industrys strategic logic.
Examples
Pitney Bowes: Michael Critelli, the departing CEO of Pitney Bowes, explained how Pitney
Bowes created the Advanced Concept & Technology Group (ACTG), a unit responsible for
identifying and developing new products outside. Critelli cited ACTG's development of a
machine, which enables people to design and print their own postage from their
desktops, as an example of a blue ocean strategic move.
Starwood: One group which has been exploring blue ocean thinking for the past three
years is Starwood Hotels and Resorts. In an interview to INSEAD Knowledge, Robyn Pratt,
Vice President, Six Sigma and Operational Innovation talks about how they are taking a
step-by-step approach to implementing the concept.
TATA Motors: In their recent product, the "'Nano Car", they have adopted combination
of differentiation and low cost as stated in blue ocean strategy. It is the outcome of
combining value innovation and playing a different game.
8-31
Chapter 9 : BCG Model

The BCG Model is based on the product life cycle theory that can be used to determine what
priorities should be given in the product portfolio of a business unit. To ensure long-term value
creation, a company should have a portfolio of products that contains both high-growth
products in need of cash inputs and low-growth products that generate a lot of cash. It has 2
dimensions: market share and market growth. The basic idea behind it is that the bigger the
market share a product has or the faster the product's market grows the better it is for the
company.
Placing products in the BCG matrix results in 4 categories in a portfolio of a company:
Stars
high growth, high market share

use large amounts of cash and are leaders in the business so they should also
generate large amounts of cash.
Frequently roughly in balance on net cash flow. However if needed any attempt
should be made to hold share, because the rewards will be a cash cow if market
share is kept.
Cash Cows
low growth, high market share

profits and cash generation should be high, and because of the low growth,
investments needed should be low.
Foundation of a company
low growth, low market share
Dogs
9-32
avoid and minimize the number of dogs in a company.

beware of expensive turn around plans.
deliver cash, otherwise liquidate
Question Marks
high growth, low market share

have the worst cash characteristics of all, because high demands and low returns
due to low market share
if nothing is done to change the market share, question marks will simply absorb
great amounts of cash and later, as the growth stops, a dog.
Either invest heavily or sell off or invest nothing and generate whatever cash it can.
Increase market share or deliver cash

The BCG Method can help understand a frequently made strategy mistake: having a one-sizefits-all-approach to strategy, such as a generic growth target (9 percent per year) or a generic
return on capital of say 9.5% for an entire corporation.

In such a scenario:
Cash Cows Business Units will beat their profit target easily; their management have an easy job
and are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash
amounts in their businesses which are mature and not growing anymore.
Dogs Business Units fight an impossible battle and, even worse, investments are made now and
then in hopeless attempts to 'turn the business around'.
As a result, (all) Question Marks and Stars Business Units get mediocre size investment funds. In
this way they are unable to ever become cash cows. These inadequate invested sums of money
are a waste of money. Either these SBUs should receive enough investment funds to enable
them to achieve a real market dominance and become a cash cow (or star), or otherwise
companies are advised to disinvest and try to get whatever possible cash out of the question
marks that were not selected.
Limitations
Some limitations of the Boston Consulting Group Matrix include:
High market share is not the only success factor.
Market growth is not the only indicator for attractiveness of a market.
Sometimes Dogs can earn even more cash as Cash Cows.
9-33
Chapter 10 : G.E. - McKinsey Matrix

The GE McKinsey matrix is a nine-box matrix which is used as a strategy tool. It helps multibusiness corporations evaluate business portfolios and prioritize investments among different
business units in a systematic manner.
This technique is used in brand marketing and product management. The analysis helps
companies decide what products need to be added to a product portfolio as well as what other
opportunities should continue to receive investments. Though similar to the BCG matrix, the GE
version is a lot more complex.
Understanding the matrix

The matrix is a 33 grid. The Y-axis measures market attractiveness while the x-axis measures
the business strength. The scale is high, medium and low. A few key steps are necessary to
create this matrix.
List the entire range of products created or sold by a particular strategic business unit.
Identify the factors that make a specific market attractive.
Evaluate the strategic business units position in the market.
Calculate the business strength and market attractiveness.
Determine the strategic business units category: High, Medium or low.
Market Attractiveness
This dimension helps determine the attractiveness of the market by analyzing the benefits a
company is likely to get by entering and competing within the market. A number of factors are
studied within this analysis. These include the size of the market, its rate of growth, profit
potential, and the nature, size and weaknesses of the competition within the industry. Some
factors used to determine market attractiveness include:
10-34
Long term growth rate

Size of the industry
Industry Profitability (Entry barriers, exit barriers, supplier power, buyer power, threat of
substitutes etc)
Structure of the industry
Product life cycle
Demand
Pricing trends
Labour
Market Segmentation
Business/Competitive Strength
The other main dimension that makes up this grid is the competitive or business strength of the
company itself. An assessment along this dimension helps understand whether a company has
the required competence to compete in a particular market. This can be determined by internal
factors such as assets, market share and development of this market share, brand position and
loyalty, creativity, and handling of market changes and fluctuations. This can also be determined
by external factors such as environmental concerns, government regulations and laws, energy
consumption etc. Some factors that can determine this business/competitive strength include:
Total market share

Market share growth compared to competitors
Strength of the brand
Company profitability
Customer loyalty
Value chain
Product differentiation
Measurement and Plotting

After identifying and rating the factors that are needed to determine both dimensions, these
factors are given a magnitude and a calculation is made. This calculation is:
Factor1 rating x Factor1 magnitude + Factor2 rating x Factor2 magnitude + .FactorN rating x
FactorN magnitude
The strategic business unit is taken as a circle when plotting on the graph. Its size is determined
by the size of the market. A pie chart within the circle shows the brands or products within that
unit and an arrow outside it shows where the unit is expected to be in the future.
Investment Strategies
Once the chart is plotted, investment strategies can be created based on which box within the
matrix the strategic business unit appears in. The three options are:
Grow Business units that fall within this category attract investment by the corporation
because they are in a position to bring high returns in the future. Investments include
those in research and development, acquisitions, advertisement and brand expansion as
well as an expansion in production capacity.
Selectivity These business units are in a more ambiguous position and it is unclear
whether they will grow in the future or become stagnant. Investments in this category may
10-35
happen after money has already been put into grow units and if there is a strategic
purpose for these units.
Harvest Units in this category may be poor performers and in less attractive industries
and markets. Investment will be put into these if they generate revenues to equal this
investment. If this does not happen, then these units may be liquidated.
Limitations
As with any tool, there are some limitations to keep in mind. For the Mckinsey matrix, these
limitations include:
The industry attractiveness and business unit strength can only be accurately determined
by a consultant or a very experienced person.
The entire exercise can be costly to conduct for a company
Potential synergies and dynamics between 2 or more business units are not taken into
account.
The weight given to different factors can be very subjective as there is no set of rules to
determine this.
Based on the position of each business unit in the matrix, there are three actions a company can
take for each unit. These actions are to invest/grow, selectivity/earnings and harvest/divest.
Each unit falls within a certain set of boxes and this position determines the action to be taken.
10-36
Chapter 11 : Benchmarking
Benchmarking is a strategy tool used to compare the performance of the business processes and
products with the best performances of other companies inside and outside the industry.
Benchmarking is the search for industry best practices that lead to superior performance.

Managers use the tool to identify the best practices in other companies and apply those
practices to their own processes in order to improve the companys performance. Improving
companys performance is, without a doubt, the most important goal of benchmarking.

Other uses of the tool:
To reveal successful business processes - It is often unclear how successful companies achieve
superior performance. By observing and scrutinizing such companies you can identify the
processes, skills or competences that contribute to organizations success and then apply the
same practices to your own company.
To facilitate knowledge sharing - The knowledge acquired about other businesses can be easily
transferred to your own organization.
To gain competitive advantage - The company can gain a competitive advantage if it applies the
best practices from other industries to its own industry. For example, a small family owned farm
selling its own agricultural products online could apply the same social media strategies as
internet blogs to attract attention and gain new customers.
Types of Benchmarking:
Strategic benchmarking:
Managers use this type of benchmarking to identify the best way to compete in the market.
During the process, the companies identify the winning strategies (usually outside their own
industry) that successful companies use and apply them to their own strategic process. It is also
common to compare the strategic goals in order to spot new strategic choices.
Performance benchmarking:
It is concerned with comparing your companys products and services. The tool mainly focuses
on product and service quality, features, price, speed, reliability, design and customer
satisfaction, but it can measure anything that has the measurable metrics, including processes.
Performance benchmarking determines how strong our products and services are compared to
our competition.
Process benchmarking:
It requires to look at other companies that engage in similar activities and to identify the best
practices that can be applied to your own processes in order to improve them. Process
benchmarking is a separate type of benchmarking, but it usually derives from performance
benchmarking. This is because companies first identify the weak competing points of their
products or services and then focus on the key processes to eliminate those weaknesses.

For example, an organization using performance comparison identifies that their product X is
superior in features, manufacturing quality and design, but pricier than competitors product Y.
Then the company determines, which processes add the most to the cost of the product and
seek how to improve them by looking at similar, but less cost heavy processes in other
companies.
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Chapter 12 : Value Chain Analysis

A value chain is a set of activities that an organization carries out to create value for its
customers. Porter proposed a general-purpose value chain that companies can use to examine
all of their activities, and see how they're connected. The way in which value chain activities are
performed determines costs and affects profits, so this tool can help you understand the sources
of value for your organization.
Elements in Porter's Value Chain
Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on
systems, and how inputs are changed into the outputs purchased by consumers. Using this
viewpoint, Porter described a chain of activities common to all businesses, and he divided them
into primary and support activities, as shown below.
Primary Activities
Primary activities relate directly to the physical creation, sale, maintenance and support of a
product or service. They consist of the following:
Inbound logistics These are all the processes related to receiving, storing, and
distributing inputs internally. Your supplier relationships are a key factor in creating
value here.
Operations These are the transformation activities that change inputs into outputs
that are sold to customers. Here, your operational systems create value.
Outbound logistics These activities deliver your product or service to your customer.
These are things like collection, storage, and distribution systems, and they may be
internal or external to your organization.
Marketing and sales These are the processes you use to persuade clients to purchase
from you instead of your competitors. The benefits you offer, and how well you
communicate them, are sources of value here.
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Service These are the activities related to maintaining the value of your product or
service to your customers, once it's been purchased.
Support Activities
These activities support the primary functions above. In our diagram, the dotted lines show that
each support, or secondary, activity can play a role in each primary activity. For example,
procurement supports operations with certain activities, but it also supports marketing and sales
with other activities.
Procurement (purchasing) This is what the organization does to get the resources it
needs to operate. This includes finding vendors and negotiating best prices.
Human resource management This is how well a company recruits, hires, trains,
motivates, rewards, and retains its workers. People are a significant source of value, so
businesses can create a clear advantage with good HR practices.
Technological development These activities relate to managing and processing

information, as well as protecting a company's knowledge base. Minimizing information
technology costs, staying current with technological advances, and maintaining technical
excellence are sources of value creation.
Infrastructure These are a company's support systems, and the functions that allow it
to maintain daily operations. Accounting, legal, administrative, and general management
are examples of necessary infrastructure that businesses can use to their advantage.
Companies use these primary and support activities as "building blocks" to create a valuable
product or service.
It works by breaking an organization's activities down into strategically relevant pieces, so that
you can see a fuller picture of the cost drivers and sources of differentiation, and then make
changes appropriately.
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Chapter 13 : Profit Pool Analysis

Profit Pool Analysis answers two basic questions regarding any Industry. They are:
1. What is the level of profitability?
2. What determines the profitability?

A profit pool can be defined as the total profits earned in an industry at all points along the
industrys value chain. The pool will be deeper in some segments of the value chain than in
others, and depths will vary within an individual segment as well. Moreover, the pattern of profit
concentration in an industry is often very different from the pattern of revenue concentration.
Profit Pool Analysis has 3 Sequential activities:
1. Estimate Aggregate Industry Profits
2. Disaggregate profits into components
3. Visualize the display Profit Pool Maps are the end products of the process

A Four-Step Process
Consider the US personal computer industry in Late 1990s. Mapping profits across the value
chain shows that profit is much more highly concentrated in the microprocessor and software
segments than in hardware manufacturing. Yet few if any computer manufacturers can hope to
shift successfully onto Intels or Microsofts turf. The differences in required capabilities and
competitive structure are enormous, and Microsoft and Intel have vast resources with which to
defend themselves.
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Profit Pool Advantages:

It is good metric of industry attractiveness
It can split along several dimensions like competitors, products, regions etc.
Reveals size of profit concentrations within an industry
Identifies most critical drivers of future industry profitability
Sources: How to Map Your Industrys Profit Pool:: MayJune 1998 HBR Article
Profit Pools: A Fresh Look at Strategy:: MayJune 1998 HBR Article
Profit Pool Analysis Mapping by MSB Faculty
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Chapter 14 : Parenting Strategy

The parenting framework focuses on the competencies of the parent organization and on the
value created from the relationship between the parent and its businesses.
The parent organization generally is an intermediary between investors and businesses. In
addition, the parent organization is likely to create value through fit.
This fit can be achieved through the parenting advantage through skills and resources that add
value to the company.
The Parenting Advantage

The parenting advantage is creating more value than your competitors would with the same
businesses. For example, would eBay (previous owner of Skype) or Microsoft (current owner of
Skype) create more value owning Skype. Chances are Microsoft will create more value so they
would have the parenting advantage over eBay in this case.
It is also about asking following questions:
1. Which businesses should we own rather than our competition and why?
2. What is the best configuration, processes or structure to foster superior performance?
3. Is there a good fit between the skills of the parent and the needs of the business?
FIT Assessment:
To assess the fit between the parent and its businesses, the following approach can be followed:
Step 1: Examine the critical success factors of each business:

In every business, certain activities or issues are critical to performance and to the
creation of competitive advantage. Analyzing these factors helps in assessing fit. A
parent that is ignorant about these critical success factors is more likely to destroy value.

Step 2: Parenting Opportunities:
For a parent to add value to the business, room for improvement must exist in the
business. This is called the parenting opportunity.

Step 3: Understand the characteristics of the corporate parent. Describe theirs skills,
experience, structure, processes, and employees.
Step 4: Map these onto the parenting grid.
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Heartland Businesses:
Businesses that fall in the top right corner should be at the heart of the companys future.
Heartland businesses have opportunities to improve that the parent knows how to address, and
they have critical success factors the parent understands well.
Heartland businesses should have priority in the companys portfolio development, and the
parenting characteristics that fit its heartland businesses should form the core of the parent
organization.
Edge-of-Heartland Businesses:
For some businesses, making clear judgments is difficult. Some parenting characteristics fit;
others do not. We call those businesses edge of heartland. The parents skills in staff scheduling,
brand management, and lean organizational structures appear to add value to the business.
However, the added value is partly offset by critical success factors that fit less well with the
parent.

With edge-of-heartland businesses, the parent both creates and destroys value. The net
contribution is not clear-cut. Such businesses are likely to consume much of the parents
attention, as it tries to clarify its judgments about them and, if possible, transform them into
heartland businesses.
Ballast Businesses:
Most portfolios contain a number of ballast businesses, in which the potential for further value
creation is low but the business fits comfortably with the parenting approach. That situation
often occurs when the parent understands the business extremely well because it has owned it
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for many years or because some of the parent managers previously worked in it. The parent may
have added value in the past but can find no further parenting opportunities.
Managers should search their ballast businesses for new parenting opportunities that might
move them into heartland or edge-of-heartland territory. If that effort fails or if the parenting
opportunities that are discovered fit better with a rivals characteristics, companies should divest
the ballast business as soon as they can get a price that exceeds the expected value of future
cash flows.
Alien-Territory Businesses:
Most corporate portfolios contain at least a smattering of businesses in which the parent sees
little potential for value creation and some possibility of value destruction. Those businesses are
alien territory for that parent. Frequently, they are small and few in a portfoliothe remnants of
past experiments with diversifications, pet projects of senior managers, businesses acquired as
part of a larger purchase, or attempts to find new growth opportunities.
Managers normally concede that alien-territory businesses do not fit with the companys
parenting approach and would perform better with another parent. Nevertheless, parent
managers often have reasons for not divesting them: the business is currently profitable or in
the process of a turnaround; the business has growth potential, and the parent is learning how
to improve the fit; there are few ready buyers; the parent has made commitments to the
businesss managers; the business is a special favorite of the chairman; and so forth. The reality,
however, is that the relationship between such businesses and the parent organization is likely
to be destroying value. They should be divested sooner rather than later. The company in our
example should sell its food-products business to an international food company.
Understanding the parenting grid:

You should focus your attention on businesses in the heartland and possibly those on the edge
of the heartland. Edge of heartland business can be moved into the heartland when the parent
learns the new CSF over time. The ballast businesses have little upside but can be a reliable
source of earnings (cash cow). Those businesses in the alien territory and value trap should be
avoided at all costs, as they will be a drain on resources and very distracting!
Remember it is much easier to change the portfolio to match the parent, changing the parent to
match the portfolio is much, much harder.
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Preparatory Material 2016

Consulting and Strategy

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CHAPTER 9 : BCG MODEL............................................................................................................. 9-32

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Chapter 1 : Environment & Industry Analysis

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Technological Environmental Legal

Bargaining Power of Customers

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There are six major sources of barriers to entry:

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A supplier group is powerful if:

Bargaining Power of Customers

It is concentrated or purchases in large volumes.

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High number of competitors

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2.2 VRIO Framework

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Chapter 2 : Business Level Strategies

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Lower customer loyalty, as price-sensitive customers will switch once a lower-priced

Differentiate the products/services in some way in order to compete successfully.

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There are two types of diversification.

In unrelated diversification, there are usually no previous industry relations or

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Chapter 3 : Business Level Strategies

1.3 Economies of Scale

1.4 Locational Advantages

2. International Entry Mode

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Control over selection of foreign

Higher start-up costs and higher risks

Provide support services to the entire export process to the suppliers

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Fast market access

Concentration of resources towards production

Little or no financial commitment as the clients'

marketing, etc. as opposed to direct exporting

Wrong choice of distributor, and by effect,

exports usually covers most expenses associated

market, may lead to inadequate market feedback

with international sales.

affecting the international success of the

Low risk exists for companies who consider their

domestic market to be more important and for

Little or no control over distribution, sales,

Potentially lower sales as compared to direct

companies that are still developing their R&D,

exporting (although low volume can be a key

marketing, and sales strategies.

aspect of successfully exporting directly). Export

Export management is outsourced, alleviating

partners that incorrectly select a specific

pressure from management team

distributor/market may hinder a firm's functional

No direct handling of export processes.

Obtain extra income for technical know-how and

Reach new markets not accessible by export from