Strategic Innovators Sep 2005

D A R E T O D R E A M : S T R A T E G I C A L L Y !
I N N O V A T I V E L Y
Strategic Innovators
www.iipm.edu
Volume 2 Issue 2 September - November 2005
Volume 2 Issue 2 September - November 2005 w w w . i i p m p u b l i c a t i o n s . c o m Rs.450
Entrepreneurship
& Private
Investors
STRATEGIC INNOVATORS
INSIDE THIS ISSUE
26 C O R P O R AT E S O C I A L R E S P O N S I BI L I T Y: M ARC L E MENES TREL
Companies must adopt a scientific approach in be-

ing responsible while trying to be profitable
40 AT T R AC T I N G P R I VAT E I N V E S TO R S : F R A N K DEMML ER
For most entrepreneurs, funding is much more likely

to come from private sources than institutional ones
“toI have always been driven

buck the system, to
54 T U R N A RO U N D : E . F L A M H O LT Z , N . M A D H AVAN, S . L AL
Innovative management strategies employed at

Unitech as vehicles for organisational change
innovate, to take things
beyond where they’ve 72 T E C H N O L O G Y I N N OVAT I O N : G E O R G E S H AO U R
Investing in today’s innovation will not only create

Sam Walton, Founder
market value, but also will create tomorrow’s jobs.
Wal-Mart (1918-1992)
76 C H I E F E X E C U T I V E P RO F I L E : A L A N G R A N T, C EO, C ANO N
www.iipm.edu
Putting a human face to technology; and betting on

emerging markets & digital space for the future
AAN
N I II PI PMM I INNTTEELLLL II G
G EE N
NCCE
E UN
U N II T
T PP UUBBLLI ICCAATTI IOONN
S T R A T E G I C I S S U E S
D A R E T O D R E A M ; S T R AT E G I C A L LY ! I N N O V AT I V E LY !
Strategic Innovators
Publisher & Founder
Dr. M. K. Chaudhuri
Editor-in-Chief
Arindam Chaudhuri
Group Editorial Director

A. Sandeep
Group Publisher
Abhimanyu Ghosh
Consulting Editors
Sutanu Guru, Prasoon S. Majumdar
Shubhoshekhar Bhattacharjee, Saurav Chatterjee
Naveen Chamoli, Arundhati Banerji
Jayanta Chakrabarti, Dipankar Sarkar
Contributing Editor
Prashanto Banerji
Associate Editor
(Management Intelligence Centre)
Smita Polite
Assistant Editor
(Management Intelligence Centre)
Virat Bahri
Copy Editor
Mridu Singh
Management intelligence Center (Correspondents)

Delhi Asif Ahmed, Vareen Gadhoke, Deepti Sharma,
Niharika Singh, Neha Srivastava
Correspondents (other cities)

Mumbai Divya Joe; Pune Jatindeep Singh Behl;
Bangalore Tareque Laskar; Chennai Debojit Chaudhuri;
Hyderabad Syam Sunder Pujala; Kolkata Tarun Bose
Design & Production

Design Director: Satyajit Datta
Senior Designer: Manish Raghav, Remesh Narayan
Designer: Chetan Singh, Rajesh Chawla
Infographist: Sanjeev Raj
Junior Designer: Maninder Chhatwal
Chief Photographer: Shivay Bhandari
Photographer: Praveen Kumar
Production
Ripudaman Kaushik, Gurudas M. Thakur
Rajesh Malik
Circulation
CHIEF MANAGER DISTRIBUTION:
Surbhi Pandit Nangia
GENERAL MANAGER CIRCULATION: Narendra Budhiraja
CIRCULATION DEPARTMENT: Bhupender Singh Bisht,
Kapil Kaushik, Rajeev Nayan Sinha,
Bhaskar Majumder, M. S. Dinakar, Nagoor, Ballal
An IIPM Intelligence Presentation

For any queries email: edit@iipm.edu
Printed by
Ciraus Graphics, B-59/5,
Naraina Industrial Area, Ph-II, New Delhi
Published at
IIPM, B-27, Qutab Institutional Area,
New Delhi - 110016
Owner, Publisher, Printer: Dr. M.K. Chaudhuri
Editor: Arindam Chaudhuri
Visit us at : www.iipmpublications.com
4 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

editorial
Innovating India
I f there were a question on
what could be the most im-
portant strategic innovation In-
remained skewed and limited to
only few firms and industries.
It would not be cynical to state
dia could have hoped for, the that this growth cannot be sus-
answer, surprisingly though, tained if it is not scaled across
would lie at the conflux of the the length and breadth of this
corporate world and Indian so- country. And for all selfish rea-
ciety. Over the past ten years, sons if India Inc. needs to grow
IIPM’s research has shown how at current levels in future too,
Indian organizations have com- then it has to be an active agent
peted with panache with global for overall development.
leaders who have come to India and abroad, So it becomes a strategic imperative for
and amassed massive wealth, not only for the India Inc. that they on a continuous basis
their shareholders, but also for their manage- should engage themselves in various levels
ment in terms of free cash. of development. India, (by both default and
One simply cannot ignore companies design) already possesses the advantage of
like Wipro, Ranbaxy, Infosys, Bharat Forge being a young economy. And if this youth
and Dr. Reddy’s laboratories while talking is well educated and healthy, fired with an
about India Inc.’s success globally. Ranbaxy entrepreneurial spirit it can go a long way
hailed as the true Indian MNC today totally to give India and its companies an indubi-
survives on foreign markets. More than 80% table competitive advantage. But to create
of revenues for Ranbaxy come from abroad. this competitive advantage, perhaps today
Infosys the “global leader in IT and Business India Inc. is more competent and capable
consulting” with 98% of its revenue coming than ever before. Today it is equipped with
from outside India, is the perfect example all essential resources, but what it lacks is
of success of Indian companies abroad. Dr a collective and integrated initiative backed
Reddy’s laboratory is the first Pharmaceuti- by a broad based vision. Interventions are
cal Company to be listed in NYSE from Asia. required at micro-levels to create a reservoir
Bharat Forge, the 2nd largest forging company of educated, healthy and employable human
in the world and the largest Indian exporter of resource to offset any future growth impedi-
auto components is another glaring example ments. Without any further deliberation, the
of success of Indian companies on the global corporations of India should necessarily take
arena. This Indian corporate juggernaut is up the responsibility of ensuring that they give
almost untamable. back to India, what India has given to them.
Indians are a fortunate bunch; fortunate It won’t be long before rest of India joins in;
because they have been blessed with various but then, the first step is the toughest. And
governments since independence, that have that first step of private initiatives in this de-
more or less been thoroughly unsuccessful velopment process, unarguably, is the most
(deliberately though) in supporting any cor- critical strategic innovation India could hope
porate advancement or social development for, now more than ever!
through macro national economic initiatives;
again, fortunate because this deliberate absti-
nence of successive governments has forced,
India Inc. on one hand, to learn the tricks of
growth by itself, and on the other, Society
Unincorporated to fend for survival by itself.
But unfortunately, the growth patterns have
An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 5

C O N T E N T
Content
Strategic
Issues 8
Welcome to
Google Economy
Google seeks to change
the status quo...
Is India Losing its Do Impressions Last

Competitive Edge in a Joint Venture...? 30
in Outsourcing? 12 The preconditions necessary
With cases of increasing security for a successful joint venture
breaches owing to customer disloyality, must be met to avoid failures
20
Kim Warren- the sunrise industry seems to be under resulting from an alliance
London Business dark clouds
School Human Capital
Professionalising Repositioning of Liril soap 16 Assessment 34
Strategic
Management Will the new repositioning It is imperative that corporate India
strategy work for the brand? uses performance measurement
26
Marc Le STRATEGIC INSIGHT
Menestrel - Professionalising
20
Pompeu Fabra
University
Strategic Management
Strategy is in a bad way - but the
34
Corporate Social
Responsibility problem can and must be fixed
40 Corporate Social
Responsibility 26
Companies must adopt a
Frank Demmler -
Carnegie Mellon scientific approach in being a
Attracting Private responsible business while
Investors trying to be profitable

content
INFORMATION skills and metrics and a thorough

TECHNOLOGY understanding of customers’ priorities
Planning Your IT
Architecture For
Competitive PATH BREAKER
Advantage 68 Sam Walton 82
An organisation in the Walton’s strategies established that
brave new economy is it’s not just doing different things
as good as its IT archi- but also doing things differently
tecture, thus compa- that can go on to make one of the
nies need to tread the biggest companies of the world
60 IT path wisely
Resolving the BOOK REVIEW

Innovation Fortune at the Bottom
as a strategic tool to retain and Paradox in Technology of The Pyramid 86
reward deserving employees Companies 72 Villages - World’s largest
Investing in today’s innovation projects untapped markets
Attracting Private will create tomorrow’s jobs
Investors 40
Seeking private investment to fund END NOTE
your entreprise is a colossal task CEO PROFILE Judo Strategy 87
Alan Grant, Canon 76 Turning your competitors’
Revisiting and Mapping India through strength to your advantage
Redefining Strategic digital imaging
Management 47
In order to maximise shareholder’s 54
wealth maximisation, the plans BEST PRACTICES
and policies of the company must 6 Principles to Make Growth
Eric Flamholtz
work in tandem with the mission Initiatives Work 78 - UCLA
and vision of the company Different businesses require different Strategic Planning
for a Turnaround
CASE STUDY 72
Strategic Planning for Georges Haour
a Turnaround 54 30 - IMD Lausanne
Resolving the In-
Unitech Systems has used an novation Paradox
innovative approach to strategic in Technology
planning as a vehicle of organisational Companies
development and change
78
Mohun Bagan Adrian Slywotzky
Athletic Club - An - Mercer
Consulting
Empire Under Seize 60 6 Principles
The rise and fall of the club: to Make Growth
a victim of the internal conflicts Initiatives Work
of the management team
87
What ails Bata India? 64
The one time leader of the
footwear industry is now trying David B. Yoffie
- Harvard Busi-
hard to keep up with tough ness School
competition from other players Judo Strategy

Welcome to the
Google Economy!!!
google
Google seeks to a valuable innovation in search engine the dotcom crash, Google steadily grew
technology known as page rank. The link in advertising revenues, and further de-
change the ‘I am feeling lucky’ connected the user to
the most frequently viewed web page for
veloped its search engine algorithms,
adding features like Google Image search,
status quo... the search words he keyed in.
Google continued to grow by acquiring
Google News and Google Catalogs search.
But Google faces tough competition from
clients like AOL, Virgilio and VirginNet. En- Microsoft and Yahoo, which have literally
by Virat Bahri, IIPM DELHI hancements continued unabated on search vowed to end Google’s domination of the
engine technology like Google directory, search engine space.
search via wireless and search engines Google went public in September, 2004
The Google story in different languages (a global perspec- and since then its share price has tripled.
Is it Bubbledotcom again? A company that tive). In May 2000, Google was awarded Revenues for Quarter 4 of 2004 reached a
was started by two students seven years the Webby Award and the People’s Voice staggering $1.032 billion, a rise of 101%
ago with initial capital investment of $1 Award for technical achievement. By 2000 over the previous year. For Quarter 1,
million has turned a Giant Killer. A lot has end, Google was handling around a 100 2005, Google’s net profits reached 369.2
been said about the dotcom bubble burst million search queries everyday. million, or $1.29 a share, from $64.0 mil-
and about how overvaluations ultimately In 2001, Eric Schmidt, head of Novell, lion last year, a 600% increase in profit.
lead to correction in the stock market. was appointed CEO of Google. The search The gross Revenue nearly was $1.26 billion
Three quarters of growth and Google mar- queries now touched 200 million and from $651.6 million in Quarter 1, 2004.
ket valuation touched just above 80 billion, Eric introduced the paid search advertis-
and its shares have tripled in value on the ing concept to Google. The system meant Too much growth burst the bubble
New York Stock Exchange, ever since it small text ads that did not irritate the user During dotcom boom time, Sun Microsys-
went public in September, 2004. In the and pay per click advertising, a boon for tems was traded at $64, or 10 times its
process, it achieved another distinction- advertisers since they now had to pay to annual revenues. Sun chief executive Scott
that of overtaking Times Warner (valued Google only when their link was clicked by McNealy’s analysis of the stupidity of his
at $78 billion) as the world’s most valued the Internet User. The technology - called own shareholders after the crash makes for
media company. Hey then, is it time to AdSense - works thus: Advertisers create an interesting read. In 2002, he said:
raise a toast to the dotcoms again?
History
The first strategy it employed
Google was started in September 1998
by Larry Page and Sergey Brin, graduates
was a valuable innovation
from the Stanford University. The objective
was to solve the major problem of comput-
known as page rank
ing - how to retrieve relevant information
from a huge reservoir of data; in short the their own advertisements, give keywords “At 10 times revenues, to give you a
search engine. Although it started in beta to Google that link to their product/service 10-year payback, I have to pay you 100%
version, it was answering around ten thou- and the advertiser pays when the subscriber of revenues for 10 straight years in divi-
sand search queries a day by the time the clicks on the link. This represented a major dends. That assumes I can get that by my
company was officially launched. By Febru- ‘thumbs up’ for Internet based firms over shareholders. That assumes I have zero
ary 1999, Google was answering around traditional media like radio and television cost of goods sold, which is very hard for
500000 queries a day and was fast moving where the advertiser has to pay a flat fee a computer company. That assumes zero
up as one of the top Internet companies irrespective of how many people listen to expenses, which is really hard with 39,000
of the world. or view their advertisement. employees. That assumes I pay no taxes,
By June 1999, Google had managed Adsense resulted in a rise in revenue, which is very hard. And that assumes you
to acquire a second round of funding and but invited trouble from Overture (later pay no taxes on your dividends, which is
boasted of an illustrious Board of Direc- taken over by Yahoo) which claimed that kind of illegal. And that assumes with zero
tors including Mike Moritz (Sequoia), John the technology behind Adsense was an R&D for the next 10 years, I can maintain
Doerr (Kleiner Perkins) and Ram Shriram, Overture innovation. Google finally made the current revenue run rate. Now, having
CEO of Junglee. In September 1999, the an out of court settlement by giving Yahoo done that, would any of you like to buy my
beta tag was removed. seven million shares, worth around $230 stock at $64? Do you realise how ridicu-
When Google started as a search en- million, to resolve the matter. lous those basic assumptions are? You don’t
gine, the first strategy it employed was One of the few companies to survive need any transparency. You don’t need any

The company admits that its competitors

are gaining heavily in every aspect of the
business. Also, Google admits that inexperi-
ence of the international market is going
to cost it dearly and it is also going to face
pressure on margins due to recruitments
it needs to make to handle the supersonic
growth. A case in point is Google News,
which attracts 7 million users a month
whereas its competition, Yahoo attracts
25 million users.
Google’s tiff with Wall Street

Google has been criticised for not helping
in the rationalisation of the share value. A
majority of companies listed on Wall Street
advice shareholders against overvaluation
to avoid the eventuality of the expectation
catching up with the more realistic value.
Sergey Brin, President Google As a company whose core business is ena-
bling access to information, Google is not
exactly very informative when it comes to
footnotes. What were you thinking?” a company with revenues of around $3.19 its own financials and stock valuations!
The meteoric rise of Google’s profits and billion is valued today at over $80 billion Moreover, Google’s rise is bad news for
shareholder value is liable to be viewed and compared to the likes of Times Warner, Wall Street. The fee it gives to its under-
with suspicion; the agonising memory of one of America’s traditional media giants, writers is just 3%, rather than the market
the dotcom bust is still very clear in the it can be a cause for a lot of speculation. rate of 7%. On the other front is their con-
minds of people. The difference of course However, Google, for a company that’s just flict with underwriters. The undervaluing
is stark: In the dotcom bubble of 2000, seven years old, has an appreciable revenue technique that underwriters employ for the
the valuations were based on the dumb base compared to Times Warner, which benefit of investors (with whom they have
eyeballs, now Google’s growth is clearly on recorded revenues of $10.3 billion in the long term relations) is a key aspect of their
the basis of revenues; so in that sense some First Quarter of 2005. long term growth potential. The under-
rationalisation has already happened. Ian Carrington, Google’s head of ver- valuation technique, coupled with careful
In a Washington Post interview in 1999 tical markets, has stated on record that control of supply, ensures that the shares
Sergey Brin said, “Larry Page and I had a Easyjet spends £18,000 a day on Google are bound to grow in the initial period at
fundamental philosophy when we started advertisements, which explains the pro- least. Investment bankers reward the top
Google - the user is never wrong. Other jected revenue of $5 billion for Google by heads of companies with such shares and
search engine developers would tell us the end of 2005. get prospective business in return.
“that query is too general” or “this query There will be many analysts prepared Google on the other hand has gone the
is poorly formed”. We try to answer all to write an obituary in such circumstances auction way. The investors have had to
queries well”. for the share growth. But what is surpris- bid for the shares in terms of price they
Going by the success of Google the strat- ing is that the bear philosophy is present are willing to pay and number of shares
egy seems to have worked well. But when most predominantly within Google itself. they are willing to buy. In this method,
the average lowest bid price (LBP) is the
“Larry page and I had a approved price. All those who bid above
the LBP have to end up paying the LBP.
fundamental philosophy when The catch is, all those who bid below LBP
get nothing. In their public auction, Google
we started google - the user reserved the right to increase the number
of shares, thereby reducing the leverage
is never wrong” of underwriters and investment bankers

alike. So if Google succeeds – like it seems
Sergey Brin, President Google to be – more IPOs are sure to go the auction

google
The higher Google has gone, These were perhaps a few considera-
the more it has invited intense

tions which Google had in mind when it
launched the GMail – Google’s e-mail fa-
competition in its business.

cility with 2 GB of storage space – so you
may never have to delete another message.
Google has committed to offer 1 GB of
way; and if does not – that doesn’t seem back their share of the advertising space. space additionally to users annually. Cur-
to be happening though – the old method rently the service is free of charge.
is the way to go. Gmail – a search engine GMail is positioned as a huge reservoir
in your mailbox of information that lasts the user’s life, pos-
Advertising on net: a brilliant idea Google’s core competence is search en- sibly even beyond it. Hence Google has
The ad revenues of Google and Yahoo reg- gines, which is not hard to duplicate, or included the search engine technology to
istered record growth in 2004; and so did better. All it needs is a better algorithm and help users search e-mails. The product also
the industry. This indicates that internet a few overzealous researchers; the market brings out personalised services, which has
search-based advertising is indeed the next will eagerly produce investors for the same, mammoth potential. If this works out well,
Google will turn into a dream haven for
advertisers all over the world. However, a
key concern is privacy for users, and this is
likely to inhibit growth. Froogle, another
product of Google is a search for product
comparisons on the web. Another key area
which is currently small but potentially big
is specialised search and analyses. However
according to its CEO Eric Schmidt, Goog-
le does not have any plans for the same.
Google currently operates on scale and not
on niche markets. That in a way could be
a drawback in the long term. Since search
engine as a technology is replicable, Google
must have alternate revenue streams.
In that sense, Google now will mean
paradigm shift for the industry. not only ‘search’ but
The graph shows the market share of also ‘communicate’
Google vis-à-vis competition in search to the customer. In
engine space. Although Google is still the the long term, Google
leader, the competition is indeed catching proposes to utilise its
up. However, the buzz word is not growth, scale of operations
but stability. Top line growth is great, but in its search function
an expanding company has to make huge (where it currently
investments in manpower, new offices, surpasses the com-
R&D and other related areas to maintain petition) for the suc-
growth. Also, the dotcom industry is such cess of Gmail. But as
where change is constant: The higher a growing company,
Google has gone, the more it has invited it has to control irra-
intense competition in its business. Since tional investor valua-
Yahoo and Microsoft have endeavoured to tions, which threaten
dethrone Google, it is for sure going to have to rebound on these
difficulty in maintaining a definite rate of MSN and Yahoo being obvious contenders. investors and on the company as well. But
return to its shareholders. The market is The ‘quality’ of search is the differentia- if Google’s past is any evidence to go by,
bound to grow, and hence competition for tor. The company which provides a better Google should surely manage to achieve
advertising revenues, Google’s mainstay, is search mechanism wins. Already Google’s even irrational and impossible valuations.
going to intensify. Even the traditional me- share of online searches is falling, though it Well, didn’t somebody define achieving the
dia companies will expectedly fight to get is still above 50% in the US market. impossible as ‘Vision’?

With cases of security breaches owing to customer

disloyalty like the Mphasis case and the Karan Bahree
case, the sunrise industry of offshoring in India seems
to be under dark clouds. By Asif Ahmed, IIPM DELHI
I
ndia has emerged as the preferred countries like China and Mexico, India’s $1.2 billion. During 2003, India earned an
destination for business process out- BPO is losing its competitive advantage, estimated $2.3 billion, representing more
sourcing (BPO). In the outsourcing and at present is plagued with high at- than 80% of the global market. According
world, it is hailed as “the back office trition, poor infrastructure, price wars, to Gartner, offshore BPO spending is pro-
of the world.” The importance of outsourc- regulatory tangles and increasing com- jected to grow to $24.2 billion by 2007, of
ing can be judged by the fact that it became moditisation of services. which India will account for $13.8 billion,
an election issue in the US elections. A recent report of Gartner, the interna- i.e., 57%. It is clear from the above that
Business process outsourcing strate- tional research firm, predicts that India is while India’s offshore BPO earnings are set
gically refers to outsourcing of non-core likely to lose its market share in offshore to grow in absolute terms, its market share
activities of a firm. When this outsourcing BPO from the present 80% to 55% by 2007. will drop considerably from the position it
moves to a third party servicing company Gartner’s forecast is supported by The As- presently enjoys.
beyond the home country’s shores, such sociated Chambers of Commerce and In-
a third party is called an “Offshore BPO.” dustry of India (ASSOCHAM) which also Raison d’être
India holds around 80% market share glo- states that India’s dominance in offshore Has India lost its cost competitiveness and
bally of this offshore market. According BPO might be short-lived. Currently, much availability of skilled labor? Or does it not
to International Data Corporation (IDC) of the offshore work comes from the US. have sufficient infrastructure? The main
estimates, the BPO boom is expected to With other countries also trying to offshore reason for this downward shift is not that
be as big as $1 trillion by 2006. India has their work, the pie will get bigger in the India is losing out, but other countries are
been a dominant player in the offshore BPO future. In 2002, offshore-BPO spending was realising their potential as attractive desti-
market. But amidst tight competition from $1.8 billion, of which India accounted for nations and are working towards making

outsourcing
Is
India losing
its competitive edge in
Outsourcing?
it even better. Of late, other nations such Moving ahead, India could lose out due is set to rise in the future. When this hap-
as Indonesia, Ireland, Philippines, Mexico, to its single-minded focus on the English pens on a large-scale, it could prove to be
Ghana, South Africa, Malaysia, Mauritius, language. India does not have sufficient a hindrance for Indian companies. Other
Thailand and China have realised the poten- people who speak non-English foreign lan- nations with foreign language skills will be
tial of this sector in job creation and revenue guages such as Spanish, French and Ger- able to take away specific businesses relat-
generation and are gearing up to compete man. The cost of procuring language spe- ing to this multi-language area. Indian BPO
for their own share in the market. These cialist manpower is extravagant. With the companies, such as ICICI OneSource, iGate
countries are working on several fronts such offshore BPO work growing globally, and Global Solutions, Progeon, Technovate and
as upgrading their language (English) skills UK and the European countries offshoring others offer some services in French, Ger-
and infrastructure facilities, so as to com- their work, the share of non-English work man, Spanish, Japanese, and Italian, but
pete better. China already on a very miniscule scale.
has an upper hand in The cost advantage was
providing infrastructure
when compared to India.
BPO skyscraper the biggest USP for companies
shifting business to India, but
80
Mexico and Canada are that advantage is fast getting
preferred destinations be- eroded. India, being a fore-
60
cause of their geographi- runner in the business, has
cal and cultural proximity matured over time, and this
40
to the US. Countries like maturity has also unfortunate-
the Philippines, Mexico, ly led to increase in pricing by
20
and Canada also have a various players. The difference
sizeable number of Eng- in the demand-supply gap is
0
lish speaking people, 2000-01 2001-02 2002-03 2003-04 2004-05* 2005-06* the reason behind this. In ad-
thereby removing the *Projected Source: www.nasscom.org dition, the sheer proliferation of
language barrier. companies in this business has

that Bahree allegedly sold sensi- of reducing costs will fail. In short, consoli-
Currently, the unregulated tive confidential information for dation will become the survival mantra in
money – prospective and current the BPO space. In the venture capitalist
growth of the industry is offshoring clients are becoming backed BPOs, promoters are opting for
doubly careful about process mi- buyout as an exit route due to their in-
resulting in a strain on the gration and maintenance. With ability to scale up operations according to
NASSCOM concerned with very the customer’s requirement and offsetting
available infrastructure broad information technology of their margins due to lowering of billing
related areas, India still doesn’t rates and increasing costs. Most BPO serv-
and resources have an organized form of any ice providers have entered into the BPO
regulatory body to look after the space to exploit the growth opportunity,
created a severe resource constraint. All BPO and ITES industry; so concerns like but many of them lack funds for scaling up
these factors could be leveraged by other security of data, quality of the work done and sustainable clients. Many providers,
countries to successfully take away a por- and other concerns regarding cost and bar- who lack economies of scale, are trying
tion of the offshore BPO pie. Indian BPO gaining are becoming louder by the day. to differentiate their services, but are fac-
players have the exigent task of managing However, in reality the number of such ing difficulty on the price and competence
growth. Currently, the unregulated growth security breaches is less than a handful. front. The best way that some of the players
of the industry is resulting in a strain on the Yet because offshoring to India has become could add value in the future is to optimize
available infrastructure and resources. The a controversial issue for many countries, their current operations and sell themselves
industry is quite aware of the problem and such concerns have been magnified dis- to a consolidator or become consolidators
has been urging state governments to take proportionately. themselves. As this market matures, there
action, but without much success. will be a shakeout and weak players will
Another major problem in the Indian Survival strategies cease to exist.
BPO market is maintaining and attracting
the best talent in the industry. The attri- Consolidation Developing a Global Delivery
tion rate in the BPO sector is said to be Gartner has predicted that by the end of Model (GDM)
around 20 to 40 percent. So, constantly 2005, 70% of the top 15 Indian-owned BPO A GDM will help the service provider to
training and attracting the best employees start-ups that offer customer call center branch out to multiple global locations to
in the industry also adds to the employer services will be acquired, merged or be manage geographical differences in cost,
cost. A report by the National Association marginalized. And its prediction is that by quality and skill sets. It consists of both
of Software and Service Companies (NASS- 2007, 80% of voice-based customer service offshore and onsite models (that is, units
COM), India’s leading information technol- and support centers with the primary goal that are closer to the customers home coun-
ogy industry association, says tries). Technically, near-shore
that the outsourcing industry models undertake high-end
is expected to face a shortage
of 262,000 professionals by
Key mid tier M&A deals work and offshore models un-
dertake high volume and lower
2012. Given this background DATE ACQUIRER, TARGET, DEAL SIZE end of the process or project.
and the challenge faced, one Implementation of such models
is forced to question if India is Aug 2003 iGate, Quintant, $19mn will help in maximising quality,
losing its USP. i-flex, Supersolutions, $11.5mn while leveraging low-cost and
Dec 2003
One other reason for pro- expertise. These differentiated,
spective client companies to Apr 2004 Mphasis, Kshema Tech, $21mn yet in tandem, delivery models
think beyond India is that there will also help in optimising skill
is now concern for the secu- Jun 2004 Flextronics, Hughes Software, $226 mn set availability, cost advantages
rity of first-party information Patni, Cymbal Tech, $68 mn and retaining of clients. BPOs are
Oct 2004
and data. Due to recent cases developing global delivery mod-
– like the one in Bangalore Nov 2004 i-flex, equinox, N.A. els to keep pace with demand
where two of the employees of and mitigate the risks. They are
a reputed outsourcing Indian Feb 2004 Mphasis, Princeton Consulting, $14 mn trying to diversify systematic risk
company wrongly used end that is associated with sourcing
Mar 2005 Mphasis, El Dorado, $16.5 mn
clients’ data to misappropri- from (or servicing in) a single
ate large amounts of money, May 2005 MindTree, Lino Software, $10.12 mn country. These reasons range
or the Karan Bahree case where from geopolitical risks to lan-
a British newspaper claimed guage issues, currency fluctua-

outsourcing
tions to specific political environments, and personnel. The government still needs to panies want to retain their business. BPO
many others. However, companies will still address the issue of supply of trained per- players seem to understand this only too
have to face several challenges. The most sonnel for BPO. However, the private sec- well and have already started on the path
important of these issues would be clash tor, seeing an opportunity in training peo- of joining hands.
of company cultures and practices due to ple in BPO, is developing various courses Another area where India needs to con-
multi-country backgrounds. that meet the industry’s needs. Experts feel sciously focus on is moving up the value
that the future work will involve more of chain. India needs to develop its strategy
Outlook high-end analytical processes such as bank- to continuously innovate and add value
What we have seen so far in the BPO sector ing, insurance, healthcare and marketing to processes and provide an end-to-end
is only the tip of the iceberg. India, in order applications. The scale of operations is solution to global clients. Delivering high
to retain its dominant position in the BPO yet another issue. The Indian BPO market quality and value-added work will help
sector, needs to draw up a long-term plan. populated with numerous small and large move up the value chain, thereby build-
Experts feel that the plan should be able players, who enjoy economies of scale, are ing value differentiators. This is to say that
to tackle issues regarding infrastructure, few and far between. Consolidation in the companies should build new competencies
data protection laws and providing trained industry is the need of the hour if the com- and competitive advantages, as cost com-
petitiveness alone will no longer attract
clients to Indian shores. Data analytics (as
Business process outsourcing industry undertaken by companies like Fair Isaac
and other captive outsourcing units like
outlook: A.T. Kearney GECIS and American Express centers in
India) is one particular area that has value
The following are some key findings from the study of Indian IT chain enthusiasts clamouring up.
services market dynamics and the forecast through 2008: Despite increasing labor costs, service
quality problems and competition from
• During 2003, IT services witnessed a growth rate of 15% over 2002, new geographies, India seems to be the
to $1.66 billion. The market is forecasted to grow at a compound number one choice for at least the medium-
annual growth rate (CAGR) of 17.4 % through 2008, to $3.7 billion. term, mainly due to the English language
advantage. There are many other locations
• Development and Integration (D&I) services revenue accounted for that are poised to compete with India, such
the largest share of the total Indian IT services market, 57%, growing as China, Mexico, Ghana, the Caribbean
at a CAGR of 16.4% from 2003 through 2008. Islands, South Africa, Philippines, Malay-
sia, Mauritius and Thailand; apart from
• Consulting services revenue saw a small decline of $2 million in Australia that has traditionally been a base
2003 and is expected to grow at a CAGR of 16.2% through 2008.
for many American and European compa-
nies’ offshoring units. These countries have
• Process management and IT management services are expected
realized the potential of outsourcing and
to grow at CAGRs of 17.4% and 21.9%, respectively, with a growing
are aggressively promoting themselves as
focus on core competence while outsourcing areas of less expertise.
attractive BPO destinations by strength-
Service offerings are also expected to mature rapidly over this period,
leading to more outsourcing. ening their infrastructure and enhancing
their skills, mainly the English language.
• The banking, financial services and insurance sectors, and the tele- In such a situation, India cannot sit back
com sector have been leaders in deploying IT in their operations. and assume that everything will always be
While these sectors will continue to remain large spenders, govern- hunky-dory for the coming years. Indian
ment spending on deploying IT is on the rise and also represents companies need to constantly innovate
an attractive market. Enterprises in other sectors, such as manufac- to provide value to customers. To stay
turing, services and utilities, are also increasing their IT spending ahead of the others, ensuring differentia-
and are becoming attractive to service providers. tion through process expertise, end-to-end
capability, global delivery, better security
• 2004 marks the onset of rapid growth in the IT market. Posi- and privacy of information and service ex-
tive growth drivers are expectations of stable economic growth, cellence will be critical for the industry. But
increased global competitive pressures on local industry, improving the BPO industry in the long-term will see
infrastructure and growing investments in setting up offshore IT and a hybrid outsourcing model (onsite, near
business process outsourcing (BPO) facilities in India. shore, offshore) growing in popularity as
the industry matures.

Repositioning o
H
After years of dancing industan Lever Limited (HLL), the doyen of FMCG Industry in India, had
embarked on a bold initiative this summer – they were involved in the
under waterfalls, the Liril process of radically overhauling and repositioning their three major brands
– Lux, Fair & Lovely and Liril. First off the block was Liril. The latest ava-
girl has moved along with
tar of Liril soap comes with a new feminine shape, and a complete new look with eye
the soap into the catching translucent green bits in a light green base. The new Liril promises to give
consumers a completely new brand experience. The lime variant has been enriched
bedroom. by adding aloe-vera, which makes the skin soft and supple. The packaging of Liril has
also undergone radical transformation. The new carton box has a “love note game and
Will this new strategy quiz” on its back which invites people to share the same with their spouse. There is
also a host of promotional activities around the brand coming up that will go beyond
work for the brand?
the conventional touch points.
by Jayanta Chakraborti, The theme of the advertisement to promote the new Liril variant is also quite fresh
and much bolder. The now famous Liril Girl, the waterfall and the iconic jingle has been
IIPM PUNE
done away with – as the brand moves from a public venue to a private one – straight
into the bedroom. The new Liril Soft Aloe-Vera and Lemon television commercial fo-
cuses on naughty intimacies among married couples instead of the erstwhile iconic
“waterfall” campaigns.
The new commercial, created by advertising agency Lowe, attempts to inspire peo-
ple not to lose the magic in their marriage, especially in the midst of stressful lives
led by today’s couples. It shows the consumers how playful love and intimacy can be
discovered in the simplest of the moments. To justify the repositioning exercise, HLL
opined that there has been an evident transformation among housewives. They are
in full control of themselves, yet are stress prone and seek intimate moments in their
routine activities.
The Repositioning Strategy

Why this repositioning exercise? Well, Liril did create a stir when it entered the soap
market in the early seventies. But over the years, there have been a lot of me-too lime
soap brands that have inundated the market and eaten away a big chunk of Liril’s market

repositioning
of Liril Soap
share. The soap’s parent company, HLL, And there are equal numbers of glaring ex- all male soap category started shrinking
has also been under a lot of pressure in amples where repositioning exercises lead and women emerged as the key decision
recent times from local players like Nirma to huge blunders. Some of the brands that makers. A new strategy was devised for
and Cavinkare, as well as from big giants went through successful repositioning ex- Cinthol, and the soap was first repositioned
like P&G. Both the bottom line and top line ercises were Dettol, Cinthol, Cadbury Dairy as a family brand with the “Tan Taaza Man
have flattened, as HLL went for frantic re- Milk chocolates, Horlicks and Saffola. Taaza” campaign. Later, women consumers
structuring exercises by selling off or shunt- Dettol Soap was not a winner when were targeted with a re-launch campaign
ing out non-profitable brands and focusing it was first launched. This was because in 2001. Recently, Cinthol Skin Fresh has
their effort on 30 power brands. Reckitt Benckiser launched Dettol soap been launched with orange extracts, there-
on a premium platform, which was way by extending the value proposition from
HLL Brands Market Share off the brand’s core properties of hygiene just freshness to fresh and natural.
Lifebuoy 17.5% and cleanliness. As soon as the product Cadbury Dairy Milk tasted major suc-
Lux 15.0% bombed, it was quickly re-launched by cess with their repositioning exercise. In
Reckitt the following year as a “100 per- the 1980s, it was positioned as “the perfect
Breeze 6.8%
cent germ fighter.” The changed position- expression of love”, captured in the memo-
Hamam 3.8%
ing has worked so well for it that Dettol rable copy: “Sometimes Cadbury can say
Liril 2.5% soap commands a share of 11 percent in it better than words.” In 1994 came the
Source: AC Nielsen Survey-2004 the premium soap market today. path-breaking “Real taste of life” campaign,
Another brand that went through a suc- which created a remarkable change in the
How effective is a repositioning effort cessful repositioning exercise – or rather way chocolates were perceived.
in lifting a sinking brand? Worldwide, as a sex-change – was Cinthol. This soap ac- The brand which had progressively
well as in India, there have been a lot of cidentally got positioned as a male soap become trapped as a gift for children was
repositioning exercises that have rescued due to its masculine brand ambassadors unshackled and repositioned to the “free
brands from precarious situations and Imran Khan, Vinod Khanna and Akshaye child” in every adult.
heaped rewards for the parent company. Khanna. Making matters worse, the over- Cadbury Dairy Milk was redefined as
Over the years a lot of me-too lime soap brands have

eaten away a big chunk of Liril’s market share
Sl No Company Major Brands – health, naturals, beauty and freshness.

Within these, there are three price ranges
1 HLL Lifebuoy, Lux, Liril, Breeze,
– discount, popular and premium.
Pears, Hamam and Dove The major companies that are compet-
2 Nirma Nima, Nirma ing in this market are HLL, Nirma, Godrej,
3 Godrej Cinthol, Fairglow, Nikhar, Allcare, Reckitt Benckinser, P&G, Colgate-Palmo-
live, Henkel Spic and Wipro.
Ganga, Shikhakai and Evita
The origin of soap has a very interesting
4 P&G Camay story. Ancient Roman history says that the
5 Colgate Palmolive Palmolive water that flowed down Mount Sapo was
6 Reckitt Benckiser Dettol a great cleanser. The fact was that animals
were sacrificed at that mountain, and the
7 Wipro Santoor Shikakai, Babysoft
melted animal fat washed down from the
8 Henkel Spic Margo, Aramusk, Fa sacrificial spot mingled with the clay to
9 KSDL Mysore Sandal Soap make a good cleansing material. Hence the
combination of animal fat, clay and water
The soap category in India is one of the most

competitive markets with over 300 brands
the perfect expression of spontaneous, test were New Coke, Onida and 7Up. In emerged as a cleanser and mixing oil with
shared good feelings, providing the “real 1985, Coca-Cola’s taste tests indicated that potash and water resulted in soap. This
taste of life” experience. The approach was most consumers (and particularly young formula evolved with time.
rewarded: The Brand grew by over 50% in people) thought Pepsi tasted better than Pears, one of the earliest soap brands,
sales volumes. The next step in the growth Coke. To make the product taste better was launched in 1789 in London by
of Cadbury was to popularize consump- than Pepsi, Coca cola changed its vulnera- Andrew Pears,
tion in a social context, especially in more ble secret recipe – which attracted younger It was transparent and had an oval
traditional settings like weddings with the customers – and attached the new taste to shape. The next branded soap which
punchline “Kuch Meetha Ho Jaaye.” a new brand image: The New Coke. followed was Lifebuoy. It was launched
GlaxoSmithkline Consumer Healthcare But the feelings against the new prod- by Lever Brothers in 1895 and was po-
positioned Horlicks as an immunity enhanc- uct that started coming out from various sitioned as a health-soap because of its
er and had acquired the image of a drink quarters taught Coca-Cola that most of its carbolic acid content.
for the sick and those who are improving. customers, including many younger drink- Comparatively, Lux was launched in
The image of health drink was so deeply ers, care more about the emotional herit- India in 1929 and since then has been the
associated with it that people started pre- age of this classic brand than the taste of leading soap brand in India.
senting Horlicks to sick people. the actual product. Coke was finally forced
Recently, the brand was relaunched to bring back the original taste under the The Liril story
with a great package, and the core essence brand name Classic Coke. Similarly, Onida Launched 30 years ago in 1975, Liril was
of ‘pleasurable nourishment’ embodying TV had to bring back the Devil and 7Up conceived by a group of young managers
modernity, youthfulness, vibrancy and had to recall Fido-Dido to boost up their from HLL and Lintas who were instructed
vigour. The punchline, “Epang Opang brand image. to create a freshness-soap in the premium
Jhapang,” made sure that the brand got price segment. Their first attempt was a
instant recognition. The soap market in India blue soap with the promise of fresh moun-
Similarly, Saffola was initially a “heart- The soap category in India is one of the tain breeze. This idea did not work too
problem-solution” brand. So, only the most fiercely competitive markets. There well in research. So, under the guidance
heart patients used Saffola and the brand are more than 300 brands – national, re- of a young British marketing head, Derk
remained restricted within a small band. gional and rural – that are vying for the Wooller, they developed a green marbled
The new positioning as “The Heart of a attention of consumers. The personal wash soap with a lemon fragrance.
Healthy Family” helped them break this market is valued at Rs.45 billion (Source: The first advertisement, created by
mindset and become a very good mega ORG-MARG). The huge, diverse and con- Alyque Padamsee, made history by creat-
brand in the cooking oil category. stantly evolving Indian soap market can ing the unforgettable image of a bikini-clad
The brands that failed the repositioning be broadly divided into four segments girl in green, frolicking in a waterfall. Pad-

repositioning
After showing waterfalls for 22 years it was time to

interpret freshness in a new manner
amsee’s group had gained an interesting almost all of them have ended up joining tirement after twenty years of great service.
insight while conducting extensive research films; and of course, Preity Zinta happens The Rasna Girl was replaced with Karisma
on housewives and young men for this to be one of the most popular Bollywood Kapoor. So did the mystique of the Liril
specific advertisement. It was found that actresses today. girl finally wane?
the Indian woman faces a lot of pressure Alongwith the change in brand ambas- There are two schools of thought. One,
in sustaining her family, which includes sadors, Liril has also undergone several led by her creator, Alyque Padamsee, who
her in-laws and her children. She rarely transformations. An unrivalled market emphatically states: “Bring back the wa-
gets a moment of freedom during her daily leader in the 70s and 80s, Liril faced a test- terfall and Karen.” And the contemporary
routine. Out of that insight came the Liril ing time in the early 90s. The girl-in-water- view which thinks that the Liril girl is dis-
advertisement featuring a girl dressed in a fall routine had become very predictable, pensable. Executive Creative Director at
green swimsuit frolicking with great zeal the market became stagnant and competi- Lowe, Balki thinks that the Liril girl has
around a waterfall. tion was aggressive from a slew of me-too been romping under waterfall for 22 years
The moment of liberation that Liril pro- brands. To infuse variety, Liril introduced and it was time to interpret freshness in a
vided appealed to the women of India; and a shower gel, Liril Active Gel. The ad also new manner.
it became the top selling premium soap changed dramatically. The waterfall was Driving this change is also the fact that
overnight. No wonder, the brand became gone, and the new ad showed a leggy Miss the Rs.1 billion brand’s sales have been
the market leader in its category within a Batra dancing in a burst of water, while stagnant. Competition has also intensified
year of its launch, overtaking brands such doing a carwash and ending up as fresh with cheaper brands giving the same lime
as Cinthol and Mysore Sandal. as a daisy. The waterfall came back once and freshness promise. The brand had been
The first Liril Girl was Karen Lunel, who more in the next film, and under it danced prodded earlier to deliver by launching new
took a break from her job as Air India air- the dimpled, exuberant Preity Zinta. variants in the last few years; this time
hostess to don the role. When the ad was In 1999, Liril turned blue for the first around it had to be a 360 degree overhaul.
released, the audience was bowled over. time with Liril Rainfresh, a blue variant of Everything had to change - from product to
The blithe water sprite, the dancing wa- Liril Lime. In the new ad featuring Hris- packaging to positioning. The target for the
terfall, the catchy tune – everything was hita Bhatt, the waterfall was done away company is to double market share by the
new and thrilling. The Liril girl became the with, the Liril girl was brought to the city, end of 2005, which is only at around 2.5%
metaphor for freshness and at a deeper and there was a supporting cast as well. of the Rs.4,800 crore soaps category.
level, for freedom from the mundane. It In late 2004, Liril launched a new orange Liril’s romance with running water
struck a winning chord with the Indian variant – Liril Orange Fresh with the zesty is finally over and experts may contend
woman and Liril zoomed to the top of the fragrance of orange. whether it would help the brand, but HLL
premium soap segment. is keen to crystallise the new brand image
After that, there were a series of glam- Conclusion in the minds of the consumers. Will the
dolls who donned the image of Liril girls, So, for thirty years, the Liril girl had held new strategy succeed?
starting from Anjali Jathar to Pooja Batra steady. But thirty years is a long time for
to Preity Zinta. The latest Liril models any brand icon. Asian Paints had quietly Bibliography:
have been Hrishita Bhatt, Tara Sharma withdrawn Gattu to draw up a new brand 1. Liril to come out from under the water-
and Deepika Padukone. Except Deepika, image. Lalitaji, of Surf fame, was sent to re- fall, www.moneycontrol.com, February
31, 2005
2. Venkatraman, Latha, The Soap Story,
Liril Girls Theme Variant
Hindu Business Line, Sunday, March
Karen Lunel Waterfall Liril Lime 13, 2005
Anjali Jathar Waterfall Liril Lime 3. Gupta, Indrajit & Rajsekhar M., Remak-
ing Lever, Businessworld, August 30,
Pooja Batra Car Wash Liril Active Gel
2004
Preity Zinta Waterfall Liril Lime 4. Sangameshwaran, Prasad, Where are
Hrishita Bhatt Dancing in Rain Liril Rainfresh the new brands, The Strategist, October
Tara Sharma Desert Liril Lime 19, 2004.
5. Pinto, Leela, You’ve come a long way
Deepika Padukone Desert Liril Orange Fresh
girl, Hindustan Times, May 22, 2004

S T R A T E G I C I N S I G H T
Strategy is in a bad way

- but the problem can
and must be fixed, says
KIM WARREN TEACHING
FELLOW, STRATEGIC AND INTERNA-
TIONAL MANAGEMENT, LONDON
BUSINESS SCHOOL

professional services
Professionalising
Strategic
Management
H
ow do you recognise a “pro- professional practice, and some possible ferent factors in their field. Often, this
fession”? What characterises benefits from addressing those shortcom- relies on underlying science; i.e. a fun-
the delivery of its professional ings. Professions can point to a number damental explanation of “what causes
services that lets you know you of features to give confidence that their what and why”, such as the physics of
are in safe hands? How do you know that a practitioners know what they are doing materials science. Not all professions
doctor is diagnosing your complaint accu- and will recommend and carry out sound share a scientific base, however. Some
rately, and prescribing the right treatment? courses of action: rely instead on a cumulative knowledge
How can you be confident that an engineer • Standard terms. When one doctor base of what works in practice, such as
has designed a bridge reliably? How can uses the term “hypertension”, any double-entry bookkeeping.
you be sure that your accountant has pre- other doctor knows exactly what they • Incremental insight. Where there are
pared accurate accounts for your business? mean. Any two engineers know what variances around a norm, specialists do
Unless you happen to be one of these pro- “stress” means, and accountants share not readily throw away the core rela-
fessionals, you will have little capacity to a common understanding of terms like tionships on which they rely. Instead,
check out their advice for yourself. “debtors”. There may be nuances of de- they assume that there must be addi-
Since all kinds of organisations have tail, but the central concept is widely tional factors at play, and seek to add
such profound influence on our lives, it understood. Professionals also have a that knowledge to their understanding.
may be worth asking - to what extent those shared understanding of what defines Only rarely, when fundamental models
who practise and advise on strategic man- “good” performance - blood pressure get badly out of line with observations,
agement can provide us with similar levels within healthy limits, bridges that carry do professions throw out old methods
of confidence. This article first considers likely loads without falling over and and start again.
some answers to the question above and businesses that are solvent. • Standard procedures. Given a sound
then assesses the extent to which “strategy” • Well-established relationships. Profes- body of well-established relationships
meets these answers. Finally, it considers sions build on a body of understanding between commonly defined factors,
the implications of any shortcomings in about the relationships between dif- professions develop procedures that

and understanding embedded in these given better tools for the job of developing
relationships, procedures and solutions, and delivering strategy.
professions generally require substantial When professions lack the essential fea-
education and training before practi- tures listed above, their clients are vulner-
tioners are let loose on the unsuspecting able to charlatans and quacks, pedalling
public. There are often examinations snake oil in place of proven solutions. Are
of increasing difficulty, signalling that we then in this situation in strategy? We
a professional has shown himself com- know that there is minimal usage of for-
petent to tackle situations of a certain mal tools for building strategies or mak-
complexity, but no more. ing strategic decisions. We also know that
Good practice in these and other pro- organisations “follow the herd”, pursuing
fessions is highly beneficial. We get great with half-blind faith the strategies of ad-
bridges from skilled engineers, wonderful mired peers.
health recovery from skilled doctors, and Leaders are encouraged in these ill-ad-
peace of mind from skilled accounting for vised behaviours by advisers with a vested
our businesses. Conversely, poor practice interest in pushing them into action. Equity
is definitely exceedingly dangerous, and analysts and traders would have little to
we will not tolerate the risk to life, health do if companies simply pursued consistent
or financial well-being that results from strategies that worked, rather than sought
unprofessional behaviour. constantly to change in pursuit of earn-
Most strategic initiatives taken by most ings targets that can only be achieved by
organisations carry a very high risk of fail- damaging the business. Consultants urge
ure. Let’s first distinguish the strategic as- management to throw out sound strate-
pects of management from others, such as gies in place of transformations that are
leadership or general management. Whilst costly and damaging or to reorganise so fre-
these other components are of course vital, quently that few of their people know what
they can be separated from the design, ad- they are supposed to be doing. Investment
aptation and policy-making that constitute banks constantly pester management with
work reliably. Any two doctors will go strategic management of an enterprise. investments and acquisitions that will most
through similar procedures to find out It has been extensively argued, nota- likely deliver value only to the target com-
what ails you, and any two accountants bly by Professor Henry pany’s shareholders
will do pretty much the same tasks to
prepare your year-end accounts.
Mintzberg and his fol-
lowers that deliberate Most strategic and to the advisers
themselves.
• Proven solutions. Since they know what
causes what and why, and follow re-
strategic management
is neither necessary
initiatives carry The price of this
relying on gifted
liable procedures to discover what is
going on in any situation, professionals
nor feasible. Strategy
instead is said to be
a very high risk amateurs, advised
by vested inter-
can have confidence in the outcomes crafted, much as a pot- of failure ests, is huge. Most
from deliberate changes they make. ter or sculptor feels the strategic initiatives
Accountants can be rather sure of the emerging form of their taken by most or-
impact of reducing outstanding debtors work. It is also widely argued that a sense ganisations carry a very high risk of failure,
by a certain fraction. Engineers know of purpose is far more important than strat- whether starting a new venture, developing
the consequences of increasing the egy (tell that to the employees of Enron a new market, or making an acquisition.
cable-size in a bridge. Doctors know or Marconi!). These failures destroy wealth on a truly
how changes in diet, exercise or taking These views, however, mistake how stupendous scale -the cost of the late-1990s
certain drugs will affect a patient. The strategic management is practised, from technology bubble is well documented, but
more complex the situation, of course, how it could or should be practised. Then there are many more examples, from the
the less they can be absolutely certain there is little evidence that amateurs who endemic value destruction of the global
of the consequences of their interven- make things up as they go along make airline and car industries to the tribulations
tions, but they at least start from what better strategic decisions than those who of specific firms, such as Marks & Spencer,
is usually effective. try to work out details and what might be Vivendi or AOL Time Warner.
• Standards of practice and training. Giv- best before acting. Furthermore, we can not There is also a great human cost from
en the often large body of knowledge know how well smart people might do if this failure, with careers and livelihoods

professional services
being destroyed when ordinary people competencies, transformation, and so on.

get caught up in some fanciful enterprise Any professional who offers to undertake
led with “vision”, but no strategy. In any standard analyses of fundamental data on a n eed for
other walk of life, such behaviour would client’s industry situation or internal factors
get people sued and struck off for profes- in order to arrive at confident conclusions focus?
sional misconduct -in management, it earns and make straightforward, well-reasoned
It is perhaps ridiculous for any
large bonuses. recommendations is likely to be dismissed
firm to envision being either
Finally, we should not ignore the fact as out-dated. If you don’t have “thought
that most other management functions do leadership”, you lose.
product oriented or (as Levitt
have professional standards - marketing, This lack of reliable, cumulative knowl- puts it) need oriented . Nokia’s
HR, logistics and research - and most have edge results in there being few standard example is quoted here. Nokia
professional bodies that set those standards. procedures for would-be professionals to moved from being a paper man-
This does not prevent especially gifted indi- follow in order to get from available evi- ufacturer (rather a tree cutting
viduals from progressing dence to a diagnosis company) to being a cellular
in their careers without of what is happen-
the endorsement of Most “tools” ing and why. Most
phone manufacturer because
management gurus claimed
those bodies, but it does
put the onus on them to in the field “tools” in the field
are qualitative
that Nokia had found a connec-
prove their capability
when competing against
are qualitative checklists or two-
by-two grids. We
tion between manufacturing
paper (which was used for com-
qualified individuals for
jobs.
checklists would be appalled
if other professions
munication) and manufacturing
cellular phones (again, used for
If we accept that stra- on which we rely communication). This arguably
tegic management should be practised with for our health, safety and financial well- seems not-relevant backward
a degree of professionalism, how does the being used such feeble methods to reassure
analysis. (Editor’s note)
field stack up on the features required to us that their analysis and recommendations
claim a professional status? Pretty poorly! were sound. Yet in strategy, these are the as little more than a signal of intellect, and
We have no standard terms that mean the tools of choice. set about training recruits in their methods
same thing to all members of the commu- The strategy field has few proven so- from the ground up. The price of relying
nity. Phrases like “competitive advantage” lutions to offer to common challenges. It on gifted amateurs, advised by vested in-
and “core competence” are used indiscrimi- is entirely unclear, for example, whether terests, is huge.
nately. We do not even know what consti- striving to be the first-mover in a new op- Many groups stand to benefit from
tutes good performance. Most research in portunity is preferable to learning from seeing this problem fixed, including both
the field seeks explanations for profitability others’ lead. It is equally uncertain under customers and suppliers.
and return on investment - but sharehold- what circumstances should new business Amongst the ranks of consultants,
ers value strong growth in cash earnings, development be home-grown - or acquired; investment bankers, and other advisors
which is badly undermined by a focus on and when should strategy switch from there are, of course, many consummate
current profit ratios. growth to maintenance, or when should experts who genuinely provide excellent
Few relationships between observable withdrawal from an industry be the pre- advice. But younger people building their
factors carry any reliability. For example, ferred strategy. careers, who are committed to delivering
being number 1 or 2 in a market seems Finally there are minimal standards of excellence, have a strong incentive to see
to coincide with some sustained success, practice in the field. Few MBA programmes standards of good practice in the field. Not
but which of these is ‘cause’ and which is include more than a few days’ instruction only would this separate them from the
‘effect’ is far from clear. Research in the on the topic, and some are even said to be amateurs and fakes who give their work a
field is deeply discouraging, with most dropping courses on strategy in the belief bad name, but they would also gain a sub-
statistical studies finding only the flimsi- that there is too little teachable content. stantial recognition that gives their career
est relationship between success (poorly Some top consulting firms treat the MBA some validity.
defined) and its possible “causes”. The field
has also failed almost totally to build any
cumulative knowledge. Instead of adding
new nuances to a core of proven princi-
ples, we swing from one fashion to another
- industry forces, scenario planning, core
An IIPM Intelligence Unit Publication

dubious strategy devices

In some cases, management theorists have even un- as a best seller, thus prompting more and more people
dertaken questionable methods to ensure that their to buy this book. Further ahead, such magnificent sales
theories are considered ground breaking. For example, of the book were supposed to have provided CSC Index
in 1995, Fred Wiersema (a consultant at CSC Index, the with more valuable clients. Not many people know that
consulting arm of the giant Computer Science Corpora- one of the co-founders of CSC Index is renowned re-en-
tion) and Michael Treacy (a consultant who had previ- gineering author, James Champy. And not many people
ously worked on projects for CSC Index) came out with know that CSC Index had used the same methodology
a book, ‘The Discipline of Market Leaders’. The book sold of self-purchases when James Champy had written a
250,000 copies within a period of six months. But in book, ‘Reengineering Management’. This is not to dis-
August 1995, Business Week came out with a scoop of credit the re-engineering theories of James Champy
how these two consultants and CSC Index had actually and Michael Hammer that are possibly amongst the
used tactics that bordered on unethical. It was alleged most mind-moving strategic concepts of our times. This
that when Michael Treacy’s book was released, various is just to show an example of the extent to which man-
people commissioned by CSC Index went around book agement consulting firms and consultants might actu-
sellers all over the US buying copies of this book. By pur- ally shovel impractical philosophies down the throats
chasing these copies, it was hoped that various news- of suspecting managers who are forced to move with
papers and magazines across US would rate this book the tide. (Editor’s note)
A particular problem with the present on offer at the airport bookstands. human resource management, so why are
situation is that strategy and corporate de- The potential beneficiaries include oth- there so few in strategy?
velopment are so undervalued that very er important groups, too. We have already Against this army of winners, of course,
few people even try to make a career out mentioned the value destruction caused by there will undoubtedly be losers. The in-
of it. A “proper” senior management career bad strategy - the fixing of which no doubt cumbents - weaker consultants, leadership
most often has to develop from a strong would be of interest to investors. Pensions personalities, even we academics - have a
background in line management, finance or throughout the developed economies were strong incentive to reject any suggestion that
marketing - a powerful explanation for the devastated by the bursting of the late-1990s strategy is a trainable skill. It is far better for
woefully poor strategic management that is bubble - an episode that should have never these groups that it retains its mysticism, so
practised in all kinds of organisations. happened, at least on the scale that it did. that they can continue to promulgate new
Companies and other organisations (And which need not have happened, as fashions and sustain the constant activity
should also gain from much better advice, the expertise of Berkshire Hathaway and that results from each new fad. We might,
whether provided by in-house advisors or other investors makes clear). though, just have a window of opportunity
independent professionals. Clarifying ex- Employees, too, would be happy to ex- right now to puncture this myth.
actly what a professional analysis might change anxiety, confusion and insecurity Publishers are having trouble finding
look like in various situations would pro- for the confidence buyers for their
vide a reference against which to judge that their leaders Royal Dutch Shell is known to regu- numerous books
any new piece of work or advice. Many know what they larly undertake ‘What-If’ scenario on heroic leaders.
managers come across strategically impor- are doing, rather planning (rather than any manage- Investors are flex-
tant issues so rarely that they never have than relying on in- ment model) that involves developing their muscles
an opportunity to learn what to expect. spiration alone. It ing multi-probability scenarios for to demand that
Consequently, they can be impressed by is an indictment of possible future industry situations management jus-
hyped-up stories and fancy phrases, una- the field that staff -(Editor’s note) tify their strategies.
ware that there is little substance behind surveys consistent- Moreover busi-
the recommendations. ly get low scores on nesses themselves
Senior management would benefit from the question “How confident are you in are also questioning the advice they risk
becoming more discriminating in their the direction your business is taking?” It receiving when they pay huge fees to con-
reading and interpretation of business is axiomatic that a strategy is much more sultants and investment banks. This could
information in books and articles. A bet- likely to be successful if the people in- be the right time to strike as the manage-
ter-informed community of professionals volved know how it is supposed to work ments perhaps feel sufficiently confident to
would perhaps have less patience with the and what their place is in its delivery. call out loud “Enough!”, and demand that
soap-opera stories and glib journalism that Introductory texts for non-professionals their advisors and specialists demonstrate
has taken over the magazines and books are available in finance, marketing and some degree of professionalism.
24 STRATEGIC INNOVATORS SEPTEMBER, 2005

rethink edify delineate
IIPM - Think Tank

web : www.iipmthinktank.com
Who we are.. Who we believe.. What we do..

The IIPM Think Tank, an independent, The IIPM Think Tank is wholly free of As a premier ‘ideas organization’ in Asia
India-centric research body, is inspired by ideology and looks at the Indian Develop- The IIPM Think Tank is committed to
Dr. M.K. Chaudhuri’s vision of India as ment Paradigms, Purely modeled upon the enhance public awareness of policy issues
an economic powerhouse in the 21st cen- basis of ‘Objective Reality’. We passionately an economics and management and to en-
tury; a modern nation state where poverty believe in the credo that we constantly seek gineer solutions that will fulfill the ‘Great
becomes history and the underprivileged to follow: rethink, edify and delineate. This India Dream’. By publishing the finding of
are not consigned to the dustbin of amnesia. enduring commitment has helped us fos- its research, and though the active partici-
The national presence (across seven nodes, ter and broaden the parameters of public pation of its senior researchers in the media
News Delhi, Mumbai, Chennai, Pune, Ban- policy debate and alternatives. Toward that and policy, it aims to bring new knowledge
glore, Hyderabad and Ahemdabad), makes goal, it strives to archive greater involve- to the attention of policy makers. Every
our understanding of the economy superior, ment of the intelligent, concerned change year, The IIPM Think Tank commissions
where is many research fellows, senior re- agents (reform minded politicians, public and publishes three quarterlys reviews and
search associates, research assistants, pro- servants, media, socially responsible firms an annual review, on a wide range of policy
gram coordinators, visiting fellows and etc and citizens) in questions of policy and the issues including education, health, poverty,
embark on research assignments and net- ideation, furthermore, we ardently believe unemployment, agriculture, industry, ser-
work with global intelligentsia. that the managers of tomorrow that are vices, FDI, external trade, infrastructure
being groomed at IIPM today will play a and environment. All these outputs meet
decisive role in India’s renewed tryst with the highest standards of scholarship, are
destiny. accessible to a broad readership, and ex-
plore policy alternatives consistent with the
philosophy of ours. The central theme of
our issues are devoted to assess where the
critical predicaments are, analyzing what
needs to be done to annul the element of
development deterrents in the economy
and offer concrete proposals on how to
accelerate welfare everywhere towards
achieving inclusive development. The India
Economy Review is a small manifestation
of that vision. More than 1,000 students
(seven nodes of IIPM0 have---and continue
to-spent endless hours conducting primary
and secondary research on contemporary
issues that confront the Indian Economy.
This research is then analyzed threadbare
by at least 50 knowledge workers across the
seven campuses. Brand new insights and
policy recommendations that are provided
by this core team are then crafted, honed
and polished by 20 members Economy Re-
search Group (ERG). This massive effort
is spearheaded and led by the renowned
economist and management guru, Profes-
sor. Arindam Chaudhuri.
Companies must adopt a scientific

approach in being a responsible business
while trying to be profitable, says
Marc Le Menestrel, ASSISTANT PROFESSOR
ECONOMICS AND BUSINESS, POMPEU FABRA UNIVERSITY
Corporate Social
Responsibility:
Science or Religion?

csr
W
hen I was at the 2nd collo- ganisations should be doing it.” And in this Figure 1:
quium of the European Acad- manner, CSR can be a strategy to increase
The Easy Choice of CSR
emy of Business in Society, I
competitiveness. But how can we analyse
heard Professor Michael Por-this message in scientific terms?
ter say that the field of corporate social A foundational scientific
responsibility (CSR) has become a religion approach to manage- Being
filled with priests. Because of my researchment sciences is the Being more responsible
in decision sciences about the trade off be-
theory of rationality. competitive
tween economic values and ethical values, IIn this approach, we Being less
view myself as a scientist. Hence, I wonderstart from an actor, a competitive Being
not responsible
whether I am one of the priests Michael company or a manag-
Porter is talking about and whether this er, who chooses between
is compatible with my scientific status. two possible behaviours. In
Hence, the title of this talk. the present case, the actor can either
be socially responsible, or not be socially when competitiveness becomes an end in
The point of Michael Porter is that it is
not clear why companies should be socially responsible. Because the actor is assumed itself. You end up prescribing others not
responsible. Exhorting companies to be re- to be rational, he anticipates the conse- to be responsible. It may become the end
sponsible by saying “it is the right thing to
quences of his actions. He evaluates them for us: But at what price for society and
do” or “it feels good” is, according to him,
with respect to his objectives, if possible for our environment do companies pursue
like religion; and ‘exhorting’ is neither aquantitatively. In the present case, the ac- competitiveness?
convincing nor a satisfactory argument. tor can either increase its competitiveness, As demonstrated by the social and envi-
Hence, as per Porter, CSR would be or decrease its competitiveness. We have ronmental state of the world, this price too
“right now, all a defensive effort, a PR been told that a business should be socially high. It is not sustainable. If we continue
game in which companies primarily react to responsible when it increases its competi- like this, a few competitive companies may
deal with the critics and the pressure fromtiveness. This is to say that between being be the sole survivors of a world deprived of
activists.” To make his point clear, Michael
responsible and more competitive on the social and environmental resources. And
Porter asks, “Have you noticed how ‘sensi- one hand, and not being responsible and this is not a subversive statement. I know
tive’ industries like the petrochemical andless competitive on the other hand, the ac- it may not be pleasant. I know it may be
pharmaceutical industries tend to give tor should choose the former. difficult. But please, look around you.
more than ‘non-sensitive’ industries? They As Jacques Chirac said a year ago in
need permits; they are under pressure, so Big deal! Johannesburg: “Notre maison brûle et nous
they react.” He further warns that this is a
There is something more substantial in regardons ailleurs.” Like many politicians,
dangerous route of practising CSR. what Michael Porter says. Indeed, the most many businesses tend to look away. For
Finally, Porter concludes, “business interesting case is when the actor has to businesses, like for everyone, responsibility
should be proud of what it is doing”. It choose between being responsible and less is a moral obligation. Responsibility is not
needs to engage in “proactive integration competitive on the one hand, and not being something we can choose to do at the end
responsible and more competitive on the of the day if and only if it pays. Responsibil-
of social initiatives into business competi-
tive strategy… Today’s companies ought other hand (Figure 2). ity is something that, in everyday business,
to invest in corporate social responsibility As far as I understand, Michael Por- we always have.
as part of their business strategy to be- ter would prescribe businesses to remain Social and environmental responsibility
come more competitive.” And when this competitive in the face of such ethical of business goes hand in hand with its lead-
“corporate philanthropy is not related to dilemmas. In these cases, he would per- ing power in this global world. And don’t tell
businesses, competitiveness and skills, haps prescribe business not to be socially us that social responsibility is only a matter
then governments and philanthropic or- responsible. This shows what happens of political regulation: don’t we know how
businesses can spend so much effort and
money on influencing political regulation?
Tobacco companies are known for their phenomenal spending when The “game within the rules” has become “a
it comes to promotion. Companies like Phillip Morris squander mil- game for no rules” where legal and political
lions of dollars just for showing their brands of cigarettes in movies, regulation, if not democracy, are pushed to
overlooking the fact that people smoke these brands that are heavily the minimum in order to serve economic
advertised. On the other hand players like British American Tobacco interests. If businesses fail to assume their
Co. have done significant work in the area of social development by social and environmental responsibilities,
eliminating child labour in tobacco industries. (Editor’s note) they should take responsibility for the
destruction of society and of the environ-

Country Analysis a two-by-two matrix for business respon- In the absence of a dilemma, a busi-
Figure 2: sibility. In this matrix, we can be respon- ness naturally acts responsibly and profit-
sible towards society and the environment ably. In French, we say “joindre l’utile à
The Tough Choice of CSR
and be profitable without being l’agréable”. This is the easy case and it is
responsible, be respon- true we could better identify these win-win
Being sible without be- opportunities. Michael Porter gives many
responsible Being less ing profitable and such examples. When in a business ethi-
competitive
finally be irrespon- cal dilemma, rational business actors have
Being more sible without being the responsibility to choose between social
Being competitive
not responsible profitable (Figure and environmental irresponsibility and eco-
4). nomic sacrifice. This is the tough choice.
What is the rational In the face of business ethical dilemmas, a
thing to do? Pragmatic dis- business should ask itself whether the gain
ment. Basically, courses answer with the upper part of is worth the lack of responsibility. It should
we cannot evade responsibility. the matrix only. Pragmatics argue that the also ask itself whether it could stand the
When we have power, it obliges us. sole social responsibility of business is to consequences of the sacrifice.
When we have the choice, not being re- increase profits. Rationality is reduced to In the face of business ethical dilem-
sponsible is being irresponsible. Does this profit maximisation: only profit matters. On mas, business actors should enlarge the
mean we should preach for responsibility? the other hand, idealist discourses answer expectation of consequences, think long
Clearly it is not sufficient to just say “be with the right part of the matrix only. Ideal- term and re-assess their goals. They should
responsible” like some do. It is neither help- ists argue that business should be respon- strive to find other means for reaching their
ful to just repeat “be competitive”. In fact, sible whatever the situation. In that case, ends. Eventually, a course of action will be
both of these discourses manifest “faithful rationality is reduced to responsibility: busi- chosen. And each of these three rational
devotion to an ultimate reality”. In this nesses should always do the right thing. behaviours imply very different manage-
sense, both of them are “religious.” And Today, a third type of discourse is in rial strategies.
their proponents are like priests. If we want fashion. It argues that being responsible Take a profitable business actor acting
to understand the rationale for corporate necessarily pays. In that case, rational- irresponsibly towards the society and the
social responsibility, we need to understand ity is reduced to the upper right corner environment. In the eminently social do-
the heart of economic rationality. of the matrix. Instead of raising the issue main of discourse, he or she cannot publicly
In particular, economic rationality con- of corporate social responsibility, all these say ‘this is irresponsible but I make a lot
siders that society and the environment answers use rationality to deny ethical busi- of money out of it’. Thus, businesses tend
are resources for the creation of economic ness dilemmas. These discourses deny that to keep irresponsibility confidential. When
value. The economy is deemed to exploit we can be rational when sacrificing money they don’t “walk their talk”, they hide it.
natural resources using social resources. in order to be responsible, or that we can It is tempting in these cases, and this is
It positions itself around society and the be rational when making more money by indeed a booming business in itself, to rely
environment. But the economy is only one “cutting corners.” There is plenty of theo- on public relations to make irresponsible
of the social dimensions. And the environ- retical and empirical evidence that prove business behaviour appear responsible.
ment will always remain around us, by these discourses are too limited. There are also various ways to counter the
definition (Figure 3). We should enlarge our approach to ra- critics. The tobacco industry documents re-
The contrary is however a dangerous il- tionality in order
lusion. Hence, economic rationality reflects to face business
Figure 3:
an inversion of the means and ends of hu- ethical dilemmas.
manity. Economic rationality is not sustain- We should “open”
An Inversion of Means and End
able as a way of life. As a Cree prophecy our approach to
warns us: “Money cannot be eaten”. To rationality (Figure
realise this, we should not wait “for the last 5). Naturally, be-
tree to have been cut down”, “for the last ing irresponsible
river to have been poisoned” and “for the and unprofitable
Environment Economy
last fish to have been caught”. Our respon- makes no sense. At
sibility is to act now and here. How? least something is
A business ethical dilemma opposes not arbitrary then. Society Society
two types of values: economic values on Thus, we are left Economy Environment
the one hand, social and environmental with the three oth-
values on the other hand. This leads us to er possibilities.

csr
leased during legal actions provide exem-

plary evidence of the numerous tactics used Apart from smoke and soot, US based ExxonMobil, is also responsible
by businesses to distort scientific research, for spreading happiness in the careers of thousands of engineers. It
to subvert political institutions, to destroy has provided the largest financial aid to National Action for Minori-
activism from inside and to manipulate ties in Engineering and has contributed a lot towards the develop-
public opinion. The convincing power of ment of academic establishments. Another oil company UNOCAL
these PR campaigns is often overestimated. provides education in the areas where it runs projects. The area sur-
In fact, it costs a lot to cover the truth, and
rounding UNOCAL’s YADANA project in Myanmar, has 77% of children
attending school, whereas elsewhere in Myanmar, 40% of children
these costs are likely to increase.
never go to school. (Editor’s note)
If there is evidence that some irresponsi-
ble businesses have been profitable for a very
long time, it is also true that, when we look at ness, genuine transparency is needed. For can clarify discourses and behaviours and
the dynamics of business strategy, increasing some, overcoming bad reputation requires may unveil positive surprises. My hope is
confidentiality and inhibiting communica- a sacrifice. When businesses choose to sacri- for these simple ideas to show that we can
tion may lead to unexpected costs. It can fice, costs of responsibility must be treated as think before acting, that we can avoid re-
also intensify the inertia of the organisation; investments. New profitable business conse- ducing rationality to the mere justification
while managing the dilemma would require quences should be explored, for example by of our actions, once we have made up our
creativity and change. Bad faith, in them or emphasising the long-term and by reposition- mind. In any case, Michael Porter’s “end-
in others, may not help to prepare for uncer- ing the activity of the company. Since costs of-pipe” corporate philanthropy will never
tainty. Bad faith has shown to give a backlash bring along some credibility, communicating be sufficient. Responsibility lies in the way
without warning. This issue of bad faith ver- intelligently about an economic sacrifice can we do business and questions the role of
sus good faith also impacts businesses that lead to a comparative social advantage, also business in society. Instead of being pos-
are both responsible and profitable. In the helping a business to differentiate and move sessed by its goals, businesses can re-take
context of a lack of trust, we have to pay to be up the matrix. possession of them. Instead of being sick
credible about our social and environmental In this case, the dynamic is positive. Be- of their goals, businesses can choose their
responsibility. Hence, an ambiguity remains cause no business wants to make sacrifice new roles. The role of a business in society
when we succeed in combining responsibility an end in itself, this naturally initiates a also lies in business’ hands.
and profitability. learning process. This can lead to a re-think- Beyond preaching pure and unadulter-
This ambiguity explains, for example, the ing of the strategy, sometimes an organisa- ated competitiveness, responsible business
enduring conflict between activists and some tional transformation. Although we should must re-invent its relation to political insti-
profitable businesses that forcefully publicise be clear that nothing is necessary in this tutions, to society and to the environment.
their efforts to be socially responsible. Some regard, an irresponsible choice may result I know we are not always “angels”. But we
actors of the oil industry that are making ef- in unexpected costs, whereas a sacrificial can choose consciously and intentionally
forts to be more responsible and are still very choice may lead to unexpected gains. the ethical and economic sacrifices that
profitable are good examples of this ambigu- When I present these ideas, I know are needed to face the issue of corporate
ity. For responsible and profitable business that this open rationality is not sufficient social responsibility. We should talk about
not to be confused with irresponsible busi- to solve business ethical dilemmas. But it this, with a rationality that is open but not
arbitrary. We should talk about this to-
gether, with a rationality that is respectful
Figure 4: Figure 5: of human, environmental and economic
An Inversion of Means and Ends A More Open Rationality values. Instead of being denied, the con-
flicts between economic values and social
and environmental values should be openly
discussed. Business ethical dilemmas can
then be shared among us through a con-
certed, methodical and practical effort.
I believe that behind the issue of cor-
porate social responsibility lies one of the
biggest challenges of our time. This is too
important to be reduced to an issue of de-
votion and sermonic discourses. We should
take a rational approach, one grounded in
sciences, in all sciences, natural, social and
human.

The preconditions
necessary for a
successful joint
venture must be met to
avoid failures resulting
from an alliance
By Divya Joe, IIPM MUMBAI

m&a
W
hat’s in a name? Does it really ing ahead with an M&A or JV, one needs sible, alongwith human resource issues,
make any difference to any- to bear in mind a lot of issues and areas, of combining different corporate cultures
body? Think about it! Would and look at things from a more holistic per- and handling downsizing of combined or-
it matter to you, if you were spective. All issues should address one ba- ganisations? What governmental approv-
named as someone else? That too after a sic premise- What als are required? And
few years of contributing productively (or is in the deal for of course, whether
otherwise) to the world? each of the part- While M&A or JVs there is synergy in
With the advent of globalisation and ners? within a country has the deal?
liberalisation, most companies have sought Before either While M&A or JVs
new ways of running businesses. It has be- of the companies its complications, the within a country has
come quite evident that today, to spread enters into any task gets even more its complications, the
one’s wings in bigger horizons, the mode kind of an alli- task gets even more
used increasingly by companies is through ance, each of them complicated in case of complicated in case
Mergers and Acquisitions (M&As) and Joint needs to ensure an international deal of an international
Ventures (JVs). that the M&A or Merger or Joint Ven-
Globally these Mergers and Aquisitions JV is congruent ture. In an interna-
and Joint Ventures have in many cases led with their company’s corporate strate- tional scenario it becomes more important
to paradoxical situations. While some com- gies. to understand the local culture, identify
panies have benefited from these activities Other than financial technicalities, the risks, handle personnel issues and simul-
many others have had to deal with a re- other obvious issues that companies need taneously gauge the local environment.
alisation of identity loss. This scenario has to keep in mind before embarking on the McKinsey & Company (Kevin Frick, Al-
also been replicated in the Indian arena, ambitions of expansion through the route berto Torres, McKinsey Quarterly, 2002),
where a bevy of companies have entered of M&A pertain to marketing, legal, human in separate empirical researches, has shown
India using the Merger and Acquisition or resources, operational and governmen- how a single-minded concentrated focus on
the Joint Venture route. However, many of tal. Certain important questions related achieving synergies has resulted in more
them have not been able to complete the to these issues also need to be answered: than half of Mergers and Aquisitions across
process to the satisfaction of all concerned What would be the effect of the joint ven- the globe failing to
and it is these key factors that we’ll attempt ture on the customers’ front? How would achieve prime
to address through this article. they benefit from this joint venture? What objectives.
For the records, going by the traditional pending suits remain on the legal front? How-
book, before one really thinks about go- What kind of additional exposures are pos- ever,
Do Impressions last in a
Joint
Venture…
STRATEGIC INNOVATORS SEPTEMBER, 2005 31
contrastingly, KPMG’s 1999 report ‘Unlock- sentation, in the minds of the customers brand in the world. Even for Tata it was
ing Shareholder Value: The Keys To Suc- is minimised. the perfect platform to explore untested
cess’ showed that acquirers who focused on Customer perception is one of the key waters in foreign lands. It was through
synergies “were 28% more likely to create areas where marketers need to concentrate this joint venture that the Tetley brand,
shareholder value from their deal.” before driving towards an M&A or JV. They with their tea-bag technology, provided
Other researches need to realise that Tata access to European markets for its
(Jarred, Poulsen, Customer perception in India, an M&A tea production.
90s, A. T. Kearney) or JV between two In United Kingdom, Tetley has posi-
have shown that per-
is one of the key areas companies can be tioned itself as a brand for ‘strength and
haps it becomes eas- where marketers successful if and flavor’ and it has also associated itself with
ier for such Mergers only if the attitude health and fitness. However, in develop-
and Aquisitions to
need to concentrate of the customers, ing geographies such as India, flavour
become successful before getting into after the deal is is the prime marketing pitch rather
(in terms of share- through, is more than health and fitness. Irrespective
holders’ wealth max-
Mergers and Acquisitions favorable than of these differences, undoubtedly
imisation) if the syn- or Joint Ventures their attitude be- Tetley’s positioning as an interna-
ergy focus is kept on fore the venture. If tional brand with British creden-
straightforward soft the outcome of the tials in the premium tea bag seg-
objectives. These objectives could include venture shows a positive ‘customer’ sign ment would be beneficial for
easy to understand sales, market share and for both the companies, it would definitely Tata on a global scale. Thus in
profit increases, operational cost savings ensure a synergistic effect. India, Tetley decided to use the
and financial trade-offs. The takeover of IBM’s personal comput- words ‘a Tata Enterprise’
But in India, the decision which lies at ing unit by Lenovo is a case to point; where on even Tetley
the core of all these issues is the one which customer perceptions in India felt a defi- packs.
connects the companies with the masses, nite downward skew (Business & Economy,
i.e. after an M&A or JV, what is the brand Asia edition, July 2005). However Lenovo’s
interpretation of this merger in the minds strategy to fight this downward skew has
of the Indian people who are in some way been - ensuring that they are allowed to use
affected or benefited by the same? the IBM name on their personal computers
for the next three years.
M&A/JV… through the eyes of a
corporation’s customers, an India Brands making the
review opportunistic move
Foreign companies, using the JV or M&A With the new trend of Mergers and
route to enter into India have faced unique Aquisitions and JVs that have set in,
challenges. Typically in emerging markets almost every company wants to take
like India, customers have not been ex- part in this race. This trend has not
posed to brands in the same competitive just affected the companies per se,
manner as in developed markets, and are or the way they do business, but
not sure about how to interpret them. They has also affected the consumer’s
are also not clear about the impact of these day to day lives.
brands or what these brands mean in their For example, the Tetley
lives (ADIU report 2005, “Brand Perception group based in United King-
in the new Millennium; India survey”). dom at that time entered the
Ergo, in the case of India, where there Indian markets in the year 1992
has been limited exposure to global brands, through a joint venture with In-
there exists a lot of variance in what brands dia based Tata which came to
mean to different people. One needs to be known as Tata Tetley. This
remember that perceptions are difficult to joint venture helped them signify
change, especially if they are formed over a a perfect blend, as Tata Tea was
long period of time. Therefore it becomes the leader in India for the packaged
even more necessary that the conflict be- tea segment, with its brand being well
tween the perception of the brand and its settled and present even in the devel-
current communication, or rather repre- oped countries as the second largest tea

m&a
While, Tata’s could be seen as a clas- perceptions took another toll as most of the brands, or are sold as GM products.
sic case for others to follow, there have taxis (cabs) on the roads were Fiats (Un- Similarly in the field of electronics, even
been many others whose foreign ambitions like Germany, Greece and other European though Aiwa is completely owned by Sony
were thwarted as they lost sight of the cities, where many Mercedes cars are run Corporation, the parent company ensures
necessary synergies while pursu- as taxis, in India, a taxi is perceived as a that these two brands are kept separately
ing these ambitions. A case non-up-market commodity). as far as possible. This strategy is crucial as
in point is the market-entry In order to overcome this predicament, Aiwa straddles the low price segment of the
experience of the Italian car Fiat tried to sell its Uno on the grounds of market, while Sony straddles the quality
maker Fiat. being ‘a secure and reliable workhorse’. conscious market segments. However, Sony
Fiat entered the Indian It applied some learning from its experi- did not adopt the same strategy when it
market in the year 1997 ence in South America. However it made took over the Ericsson cellular phone busi-
through a joint venture yet another mistake when it assumed that ness to enter into the mobile phone market.
with Premier Automo- the Indian market was probably the same Rather than doing away with the Ericsson
biles. Before that, as the South American market and thus it brand name, Sony decided to start selling
could market the Uno in a similar fashion. its cellular phone globally (and in India)
Unfortunately, in their attempt to differen- under the Sony-Ericsson brand name.
tiate the perception of the brand, they were
further hit by global troubles of their parent Lessons to be learned
company Fiat Italy, which was recording Good, bad or ugly, Mergers and Aquisi-
huge losses. In fact, January 2005 saw Gen- tions and Joint Ventures are here to stay.
eral Motors pull out at the last moment Wedged between the American, Japanese,
from taking over Fiat in a deal that could Korean and of course, the Chinese brands
have saved the sinking company. that have launched a slew of products po-
Comparatively, General Motors has fol- sitioned in different segments, our Indian
lowed a unique strategy of not branding brands would find the going tougher.
the GM name tag alongwith the sub brand But then, the lesson is perhaps important
(as opposed to the branding strategies of for the foreign companies entering India
Fiat, Honda, Toyota and others). For ex- through the acquisition or JV route. It is
ample, the Cheverolet (or the Chevvy as necessary for them to realise that India is a
it is popularly known), or the Opel Astra radically different market and that it is un-
– both GM brands – do not gain or suffer wise to apply similar strategies used in for-
from the GM brand name, as the parent eign markets. The existing Indian markets,
brand is not associated specifically with the cultural behaviour, the values people
these sub-brands. hold, and many of the buying behaviour
To place these branding cases within patterns, are typically ‘Indian’.
the perspective of the current issue of It is important to note that even a small
success in M&As and JVs it would be player can be seen as a leader, not by being
important at this point to look at certain the biggest but by innovative positioning.
other facts. The real value of a company, more typi-
Not many would know that General Mo- cally in India, often lies outside its business,
tors actually owns a in the minds of its
Premier just had the majority of the Jap- customers and oth-
license to sell Fiat cars. anese global giant India is a radically er stakeholders. To
However, there was one known as Suzuki. different market. sustain the value of
very important factor that GM has ensured a brand, it is essen-
Fiat perhaps failed to study that the brands of Here people are price tial that all commu-
before it signed on the dotted Suzuki are kept sensitive and quality nication related to it
lines- customer perception. The distinctly separate speaks in one coher-
brand name of Fiat, coupled with the from General Mo- conscious ent voice. For Merg-
legacy of its car design through the years, tors’ brands. But in ers, Acquisitions and
had got ingrained into the minds of the In- the case of Daewoo (the South Korean gi- Joint Ventures can only guarantee entry
dian populace as an old-generation choice ant which collapsed early in this century), into the promising Indian markets, only
(much like the Cadillac in US markets). that General Motors owns, all the brands intelligent positioning would guarantee
Moreover, in cities like Mumbai, brand have been either merged within the GM sustained competitive advantages.

Human Capital
It is imperative that
corporate India uses
performance measure-
ASSESS
ment as a strategic
tool to retain and
reward deserving
Is India Inc. ready?
employees By Dipankar Sarkar, IIPM AHMEDABAD
T
here is no denying the fact that hu- ployed. The reason for this is obvious- give world are waking up to this reality of the
man capital is the most important better and newer products to the customers leveraging of human capital, there is a con-
asset for an organisation. If sourced, and devise better ways to retain them to scious effort to try and measure human
nurtured, retained effectively and optimise the return of the company’s assets. capital and its related investments. The fact
utilised efficiently, human capital can be As all these are critical factors for the com- is that the most successful organisations
leveraged to establish sustainable competi- pany’s success, without credible measure- today and in the future will be those that
tive advantages over long term. Yet, if we ment of these areas management would be are able to measure the business impact
look into the practices of various corporates impossible. But even though people are the of their investment in people – whether
across the globe, it will be fairly apparent key to success of an organisation, human that is investment in employee recruitment,
that appropriate measurement of human capital measurement is not widely used. performance management, skills develop-
capital or people assets are not practiced Measurements of ROI on physical assets ment or benefits administration.
in majority of the organisations. In some and liquid assets are commonplace but This concept is new to organisations in
cases, measurement of human capital is measurements of human capital ROI are India although some companies like Info-
reported internally but not externally to not. The problem is that this was not a key sys Ltd. have already pioneered the efforts
the general stakeholders. issue during the times when competitive and report on human capital assessment.
Companies across the globe have per- advantage was defined by the size of the The fact that India has always been late in
fected ways to measure returns from their company’s physical assets and proprietary adopting contemporary business practices
operations - from ROI of new investments, products. But now, competitive advantage probably justifies the reason. However, the
success rates of new product introductions, is defined by the kind of people you have most problematic area for human capital
productivity of their manufacturing opera- in your organisation. measurement and reporting is the fact that
tions, to return on the total capital em- Nevertheless, companies across the there are no acceptable guidelines to fa-

h u m a n c a pi ta l a s s e s s m e n t
MENT

cilitate holistic measurement of the human not directly translate into economic value in an organisation. So, naturally it is the
capital. Unlike the accounting principles for themselves and the organisations they human capital which is the most important
such as GAAP, there are no such principles work for unless leveraged appropriately. In factor in a firm’s performance. There have
that would give direction on how to go fact, if one analyses the nature of human been quite a few models to suggest linkages
about human capital measurement. Where- capital it becomes apparent that an indi- between human capital and a firm’s prof-
as the end of the financial year reporting is vidual on the one hand can have the skills, itability or financial objectives. Gratton,
a statutory requirement for all registered abilities, and knowl- Lynda, in her book,
companies, when it comes to human capital edge which could be “Living Strategy:
reporting, the guidelines are silent. This fairly evident but on
It is no longer merely a Putting People at
has been the primary reason for the con- the other hand, an philosophy that human the Heart of Cor-
cepts of human capital measurement and individual can have porate Purpose”,
reporting not gaining wide acceptance in self awareness,
capital measurement is 2000, proposed a
corporate India. The other reason has been self esteem, and critical in order to create simplistic model
the traditional outlook of Indian compa- personal integrity which explains the
nies, which is to view their employees as which are not evi- and leverage a high- link between peo-
an expense rather than as drivers of value, dent but which are performing work ple and financial
or in simple words, as assets. But the shift needed to convert performance of the
of focus from the manufacturing sector their skills, abilities environment companies (Figure
to the service sector should have enabled and knowledge into 1). The most fa-
businesses to recognise the importance of work behaviour which can produce value mous and authenticated model for linking
the human assets and their value to the for themselves and the organisation. These people assets with financial performance is
organisations’ successes. It is no longer individual capitals, when accumulated, rep- perhaps the Balanced Scorecard proposed
merely a philosophy that human capital resent the entire gamut of intangible assets by Kaplan and Norton in their book “Bal-
measurement is critical in order to cre- that an organisation can have. For example, anced Scorecard”, 1996 (Figure 2).
ate and leverage a high-performing work the accumulated skills, abilities and knowl- Adapted from Kaplan, Robert. S and
environment. It is a matter of everyday edge represent the intellectual capital for Norton, David. P, “The Balance Scorecard”,
business situations. the organisation and the accumulated self HBS Press, 1996
awareness, self esteem, pride, trust and
A Primer on human capital inspiration represent the emotional capital Human capital measurement:
Human capital is an all encompassing term of the organisation. These aspects, i.e., in- through the ages
for the overall pool of competencies that tellectual and emotional capitals as well as There have been many studies on ways
the employees of an organisation possess, corporate culture (which is again an accu- to measure human capital. Mark Graham
which can be developed further and which mulation of the entire formal and informal Brown in his article, “HC’s measure for
can be leveraged to produce goods or offer relationships as well as all the group norms, measure,” 1999 suggested that a simple
services in the market place. Competencies ethics and values that employees of an or- human capital index made up of four sub-
include skills, abilities, knowledge as well ganisation have), establishes the ways in metrics is better than crude measures like
as work behaviour. Human capital refers which things are done, policies are put into turnover, education level, training attended
to things people have which may or may practices and strategies are implemented and developmental plan objectives that
some companies use.
The four sub-metrics in Brown’s index
are – (1) Level in the company, (2) Per-
formance rating, (3) Variety of positions,
and (4) Years in field/business. They are
weighted so that the index produces a score
out of 100. The weightage depends on the
company’s specific situation, and the im-
portance of skill/competencies versus ex-
perience/performance. The benefit of such
a measure is that it is simple. However,
the disadvantage is that it is not an all-
encompassing measure, and ignores other
possible inputs that might be important to
some companies.
Monti-Belkaoui, Janice & Riahi-Belka-

h u m a n c a p i ta l a s s e s s m e n t
oui, Ahmed, in their book, 5. Employee Compensation which

“Human Resource Valuation:
Implementation of includes Remuneration Analysis, Per-
A Guide to Strategies and the systems for mea- centage of staff with stock option plans
Techniques”, 1995, suggested and percentage of staff with variable
that human resource valuation
suring human capital compensation.
should be based on value-ad- would necessitate de- 6. Recruitment which includes Staff
dition, as it is a measure of acquisition costs and payback
wealth. Value-addition is de-
termined initiatives analysis, Graduate attraction
fined as the increase in wealth from top and Short term tenure.
generated by the productive use 7. Employee Productiv-
of the firm’s resources before
management ity which includes Profit per
its allocation among its share- executives employee, Revenue per
holders and other stakehold- employee, Wealth created
ers. The Value-Added reporting became earned in per employee, Cost per
popular in the UK with the publication of the pro- employee, Productivity
the Corporate Report in 1975, a discussion posed measures and Overtime
paper published by the Accounting Stand- statement. All the direct (pay and benefits, statistics.
ards Committee, which recommended, cost of acquisition, costs of training, etc.) 8. Health and Safety.
amongst other things, that a statement of and the indirect costs of human capital 9. Other Statistics which include HR Staff
value added showing how the benefits of (cost of absenteeism, cost of turnover, etc.) per employee, Customer complaints and
the efforts of an enterprise are shared by become the expenses in the statement and compliments, Recourse to Fair treat-
employees, providers of capital, the gov- the difference is stated as the net income ment systems, Recourse to speak out
ernment and reinvestment, be included in from human capital. system and Promoted persons.
the external reporting. The statement of Even a cursory look at these factors may
Value-Added provides a useful measure to What should one measure about make one understand that it is highly fea-
help in measuring performance. By relating human capital? sible to measure all of these parameters.
key figures such as capital employed and Given the nature of human capital and One would only need to define certain data
employee costs, the value added can be a the interlaying complexities involved in capturing methods and analytical models
significant indicator of performance. understanding intangible assets, one may to make sense of the data or determine
This concept of value addition has been actually term human capital measurement various statistics. Having said this, imple-
corroborated by Jac Fitz-enz in “The ROI of in its entirety as not feasible. But the fol- mentation of the systems for measuring hu-
Human Capital: measuring economic value lowing factors, which could be compiled man capital would necessitate determined
of employee performance”, Amacom, 2000. from the works of various authors, could initiatives from top management execu-
Jac Fitz-enz has suggested various ways to give one a head-start in measuring human tives. Top executives would take initiatives
measure human capital value added. He capital’s efficiency and effectiveness. and organisations would spend resources
has argued that all human capital hidden in measuring these only if the top business
costs like the cost of absenteeism and the The factors are: executives, collectively, have a favourable
cost of labour turnover along with the cost 1. Turnover/ Retention/ Absenteeism sta- perception about the usefulness of measur-
of pay and benefits should be considered to tistics. ing human capital and overall they think
calculate the human capital value added. 2. Workforce Profile which includes Diver- that it is feasible. This necessarily means
He proposed that all non-human expenses sity, Staff Headcount Analysis, Lead- that top business executives should be per-
and human capital expenses (including the ership Talent Pool, Workforce Demo- ceptually ready to implement the measur-
cost of absenteeism, cost of turnover and graphics, Average workforce age and ing process and they should believe that
the likes) should be subtracted from rev- Average seniority. the measurement is feasible
enue to find out the real human capital 3. Competencies and Training which
value added. Similarly, he suggested that includes Performance reviews and Readiness of India Inc. to
to find out the human capital return on Appraisal Completion, Training per measure human capital
investment, one should use the real cost employee, Staff with professional quali- Evidences from a study of the readiness
of human capital as the denominator, not fications, Competency ratings, Mistakes, of India Inc. to measure human capital
merely the cost of pay and benefits. Jac Passing of exams, Quality of leadership and perception about the feasibility of
Fitz-enz also suggested a format for writing and Average educational level. measurement conducted by the students
a Human Capital Profit and Loss statement. 4. Employee Attitude which includes Em- of IIPM under the guidance of the author
Revenue from operations minus the non- ployee Satisfaction Surveys and Staff suggest that India Inc. is partially ready to
human expenses appears as the revenue engagement models. implement the systems to measure human

capital and most of the companies practice. Close to 67% of the com- resources. Top management was seem-
studied perceived the measure of panies felt that reporting of human ingly unconcerned towards Human Capi-
human capital as feasible. The study capital measurement figures exter- tal management as a whole. The attitude
was undertaken in a few companies nally would achieve buy-in and sup- was that ‘India does not need to adopt
located in Ahmedabad including port from senior level and provide the concept so soon.’ There was an indi-
pharmaceutical companies, internal benchmarks on which to cation of lethargy on the part of the top
engineering companies, improve year to year. management to undertake human capital
export houses, telecom The other significant find- measurement.
companies, IT companies ing of the study was the The reasons could be varied but there is
and hotels. Feasibility Index of the definitely a need for companies to identify
It was found that surveyed companies, the importance of human capital meas-
majority of the compa- which gave an in- urement and develop systems to actually
nies studied undertook dication as to how measure various parameters.
some form of human feasible the compa- There is a need for clear guidance on
capital measurement Most HR managers nies thought it was the concept of human capital measure-
in the past financial to carry out human ment and reporting. Unfortunately, the
year. The companies
mentioned that capital measure- practice of human capital measurement,
that did not undertake the reason they ment and report- even in the international scenario is still in
human capital meas- ing. The Feasibility its nascent stage and it will be sometime
urement cited lack of
did not carry out Hu- Index of the survey before the trend catches up with the Indian
time and resources as man Capital measure- was calculated as industry.
the reasons. Of the 349 on a basis of
companies that did ment was the lack of 500, which trans- Bibliography
undertake human time and resources lates into 70% fea- 1. Bej, S., Pandey, P., Pandya, D., Thomas,
capital measurement, sibility in measuring R., and Vaghela, D., “Human Capital
the most preferred approaches were HR human capital and reporting it. Which Measurement: trends in practice of hu-
benchmarking and HR metrics approach means that companies perceived the task man capital measurement concepts”,
and the Balanced Scorecard Approach. of calculating human capital value added Term Paper, IIPM, 2005.
The study attempted to find out how the and creating a Human Capital P/L state- 2. Brown, Mark Graham, “Human Capital’s
companies were changing their practices ment as feasible. Measure for Measure”, Journal of Qual-
to carry out human capital measurement. The final result was quite encouraging ity & Participation, Sep/Oct 99, Vol. 22
Almost all the companies revealed they as it had shown that most companies be- Issue 5.
were collecting quantitative data such as lieved that given a situation wherein they 3. Fitz-Enz, Jac, “The ROI of Human Capi-
employee turnover and workforce composi- had to create a Human Capital P/L State- tal-Measuring the Economic Value of
tion; and undertaking exit interviews. But ment, they would at least be perceptually Employee Performance”, AMACOM
only one of the companies actually revealed ready to prepare it. Most companies also books, 2000.
that they were considering introducing new believed that the feasibility of measuring 4. Gratton, Lynda and Ghoshal, Sumantra
technologies to measure human capital. the factors that constitute a Human Capi- “Competing on HC”, European Manage-
Almost all the companies, however, per- tal P/L Statement were quite feasible to ment Journal 2002 Fall.
ceived that human capital reporting would measure. 5. Gratton, Lynda, “Living Strategy: Putting
let them evaluate what contribution human People at the Heart of Corporate Pur-
capital management has made to the over- So, what is the bottom line? pose”, 2000.
all performance of the organisation. There were clear contradictions as re- 6. Kaplan, Robert S. and Norton, David P.,
The findings in the study could be vealed by the study. The Readiness Index “The Balanced Scorecard – Measures
analysed to reveal a Readiness Index of was only 48.20 while the Feasibility Index that Drive Performance,” Harvard Busi-
48.20 on a base of 100. This means that was 70. This simply means - whereas the ness Review 70, no.1, January-February
the companies studied were 48.20% ready companies perceived that it was feasible 1992.
to measure and report human capital of to measure human capital they were only 7. Kaplan, Robert S. and Norton, David P.,
their respective companies. About half half prepared to implement the measure- “The Balanced Scorecard”, HBS Press,
of the companies believed that the major ment. As a matter of fact, one of the most 1996.
obstacles to human capital measurement significant findings of the study was that 8. Monti-Belkaoui, Janice & Riahi-Belka-
are – (i) that such measurement was not most HR managers mentioned that the rea- oui, Ahmed, “Human Resource Valua-
a priority for the management; (ii) lack of son they did not carry out Human Capital tion: A Guide to Strategies and Tech-
clear guidance; and (iii) lack of universal measurement was the lack of time and niques”, 1995.

IIPM - Think Tank


Attracting Private
40 STRATEGIC INNOVATORS SEPTEMBER, 2005

investment
INVESTORS
By Frank Demmler
I
n a “normal” year, venture capital screen will you have an opportunity to try
will invest in 2,000-3,000 compa- to convince the individual to invest and to
nies in the United States. Of those, influence the terms under which such an
about half will be receiving their first investment would occur.
round of institutional investment. This is in As you proceed down the path of seeking
contrast with the total of about 14 million private investment, the potential investor will
businesses in the United States of which be making a series of decisions. The outcome
well over 13 million have less than 100 of each decision will be “no,” or “maybe.”
employees. Every year, close to one million Your goal is to get, “maybe,” each time until
new businesses are launched. It has been you finally get the coveted, “YES!”
estimated that private investors provide
ten times the capital for small businesses Advice to entrepreneurs
as compared to that invested by institu- In all probability, your funding is go-
tional venture capital. The bottom line ing to come from private investors, not
for most of the entrepreneurial readers institutional venture capital.
is that your funding is much more likely There is no single “private investor.”
to come from private sources than from Each is an individual with his or her
institutional venture capital. challenge will be to identify the intersection own views and sensitivities. Attracting
of potential investors out of the universe an investment from such sources is not
Not all the same of all investors with the deal structures a “one size fits all” proposition.
Private investors are not all the same. Quite that that are acceptable to you out of the The potential investor’s perception of
often a first-time entrepreneur gets focused universe of potential deal structures. risk will greatly influence whether he
on raising money from an “investor.” This has an interest in investing in your com-
“investor” becomes the sole focus of the The role of perceived risk pany under any circumstances.
entrepreneur as he seeks the “answer” to The first thing you need to understand as If you approach a potential investor
how to access and successfully solicit fund- you consider approaching potential in- prematurely or inappropriately, you
ing from that “investor.” If only it were that vestors is that their perception of the risk will lose that investor unnecessarily
simple. The private investor is as varied involved with your business (and their and for the wrong reasons.
as your neighbours, as your classmates in potential to receive a return) is the initial Surround yourself with professionals,
the various schools you attended, as the hurdle you must overcome. Their percep- mentors, and advisors who can help
drivers in all the cars fighting the traffic tion of risk is likely to be much different you level the playing field.
with you each day. Private investors are than yours. You need to be sensitive and
individuals first and foremost, with the responsive to that. A corollary to this is Perceived risk
same human differences that each of us that this screen is pretty much binary. By A bank will want to see profitable op-
has. As such, some may have an interest in that I mean the potential private investor erations, positive cash flow, and suf-
your company and some won’t. Some you’ll will have an initial reaction to you, your ficient assets to provide collateral for
want to be interested in your business and company, and the investment opportunity. any loan it is going to provide. As such
others you’ll want to avoid. Some will have If that initial reaction is one of, “it’s too banks may fund your growth, but they
investment expectations that you consider risky,” you can scratch that person off your won’t generally fund your start up. Ac-
to be reasonable, and some won’t. Your potential investor list. Only if you pass this cording to this method of evaluating

risk, your start up is “too risky.” intense, and the

Alternatively, venture capitalists may people respon-
not be put off by your company’s fi- sible for mak-
nancial performance to date. In fact, ing the funding
they would probably be surprised if you decisions have
satisfied any of the bank’s criteria. They extreme time
will want to evaluate the financial re- pressures placed
turn potential of your enterprise and upon them. You
the inherent risk associated with your are not doing
ability to realize that potential. They yourself any fa-
will do this evaluation in the context of vors by aggres-
their experience, their existing portfo- sively pursuing
lio and other deals they are looking at a source of capi-
and the investment criteria of the fund. tal for which you
The net of all this will be to come to a don’t qualify. Similarly, creating ill will by it and endorsed its value? Can it be effec-
decision about the risk-adjusted return venting your frustration when you are in- tively protected? The point is: Evaluating
expectations of your venture. evitably turned down is not smart. Don’t business risk can be quite daunting for the
shoot the messenger, particularly when the typical private investor.
These two examples represent the two source of the problem is your mistaken
poles of the financial sources scale. They belief that these programs are set up for People risk
share the characteristics that they are rea- “you” and you are “entitled” to them. You Similarly, the types of questions that a typi-
sonably predictable with regard to their are not entitled to any of these funds. Get cal private investor might ask about the
requirements for your ability to access over it. Compete for funds for which you people include:
their capital. The same could be said for are qualified, and compete well and from Is the venture’s team the one that
other identifiable sources, economic dean informed base. Private investors are will successfully exploit this opportunity
velopment funds, technology grants, etc. not so predictable. That’s why you have and provide a desired financial return
They have stated criteria and an honest to manage the process. to the investors? Do they have relevant
evaluation of your firm will help you de- industry experience? Have they done it
termine whether you have any chance of Sources of risk before? Can they grow to meet the
qualifying for their funding. Too often, The first step in attracting private invest- venture’s future needs? Will they accept
first-time entrepreneurs don’t do their ment is to recognize how others will react advice and guidance? Will they attract
homework and/or don’t have the sophis- to the risk of your enterprise. While risk can quality people to the team and let them do
tication to properly assess their qualifica- have an almost infinite number of dimen- their thing? Do they understand the value
tions. This can lead to disappointment, sions, there are two core sources of risk: of a dollar in an entrepreneurial concern?
and sometimes anger, that could have the business and the people. Are they good people? Do I want them to
been avoided. win? Do I want to work with them? Do I
Entrepreneurs have to gain the so- Business risk like them? How do I know if they have
phistication to understand what The types of questions that a typical pri- integrity? How can I go beyond superficial
sources are viable for them and vate investor might ask about the business impressions and really get to know them
which aren’t. The competition include: as a person?
for those funds is often quite Is there a market opportunity worth
pursuing? Is the business at hand a reason- Evaluating risk
able way to exploit the opportunity? Who Just as risk has many dimensions, evalu-
The first step in are the competitors and how are they ad- ating that risk can go in many, many di-
dressing the identified opportunity? Can a rections. In the private investor arena,
attracting private start up or early stage business realistically the potential investor is unlikely to have
investment is establish itself in such circumstances? Who the resources, time, or motivation to go a
are the customers? How are they accessed? “professional” due diligence process. The
to recognize how How do they make purchase decisions? private investor is rarely making invest-
Can the venture successfully close sales? ments in companies such as yours as his
others will react What is the role of technology in this ven- primary occupation. If it’s “too hard” to
to the risk of your ture? Does the company have proprietary evaluate your business, they will pass and
intellectual property? Is the technology in- move on to the next deal. Remember the
enterprise vented, or in a lab? Have customers used previous advice:
STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

investment
If you approach a potential investor were like most normal people, your an- from this source, and another investor
prematurely or inappropriately, you swer would be something like, “I will not challenges you on it, thank them for their
will lose that investor unnecessarily invest in your company because I don’t time and move on. You won’t change that
and for the wrong reasons. know anything about you or your company, investor’s mind.
so it appears to be extremely risky. I would
What are you to do then? How do have to devote a lot of time and energy to Don’t know you –
you influence the perception of risk? be comfortable to even consider an invest- Know the business
For lack of a better way to express it, ment.” Why would people you approach Someone in this category is likely to re-
you need to evaluate how well potential then respond any differently? spond in one of three ways to your busi-
investors know the business and know Without extenuating circumstances ness proposal: “I don’t agree”; “Ho-hum”;
you. If a particular individual knows (and there are some we’ll discuss later), or “I get it!” If you get one of the first two
something about your business, he will if this group were to be your primary fo- responses, thank them for their time and
either “get it” or not. If he “gets it,” cus of fund raising, the characteristics you move on. If you get the last response, you
then his perception of risk will be signifi- might expect would include: have reduced the risk significantly. Now
cantly reduced, relative to someone who long decision time you’ve only got to convince them that
doesn’t know the business. Similarly, highest return required, due to the per- you’re the right person to exploit the
someone who knows you and thinks well ceived risk
of you will perceive lower risk than some- lengthy due diligence process
one who doesn’t.
At the same time, though, it does represent If a particular indi-
Advice to entrepreneurs the largest pool of potential investment. vidual knows
Many sources of capital have defined
criteria and processes for attempting Know you – something about
to access that capital. It is the entrepre- Don’t know the business your business, he
neur’s job to learn what’s what, and to This group of private investors that Jeffry
honestly evaluate whether his company Timmons, noted professor of entrepreneur- will either “get it”
qualifies for consideration. ship and author, calls the 3 Fs - Family,
Private investors are less predict- Friends & Fools. These are the people do
or not. If he “gets
able than institutional investors. The not see a lot of risk because they know you it,” then his
entrepreneur needs to understand and are often willing, or feel obligated, to
and categorize potential private in- invest with you. Quite often their motiva-
perception of
vestors according to their perceptions tion for investing has little or nothing to risk will be signifi-
of risk. do with financial gain. Some of the char-
1. Do they know anything about the acteristics of this group include:
cantly reduced
business? Quick decision
2. Do they know you? Lower economic cost
Surround yourself with professionals, Highest potential psychological cost business opportunity. Some of the
mentors, and advisors who can help The last point is worth commenting characteristics of this group include:
you level the playing field. upon. The role of 3F investment is often moderate decision time
hotly debated. Some investors won’t invest great anchor & halo effect
Perceived risk unless you’ve tapped that source. If friends higher return expectations
Taking a step back, how ‘others’ perceive and family don’t demonstrate their confi- can add significant value
risk is the important point, as we’ve dis- dence in you, they’ll say, why should they? If someone from this group were to
cussed earlier. Let’s take a look at the If you say that you haven’t approached commit to an investment, their independ-
perceived risk of the four categories of them because you don’t want them to risk ent endorsement may significantly impact
potential investors represented by the their limited capital in your business, the (lower) the risk perceptions of others,
above table. typical response from an investor will be thereby motivating them to invest. Hence
to challenge your level of confidence in the reference to the anchor (locks in a deal)
Don’t know you – your own business. and halo effect (their participation, alone,
Don’t know the business These attitudes are next-to-impossible impacts others favourably).
Think about it. If a complete stranger to change. If you are comfortable including
contacted you and asked you to invest in friend and family investment, or welcome Know you –
a business you didn’t understand, what it, for that matter, then it’s not an issue. Know the business
would be your response? Why? If you If you choose not to seek investment Again, the knowledge of the business is a

very important distinction for this group. so I will try a few: This is the second best group, but may be
The interpersonal relationship, though, has You are known by the company the first one you address. Like the prior
its own implications. On the one hand, the you keep. group, their endorsement of the business is
decision making process may be shorter Set up the dominoes so that when meaningful, but their personal relationship
since both major risk areas are greatly you knock one over, the others will with you may bring this person’s objectiv-
reduced. On the other, the personal rela- fall behind it. And for the cynics ity into question. Still, someone from this
tionship may somewhat diminish the halo among you, group may prove to be an ideal conduit to
effect of this investor’s participation. Misery loves company. someone in the first category.
Some of the characteristics of this group
include: The key point is that most private in- Know you well –
quick decision vestors will never be able to understand Don’t know the business
good anchor your business, or your ability to run it. If This group is not perceived to have inde-
halo effect they had to make an investment decision pendent credibility. They should be actively
can add value in isolation, it would most likely be nega- solicited only after investors in the first
tive. Recognising that, your job is to secure two categories are moving in the right
Not all investors are the same. Analyzing a surrogate whose judgment that private direction.
their differing characteristics can provide investor will be willing to accept as an en-
you with insight as to how to approach dorsement to both. Don’t know you –
each type and when. Don’t know the business
Sequencing implications If you do the preceding correctly, this group
Advice to entrepreneurs Don’t know you – Know of investors will be anxious to get in on
A potential investor’s perception of risk the business your “hot” deal.
will greatly influence whether he has an This is the best type of investor you can Think about how this has changed the
interest in investing in your company secure. If someone from this group were to dynamics! If you went after this group first,
under any circumstances. commit to an investment, their independ- as many first-time entrepreneurs do, you
To be able to manage the fund raising ent endorsement will significantly improve would face tremendous resistance and
process to your greatest advantage, you the risk perceptions of others. Not only likely rejection. They don’t know you. They
need to categorize your potential inves- have they put their seal of approval on don’t know the business. Your proposal is
tors by their perception of risk. your business, but they have taken the extremely risky. With the approach sug-
Using their knowledge of you and your time to make an independent, unbiased gested in this column, though, the fact
business can be a useful method for appraisal of you. that others with independent credibility
categorization. have endorsed the deal reduces the
Surround yourself with professionals, Know you – Know the business perceived risk. The fact that the deal is
mentors, and advisors who can help
you level the playing field.
Tactical plan for raising money

from private investors
The first step in attracting any potential
investor is to address the risk of the oppor-
tunity, as perceived by the investor. Ven-
ture capitalists do this by conducting due
diligence, a structured, possibly lengthy
and costly, process whereby they attempt
to confirm the business proposition and
the people who are proposing it. In the
private investor arena, full blown due dili-
gence of this type is rare. Most often, the
substitute for due diligence is Affiliation
Risk Reduction. In essence, it’s a process
of getting new investors to commit to an
investment because of the investors who
have already committed. The metaphors
I can use to illustrate this point are many,

investment
getting further commitments reduces the from credible investors had anything to commit to until this time.
risk. The fear that the deal will be fully Your goal at this point is to get an invest- Prudent application of time, energy and
subscribed, and the investor might be pre- ment commitment from 1 to 3 individuals pressure, should get the commitments to
vented from participating, may induce a whose credibility is likely to get others your deal to the 40-60% level.
quicker decision! to invest. If you were seeking $500,000
total, you would like to get commitments Use momentum to drive to
Tactical plan in the range of $75,000 - $125,000 at this a successful closing
When you decide to launch fund raising, stage of the fund raising process. From With the apparent momentum of the
you need to have a game plan plotted out your list of potential investors, identify deal, and with a closing day in sight, you
in advance. the 10-15 that fall into the two primary will have three powerful tools at your
WARNING: I am not an attorney. Some categories of people who know the busi- disposal by this time. You have a deal,
of what I’m about to write could violate ness, whether they know you or not. Of so the fence sitters now have something
securities laws if not done correctly. Make these, who are the 6-10 that you and your to look at about which they can make
sure your attorney is aware of what you advisors collectively think could invest and a decision. You have a closing date, so
are doing. Prepare to launch your fund they need to make the decision within
raising campaign Create some positive buzz that time frame. You have a dwindling
How much money do you hope to raise? amount of investment available, and with
What terms are acceptable to you? When
about your business a “first come, first served” posture on ac-
would you like to close the deal? Are you through formal and infor- cepting investment, there is pressure on
prepared to devote the necessary time and the potential investor to decide sooner
energy? Have you assembled and prioritized
mal channels. Share your rather than later.
a potential investor list? Have you prepared one-pager with selected
the necessary collateral that you will need Advice to entrepreneurs
to support your fund raising efforts?
individuals as an update Categorise potential investors with re-
Business plan (no more than 25 pages, to what the company has gard to their perception of risk of an
plus appendices) investment in your business.
Mini-plan (3-to-6 pages that captures
accomplished Identify less than 10 individuals whose
the essence of you r business) investment commitment will have a
Executive summary (2 pages or less favourable impact on the investment
that leaves someone wanting to know decisions of others.
more) Create a proactive fund raising game
One-pager (the elegance of brevity) plan that you can execute to your ad-
The elevator pitch (the story you can vantage.
tell a stranger on an elevator when trav- Appreciate the dynamics of the fund
elling 3 floors that will make the raising process and use that to your
strange want to know more) advantage.
A 22-slide PowerPoint presenta- Surround yourself with professionals,
tion (that can be reduced to 8 mentors, and advisors who can help
slides when necessary, or expanded are likely to respond favourably to your you level the playing field.
to 60 when appropriate) pitch? Determine how you can get to each.
If you’ve done the job right, you’re likely NOTE: I would like to acknowledge Tom Can-
Begin the process of to be only two introductions away from field of Equity Catalysts (www.equitycata-
getting the word out these people (in the context of Six Degrees lysts.com) for his contribution to these arti-
Create some positive buzz about your busi- of Separation). cles. Much of what I’m sharing with you was
ness through formal and informal channels. developed by Tom and me when we worked
Perhaps share your one-pager (see above) Use that commitment to together at The Enterprise Corporation of
with selected individuals as an update to “knock down a few more Pittsburgh, a predecessor organization that
what the company has accomplished and dominoes” was merged with others to form Innovation
where it intends to go. DO NOT solicit any With the core commitment in place, expand Works in 1999.
investment interest at this point. That’s your reach to the next circle of potential
Frank Demmler is Associate Teaching
practical as well as legal advice. investors. Up until this point, these people
Professor of Entrepreneurship at the Don-
have expressed “interest” in your company ald H. Jones Center for Entrepreneurship at
Get commitments for and a potential investment, but haven’t the Tepper School of Business at Carnegie
15-25% of the total deal committed to invest, and really haven’t Mellon University.

IIPM - Think Tank


This article deals with the key role of Strategic Planning for organisations in
the current business environment and how it can lead them to the next level of
organisational development, effectiveness, and success.
Revisiting and
redefining strategic
management
By A. Sandeep
“With over 50 foreign cars

already on sale here, the Jap-
anese auto industry is not
likely to carve out a big slice
of the US market” – Business Week,
August 2, 1968
I
f you’ve been a diligent reader, I’m sure problems, but also in its cultural separation
the statement by Business Week in Au- from Japanese, had posed a lot of problems
gust 1968 that I’ve mentioned in the for various Japanese companies. But Japa-
previous page would not have escaped your nese companies, in sectors encompassing
attention. Business Week presumably at automobiles to electronics, successfully
that time had not been exposed to concepts competed and became powerful players in
of Japanese perseverance as much as the the US market. To an extent that in the last
US government is exposed to now in the decade, for a considerable time, Japanese
new millennium. Business Week in 1968 companies manufacturing cars in the US
probably had no idea of how Japanese cor- were exporting more cars out of the United
porations would one day rule some of the States to Japan than the number of cars
most powerful brands in North America. that top US manufacturers combined were
Even though many Japanese companies exporting to Japan! And Business Week
were inherently at a disadvantage when was still busy commending Ford on being
they wished to enter the North American the first truly American company to have
markets, they tried and still made it. brought out a right-hand drive car espe-
The US market, not only in its geo- cially for the Japanese market. Not that
graphical expanse & the sheer logistics there is anything wrong with that, but the

question remains as an example, why were is so often quoted because it is a case to of the key Honda executives, headed by a
the US automobile corporations not able point, but many other Japanese companies person called Kihachiro Kawashima, de-
to make similar inroads into the Japanese (e.g. Yamaha-musical instruments, Sony- cided to sell motorcycles of different varie-
automobile market, as the Japanese had electronics, Toshiba & Sharp-Flat Screens) ties (of different cubic capacities, from the
done in the US market? replicated the success of the Japanese au- lower end to the upper end).
The Americans initially loved blaming tomobile industry, not just in the US, but They decided to start sales in one part
the Japanese Government’s restrictive trade also in other continents. In Asia, for ex- of Los Angeles where there was a sizable
practices. A part of that is true. The US ample, Japanese automobile companies community of Japanese expatriates. This
& Japanese have fought over many other have beaten their US counterparts in al- was not to say that the expatriates were the
things than the Second World War. Import most every country they operate and com- target market. They decided to bring equal
restriction was one area. Foreign exchange pete in. In India, in the year 2003—2004, numbers of different motorcycle models
controls was another one of the areas. The Maruti Suzuki (owned by Suzuki Japan), without any particular research. Honda’s
US Federal Reserve had & has been quite sold three times more cars than the near- bikes, according to the Chief of Honda in
regularly concerned about the value of est competitor. And the nearest competitor an interview at that time, had handles with
Japanese Yen against the US Dollar. As wasn’t an American company either, but a shapes that looked like the eye of Buddha.
they feel that in case the Japanese Yen
falls in value against the US Dollar, the
US suffers in various areas. For example, In the last decade, for a considerable time, Japanese
the Japanese corporations exporting to the companies manufacturing cars in the US were export-
US would have an advantage in pricing ing more cars out of the United States to Japan than the
their products or services cheaper in the
American market as compared to US manu-
number of cars that top US manufacturers combined
facturers, thus beating American compa- were exporting to Japan!
nies in their own geography. How is that
possible? A Japanese manufacturer who
manufactures a product in Japan for say South Korean corporation called Hyundai, The Chief claimed that this was one of the
90 Yen and wants a 10 Yen profit margin whose takeover of Kia motors in South more important reasons to look forward
would import the product to US for 1 $ in Korea has enabled it to become another for success as it was an auspicious sign.
the US if the exchange rate is 100 Yen = 1 gigantic leader in Asia. Honda also decided to publicise their bikes
US $. In case this exchange rate becomes Going back to the 60s & 70s, Japanese by making the management (consisting
say 200 Yen = 1 US $, then the same Japa- companies were not sticklers for detailed of around three executives) drive around
nese manufacturer, while maintaining his planning. They believed more in entering town in their low-end models. When it
profit margin of 10 Yen, needs to sell the the global markets first and then develop- came to finally working on a formal pro-
product for only 50 cents in the American ing strategies as they become more con- motion strategy, it wasn’t either Honda or
market as 50 cents would be equal to 100 versant with customers and competition. their ad agency (Grey) that created the
Yen after the devaluation of the Japanese That’s the part about vision; where a JVC world-famous punch line, ‘The Nicest Peo-
currency. So much for the calculations, but went into the market competing against ple Drive A Honda’ A summer intern sold
the fact remains that albeit the tussles be- Ampex of US.A and ended up being the the idea to Grey; it was chosen from out
tween the Japanese & US Governments creator of the world-standard VHS tech- of various other punch lines because ‘the
over political decisions, it was not just this nology in VCRs. It might have taken JVC Chief liked it’.
that had made the Americans not succeed more than 20 years to refine its competence If one analyses the statements above, it’s
in the Japanese market. in this area, but the vision never lost out, quite easy to see that Honda’s pre-entry and
Were Japanese companies excellent in that one day, they could beat the $50,000 entry strategies were quite unimpressive,
strategic management for them to enter the Ampex recording machines by making re- lacking structured action plans, and more
American markets and be successful? In cording affordable to households. based on personal likes & dislikes of top
general, the answer would be an emphatic When Honda decided to enter the US Honda executives. Honda had no idea that
‘No’! At that time (1960s & 70s), Japa- market (with their motorcycles) during that motorcycles sales in the US were seasonal.
nese companies were not oriented towards period of early 60s, there was no practical Neither did they realise that motorcycles
planning in detail, or strategising till the focused research that they had undertaken in the US were driven faster and longer
last point, while entering global markets. with respect to consumer buying behav- than in Asian countries. This led to quality
But what they did not lack was the vision! iour, investments required to hit the mar- issues in Honda bikes within a few months
Japanese corporations knew that they had ket, advertising plans, employee staffing, of their introduction. Customers started
huge opportunities if they were to go glo- dealer network management… Practically complaining about leaking oil. To the credit
bal. The Japanese automobile industry no planning at all. They just entered! Three of Honda, they worked on the product is-

sues quickly. But as much as was visible, lion dollar turnover that is almost half of
Honda was just ‘Fire-fighting’. But how did India’s Gross Domestic Product. It won’t be
they succeed despite such lack of planning? surprising if they beat India’s GDP by
Because they had the vision to enter the US 2008. Fortunately, many Japa-
market, and once within the market, they nese companies today have
were convinced that they had to ‘amaze’ understood the shift in stra-
their customers and not just satisfy them. tegic orientations and have
Their main strategies came into place only succeeded in adapting to the
once they entered the US market and got a present environment. But
feel of the market. The concept of turning what about the Alvin Tof-
away consumer perception of motorcycles fler future?
away from Harley-Davidson men to sweet The crux of the matter lies in
family transport vehicles was planned only the fact that for leading for the future,
after Honda understood the typical mental- strategic management has to be a com-
ity of the American consumer. The shift in bination of long-term, medium-term & its changing
power dynamics in supply chain, wherein short-term plans focused on dramatic & market oppor-
Honda after a few years in the US market, radical objectives that qualify to be called tunities. The aim
forced dealers to pay-up in advance for visionary. Any definition of strategic man- of strategic planning is to shape the
their purchases, also occurred after Honda agement can qualify to be a definition only company’s businesses and products
understood the typical bargaining power of once it satisfies these criteria. Past defini- so that they yield target profits and
American motorcycle dealers. This was the tions given by well known management growth.”
philosophy of almost every other Japanese scientists have probably never understood Notwithstanding the over-emphasis on
company during those decades. Enter first, the importance of future planning as much ‘Market-Orientation’, this is a wonderful
plan later! This was the philosophy that as management gurus like Hamel & Pra- definition till the point one starts thinking
has created some of the world’s leading halad have. Planning for the future has about planning to manage stakeholders.
Japanese corporations. And I’ll attribute only remained a visible word in the past That is, should not planning look at max-
this to a lot of luck, what I generally refer definitions, rather than being the soul of imisation of shareholders’ wealth? Should
to as being ‘Vision-lucky’. the definition. not strategy be oriented towards employee
Critically speaking, if Honda were to use Philip Kotler, the king of various mar- management? Should not there be policy
the same methodology (of no pre-entry & keting management theories, has changed measure to manage political linkages &
entry strategies, rather just ‘vision’) today his definitions of strategic planning over government interactions? For the sake of
to enter a new market, it would have to the years. He now titles the same as, ‘Mar- criticism, Philip Kotler’s definition suffers
face failure & demolition as today’s compet- ket Oriented Strategic Planning’. He be- from the absence of various extremely
itive scenario does not run just on hope and lieves that Marketing plays a critical role in important perspectives in strategic plan-
belief. Competition in today’s world has the strategic planning process. True. But I ning and from the presence of a singular
attained new paradigms. To be the leader, believe not less critical is the value of other focus on market-orientation. For the sake
any corporation has to run on a combina- functional areas like Human Resources, of judgement, apart from his definition, his
tion of structured strategic actions focused Finance, Production, Systems, and Logistics various ‘marketing’ models and ‘marketing’
on concrete alternative goal-achievement etc. His definition goes like this, strategies are some of the most excellent
scenarios, backed up by an astounding and “Market-oriented strategic plan- primers for market development and con-
path-breaking vision. Strategic manage- ning is the managerial process of solidation.
ment has to necessarily encompass pre- developing and maintaining a vi- Then what is the proper definition of
planning, feasibility studies, blueprints for able fit between the organisation’s strategic planning. Let’s analyse a few more
action, implementation, control et al… It objectives, skills and resources and definitions provided by various manage-
cannot run on the old Japanese philosophy ment experts.
of enter first, plan later. Wal-Mart will not Kenneth R. Andrews, credited with
enter a country just to test it out. The com- the honour of being one of the first man-
pany has a stupefying vision, an amazing
General Motors owns more agement researchers to have structured a
sense of objective setting, and excellent than a third of the shares of practical definition of corporate strategy,
logistics management as one of its core Suzuki Japan, but maintains gives the following gist,
competencies. But it does not enter markets strict discipline & non-inter- “Corporate strategy is the pattern
until they satisfy corporate strategic entry of decisions in a company that de-
conditions. Wal-Mart is today the world’s ference policies. termines and reveals its objectives,
largest corporation with almost 300 bil- purposes or goals, produces the prin-

cipal policies and plans for achieving the basic objectives of the enterprise tion. As the CEO, he knew that he could
those goals, and defines the range of are achieved through proper execu- attempt to continue competing against HP,
business the company is to pursue, tion by the organisation.” Dell, and Sun Microsystems in respective
the kind of economic and human or- The reason all these definitions are writ- areas, but the alternative proposition from
ganisation it is or intends to be, and ten out here is to understand that no one HP’s head Carleton (Carly) S. Fiorina was
the nature of the economic and non- definition of strategic management has en- also an attractive strategy. The trade-off
economic contribution it intends to compassed all aspects. Some are too broad; was extremely easy to choose because
make to its shareholders, employees, some miss out on essential objectives, some the most important objective for him was
customers and communities.” on strategic fits. So we’ll take this oppor- maximisation of his shareholders’ wealth.
The point where this definition scores tunity to develop a structured definition HP & Compaq were merged in an all-stock
over Philip Kotler’s definition is the inclu- of strategic management, which is what deal, and later on Michael Capellas was
sion of shareholders, employees, custom- we preach and practise to our consulting eased out of his position of President in
ers and communities (including govern- clients at Planman Consulting & IIPM: the new HP within one year of the merger
ments, dealers, suppliers etc). But Kotler’s The statement is much focused to point becoming effective. A true example of how
definition still scores in understanding that out that Strategic Management is about a manager should be ready to sacrifice his
strategic planning can be successful only maximising shareholders’ wealth. Every- position, power, future career for the sake
if there is a visible connection between thing else comes secondary. This is not to of shareholders. Capellas, like so many hos-
the organisation’s resources (and weak- say that the organisation should not fo- tile takeover incidents, could have fought
nesses) and the market opportunities (& cus on profits, or employees, or customer on to oppose the merger. But both he and
threats). satisfaction. But this is to say that if the Carly Fiorina maintained a stoic & steadfast
According to Lawrence R. Jauch achievement of profits or other objectives focus on the merger, despite repeated at-
(Biedenharn Professor in Management conflicts with maximisation of sharehold- tempts by various HP shareholders to op-
at Northeast Louisiana University) & Late ers’ wealth, then the management should pose the same. This was easier because
Professor William F. Glueck (Distinguished have no issues in choosing shareholders’ Carly & Mike were able to convince the
Professor of Management at University of wealth. majority of shareholders on the basis of
Georgia till 1980), For example, when Compaq was finally facts and figures, properly researched and
“A strategy is a unified, compre- sold off to Hewlett-Packard (& formally tested, rather than using gut-feel.
hensive, and integrated plan that relaunched as the new HP) on May 7th 2002,
lates the strategic advantages of the the ground motive for Michael Capellas, A dime a dozen: Is the Stra-
firm to the challenges of the environ- CEO of Compaq, was not profit maximisa- tegic Business Unit (SBU)
ment. It is designed to ensure that tion but shareholders’ wealth maximisa- concept still worth its while?
The concept of SBUs was initiated when
large organisations started redefining their
Japanese companies in the 60s & 70s lacked structured structure into separate businesses for inde-
strategic approaches while entering global markets but pendent assessment of contribution levels
were never short of Vision. These companies were called of these businesses. Dividing a conglom-
erate into separate businesses enables
Vision-lucky as their Vision itself was enough to ensure transparent evaluation of each part of the
amazing global success. But if companies today were to conglomerate; consequently helping the
use the same methodology (of no pre-entry & entry strate- management to decide the future course of
action on these businesses. That is, whether
gies, rather just ‘Vision’) to enter new markets, they would
to further invest, maintain, prune or divest
have to face failure & demolition as today’s competitive these businesses. This is not to say that a
scenario does not run just on hope and belief. Competi- trade-off does necessarily exist with the
tion in today’s world has attained new paradigms. To be concept of synergy emanating from com-
bined operations of any firm’s various re-
the leader, any corporation has to run on a combination of sources. What this means is that once any
structured strategic actions focused on concrete alterna- organisation is divided into SBUs, these
tive goal-achievement scenarios, backed up by an astound- different units of businesses, by their very
definition, many times do not operate in
ing & path-breaking Vision. Strategic management has to
coordination with each other, sometimes
necessarily encompass pre-planning, feasibility studies, even competing with each other, thus de-
blueprints for action, implementation, control et al. feating the concept of synergistic & unified
operations of any organisation. In the same

here we go again: the new definition, one more time

“Strategic management is the combined set of long-term, medium term & short-term
plans, policies & strategies, implemented at various levels of management in conjunction
with the mission & vision of the organisation, continuously matching the organisation’s
aggregate competence & incompetence to exploit effectively the environmental prospects
& dangers in order to achieve the organisation’s objectives, primary being shareholders’
wealth maximisation, and others being in conjunction (e.g. profits, market share, customers
satisfaction, contributions to employees, societal responsibility, satisfying other stakehold-
ers like Government, associations etc).”
way as shareholders have independence to HP. The new Hewlett Packard, after the
decide whether to invest in a company or merger with Compaq, now has an increased
not, the Corporate Level has the independ- number of Prime Stake Controllers (includ-
ence to decide various factors with respect ing shareholders), some from HP and some
to each SBU, e.g. investment planning, from Compaq. The Board of Directors in
resource planning, manpower planning, the new HP comprise representatives from
overall strategy delimiters etc. The bottom PSCs, management, other stakeholders and
line is that, transforming an organisation independent/dependent executive/non-ex-
into separate SBU driven units has empiri- ecutive directors. At the Corporate Strate-
cally proved to be more result-oriented and gic Level, the new HP had Michael Capellas
successful. But the top line is, should we as President and Carly Fiorina as Chair-
presume that this separate SBU driven ap- man & CEO. Remember that the decision
proach should succeed in the future? Or is to explore and initiate a merger proposal
there a thrillingly better approach? We’ll between HP & Compaq was a Corporate
consider that question later. Level strategy. Notwithstanding this, the
Each SBU would have focused function- approval of various PSCs (shareholders,
al teams in areas like marketing, customer US Federal Trade Commission, European
service, sales, finance, human resources, Commission etc) was necessary before im-
administration, maintenance, systems, lo- plementing the decision. This Corporate
gistics, public relations, communication, Level also decided how many SBUs to have,
advertising, promotion and production. how much to invest in each SBU, and which
The size & need of each functional team SBUs to discontinue. After Michael left the
would depend solely on the SBU’s require- new HP, (in fact, my take is that the post
ment. E.g. a services consulting SBU might their particular businesses. SBU managers was simple created for Michael to have
not need a production functional team at have the independence in various decision a smooth transition out of the new HP),
all. Sometimes, a non-critical functional areas e.g. whether to build, maintain or Carly became the unarguable leader and
team might double up for more than one discontinue product/service lines, whether later sacked in April 2005.
SBU. E.g. an organisation with various to continue functional departments like Each SBU in the new HP has manag-
SBUs operating from the same premises customer service, public relations etc. But ers in charge of independently deciding
might have one common maintenance de- the ‘Big Brother’ control of the Corporate how to run the business. The Manager of
partment, but totally separate & dedicated Level should ensure that wrong decisions the Imaging & Printing Group SBU gets
customer service departments. The Man- do not destroy the SBU; in the same way working synergies from sharing customer
ager of the any SBU obviously gets working as top level management cannot take any databases and learning experiences with
synergies from sharing customer databases major decision of moving into or moving other divisions; but again, this practice
and learning experiences with other divi- out of businesses without clear approval of synergistic operations is coordinated
sions; but this practice of synergistic op- from Prime Stake Controllers. from the corporate level. SBU managers
erations should be coordinated from the Consolidating an example of how in the new HP have strategically decided
corporate level. As mentioned before, all various levels are structured in modern to discontinue a few product lines over a
SBU managers, more or less, are focused on business corporations, let’s view the new period of time. Even though this strategic

decision seems to be an SBU level However, the top management of

strategic decision, it’s quite clear Reliance group declined the offer
that such decisions to discontinue and publicly declared that as Reli-
product lines have not been un- typically, an sbu has the ance group did not wish to dilute
dertaken without clear approval following characteristics: their equity in their SBU Reliance
from the top level management. Infocomm, they were not interested
Current customers of discontinued • An SBU is an independent business in taking up Qualcomm’s investment
product lines are amongst the first offer. It’s quite clear in this exam-
parties affected due to such discon-
under a conglomerate corporation. ple that whatever might have been
tinuation. The SBU managers again Viewed separately, an SBU behaves the preference of the SBU manag-
have taken independent decisions like an autonomous self-regulating ers of Reliance Infocomm, they had
to continue this functional level to fall in line with the preferences
firm that is answerable to just one
of customer support for the dis- of the Corporate Level in Reliance
continued product lines. The SBU Prime Stake Controller, namely the group.
managers have laid out a clear cut conglomerate corporation’s top level Questions that have to be an-
strategy to support such custom- management. swered by the Corporate Level
ers of discontinued products. The teams in traditional and modern
strategy is basically to continue • However independent an SBU might organisations are as follows:
providing hardware support to • Investment Planning:
become, it finally has to operate un-
customers for a definite period of Whether to invest in an SBU, how
time from the date of the sale of der the broad umbrella of the overall much to invest, in what time frame,
the product. corporation’s mission, objectives and or whether not to invest.
Thus, all SBUs in the new HP limiting conditions. • Resource Planning: Apart
are in the process of integrating from investments, what other cen-
dedicated functional teams in vari- • An SBU, apart from having its own tral common corporate resources
ous areas like Human Resources, should be allocated to each SBU
competitors, can compete with an-
Marketing, Communication and (e.g. knowledge & research support,
Customer Support according to other SBU of the same conglomerate sharing of learning curves and best
their assessment of needs & re- corporation, provided that the same practices etc).
quirements in product lines. does not go against the principles of • Manpower assignments:
Irrespective of such independ- Who will lead critical positions at
ence in decision making provided
the top management. each SBU?
to SBUs, sometimes, due to Cor- • Overall Strategy Delim-
• An SBU would generally be headed by
porate Level intervention in SBU iters: Should the SBU manager
decisions, pseudo-conflicts arise its own management & functional be allowed to focus on growth, or
between companies, their SBUs teams that function specifically for should the focus be just maintaining
and third parties. In the year the SBU’s operations and objectives, the business?
2001, Qualcomm, the company • Operational Rules: What
that invented the CDMA technol- but the teams are answerable to the should be the scope of operations
ogy, signed an agreement to invest Corporate Planning Level in the SBU’s allowed to each SBU? Should the
up to US$ 200 million in Reliance parent corporation. SBU be allowed to compete with
Infocomm, a company providing another SBU from the same com-
telecommunication services & • This management team would gen- pany?
products in various parts of In- • Objectives: What should
erally have self-determining and in-
dia, and an SBU of the Reliance be the goals & objectives of these
group, India’s largest Public Lim- dependent control over various is- SBUs in terms of profits, market
ited Corporation not owned by sues relating to achievement of ob- share, sales, new product/service
the Government. Due to Reliance jectives, for example, investments in introductions, cash flows, social
Infocomm’s changing and advanta- contribution etc? Are these objec-
growth areas, introduction of new
geous market position, Qualcomm tives set alongwith participation
decided to exercise its option of products & services, advertising & from the SBU management or is the
investment in the year 2003 and promotion strategies etc. decision taken top down without
communicated the same to Reli- SBU involvement?
ance Infocomm’s top management. • Feedback, Control & Ap-

praisal Methodology: Should the SBU

be truly a profit centre, or should it be an
investment or cost or revenue or cash flow
centre; or should it be seen according to its
contributions in non-economic areas? What
should be the forums & tools of apprais-
ing the performance of the SBU? Should
the Corporate Level interfere in day-to-day
operations of the SBU? If not, then what
should be the regularity of controlling &
appraising the performance of the SBU?
There are business corporations that
do not follow the SBU model due to vari-
ous reasons. One of the reasons is that
organisations sometimes have singular
businesses, that is, businesses that more
or less fall under the same category. The
argument was that if there is, say, only one
business that the organisation has, then
there is no need for an SBU structure as at the
the complete organisation itself becomes most im-
an SBU. For example, according to the ar- portant level, Level
gument, a company like Steel Authority of namely Corporate (SBU
India Ltd should not be following the SBU level, but also should tran- Level) & Func-
model because there is more or less only scend these current modern para- tional Level, it is correct
a singular set of businesses, that is, steel digms sometimes to focus deeper on the to understand that the basic philosophies
production. Well, the answer to that is the strategies at Business, Functional & Sub- guiding strategic decisions remain the
concept of MetaSBU, that is, an SBU within functional levels. While various business same. Our attempts through this article
an SBU. strategy gurus would recommend (and we have been to always focus on understanding
should beg to differ whenever apposite) the basic structure of decision-making and
Conclusion that different styles of strategies should implementation so that later on, whenever
Planning, Implementing & Controlling be adopted for the Corporate Level (Top we need to analyse decisions, we should
strategies should generally not only remain Management) as compared to the Business be able to modulate our strategy models
according to what the situation demands.
We’ve tried to consolidate the learning from
In the financial year 2003, one of the very well-known our consulting interactions with various of
Indian pharmaceutical companies, Morepen Laborato- our clients, including American Express, GE
Group, PricewaterhouseCoopers, United
ries, decided to raise finances through a Global Depository
Nations Development Programme, World
Receipt (GDR) issue. They eventually decided to hive of Bank Institute (Washington D.C.), Sony,
their health goods division (Doctor Morepen) into a sepa- Ernst & Young, BAT, Columbia Tri-Star,
rate Strategic Business Unit. Alongwith that, the Corpo- Amway, Hewlett-Packard, Motorola, Citi-
group, Standard Chartered, Fuji, Wipro,
rate Level management at Morepen Laboratories decided PepsiCo, Hero Honda, Reliance Group, ICI-
to give complete independence to Doctor Morepen’s SBU CI Group, various Ministries in Government
managers to mobilise, through equity or debt, all future of India, and many more. But then, don’t
take our word for it; because if strategies
investments required by the SBU in the retail business.
could be learnt from reading, then Ph.Ds
This is a typical example of how organisations create new would be billionaires… But then again,
SBUs, and in order to enhance effectiveness and account- aren’t some of them already?
ability provide them with independence in critical areas
A. Sandeep, Dean - Center for Advanced
of decision making.
Consulting and Research, IIPM.

C A S E S T U D Y
Eric Flamholtz Madhavan Nayer Shalini Lal
Unitech Systems has used an innovative approach to strategic

planning as a vehicle of organizational development and change.
Although strategic planning is much maligned and misunderstood,
the experience of Unitech will demonstrate that strategic planning is a
powerful tool that can add significant value
Strategic planning
for a turnaround
The case of Unitech Systems
By Eric Flamholtz, Madhavan Nayer & Shalini Lal
Unitech Systems today

Unitech Systems, Inc. provides Information Integrity® software solutions that
help major corporations assure the accuracy, consistency, and reliability of
their operational, financial, and management information. It is a pioneer of
the information integrity space.
Today with nearly 200 team members, and offices in major cities across
North America and Europe, Unitech Systems is a world leader in its industry.
The organisation has both an innovative set of products and a range of custom-
ised control services. Over 400 of the Global 2000 use Unitech’s products and
services. The Unitech Systems award for excellence in information integrity
has since 1995 recognized organisations that have demonstrated exceptional
progress toward achieving Information Integrity.
Company history
Unitech Systems was founded by Madhavan Nayar in 1982. It began as a one
man consulting firm. Nayar, who holds degrees from universities in India and the
Illinois Institute of Technology, pioneered the concept of “information integrity”
software solutions at a time when few had realised the need for specifically
designed systems that helped customer organisations ensure the validity and
accuracy of information. Unitech’s founder, Madhavan Nayar, has described
the need for information integrity as follows: “For us to effectively harness
the benefits of the information revolution, and avoid the costs of widespread
information pollution, we need to recognise and treat information as a shared,
universal resource. We need to develop the science, technology, products and

unitech
services to measure, monitor and manage turned over. Company wide, employee geographic locations: East and West. The
its integrity, much like the environmental turnover exceeded 50% in 1994. An em- Product Development function was dis-
science, technology and industry emerged ployee survey revealed that employee mo- tributed among the three Group Leaders
in the wake of the industrial revolution to rale was far below industry average. responsible for East, West and International
answer our need for clean air, pure water, In 1994, it was also decided to or- Divisions. For the third year in a row, there
reliable power and safe food.” ganise the company into four geographic was no revenue growth in 1995.
In 1982, Unitech developed its first soft- divisions: three (East, West and Central) There were relatively few changes and
ware product, U/ACR, for, and in partner- in North America and one international. a modest revenue growth in 1996. At the
ship with the Blue Cross Blue Shield of The senior executives (Group Leaders) in end of 1996, it was decided to combine
Illinois. During the next two decades, the charge of Sales, Marketing and Finance the two North American divisions into one
company successfully developed a number were assigned the responsibility for the and designate a single Group Leader for
of other products through similar strategic three North American Divisions. The In- North America.
customer partnerships. Through 1992, the ternational group already had a Group In April 1997, to help revive the com-
company grew rapidly, reaching $12 mil- Leader. Additionally, each division was or- pany, “Project Oxygen” was launched. It
lion in revenue and a cumulative annual ganised into Business Units. Business Units consisted of establishing industry focused
growth rate of 65% for the first 10 years. were established in Dallas, San Francisco, “Customer Teams” in the Business Units
Beginning 1993, the company initiated Atlanta, Cleveland, Boston, Philadelphia, (now renamed “Customer Units”); each
a series of changes, many of which, in ret- Chicago and Paris. Each Business Unit in- Customer Team consisting of a Sales Execu-
rospect, may have impeded its continued cluded three Sales Executives and one Ap- tives, a Solution Consultant and an Account
rapid growth, but contributed to organi- plication Consultant. The Sales Executives Representative. Each Customer Team was
sational learning. In 1993, the company were assigned 100 accounts each in responsible for a handful of major accounts
decided to decentralize sales management two or three industries. in a specific industry group (banking and
by hiring Area Sales Managers in North All the changes finance, insurance and healthcare, com-
America and establishing a separate In- during the year munications and utilities, distribution and
ternational Sales Group. By the end of the manufacturing.) All other existing customer
year, however, no Area Sales Managers accounts were assigned to the Customer
had been hired, and there was no revenue Teams based on geographic proximity.
growth. Also in 1993, the senior leaders
of the company learned about the man-
agement philosophy of W. Edwards Dem-
Unitech Systems
ing, and after several months of study and was founded by
deliberation, decided to adopt and imple-
ment it. The decision was implemented by Madhavan Nayar
holding a weekend retreat for influential
team members from different groups in the
in 1982. It began
company and then a two-day off-site meet- as a one man con-
ing for everyone. The Deming philosophy
was adopted on April 1, 1994.
sulting firm.
resulted in a great deal of uncertainty and
Impact of Deming philosophy anxiety throughout the company, especially Project Oxygen was a significant ef-
The implications of the Deming philosophy among the Group. In February 1995, while fort, which required the hiring of over 50
were radical and extensive. Quotas and Nayar was in Europe for a speaking engage- new people in the field, and training all of
other numerical objectives linked to incen- ment, all the Group Leaders met to discuss them for three weeks at the Home Office in
tives and compensation were discontinued. their concerns and decided to present a list Naperville, IL. However, some of the Unit
Formal performance evaluations and salary of issues and recommendations to Nayar Leaders were new, and there was much
adjustments tied to performance evaluation upon his return. The issues concerned pri- confusion about how the “team” concept
were also eliminated. All processes within marily Nayar’s leadership style. One of the was deployed and practiced. Some teams
the company were to be mapped, defined recommendations was for him to play the performed exceptionally well, while some
and improved. role of a non-executive “Chairman” and others were dysfunctional and had to be
The reaction of most of the team mem- for the Group Leaders to run the company. rebuilt or disbanded.
bers of the company was sceptical, if not Shortly thereafter, two of the Group Lead- In 1998, it was decided to align the
negative. Many of the “star” sales people ers resigned from the company. Customer Unit Leaders also along industry
left the company, and over the next 18 In early 1995, the three divisions in lines. This meant that all the teams in a
months, almost 95% of the sales force North America were reorganised into two given industry group (for example, bank-

C A S E S T U D Y
ing and finance) would be supported by The catalyst for change be strengthened internally. The group dis-
a Customer Unit Leader for that market- In March, 1999, Nayar attended a Forbes covered that its planning was too grandiose
sector. This was a major change for the Presidents Conference where he heard Eric to be feasible. The group also discovered
teams and the Unit Leaders. Most teams Flamholtz make a presentation about a that it had a tendency to get distracted by
no longer had a local leader they could framework for building successful organi- “noise.”
go to, and the Unit Leaders had to travel sations. In late 1999, he invited Flamholtz
and oversee the activities of teams based to work with Unitech Systems and apply The Flamholtz approach
in several locations. his approach. There are two major components to Flam-
By 1998, Unitech had grown to be a holtz’s approach to strategic planning: 1)
$20 million company with offices in North Strategic innovation at a conceptual framework that serves as a
America and Western Europe. Unitech Systems platform for strategy, and 2) the strategic
The organisational development process be- planning method per se. Both are described
Taking Unitech to the next gan with a series of interviews with selected in turn below.
level via strategic planning Group Leaders and Unit Leaders during the
Planning has always been a part of Unitech’s summer of 1999 to provide Flamholtz with The platform for strategy
culture. The company has always had a well an understanding of Unitech Systems and The platform created by Flamholtz for the
established strategic planning function, and its developmental issues. The next step was development of strategy consists of an
the leaders of the operating groups have a strategic planning retreat, attended by all organisational effectiveness model that
always prided themselves on their strate- Unitech leaders in early December. The reserves as a “template” for the strategic
gic capabilities. However, the growth and treat was to introduce all of Unitech’s lead- organisational development of a business
diversification experienced during the 90s ership team to the Management Systems or subunit. This template is known as the
demanded a new scale of planning alto- pyramid framework and take Unitech to “Pyramid for Organisational Development.”
gether. Management needed to address not the next level of planning capability. While It is shown in Exhibit 1. This is a framework
only new industry segments and larger op- Unitech already had a formal strategy and developed by Flamholtz and used to assess
erating units, but increased organisational planning process, the key was to improve the strengths and limitations or develop-
complexity as well. The strong entrepre- the existing planning system and ensure mental needs of companies.
neurial spirit and autonomy that had long that it became a way of life. The strategic This template was used to assess the
been part of Unitech’s culture now presented planning process would also be the strengths and areas for further develop-
a management challenge. While it had at tool to align the objectives of the ment at Unitech Systems. It was clear that
one time helped to create a vibrant, nim- various business units. Unitech was relatively strong at the bot-
ble operating environment, it had also At the retreat, a manage- tom four levels of the Pyramid, but needed
resulted in counterproductive or- ment planning simu- further development at the top two levels,
ganisational “silos” that resisted lation revealed the which include management systems and
cooperation. areas that needed to culture management. It also required some
redefinition or fine tuning of the business
foundation to fit the founder’s (Madhavan
Nayar) vision.
Although there are many approaches
to planning, Unitech Systems chose to
adopt the method developed by Eric Flam-
holtz . He had previously developed and
used this methodology with such diverse
companies as Starbucks, PacifiCare,
American Century Investors, Si-
mon Properties, and Navistar
International, as well as with
many other companies, includ-
ing entrepreneurial companies
like Unitech Systems.
The planning framework
used is shown schematically in
Exhibit 2. The process begins
with an environmental scan to
assess the market, competition

unitech
and trends. Once the external assessment

is completed, the next phase is an organi-
sational assessment. This involves deter-
mining the strengths and limitations or
areas for development of the organisation
in several key areas. The organisational
assessment component of this process is
based upon “The Pyramid of Organisa-
tional Development,” as shown above in
Exhibit 1.
Once these assessments have been
completed, the organisation then reviews
its “business foundation.” This involves
reviewing the business concept, strategic
vision or mission, and core strategy of the
organisation. The “new” business founda-
tion then becomes the basis for the develop-
ment of objectives and goals in each of the
company’s “key result areas,” the critical
areas of organisational success or perform-
ance. These are operationally defined as
the six strategic building blocks contained
in the Pyramid of Organisational Devel-
opment. Research has shown that there
are six key “building blocks” of successful
organisations: markets selected, products
or services offered, resources and how they By the end of the initial planning work- plan to the level of developing goals and as-
are managed, operational systems, man- shop, the leadership team had defined their signing priorities and roles. Another related
agement systems (including the planning business as that of “helping Global 2000 key challenge now was to make planning
system) and corporate culture. organisations improve the quality of their a way of life. A “secret” key to this was to
Research has also shown that these key information through information integrity hold a series of quarterly planning meet-
variables are linked to financial perform- systems.” This meant that the organisa- ings. At some organisations, planning is
ance and explain approximately 55%-75 tion was going to evolve from one, which episodic. It occurs and then stops. The plan
% of financial performance, measured in was currently focused upon selected tools is there, but it is not reviewed on a regular
terms of gross margin and EBIT (Earnings for automated balancing of accounts and basis or updated. At Unitech Systems, plan-
Before Interest and Taxes). Objectives are statements, to a total information integrity ning was done on an ongoing basis.
developed in each of these key result ar- solutions business. An intermediate step Quarterly planning retreats facilitated
eas. Objectives are defined as things that was for Unitech to evolve from its current by Flamholtz and Management Systems
the organisation wants to achieve in each product portfolio, to a business with auto- would become an opportunity for the
key result area. For example, an objec- mated controls, services, and processes for organisation to reflect on the progress
tive might be to increase market share or information integrity. This was to happen through the quarter and to set goals for
increase profitability. The objectives are through three stages: the next quarter.
broad and relatively undefined. They are Stage 1 - Pre 1999: Automated bal-
accompanied by “smart goals,” goals which ancing/manual Developing a key set of
are specific, measurable, actionable, real- Stage II - 1999: Automated controls “priority objectives”
istic, and timed dated. + services + processes Although there are many objectives in any
Stage III – 2003: Unitech will be true strategic plan, a well thought out set of
Applying the framework at Information Integrity business “Priority Objectives” (key objectives that
Unitech Systems receive the most management focus) is
As noted above, the base of the Organisa- Building upon the business another of the “secret ingredient” that
tional Development Pyramid is the “busi- foundation was important to make planning work at
ness foundation.” This consists of three Once the new business definition and stra- Unitech Systems. These objectives are de-
components: 1) a business definition; 2) tegic vision for the organisation had been rived from the strategic vision and related
a strategic vision; and 3) a core strategy. established, there was need to complete the key result areas.

C A S E S T U D Y
Creating a strategic manage- Thus the term “performance optimisa- sibilities within self-managed work teams.
ment system for performance tion” used at Unitech Systems is intention- There were several situations where team
optimisation ally different from the more conventional members could take advantage of the sys-
Another strategic innovation at Unitech term “performance management.” The latter tem to suit their needs. This had several
Systems was the creation of a unique term would include rewards as a key com- important implications for Unitech’s com-
“performance optimisation system” that ponent of the system, while performance petitive position within the industry, with
combined with the planning system to optimisation intentionally does not include more recent entrants threatening Unitech’s
create an overall “strategic management rewards for the reasons outlined above. industry leadership.
system.” In order to strengthen the levels
of accountability and enhance the execu- Implementation of the Use of measurement in
tion of the strategic plan, a ‘performance strategic management Planning and Performance
optimisation’ process was introduced. ‘Per- method at Unitech Optimisation
formance optimisation’ is a term we have While it was relatively easy to introduce One of the key things that ultimately con-
coined at Unitech Systems to refer to an the model to the core team at the quarterly tributed to the success of Unitech’s strategic
innovative variation on the conventional planning retreat, several internal issues innovation with planning and performance
notion of performance management, as would require resolution for the model optimisation was the development of de-
described in chart 3. to really work effectively. There were ele- tailed measurements for objectives. As one
This model links several critical features ments of Unitech’s special culture which CPA once told an author of this paper, “What
of the organisation, such as the planning made it difficult to integrate the model gets measured gets counted!” This means
system with operations and measure- into the organisation. These were to come that the things that get measured are the
ment of results, and this in turn with the up many times before they could finally ones which are most important in influenc-
evaluation and reward systems within the be resolved. ing people’s behaviour in organisations.
organisation. One thing that is very dif- Unitech had an organisational philoso- At Unitech Systems, a great deal of time
ferent about the concept of performance phy that was different from most com- and care was put to the development of
optimisation at Unitech, as compared with panies; the unfamiliarity with many of measurements of goals. In part, this is be-
the conventional concept of performance the elements of the Deming philosophy cause Unitech is a highly intellectual organ-
management, is that the former does not necessitated a greater degree of commu- isation, filled with many well educated and
link performance directly to rewards. This nication than may have been required highly technical people. In addition, this
is for philosophical reasons (examined be-
low), and suggests an important difference
in the culture at Unitech Systems. 3. The performance optimisation system
Madhavan Nayar, Unitech System’s
Company Leader believes strongly that
rewards ought to be based upon company
performance rather than individual per-
formance.
The overall objectives of Unitech’s re-
wards philosophy are:
1. To attract top industry talent compatible
with the unique characteristics of the
Unitech environment
2. Retain team members in a long term
development relationship in many other companies. Discussions is the orientation of the company leader,
3. Foster an environment which promotes at the planning meeting revealed that who is very precise about terminology and
teamwork through collaboration and the Deming philosophy had in fact often the need for operational definitions. The
cooperation been misinterpreted to mean that organi- net result is that it led to a detailed set of
4. Foster an environment for personal and sational members didn’t need to worry measurements for every objective and goal.
professional development about their jobs for these would be there These measurements are critical to making
5. Maintain equity across the Company for them, whether or not they performed. the plan operational and specific.
6. Compensate Leadership Group members The lack of a formal statement articulating
based on overall company performance the desired organisational culture further Results and benefits of the
and exacerbated the problem. system at Unitech
7. Manage fixed costs by providing higher There were similar difficulties of under- The strategic planning/performance opti-
variable pay standing the accountabilities and respon- misation system at Unitech remains a “work

unitech
The reaction Another benefit is that, as a Eric Flamholtz, “Managing Organizational

1
result of the strategic innovations Transitions: Implications for corporate and hu-
of most of the described above, there has been a
cultural change at Unitech Systems.
man resource management,” European Manage-
team members
ment Journal, 13 (1), 30-51.
One dimension of this is that plan- 2
For further discussion of this method of stra-
of the company ning and performance review have

become a way of life at Unitech. It
tegic planning see, Eric Flamholtz and Yvonne
Randle, Growing Pains: transitioning from En-
was skeptical, is part of the “Unitech Way.” This, trepreneurship to Professional Management,
if not negative. in turn, has led to other significant

aspects of cultural shift at Unitech.
Jossey-Bass publishers, 2000, chapter 7.
3
See Flamholtz and Aksehirili (2000); Flam-
Specifically, at the commencement holtz and Hua (2002 A); Flamholtz and Kurland
of this process, the organisation was (2005).
in progress.” Nevertheless, operating in “silos,” and there was a con-
significant benefits (both siderable degree of internal conflict. One
tangible and intangible) of the by products of this process has been References
have been realised. “team building.” By continually discussing Flamholtz, E. (1995). Managing Organiza-
First, there is a clarity and the issues and working to resolve them, the tional Transitions: Implications for Corporate
focus to the vision of the company, leadership team tends to come together and Human Resource Management. European
which did not exist to the same extent in with a common mind set and focus. During Management Journal, 13 (1), 39-51.
the past. People understand that Unitech is this type of process, there is some turmoil Flamholtz, Eric G. and Aksehirli, Zeynep.
in the information integrity business. This as certain leaders are shown not to have (2000) Organizational Success and Failure, An
broader concept has replaced the more nar- bought in or committed to their own agen- Empirical Test of a Holistic Model. European
row focus upon specific information integ- das. Over time, these people tend to leave Management Journal, 18, (5) 488-498.
rity products, such as automated balancing or change, with the result that the company Flamholtz, E. (2001). Corporate Culture and
and controls. People now also understand develops a more cohesive leadership team. the Bottom Line. European Management Journal,
that its long term vision is to help create, This was the case at Unitech, and there was 19 (3), 268-275.
and ideally to dominate, the information significant turnover. However, today the Flamholtz, E. and Hua, Wei, (2002). Stra-
integrity space. This provides a “big pic- company has a core team of capable senior tegic Organizational Development and the Bot-
ture” context for short term decisions and leaders who operate as a true team. tom Line: Further Empirical Evidence, European
actions. One of the company’s “growing One of the ultimate tests of a company Management Journal, 20 (1), 72-81.
pains” was that a relatively large number is its financial performance. Like other in- Flamholtz, E. and Hua, Wei, (2002). Stra-
of people did not understand “where the formation technology companies, Unitech tegic Organizational Development, Growing
company was headed.” This is no longer has had to deal with the collapse of in- Pains and Corporate Financial Performance: An
the case. formation technology investment since Empirical Test, European Management Journal,
Another benefit of the planning/per- the boom that led up to Y2K. Unitech is 20 (5), 527-536.
formance optimisation process is greater a privately held company, and financial Flamholtz, Eric G. and Kurland, Stanford
focus on priority objectives. In a business, information is proprietary. Nevertheless, (2005). “Strategic Organizational Development,
there are always almost countless things we can say that the company is strong Infrastructure, and Financial Performance: An
to deal with. financially and has gotten stronger over Empirical investigation.” Unpublished working
The Unitech plan provides focus upon the past five years in contrast to some of paper to be presented at the UCLA/Oxford univer-
the priority objectives. People understand the larger companies in this space like sity Research Conference on Empirical Research
what the priorities are and where the em- Compaq, Hewlett Packard, and Sun Mi- in Entrepreneurship, June 24-25, 2005
phasis must be for the company to achieve crosystems. The ultimate criterion for any Flamholtz, Eric G. and Hua, W. (2003).
its longer range vision. company is: are we stronger at the end Searching for Competitive Advantage in the
A third benefit concerns the produc- of a time period than at the beginning? Black Box, European Management Journal, 21
tivity and accountability of people. The The answer for Unitech Systems is (2), 222-236.
specificity of the measurements has in- definitely yes. Eric G. Flamholtz and Yvonne Randle, Grow-
creased the extent to which people are ing Pains: Transitioning from an Entrepreneurship
accountable for specific results rather than Eric Flamholtz, Professor of Management, to a Professionally Managed Firm, Jossey-Bass
just vague responsibilities. The plan pro- Anderson school, UCLA, Publishers, Inc. (2000).
vides a tool which can be used to monitor Madhavan Nayer, Company leader, Unitech Eric G. Flamholtz and Yvonne Randle, Chang-
overall performance of the company as Systems, and ing The Game: Transformations of the First, Sec-
well as that in specific business units on Shalini Lal, Anderson school, UCLA ond and Third Kinds, Oxford University Press
a systematic basis. (1998).

C A S E S T U D Y
The rise and fall of the club: a victim of internal

conflicts of the management team
By Jayanta Chakraborti, IIPM PUNE
Mohun Bagan Athletic Club -

An Empire Under Seize
S
ubrata Bhattacharya was having
his dinner when his cell phone
rang. “Dada, clubke bachan
(brother, save the club)” wailed
a voice from the other side. Subrata needed
no explanation to understand that his fa-
vourite club Mohan Bagan had been beaten
once again and was now sure of getting
relegated from the first division elite group
of National Football League (NFL). The
most shameful moment in the club’s history
had finally arrived!
The situation at Mohun Bagan was not
always that bad. In fact, the institution
which has been honoured as the National
Club of India, has several impressive feats
under its belt including the NFL title, Fed-
eration Cup, Durand Cup and Rovers Cup.
At home, they were crowned the Calcutta
League Champions 25 times and lifted the
prestigious Indian Football Association
(IFA) Shield on 21 occasions.
Mohun Bagan Athletic Club was estab-
lished in 1889. At that time, Indian football
was in its infancy. One particular match
against the British was the start of the glo-
rious era. The British team, against whom
Mohan Bagan was going to play, was a
formidable playing side. To the dismay of
the ‘Brits’, in the year 1911, a bunch of 11
bare footed Bengali players – much like the
Indian blockbuster movie Lagan – became

mohun bagan
the first Indian side team to win the much

longed for IFA shield defeating the finest of
British combination, East Yorkshire Regi-
ment. The win was also significant as it
symbolized the win of the then perceived
weak Indians over the mighty British; a
win over foreign rulers.
From then on, the club went ahead
from one victory to another. They broke
the hegemony of British Military teams and
became the first native team to participate
in the Durand Cup in 1923 at Shimla. The
Durand Cup was started in 1888 and has
the distinction of being the second oldest
football tournament after England’s FA cup.
Subsequently, Bagan was also invited for
the Rovers Cup Tournament; and thus
started the glorious saga of the club.
Two players of the club, Chuni Gos-
wami and Sailen Manna, have also been
bestowed the Padma Shree. Besides foot- ants of Bengal. They spoke shuddho bangali
ball, Bagan has also produced outstanding bhasha (pure Bengali language) and ate Football started losing popularity after
sportsmen and achieved honours in other chingri maach (lobster). The East Bengal India’s spectacular victory in World Cup
sports like Cricket, Tennis and Athletics. supporters were migrants from Bangladesh, cricket in 1983. The disappointed fans of
Very few would know that the star of hock- who spoke bangaal bhasha (a hybrid Ben- football were resigned to the fate that In-
ey tournaments, Major Dhyan Chand, has gali language) and ate ilish maach (the dia could play well but perhaps never win.
also played for the club during his visits hilsa fish). So, if Mohun Bagan won the Kapil Dev and his dare-devil boys changed
to Calcutta. Mohun Bagan also holds the derby title, the price of lobster in the fish this notion. They slaughtered the invincible
distinction of having produced a number market would shoot upwards; and if East West Indies cricket team (which boasted
of Olympians in hockey. Bengal won, the price of hilsa fish would big names like Clive Lloyd and Vivian Ri-
Football has always been a fascinating be at a premium. chards) and brought home the Prudential
sport for Indians, especially in states like It was also considered a matter of pres- Cricket World Cup. Industrial houses soon
Bengal, Punjab, Goa, Kerala and North- tige to be in the governing body of these started splurging money on these new
East. Although Indians started with a bang clubs. Many bureaucrats, retired judges, found heroes. Youngsters picked up wil-
in the international arena by winning two doctors and other prominent people be- lows and red balls and started dreaming of
Asian Games Gold Medals (1951 and 62) came active members of these clubs, and becoming Kapil Devs and Sunil Gavaskars.
they slowly started losing ground to the later also got into the governing body. While cricket grabbed the headlines, foot-
physically superior Arabs and their agile These wealthy patrons also donated hand- ball slowly took the backseat.
East Asian counterparts. India missed a somely. Best of players and display the best The next blow to football was dealt
golden chance to play the World Cup in of talent. The two clubs also earned good by cable televisions. Before the advent of
1950, when they qualified to play for the money through ticket sales, participation satellite TV, Indians were content with
final round but the AIFF declined to partici- in tournaments, leasing of ground facilities, the sloppy run of their home-grown idols.
pate after FIFA prohibited barefoot play. organizing events and playing exhibition When India encountered big giants like
Meanwhile, at the national level, the matches. However, mismanagement of Russia or Hungary in international tour-
derby clash between Mohun Bagan and East funds slowly started creeping in and soon naments (like Nehru Gold Cup), the score
Bengal (another well known club) used to became a sore point for the club. line would inevitably read 0-5, 0-6 or even
be the talk of the town. People used to flock
in thousands to watch the clash of the titans.
Those who could not manage tickets would
sit glued to their radio sets.
Mismanagement of funds started
Both Mohun Bagan and East Bengal also creeping in and soon became a
sore point for the club
had a cult-like supporter base. The Mohun
Bagan supporters were ghotis, the tribe of
Bengalis who were the original inhabit-

C A S E S T U D Y
the other group would destroy. Barreto got

Controlling Alok was easy for caught in one such controversy, and was hu-
the rival factions but controlling

miliated and forced to leave. Mohun Bagan
officials filed a complaint against Barreto at
footballers was difficult for Alok AFC & FIFA so that he became ineligible to
play for any other club in India or abroad.
Barreto, who had provided yeoman service
0-7. But public memory was very short and prominent players among foreigners to be to the club and had a strong role in winning
they would soon start glorifying the fallen recruited by Mohun Bagan. Barreto brought several trophies, left with tears in his eyes.
stars in the next Mohun Bagan-East Bengal in a whiff of fresh air into the team and But very soon, the curse of Barreto would
derby clash. But when ESPN, Star Sports soon it was back among winning ways. The return to haunt Mohun Bagan.
and Ten Sports started beaming live Eng- combination with Edu, another Brazilian An earlier victim of factionalism had
lish Football League, Bundesliga, FA Cup, recruit was deadly, and saw many teams been coach Subrata Bhattacharya, who was
European Cup and the FIFA World Cup, vanquished in due course of time. thought to be a rebel and straight forward
the spectators got a taste of elixir. The fast But lady luck did not smile on Mohun person. His honest opinion about the sorry
paced excitement of these tournaments Bagan for long, as they got caught in a state of affairs at Mohun Bagan earned him
blunted out the lackadaisical approach of myriad of controversies. While East Bengal many enemies. A plot was hatched and
Indian footballers. And once the fans got reformed their management structure and Subrata was also humiliated and shown the
a taste of the real thing, the number of got members elected to the governing body door. The new coach was Alok Mukherjee,
spectators going to the stadium to watch a through free-and-fair-elections, Mohun Ba- a polite and demure person, who strived
Mohun Bagan or East Bengal match started gan got caught in ugly factionalism between hard to steer clear of controversies.
dwindling very fast. two groups, lead by opponents Balram Controlling Alok was easy for the rival
A temporary relief came when Mohun Chowdhury and Anjan (Tutu) Mitra who factions of Mohun Bagan, but controlling
Bagan started recruiting foreigners. Jose were trying to wrest control by any means. footballers was difficult for Alok. The foot-
Marcio Barreto from Brazil was one of the Whatever one group would like to initiate, ballers exploited his weakness and started

mohun bagan
to break the discipline with their Bagan’ was inadmissible, given

whims and fancies. They would the cultural lineage of the club;
not come regularly for practice and therefore, any attachment
sessions, and would conveniently to the UB Group was despi-
disappear before crucial matches. cable. To add to ironies, the
Where East Bengal was conquer- group which was in charge of
ing one milestone after another the Mohun Bagan club thrived
under the wily-but-very-strict on UB moneys outside the club.
Subhash Bhowmik, Mohun Bagan But then, whether for argu-
sank to the nadir of all times. ments or counter-arguments,
Mohun Bagan tried desper- the case hasn’t been withdrawn
ately to fill up the vacant space yet either.
left by Barreto, but in vain. None The situation got so bad
of the foreign recruits that finally the Cal-
were even close to cutta High Court had
matching the bril-
liance of Barreto. The
The administrative doldrum the to intervene. The di-
vision bench of the
ones that finally sur- club had been going through High court compris-
vived were Beto, Edu
and Babalde. Beto was led to doubts and mistrust ing Justices M. H. S.
Ansari and Arun Mitra
a prodigal goal misser ruled that the working
and was finally nick- Tottenham, Leeds, Southampton and oth- committee of Mohun
named betho ghora (useless horse) by club ers raised money by getting listed on the Bagan AC should keep its hands away from
fans. Edu showed brilliance only in flashes. stock exchange. Corporates like Vodafone working matter and appointed a commit-
Babalde, a Nigerian recruit, was famed and Sony became official sponsors and the tee to run the game. This new committee
to have played for the Nigerian national jerseys of footballers started reflecting the comprised Justice Umesh Banerjee, Jus-
squad. But he was past forty and was suf- names of the sponsors. tice Sanyal Sen (from Governor General of
fering from liver enlargement. In India, the same trend started with Bengal) and Indrajit Sen, senior advocate.
Mohun Bagan’s problems were becom- corporates like J.C.T, Salgaonkar, Mahindra The ruling noted that though the execu-
ing more deep-rooted. The administrative & Mahindra, Dempo, Vasco and Eveready tive committee would exist, it would look
doldrums the club had been going through running clubs with their own names. There at the matters other than the game. Un-
led to doubts and mistrust among a sec- were public sector undertakings like Food fortunately, it also noted that McDowell
tion of officials and that percolated to the Corporation of India, Indian Bank, Air In- & Company could not form any company
players, members and supporters. dia and others backing their own teams. with Mohun Bagan, unlike East Bengal.
Globally, a new trend was coming into Even defence forces like Border Security The result: Under the aegis of huge
the football arena during the turn of the Force, and police units like Kerala Police financial backing, Kingfisher East Bengal
century. As the clubs vied with each other, and Punjab Police jumped into the fray. marched ahead from one glory to another.
the price of talented players rose to as- The erstwhile Goa sports minister created They won the NFL title twice; they even
tronomical heights when Zinedine Zidane a precedent by buying a club and naming won the AFC Club Cup in Bangkok and the
from Juventus became the highest paid it Churchill Brothers. But the man who San Miguel Cup in Kathmandu. On the con-
player of all times. The Spanish club paid changed the rules of the game was Vijay trary, Mohun Bagan got mired into more
$66 million for his transfer. The next most Mallya, the liquor baron turned politician and more controversies.
expensive player was David Beckham, who turned airlines owner. He offered good But whichever way the pendulum
commanded a tag of $41 million. Now, money to both East Bengal and Mohun swings now, many questions have to be
it was impossible for clubs to survive on Bagan, subject to the condition that they answered: Was it lack of skilled players
earnings from memberships, match fees corporatised themselves and wore his brand or lack of finances? Was it the popularity
and exhibition matches. In sheer despera- logos. So East Bengal became Kingfisher of cricket or increasing competition from
tion, the clubs turned to corporates, busi- East Bengal while Mohun Bagan took ref- other corporate owned clubs? Or was it
nessmen and politicians for help. Russian uge under McDowell’s brand. because of the internal strife within the
tycoon Roman Abramovich created a stir While East Bengal readily corporatised management that Mohun Bagan failed to
by buying Chelsea football club for £140 itself, Mohun Bagan again got entangled move ahead on the path of greatness? It’s
million. Soon, other businessmen got inter- in a slew of court cases slapped against time for the club to answer these questions
ested – US tycoon Malcolm Glazer bought each other by the rival factions. One group and get their act together if they don’t want
over Manchester United. Some clubs like claimed that the name ‘McDowell Mohun to disappear into oblivion.

C A S E S T U D Y
What ails
The one time leader of the footwear industry is now trying
hard to keep up with tough competition from other players.
However, solving the numerous problems will not be easy.
By Jatindeep Singh Behl, IIPM PUNE
I
f we take a look at the history of footwear industry in India,
we shall see that Bata India has been the emperor of footwear
products. Bata had such a good run that it almost became
a generic name for shoes. People used to go to shops and just
ask for Bata and not any other brand.
But today, the brand is facing stiff competition from other
players. A host of other problems have cropped up and added to
their woes. In this case, we shall try to examine how Bata slipped
down and what they are doing to reclaim the lost throne.
The History
Bata was established by Thomas Bata on August 24, 1894 in
Zlin, Czechoslovakia. The company was incorporated in India
in 1931.The production of footwear started in 1933 in rented
premises at Konnagar, near Kolkata, where for the first time
rubber and canvas shoes were manufactured in India.
The first manufacturing unit was set up, at a place called
Batanagar. The factory shifted from Konnagar to Batanagar in
1936. In 1940-45, during World War II, the factory’s production
was geared to meet war requirements. In 1950, Bata success-
fully launched the brand Hawaii. In 1952, one of Asia’s largest
tanneries was set-up at Mokamaghat, Bihar. In 1988, The Bata
factory was set-up in Peenya, Bangalore. In 1993, Batanagar
factory became the first Indian shoe-manufacturing unit to re-
ceive ISO 9001 certification.
Currently, the production units of the company are situated

bata
Bata India ?
in Batanagar (West Bengal), Faridabad ing of the current situation:
(Haryana), Bataganj (Bihar), Mokamaghat
(Bihar), Bangalore (Karnataka) and Hosur Strengths
(Tamil Nadu). Bata India Limited manu- 1. The widespread retail network of
factures and markets all types of footwear, the company owned and franchisee stores Marie Claire, Bubble
footwear components and leather products. allows the company to serve customers Gummers, Power,
In addition, the company markets products across the country. Sandak, North Star
2. The company’s own and Weinbrenner
tanneries in Batanagar and – the company also offers a wide range of
Over the years, Bata Mokamaghat ensure unin- domestic labels like Quo Vadis, Jubilee,
terrupted supply of raw Featherlite, Ambassador, Signor, Hawaii,
earned a reputation of materials. Naughty Boy and Tennis.
3. The company, being a
trust, which added to its part of Bata Shoe Organisa- Weaknesses
tion, has easy access to new 1. The company has a large labour force
strengths and it soon be- designs, brands and produc- resulting in high employee costs.
tion technologies. 2. The company has been in existence
came a generic name 4. The brand has earned for more than seven decades and faces a
a reputation of trust, which challenge in switch-
adds substantially to the ing to new pro-
related to footwear, accessories, garments, strengths of the company. duction tech-
sports goods and other merchandise. 5. In addition to the eight internation- nologies.
ally renowned brands - Bata, Hush Puppies, 3. Poor fi-
Bata world
Bata is one of the world’s most widely
spread companies, with operations in 68
different countries. It employs over 50,000
people in retail, manufacturing and whole-
selling operations. The company has over
4,700 self-owned retail stores, and over
100,000 independent retailers and fran-
chisees distributing Bata footwear. Bata
annually manufactures over 140,000,000
pairs of shoes in 46 production facilities,
and over 30 million square feet of leather
in nine tanneries. Bata companies serve
almost one million customers each day.
Bata has the largest retail network in
India and has over 1000 shops and around
600 franchisees. It is a brand that Indians
have grown up with. In spite of such an
illustrious legacy, Bata’s performance has
slipped in recent times. A traditional SWOT
analysis could well provide an understand-

C A S E S T U D Y
nancial position in the market has resulted Catterpillar, Stacy Adams and others has
in Bata incurring huge losses for the past created another challenge for Bata in the
four years. high end market.
4. Unorganised top-level management; 4. The problems which the company is
facts: 28 directors have been changed in already living with – high manufacturing
last three years. Eight resignations from key costs – has been coupled with increasing
top managerial personnel since 2001 employee costs year on year.
5. The inability of the management to
deal with a highly unionised factory and Bata’s 2004-05 financial results are not
sales staff is yet another major problem as yet available (at the time of going to
the organisation wastes considerable time print), however, net loss for FY03 was
to resolve labour disputes and strikes. Rs.241.23 million, as against the net loss
of Rs.113.02 million for FY02 and in the
Opportunities year 2004 till September it got worse,
1. Footwear being an item of mass con- net loss further increased to Rs.404.61
sumption has immense demand potential million. Bata’s exports revenues and sales
in Indian market. have decreased dramatically up to 50%
2. Products like Bata Aquastatic, Bata or even more in the last few years.
Airsystem and Bata Lavorazione Artigiana,
which are very well known as premium Now these figures clearly show that while
brands in other foreign markets, hold huge the footwear industry is growing, Bata
promise for Bata. is struggling to make profits because of
3. There is a massive potential for the their huge expenditure. There are also
company to leverage the Bata brand and several other factors, some of which are
retail coverage for marketing merchandise detailed below:
consumer products other than footwear.
Consolidating the factors streamlining its operations are the major
Threats affecting Bata’s performance: challenges and risks which, if addressed
1. The Company faces stiff competi- properly, can solve a lot of problems.
tion from various regional players like Ac- 1. Workforce & Expenses:
tion, Lakhani, Mesco’s, Relaxo and Liberty, The company has a large workforce, 2. Relations between Top Level
which are able to sell footwear at even resulting in high employee costs. Their Management and Trade Unions:
lower prices due to lower overheads and operating expenses are quite high; and There are eight recognised trade unions in
manufacturing costs. in retail operations, the said cost is as the company and the company manage-
2. Opening of the Indian market to im- high as three to four times more than ment has had a history of disputes with
ports has resulted in the company facing their competitors. Bata has five manufac- these trade unions and has been fraught
competition from cheap imports as well. turing facilities and a nation-wide retail with labour unrest. Quite recently, there
3. Change in the taste of consumer and wholesale distribution. Reducing was another call for a strike, but the man-
towards lifestyle statements like Sprandi, employee costs and restructuring and agement succeeded in avoiding it.

bata
the competition. This may in turn reduce architectural, research and development,
the company’s revenues and hence might testing and quality control services, foot-
adversely affect its business. wear technology and general technical
services, environmental, health and safety
5. Lack of Sustained Advertising and services and brand development services.
Promotions: On one hand, this agreement provides Bata
Bata is continuously introducing new de- India access to most modern technologies.
signs of footwear; but the company is still At the same time, on the other hand, it
not associated with being ‘fashionable’. shackles Bata India’s domestic innovative
Neither the promotion, nor the advertis- capacities.
ing of the company, is strong.
The premium segment competitors seem 8. Trademark infringements by do-
to completely overshadow the presence of mestic unorganised sector
the company. However, Bata has not an- Small companies are copying the trademark
nounced any new products or business of the company and selling the footwear
segments in recent times. Further, the in- at significantly low prices as compared to
vestments on advertising and promotions company’s prices. The company is trying
seem to be ‘following’ rather than ‘lead- to adopt legal proceedings against such
ing’. That is, rather than spending more competitors to prevent them from using
on advertising, Bata has started spending the designs. But such counterfeiting has
less on advertising, as a direct result of had adverse effects on the company’s busi-
sales decreasing. nesses and profits.
6. Non existence in garment The situation now

products Bata’s brand equity in India has been and
It has been almost seven decades continues to be under threat. However, in-
since their launch in India, but Bata has ternationally it is still quite a strong brand.
not been able to mark its presence in the Though the market share of Bata is not
very high, its market position
is definitely significant. There
3. Trends and Lifestyle: Internationally Bata is no real premium commanded
With the era of consumerism and globalisa- by the Bata brand, since Bata is
tion, footwear has progressed from being continues to be a strong synonymous with durability and
a necessity to becoming a fashion state- “value-for-money” footwear.
ment. Bata has to be innovative in manu- brand, but in India it Bata is now going through a
facturing technology and devising new mass upheaval. The company is
marketing strategies, so that it is able to died long ago recruiting young executives, who can
maintain and expand its customer base. bring in innovative ideas to match the
The company faces competition from not competition. In 2003, Bata tried to repo-
only high end footwear products, but also garments sector. Because of non-existent sition itself from a manufacturing company
from unbranded products produced by the promotions, not even 1% of the population to a marketing company, after recording
large unorganised sector that compete on is aware of Bata’s presence in shirts and losses of nearly Rs.119 crores in 2002.
lower costs. trousers. Bata could leverage their strong Bata has also started focusing on ‘qual-
retail presence to move into such sectors ity sales’ with a heavy stress on consumer
4. Globally competitive business in a planned manner. satisfaction, as it found that quantity sales
environment could increase the turnover, but quantity
With the opening of the Indian economy, 7. Totally dependent on promoter without quality would only destabilise the
Bata now faces competition from interna- group for technology consumer confidence that had taken ages
tional players, along with existing competi- The company entered into a technical to build up. Now as Stephen J. Davies,
tion from the national players. Though the collaboration agreement dated December MD of Bata India, plans out various new
company has taken steps, like importing 29, 2000 with Bata Limited, Canada (Bata strategies, the question remains on what
readymade shoes with attractive design Canada) for a period of 10 years, for re- strategies should the new MD focus on so
and styles, to score over competitors, it ceiving various services from Bata Canada, that the company regains the lost pride in
might have to reduce its prices because of including engineering, construction and years to come?

I N F O T E C H
Planning your IT
architecture for
competitive advantage
An organisation in the brave new economy is as good as its IT
architecture. Thus, companies need to tread the IT path wisely.
By Tareque Laskar, IIPM BANGALORE
I
n May 2003, Nicholas G Carr raised fast, thanks to the ubiquitous computer. As a senior manager, the digital paradigm
a storm by claiming in an article in That means that the world connects and perhaps has even more significance. It can
the Harvard Business review that ‘IT exchanges information faster; which im- make your business faster and more respon-
Doesn’t Matter’. He argued that the pacts everything from the way businesses sive, but at the same time it would increase
strategic importance of information tech- run, to the way we cook food! As Bill Gates competition too. Consumers would make
nology had diminished remarkably due to had remarked, “Every Year, better methods decisions (and change them) even faster.
its ubiquity.2 are being devised to quantify information That means the business’ strategy has to be
Two years and a lot of debate on Carr’s and distil it into quadrillions of atomistic aligned with its IT infrastructure to make
article later, IT seems to be doing fine as a packets of data.”3 sure it is ready to handle this paradigm.
potential enabler of competitive advantage. Increasing digitisation is possible to-
This article examines a generic blueprint day thanks to accelerated innovation in THE NEW ENTERPRISE
that organisations (Especially the CIO and processors and processing speeds. This has ARCHITECTURE
other CTOs) need to keep in mind while meant that more and more information The business world today appreciates the
deploying IT or the IT architecture. can be digitized, transmitted, retrieved and importance of a real time, sleek and scal-
referenced through connected networks, able information architecture and its posi-
THE DIGITAL PARADIGM not least prominent of which is the World tive impact on profitability. All the rhetoric
‘Digital’ is perhaps the second most used Wide Web. As a citizen of the world go- about the digital and information revolu-
word in the world today (although it would ing increasingly digital, we should see that tion apart, the inescapable reality remains,
probably be a distant second to ‘God’ even technology is rightly leveraged to ensure that an enterprise in this brave new econ-
in this increasingly godless world) and that the benefit reaches the end user with- omy is as good as its IT architecture. An
crops up almost in any conversation. out entangling him in too much of a web. architecture, which not only ensures timely
We have digital entertainment, digital and decongested flow of information, but
business, digital enterprise, even digital also empowers the employees and delivers
newsreaders! But what exactly is digital “Eat or be business intelligence.
all about? The question that’s most pertinent then
It is all about the amount of informa- eaten”— motto is: What comprises the enterprise IT ar-
tion we have with us codified into 0s and
1s. Why is that important? Simply because for adapting your chitecture?
It’s basically city planning for IT – an
if you can convert anything – a piece of
news, a picture, a song, a stock quote, game
company to the overarching plan of the total data, business
processes and IT assets inside a company,
score – into 0s and 1s, you can transmit,
store and/or manipulate it phenomenally
internet1 how they’re used, and how they should be
built and shared.

planning your it

I N F O T E C H
a set of influencers who are techno- act as a sieve to separate the wheat from
1 crats rather than business men. the chaff. According to recent statistics,
7
Business
Business Need
Need 2 the amount of data in the world currently
Delete
Delete Collect
Collect
THE NUTS AND BOLTS OF stands at around 55 Exabytes (that’s 1018
The
ARCHITECTURE Bytes!) and will grow to 180 Exabytes by
Information According to Yogesh Malhotra, there 2006-07! Now that’s a lot of information.
6 Life Cycle
Management 3 are five levels of architecture plan- What a business requires is an Informa-
Archive
Archive Organize
Model Organize ning that are required: tion Life Cycle management model (ILM).
Exhibit 2
Business Architecture: It takes [Exhibit 2] Here’s how it works. There are
into consideration the business seven aspects that need to be mapped. Af-
4 strategies of the firm, its long term ter defining the business need for the data,
5 Protect
Protect
Available
Available Monitor
Monitor goals and objectives, the technologi- the following are considered – how will
cal environment, and the external the data be captured (or collected), how
environment. will it be organised, what will be done to
Information Architecture: This protect and/or monitor it, to whom would
level is primarily a map of the overall it be made available, how much would be
information needs of the firm, based archived and finally, when and how would
upon the firm’s Business Strategy. it be deleted or destroyed.
The Information Architecture basi- The most critical is that the information
cally encompasses the application should be as real time as possible. Real
According to research by Gartner, level aspects (e.g. Competitive Intelligence Time, as the term suggests, is about quick
a leading IT consultancy, an average System, Market Research System) that map reactions, about having all the information
company wastes 20% of its corporate IT the information needs on the firm’s specific as it happens, about doing everything with-
budget on purchases that fail to achieve business needs. out cumbersome lags or delays. Imagine
their objectives. That’s around $500 bil- Data Architecture: At this level, the busi- a financial services company that has its
lion (!) wasted!! The malaise lies in how ness needs to define its current and future clients’ credit ratings updated as soon as
organisations manage information to de- needs for accumulation, usage, renewal, they are revised. Good? Now imagine this:
liver business intelligence. The first thing maintenance, and transfer of data within, Not only is the rating updated, but a new
(even before the physical architecture and outside the firm’s boundaries. target product profile and specifications are
comes into place) is to get a proper in- Systems Architecture: At this level, deci- drawn up simultaneously. How? Because
formation management system in place. sions about specific systems that the firm the data was seamlessly transferred to the
What happens with organisations is that is going to deploy, the demands made by product development department as well,
their information systems are already in a the business applications, the data require- along with the finance department. Now
mess, and technology only lands them in ments, and the hardware and software that that’s a real time enterprise.
a faster mess. will support them, are taken. Examples
If we look at the business scope today include issues such as the Client Server PLANNING FOR INFORMATION
[Exhibit 1], it is easy to conclude that tech- Architecture, Intranets, and the various SYSTEMS
nology is driving businesses today, as op- Networking Protocols. The five paramount considerations for
posed to the other way round earlier. The Computer Architecture: This level is pri- planning an Information System are:
interesting thing to note in the continuum marily made up of the specific hardware
is that the customer now has a lot more and software that constitute the technologi- 1. Interoperability
access to technology, and that has meant cal base for the above architectures. 2. Performance
businesses have had to respond rather than All the above mentioned areas are huge 3. Scalability
relegate technology to a support role. by themselves. But I would like to dwell 4. Flexibility
Pointing out what constitutes IT archi- mainly on the information architecture, 5. User Friendliness
tecture in any organisation is easy. Unfor- since it overrides the others and is of par-
tunately, determining how the organisa- amount importance for gaining strategic The five issues were identified from
tion got there and using it as a frame of advantage. empirical research by the author through
reference for future decisions regarding discussions with CIOs of some leading In-
architecture is the difficult part. That IT ar- INFORMATION, NOT JUST dian organisations.
chitecture needs continuous evaluation and TECHNOLOGY Planning for the physical infrastructure
up-gradation is taken as given in today’s Information is available today fast, cheap consists of three parts – the hardware (User
information driven economy. More often and worryingly in humungous quantities. terminals, printers, PCs, laptops, storage
than not, these decisions are dictated by An information management system has to etc.), the software (OS, platforms, appli-

planning your it
cation software, database software) and and its assets. As a result of this, the IT ef- makes that clear:
the communication technology (physical forts either fail to achieve the objective for • ASIAN PAINTS invested Rs.900 million
cables, lines, communications technology). which they were implemented or become in IT in the last three years. Because of
The first estimation that needs to be done is too IT centric. this linkage with their suppliers and dis-
how much share each of these components But now, advances in integration tech- tributors, Asian Paints has been able to
will have in the total architecture pie. nology – primarily intelligent and flexible cut down the time required for monthly
The next issue to be resolved is whether middleware and Web services – are provid- account closure from 20 to 4 days.
these will be picked up off the shelf or cus- ing new ways for designing more agile and • HLL’s RSNet (Redistributor Stockists
tom made. A rule of thumb is that you buy more responsive enterprise architectures Network) has helped them plan inven-
off the shelf for routine processes and cus- that provide the kind of value businesses tories better.
tom make for unique processes that your have been seeking. • INFOSYS, which earmarks almost
business might have. There are five simple questions that, Rs.2.25-2.50 billion a year as its IT
It is not possible to plan IT procurement if answered, will set the stage for the or- budget, has taken a phenomenal 90%
more than 2-3 years in advance because ganisation to stand on a solid IT architec- functions online (from HR to Finance).
30%-40% of the existing technology would ture. Tom Murphy, of Gartner, in his book • UTI, the mutual fund company, has been
be obsolete by then. But CIOs would do Achieving Business Value from Technology: able to allot units to investors in a day
well to go in for ‘Information Protection A Practical Guide for Today’s Executive out- (as contrasted to 25-30 days earlier) and
Plans’, wherein the company enters into lined these as the Five Pillars of Benefits to slash its phone bills by a whopping
an agreement with the vendor that the Realisation: Rs.10 million.
vendor will, free of cost, take care of any • Strategic Alignment: Will this investment
up-gradations within the agreement period. help us achieve our strategic goals? Despite my exhortations about informa-
Currently, corporations like Hewlett-Pack- • Business Process Impact: What is the tion overload, it appears I have also sup-
ard offer such plans on services. impact on our ability to transform busi- plied a lot of it here. But the central theme
The best idea is to go for a scalable ness process? remains uncluttered and simple. Whether
and modular approach so that upgrades • Architecture: What is the impact on our it’s planning for IT architecture or Informa-
are never an issue. The concept involves IT architecture? tion Systems, it’s the business process and
designing an application programming • Direct Payback: Will this investment de- the value it delivers to the customer that
Interface, which is independent of plat- liver more revenue, cost savings or better should be of prime importance.
forms or databases, and which can be sort management information?
of ‘plugged into’ the existing back-end to • Risk: What business and technology risks References
help users access and process data. As could arise from this investment? 1. Adapted from Thomas L Friedman’s ‘The
against the existing perceptions, a busi- Lexus and The Olive Tree’ (Chapter 3,
ness cannot be competitive, flexible, prof- India Inc. has not been left behind in the pp73)
itable and capable to face the world with race to leverage IT for outstanding per- 2. IT doesn’t matter by Nicholas G Carr,
standardising, mapping and controlling IT formance. A quick look at these examples Harvard Business Review, May 2003
3. The Social Life of Information by John
Seely Brown and Paul Duguid, HBS
Press]
Exbit 1 4. A New Blueprint for the Enterprise by
Christopher Koch, CIO Magazine Mar
1, 2005
5. Getting IT Right by Charlie S Feld and
Donna B Stoddard, Harvard Business
THEN NOW Review, February 2004
6. Based on Dr Charles Savage’s remark
during his talk on Knowledge Manage-
ment at IIPM, New Delhi in September
2003
7. Based on author’s interview of Mr. P K
Technology
Technology
Customer
Customer
Business
Business
Gupta, Director, Legato Systems in New

Delhi Feb 2003
8. Malhotra, Yogesh. (1996). Enterprise
Architecture: An Overview [WWW
document], BRINT Institute]

I N F O T E C H
Technological innovation is crucial for creating value in the marketplace. Investing

in today’s innovation projects will create tomorrow’s jobs. It is universally accepted
that innovation is central to the success of technology companies. In spite of this,
there is a paradox: few CEOs have as a top priority a striving to make the innova-
tion process more effective in their company. The new approach of distributed in-
novation is a proactive approach to help top management resolve this paradox and
to develop high value-creating offerings.
Resolving the
Innovation Paradox
in Technology Companies
By Georges Haour PROFESSOR TECHNOLOGY AND INNOVATION MANAGEMENT IMD LAUSANNE
A turn-around world core activities and to outsource portions of A new perspective on
We are living in an increasingly interde- their operations. When it comes to develop- innovation
pendent world where change is occurring ing technical innovations, however, firms As they develop innovations, technology
at a very rapid rate and with great ampli- have been more cautious in adopting a companies currently rely excessively on
tude. This has been particularly true in less internally centered approach. It is high their internal resources. It is proposed that
the years following the economic crisis time for companies to envisage technical they should extensively access inputs from
triggered by the oil shocks in the 1970s. innovation in a new perspective. external actors. This distributed innovation
In the course of this period, science and Although the phrase “innovation is a approach is represented in Figure 1.
technology have been crucially shaping our key to profitable growth” is universally The starting point of this new approach
world, particularly in the areas of life-sci- accepted, most CEOs of technology com- is the market. On occasion, the firm needs
ences and ICT (Information and Communi- panies are not truly committed to making to identify a ‘ground-breaking’ or ‘high im-
cations Technology). Trade and exchanges sure that the innovation engine works ef- pact offering’ - product and services that
have grown at a spectacular pace. As a fectively in their firm. In order to resolve will give it a competitive edge by defining
result, technology flows have grown expo- this paradox, the environment around the its future business. This approach is envis-
nentially, as exemplified by the fact that, in CEO must indeed contribute to give him aged in an entrepreneurial perspective: as
less than ten years, the amount of licensing or her the courage to be a true champion an entrepreneur, the firm “sees” the oppor-
royalties have been multiplied by seven to of innovation. Also, as mentioned above, tunity in the marketplace and then mobi-
reach $142 billion worldwide in 2000. it is high time that we envisage innovation lises resources in order to develop it.
Responding to these changes, business- in a new perspective. The new approach Among the required resources is a tech-
es have carried out extensive restructuring. of distributed innovation offers a way to nological component. In this approach,
Companies have tended to focus on their resolve this paradox. this component results from combining

t e c h n o l o g i c a l i n n o va t i o n

I N F O T E C H
tise needed to build a new business. Intel

DISTRIBUTED INNOVATION taps into external sources of technology
essentially through the channels of uni-
Universities versity projects and venturing companies.
Contract Research Government Laboratories Pharmaceutical companies make use of a
Company B Private Firms
broad range of channels.
In none of these cases, however, do we
Licensing in have a bundling of external inputs together
with internal capabilities in order to more
High Impact effectively develop a pre-defined target of-
Start-Up COMPANY A Offering fering. These examples thus do not truly
represent the practice of distributed inno-
vation, which implies the proactive, coor-
Co-Development dinated channelling of external expertise,
VC or Corporate aimed to develop ‘high impact’ offerings.
Venturing Fund Company C Although today very few companies
practice distributed innovation, technol-
ogy companies will, no doubt, increasingly
In distributed innovation, Compny A first defines the ‘high impact’ offering it wants to bring to market. In order to develop this of- apply this model in the future. The reason
fering, the company then extensivelydraws on extensively draws on external technical resources from a variety of sources
is simply that, alongside their internal inno-
vation process, this approach allows firms
to more effectively leverage technical ex-
expertise internal to the firm together with son is assigned to each project, in order to pertise to secure better options for develop-
extensive input “imported” through vari- monitor it, as well as to make sure that its ing offerings with enhanced potential for
ous channels from external sources: other findings are utilised by the company. When value creation and growth.
firms, start-ups, laboratories, as outlined it comes to venturing, Intel is the largest
in Figure 1. In this way, the firm is able to venture capital company in the US. Intel Practicing distributed
mobilise a much broader technical base and Capital has a portfolio of some 500 invest- innovation
has more options available to define and ments in companies that will support the In order to practice this new approach,
implement the development of the targeted development and use of Intel’s products. several requirements must be met. The
“high impact” offering. Intel calls them “ecosystem investments”. main ones are:
Samsung, Intel and pharmaceutical Of all industrial sectors, the pharma- At the center of the process, the CEO
companies are examples of this approach. ceutical industry has pioneered the extent must take the responsibility for identifying
In the case of Samsung, distributed inno- to which companies can leverage external and selecting the project, as well as devel-
vation was used, not to develop a given technical expertise. Johnson and Johnson, oping it. He or she must be seen as having
product, but to enter a whole new indus- in particular, has been successful in the the courage to take the risks involved.
try of advanced electronics components in delicate process of “internalizing” external
the 1980s. For this, in addition to hiring innovations. More generally, pharmaceuti- Scanning the external environment must
appropriate staff and developing its own cal companies heavily complement their be particularly effective. Beyond the tradi-
R&D, Samsung bought licenses, entered own drug development efforts by channel- tional techno-business watching, the firm
into co-development agreements and ac- ling external expertise. They invest in start- must gather intelligence helpful to identify-
quired companies. By tenaciously driving ups; 18 in the case of Novartis in 2001.They ing the groundbreaking offering. It must
this learning process, the company succeed- also secure “windows on technology” by also be very aware of external sources of
ed in becoming a world leader in Direct financing funds which invest in start-ups technologies that may be available.
Random Access Memory (DRAM) chips. and engage in extensive in-licensing and
In the case of Intel, the company uses collaborative developments. It is estimated Project leadership: “Seamlessly” integrat-
two main channels to “import” technology: that by 2010, some 40% of all pharmaceu- ing external and internal contributions is
collaboration with universities and corpo- tical development will be “outsourced” to much more complex than managing a
rate venturing. Intel invests $4 billion per third parties. predominantly internal process. The de-
year in internal R&D. It also maintains a These examples highlight some of the velopment of sophisticated project leaders
number of projects with universities: this channels constituting the “distributed in- is thus an even more critical requirement
effort represents $100 million per year. novation system”. In the case of Samsung, than at present.
Intel is particularly attentive to effectively partnering and acquisitions were used ex-
leverage these collaborations: an R&D per- ceptionally in order to acquire the exper- Knowledge management: Far from being

t e c h n o l o g i c a l i n n o va t i o n
immune to external inputs, the firm must late your own - as well as relevant contractmake their own obsolete. This creates yet
have a strong capacity to scout, locate and research organizations. another tension in the management. In
absorb knowledge from the outside. This Monitor their activities to see where theymaking distributed innovation work, it is
in turn demands that internal knowledge can contribute, as they may be able to add particularly crucial that top management
is well managed, including a clear policy other pieces to complete your technology handles the human factor with great care,
on what leading-edge knowledge must be puzzle. not only to maintain the conditions for a
maintained within the organization. By working towards the distributed in- high motivation level, but also a strong
Underlying most of these requirements novation model, companies will more effec- atmosphere of trust.
is the fact that the staff, particularly the tively leverage external technical expertise Because it relies so much on scanning
technical knowledge workers, will thus for commercial success. This ‘high risk, high
and evaluation of the external environ-
develop a highly outward orientation: reward’ approach provides new options ment, distributed innovation will power-
towards the market, potential sources of for effective value creation and growth. fully reinforce the outward perspectives of
technology and possible partners. Such Distributed innovation truly takes into the staff in the firm. It will also constitute
characteristics will be increasingly impor- consideration the fact that there is much a great stimulus for learning.
tant to the success of firms in the future. more going on outside the firm than there Above all, distributed innovation is an
is inside. It involves fusing external and occasion for the CEO to facilitate a process
The way forward internal inputs “seamlessly”. enhancing the value creation for the firm.
A primarily internally focused innovation The entrepreneurial perspective of thisIt is the key to resolving the innovation
process is too constraining. What is needed approach is what is needed in technology paradox. Technology companies will thus
is to engage external contributors much companies. The world of corporate techni- increasingly become architects of innova-
more proactively. Technology firms have to cal innovation has been fairly impervious totion. In this way, they can define their
considerably extend their innovation perim- the discipline of value creation characteris-
target product developments with fewer
eter. They must create a seamless connec- tics of the Venture Capital (VC) industry. constraints than if they were to mainly rely
tion between internal and external actors The VC perspective, applied to the ‘high on what they can do in-house.
in the innovation process. Companies will con-
This must be done for tinue to need the strong
specific, carefully se-
Technology firms have to considerably extend technical expertise of
lected projects that are their innovation perimeter. They must create the internal R&D func-
critical for the growth of a seamless connection between internal and tion. First, R&D will
the company.
external actors in the innovation process. By work- play a key role in driv-
Until now, outsourcing innovation projects
ing of technology has ing towards the distributed innovation model, com- - those using distributed
often been done in an panies will more effectively leverage external tech- innovation, as well as
opportunistic way and nical expertise for commercial success the more traditional,
in a piecemeal manner. internal ones. Second,
What is now needed is such a strong function
to outsource with a clear is needed to enable the
purpose. impact’ projects, is fully consistent with firm to be an effective scout and buyer of
our objective of strong, profitable business external technology.
Marshal the various inputs, external and growth over the longer term. With it comes By extensively opening their innovation
internal to the firm, with an aim to provide the useful notion of due diligence to evalu- system to external actors, technology com-
the best possible technical toolkit for the ate innovation projects, as well as assessing panies will unleash potential for growth
commercial success of ‘high impact’ innova- external technical input. It is time to inject and job creation. They will thus more effec-
tion projects. The inputs of external tech- such a perspective into the way technol- tively convert the pool of existing technical
nology flow through various channels. ogy companies approach the innovation knowledge into economic value.
License-in technology from third process today.
parties. With distributed innovation, the compa- This article provides some highlights
Buy innovation projects from other firms ny’s main actor in technical developments, from the latest book by Professor Georges
or laboratories. R&D - Research and Development - increas- Haour. Entitled “Resol ving the Innovation
Invest in a start-up to access its valuable ingly acts as a broker of technology. This Paradox - Enhancing Growth in Technol-
technology. implies a schizophrenic dimension, since ogy Companies”, the book is published by
Activate additional external channels as technical professionals working on inter- Palgrave Macmillan. For more information,
well. These include university laboratories nal developments may recommend that see www.innovationparadox.com. (Originally
- be curious about their research to stimu- their firm buy a technology, which might published by IMD)

C E O P R O F I L E
Canon India, guided by

its CEO is on a major
expansion spree
“A pessimist sees the difficulty in every op-
portunity; an optimist sees the opportunity
in every difficulty.”
A
lan Grant, the president and CEO
of Canon India, is a flamboyant and
dedicated leader, and these words
by Winston Churchill constantly inspire
him. Grant is credited with helping Canon
Indian Pvt. Ltd. (CIPL) register a growth of
270% since he took over the India business
as president and CEO in January 2000.
However, contrasting with his on the job
approach, Alan D. Grant prefers to keep
a low profile rather than harp about his
achievements in the media.
With an experience of almost 20 years
in Canon, he has steered the India opera-
tions towards achieving the ISO 9000 qual-
ity standard besides redefining the strate-
gies of the Indian operations. Alan D. Grant
was born on November 13th, 1947. Grant
has worked with several manufacturing
companies globally during his tenure with
Blue Circle Cement in Indonesia, giving
him extensive experience in Finance and
marketing. He joined Canon UK in 1985
“Our expertise
in imaging and
Alan Grant, CEO Canon printing combined
with our focus on
MAPPING innovation and
R&D capabilities
INDIA THROUGH uniquely position
Canon to take the
DIGITAL IMAGING digital lifestyle to
the next level”

alan grant
and will soon complete 20 years in Canon.

“…Successful lead-
Prior to joining Canon India in December,
1999, he was working as Managing Direc- ership in a com- canon i n d i a
tor of Canon Scotland. pany like Canon
Grant is known never to take a superfi-
cial view of things. He believes in showing depends on the C anon India is a 100% subsidiary
of Canon Singapore. Canon In-
dia is marketing the digital imaging
the way from the front. He is of the opin- two ‘P’s – products product range including photocopi-
ion that “If you demonstrate strong ethics, and people. We ers, multi-functional peripherals, fax-
fairness and integrity, you will never be machines, printers, scanners, digital
let down.” Since Grant took over the reins are fortunate that cameras, Camcorders and multi media
of the company, Canon India has earned Canon’s innovative projectors since its beginning in 1997.
recognition as India’s only complete dig-
ital imaging company and has launched
products make Canon currently has 281 channel part-
ners, 36 retail stores, over 100 service
multiple product portfolios into the Indian that part easy!...” centres and more than 2700 IT resell-
market. It launched an impressive range ers across India.
of 28 products in the digital camcorders end of 2005 as part of its strategies regard-
in April, 2005 including digital cameras, ing projectors. Canon India launched 51 new products
projectors and printers segments which Ask Grant about how people may per- in 2004 (a record) and its gross rev-
are aimed at exploiting the growing mar- form best, and he emphasizes on the value enues amounted to Rs.2.64 billion. It
ket for TV sets in India. Grant has success- of teamwork and goals. “…Most goals how- aims to be No. 1 in all major categories
fully countered HP’s strategy by focusing ever cannot be achieved alone and require of the Digital imaging Market.
Canon India has one of its’ six cutting
on small towns and zonal distributors in the cooperation of different people…” Re-
edge Software Development Centres
response to HP’s distribution strategy of garding the practicality of such a scenario,
located in Gurgaon. The centre is ISO
metros with large redistributors. Truly, he is certain that organizational culture
9001:2000 certified and was awarded
Grant has implemented his strategy of can achieve it. Apart from teamwork, the
the CMM level 3 status in April 2004.
maintaining a consistent approach to- culture he has developed is one in which
wards “employees, customers, suppliers leadership is a collective responsibility. Ac-
and business partners.” cordingly, Grant does not shy of debate,
About Canon
Referring to this recent strategy of bom- as a leader. He has created an atmosphere Canon as a company was
barding customers with new products in where “people can debate, discover and set up in 1937 and
digital imaging entertainment Grant said, plan the best course of action for dealing is now ranked
“Digital Imaging Entertainment is about with a complex situation.” 67th on the
enabling consumers to enjoy, manage and Grant contends that “Great leaders must Fortune
interact with all kinds of content from any master three fundamental skills: inspiring 500 list. It
source in a simple, easy way.” According employees, building leaders at every level has now
to him, it is also part of Canon’s vision to and delivering results.” Leaders, according to a name
in Digital
put a human face to technology. him have to “grow their arsenal of leadership
imaging as
The company plans to tap the emerging tools and resources” else they will soon be
well, whereas
markets in India as part of the long term left behind other leaders in the industry.
earlier its sole pur-
strategy to ride on the huge retail boom According to Grant, leadership is about
pose was to make the best camera
anticipated in the country. India has been creating a compelling vision for the or-
in the world. Canon has established
ranked first in the world in the report on ganisation. Canon is poised for extensive 195 companies, employs over 100000
attractiveness of countries as retail destina- growth in India. He said, “Our expertise in people and has won 19902 U.S. patents
tions according to A. T. Kearney’s July 2005 imaging and printing combined with our and 1992 in 2003 alone. It is No. 2 in the
Global Retail Development Index. focus on innovation and R&D capabili- US in terms of no. of patents. 10% of
Canon has three retail focus initiatives- ties uniquely position Canon to take the Canon’s revenue goes into R&D.
IT, Photo and Audio Visual. It has launched digital lifestyle to the next level.” Obvi-
21 Canon Retail Stations and plans to take ously the journey is hard, but as Grant Canon works on the kyosei principle
the number up to 30 by the end of 2005. agrees taking the example of Edison, “it’s of “living and working together for
The Photo initiative involves setting up a long hard journey from inspiration to the common good” and seeks to
of 30 Digiclick zones by the end of 2005 realization.” With his determination for create perfect harmony between
(there are currently eight). The company innovation and out of the box thinking business priorities and environmental
has already launched seven Home Cinema however, Canon India is poised to fire considerations.
Centres in India and will reach 18 by the from all cylinders.

B E S T P R A C T I C E S
Growth opportunities are different from the core business.

They require different skills and metrics and a thorough
understanding of customers’ priorities
By Adrian Slywotzky and Richard Wise
6 principles to
make growth
initiatives work
M
ost senior ment team.
managers Of course, achieving that
know intui- goal isn’t easy. Most senior
tively that relying on managers who recognise the
the inspired efforts of urgency of new growth get
a few maverick manag- hung up on a series of thorny
ers to find and nurture issues:
new-growth opportu- • Creating innovative new-
nities is a recipe for growth initiatives without
stagnation. The odds of losing discipline and focus
success are long, even on the core business
for the best ideas; and • Reconciling the pressure
in most companies the Adrian Slywotzky for short-term earnings with
number of talented multiplying requests for seed
mavericks can be counted on one hand. funding
Putting the whole burden of change on • Supporting innovative thinkers and risk
their shoulders will only produce frustra- takers without signalling neglect of the
tion for the mavericks and stagnation for core business
the company. • Sorting out the opportunities that could
Success in creating new growth again truly move the stock price from those that
and again lies in developing a systematic, are likely to produce only marginal im-
organisational capability to identify, shape provements
and nurture new-growth initiatives. And • Finding the time to guide and coach new-
the responsibility for doing that lies with growth teams without neglecting the other
the CEO and the entire senior manage- burning issues on the agenda

a d ria n sly wotsk y
Managing these tensions is a long- By making core business excellence a cor-

term discipline rather than a problem to
be solved once and for all. No single set nerstone of growth, senior managers can
of formulas will fit all companies. How- alleviate concerns about losing momentum
ever, an examination of the practices of
firms that have successfully fostered new- and discipline as people become excited by
growth initiatives suggests that there are the new-growth concepts
six principles that managers can apply to
ensure that these initiatives succeed. Those of $125 million. Today, it operates only 24 charge of growing new businesses. Instead,
principles are: centres with average annual sales of $900 everyone at the company from CEO Robert
1. Make operational excellence in the core million, well above the industry average Walter to down below makes growth the
business your cornerstone. of $450 million. Every dollar saved on dis- central concern of every day’s decisions.
2. Treat growth as a discipline to be pursued tribution costs becomes a dollar available Every manager knows that growth is a criti-
at all levels throughout the company. for new-growth investment. This relentless cal component of his or her report card.
3. Develop many small, maverick ideas, focus on efficiency has allowed Cardinal Cardinal managers focus on two dimen-
not a few large ones. to stay profitable and fund new growth sions: Absolute growth and relative growth.
4. Shift resources from product and tech- (Exhibit 1). The absolute rate of growth supports over-
nology innovation to customer and busi- Moreover, the value that Cardinal de- all financial health, generates profits to re-
ness innovation. livers in its core transaction helps give it invest in the business, and helps attract and
5. Organise to suit the needs of the new access to many of its upstream and down- motivate the best talent. The relative rate
business as much as the core business. stream businesses. of growth is important because Cardinal
6. Use selective acquisitions and alliances By making core business excellence a competes in the fast-growing healthcare
to catalyze growth. cornerstone of growth, senior managers sector. Growing at a high absolute rate
These principles are described in detail in can alleviate concerns about losing mo- while trailing the overall market’s growth
this article. mentum and discipline as people become rate would not be acceptable at Cardinal,
excited by the new-growth concepts. How- because it would mean that Cardinal’s of-
1
ever, just watch out for the trap at the other ferings were being viewed as mediocre or
Make operational excellence extreme: Using the focus on core opera- less relevant by customers. Over time, the
in the core business your tions as an excuse to defer any serious focus company would lose ground.
cornerstone on new growth. This can easily become a How does Cardinal get harried
permanent state of mind. While there is operating managers to focus on growth
It may sound like a paradox, but having always some improvement or change to strategy?
an efficient, profitable core business based be managed in the core business, improve- By imposing a standard that holds
on high-quality products and services gives ments must be managed simultaneously them responsible for the success of
you the license to go further in solving with efforts to pursue new growth, not at their businesses.
customers’ problems. It also gives you the the expense of such efforts. Managers know that they can’t per-
funds to support new-growth initiatives. form on the metrics of absolute and rela-
2
The core business helps uncover other cus- tive growth without a relentless focus on
tomer needs that involve using products Treat growth as a discipline growth strategy. Of course, they also realize
more effectively: No product sale, no sur- to be pursued at all levels that building new businesses and achieving
rounding needs to serve. throughout the company growth targets provide the critical funds
Cardinal Health, based in Dublin, Ohio, they need to invest in future growth op-
is an outstanding growth innovator that Companies that treat growth as within portunities. As a result, Cardinal has grown
has never let up on operational excellence the sole purview of a corporate strategy faster than the healthcare distribution
in its core business, distributing drugs to or business development group rarely cre- market by over 50 percent annually, not
pharmacies, hospitals, and managed-care ate meaningful, serial growth. While their including acquisitions.
providers. Even as it pursued new busi- participation is important, such groups by Managing growth is demanding and
nesses such as pharmacy management, re- themselves may lack sufficient funds or op- scary. It’s also creative and energizing.
imbursement services, and contract drug erating experience to spearhead serious Don’t hoard the experience at the top ex-
packaging over the past decade, Cardinal new growth. Innovative growth also needs ecutive level. Instead, distribute both the
was steadily consolidating and improving to include operating managers as part of responsibility and the opportunities to grow
its distribution centres. their day-to-day interaction with customers as widely as possible through your organi-
In 1994, Cardinal had 40 distribution and the marketplace. zation. That’s how unexpected champions
centres with average annual centre sales At Cardinal, there is no corporate unit in can emerge from the ranks.

B E S T P R A C T I C E S
3
face another gate,” Geschke continues. If to onerous budget reviews and held to im-
Develop many small, the idea passes, that means it’s a serious possibly high standards of certainty about
maverick ideas, not a idea that we are going to develop. Then their payback potential. Since companies
few large ones the spending goes way up, but the number can’t afford to invest willy-nilly, senior
of ideas goes way down. By the final gate, managers should consider devoting 10-15
you need a credible business case in order percent of their product innovation budget
A culture of growth alone is not enough. to be accepted.” to customer innovation instead. Air Liquide
Someone has to come up with the break- Having an idea turned back at a gate is is a great example of how a century-old,
through ideas and translate them into real not viewed as a catastrophe or career set- tradition-bound supplier of industrial gases
offerings. In addition, bad ideas have to be back. Indeed, it is expected in most cases. was able to make this shift.
killed quickly, before they consume sig- “We learn a lot from failing,” Geschke ex- Paris based Air Liquide, had always
nificant time and money. How can senior plains, “So if you don’t pass the gate, that’s excelled at technical innovation, but by
managers unleash broader creativity to fuel not viewed as a miss, that’s viewed as a hit, the late 1980s and early 1990s, revenues
next-generation growth while keeping new because now we know what not to do.” and operating income were stagnating and
initiatives from running amok? Is the Johnson Controls system for inno- technical innovation was leading nowhere
Part of the answer lies in devolving au- vation the best one? Not for every business. – until it was unleashed in a way that helped
thority and responsibility for growth to the You need to tailor gate-keeping techniques improve customers’ systems economics.
operating managers closest to the action. to the economic and marketplace realities In the early 1990s, Air Liquide launched
Another part of the equation is illustrated of your own industry. Examine your in- technology that allowed a smaller gas pro-
by an approach to grass-roots innovation dustry, your markets, and your customers, duction facility to reside on the customer’s
taken by Milwaukee-based Johnson Con- and then develop an informed sense of the site, instead of large centralised plants. On-
trols. During the 1990s, the firm shifted its breadth of new-growth opportunities avail- site production was less capital-intensive
focus from assembling automobile seats, able. Then create a process finely tuned to and products could be customised for indi-
a commodity product, to providing auto encourage and support the right number of vidual customers. One important side effect
makers with integrated interior modules maverick ideas, winnowing them as needed of on-site production was a higher level of
and, more recently, with complete cockpits. to focus on those with real profit potential. ongoing interaction between customers and
Thus, it moved from providing a high qual- Your new-growth process is every bit as Air Liquide staff. The on-site teams soon
ity product to addressing auto manufactur- important to your company’s future as your discovered that their industrial customers
ers’ needs to reduce the risk and complexity manufacturing process or your financial had a variety of pressing needs that Air
of vehicle design and improve efficiency in analysis process, and it deserves the same Liquide might be able to address, such as
vehicle assembly. kind of attention. minimising risk, improving quality, reduc-
4
Johnson Controls encourages people to ing emissions, and improving their sup-
spend time pursuing unconventional paths Shift resources from product ply chain systems. Because of a company
of inquiry. But it also imposes a staged and technology innovation to reorganisation that gave more autonomy
evaluation process with the goal of “fail- customer and business inno- to local teams, on-site staff now had the
ing fast” on bad ideas. Jim Geschke, vice vation authority and the mandate to act on new
president and general manager of electron- opportunities to help customers in a variety
ics integration, describes the innovation Most CEOs will tell you that growth is one of ways. Air Liquide began to realise that
process this way: “We have an innovation of their top three priorities. Yet in terms of all of its R&D and production knowledge,
machine. The front end has a robust series the time and energy they actually spend on which it had struggled to turn into mean-
of gates to go through. Early on, we’ll have various activities, growth usually ends up ingful product differentiation, was relevant
many ideas and spend a little money on fifth or sixth. And most spend hardly any to customers’ industrial processes.
each of them. As they get more fleshed time on nurturing new forms of growth. The company gradually expanded from
out, the ideas go through a gate to decide That’s because new growth is hard. its core commodity gases to offer a set of
whether to continue or stop. A lot of ideas It involves leading the organisation, the new services, ranging from gas manage-
get filtered out, so there are far fewer items, board, and even investors in uncomfort- ment contracts to performance guarantees,
and the spending on each goes up.” (In able change. New-growth initiatives de- chemicals management and consulting,
simple terms, the gate consists of a cross- serve resources commensurate with their supply chain management, clean energy
functional team, based within the business importance. Most large companies spend alternatives, environmental consulting, and
unit, which meets periodically to discuss hundreds of millions, if not billions, of dol- licensing of software tools and systems. By
new ideas and review the progress of every lars on product R&D without any certainty seizing these new opportunities, Air Liquide
initiative. The team makes the crucial fund- about what will actually turn into revenue has expanded its potential markets, gained
ing decisions.) and when. By contrast, most new-growth a greater share of customers’ wallets, and
“Several months later, each idea will initiatives are starved for funding, subjected improved customer loyalty.

a d ria n sly wotsk y
those for Deere’s other divisions. In time, ponents, is a good example. An environ-
they will need to be adjusted; but for now, ment that promoted innovation at Prince
since JDL is growing quickly, the pressure complemented the culture that Johnson
to meet targets that may not be realistic was building in its automotive business
is minimal. and Prince’s product line helped Johnson
Werning, John Jenkins (president of rapidly expand the scope of its offerings.
the Commercial and Consumer Equipment Johnson continues to look for good ide-
Division) and CEO Robert Lane, also must as from outside by partnering with leading
work hard to keep the JDL business sepa- companies from complementary industries
rate from the equipment business. JDL was to develop new products. This approach
launched with a tacit agreement among the saves resources for both firms while short-
three executives: There is a wall between ening the time to market. Started as a way
JDL and the rest of Deere that contains a to help build scale and scope rapidly in
The financial results have also been one-way window: Werning and his lieu- the electronics segment of the business,
impressive. From 1996 to 2001, Air Liq- tenants can look into Deere and borrow the approach is now a part of all product
uide has seen a 10 percent average annual ideas and resources, but the reverse cannot areas. A word of caution about acquisi-
growth in revenue, a 14 percent growth in happen. At least during its initial growth tions and partnerships: Unlike traditional
operating income, and a 9 percent growth phase, JDL is insulated from the financial, acquisitions, which are often focused on
in market value. strategic, and administrative pressures of cost savings or synergies with the core busi-
5
the parent company. ness, the acquisitions that matter most in a
Organise to suit the needs of In some cases, insulating JDL may be new-growth context are those that speed
the new business as much as a matter of survival. The debate over co- development, bring in required skills, open
the core business locating dealers with JDL’s outlets is an doors to strategic markets, and otherwise
example. It’s tempting for Deere man- improve the odds of success for your new-
Next-generation opportunities are often agement to push JDL to create new store growth initiative. Keep profitability in mind
materially different from the core business, branches in locations that work for Deere when making acquisitions, but in the con-
with different economics, capital structures, dealers but would not work for JDL. That text of a new business, that may take extra
and methods of capturing value. To suc- would amount to hijacking JDL’s business time to bear fruit.
ceed, these businesses need to be under- in an attempt to benefit the core business. Keen insight and a great business de-
stood and structured in this light. Adapting that strategy could cripple or even sign are important to achieving new growth
This might seem obvious, but most com- kill JDL. outside the core business. But the most de-
6
panies have spent considerable time and manding work is executing the plan. And
effort creating common metrics, rewards, Use selective acquisitions and time is of the essence, because the value
titles, pay grades, and organisational struc- alliances to catalyse growth that a new initiative can create depends
tures in order to better align their organisa- on speed to market.
tions. The last thing senior managers want Executing new-growth strategies will
to do is open a Pandora’s box of exceptions. Many companies that decide to pursue new- never be easy. That’s true by definition,
However, form must follow function, and growth opportunities try to do so entirely since a new-growth initiative is a discov-
different business structures make sense with home-grown resources. In terms of ery expedition into unknown territory. The
for initiatives that are different from the staff, responsibility is often passed to strong precise methods you should use to develop
core operations. performers who are already stretched thin the business are ones that you will discover
John Deere Landscapes (JDL), which or to people who have been passed over for as you travel and they will be different for
operates over 200 outlets where landscap- other opportunities, and who may be me- every company. The general principles pre-
ers can buy landscaping and sprinkler diocre performers. In terms of hard assets, sented in this article have been gleaned
products, has thrived in part because it is companies often try and make do with what from our study of companies that have
separate from the parent, Deere & Com- they already own rather than look outside created new growth, as well as others
pany. Managing the relationship between the company. While it is important to save that ended up on the rocks. Only you can
parent and offspring represents an ongoing money and use available assets when pos- decide where these principles can take
challenge for Dave Werning, who heads sible, most new-growth businesses require your company.
the landscapes business, and the Deere people and assets that differ from the core (Adrian Slywotzky and Richard Wise
team. They master the differences between business in some important way. Selective are managing directors of Mercer Manage-
the economics of distribution and those acquisitions can fill this gap. ment Consulting, Boston, Mass. They are co-
of manufacturing. The financial hurdle Johnson Controls’ 1996 acquisition of authors of How to Grow When Markets
rates set for JDL are currently the same as Prince, a supplier of vehicle interior com- Don’t, Warner Business Books, 2003.)

P A T H B R E A K E R
Path Breaker:
Sam Walton
(1918-1992)
Walton’s strategies established that it’s not just doing different
things but also doing things differently that can go on to make one
of the biggest companies of the world.
I
n the fall of 1945, an ex-army captain, who had fought for the US Army in the Second
World War, decided to set up a Ben Franklin franchisee department store in Newport,
Arkansas with savings of $5000 and a loan of $20,000 from his father-in-law. This store
soon became the leading store in sales and profits among all the Ben Franklin chain stores
in a six-state region. The 27-year-old store owner could have been happy with being just
another link in the chain, except that the owner was Sam Walton.
Born on a farm near Kingfisher, Oklahoma on March 29, 1918 to Thomas Gibson and
Nancy Lee Walton, Sam grew up during the Great Depression. From milking cows to selling
newspapers to waiting on restaurant tables, he had done it all to make money. However, his
first brush with retail happened just three days after he graduated in 1940 and joined as a
management trainee at J. C. Penny’s in Des Moines, Iowa. But in 1942, this retail experience
was cut short as he had to leave the job in order to join the army. Then again, perhaps it was
this first brush that led to Sam’s future greatness.
When he came back from the war, he set up his first department store in Newport, as his
wife insisted on settling down in a place with a population of not more than 10,000 people.
The idea of opening up a department store was perhaps not a revolutionary move, but the
strategies that he adopted to become a market leader went on to become a revolution, and
rightfully bestowed the title of a path-breaker upon Sam Walton.
The Ben Franklin store owned by Walton becomes a success:

In 1945 more than 1.7 million retail outlets opened in US. While most of these outlets shut
down, the sales of Sam’s retail store increased to $105,000 in the first year of full owner-
ship; and it went on to make a profit between $30,000 and $40,000 in its fifth year, besides
registering a compounded annual growth rate of over 28%.
One of the major reasons for the remarkable success of this store was the close watch that
Sam kept over the moves of his competitor John Dunham, who owned the Sterling Store
just across the street. Sam’s regular visits at Dunham’s store ensured that he always stayed
ahead of competition. Moreover he was very astute in keeping a variety of products and

s a m wa l t o n

P A T H B R E A K E R
having a steady supply of stocks, which were sold at amazingly

low prices. He could afford to keep the prices low because he
Sam as a man
found suppliers who were willing to give him products at lesser of family and
prices than usual. He decided to pass on the concession to his
customers and thus, instead of the usual profits on margins, he society
T
brought about a shift to profits on volumes. He also kept his hough Sam Walton will
store open later than other stores during high purchase seasons always be remembered
like the Christmas holidays. as one of the most enter-
Ironically, in spite of the fact that his first store did extraor- prising dare devils in the field
of business, he also had a very
dinarily well, it was the success that forced Sam to sell off this
emotional side and was devoted
store. His landlord did not renew the lease of the store as he
to his family as well as society.
wanted to pass on the highly successful store to his son. Thus
As a kid Sam wanted to be a big insurance sales man
began a search for newer horizons for Sam to start his other
like his dad. He was very influenced by his father and
Ben Franklin Stores.
was very close to his mother. As a retailer he wanted
Not much moved by the failure in keeping his first store, to be the best and not the biggest. He was a guy who
Sam went to Fayetteville and started the chain of stores with believed in good ideas and innovations all the way. In a
the name of Walton 5&10; the strategies and planning that he conversation, somebody once asked him, “Could a Wal-
adopted made these stores as successful as the initial one. Mart type story still occur in this day and age?” He an-
swered, “Of course it could happen again. Somewhere
Strategies for Walton 5&10 stores out there right now there’s someone – probably hun-
Sam Walton continued to do what he did in his first Ben Frank- dreds of thousands of someones – with good enough
lin store, that is, use strategies which made him seem different ideas to go all the way. It will be done again, over and
from the other retail shops. He kept the prices very low and over, provided that someone wants badly enough to do
passed on the benefits that he got to the customers. He started what it takes to get there. It’s all a matter of attitude
the first 5&10 store as a variety store, always kept it clean, and the capacity to constantly study and question the
and gave special consideration to the requirements of the local management of the business.”
customers. He also unabashedly poached into the talent tank Even as a child, Sam was different and was involved in
of other companies. many other activities besides studies. After he moved
But then, Sam Walton wanted to start Walton shopping with his family to Missouri from Kingfisher, he became
centres. However, such centres at that time were not usually an Eagle Scout at the age of 13. He was a student leader,
very successful. Sam therefore decided to concentrate on his basketball star and quarterback in a state champion-
retail store concept and moved on to other places. Whenever he ship football team at Hickman High School in Colum-
opened a new store, all his employees were asked to contribute bia. He graduated from the University of Missouri at
Columbia in 1940 with a B.A. in economics. Self-reli-
$1000 each initially, and not because Sam was short of cash. This
ant from an early age, he earned his expenses in high
innovative technique was primarily intended to bring a sense
school and college by delivering newspapers. After
of ownership into the employees; and truly so as Sam later on
graduating he was voted as the “most versatile boy.”
would also share the store’s profits with them. Finally in 1962,
While he was waiting to be inducted in the army for
Sam Walton opened the first Wal-Mart in Rogers, Arkansas,
the Second World War, he met his future wife Helen
Robson, whom he married on February 14,
1943. Within a year, their first son Samuel
Robson was born (Rob); second son John
Thomas was born in 1946, third in line James
Carr (Jim) in 1948, and Alice in 1949. Sam was
a dedicated father and a loving husband.
He started his first retail store in a town be-
cause his wife Helen was not ready to shift
to a crowded city, which worked out well as
a strategy also.
He received the Presidential Medal of Free-
dom, the highest civilian honour, from Presi-
dent, George Bush Sr. His work still gives
employment to many people and helps in
the development of the entire city in which
Wal-Mart sets foot.

s a m wa l t o n
which went on to become not only the number one retailer, but
also the top company of the world in terms of sales.
Strategies for Wal-Mart

Having a 36% stake in Wal-Mart, in 1992, Sam Walton was given
a well-earned accolade of being the richest man alive. But surpris-
ingly, the strategies that stood out for Wal-Mart reaching such
heights were great because of their simplicity.
First of all, Wal-Mart targeted the middle and lower middle
class of America as their prospective clients. Wal-Mart had a simple
I
If one had to identify the most important
legacy that Sam Walton left behind in
this world, it would be nothing else than
the spirit of entrepreneurship
product free with another, special discounts etc.

Apart from these, Sam differentiated his stores from other
strategy of providing the customer with lowest possible price; and stores on various other parameters. He used to put a variety of
that legacy has carried on even now. The current punch line of things on his stores; these could be famous and branded or even
Wal-Mart still carries that legacy, “Always Low Prices, Always!” local goods. They could start from a simple pin, to fast moving
Sam was able to pass on these low price benefits to his customers consumer goods, to even having separate areas for photo shops.
by following a seemingly simple concept of economics- ‘Economies This strategy of providing a number of options to the consumers
of Sale’. He was able to do this by buying from low cost original worked wonders.
product manufacturers in bulk. Sam always forwarded almost all Another tactic that Sam employed was the concept of “people
such benefits to the consumers in the following ways: greeters”. The customers who came to Wal-Mart to shop were
greeted by shop employees with a shopping cart in their hand;
EDLP: Every day low price these employees were called ‘people greeters’. This gave a personal
ROLL BACK: By passing on cost savings to the consumer touch to the entire shopping experience of customers. In fact, the
SPECIAL BUY: Giving special offers on goods; like giving one idea of ‘self service’ was also introduced by him. Customers were
supposed to take a cart and move around the store picking and
choosing the goods of their choice, and would pay at the end
the wal-mart challenges: of the counter. This developed the now famous ‘convenience
Every entrepreneur faces problems and so did Sam buying’ method which has revolutionised the way convenience
Walton. The fact that Wal-Mart turned out to be the stores run their business. Whenever, he opened a store in a new
largest retail chain in the world, itself invited competi- location or country he took care that the ergonomics of the store
tor troubles and other consequent challenges. suited the tastes of the local people and also the location where
The latest reports indicate that Wal-Mart is fight- he opened these stores. But most importantly, besides looking
ing 38 different state and federal lawsuits filed by after his customers, Sam also took care of his employees.
hourly workers in 30 states, accusing the company Sam Walton was also a visionary in terms of seeing the po-
of systematically forcing them to work long hours tential of information technology in streamlining businesses. He
off the clock. There are other cases against Wal-Mart connected all his stores with the help of information technology
for illegally blocking efforts to unionise workers and networks to centralise controls, billing and inventory systems.
accusations that “low prices” often came courtesy
Wal-Mart stores were the first to use bar coding systems integrated
of sweatshop labour overseas. Many non-govern-
with their computer systems. Even today, Wal-Mart stores use the
ment and social activist bodies in the US have spo-
latest of technologies like RFID (Radio Frequency Identification
ken against Wal-Mart regarding these issues.
Device) and others.
A federal judge recently commented to the press that
a recent case of employee discrimination against After Sam passed away in 1992, his son S. Robson Walton
Wal-Mart can lead to a class action. Many women became the successor. What Sam Walton left, today is a company
employees in Wal-Mart are up in arms against the with a market capitalisation of $199.9 billion and an enterprise
sex discrimination in terms of paying different sal- value of over $220 billion, with centres in 10 different countries
ary rates and lower promotional opportunities to of the world, having a total of 1,353 discount stores and 1,713
female employees. This case is currently the largest super centres within US. It maintains the largest database and
civil rights suit in the United States. accounts in the world, and not to forget, the largest chain of
The other hurdle in the way of plans of going global discount stores in the world, with gross annual revenues of al-
is the reluctance of many developing countries like most $290 billion. It is not one of the world’s largest; it is ‘the’
India, Philippines and Indonesia to open up their world’s largest corporation, leaving many gigantic automobile
economies. Many activists in these countries are behemoths and oil giants behind in its wake. For if one had to
against the entry of Wal-Mart. In fact, governments identify the most important legacy that Sam Walton left behind
in countries like India have still not allowed FDI in in this world, it would be nothing else than the spirit of entre-
the retail sector to foreign companies. preneurship; and that is why Sam would always remain in the
annals of history as the indomitable path-breaker.

B O O K R E V I E W
VILLAGES-WORLD’S LARGEST
UNTAPPED MARKETS
Fortune at the Bottom of the Pyramid
A review of the book written by C.K. Prahlad — Virat Bahri
“The villages of India, China and Brazil are The value proposition must be at least 50
the markets of the future…” to 300 times greater than that for a normal
A
t least that is what Prof. C.K. Praha- market. A typical example is Reliance India
lad will have us believe. The author Mobile that started a Monsoon Hungama
has identified the Bottom of the scheme where it gave its CDMA phones in
Pyramid or the BOP market of the world, instalments to customers with down pay- and is not oppressed in any way.
which consists of 4 billion poor people, to ment of just Rs.500 and attractive features The book is an excellent example of
be the growth market of the 21st century. like R world games and news match score reality being different from perception.
According to him it should be considered as updates. The scheme created a flood in the Chandrababu Naidu for all his innovations
a separate business model by corporations, market and all major players like Airtel and was ousted by the people in the next elec-
rather than just as an extension of their Hutch were on the defensive. Evidently, tions. Prof. Prahalad has not focused much
existing products/business models. the price packaging had created immense on the key problem – infrastructure. For a
Why does the BOP then not get its due value; suddenly everyone (read e-v-e-r-y- country like India, its main cities like Delhi
attention? The reason according to Mr. o-n-e) wanted a mobile. Also, according to and Mumbai suffer from the lack of power,
Prahalad is that all the players involved Prahalad, since the value proposition is so water, proper roads and much more; we
suffer from false perceptions of the real- high the company must operate on large can only just about imagine the plight of
ity of BOP. The Government of India for economies of scale, that is, the product has the interiors. He claims that there are not
example perceived entry of private sector to be scalable across markets. many defaulters among BOP customers in
in the country to be bad for the poor; hence Prof. Prahalad admits that the problems terms of loans; whereas Reliance Infocomm
it gave the inefficient and corrupt public are immense, like infrastructure, educating suffered heavy losses from defaulters on
sector unnecessary protection and gave In- the customer on product use and corrup- the Monsoon Hungama Scheme. The rural
dia the infamous “Hindu rate of growth”. tion. In fact he cites this as a primary mo- market is a very complex and distributed
Even now voices are raised in the Parlia- tivator for companies to tap these markets. market. Isolated success stories are there,
ment, although we all know how India has Once the company succeeds in the BOP but the inherent problems are too many.
dramatically progressed since liberalisa- sector, it can easily replicate the success Typically the experiments Prof. Praha-
tion. The private sector (including MNCs) in the upper class markets. He opines that lad talks about are possible for large MNCs
believes that the BOP market cannot be corruption can be removed over time, tak- like Unilever, since the investment involved
tapped profitably and hence does not figure ing the example of Andhra Pradesh Chief of time and money is huge in understand-
in their scheme of things. The NGOs dis- Minister Chandrababu Naidu’s popular ing and profitably tapping the BOP market
trust the private sector for being too greedy eGovernance program. The book starts with the economies of scale being referred
and hence not interested in social welfare. with theoretical analysis on the BOP as a to in the book. Otherwise, small/medium
The aid agencies feel that they just cannot potential market, and the rest of it contains scale enterprises already in the BOP market
perform without the private sector. important examples of companies that have that can take the initiative to expand their
The BOP sector is a different market tapped the BOP successfully through their business territories with Government/NGO
and hence has to be approached differ- marketing programs. support. Since distribution channels are
ently. For instance, we perceive the BOP ‘Corporatisation’ of the process of sourc- now well established, other firms must
customer to be price conscious, but Prof. ing the farmer’s produce is an excellent take advantage of these networks rather
Prahalad argues that the punch word is example given by Prof. Prahalad of utilising than doing an encore on their own. Moreo-
not price but the value proposition at that the potential of the poor. By doing so, the ver, the rurl poor must be beneficiaries of
price which matters to the BOP customer. farmer gets the best rates in the market development to make it sustainable.

j u d o s ta rt e g y
JUDO STRATEGY:
Turning your competitors’
strength to your
advantage
W
hy do some companies suc- ideas. Moreover, the
ceed in defeating stronger ri- judo strategy approach
vals, while others fail? This is seems particularly time-
a question that all ambitious businesses ly today. In the go-go
eventually face. Whether you’re a start-up years of the Internet
taking on industry giants or a giant mov- boom, tilting with gi-
ing into markets dominated by powerful ants was all the rage.
incumbents, the basic problem remains the But in the vast major-
same: How do you compete with oppo- ity of cases, it was the
nents who have size, strength, and history upstarts, not the incumbents, who found David B Yoffie
on their side? themselves facing defeat. Does this mean Max and Dorris Starr
The answer lies in a simple but pow- that competing with giants is a doomed Professor of International
erful lesson: Successful challengers use enterprise? No, but it surely means that Business Administration,
what we call judo strategy to prevent op- would-be challengers must find smarter
Harvard Business School
ponents from bringing their full strength ways to compete.
into play. Judo strategists avoid forms of Judo strategy is an approach to com-
competition, such as head-to-head strug- petition that emphasises skill, rather than
gles, that naturally favour the large and size or strength. In developing this frame- Judo strategy is an
the strong. Instead, they rely on speed, work, we were inspired by the work of
agility, and creative thinking in crafting two economists, Judith Gelman and Steven approach to competition
strategies that make it difficult for powerful Salop, who coined the term “judo econom- that emphasizes skill, rather
rivals to compete. ics” to describe a strategy that allows a
This is not, of course, an entirely new company to use a larger opponent’s size than size or strength in
idea. It has long been recognised, for ex- to its advantage by ceding a fraction of
ample, that by first securing a foothold in the market than cutting prices across its
dealing with stronger rivals
an undefended market, a company can entire customer base. The central idea be-
improve its chances of ultimate success. hind this model—turning an opponent’s
However, judo strategy offers important strength into a disadvantage—has enor-
contributions to thinking about unequal mous appeal. But judo economics also
competition. Rather than focus on a single has important limitations. For example,
insight, such as the importance of niche- it’s very difficult to implement. It’s one
picking, it provides an overarching frame- thing to say that you won’t threaten bigger
work that ties together a wealth of strategic competitors. It’s quite another to convince

E N D N O T E
Companies can
win against
larger or stron-
ger competitors
by mastering
three core prin-
ciples: move-
ment, balance,
and leverage
them that you mean what you say. by exploiting leverage, firms can transform
Judo strategy picks up where judo eco- their competitors’ strengths into strategic
nomics leaves off. Judo strategy provides a liabilities.
set of tools that allow you to do more than Leverage is ultimately the most impor-
just survive in the face of daunting compe- tant principle. In judo, your opponent’s
tition; they show you how to thrive and body becomes a lever in your hands. In
grow. Building on the insights of both judo judo strategy, a competitor’s assets, part-
economics and judo, its original source, ners, and rivals can all play a similar role.
we argue that companies can win against By leveraging your opponent’s assets, you
larger or stronger competitors by mastering can transform a competitor’s strengths into
three core principles: movement, balance, sources of weakness. Similarly, by leverag-
and leverage. ing your opponent’s partners, you can turn
In judo, these principles work closely an opponent’s allies into brakes on his abil-
together. As one expert wrote, “Through ity to respond. Finally, by leveraging your
movement the opponent is led into an opponent’s competitors, you can confront a
unbalanced position. Then he is thrown rival with a double challenge: first decid-
either by some form of leverage or by stop- ing to cooperate with his competitors and
ping or sweeping away some part of his then convincing them to cooperate with
body or limbs” (Yerkow 1942). Analo- him. Detailed practical examples of all
gously, each principle provides a differ- of these principles can found throughout
ent piece of the business strategy puzzle. the book.
Through movement, managers can seize At its heart, judo strategy is about devel-
the lead and make the most of their initial oping a deep understanding of your com-
advantage. By executing what we call the petitors and espying the potential weak-
“puppy dog ploy,” managers can stay un- nesses that lurk among their strengths. This
der the radar screen of larger competitors is no science. There are no easy formulas
until they have built a position of strength. for victory. Instead, judo strategy demands
With the principle of balance, managers discipline, creativity, and the flexibility to
can successfully engage with opponents mix and match techniques. But the power
and respond to rivals’ attacks. Here, com- and promise of this approach are equal to
panies can implement ideas, such as “push the investment it demands, for by master-
when pulled.” When your competitors ating the principles behind judo strategy, you
tack, use their tactics to your advantage can use your competitors’ strength to bring
– and never respond in kind. And finally, them down.

THE HUMAN FACTOR
August-October 2005 89 | An IIPM Intelligence Unit Publication

THE HUMAN FACTOR
Subscription Form
OTHER IIPM JOURNALS
Yes, please enter my subscription for Strategic Innovator?
THE INDISPENSABLE FACTOR

Strategic Innovator? For India and SAARC Region
THE HUMAN FACTOR Subscription
August-October 2005, Volume 2 Issue 1 Rs 250 www.iipmpublications.com
Per Issue INR 450

Next Two Issues INR 850 (5% discount for > 2 issues)
TEAMS
Next Four Issues INR 1600 (10% discount for > 4 issues)
& THEIR
LEADERS Next Eight Issues INR 3050 (15% discount for > 8 issues)
The Human Face

of Business I am enclosing my cheque/DD no. __________ dated __________ for INR ________
Leadership and Management: So! We are at the Table. Alternate HR:
Clearing the Haze... 6 Now What?... 46 Axing the Axis... 78
A N I I P M I N T E L L I G E N C E U N I T P U B L I C A T I O N
on bank ________________________ branch ____________________ drawn in favour of

“The Indian Institute of Planning and Management”.
My Personal Details (IN BLOCK LETTERS)

Name ______________________________________________________________________
Designation _________________________________________________________________
Organization ________________________________________________________________
Address ____________________________________________________________________
City ________________________________ State __________________________________
Country _______________________________ Pin (mandatory) _____________________
Tel ______________________Mobile __________________ e-mail ___________________
Age Below 25 25-35 35-50 Above 50

Education Graduate MBA CA/CFA Other
NEED THE DOUGH?

M A K E W E A L T H W H I L E O T H E R S T H I N K O F I T
A u g u s t 2 0 0 5 Vo l u m e 2 I s s u e 1 w w w . i i p m . e d u
Rs. 250
Signature (Mandatory) _______________________
Please Mail it to:

Strategic Innovator?, IIPM Intelligence Unit, Subscription Department
Tower-II, Level III, C-10, Qutab Institutional Area, New Delhi - 110 016.
Contact Details : 011-41799593/591
“A billion here, a billion there, pretty
soon it adds up to real money”
Senator Everett Dirksen IIPM reserves the right to accept subscriptions.
For any queries please write to strategicinnovator@iipm.edu
AN IIPM INTELLIGENCE UNIT P U B L I C ATI O N
An IIPM Intelligence Unit Publication | 90 August-October 2005

Registration A/F Vide Title Verification Letter No. DELENG-14186/29/1/2004-TC
IIPM Planman Bangalore Campus
IIPM Planman Hyderabad Campus IIPM Planman Pune Campus
IIPM Planman IIPM Planman

New Delhi Campus - II Chennai Campus
New Delhi New Delhi Mumbai Ahmedabad Pune Bangalore Hyderabad Chennai
IIPM Tower I, B-27, IIPM Tower II, C-10, IIPM Tower, Junction of 32nd IIPM Tower, 19, Inqulab Society, IIPM Tower, 893/4, Bhandarkar Road, IIPM Tower, 419, 100 Feet Road, IIPM Tower, 6-3-252/2, IIPM Tower, 145,
Qutub Institutional Area, Qutub Institutional Area, Round & S.V. Road, Opp. Sears Tower, Gulbai Tekra, Deccan Gymkhana, Opp Oak Wood Next to Canara Bank, Erramanzil, Banjara Hills, Marshall Road, EGMO
New Delhi - 110016. New Delhi - 110016. Bandra (W) Mumbai - 400050. Off C.G. Road, Ahmedabad - 380015. Hotel, Pune - 411004. Koramangala, Bangalore - 560034 Hyderabad - 500082. Chennai - 600008
IIPM Planman
Mumbai Campus
IIPM Planman Ahmedabad Campus
IIPM Planman New Delhi Campus-I

Strategic Innovators Sep 2005

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Strategic Innovators Sep 2005

Hochgeladen von

Copyright:

Verfügbare Formate

D A R E T O D R E A M : S T R A T E G I C A L L Y !

Volume 2 Issue 2 September - November 2005 w w w . i i p m p u b l i c a t i o n s . c o m Rs.450

INSIDE THIS ISSUE

26 C O R P O R AT E S O C I A L R E S P O N S I BI L I T Y: M ARC L E MENES TREL

Companies must adopt a scientific approach in be-

For most entrepreneurs, funding is much more likely

“toI have always been driven

Innovative management strategies employed at

Investing in today’s innovation will not only create

Putting a human face to technology; and betting on

Group Editorial Director

Management intelligence Center (Correspondents)

Correspondents (other cities)

Design & Production

An IIPM Intelligence Presentation

4 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 5

Is India Losing its Do Impressions Last

6 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

INFORMATION skills and metrics and a thorough

Resolving the BOOK REVIEW

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 7

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 9

The company admits that its competitors

Google’s tiff with Wall Street

is never wrong” of underwriters and investment bankers

10 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

the more it has invited intense

competition in its business.

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 11

With cases of security breaches owing to customer

12 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 13

14 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 15

The Repositioning Strategy

16 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

Over the years a lot of me-too lime soap brands have

Sl No Company Major Brands – health, naturals, beauty and freshness.

The soap category in India is one of the most

18 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

After showing waterfalls for 22 years it was time to

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 19

Strategy is in a bad way

20 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 21

22 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

being destroyed when ordinary people competencies, transformation, and so on.

An IIPM Intelligence Unit Publication

dubious strategy devices

24 STRATEGIC INNOVATORS SEPTEMBER, 2005

IIPM - Think Tank

Who we are.. Who we believe.. What we do..

Companies must adopt a scientific

26 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 27

28 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

leased during legal actions provide exem-

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 29

30 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

32 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication

An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS SEPTEMBER, 2005 33

34 STRATEGIC INNOVATORS SEPTEMBER, 2005 An IIPM Intelligence Unit Publication