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STRATEGY FORMULATION
Once strategists have assessed and forecasted present and future SWOT, determined core competencies and strategic capabilities, and determined and prioritized strategic objectives, they proceed to formulate strategy. Strategies tell how the firm will get to where it wants to be. LEVELS OF STRATEGY Organizations have to formulate strategies at three major levels: Corporate, Business and functional. 1. Corporate strategy: Determines the business or businesses in which the firm will or should compete and how it will fundamentally conduct the business or businesses. Corporate strategy answers these questions: Does the organization have a strategic advantage? Does the company want to compete or find a niche? Does the company seek to concentrate on one product or product line, or on multiple products or products line? Will the corporation be innovative? Does the company want or need to grow, stabilize, reduce its investment, turn company fortunes around, or defend itself against a takeover?
2. Business (SBU) strategy: Answers the question, how do we compete in

this business? (This is the focus of many grand strategies)

3. Functional level strategies: Supports other strategies and answers the

question, how do we obtain the most effective and efficient use of our resources? Economic Functional strategies 1. Marketing 2. Operations-production or service generation 3. Finance 4. Human Resource management 5. Information Systems/Research and Development/Other significant areas 1. Management Functional Strategies 1. Planning, organizing, Leading, Controlling, Problem Solving 2. Communicating, integrating 3. Management Systems 4. Organizational culture CORPORATE OR GRAND LEVEL STRATEGY:

Growth Strategy Integrative Market penetration Market Development Product Development Diversification

Stability Holding Harvesting Divestment

Retrenchment Turnaround Forward Liquidation Backward Selling out Horizontal Investment Reduction

2. BUSINESS LEVEL STRATEGIES Once the organization has determined what business it wants to be in and how it will conduct each business that is once it has formulated its corporate strategy, then it must determine how it will compete each business-its business strategy. 1. COMPETITIVE STRATEGIES 2. ADAPTIVE STRATEGIES 1A DESIGNING COMPETITIVE STRATEGIES We can gain further insight by classifying firms by the role they play in the target market. a) Market Leader Strategies Expanding the total market Use a fortification strategy Use a confrontation strategy Use a maintenance strategy b) Market Challenger strategy It can attack the market leader Price discount Cheaper goods Prestige goods Product innovation Distribution innovation c) Market follower Strategy Counterfeiter Cloner Imitate Adapter d) Market Nicher Strategy End-user specialist Customer size specialist Specific customer specialist

Geographic specialist Channel specialist 1B COMPETITIVE MARKETING STRATEGIES Developed from customers point of view rather than competitors. GMs have roots of Military strategy. The aim of military strategies is to exert well over the enemy. Kotler has identified five offensive and five defensive competitive strategies named after military terms. FIVE OFFENSIVE STRATEGIES (General attack strategy for challenger). 1. Frontal attack: attacking strengths rather than weaknesses. In a pure frontal attack, the attacker matches its opponents product, advertising, price and distribution. Example: Razor-blade manufacturer in Brazil attacked Gillette the market leader. 2. Flank attack: You are engaging in competitors market where they are weak or no presence at all. Flanking is in the best tradition of modern marketing, which holds that the purpose of marketing is to discover needs and satisfy them. Segmental Flanking Geographical Flanking
3. Encirclement attack: This is an attempt to capture a wide slice of the

enemys territory through a blitz. It involves launching a grand offensive on several fronts. Example: Seko Company who has 400 watch types in UK and 2300 models worldwide. 4. Bypass attack: No confrontation with competitors but moving into new uncontested markets and product. This is most indirect assault strategy. Diversifying into unrelated products Diversifying into new geographical markets
5. Guerrilla Warfare: small attack in different market segment. Intermittent

attacks to harass and demoralize the opponent. They use both conventional and unconventional means of attack. FIVE DEFENSIVE STRATEGIES (Leader defending market share) 1. Position defense: retaining market share. Coca Cola 2. Mobile defense: It spreads through market broadening and market diversification. 3. Flank position defense: In this position you should occupy position of potential feature. Create position for counterattack. 4. Preemptive defense: Take the imitative and move the first into the market. Attack before the enemy starts its offense.

5. Counteroffensive defense: If the competitors reduce their price you should do this. 2 ADAPTIVE STRATEGIES: are applicable to business units within the organization. Adaptive business strategies are designed to provide more specific guidance for particular business units and can be viewed as an attempt to establish a harmony between an organization and its external environment. a) Prospector b) Defender c) Analyzer 3. GENERIC STRATEGIES (Porter 1980) Achieving sustainable competitive advantage can be done in 3 ways according to Porter. Cost leadership; by becoming the lowest cost producer Differentiation: by being unique in the industry. Focus: by choosing a narrow competitive scope within the industry.

REQUIREMENTS FOR GENERIC COMPETITIVE STRATEGIES Generic Commonly required skills and Common organizational strategy resources requirements Overall Cost Sustained capital investment Tight cost control Leadership and access to capital Frequent, detailed control Process engineering skills reports Intense supervisions of labour Structured organization and responsibilities Products designed for ease in manufacture Incentives based on meeting strict quantitative targets Differentiation Low cost distribution system Strong coordination among functions in R&D, product Strong marketing abilities development and marketing Product engineering Amenities to attract highly Strong R&D skilled labour. Corporate reputation for quality Focus Long tradition in the industry Strong cooperation from channels Combination of the above policies directed at the Combination of the above policies directed at the regular strategic target

particular strategic target 4. THE STRATEGY CLOCK: BOWMANS COMPETITIVE STRATEGY OPTIONSS
4. Differentiation 3. Hybrid

5. Focused Differentiation

2. Low price

6. High price, medium value

7. High price, Low value 1. No frills 8. Low value, medium price

The matrix shows the perceived added value against price and provides 8 different possible strategic routes for the organization to take.
1. No frills: Combine a low price, low perceived added value and a focus on a

price sensitive market segment 2. Low price: Risk of price war and low margins; need to be cost leader 3. Hybrid: Provide added value to customer while keeping process down; success depends on ability to both understand and develop against customer needs, whilst having a cost base that permits low prices that are difficult to imitate. 4. Differentiation: Offers perceived added value at a similar or slightly price aims to achieve increased market share by offering better products/services This can be achieved by:

Uniqueness or improvements in products-e.g. Through investment in R&D to design expertise. Marketing based approaches demonstrating how the product/service meet customer needs better than the competition. Usually build on the power of the brand or uniquely powerful promotional approaches (e.g. Levi``s)
5. Focused differentiation: Perceived added value to a particular segment,

warranting price premium. 6. Increased price/standard value: Higher margins if competitors do not follow, risk of losing market share. 7. Increased price/low value: Only feasible in monopoly situation. E.G old BT strategy. 8. Low value/standard price: Loss of market share. NOTE: SUSTAINABLE ACHIEVED: COMPETITIVE ADVANTAGE CAN BE

1. Clearly identified customer needs and values in market. 2. Considering and establishing which of the generic strategy routes is the most appropriate for the organization. 3. Operating strategy in such a way that the customer needs are met by a mix of activities that are distinctly different than that of competitors. 4. Achieving cost efficiencies/reductions through experience in these crucial activities, especially when they give cost advantages over the competition. 5. Ensuring that the strategic directions and methods of the company are in line with the generic strategy.

Contents
LEVELS OF STRATEGY.......................................................................................1 1B COMPETITIVE MARKETING STRATEGIES......................................................3 INTRODUCTION................................................................................................8 CORPORATE STRATEGY....................................................................................8 Corporate Governance..................................................................................9 Enterprise Process Model (EPM) - Process Management at Tata Motors .......11 Operations & Production Management...........................................................12 Inbound Logistics........................................................................................12 ....................................................................................................................... 12 Vendor Management ..................................................................................12 Manufacturing.............................................................................................13 Product development..................................................................................13 Cost Cutting Techniques.............................................................................14 Quality Management...................................................................................14 Operations...................................................................................................15 Sales & Marketing at Tata Motors .................................................................15 Product and Brand Strategy........................................................................15 Pricing......................................................................................................... 17 Promotion....................................................................................................17 Distribution................................................................................................. 17 Financial Strategy of TATA MOTORS...............................................................18 Cost cutting and recovery strategies:.........................................................18 Tata Motors Finance Ltd (TMFL)..................................................................20 Human Resource at Tata motors....................................................................22 Information Technology Strategy...................................................................25 Enterprise Resource Planning.....................................................................25

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Customer Relationship Management..........................................................26

INTRODUCTION Tata Motors, leader in commercial vehicles, is India's largest automobile company with revenue of USD 16 billion in 2009-10. Tata Motors, the first company from India's engineering sector to be listed in the New York Stock Exchange and has operations in the UK, South Korea, Thailand and Spain. Tata Motors started operations in 1945 and entered commercial vehicle sector in 1954 after forming a joint venture with DaimlerBenz that lasted till 1969. In more than six decades of its operations, it has grown both organically and inorganically. In 2004, Tata Motors bought Daewoos truck manufacturing unit in South Korea followed by the acquisition of the Hispano Carrocera in South Africa. In 2008, it acquired prestigious brands Jaguar and Land Rover from Ford Motor Company. This acquisition was important since before that Tata Motors was considered as a formidable global player at lower market segment only. CORPORATE STRATEGY The current strategy of the Tata Motors can best be summarized as Disruptive Innovation, wherein it has offered lower priced products and surpassed the market expectations. Its two latest offerings have further strengthened the Tata Motors position as a leading player. While Ace has been a rage in the market, Tata Nano has taken the world with awe. Much of the practices of Tata Motors, including its customer focus, attributes to the learning and experience of over six decades. Tata Motors that started with a huge success and market demand faced its first product failure in the launch of 1516. With the foreign players entering India, Tata motors that was primarily focusing on High weight commercial vehicles, included LCV in its offering and came up with Tata 407. Tata Motors in the meanwhile was also vying to develop end to end inhouse technical competence and thus ventured into engine design by partnering with Cummins. Tata motors continuously faced the problem of overloading by the users and responded by introducing stronger machines. However, a major change came after a heavy loss of Rs 550 cr in 1999 where in it re-aligned its marketing team and became more sensitized to customer needs. The revival strategy of Tata motors had three phased business plan. Firstly, it focused on the cost reduction initiatives for immediate turnaround. Secondly, it focused on domestic and

international growth through new products and improved sales and service. Finally, it linked long term growth with increased business in LCVs, new product segments and new geographies. The strategy and learnings have gone a long way with Tata Motors earning net profit of more than Rs 1000 cr even in a lean FY 2008-09. Corporate Governance Tata Motors being part of the Tata conglomerate has its philosophy deeply linked to the core philosophy of the Tata group. It has fair, ethical and transparent governance practices along with highest standards of professionalism, honesty, integrity and ethical behaviour. The company gives maximum importance to the value creation and sustainability of all the other stakeholders viz. customers, creditors, employees, vendors, community and the Government. Tata Motors have implemented the Tata Business Excellence model which is a part of Tata code of conduct applicable to all subsidiaries of Tata group. The company operates with a strong social conscience and believe in bringing benefit to peoples lives. Tata Motors strictly follows The Whistle Blower Policy, an extension of the Tata Code of Conduct, which requires very employee to promptly report to the management any actual or possible violation of the Code or an event he becomes aware of that could affect the business or reputation of the Company. the Ethics and Compliance Committee who monitors the compliance of the Tata Code of Conduct for Prevention of Insider Trading by checking monthly reports on dealings in securities and also decides penal action, if necessary. This is more important since in Indian market Tata brand is synonymous with Trust. CSR activities of Tata Motors covers major areas like environment, energy and water conservation, health, education and livelihood. SWOT Analysis

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TATA-JLR TATA Motors bought the iconic Jaguar and Land Rover operations from Ford for 1.15 billion pounds in Mar-Apr08. Tata gained the rights to the Daimler, Lanchester, and Rover brand names. In addition to the brands, Tata Motors also gained access to 2 design centres and 3 plants in UK. The key acquisition would be of the intellectual property rights related to the technologies. However there is a challenge related to the technology changes in the new entity and Fords technology will help in the short run and looking at the emerging emission standards hybrid and green technology will be the need of the hour. BCG Matrix for Tata Motors SBUs The Major SBUs of Tata Motors in which they have divided their business are: Commercial Vehicles (Light weight trucks to multi-axle 40 ton vehicles) Passenger Cars, economy and luxury (Indica, Nano, JLR) Utility vehicles, standard and premium (Sumo, Safari) Spare parts, components and accessories (HV Axles and transmission, High horse power engine via Tata Cummins) Financing for customers and channel partners (via Tata Motors Finance)

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Enterprise Process Model (EPM) - Process Management at Tata Motors When Tata Motors made a huge loss of 500 crores in the year 2000-01, analysts had all but written off Tata Motors fortunes. But TML was determined to bounce back and hence started the process of serious introspection. Three key reasons were identified for the massive lossa) Lack of customer focus b) lack of process management c) lack of new products and variants. TML had decided the three elements in a systematic manner, the major emphasis being process management. Tata Motors hence started to adopt the APQC 13 (American Productivity and Quality Center) processes and sub process and hence derive the Tata Business Excellence Model (TBEM, based on the Malcolm Baldrige National Quality Award Process), thus adopting a process oriented approach than merely people oriented approach. This practice minimized the influence of individual employees in running the operations. This also entailed the documentation of the processes, which brought about lot of clarity in terms of roles and responsibilities of process owners, inputs and outputs of the processes, in process and end process measures, entities involved and its linkage with the ISO and TS standard system. The Enterprise Process Model has been depicted in the figure below.

Hasamnis, Sudhir, ENTERPRISE PROCESS MODEL (EPM) PROCESS MANAGEMENT AT TATA MOTORS LIMITED, 2008

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Figure: Enterprise Process Model1 Operations & Production Management Inbound Logistics

Procurement

Vendor Management In the Year 1997, Tata Motors promoted a company called Tata Autocompsystems Limited (TACO) . The main objective was to serve form joint ventures with international auto component manufacturers and streamlining the vendor management processes for the company.2 Tata Motors sources from vendors
2

ICMR case study, Operation Management at Tata Motors, excerpts. www.scribd.com/tatamotors

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who focus on their own R & D to reduce cost. Most of the vendors develop products with Tata Motors itself and quite a few were given designs by Tata Motors. TML also helped the vendors find international partners to make products that would meet their requirements. Some of the vendors who supply to Tata Motors also did competitive buying of material from China and Thailand.3 Manufacturing In an automotive industry, the main emphasis on quality would be on the manufacturing process. There would be about fifteen thousand accessories and component parts to assemble and activate while we manufacture a car. Tata motors believes in the indigenous development of manufacturing process and development of technology. Unless many automobile companies, the strategy of the firm is not to blindly adopt any new successful technology. It believes in state-of-the-art technology. With reference to the product market matrix (with product development, market development, market penetration and diversification) which composes the merging of production and marketing strategies Tata motors is seen to follow the diversification strategy wherein it produces new products and gets into new market to target with the product. Product development New Product Development would involve idea generation, product screening, concept testing, Business and financial analysis, product development, test marketing and commercialization. An automobile product development cycle is said to be consisting of concept stage (where the car starts), Advance engineering (where the car takes shape), product engineering (where the details are filled in), production engineering (where the car is worked out) and the manufacturing stage (where all comes together)3. Tata Motors Engineering Research Centre in Jamshedpur focuses in upgrading the components and parts with evolution of technology and also is one of the best in determining the needs of a customer and developing a new product to cater to the needs. Tata Nano is one such product from the stable of Tata motors. Besides this centre the Research and development of Tata motors has become international with centres in Spain, UK and South Korea also.
3

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Cost Cutting Techniques After a rough fiscal year in 2001, Tata Motors realized that the only way to survive this market was to cut down on costs. They started practicing an entirely new way of procuring their supplies and hence gave rise to a unique way of managing supplier relationship. The earlier traditional method that Tata Motors gave the technical specifications to the supplier and the supplier who was successful in acquiring the bid filled up the orders. However under the new system Tata Motors simply provided the output they expected, and allowed the suppliers to be as creative and innovative with their designs, materials, and prices. In other words Tata Motors would simply describe the goal that they wanted to achieve with certain part and the suppliers would supply the parts according their own convenience. For example instead of giving technical specifications for the wind shield of Tata Indica, it would just describe the goal of cleaning the windshield, and let the suppliers come up with ideas to meet those goals in the most cost effective manner, without compromising on quality. This practice led to huge cost savings in raw materials and the Tatas could deliver the cheapest car of the world at just 2500$. By leveraging local design capabilities and avoiding the dependency on high end design systems, Tata Motors has been able to provide low cost solutions in a continuous and efficient manner. Also Tata Motors tried the innovative method of Zero Based Costing. For example initially TML paid for forged components on a cost plus basis, in the new system it paid a price depending on the weight of the forgings. Quality Management The shifting of focus on TQM (Total Quality Management) and Six Sigma principles by Tata Motors has been a gradual one since the year 2000. One quarter of the work force undergo training to maintain and create high quality products every year. The personnel are even sent to foreign manufacturers locations, whenever a new machine would be imported, to undergo training.

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Operations

Outbound Logistics

Sales & Marketing at Tata Motors Product and Brand Strategy Tata Motors follows a sub brand strategy. Although there is no separate Brand for TATA motors as such but the TATA brand is used as a mother brand. All products of benefit from the association with the TATA brand, which in India stands for trust and reliability. TATA motors products can be categorised into four major categories: Passenger cars, Utility vehicles, trucks and commercial passenger carriers. The following table shows the different product lines of each category and the launch periods as well. (Source: Company Website).

TATA Motors Product Portfolio

Product and Variant Launch years

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TT Mb A A o ile T T S ra A A ier TC rn A Ca e T T Et t A A sae

The product strategy in TATA motors has been driven by two primary objectives Identifying the market need and creating new market segments. The success stories in the past two decades (Sumo, 207, Ace, Indica etc) have been able to fulfil these overall objectives. The strategy adopted behind these products also reflects the commitment of TATA Motors to customer needs and new product innovation. The company has also exported its vehicles after creating customised variants which have higher payload and

Sm u o Sf r aai

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engine capacity. It has also customised its domestic products by introducing passenger option, higher payloads, bigger engines etc. In broad terms the following sums up the TATA motors marketing philosophy:

Pricing TATA motors have a pricing advantage due to its low cost leans manufacturing abilities. The in-house steel company acts as a shock absorber against steel price fluctuations. The pricing methodology adopted is that of a perceived value pricing. It was demonstrated by the Rs 1 Lakh price of TATA Nano, where the cost of producing the car left a very small margin for TATA. Promotion TATA Motors uses extensive promotion for its passenger car segment. The Utility vehicle and commercial passenger carrier follow this segment based on Share of Voice. Distribution TATA Motors has a large network of dealers and Stockyards, all across the globe and uses the DMS technology for efficient cooperation between these dealers. Its distribution network includes operations in India, Nepal, Bhutan, Ghana, Italy, Poland, South Africa, Spain, Sri Lanka and Turkey. The company's dealership, sales, services and spare parts network comprises over 3500 touch points. Apart from the wide distribution network Tata Motors also has Distributed manufacturing it has Assembly units at South Africa, Thailand, Bangladesh, Brazil apart from India. The company's manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand) and Dharwad (Karnataka). To augment the scarce resources, it has a joint venture with Fiat wherein Fiat sells its vehicles through Tata dealerships and in

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return Tata Motors has access to Fiats technology and unutilized capacity Over the years, one of the major success factors of Tata Motors is their supply chain excellence. To keep their distribution costs to the minimum they have outsourced the logistics and distribution part of their business to Tata Motors Ltd. Distribution Company (TDCL), a wholly owned subsidiary of Tata Motors Ltd. Through this arrangement, Tata Motors is able to reduce its logistical costs by at least 1% and to focus more on the core business. This in turn has provided flexibility to Tata Motors in terms of delivering the right product at the right time at the right place. Therefore, today, Tata Motors is a fully integrated automobile manufacturer with a portfolio which covers trucks, buses, utility vehicles & passenger vehicles/cars. The dealers and suppliers are bound by a Supplier Relationship Management Program and Dealer Management System. These programs are reviewed from time to time. The efficiency of transactions within the organization and also supplier coverage are given importance. Suppliers day, Vendors meets, Channel partner meets are organised wherein the Board members can interact with suppliers to share ideas and thoughts. Financial Strategy of TATA MOTORS Cost cutting and recovery strategies: The transformation of Tata Motors into a highly successful, welldiversified, and globally ambitious automobile giant represents one of Indias most remarkable corporate-success stories in recent times. In 2001 after a decade of strong revenue and margin growth, Tata Motors plunged into a financial crisis when demand for its trucks suddenly collapsed. The lost sales compounded by heavy investment for its entry into the passenger car business, the cost of complying with new emissions standards, and an increasing threat from overseas competitors caused Tata Motors to shock the markets with a 5 billion rupee ($110 million) loss for the fiscal year ending March 2001. Even in late 90s Tata Motors was predominantly a manufacturer of commercial vehicles, and that is a very cyclical business. At the time it was making huge investments in car manufacturing to move away from that cyclicality. But while it was in the middle of

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this diversification, the commercial-vehicle market in India shrank by more than 40 percent, with massive consequences for both the top and, more particularly, the bottom lines of the company. The 5 billion rupee loss in 2001 was the first time something on this scale had happened in the companys history which really shook everybody within the organization. So in 2001 Tata Motors decided on a recovery strategy that had three distinct phases, each of which was intended to last for around two yearssix years in all. Phase one was intended to stem the bleeding. Phase two was to be about consolidating our position in India, and phase three was to involve going outside India and expanding our operations internationally. The key objectives were to move to a system of market pricing and to reduce our break-even point, both of which called for major reductions in costsvariable costs, fixed costs, and interest costs. It used many approaches to cost reduction, including bench-marking its rivals. For example, it took apart vehicles to see what they could do to modify their products and to lower costs. They went in for e-sourcing, which was then very new, but today it is the largest company doing e-sourcing in India and one of the leading ones in the automobile industry worldwide. In two and a half years, it reduced our break-even from nearly two-thirds of capacity utilization to around one-third, which meant that even if the market shrank by close to 60 percent, it would still be profitable. The whole organization really got together to ensure that the bleeding stopped. For phase two, the concentration was on improving product quality and upgrading product features so as to make the products more competitive. It also started work on new products that would be required by the market after three to five years and strengthened its position in the marketplace by setting up a new sales-planning process, tightening credit norms, improving the liquidity and profitability of the dealers, reorienting toward customer satisfaction, and extending the reach of its distribution network. For phase three, the concentration was on starting work on international markets by identifying key markets and segments and developing a comprehensive plan to improve its competitive position so as to get a respectable market share. It also started looking at opportunities for inorganic growth.

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Tata Motors Finance Ltd (TMFL) The auto financing arm for Tata Motors was established in 1957 in the name of BHPC (bureau for Hire Purchase and Credit). TMFL came into existence in June 2003. This was a common front-end, jointly formed by BHPC (Bureau for Hire Purchase and Credit) of Tata Motors and the asset financing arm of erstwhile Tata Finance Ltd. It was in the market for exclusively financing Tata Motors vehicles. Subsequently Tata Finance was merged with Tata Motors and in April 2005 TMF became a division of Tata Motors. It is engaged in financing entire range of passenger cars & commercial vehicles manufactured by Tata Motors Ltd. TMF is the largest financier of vehicles manufactured by Tata Motors Ltd. With more than 2 million customers financed, TMF reaches out & helps customers to realize their dreams of owning a Tata vehicle easily. Corporate Purpose TMF aspires to be a preferred financier by choice for Tata Motors customers & dealers across all its products. Tata Motor finance would be the top-of-the-mind choice for all stakeholders when it comes to Tata Motors products. With a core purpose to reach out & help customers realize the dream of owning a TATA vehicle easily, we are present across 150+ locations and at all Tata Motors Ltd authorized dealerships. Schemes designed to suit every customer requirement, flexible repayment options, hassle-free eligibility criteria, simple documentation and fast sanctioning process makes it the preferred choice of any customer desirous of owning a Tata Car or Commercial vehicle. Strategy defined TMF came into existence for the prime reason of easy financing the Tata Car or Commercial vehicles. Through these new initiatives, TMF aimed to reach small towns and villages, where they could find buyers for their products, such as the Ace and, going forward, for their small car. In the competitive world, there is an existing demand for cars, and along with it, it is important to make finance available to the potential buyers to help them buy the vehicles. With the low availability of conventional banking services in rural areas, it was necessary for them to offer finance

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to

their

buyers

in

such

far-flung

markets.

Tata Motors has dealers in nearly every district in India. This helps them to build a good database of the financial credibility and worthiness of their customers across the country, which will be valuable information for the entire Tata Group. Similarly, this perspective would be deployed in their global operations in South Africa, South Asia, South Korea and the Middle East where they can adopt a partnering strategy. The partnering strategy could well involve a local bank in the respective country as the individual countries have their own financial regulatory requirements. In other cases we could partner with Indian banks which have operations in foreign countries. The State Bank of India, for example, is already present in many African countries. So it can be looked upon as a prospective partner PAT/Sales structure of TATA Motors for the last 30 years: 1975 1980 1985 1990 1995 2000 2005 2251 4482 9335 19691 56831 89611 206486 Sales 0 7 3 0 2 4 6 PAT 541 1762 2313 10254 31895 7120 123695 PAT/Sale 2.40 3.93 2.48 s % % % 5.21% 5.61% 0.79% 5.99% In last 5 Years: CAG 2005 2006 2007 2008 2009 R 206486 242905 321298 287679 256606 5.58 6 2 8 1 7 % 7.10 123695 152888 191346 165417 92151 % 5.99% 6.29% 5.96% 5.75% 3.59%

Sales PAT PAT/Sal es

The above table shows the net profit margin for the last five years and also shows the compounded annual growth rate over the last 5 years. We can see that there has been a 5.58% growth in sales whereas PAT has gone down by 7.10%. However we cannot blame its strategy being wrong because we see that TATA

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motors has invested heavily in various mergers & acquisitions which has bought down its PAT, but is in line with their Inorganic growth strategy. Sustainability and road ahead: In a broad way, Tata Motors has been silently transforming itself for a long time and this will continue. The company started manufacturing locomotives, and then concentrated on heavy trucks before moving to light trucks, multi-utility vehicles, passenger cars, and buses. It has to continually reinvent itself. The important thing is to keep looking at external changes in the marketplace and to respond to these changes appropriately while continuing to retain its values, which have been its beacon for the past 60 years. Tata Motors used to be an engineers organization that needed to understand more about profits, costs, and contributions. Now people at all levels realize it doesnt make sense to just manufacture anything, that products must sell to make a healthy contribution, and that market share must continually be increased to sustain growth. It should grow and produce a healthy bottom line, necessary for sustained growth. But in doing so, it be seen as an innovative company breaking new ground and going into uncharted territories successfully like the recent JLR deal. Human Resource at Tata motors Few specific events related to downsizing at Tata Motors would help us describe the HR culture at the company. From 1970s to present Tata Motors share value has increased nearly 4000 pp, turnover has increased from about 1800Cr. to 75000 Cr. But manpower figures have not been following the same trend. From a figure of 11000 employees it rose to 35000, then came down to almost half (18000) and the number is again on rise. For understanding the trend, we must become familiar with the factors affecting manpower. Some of these factors are listed below: Volume of business: a fast growing business like Tata Motors needed more hands to work on day by day Locational delinkage: Tata Motors started off a new unit at Pune Adopting new product or technology: advent of passenger cars and light commercial vehicles

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Shift in customer preferences: style and comfort became important like never before Starting support activities o Finance: the need to provide finance to people to buy their vehicles, Tata Motors started off Tata Motors Finance o Logistics: the Hub n Spoke model of the dealer network was introduced o IT: need for information was growing day by day and it needed to be addressed soon o Automation: automation in assembly was introduced This has provided us with a fair background of the changes in the company. Now let us try to understand the companys HR policies and culture against this backdrop. Phase I: During 1970s, money and people were available in abundance with Tata Motors. It cared for its employees like a father cares for his children. Todays buzz words like mentoring and coaching were actually practiced nearly three decades back in Tata Motors. Senior executives handheld new employees and helped them blend with the company. Colonies were made for the TELCO community, which provided residents, apart from basic amenities, with, facilities like security, health care, clubs etc. Tata Motors wanted its employees to have no reason to leave the organization before their retirement. Though it also set out some basic codes of conduct, to which, if one fails to conform, he would be asked to leave the Tata Motors family within a stipulated time period. These included refraining oneself from stealing (even stealing a pencil was an offence), and not indulging in an undesirable relationship between a man and a woman who lived in the colony. The sincerity of management at Tata Motors in implementing these two rules can be judged from the incident that when Daimlers Chief was found guilty of getting into an undesirable relationship he was given a return ticket to his homeland. Also employees were given loans without any interest rates being charged from them.

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With the advent of IT, IBM 1401 was introduced in the company. The machine required inputs through punch cards and hundreds of people were required to punch these cards. Tata Motors again found a chance to work for the society at large. It employed several widows to do the job in three different shifts and helped them earn bread and butter for their families. Also there was some reconditioning of motors and the winding department had work that could again be performed by women, so again it employed even more women for the job. By 1980s, too much automation had taken place, the wizards of the organization who earlier experienced a sense of vanity about their expertise of precisely identifying the problem areas in a machine or assembly line, felt useless. They were gradually becoming technologically obsolete. At that point Tata Motors offered them a scheme that if they do not wish to stay in the company they may leave but they would continue to get benefits of employment till 60 years of age. Company was in good shape at that time and was still trying to look after them as parents. The scheme received an overwhelming response and resulted in voluntary downsizing. We see here that though there was a downsizing still it was not cruel; employees werent chopped cruelly off the muster rolls of the company. Phase II: This would show the survival mode adopted by the company. From the year 1995 onwards, company was compelled to share publicly the quarterly results for the benefit of the shareholders. Cost of employees had also risen from about 10% to nearly 30%. Also the company was facing stiff competition. This led to the development of the Tata Business Excellence Model. Every individual was put under a scanner. 360 degree appraisals, Balance Score Cards started being implemented to assess employee performance. Big consultants like Mckinsey and the Tata group itself joined the scanning process. The company was bleeding, everyone was fearing that the company might close down completely. Finally it was decided that the bottom 10% would have to leave the organization. A hockey stick syndrome prevailed throughout the organization; within a very short period of time there was a tremendous morale crash. The company lost about 7000 employees over the years due to the process. It had to take corrective actions. As a result: Salaries of those who stayed were jacked up 4-6 times

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Huge induction from outside was done at every level Brilliant people were given promotional jumps, eg: Tata Nano chief Phase III: Tata Motors started in Jamshedpur, operating in the product range of locomotives, commercial vehicles, excavators. Then it started off a new unit at Pune that was majorly a centre for R&D along with production of commercial vehicles. It then had to open up a new plant in Lucknow without any agenda, just because of the pressure from the centre. It involved huge costs. The hierarchy had been becoming unwieldy. Company had to adopt a profit oriented face. It revisited following areas of improvements; Automation Development employed nearly 3000 employees, so many of them were not really needed and were a burden on the company Today finance is available in abundance, a captive finance company like Tata Motors Finance was not really needed The Hub n Spoke model required thousands of drivers, a number of logistics companies are available today and all this could be easily outsourced at a much lower cost All these led to several of integrated organs like Tata Motors Finance, Tata Motors Automation Ltd., Tata Engineering & Constructions, Tata Motors Logistics etc. to be snapped out and become individual companies with independent GMs of whom Tata Motors would only be one of the clients. Today the core values of Tata Motors are slightly skewed towards business, but that is because the context changes with era. As the time changes one has to constantly change and adapt with the changing times and as they say, No prescription is a permanent prescription, Tata Motors is simply evolving with time, yet at every step, taking care of what it leaves behind. Information Technology Strategy Enterprise Resource Planning Prior to the SAP implementation TML has a host of legacy applications which had been developed and maintained over a period of time. Thus the underlying technologies and platforms

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were diverse along with diversity in functions and locations. This led to redundancy, inconsistency and inefficiency in data management. A unified real time database with an IT infrastructure that was integrated across the functions, locations and even businesses was the need of the hour, in order to cut costs and manufacturing cycle times and also serve the customers more efficiently. Why SAP? SAP has a clear superiority in the market. It has a large presence and good support, so we chose the SAP ERP Solution for our company. The results have definitely exceeded our expectations, says Probir Mitra, CIO, Tata Motors. SAP was the business leader in ERP solutions space. SAP offered strategic fit to TMLs TO-BE stage process mapping. SAP was able to integrate various functions across geographies yet maintaining real time data updates. TMLs business processes were rationalized across all manufacturing units using the power of SAPs ERP infrastructure. The existing environment prior to SAP implementation was Oracle database solutions, Unix as operating system and predominantly IBM for hardware support. The implementation of SAP ERP solution (Version 3.1H) started in about 1998 and was finished by 2000 for about 3500 users. Later in 2003 TML moved to version 4.6C on a single server platform. The major benefits from implementation included enterprise integration, reduction of inventories, better control over receivables, easier financial consolidation, single unified database, improved efficiency by reducing redundancy and inconsistency, reduced response time to customers and reduction of operational costs. Customer Relationship Management With increasing competition from both Indian and foreign automakers in a cyclical business environment, Tata Motors needed strategies to build competitive advantage through strong relations with customers and good customer service. Being a global player with a widely dispersed dealer network Tata Motors

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was in the need of a common system to link its company, dealers and customers. In 2005, Tata Motors took a decision to implement a robust CRM throughout the organization. Oracles Siebel Automotive CRM solution customized for the automotive industry was chosen as the CRM system for the organization. Standardizing Customer-Facing Processes Tata Motors aimed to standardize its customer-facing business processes companywide through reengineering, thus improving operational efficiency and effectiveness, building stronger dealer relationships and a better customer experience. This task involves working with about 250 dealers and more than 1600 locations staffed by more than 10,000 salespeople across India. TML has also deployed a robust technology platform consisting of an innovative dealer management system to improve the information flow across the enterprise. This system helps dealers in functions such as inventory management, credit reporting, calculating commissions etc. Siebel Automotive CRM, in conjunction with the dealer management system, has streamlined transactions, ensuring real time capturing of customer data. The solution provides a 360-degree view of customers to the extended organization, with appropriate visibility controls to ensure that one dealer is not privy to information from another. Registering Strong Success with Dealer Siebel Automotive has transformed Tata Motors into a truly customer-centric organization. Information redundancy and disparity has been reduced and the business processes have been improved. By working upon real-time, centralized customer and vehicle data, the employees and dealers have been empowered immensely.

Strategy Formulation In TOYOTA

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INTRODUCTION It is useful to consider strategy formulation as part of a strategic management process that comprises three phases: diagnosis, formulation, and implementation. Strategic management is an ongoing process to develop and revise future-oriented strategies that allow an organization to achieve its objectives, considering its capabilities, constraints, and the environment in which it operates. Diagnosis includes: (a) performing a situation analysis (analysis of the internal environment of the organization), including identification and evaluation of current mission, strategic objectives, strategies, and results, plus major strengths and weaknesses; (b) analyzing the organization's external environment, including major opportunities and threats; and (c) identifying the major critical issues, which are a small set, typically two to five, of major problems, threats, weaknesses, and/or opportunities that require particularly high priority attention by management. Formulation, the second phase in the strategic management process, produces a clear set of recommendations, with supporting justification, that revise as necessary the mission and objectives of the organization, and supply the strategies for accomplishing them. In formulation, we are trying to modify the current objectives and strategies in ways to make the organization more successful. This includes trying to create "sustainable" competitive advantages -although most competitive advantages are eroded steadily by the efforts of competitors. A good recommendation should be: effective in solving the stated problem(s), practical (can be implemented in this situation, with the resources available), feasible within a reasonable time frame, cost-effective, not overly disruptive, and acceptable to key "stakeholders" in the organization. It is important to consider "fits" between resources plus competencies with opportunities, and also fits between risks and expectations. There are four primary steps in this phase: * Reviewing the current key objectives and strategies of the organization, which usually would have been identified and evaluated as part of the diagnosis * Identifying a rich range of strategic alternatives to address the three levels of strategy formulation outlined below, including but not limited to dealing with the critical issues * Doing a balanced evaluation of advantages and disadvantages of the alternatives relative to their feasibility plus expected effects on the issues and contributions to the success of the organization * Deciding on the alternatives that should be implemented or recommended.

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In organizations, and in the practice of strategic management, strategies must be implemented to achieve the intended results. The most wonderful strategy in the history of the world is useless if not implemented successfully. This third and final stage in the strategic management process involves developing an implementation plan and then doing whatever it takes to make the new strategy operational and effective in achieving the organization's objectives. The remainder of this chapter focuses on strategy formulation, and is organized into six sections: Three Aspects of Strategy Formulation, Corporate-Level Strategy, Competitive Strategy, Functional Strategy, Choosing Strategies, and Troublesome Strategies. THREE ASPECTS OF STRATEGY FORMULATION The following three aspects or levels of strategy formulation, each with a different focus, need to be dealt with in the formulation phase of strategic management. The three sets of recommendations must be internally consistent and fit together in a mutually supportive manner that forms an integrated hierarchy of strategy, in the order given. Corporate Level Strategy: In this aspect of strategy, we are concerned with broad decisions about the total organization's scope and direction. Basically, we consider what changes should be made in our growth objective and strategy for achieving it, the lines of business we are in, and how these lines of business fit together. It is useful to think of three components of corporate level strategy: (a) growth or directional strategy (what should be our growth objective, ranging from retrenchment through stability to varying degrees of growth - and how do we accomplish this), (b) portfolio strategy (what should be our portfolio of lines of business, which implicitly requires reconsidering how much concentration or diversification we should have), and (c) parenting strategy (how we allocate resources and manage capabilities and activities across the portfolio -- where do we put special emphasis, and how much do we integrate our various lines of business). Competitive Strategy (often called Business Level Strategy): This involves deciding how the company will compete within each line of business (LOB) or strategic business unit (SBU). Functional Strategy: These more localized and shorter-horizon strategies deal with how each functional area and unit will carry out its functional activities to be effective and maximize resource productivity.

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CORPORATE LEVEL STRATEGY This comprises the overall strategy elements for the corporation as a whole, the grand strategy, if you please. Corporate strategy involves four kinds of initiatives: * Making the necessary moves to establish positions in different businesses and achieve an appropriate amount and kind of diversification. A key part of corporate strategy is making decisions on how many, what types, and which specific lines of business the company should be in. This may involve deciding to increase or decrease the amount and breadth of diversification. It may involve closing out some LOB's (lines of business), adding others, and/or changing emphasis among LOB's. * Initiating actions to boost the combined performance of the businesses the company has diversified into: This may involve vigorously pursuing rapid-growth strategies in the most promising LOB's, keeping the other core businesses healthy, initiating turnaround efforts in weak-performing LOB's with promise, and dropping LOB's that are no longer attractive or don't fit into the corporation's overall plans. It also may involve supplying financial, managerial, and other resources, or acquiring and/or merging other companies with an existing LOB. * Pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantages -- especially transferring and sharing related technology, procurement leverage, operating facilities, distribution channels, and/or customers. * Establishing investment priorities and moving more corporate resources into the most attractive LOB's. It is useful to organize the corporate level strategy considerations and initiatives into a framework with the following three main strategy components: growth, portfolio, and parenting. These are discussed in the next three sections. What Should be Our Growth Objective and Strategies? Growth objectives can range from drastic retrenchment through aggressive growth. Organizational leaders need to revisit and make decisions about the growth objectives and the fundamental strategies the organization will use to achieve them. There are forces that tend to push top decision-makers toward a growth stance even when a company is in trouble and should not be trying to grow, for example bonuses, stock options, fame, ego. Leaders need to resist such temptations and select a growth strategy stance that is appropriate for the organization and its situation. Stability and retrenchment strategies are underutilized.

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Some of the major strategic alternatives for each of the primary growth stances (retrenchment, stability, and growth) are summarized in the following three sub-sections. Growth Strategies All growth strategies can be classified into one of two fundamental categories: concentration within existing industries or diversification into other lines of business or industries. When a company's current industries are attractive, have good growth potential, and do not face serious threats, concentrating resources in the existing industries makes good sense. Diversification tends to have greater risks, but is an appropriate option when a company's current industries have little growth potential or are unattractive in other ways. When an industry consolidates and becomes mature, unless there are other markets to seek (for example other international markets), a company may have no choice for growth but diversification. There are two basic concentration strategies, vertical integration and horizontal growth. Diversification strategies can be divided into related (or concentric) and unrelated (conglomerate) diversification. Each of the resulting four core categories of strategy alternatives can be achieved internally through investment and development, or externally through mergers, acquisitions, and/or strategic alliances -- thus producing eight major growth strategy categories. Comments about each of the four core categories are outlined below, followed by some key points about mergers, acquisitions, and strategic alliances. 1. Vertical Integration: This type of strategy can be a good one if the company has a strong competitive position in a growing, attractive industry. A company can grow by taking over functions earlier in the value chain that were previously provided by suppliers or other organizations ("backward integration"). This strategy can have advantages, e.g., in cost, stability and quality of components, and making operations more difficult for competitors. However, it also reduces flexibility, raises exit barriers for the company to leave that industry, and prevents the company from seeking the best and latest components from suppliers competing for their business. A company also can grow by taking over functions forward in the value chain previously provided by final manufacturers, distributors, or retailers ("forward integration"). This strategy provides more control over such things as final products/services and distribution, but may involve new critical success factors that the parent company may not be able to master and deliver. For example, being a world-class manufacturer does not make a company an effective retailer. Some writers claim that backward integration is usually more profitable than forward integration, although this does not have general support. In any case,

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many companies have moved toward less vertical integration (especially backward, but also forward) during the last decade or so, replacing significant amounts of previous vertical integration with outsourcing and various forms of strategic alliances. 2. Horizontal Growth: This strategy alternative category involves expanding the company's existing products into other locations and/or market segments, or increasing the range of products/services offered to current markets, or a combination of both. It amounts to expanding sideways at the point(s) in the value chain that the company is currently engaged in. One of the primary advantages of this alternative is being able to choose from a fairly continuous range of choices, from modest extensions of present products/markets to major expansions -- each with corresponding amounts of cost and risk. 3. Related Diversification (aka Concentric Diversification): In this alternative, a company expands into a related industry, one having synergy with the company's existing lines of business, creating a situation in which the existing and new lines of business share and gain special advantages from commonalities such as technology, customers, distribution, location, product or manufacturing similarities, and government access. This is often an appropriate corporate strategy when a company has a strong competitive position and distinctive competencies, but its existing industry is not very attractive. 4. Unrelated Diversification (aka Conglomerate Diversification): This fourth major category of corporate strategy alternatives for growth involves diversifying into a line of business unrelated to the current ones. The reasons to consider this alternative are primarily seeking more attractive opportunities for growth in which to invest available funds (in contrast to rather unattractive opportunities in existing industries), risk reduction, and/or preparing to exit an existing line of business (for example, one in the decline stage of the product life cycle). Further, this may be an appropriate strategy when, not only the present industry is unattractive, but the company lacks outstanding competencies that it could transfer to related products or industries. However, because it is difficult to manage and excel in unrelated business units, it can be difficult to realize the hoped-for value added. Mergers, Acquisitions, and Strategic Alliances: Each of the four growth strategy categories just discussed can be carried out internally or externally, through mergers, acquisitions, and/or strategic alliances. Of course, there also can be a mixture of internal and external actions. Various forms of strategic alliances, mergers, and acquisitions have emerged and are used extensively in many industries today. They are used particularly to bridge resource and technology gaps, and to obtain expertise and market positions more quickly than could be done through internal development. They are

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particularly necessary and potentially useful when a company wishes to enter a new industry, new markets, and/or new parts of the world. Despite their extensive use, a large share of alliances, mergers, and acquisitions fall far short of expected benefits or are outright failures. For example, one study published in Business Week in 1999 found that 61 percent of alliances were either outright failures or "limping along." Research on mergers and acquisitions includes a Mercer Management Consulting study of all mergers from 1990 to 1996 which found that nearly half "destroyed" shareholder value; an A. T. Kearney study of 115 multibillion-dollar, global mergers between 1993 and 1996 where 58 percent failed to create "substantial returns for shareholders" in the form of dividends and stock price appreciation; and a Price-Waterhouse-Coopers study of 97 acquisitions over $500 million from 1994 to 1997 in which two-thirds of the buyer's stocks dropped on announcement of the transaction and a third of these were still lagging a year later. Many reasons for the problematic record have been cited, including paying too much, unrealistic expectations, inadequate due diligence, and conflicting corporate cultures; however, the most powerful contributor to success or failure is inadequate attention to the merger integration process. Although the lawyers and investment bankers may consider a deal done when the papers are signed and they receive their fees, this should be merely an incident in a multi-year process of integration that began before the signing and continues far beyond. Stability Strategies There are a number of circumstances in which the most appropriate growth stance for a company is stability, rather than growth. Often, this may be used for a relatively short period, after which further growth is planned. Such circumstances usually involve a reasonable successful company, combined with circumstances that either permit a period of comfortable coasting or suggest a pause or caution. Three alternatives are outlined below, in which the actual strategy actions are similar, but differing primarily in the circumstances motivating the choice of a stability strategy and in the intentions for future strategic actions. 1. Pause and Then Proceed: This stability strategy alternative (essentially a timeout) may be appropriate in either of two situations: (a) the need for an opportunity to rest, digest, and consolidate after growth or some turbulent events before continuing a growth strategy, or (b) an uncertain or hostile environment in which it is prudent to stay in a "holding pattern" until there is change in or more clarity about the future in the environment. 2. No Change: This alternative could be a cop-out, representing indecision or timidity in making a choice for change. Alternatively, it may be a comfortable,

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even long-term strategy in a mature, rather stable environment, e.g., a small business in a small town with few competitors. 3. Grab Profits While You Can: This is a non-recommended strategy to try to mask a deteriorating situation by artificially supporting profits or their appearance, or otherwise trying to act as though the problems will go away. It is an unstable, temporary strategy in a worsening situation, usually chosen either to try to delay letting stakeholders know how bad things are or to extract personal gain before things collapse. Recent terrible examples in the USA are Enron and WorldCom. Retrenchment Strategies Turnaround: This strategy, dealing with a company in serious trouble, attempts to resuscitate or revive the company through a combination of contraction (general, major cutbacks in size and costs) and consolidation (creating and stabilizing a smaller, leaner company). Although difficult, when done very effectively it can succeed in both retaining enough key employees and revitalizing the company. Captive Company Strategy: This strategy involves giving up independence in exchange for some security by becoming another company's sole supplier, distributor, or a dependent subsidiary. Sell Out: If a company in a weak position is unable or unlikely to succeed with a turnaround or captive company strategy, it has few choices other than to try to find a buyer and sell itself (or divest, if part of a diversified corporation). Liquidation: When a company has been unsuccessful in or has none of the previous three strategic alternatives available, the only remaining alternative is liquidation, often involving a bankruptcy. There is a modest advantage of a voluntary liquidation over bankruptcy in that the board and top management make the decisions rather than turning them over to a court, which often ignores stockholders' interests. What Should Be Our Portfolio Strategy? This second component of corporate level strategy is concerned with making decisions about the portfolio of lines of business (LOB's) or strategic business units (SBU's), not the company's portfolio of individual products. Portfolio matrix models can be useful in reexamining a company's present portfolio. The purpose of all portfolio matrix models is to help a company understand and consider changes in its portfolio of businesses, and also to think about allocation of resources among the different business elements. The two

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primary models are the BCG Growth-Share Matrix and the GE Business Screen (Porter, 1980, has a good summary of these). These models consider and display on a two-dimensional graph each major SBU in terms of some measure of its industry attractiveness and its relative competitive strength The BCG Growth-Share Matrix model considers two relatively simple variables: growth rate of the industry as an indication of industry attractiveness, and relative market share as an indication of its relative competitive strength. The GE Business Screen, also associated with McKinsey, considers two composite variables, which can be customized by the user, for (a) industry attractiveness (e.g, one could include industry size and growth rate, profitability, pricing practices, favored treatment in government dealings, etc.) and (b) competitive strength (e.g., market share, technological position, profitability, size, etc.) The best test of the business portfolio's overall attractiveness is whether the combined growth and profitability of the businesses in the portfolio will allow the company to attain its performance objectives. Related to this overall criterion are such questions as: * Does the portfolio contain enough businesses in attractive industries? * Does it contain too many marginal businesses or question marks? * Is the proportion of mature/declining businesses so great that growth will be sluggish? * Are there some businesses that are not really needed or should be divested? * Does the company have its share of industry leaders, or is it burdened with too many businesses in modest competitive positions? * Is the portfolio of SBU's and its relative risk/growth potential consistent with the strategic goals? * Do the core businesses generate dependable profits and/or cash flow? * Are there enough cash-producing businesses to finance those needing cash * Is the portfolio overly vulnerable to seasonal or recessionary influences? * Does the portfolio put the corporation in good position for the future? It is important to consider diversification vs. concentration while working on portfolio strategy, i.e., how broad or narrow should be the scope of the company. It is not always desirable to have a broad scope. Single-business strategies can be very successful (e.g., early strategies of McDonald's, Coca-Cola, and BIC Pen). Some of the advantages of a narrow scope of business are: (a) less ambiguity about who we are and what we do; (b) concentrates the efforts of the total organization, rather than stretching them across many lines of business; (c) through extensive hands-on experience, the company is more likely to develop distinctive competence; and (d) focuses on long-term profits. However, having a single business puts "all the eggs in one basket," which is dangerous when the industry and/or technology may change. Diversification becomes more important

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when market growth rate slows. Building stable shareholder value is the ultimate justification for diversifying -- or any strategy. What Should Be Our Parenting Strategy? This third component of corporate level strategy, relevant for a multi-business company (it is moot for a single-business company), is concerned with how to allocate resources and manage capabilities and activities across the portfolio of businesses. It includes evaluating and making decisions on the following: * Priorities in allocating resources (which business units will be stressed) * What are critical success factors in each business unit, and how can the company do well on them * Coordination of activities (e.g., horizontal strategies) and transfer of capabilities among business units * How much integration of business units is desirable. COMPETITIVE (BUSINESS LEVEL) STRATEGY In this second aspect of a company's strategy, the focus is on how to compete successfully in each of the lines of business the company has chosen to engage in. The central thrust is how to build and improve the company's competitive position for each of its lines of business. A company has competitive advantage whenever it can attract customers and defend against competitive forces better than its rivals. Companies want to develop competitive advantages that have some sustainability (although the typical term "sustainable competitive advantage" is usually only true dynamically, as a firm works to continue it). Successful competitive strategies usually involve building uniquely strong or distinctive competencies in one or several areas crucial to success and using them to maintain a competitive edge over rivals. Some examples of distinctive competencies are superior technology and/or product features, better manufacturing technology and skills, superior sales and distribution capabilities, and better customer service and convenience. Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value. (Michael E. Porter) The essence of strategy lies in creating tomorrow's competitive advantages faster than competitors mimic the ones you possess today. (Gary Hamel & C. K. Prahalad)

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We will consider competitive strategy by using Porter's four generic strategies (Porter 1980, 1985) as the fundamental choices, and then adding various competitive tactics. Porter's Four Generic Competitive Strategies He argues that a business needs to make two fundamental decisions in establishing its competitive advantage: (a) whether to compete primarily on price (he says "cost," which is necessary to sustain competitive prices, but price is what the customer responds to) or to compete through providing some distinctive points of differentiation that justify higher prices, and (b) how broad a market target it will aim at (its competitive scope). These two choices define the following four generic competitive strategies. which he argues cover the fundamental range of choices. A fifth strategy alternative (best-cost provider) is added by some sources, although not by Porter, and is included below: 1. Overall Price (Cost) Leadership: appealing to a broad cross-section of the market by providing products or services at the lowest price. This requires being the overall low-cost provider of the products or services (e.g., Costco, among retail stores, and Hyundai, among automobile manufacturers). Implementing this strategy successfully requires continual, exceptional efforts to reduce costs -without excluding product features and services that buyers consider essential. It also requires achieving cost advantages in ways that are hard for competitors to copy or match. Some conditions that tend to make this strategy an attractive choice are: * The industry's product is much the same from seller to seller * The marketplace is dominated by price competition, with highly pricesensitive buyers * There are few ways to achieve product differentiation that have much value to buyers * Most buyers use product in same ways -- common user requirements * Switching costs for buyers are low * Buyers are large and have significant bargaining power 2. Differentiation: appealing to a broad cross-section of the market through offering differentiating features that make customers willing to pay premium prices, e.g., superior technology, quality, prestige, special features, service, convenience (examples are Nordstrom and Lexus). Success with this type of strategy requires differentiation features that are hard or expensive for competitors to duplicate. Sustainable differentiation usually comes from advantages in core competencies, unique company resources or capabilities, and superior management of value chain activities. Some conditions that tend to favor differentiation strategies are:

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* There are multiple ways to differentiate the product/service that buyers think have substantial value * Buyers have different needs or uses of the product/service * Product innovations and technological change are rapid and competition emphasizes the latest product features * Not many rivals are following a similar differentiation strategy 3. Price (Cost) Focus: a market niche strategy, concentrating on a narrow customer segment and competing with lowest prices, which, again, requires having lower cost structure than competitors (e.g., a single, small shop on a sidestreet in a town, in which they will order electronic equipment at low prices, or the cheapest automobile made in the former Bulgaria). Some conditions that tend to favor focus (either price or differentiation focus) are: * The business is new and/or has modest resources * The company lacks the capability to go after a wider part of the total market * Buyers' needs or uses of the item are diverse; there are many different niches and segments in the industry * Buyer segments differ widely in size, growth rate, profitability, and intensity in the five competitive forces, making some segments more attractive than others * Industry leaders don't see the niche as crucial to their own success * Few or no other rivals are attempting to specialize in the same target segment 4. Differentiation Focus: a second market niche strategy, concentrating on a narrow customer segment and competing through differentiating features (e.g., a high-fashion women's clothing boutique in Paris, or Ferrari). Best-Cost Provider Strategy: (although not one of Porter's basic four strategies, this strategy is mentioned by a number of other writers.) This is a strategy of trying to give customers the best cost/value combination, by incorporating key good-or-better product characteristics at a lower cost than competitors. This strategy is a mixture or hybrid of low-price and differentiation, and targets a segment of value-conscious buyers that is usually larger than a market niche, but smaller than a broad market. Successful implementation of this strategy requires the company to have the resources, skills, capabilities (and possibly luck) to incorporate up-scale features at lower cost than competitors. This strategy could be attractive in markets that have both variety in buyer needs that make differentiation common and where large numbers of buyers are sensitive to both price and value. Porter might argue that this strategy is often temporary, and that a business should choose and achieve one of the four generic competitive strategies above.

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Otherwise, the business is stuck in the middle of the competitive marketplace and will be out-performed by competitors who choose and excel in one of the fundamental strategies. His argument is analogous to the threats to a tennis player who is standing at the service line, rather than near the baseline or getting to the net. However, others present examples of companies (e.g., Honda and Toyota) who seem to be able to pursue successfully a best-cost provider strategy, with stability. Competitive Tactics Although a choice of one of the generic competitive strategies discussed in the previous section provides the foundation for a business strategy, there are many variations and elaborations. Among these are various tactics that may be useful (in general, tactics are shorter in time horizon and narrower in scope than strategies). This section deals with competitive tactics, while the following section discusses cooperative tactics. Two categories of competitive tactics are those dealing with timing (when to enter a market) and market location (where and how to enter and/or defend). Timing Tactics: When to make a strategic move is often as important as what move to make. We often speak of first-movers (i.e., the first to provide a product or service), second-movers or rapid followers, and late movers (wait-andsee). Each tactic can have advantages and disadvantages. Being a first-mover can have major strategic advantages when: (a) doing so builds an important image and reputation with buyers; (b) early adoption of new technologies, different components, exclusive distribution channels, etc. can produce cost and/or other advantages over rivals; (c) first-time customers remain strongly loyal in making repeat purchases; and (d) moving first makes entry and imitation by competitors hard or unlikely. However, being a second- or late-mover isn't necessarily a disadvantage. There are cases in which the first-mover's skills, technology, and strategies are easily copied or even surpassed by later-movers, allowing them to catch or pass the first-mover in a relatively short period, while having the advantage of minimizing risks by waiting until a new market is established. Sometimes, there are advantages to being a skillful follower rather than a first-mover, e.g., when: (a) being a first-mover is more costly than imitating and only modest experience curve benefits accrue to the leader (followers can end up with lower costs than the first-mover under some conditions); (b) the products of an innovator are somewhat primitive and do not live up to buyer expectations, thus allowing a clever follower to win buyers away from the leader with better performing products; (c) technology is advancing rapidly, giving fast followers the opening to leapfrog a first-mover's products with more attractive and full-featured second- and thirdgeneration products; and (d) the first-mover ignores market segments that can be picked up easily.

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Market Location Tactics: These fall conveniently into offensive and defensive tactics. Offensive tactics are designed to take market share from a competitor, while defensive tactics attempt to keep a competitor from taking away some of our present market share, under the onslaught of offensive tactics by the competitor. Some offensive tactics are: * Frontal Assault: going head-to-head with the competitor, matching each other in every way. To be successful, the attacker must have superior resources and be willing to continue longer than the company attacked. * Flanking Maneuver: attacking a part of the market where the competitor is weak. To be successful, the attacker must be patient and willing to carefully expand out of the relatively undefended market niche or else face retaliation by an established competitor. * Encirclement: usually evolving from the previous two, encirclement involves encircling and pushing over the competitor's position in terms of greater product variety and/or serving more markets. This requires a wide variety of abilities and resources necessary to attack multiple market segments. * Bypass Attack: attempting to cut the market out from under the established defender by offering a new, superior type of produce that makes the competitor's product unnecessary or undesirable. * Guerrilla Warfare: using a "hit and run" attack on a competitor, with small, intermittent assaults on different market segments. This offers the possibility for even a small firm to make some gains without seriously threatening a large, established competitor and evoking some form of retaliation. Some Defensive Tactics are: * Raise Structural Barriers: block avenues challengers can take in mounting an offensive * Increase Expected Retaliation: signal challengers that there is threat of strong retaliation if they attack * Reduce Inducement for Attacks: e.g., lower profits to make things less attractive (including use of accounting techniques to obscure true profitability). Keeping prices very low gives a new entrant little profit incentive to enter. The general experience is that any competitive advantage currently held will eventually be eroded by the actions of competent, resourceful competitors. Therefore, to sustain its initial advantage, a firm must use both defensive and offensive strategies, in elaborating on its basic competitive strategy. Cooperative Strategies

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Another group of "competitive" tactics involve cooperation among companies. These could be grouped under the heading of various types of strategic alliances, which have been discussed to some extent under Corporate Level growth strategies. These involve an agreement or alliance between two or more businesses formed to achieve strategically significant objectives that are mutually beneficial. Some are very short-term; others are longer-term and may be the first stage of an eventual merger between the companies. Some of the reasons for strategic alliances are to: obtain/share technology, share manufacturing capabilities and facilities, share access to specific markets, reduce financial/political/market risks, and achieve other competitive advantages not otherwise available. There could be considered a continuum of types of strategic alliances, ranging from: (a) mutual service consortiums (e.g., similar companies in similar industries pool their resources to develop something that is too expensive alone), (b) licensing arrangements, (c) joint ventures (an independent business entity formed by two or more companies to accomplish certain things, with allocated ownership, operational responsibilities, and financial risks and rewards), (d) value-chain partnerships (e.g., just-in-time supplier relationships, and out-sourcing of major value-chain functions). FUNCTIONAL STRATEGIES Functional strategies are relatively short-term activities that each functional area within a company will carry out to implement the broader, longer-term corporate level and business level strategies. Each functional area has a number of strategy choices, that interact with and must be consistent with the overall company strategies. Three basic characteristics distinguish functional strategies from corporate level and business level strategies: shorter time horizon, greater specificity, and primary involvement of operating managers. A few examples follow of functional strategy topics for the major functional areas of marketing, finance, production/operations, research and development, and human resources management. Each area needs to deal with sourcing strategy, i.e., what should be done in-house and what should be outsourced? Marketing strategy deals with product/service choices and features, pricing strategy, markets to be targeted, distribution, and promotion considerations. Financial strategies include decisions about capital acquisition, capital allocation, dividend policy, and investment and working capital management. The production or operations functional strategies address choices about how and where the products or services will be manufactured or delivered, technology to be used, management of resources, plus purchasing and relationships with suppliers. For firms in high-tech industries, R&D strategy may be so central that many of the decisions will be made at the business or even corporate level, for example the

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role of technology in the company's competitive strategy, including choices between being a technology leader or follower. However, there will remain more specific decisions that are part of R&D functional strategy, such as the relative emphasis between product and process R&D, how new technology will be obtained (internal development vs. external through purchasing, acquisition, licensing, alliances, etc.), and degree of centralization for R&D activities. Human resources functional strategy includes many topics, typically recommended by the human resources department, but many requiring top management approval. Examples are job categories and descriptions; pay and benefits; recruiting, selection, and orientation; career development and training; evaluation and incentive systems; policies and discipline; and management/executive selection processes. CHOOSING THE BEST STRATEGY ALTERNATIVES Decision making is a complex subject, worthy of a chapter or book of its own. This section can only offer a few suggestions. Among the many sources for additional information, I recommend Harrison (1999), McCall & Kaplan (1990), and Williams (2002). Here are some factors to consider when choosing among alternative strategies: * It is important to get as clear as possible about objectives and decision criteria (what makes a decision a "good" one?) * The primary answer to the previous question, and therefore a vital criterion, is that the chosen strategies must be effective in addressing the "critical issues" the company faces at this time * They must be consistent with the mission and other strategies of the organization * They need to be consistent with external environment factors, including realistic assessments of the competitive environment and trends * They fit the company's product life cycle position and market attractiveness/competitive strength situation * They must be capable of being implemented effectively and efficiently, including being realistic with respect to the company's resources * The risks must be acceptable and in line with the potential rewards * It is important to match strategy to the other aspects of the situation, including: (a) size, stage, and growth rate of industry; (b) industry characteristics, including fragmentation, importance of technology, commodity product orientation, international features; and (c) company position (dominant leader, leader, aggressive challenger, follower, weak, "stuck in the middle")

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* Consider stakeholder analysis and other people-related factors (e.g., internal and external pressures, risk propensity, and needs and desires of important decision-makers) * Sometimes it is helpful to do scenario construction, e.g., cases with optimistic, most likely, and pessimistic assumptions. SOME TROUBLESOME STRATEGIES TO AVOID OR USE WITH CAUTION Follow the Leader: when the market has no more room for copycat products and look-alike competitors. Sometimes such a strategy can work fine, but not without careful consideration of the company's particular strengths and weaknesses. (e.g., Fujitsu Ltd. was driven since the 1960s to catch up to IBM in mainframes and continued this quest even into the 1990s after mainframes were in steep decline; or the decision by Standard Oil of Ohio to follow Exxon and Mobil Oil into conglomerate diversification) Count On Hitting Another Home Run: e.g., Polaroid tried to follow its early success with instant photography by developing "Polavision" during the mid1970s. Unfortunately, this very expensive, instant developing, 8mm, black and white, silent motion picture camera and film was displayed at a stockholders' meeting about the time that the first beta-format video recorder was released by Sony. Polaroid reportedly wrote off at least $500 million on this venture without selling a single camera. Try to Do Everything: establishing many weak market positions instead of a few strong ones Arms Race: Attacking the market leaders head-on without having either a good competitive advantage or adequate financial strength; making such aggressive attempts to take market share that rivals are provoked into strong retaliation and a costly "arms race." Such battles seldom produce a substantial change in market shares; usual outcome is higher costs and profitless sales growth Put More Money On a Losing Hand: one version of this is allocating R&D efforts to weak products instead of strong products (e.g., Polavision again, Pan Am's attempt to continue global routes in 1987) Over-optimistic Expansion: Using high debt to finance investments in new facilities and equipment, then getting trapped with high fixed costs when demand turns down, excess capacity appears, and cash flows are tight

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Unrealistic Status-Climbing: Going after the high end of the market without having the reputation to attract buyers looking for name-brand, prestige goods (e.g., Sears' attempts to introduce designer women's clothing) Selling the Sizzle Without the Steak: Spending more money on marketing and sales promotions to try to get around problems with product quality and performance. Depending on cosmetic product improvements to serve as a substitute for real innovation and extra customer value.