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Business Policy
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Lesson Plan
Session 1: Introduction
Session 2:Strategy overview(origin, why strategic planning, a brief
history, changes over time, evolution, the Indian scenario)
Session 3: Caselet discussion: Shaping and Managing Future;
Analysis of internal environment; SAP
Session 4: A strategic planning model, analysis of external
environment, micro and macro environments, E-TOP
Session 5:Value chain analysis; Questions to ask for generating
strategic alternatives; grand strategies
Session 6:Quiz;Grand strategies contd.(Stability & Retrenchment )
Session 7:Grand strategies contd.(Growth & Combination)
Session 8: Caselet discussion: Saatchi & Saatchi
Session 9:Choosing the strategy: Business definition; inputs from
internal environment analysis; SWOT; vision, goal/purpose, mission
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Contd.
Session 10:Test paper I; Objectives, values, organizational culture
and levels of strategy
Session 11:Strategic tools: SWOT; TOWS matrix; customer -needmatrix;
Session 12: Quiz; competitor analysis and generic strategies;
Portfolio approaches: BCG Matrix GE Nine-Cell grid ;Shell matrix
Session 13:Case discussion: Strategic pursuits of two family-managed Companiesa comparison between Bajaj Auto Ltd &
Reliance Industries Ltd
Session 14:Case discussion contd.
Session 15:Industry analysis tools; Five-forces model Session 16: Arthur D.Littles Life Cycle Approach
Session 17: Quiz; Other approaches-Core competency and strategic
intent
Session 18: Case discussion;
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Contd.
Session 19: Case discussion contd; Balanced scorecard
Session 20: BSC contd; Strategy mapping;
Session 21:Blue ocean strategy
Session 22:Test paper II; Strategic control-premise control and
strategic surveillance
Session 23:Special alert control; Control processes:
Session 24: Caselet discussion; introduction to functional strategies;
marketing strategy; financial strategy
Session 25:Production operations strategy; logistics strategy; R&D
strategy; HR strategy
Session 26:Quiz;Criticisms on conventional approaches to strategy
Session 27:Critical review of conventional approaches
Session 28:Case discussion: Blue Ocean Strategy or Old Wine In New
Bottle?
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Contd.
Session 29: Case discussion contd; Practitioners contribution- Jack
Welch & Dhirubhai
Session 30: Test Paper III
Session 31:Practitioners contribution to strategy- Sam Walton &
Roberto Goizueta
Session 32:A review of the strategic approaches & processes
Session 33:Winding up
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Teaching methodology
Lecture, cases, presentations, quizzes and home assignments
Prescribed text-book
Strategic Management: An Integrated Approach by Charles W. Hill and
Gareth R. Jones, Biztantra, New Delhi
Reference books
1.Arthur A.Thompson Jr,A.J.StricklandIII,John E.Gamble and Arun
K.Jain, Crafting And Executing Strategy, Tata McGraw Hill, New Delhi
2.Michael E. Porter, Competitive Strategy, Free Press, New York
3.John A.Pearce II and Richard B.Robinson,Jr, Strategic Management:
Formulation, Implementation andControl, Tata McGraw Hill, New
Delhi4.William F. Glueck and Lawrence R. Jauch, Business Policy and
Strategic Management, McGraw Hill, New York
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Evaluation criteria
Attendance : 5%
Quizzes : 5%
Surprise tests : 5%
Assignments : 10%
Test papers : 10%
Class participation : 5%
Mid-term examination : 20%
End-term examination : 40%
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An overviewWhat is strategy?
It is the means to achieve the goal or purpose of the
organization.
Defined as a unified, comprehensive and integrated plan
to assure that the objectives and goals of the enterpriseare achieved.
Unified- because it ties all the parts of the enterprise
together
Comprehensive-because it covers all major parts of the
enterprise
Integrated-because all parts of the plan are compatible
with each other and fit together well
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Why needed?
The conditions ofbusinesses change so fast that they areforced to perform SP to anticipate future threats &opportunities. It allows anticipation of change & henceprovide directions and control for the enterprise.
It provides employees with clear goals and directions. Theyare aware of the enterprises destinations and hence knowtheir roles in the plan. This helps to reduce conflicts.
Businesses which perform SP have been found more
effective compared with those which do not. This isbecause SP have helped them to systematize the decisionmaking and refrain from making gambling decisions
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Aphorisms on SP/SM
One must either anticipate change or be its victim
J.K.Galbraith
Tomorrow always arrives.It is always different and then
even the mightiest company is in trouble if it has not
worked on the future
P.F.Drucker
Strategy is not about continuing the past.Its aboutcreating the future
Jim Underwood in
What Is YourCorporate IQ?
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A brief history ofbusiness policy or
strategy as a discipline
Igor Ansoff was the first person to apply the word for
business to mean the director for the future
Came into existence in the late fifties
Word derived from strategem used in war( a military
maneuver designed to deceive or surprise an enemy).
Originally it derived a lot from war and military, thediscipline has undergone lot of changes
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Changes that happened
In war, two (or sometimes more) countries fight with eachother, try to decimate the other, and in the end, one wins
either by defeating the other or the other surrendering. In
business, the fight is usually between one to many
opponents and very rarely decimations or surrendershappen.
The very concept of competitive strategy(that strategy is
needed because competition exists) has also changed
because (1)even monopolies need a strategy to pursue
their goals and (2) new ideas like winning by exploiting
uncontested market opportunities(referred to as the Blue
Ocean)
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Other information:
The initial literature on strategy mainly
concentrated on the premise of competitivestrategy.
In the management education area, the discipline
first appeared in the USMade its presence in India through IIMs which had
affiliations with US business schools like Harvard or
MIT Sloan
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The Indian Scenario
The discipline was adopted by the Indian corporates
in the late 70s and early 80s. Some had formal, full-
fledged depts: Tatas, ITC,HLL(HUL now),L&T etc whereas RIL
was doing it most effectively even while not having a formal
set up.Prof. S.K.Bhattacharya had written in 1984:The distinction
between RIL & others is that it creates the future for itselfrather than waste time on sobbing over governmental
controls and insensitivity of govt. policies.It identifies theopportunities offered by the market place and theenvironment.
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Evolution of Strat. Mgt.Current form after lot of transformations
Stage#1-Financial planning-limited to capital investmentdecisions
Stage#2-Long range planning-trying to forecast &mastermind the future-attempt was to eliminate risk-
Druckers viewsStage#3Corporate planning-function seen from the overallview of the corporation and not necessarily LT-objective toidentify new areas of investment, new courses of action
and evaluating against set targets.Stage#4Strategic planning/Strategic management-processof formulation of an effective strategy to achieve the setgoals-goals normally lies outside the firm-planning involvesformulation & management is the effective management ofthe chosen strategy
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A strategic planning modelRef. handout
Analysis of external environment:
External envt. can be micro or macro.
General factors
Marketing factors and
Supplier factors
Tool: Environmental Threats & Opportunities Profile(E-
TOP)
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Contd.
VCA: According to Porter, the activities of a firm can divided
into 9 value addition steps, classified under two categories:
Primary activities(5)
Inbound logistics
Production/Operations
Outbound logistics
Marketing and Sales
Service
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Contd.
Secondary/support activities(4)
Firm infrastructure
Human resource management
Technology development Procurement
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Generating strategic alternativesAnswers to following questions will direct one to various
alternatives:
1.Should we stay in the same business?
2.Should we get out of this business entirely or some parts
of it by merging, liquidating or selling off?3.Should we do a more efficient or effectivejob in the
business we are in in a slimmed down way?
4.Should we try to grow in this business by
a. increasing our present business?
b. acquiring similar businesses?
5.Should we try to grow in other businesses?
6.Should we do alternatives 2 & 4a?
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Contd.
If question 1 is answered YES, the choice isSTABILITY strategy
If1 is answered NO and alternatives 2 or 3
accepted, the choice is RETRENCHMENT.
YES to 4 & 5 result in GROWTH strategy.
YES to alternative 6 is a COMBINATION strategy
These are called Grand Strategies
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Stability strategy: Maintain the present course: steady asit goes
Why?
1.The firm is doing well or perceives itself as doing well &
management may not be very sure of the reasons for this.
2.It is less risky. A lot of changes result in failures.
3.Managers prefer action to thought. Executives never getaround to consider any other alternatives
4.It is easier and more comfortable to do something which
they are familiar with.
5.The firm is growing so fast that it should stabilize for some
time
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Retrenchment :Slow down and catch your breath: we havegot to do better
Used when enterprises decide to improve the performance
in achieving the objectives by :
1.Focusing on functional improvement especially reduction
of costs.
2.Reducing the number of functions it performs by becominga captive company
3.Reducing the number of products/ markets it serves upto
and including liquidation of the business.
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Why?
1.The firm is not doing well or perceives itself as
doing poorly2.The firm has not met its objectives by following
one of the other three grand strategies and hence
there is pressure from the lenders, stockholders,
customers & others to improve performance
Four sub strategies:
1.Cutback & turn-around
2.Divestment
3.Captive company
4.Liquidation
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Liquidation or Sell-out:
The ultimate in retrenchment. But reasons for liquidating may bedifferent from that of normal retrenchment.
Reasons@Someone is ready to buy the business at a price which managers
think as more than real worth
@Managers feel that business is at its peak and the only direction it canmove now is down
@Managers are not able to run the show because they are old or theyare inefficient and has wisdom to acknowledge the same
@The firm is not able to wither the changes due to changes in theeconomy, technology, market etc due to paucity of resources
@Contingent events
@To concentrate on core
@Squabbles within the family or promoters
Eg:TOMCO, Sumitra Pharma, Boriinger Manheim
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Growth: when the firm increases its level of objectivesupward in a significant increment, much higher than anextrapolation of its past achievement levels; usually
indicated by raising market share/ sales objectivesupward significantly
Why?
1. In volatile industries, stability strategy can mean only short
run success, and may lead to long-range death.2.Many equate growth with effectiveness
3.A belief that society benefits from growth strategies
4.Managerial motivation since growth results in financial &
other rewards to managers; managers would like to beremembered for their deeds& contributions; a growthcompany also becomes better known and may attractbetter management talent
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Diversification achieved through:
@joint development with a company already in the
line@internal development of a product or product line
@merger or acquisition
Why do firms diversify? Two reasons(Drucker):
Internal Pressures
-psychologically people get tired of doing the same thing
again & again. Also, they believe that diversification will
help them avoid danger of overspecialization-it is seen as a way to balance vulnerabilities due to ones own
wrong size
-it is seen as a way to convert present internal cost centres
into revenue roducers
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External Pressures
-the economy (or the market) the firm is operating in
appears too small and confined to allow growth-the firms technology( R&D) turn out products which
appear to have promise
-tax laws encourage investments in R&D instead ofdistribution of dividends and this leads to new
products often as a base for diversification
Diversification generally divided into two
@Horizontal
@Vertical
Grow-to-sell-out Strategy Eg:
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Strategic Choice
Business Definition
We dont sell flowers, we sell beautysays Edward Goeppner of Podesta Baldocchi, a chain of
flower shops. According to him customers of a florist
do exchange money for a dozen roses, but whattheyre really buying is something more than that:
they want to beautify their homes, or express their
love for others, or brighten the day. It doesnt take a
vision to sell flower on a street corner, but it takes a
vision to sell beauty
Exercise: Class to attempt to define the business of Titan
Industries Ltd.
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Strategy formulation
Strategic planning-is the set of decisions and actions which result in
the development of an effective strategy to achieve goal or purpose
Goal/Purpose- is what the orgn. wants to achieve in the long run; it is
the definition of org. purpose- the fundamental reason for the
organization to exist.
The purpose could be to sustain and develop the wealth of the
family owners or to create health for this region or to createshareholder value.
A statement can be as short as a PC on every desk in every house of
Microsoft to as long as IBMs We shall increase the pace of
change.Market driven quality is our aim. It means listening andresponding more sensitively to our customers. It means eliminating
defects and errors, speeding up all our processes, measuring
everything we do against a common standard, and involving
employees totally in our aims.
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Contd.
Mission Tells why you do what you doMission statements vary from orgn. to orgn.
Can be explicitly defined or vaguely defined.
Objectives :are the basic economic & social purpose for
which an organization exists.
Eg: Market Leadership,
Maximizing shareholders wealth
Serving the public by offering excellent service
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Objectives: 2 categories
1. External Institutional objectives or primary objectives
2. Internal or secondary objectives
External are those which define the impact of theorganization in its environment
Internal are those which define how much is expected tobe achieved with resources that is available within the
organization
Some objectives are classified as strategic objectives- arethose which rationalizes what the organization does; theydefine the organization in its environment.
Objectives of DCBL-External-Customer satisfaction
Internal-Market leadership, low cost energy efficientoperation, consistent quality & conformance tospecifications, maintaining ecological balance
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Contd.
The choice of objectives affected by:
1.The realities of ext. envt. and ext. power
relationships (Govt., Taxes, Competition laws,
environmental laws etc)
2.The realities of the firms resources and internal
power relationships
3.The value system of the top management (based on
education, experience, information received etc)
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Choice is also influenced by:
@ whether to pursue active or offensive or passive or
defensive strategies
@ whether to pursue flexible or programmed str. Alternatives
No firm rule regarding adoption ofactive or passive. Can haveactive strategy w.r.t some parts of the envt. & passive w.r.tother parts
Programmed is one planned in such a detailed manner as tomake it difficult to change once begun to be implemented-suitable for stable environments with people preferringwell-defined roles.
Flexible allows shifts in the thrust when conditions warrant it.
Contingency approach requires the planner to choose thepreferred strategy when unexpected happenings occur-preferred for unstable envts with people preferring variety& stimulation
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Strategy ImplementationTwo Steps, related but distinct, in the implementation process
1.Organizational implementation of the choice2.Policy implementation of the choice
The first involves examination of the firms org. structure &
climate- to ensure that it is set up to make the strategy
work. Structural adjustment is essential for economicefficiency. While there are no hard & fast rules regarding
the structure, the right organ. will make it more effective.
Structure will depend on factors like Size, Volatility,
Complexity, Personal characteristics & Dependence on theenvt. The org. structure can be
a. Simple b. Functional c. Divisional 4. SBU 5. Matrix
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6.Style-the management style- the motivation, the reward
system, the overall HR policies & management policies
6.Shared values-the superordinate goals of the
organization-the objectives, the goals, the values-shared by
everybody.
The first three are hardware related & remaining four are
said to be the software ;all are interlinked
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Tools for strategic analysis and formulation
SWOT
TOWS matrix22 Customer-Need matrix
Competitor analysis(Group 1)
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Portfolio Analysis
BCG Matrix(Group 2 to do if needed)
GE Nine-Cell Grid (Group 3) Shell matrix(Group 4)
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Industry analysis Tools
Porters five forces mode(Group 4, if needed)
AD Littles Life-cycle approach(Group 5)
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Other approaches to strategy Core competence theory & strategic intent
Balanced scorecard Strategy mapping
Blue ocean strategy
h & i i
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Core competence theory & strategic intent
Introduced by Hamel & Prahalad
Is any bundle of skills that yield a significant costadvantage in the delivery of a particular customer
benefit.
Is an area of specialized expertise that is the resultof harmonizing complex streams of technology and
work activity
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Th R b d Vi f St t
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The Resource-based View of Strategy
Based on the principle that the competitive advantage
of a firm lies primarily in the application of thebundle of valuable resources at its disposal. For
achieving sustainable competitive advantage, these
resources need to be heterogeneous and not
perfectly mobile. Or, in short, resources are, neitherperfectly imitable nor substitutable without great
effort. When such conditions exist, these resources
can assist the firm in sustaining above averagereturns. Resources need to meet the criteria, VRIN
(Valuable, Rare, In-imitable and Non-substitutable)
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Blue ocean strategy
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Blue ocean strategy
Professors Chan Kim and Renee Mauborgne
(INSEAD) argue that tomorrows winners willsucceed not by battling competitors, but by creating
blue oceans of uncontested market space that is
ripe for growth.
termed value innovation, such strategic moves,
create powerful leaps in value for both the firm and
its buyers, rendering rivals obsolete and unleashing
new demand.
The four actions framework for creating a new value
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The four actions framework for creating a new value
proposition:
Eliminate those factors often taken for grantedeven though they no longer have value
Reduce products or services that have been over-
designed in the race to match and beat thecompetition.
Raise sets new standards that are well above those
of competitors.
Create discovers entirely new sources of value for
buyers and creates new demand, and shifts the
strategic pricing of the industry.
Reconstructing market boundaries
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Reconstructing market boundaries
The six path framework
Look across alternative industriesLook across strategic groups within industries
Look across the chain ofbuyers
Look across complementary product and serviceofferings
Look across a functional or emotional appeal to
buyersLook across time
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Functional Strategies
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Functional Strategies
Why needed?
Str. decisions need to be implemented across allfunctions
Every fn has a genuine role to play in the
achievement of org. objectives and goalsPlanning provides a clear direction enabling them to
reduce executive time spent on decision making
Co-ordination among all functions needed andfunctional strategies help achieving this
Marketing strategy:
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Marketing strategy:
Identifying the needs of customers
Deal with issues of the sort Exclusive outlets or multiple channels of distribution
Type and extent of advertising
Concentrate on a few segments or broadly all customers
To be a price leader or a price follower
To offer comprehensive or limited warranty
To decide on the amount and composition of rewards to
marketing and sales people
Whether to use e-commerce or not
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Contd
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Contd.
To monitor A/Rs
To determine the appropriate dividend ratio To determine how much liquidity to be maintained
To determine the financial liability of the
investments planned.
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R&D strategy :deal with decisions on
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R&D strategy :deal with decisions on
Need
Emphasis on product/process
Approach as leaders or followers
InvestmentsFor in house purpose or on contract to
outside firms
Use of experts-university researchers or
private researchers
HR strategy
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HR strategy Recruitment
SelectionOrientation
Training & Development
Appraisal & performance
Leadership development
Right-sizing/downsizing
Productivity issues
Rewards and promotions
Policies on CEOs and other top managers
Work culture and ethic
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Under this view, the interests of the company are
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, p y
incompatible with those of the society. For society,
the freer the competition among companies, the
better. But, for individual firms, the purpose of
strategy is to restrict the play of competition to get
as much as much as possible for themselves. Or in
order for managers to do their jobs, they mustprevent free competition, at the cost of social
welfare.
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Contd.
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Roberto Goizueta
Insight
Willingness to change
Sam Walton
Mission
Execution of mission
Epilogue
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EpilogueLets look to the most celebrated corporate leader of the
century, Jack Welch, for some insights into new strategic
thinking. Welch identified strategy for GE based on whatthe Prussian General Karl Von Clausenwitz ,who in ONWAR observed in 1833 that men could not reduce strategyto a formula because chance events, imperfections in
execution and the independent will of opponentsautomatically doomed detailed planning. They didntexpect a plan of operation beyond the first contact with theenemy. They set only the broadest objectives &emphasized seizing unforeseen opportunities as theyarose. Strategy was not a lengthy action plan; it was theevolution of a central idea thro continually changingcircumstances
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Contd.
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The question that faces the strategic decision makeris not what his organization should do tomorrow?.
It is, what do we have to do today to be ready for
an uncertain tomorrow?
Peter Drucker
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