MILESTONE THEORIESCORPORATE PLANNING & STRATEGIC MANAGEMENT

Strategy: Art of War• Strategic planning is a systematic process of

envisioning a desired future, and translating this vision into broadly defined goals or objectives and a sequence of steps

to achieve them.

• Strategic planning begins with the desired-end and works backward to the current

status.

• Strategic planning helps determine the direction and scope of an organisation over the long term, matching its resources to its changing environment and, in particular, its markets, customers and clients, so as to meet stakeholder expectations.

Strategy: Landmarks

•Mintzberg’s theories•Porter’s Five Forces•Porter’s Value Chain

•Ansoff Matrix•SWOT•SMART•Force Field Analysis

etc.

Strategy: Milestones

Blue Ocean Strategy Bottom of the Pyramid Core Competency GE under Welch

BLUE OCEAN STRATEGYhow to create uncontested market

space and make competition irrelevant

Cirque Du Soleil

Cirque du Soleil successfully created a new, highly-profitable market within the ailing circus industry. The company’s management eliminated the main cost drivers of conventional circuses: the animals and the stars. At the same time they incorporated elements from opera, ballet and concerts.The result was a totally new entertainment concept targeting former non-customers: adults happy to pay for good entertainment.

Nintendo Wii

When the gaming consoles were first introduced, they

were built primarily to play video

games like Sony’s Playstation, MS’s Xbox 360. At the time, the market was fairly narrow and focused but they have now

evolved to become more of an

entertainment centerpiece in the

living room. In 2006, Nintendo

introduced the Wii and with it several

advanced, revolutionary

features. Wireless motion-sensitive

remote controllers, built-in Wi-Fi

capability, and a host of other

features have made the Wii the best-

selling latest generation console

system in the world.

Nintendo has been employing the Blue Ocean Strategy method for many years with a great deal of success, for example with the systematic development of innovations such as Nintendo DS or Nintendo Wii. With Nintendo Wii they departed from a Red Ocean dominated by Sony’s Playstation and Microsoft’s Xbox by creating a totally new video game concept. On one hand the Wii created new benefits, such as innovative, intuitive control with movement sensors. On the other hand it generated massive cost reductions eliminating high end graphics and CPU power. Thus Nintendo was able to sell the Wii at a price that appealed to the mass public.This new recipe for success made the Wii extremely popular and accessible for a new, unconventional target group, ranging from women to senior citizens.

Once a company has developed a blue ocean strategy with a profitable business model, it must execute it. The challenge of execution exists, of course, for any strategy. Companies face four hurdles:A cognitive hurdle: Waking employees up to the need for a strategic shift. Red oceans may not be the paths to future profitable growth, but they feel comfortable to people and may have even served an organization well until now, so why rock the boat? Limited resources: The greater the shift in strategy, the greater it is assumed are the resources needed to execute it. But many companies find resources in notoriously short supply Motivation: How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? Politics: As one manager put it, “In our organization you get shot down before you stand up.”

Although all companies face different degrees of these hurdles, and many may face only some subset of the four, knowing how to triumph over them is key to attenuating organizational risk.

• The Body Shop also created a Blue Ocean – and in the fiercely competitive cosmetics industry.• The Body Shop ignored most glamorous aspects of the industry. Instead The Body Shop designed its image around functionality, reduced prices and modest packaging. Increased value was given to natural ingredients, a healthy lifestyle and ethical concerns. • As a result The Body Shop’s products spoke to a totally new group of customers and achieved a high degree of cost savings (generally approx. 85% of costs in the cosmetics industry arise from packaging and advertising).

CREATION OF BLUE OCEANS IN MARKETING

STRATEGIES3 UNIQUE EXAMPLES

THE COCA-COLA HUG MACHINE – A SIMPLE WAY TO SPREAD SOME HAPPINESS

Coca-Cola is always looking for new ways to promote its

perennial theme of happiness and joy. In

Singapore, agency Ogilvy & Mather unveiled a Coca-

Cola vending machine that dispensed free cans when

given a tight hug. The machine was placed on the

campus of the National University of Singapore,

quickly attracting lines of students keen to give the Coca-Cola machine a hug. Leonardo O’Grady, ASEAN IMC director of the Coca-Cola Company explains:

“Happiness is contagious. The Coca-Cola Hug Machine is a simple idea to spread

some happiness. Our strategy is to deliver doses

of happiness in an unexpected, innovative way

to engage not only the people present, but the

audience at large.”

THE GAP WHISPERING WINDOWHow do you get

consumers to stop by your shop window and browse? Gap is using a

novel technology developed by FeONIC

called “whispering window”. The

technology turns solid materials such as

glass, wood or plasterboard into

music speakers. At the London flagship Gap store the external

windows play music to passersby, who

frequently stop to try to fathom where the

sound is coming from. The same effect can

be installed internally on tables, displays and

ceilings.

India Motor brand Fiat is fusing café culture with car dealerships in India. Fiat has opened two cafés, in Delhi and Pune. The Fiat Caffe is a tie-up with Lavazza coffee. In addition to flat whites and espressos, there is a library and space for Italian style loafing. The cafe has car brochures and vehicles for test drive, should customers get the urge. Tarun Khanna, head of marketing at Fiat India says: “We are trying to give the true Fiat experience to our customers, potential customers and consumers in general. We want more and more people to be touched by the Fiat brand in different ways. Fiat Caffe is a unique concept where we bring the brand alive in various manners – be it in terms of a product demo, or browsing through information about the brand – on digital devices or books, or just quietly absorbing the brand experience while lounging and having an Italian coffee.”

BOTTOM OF THE PYRAMID

In economics, “bottom of the pyramid” is the largest, but the poorest socio-economic group.

In global terms, this is the 3 billion people who live on less than 2.5 USD per day.

Bottom or base of the pyramid (BOP) is used in particular by people developing new models of doing business that deliberately target this demographic, using new technology.

The phrase “bottom of the pyramid” first coined by US president Franklin D. Roosevelt on April 7, 1932 radio address, “The Forgotten Man” in which he said – “These unhappy times call for the building of plans that rest upon the forgotten, the unorganised but the indispensable units of economic power, that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”

INTRODUCTION

BOTTOM OF THE PYRAMID

• The concept of Bottom of the Pyramid is more glamourized and popularized by the books namely Fortune at the Bottom of the Pyramid, C K Prahlad (2004) and Capitalism at the Crossroads, Stuart L Hart (2005).

• BOP refers to the billions of people living on less than 2 dollars per day who strive hard to earn a basic living.

• The socio economic pyramid as per BOP concept –

ESSENCE

BOTTOM OF THE PYRAMIDFUNDAMENTAL PROPOSITIONS

• Businesses, governments, and multinationals should stop thinking of the poor as victims and instead start seeing them as resilient and creative entrepreneurs as well as value demanding consumers.

• There exists tremendous benefits to MNC’s who choose to serve this Tier 4 demographic in ways responsive to their needs.

• The poor of today is the middle class of tomorrow that is always a larger chunk than the “haves” of the society.

• There are poverty reducing benefits if MNCs work with civil society organizations and governments to create new local markets.

• The poor and middle class are to be considered as business partners and innovators, rather than jus potential producers or consumers.

• Orient and nurture the thinking of companies in developing business partnerships with income-poor communities in order to co-create businesses and markets that mutually benefit the companies and the communities.

• Sustainable development – consume as if there is a tomorrow

BOTTOM OF THE PYRAMIDSTRATEGIC LINKAGE

The concepts of BOP and corporate social responsibility have a strategic linkage on the basis of tools of implementation – Microcredit – startling example of BOP is the growing microcredit market in

S. Asia, particularly Bangladesh (the concept of “grameen banks”). “Lend tiny amounts of money to people with even tinier assets”. (Called “Sa-Dhan” in India).

Market-specific-product - products designed with the needs of the very poor in mind is that of a shampoo that works best with cold water and is sold in small packets to reduce barriers of upfront costs for the poor. (Hindustan Unilever introducing sachets for shampoo, detergent etc.)

Innovation in BOP - BOP consumers do not want to adopt innovation easily (traditional view) whereas the modern view proclaims that the BOP market is very eager to adopt new innovations (for instance using kiosks, mobile phone, mobile and net banking).

Venture capital - develop BOP products for the BOP markets, and not have the same product that is aggressively marketed in all the market demographic segments. Small to Medium Enterprises (SME) play a bigger role as this offers an opportunity to enter new venture capital markets. This causes the emergence of venture capital.

Brand in the bottom of the pyramid market – as opposed to the traditional view that BOP consumers are not brand conscious, Prahlad claimed that they essentially are aware and conscious. Brand influences the new product adoption in the BOP market, and positively influences the relative advantage of an innovation and it leads to adoption of the innovation in the BOP.

BOTTOM OF THE PYRAMIDESSENCE

The world economic pyramid – -------- ANNUAL PER CAPITA

INCOMETIER POPULATION IN

MILLIONSMORE THAN 20,000USD 1 75-100

1500-20,000USD 2 & 3 1500-1750LESS THAN 1500USD 4 4000

MNCs take forth – Multinationals by virtue of their huge financial, technological and razor

sharp managerial capabilities possess the grit and ability to serve to the 4 billion poorest people in the bottom of the economic pyramid.

MNCs look at globalisation strategies through a new lens of inclusive capitalism, that prospect towards growth, profits, and incalculable contributions to humankind.

The bottom of the pyramid represents a huge untapped market of unthinkable levels of revenue and profits. Countries still lacking in modern infrastructure/products are ideal testing ground for developing environmentally sustainable technologies and products for the entire world.

BOTTOM OF THE PYRAMID

MNC investment at “the bottom of the pyramid” implies lifting billions of people out of poverty and desperation, averting social decay, political chaos, terrorism and environmental meltdown.

Doing business with the world’s 4 billion poorest people (two thirds of world population) requires radical innovations in technology and business model.

Strategies should involved re-evaluating priced-performance relationships for products/services, improving capital efficiency and incorporating a paradigm shift from a “bigger is better” scale to an ideal of highly distributed small-scale operations with robust efficiency.

Income gap between rich and poor is growing. The success mantra for long term sustainable development is to bridge such gap and reduce income and wealth inequity.

CONTINUED…

BOTTOM OF THE PYRAMIDFACTUAL INSIGHTS... THE BOTTOM OF THE PYRAMID

REALITIES As per UNO, the richest 20% in the world accounted for about

80% of the total income and wealth in 1990. In 2000, the figure reached a whopping 85%.

Over the same period, fraction of income accruing to the poorest 20% in the world fell from 2.3 to 1.1 percent.

Extreme inequity of wealth distribution reinforces that poor cannot participate in the global market economy that forms a peril of socio economic development.

Given its vast size, the tier 4 represents a multi-trillion dollar market offering unending opportunities for businesses around the world.

The ice berg principle – only with the tip in view, the massive segment of global population along with its massive market opportunity has remained largely invisible to the corporate sector.

BOTTOM OF THE PYRAMIDTHE VAST INVISIBLE OPPORTUNITY

Most MNCs dismiss the BOP because they judge the market based on income or selections of products/ services appropriate for developed countries.

The orthodox assumptions regarding TIER 4 that dramatically needs to be re-examined – #1 – poor is not the target customer segment because current cost

structures of products catering to developed countries cannot earn profitable revenues in this segment.

#2 – the poor cannot afford and have no utility for products/services sold in developed markets.

#3 – only developed markets appreciate and will pay for new technology, the poor affords outdated technology.

#4 – the BOP is not important to long term viability of business houses, it can be left for the government and non-profits.

#5 - managers are not excited by business challenges that have a humanitarian dimension.

#6 – intellectual excitements are in developed markets. It is hard to find talented managers who want to work at the BOP.

The BOP defies conventional managerial logic, but it is a large and unexplored vast market of profitable growth, if carefully planned and strategized, can be reaped fulfilling the ethico moral and socio economic expectations of the society.

Tier 4 though potentially profitable and highly unexplored poses the challenges to the MNCs - how to combine low cost, good quality, sustainability and profitability.

BOTTOM OF THE PYRAMIDTHE BOP (TIER 4) PIONEER - HLL

Hindustan Lever Ltd. (HLL) a subsidiary of Great Britain’s Unilever PLC is widely considered the best-managed company in India for decades. It has been a pioneer among MNCs exploring markets at the BOP.

For more than 50 years, HLL served India’s small elite who could afford to buy MNC products.

The HLL – NIRMA face off, 1990’s. Integrating the best of technology and a global resource base to

address local market conditions. Cheap and low quality can never be the goal, rather value driven need sensitive and appropriate market offering for the tier 4 is the fuel for success.

BOTTOM OF THE PYRAMIDKEYS TO SUCCESS

The propagators of the re-engineered strategies for serving the BOP better and more profitably puts forth four key elements that assures success for MNCs – Creating buying power – IM SINGER & COMPANY, GRAMEEN

BANK LTD. (Mohammad Yunus). Shaping aspirations – sustainable product innovations,

Unilever and Solar Electric Light Fund (SELF). Improving access – ensuring effective and robust rural

distribution, guaranteeing product availability. (the Body Shop story).

Tailoring local solutions – local products for local markets, not the same product for all markets. Effective value chain management and market research facilitating R&D.

BOTTOM OF THE PYRAMIDPUTTING IT ALL TOGETHER

Bottom of the

pyramid

Creating

buying

power

Shaping

aspirations

Improving

access

Tailoring

local solutio

ns

GE UNDER WELCH

• Multinational corporation founded in New York• Thomas Edison invented the electric lamp in 1879• In 1890 Edison General Electric Company formed• In 1892 merged with Thomas Houstan Electric Company• Headquarter at Fairfield, U.S• As of 2015, the company operates in segments like power,

water,oil and gas, energy management, healthcare, aviation, transportation and capital.

INTRODUCTION

ABOUT JACK WELCH• Born on 19th November, 1935• He is an American chemical engineer, businessman and author• Father – conductor at Boston and Maine Corporation• Mother – home maker• Joined GE in 1960 and was not happy with the excessive bureaucratic culture of the company• Hit his peak as CEO in 1981 as the 8th and youngest Chairman and CEO in the history of GE• Named ‘Manager of the Century’ by Fortune in 1999

ACQUISITIONS UNDER WELCH• Employers Reinsurance and Radio

Corporation of America• National Broadcasting Corporations

GE UNDER WELCH

HIS LEADERSHIP STYLE AND WHAT WE LEARNT FROM THEMSTRESS ON INNOVATION

• To promote innovation, he launched a program called ‘work out’. • ‘Work Out’ brought various departments together to assess performance and make suggestions for improvement

REAL TIME PLANNING Five page strategy play book One page answer to five

questions:• Current market dynamics• Competitors recent

activities• GE’s response• Greatest competitive

threat over 3 years• GE’s planned response

GE UNDER WELCH

• Motivation: Welch was good at motivating employees and stirring them into action.

Eg: he frequently wrote notes to employees appreciating their contribution.• Get less formal : Maintenance of corporate informality that

encourages a training class to comfortably challenge the boss’s ideas.

• Energize others: Ability to spark others to extraordinary performance

• Accept change as an opportunity• Get rid of bureaucracy: eliminate boundaries that prevent the

free flow of ideas, people and decisions.• Involve everyone: Capturing intellect from every person and

using the brains of all the workers.

LEADERSHIP QUALITIESGE UNDER WELCH

BETTER PLANNING AND IMPLEMENTATION• An open discussion forum• Immediate responses to the ideas and opinions of employees• Helped in avoiding red tapism• Implementation team formed with 24 consultants• On the spot decision on 80% proposals

IMPROVING PERFORMANCE• Keeping a close tab on top 3000 executives• Improved packages and stock options• Training institute at Crotonville• 360 degree feedback

GE UNDER WELCH

CULTIVATE LEADERS• Cultivate leaders who have the four E’s of leadership.

GE UNDER WELCH

GE UNDER WELCH

BOUNDARYLESS BEHAVIOUR• Learning from others

“ We quickly began to learn from each other: productivity solutions from LIGHTING, Quick response asset management, transaction effectiveness from GE CAPITAL, Cost reduction techniques from AIRCRAFT ENGINES” – by Welch

FOCUS IN THE SERVICE INDUSTRY• Reduce dependence on traditional industrial products• Biggest growth opportunity

“We have changed the very nature of what we do for a living. Today services account for two-thirds of our revenue.” – by Welch

GE UNDER WELCH

SIX SIGMA INITITATIVE Six sigma is a process to improve productivity, quality, speed

and efficiency. At the business level it improves profitability and long-term viability. At the process level it reduces defects and variations. Motorola’s Six sigma adoption in mid 1990s Employees were dissatisfied with the quality of its product. GE was operating at error rates 10,000 time the six sigma

quality level of 3.4 defects/million Series of planning, resource allocation, review and

communication meetings were initiated. Participation in initiative was compulsory, 40% bonus was tied

with it Employees were trained in different levels : green belts, black

belts and master belts.

GE UNDER WELCH

GE UNDER WELCH

PROPER COMMUNICATION• No. of management levels trimmed from 9 to 6• Saves time and enables better follow up.

NUMBER 1, NUMBER 2 STRATEGY“When you’re number four or five in a market, if number one sneezes you get pneumonia. When you are number one, you control your destiny” – by Welch

• He insisted that GE should be among the top two players in every segment it operates. Failing to do so, it should close that particular segment.• Believed in ‘Fix it, sell it or close it’

GE UNDER WELCH

GET GOOD IDEAS FROM EVERYWHERE• Learning from other industries• Learning from competitors

BEHAVE LIKE A SMALL COMPANY

• Small companies have huge competitive advantages.

• Uncluttered, simple and informal• They thrive on passion• They reward/remove people according

to their contributions• Small companies dream big and set

the bar high• GE was expected to learn from the

small companies

GE UNDER WELCH

STRENGTHS AND WEAKNESSES OF HIS LEADERSHIP STYLE

STRENGTHSMotivating employeesConstantly identified and appreciated good leaders at GEEffective leadershipEffective communication

WEAKNESSPutting too much pressure on employeesFormed opinions too quickly

Criticized for certain failed acquisitions like “Honeywell Inc” and “”Black & Decker”

GE UNDER WELCH

CONCLUSIONMARKET CAPITALIZATION

• In 1981, US $13 billion when Jack Welch was appointed as CEO at GE

• In 2000, US $500 billion when Jack Welch steps down as CEO at GEAs mentioned by Fortune, ten thousand dollars

put into GE at the start of Welch’s term. In 1980 would be worth $367,479

GE UNDER WELCH

CORE COMPETENCY

Concept in management theory introduced by C. K. Prahalad and Gary Hamel. It can be defined as "a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace".Core competencies fulfill three criteria:• Provides potential access to a wide variety of markets.• Should make a significant contribution to the perceived customer benefits of the end product.•Difficult to imitate by competitors.

INTRODUCTION

CORE COMPETENCYCHARACTERISTICS

CoreCompetency

Core Produ

ct

End Produ

ct

Provide competitive advantage to the firm

Make significant contribution to customer value and the end products offered by the firm.

Provide access to a wide variety of markets.

Difficult to imitate:-• Competence is rare.• Concerned with management

of complex activities/processes.

• Causal ambiguity• Competence is embedded in

the culture.

CORE COMPETENCYCORE COMPETENCE & COMPETITVE ADVANTAGE

CORE COMPETENCE COMPETITIVE ADVANTAGE

Underlying strengths of a firm that give it a competitive advantage.

Anything that a firm does especially well compared to its rival firms gives it business/product.

Core competence is fundamental and unique to a firm.

Competitive advantage is not unique to any firm over the long term.

Core competence leads to the development of core products, which in turn can be used in an array of end products.

Competitive advantage can come from many other sources, such as a strong band, exclusive patent or a superior geographical location etc., which are not connected with core competencies.

A firm can have core competence in its technology/process/expertise etc.

Competitive advantage may arise from a number of sources, especially when a firm is able to differentiate its products or sell them at a lower cost.

CORE COMPETENCYEXEMPLARY FLAG-BEARERS

FIRM CORE COMPETENCY/PRODUCT END PRODUCT

HONDA Design & manufacture of engines.

Cars, motorcycles, generators, lawn-mowers etc.

SONY Miniaturisation Pocket TV, miniature card calculators, cam-corders etc.

INTEL Design of ICs Computer processors etc.

P&G Excellence in marketing/distribution and R&D

Wide variety of market dominating products

CANON Optics Cameras, Fax & photocopy machines, image scanners, lenses etc.

CORE COMPETENCYTYPES OF CORE COMPETENCIES

CORE COMPETENCYDEVELOPING CORE COMPETENCY

CORE COMPETENCYTHE SHIFTING LOCUS