Académique Documents
Professionnel Documents
Culture Documents
IMTCJ
NUMBER : 2
JAN-JUNE 2012
www.imtnagpur.ac.in
CONTENTS
EDITORIAL
SUCCESSFUL IMPLEMENTATION OF ELECTRONIC
BILL PAYMENT AND PRESENTMENT SYSTEM
A SADAD CASE STUDY
1 - 12
13 - 24
25 - 38
39 - 48
Ashok K. Sar
Whatever may be the pros and cons of the case study methodology/research, IMTCJ has
always tried to publish good case studies across all the dimensions of business
management. This issue of IMTCJ publishes four good quality cases from different aspects
of business studies.
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Case study methodology often lacks academic rigor and are regarded as inferior to more
rigorous methods, where there are more specific guidelines for collecting and analyzing
data. These criticisms stress that there is a need to be very explicit about the choices one
makes and the need to justify them. One reason why case studies are criticized may be that
researchers disagree about the definition and the purpose of carrying out case studies. Case
studies have been regarded as a design (Cook and Campbell 1979), as a qualitative
methodology (Cassell and Symon 1994), as a particular data collection procedure
(Andersen 1997), and as a research strategy (Yin 1989). Furthermore, the purpose for
carrying out case studies is unclear. Some regard case studies as supplements to more
rigorous qualitative studies to be carried out in the early stage of the research process;
others claim that it can be used for multiple purposes and as a research strategy in its own
right (Gummesson 1988; Yin 1989). Given this unclear status, researchers need to be very
clear about their interpretation of the case study and the purpose of carrying out the study.
Recently, the case study based research has gained its momentum in the area of business
management. Case studies are tailor-made for exploring new processes or behaviors or
ones that are little understood (Hartley 1994). Hence, the approach is particularly useful for
responding to how and why questions about a contemporary set of events (Leonard-Barton
1990). Moreover, the researchers have argued that certain kinds of information can be
difficult or even impossible to tackle without qualitative approaches such as the case study
methodology (Sykes 1990). Gummesson (1988) argues that an important advantage of case
study methodology is the opportunity for a holistic view of the process. The detailed
observations entailed in the case study method enable us to study many different aspects,
examine them in relation to each other and view the process within its total environment.
Criteria of research, its genesis and their schemata have evolved out of historical and social
practices. Interpretation of social events is guided and constrained by the prevailing
rationality which itself reflects the dominant constellation of power. While each area of
research (science, engineering, medicine, social science and arts and humanities) has many
common features, but research in individual area has its own distinction. Although,
interdisciplinary and multi-disciplinary research approaches bear a long history and
heritage, these approaches enjoy the stage of marginal utility in the 21st century. But,
there is no way of denying a need of interdisciplinary and multidisciplinary approaches of
research. However a research manuscript/case study that is targeted to publish at the area of
social science focusing on business management world should be encouraged to follow
pattern, style, wording, tautology, research design and language that are universal for social
science.
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I duly acknowledge the support and cooperation received from IMT-Nagpur management.
Sincere thanks to all the editorial board members for their extended support in timely
reviewing the manuscripts. I greatly concede the scholarly contribution of all contributing
authors. I also acknowledge the encouragement received from the Director, Dean
(Academics), Chairperson (Research & Development) of IMT-Nagpur. Last but not the
least; I acknowledge the interest and support of all the readers of IMTCJ.
The principal subject matter of the third case, RAISING CAPITAL IN GLOBAL
MARKETS: A CASE OF SBI by Inder Shekhar Yadav is to analyze the cost of
issuing/raising capital globally. Secondary issues examined include assessing foreign
exchange risk, designing appropriate hedging strategy and computing the conditional cost
of a global debt issue in light of appreciation and depreciation of domestic currency.
Volume 2 Number 2
ABSTRACT
Businesses of all sizes and industries need to evaluate their current
practices and have to look for ways to increase their bottom line
profits in terms of Business Process Re-engineering (BPR) by
introducing electronic services to reduce the capital expenditure and
operating costs. Billing as a core of the retailing business can change
its business process with the advent of latest practices of ICT to
compete in the business market space by focusing on delayed and
error prone processes to increase the customer satisfaction. Because
the ability to accurately produce bills, statements and confirmation
notices, and collect payments expeditiously is fundamental to
corporate success (IBM, 2000). A highly automated, rapidly
deployable web-based customer self-service solution can
significantly and quantifiably reduce the cost of customer service
operations while giving customers faster access to the information
they require. A study of 200 companies in USA that were used webbased customer self-service has revealed that there are savings of
$500,000 per quarter (Vivek, Infosys).
Electronic Bill Presentment and Payment (EBPP) speeds the
Accounts Receivable process by getting invoices to your customers
faster and by enabling them to pay the invoice and resolve disputes
electronically. EBPP can also strengthen your competitive position in
the marketplace by building closer relationships with your customers
and delivering interactive statement inserts electronically (Anne
Terrell Thomson, CCM).
Saudi Arabia Monetary Agency (SAMA) is an economy agent of
Kingdom of Saudi Arabia. SADAD Payment System (SADAD) was
established by the Saudi Arabian Monetary Agency (SAMA) to be the
national Electronic Bill Presentment and Payment (EBPP) service
provider for the Kingdom of Saudi Arabia (KSA). SADAD is an
electronic platform to streamline the bill payment process. This
electronic platform will act as an intermediary between billers and
banks for performing trusted payment process that uses leading edge
technology to provide efficient and effective customer service to the
people of the Kingdom of Saudi Arabia (SADAD Web site). SADAD
case study helps in understanding the innovative SADAD system
IMT CASE JOURNAL, JAN - JUNE 2012
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Successful Implementation of Electronic Bill Payment and Presentment System - A Sadad Case Study
Volume 2 Number 2
elements viz. Bank cost, CapEx, OpEx Reduction Premium SADAD fee, Service
premium, profile Adjustment Factor and SADAD Margin. Similarly up to four pricing
elements are combined to constitute Bank Compensation viz. Bank Cost (+), CapEx &
OpEx Reduction premium (-), SADAD fee (-) and Service Premium (-). Overall the net
effect of SADAD will be a reduction in the structural costs of billing processing in terms of
CapEx and OpEx savings to Banks and Billers due to SADAD. SADAD EBPP architecture
was designed to be very flexible in adding new modules so that it can provide more
services. The growth of SADAD can be seen from three dimensions viz. Market growth,
customer growth and portfolio growth (UNPAN). See Exhibit 1 & 2 .
About SADAD
SADAD Payment System (SADAD) was established by the Saudi Arabian Monetary
Agency (SAMA) to be the national Electronic Bill Presentment and Payment (EBPP)
service provider for the Kingdom of Saudi Arabia (KSA). The core mandate for SADAD is
to facilitate and streamline bill payment transactions of end consumers through all channels
of the Kingdoms Banks. SADAD was launched on October 3rd, 2004 (SADAD Web site).
It is the winner of the United Nations Public Service Award during the year 2008. SADAD
Payment System won the first place in GCC E-Government Award in the field of EEconomy, during the First Gulf e-Government Conference which began on 21, December
2009 in Muscat, Oman (Global Arab Network, 2009).
About SAMA
Saudi Arabia Monetary Agency (SAMA) is an economy agent of Kingdom of Saudi
Arabia. It performs economic governance functions such as issuing national currency, the
Saudi Riyal; Acting like a reserve bank of Kingdom of Saudi Arabia; Supervising
commercial banks; Managing Kingdoms foreign exchange reserves; Conducting
monetary policy for promoting price and exchange rate stability; Promoting the growth and
ensuring the soundness of the financial system.
SAMA has been playing a crucial role in the consolidation and development of the Saudi
Financial System. At the time of its establishment, the Kingdom did not have a monetary
system exclusively of its own. SAMAs preoccupation was to contain inflationary
pressures in the booming economy, expansion of the banking system and manage the
massive foreign exchange reserves. From mid 1980s, SAMAs priorities have been to
introduce financial market reforms. Over the years, with the growth of the economy and
expansion of the financial system, SAMAs responsibilities have increased several folds
(SAMA Web Site).
What Prompted SAMA to go for SADAD?
Pre-SADAD economics of bill payment placed an unduly large burden on banks, it was
inefficient and slow. Banks also recovered a small portion of the cost through keeping the
collected money for varying periods of 7-30 days after the bill was paid.
What is the real work done in the case?
The real work done in this case study is to identify a case study for Graduate Management
students, provide the description of the case, conduct research and literature study relevant
to the case, its underlying theories and models related to economics and business studies
broadly and electronics service quality and eCRM in particular. Though studies on
IMT CASE JOURNAL, JAN - JUNE 2012
Volume 2 Number 2
Successful Implementation of Electronic Bill Payment and Presentment System - A Sadad Case Study
Electronic Payment Systems, Electronic Commerce and Electronic Security can also be
brought into the picture of the case study, our scope of the study is limited to elicit areas of
electronic service quality and customer relationship management. The data source is
primarily the web sites of SADAD and SAMA organizations; journals like Emerald,
Science Direct; UNPAN reports; conference papers, presentations and books listed in the
reference section have made a great contribution. Once the purpose of the organization
under consideration for the case study is understood, the knowledge gathering has started
towards indentifying and extracting the knowledge relevant to it, its underlying theories
and models. Case preparation guidelines and templates from IMT Nagpur, India are found
very useful for organizing the Case Knowledge. Most of the data has been drawn from the
UNPAN reports and SADAD and SAMA web sites.
What are the past related works?
Earlier work on SADAD case study is done by Harvard's research and consulting team,
which is headed by Dr. Khalid O. Al-Yahya, Fellow and Advisor at Harvard University and
Assistant Professor of Comparative Management and Strategic Human Resources and
Organizational Development at Arizona State University and Dr. Stephen Goldsmith,
Professor of Government and the Director of the Innovations in American Government
Program (SADAD web site).
This case is used for experts and students at Harvard Universitys Kennedy School of
Government and Business School and other educational institutions as well as for
practitioners participating in Executive Sessions, and most specifically will be used for
international executive teaching in programs held worldwide.
The purpose of the study is to share and disseminate knowledge about bill payment
problems in Saudi Arabia and the innovative approaches used to affect them. The case
study discusses the problems faced by the Saudi Arabian Monetary Agency (SAMA) and
the rationale for its initiative to tackle the electronic bill payment problems in Saudi Arabia.
This include the origins of bill payment problems, burdens on banks and governmental and
private sector billers and citizens, and SADAD effects on economy and overall economic
and institutional modernization.
Earlier work by Al Yahya, Khalid on SADAD case study is done from the perspective view
government-led innovation in service delivery in Saudi Arabia. The case describes the
process of establishing SADAD, the difficulties associated with its implementation
especially convincing government and private sector billers to change their old ways of
doing business, SADADs impact on streamlining bill payment transactions, and the
reasons for the government decision to lead this reform effort.
What improvements you see in this case relative to past works?
Though our case study matches with the abstract description of Harvard Universitys
School of Government and Business School, the purpose is targeted to focus on bringing
out the underlying economic theories, models and service quality management aspects
from the customer relation management perspective. For this purpose, four questions are
designed and directions for fetching the answers are given in the last section of this case
study. Various perspectives are brought in this connection while giving the directions.
Attempts are made to provide relevant literature especially from journals and books. Thus
it becomes a rigorous and comprehensive study to both teaching and student community
from the perspective of not only the academics but also towards conducting research that
IMT CASE JOURNAL, JAN - JUNE 2012
Volume 2 Number 2
spans multiple disciplines such as: Managerial Economics, Service Marketing, Customer
Relationship Management, Electronic Service Quality, Information Systems, Systems
Management and Electronic Resources and Planning. It also enable management faculty to
study and bring out the various perspectives and interlink them to better realize the
comprehensive understanding of the contemporary business studies.
How SADAD works and Data Required
SADAD Payment System was built to benefit many parties like Billers and Banks, Billers
can expect to improve customer services and streamline bill collection/ reconciliation
processes. Banks on the other hand, will particularly benefit from lower integration and
transaction processing costs.
Billers
Billers can expect to improve customer services and streamline bill collection/
reconciliation processes.
SADAD will benefit billers in many ways; some of those benefits are listed below:
Cost Reduction
Revenue Generation
Intangibles
SADAD will benefit banks in many ways; some of those benefits are listed below:
Volume 2 Number 2
Successful Implementation of Electronic Bill Payment and Presentment System - A Sadad Case Study
Cost Reduction
Revenue Generation
Intangibles
Linking with SADAD will enable billers to collect their payment electronically
through all the banking channels in the kingdom, which include 9,435 ATM and 1,442
Bank branch (and soon will include point of sale terminals) in addition to Phone
Banking and Online Banking offered by all Saudi banks in the kingdom. This will
enable any person to use SADAD system without pre-registration, anywhere in the
world.
Billers can use one or both prepaid services (e.g. prepaid mobile phones) and regular
postpaid payment services.
Billers can also choose between real-time and batch bill payment notification based on
Volume 2 Number 2
Data
A market research has been conducted on behalf of the SADAD team by Pan Arab Research
Center on a sample of 522 consumers in KSA. It showed that customers main concerns
were about time wastage, inconvenience of bill collection, bills past due and service cuts
due to delay in bill processing. See Exhibit 4, 5 & 6.
Goals of Business Case
The Goal of the Kingdom of Saudi Arabia is to provide the best possible quality services to
its residents while balancing the sub goals of:
Achieving economic goals set by SAMA (the economic and financial agent of KSA)
and
Ensuring the achievement of business goals to the B2B customers and
Providing and satisfying B2C customer goals.
Goals of Case from the Academic Perspective
To achieve comprehensive understanding on the management approach and
considerations in business environment
To orient students to adopt an enterprise approach in problem solving
To extract and formulate theoretical models and basic principles (from knowledge
economy and e-business perspective)
To work rigorously on how to finalize the scope of the problem while producing the
solution.
To learn how to focus on the problem and frame the problem statement.
Deliverables
In this section authors effort of problem statement, approach, pictorial depiction of the
business scenario for enterprise electronic service quality management and electronic
customer relation management aspects are to be delivered.
Problems and Challenges
The challenge is to explore and extract the relevant factors and their correlation to
electronic service quality under Enterprise based Electronic Service Integration and the
problem is to identify an aligning path.
Volume 2 Number 2
Successful Implementation of Electronic Bill Payment and Presentment System - A Sadad Case Study
Approach
An enterprise electronic service integration approach to electronic service quality
management is considered to address the problem. This approach allows working on multi
disciplines at macro level for exhibiting the whole scenario under which the focused
problem of electronic service quality is to be addressed. These multi-disciplines form the
Key Areas to be addressed in Service Quality according to the principles of service quality
that are given in the documentation of Service Quality dealt by SEI CMM process
guidelines. Thus the Exhibit 7 brings out the Government-Agency-Business-Customer
Scenario (G2A2B2C).
Things we would do differently
We tend to follow the Gen-Spec Research Methodology (TGK Vasista, 2011), which
focuses on working towards generic trends and patterns of multi-disciplines and bringing
them on to a common platform called systems engineering and management and then
focusing on the specific problem domain at hand to deal it as a plug-in.
Thus the electronic service quality management will act as a horizontal domain
representing the generic level and electronic bill payment and presentment as the specific
vertical.
Conclusion and Scope of the future research
Though, this case study has a potential to draw inferences on multiple aspects, our efforts
are limited to the domain of bringing the underlying economic theory and underlying
enterprise approaches. However students and faculty can put efforts in brining cost models
and can propose their structural elements from the finance management perspective (Refer
to First Paragraph of Introduction section).
References
1. Al-Sudairy, Md. (2010). A multi-disciplinary profile of IS/IT outsourcing research.
Journal of Enterprise Information Management, Vol. 23, No. 2, pp215-258, Emerald
Group Publishing Ltd.
2. Al-Turki, Umar, M., Andijani AbduBasit, A., Siddiqui Atiq, W., (2006). ERP
Implementation Trends and Practices in Saudi Arabia. King Fahd University of
Petroleum & Minerals, Dhahran, Saudi Arabia
3. Anne Terrell (A.T.) Thompson, CCM. How to Prepare and Evaluate an EBPP RFI-A
Presentation, Wachovia Treasury Consulting, Atlanta, USA
4. Baldwin, Christopher. Integration Patterns Overview. Microsoft.
5. BankCardTerminals.com, Electronic Bill Presentment and Payment (EBPP): The
future of Invoicing.
6. Berry, T (1985). Management control in an area of the NCB: rationales of accounting
practices in a public enterprise from Organisations and Society. Elsevier Publications
7. Eisenhardt, M. Kathleen (1989). Agency Theory: An Assessment and Review.
Academy of Management Review, vol. 14, No. 1, p57-74.
9. Harrigan, Paul, Ramsey, Elaine, Ibbotson, Patrick, Qureshi, Israr, Meister, Darren,
Fang, Yulin and Schroeder, Andreas (2008). eCRM technologies, capabilities and
SME performance benefits. In, Pacific Asia Conference on Information Systems
(PACIS 2008).
Volume 2 Number 2
10. Suzhou, China,Forshey (2010). EBPP, EIP, Electronic Account Presentment: The
Financial Supply Chain. SAP AG, Germany
12. Hackman, J R. and Wageman, R. (1995). Total Quality management: Empirical,
conceptual and practical issues. Administrative Science Quarterly, Qestia.com
14. Electronic Bill Presentment and Payment A strategic advantage, IBM Global
Services, Somers, NY, USA
15. Issa, R. R. A., Flood, I., Caglasin, G., 2003, A Survey of E-Business Implementation In
The US Construction Industry, ITcon Vol. 8 (2003), pg. 15-28
16. Koch, Bruno (2006). The European E-Invoicing & Electronic Bill Presentment &
Payment trends and the role of the Financial Services Industry. Billentis, Europe.
17. Lam, W. (2005). Barriers to e-government integration, Journal of Enterprise
Information published by Emerald insight
16. Lee C., Zhang, Lee P. and Au (2009). Using ERP Systems to Transform Business
Processes: A Case Study at a Precession Engineering Company. International Journal
of Engineering Business Management, Vol. 1, No. 1, pp. 19-24.
17. RTIP Report (2007), the Information Technology Investment Board, USA
18. Seth, N., Deshmukh, S. G. and Vrat, P. (2005), Service quality models: a review,
International Journal of Quality & Reliability Management, Vol. 22: 9, pp. 913-949.
19. Shang, S. and Seddon, P.B. (2000, August). A Comprehensive Framework for
Classifying Benefits of ERP Systems. Proceedings of the 2000 Americas Conference
on Information Systems, Long Beach California.
20. TGK Vasista (2011), Gen-Spec Research Methodology Design For Semantic And
Quality Research Studies, Proceedings of First International Conference on Business
Research Paradigms, MiddleSex University, Dubai, Nov 22-24, 2011.
21. Themistoleous, M. and Irani, Z. (2001). Benchmarking the benefits and barriers of
application integration. Emerald insight Publication.
22. Vernadat, FB (2002). Enterprise modeling and integration (EMI): current status and
research perspectives. Annual Reviews in Control, Elsevier Publications.
23. Vivek (2001). Business Process Exception Management Business Benefits of
Technology Led BPR with Billing as an Illustration. Infosys Technologies.
24. William, A. Estrem (2003). An evaluation framework for deploying Web Services in
the next generation manufacturing enterprise. Robotics and Computer-Integrated
Manufacturing. Volume 19, Issue 6, December 2003, Pages 509-519.
25. Altinkemer, Kemal., Tomak, Kerem. (2002). Chapter VI: Pricing and Service quality
in Electronic Commerce in Aryya Gangopadhyay (Ed.). Managing business with
electronic commerce: issues and trends. P100, Idea Group Publishing.
26. Pollock, J. T. and Hodgson, R. (2007). Adaptive information: improving business
through semantic interoperability, grid computing, and enterprise integration.
Information Resources Management, igi-online.com publishing.
27. Bieerstein N, Fiammante M, Jones K and Shah R (2006). Service-oriented architecture
compass: business value, planning, and enterprise roadmap. IBM Press.
Schaltegger S and Burritt R (2000). Contemporary environmental accounting: issues,
concepts and practice, Green Leaf Publishing.
28. William (2004). APPENDIX: Analyzing Business Situations The customer value
funnel approach (cvf) in William Charles Johnson, Art Weinstein (Eds.). Superior
customer value in the new economy: concepts and cases, p12-18, 434 pages, CRC
Press.
29. SADAD , 2010,http://www.zawya.com/Story.cfm/sidZAWYA20100110075029/
SR%2043%20Billion%20transactions%20Through%20SADAD%20
30. SADAD , 2010,http://unpan1.un.org/intradoc/groups/public/documents/unpan/
unpan030928.pdf
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Volume 2 Number 2
EXHIBITS
Exhibit 1 : Role of SADAD as an Intermediary
Pre-SADAD Bill Payment Network
EBPP Vision
Consumer
Consumer
Biller A
Bank A
Biller A
Biller B
Bank B
Biller B
Biller C
Bank C
Biller D
Bank D
Bank A
Bank B
SADAD
Bank N
Biller N
Biller Facing
Functions
Bill Information
Mgmt Functions
Business Support
Functions
Bill Aggreg.
Accounting
Business Rules
Biller Notification
Reconciliation
Help Desk
MIS
Source: UNPAN
Exhibit 3 : Outline of how SADAD works
Customer is
authenticated by
the bank prior
to querying
SADAD
Banks
communicates
with SADAD
through existing
infrastructure
Branch
SADAD
Phone Banking
Biller
Customer
ATM
SADAD provides
information, update due
status accordingly and
initiate the
settlement process
Website
Bank Channels
Bank
Walk-in
Customer
Source: SADAD
IMT CASE JOURNAL, JAN - JUNE 2012
Collection Center
Website
Biller Channel
Volume 2 Number 2
100
Delays/Loss in postage/
inconvenience of bill collection
Missing/overlooking payment dates
72
67
63
63
55
52
2
0
20
40
60
80
Number of mentions,
100
Source: SADAD
Exhibit 5 : a: For the years 2003 & 2008; b: For Bill Query and Bill Payment during
2008
Channel Usage Trends as on 2008
Channel
Web Site
Phone
ATM
Branch
2003
1%
7%
19%
73%
2008
19%
27%
42%
12%
Sl. No.
1.
2.
3.
4.
Bill Payment
15%
26%
47%
12%
Source: UNPAN030928
Exhibit 6 : SADAD Market Share Trends in 2007-2008
S. MonthSADAD
Volume of
Other
No. Year Market Share Channels Transactions
1. Feb-07
21%
79%
659
2. Mar-07
25%
75%
870
3. Apr-07
27%
73%
935
4. May-07
29%
71%
1037
5. Jun-07
31%
69%
1018
6. Jul-07
35%
65%
1256
7. Aug-07
43%
57%
1586
8. Sep-07
51%
49%
1963
9. Oct-07
64%
36%
2377
10 Nov-07
72%
28%
3171
11. Dec-07
79%
21%
3505
12. Jan-08
82%
18%
5319
Source: UNPAN030928
IMT CASE JOURNAL, JAN - JUNE 2012
Value of Transactions
(SR,000,000)
261
382
382
436
426
580
823
1023
1200
1602
1609
2324
11
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Successful Implementation of Electronic Bill Payment and Presentment System - A Sadad Case Study
SADAD
(E-Business Agent)
EBPP
E-Business
SAMA
(Economic Agent)
Banks
(Business
Firms)
Web Portal
Billers (Customers)
Author(s) Information
1 Associate Professor, College of Business Administration, King Saud University,
Riyadh, KSA, mas@ksu.edu.sa
2 Researcher, King Saud University, Riyadh, KSA
tgkvasista@gmail.com/gtatapudi@ksu.edu.sa
Volume 2 Number 2
ABSTRACT
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Volume 2 Number 2
the largest banker of infrastructure debt and the largest provider of commercial external
borrowings. SBI is the only Indian bank to be listed in the Fortune 500 which is a list of 500
large companies compiled every year by US on the basis of the companys revenue
declared. In order to improve SBI is changing its outdated front and back end processes to
modern customer friendly processes. Most of its own branches as well as of its associate
banks are networked with modern banking technology. This makes SBI to offer the largest
banking network to the Indian banking customers. In order to train its staff on modern lines
par with the new banking technology SBI has four national level Apex Training Colleges
and 54 learning Centers spread across the country.
In the current era of globalization and liberalization, the bank is looking at opportunities to
grow in size both in India as well as across the globe. SBI currently has about 142 foreign
offices as on March, 2010 across the globe in 32 countries. Forming a dreadful group in the
Indian banking industry, SBI has several subsidiaries such as SBI Capital Markets,
SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards. Today, the bank is in
the process of raising capital for its domestic as well as global growth and business
expansion. SBI is also in the process of consolidating its different holdings.
Regulations Governing Foreign issue in India
As per the guidelines of government of India and RBI, Indian companies can access capital
from abroad through the following methods: (a) External Commercial Borrowings (ECB),
(b) Foreign Currency Convertible Bonds (FCCBs), (c) Preference shares and (d) Foreign
Currency Exchangeable Bond (FCEB). Capital from abroad can be raised under two
routes, viz., (i) Automatic Route and (ii) Approval Route. Foreign capital for investment in
real industrial sector, infrastructure sector and some specified service sectors come under
automatic route which do not require either government or RBI approval.
The eligible borrowers which come under automatic route are corporates, including those
in the hospital, hotel, software sectors which are registered under the Companies Act, 1956
and Housing Finance Companies (HFCs), Infrastructure Finance Companies (IFCs), such
as banks, financial institutions (FIs), and Non-Banking Financial Companies (NBFCs).
Individuals, Trusts and Non-Profit making organizations are not eligible to raise capital
from abroad. Units covered under Special Economic Zones (SEZ) are also permitted to
raise foreign capital for their investment activities. Certain qualified, Non-Government
Organizations (NGOs) engaged in micro finance business are eligible to raise capital from
abroad under automatic route.
The recognized lenders from which the eligible borrowers can borrow internationally
include (a) international banks, (b) international capital markets, (c) multilateral financial
institutions (such as IFC, ADB, CDC,) and or regional financial institutions and
Government owned development financial institutions, (d) export credit agencies, (e)
suppliers of equipments, (f) foreign collaborators and (g) foreign equity holders.
Other than those in the hotel, hospital and software industry the maximum amount of
foreign capital which can be borrowed by a corporate is US$500 million in a financial year.
Industries falling in sectors such as, hotels, hospitals and software are allowed to avail
foreign capital up to US$100 million during a financial year. Also, the proceeds of the
foreign capital can not be used for acquisition of land in case of these industries. With
regard to maturity, foreign borrowings up to US$20 million in a financial year should have
minimum average maturity of three years. A minimum average maturity of five years is
required for borrowing between US$20 million to US$500 million in a financial year. The
IMT CASE JOURNAL, JAN - JUNE 2012
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government lays ceilings on all-in-cost and reviews it from time to time (see exhibit 8).
The end-use of foreign capital raised can be used in investments of new projects,
modernization and expansion of existing production units in real sector as well as industrial
sector including small and medium enterprises, infrastructure sector and some specified
service sectors namely hospital, hotel, and software.
Since a decade or so, Indian companies have gradually increased their borrowing overseas
(see exhibit 9 and 10). The principal advantage of raising capital overseas is the lower
interest rates as compared with the domestic interest rates which have harden due to tight
monetary policy of the RBI in recent times.
SBIs Overseas Bond Issue Details
SBI requiring to raise capital internationally in the context of integrated global capital
markets had many alternatives with it to consider. SBI to choose from various competing
capital markets with the mix of risk and return the choice of the best alternative was difficult
to make. In addition to choosing between proportion of equity and debt capital there was
also the issue of which market to tap and how to enter the market. Amid market turbulence
and volatility, State Bank of India in a statement on July 23, 2010, announced that it plans to
issue a five-year bond with a face value of US$1 billion internationally through its London
branch on July 27, 2010. In order to raise capital internationally, SBIs lead managers
(Bank of America, Merrill Lynch, Citigroup, Deutsche Bank, HSBC, RBS and UBS)
suggested that it had an opportunity to issue bonds denominated in US dollars in US
market, a Eurobond or Euro/US dollar dual currencies bond. Further, it was indicated that
after the successful issuance of the international bond it would be listed on the Singapore
Stock Exchange. The offering, was rated Baa2/Stable by Moody's and BBB-/Stable by
S&P.
Its lead managers estimate that a US dollar bond issue in US would bear a 4.50% coupon
paid semi-annually and other up-front fee totals 0.70% and the bond is expected to sell at
Par Value. Alternatively, SBIs can issue a five-year Eurobond with a face value of US$1
billion with a coupon of 9.25% from the international capital market. The Eurobond issue
has an up-front fee of 1.65% and the bond is expected to sell at 101% of Par Value. Also,
SBI has an opportunity to raise money by issuing Euro/US dollar dual currencies bond with
8.75% coupon having an up-front fee of 1.75% where the bonds are expected to sell at 99%
of Par Value. The repayment of all the bonds at maturity will be equal to the face value of the
bond issued. The above mentioned Euro bond and the Euro/US dollar dual currencies bond
issue details such as coupon rate, face value and up-front fee are assumed in the present case
for illustrative purpose of all-in-cost.
From the following international issue, SBI said that it would use the proceeds of the issue
for financing and funding its foreign subsidiaries and operations. SBI also wants to use the
proceeds to support Indian corporate with commercial external borrowings. More
importantly, SBI with this international capital issue intends to broaden its debt investor
base in global capital market and to enter and access vast and large capitalized global
institutional investors in the private placement segment of the market.
Foreign Exchange Risk and Hedging
Foreign exchange risk occurs because each economy has its own domestic currency which
acts as a medium of exchange and the exchange rates between any two countries and
IMT CASE JOURNAL, JAN - JUNE 2012
Volume 2 Number 2
currencies fluctuate on day to day basis (see exhibit 11) resulting in a change in the value of
the companys international transactions in terms of its domestic currency.
Foreign exchange risk is the risk that the home currency value of cash flows denominated in
foreign currency may change due to the variations in the foreign exchange rate. The
exchange rate between a corporations home currency and the foreign currency may
appreciate or depreciate by the time the corporation receives or pays the cash flows in the
foreign currency exposing the corporation to foreign exchange risk. Mainly, there are three
important foreign exchange risks that affect a corporations financial performance.
Translation exposure of a corporation which has overseas presence is the accounting based
changes in consolidated financial statements caused by exchange rate changes. Transaction
exposure of a corporation occurs when exchange rate changes affect the actual cash flows
between the time when an obligation is incurred and the time when it is settled. Economic
exposure reflects the change in the present value of corporations futures cash flows
because of the unpredicted variations in foreign currency rates.
Therefore, hedging or mitigating foreign exchange risk is very important for the business
corporations in order to protect them from the risk of loss. By using a well defined and preestablished foreign exposure management strategies corporations can hedge or manage
foreign exchange risk. There are several financial instruments/contracts such as currency
forward and futures contract, currency options and SWAP agreements available for a
corporation to hedge against the foreign exchange risk. Also, one can use money market
operations to hedge foreign exchange risk.
Hedging the foreign exchange risk involves projecting or forecasting exchange rate
volatility, assessing the possible impact of a hedging strategy, deciding on hedging the
foreign exposure, selecting the appropriate financial instrument and designing a hedging
strategy or structure.
Because SBI is seeking to raise money from international capital market, it has to deal and
manage the foreign exchange risk associated with the issuance of above mentioned issue.
This is a clear case of transaction exposure because SBI has contractual obligations to make
future coupon and principal payment (cash outflows) in foreign currency. As the exchange
rate of Indian currency vis--vis US dollar and Euro (as of July, 2010, the monthly average
exchange rate of Indian rupee vis--vis US$1 and 1 was approximately equal to Rs.46.84
and Rs.59.76 respectively) is expected to change now and when these transactions occur, so
does the value of their associated non-domestic currency cash flows, leading to currency
gains and losses which ultimately decides the total cash outlay that SBI has to pay in foreign
currency for exchange of domestic currency. Thus, SBI has to face the transaction risk
during the entire period of coupon payments and the final payment for the 5-year bond
since two or more currencies are involved and there is a lag between the dates the bond
contract is signed and the date of coupon and principal payment. Therefore, the foreign risk
faced by SBI is that the Indian exchange rate will change and fluctuate before the
transaction is completed and the currency exchange occurs (in this case Dollar and Euro),
there by changing the amount of Indian currency to be paid over a span of 5 years of debt
payment.
The historical examination of the annual average of the exchange rate of the Indian rupee
vis--vis US$ and Euro (see exhibit 12) reveals that the Indian currency had movements of
both high and low. For example, the rupee appreciated to a ten-year high of US$39.29 in
June 2008 where as it depreciated to a record low of US$52.06 in March 5, 2009. From
2008-09 onwards, Indian currency on year to year basis has depreciated against both US
IMT CASE JOURNAL, JAN - JUNE 2012
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Volume 2 Number 2
dollar and Euro. For example, the annual average of Indian exchange rate vis--vis US$
was Rs.40.241/1US$ in 2007-08 which depreciated to Rs.45.917/1US$ and
Rs.47.417/1US$ in 2008-09 and 2009-10 respectively. Similarly, the annual average of
Indian exchange rate vis--vis Euro was Rs. 56.99/1 in 2007-08 which depreciated to Rs.
65.135/1 and Rs.67.084/1 in 2008-09 and 2009-10 respectively. On July 27, 2010, the
date of global bond issue by the SBI, the Indian exchange rate vis--vis US$ and Euro was
Rs.46.658/1US$ and Rs.60.809/1 respectively. Because of global recession and
uncertainty of crude oil prices there is no strong reason to believe that the value of Indian
currency against US$ and Euro will increase or appreciate. Since exchange rates are
notoriously difficult to predict, SBI needs to hedge the possible transaction risk associated
with the future coupon and principal payments due in next 5 year form the date of issue that
is from July 27, 2010 to July 26, 2015. Now the question before the management is: What
hedging strategy should the bank adopt to hedge the foreign exchange risk involved?
In light of above discussion, with respect to issuance of an international bond and the
possible transaction exposure of coupon and principal payment, the Chairman of SBI has to
take two important decisions. First, it has to raise the required capital at the least expensive
issue among the various international bond issue options available to it. Second, the bank
has to decide and design a hedging strategy to protect from the possible foreign exchange
loss.
References
1.
2.
Volume 2 Number 2
raises-usd-1-bn-through-bonds-in-us-1063335.html
12. Key Business Statistics, available at http://www.iba.org.in
13. Master Circular No. 8 /2010-11, RBI/2010-11/8, July 01, 2010, RBI
19
20
Volume 2 Number 2
EXHIBITS
Exhibit 1 : Commercial Banks in India : Deposits/Investments/Advances as on
March 31 (Rs Crore)
Deposits
2009
2010
Investments
2011
2009
2010
2011
Advances
2009
2010
2011
SBI
91688
Total Nationalised Banks 1993305 2416267 2946636 605333 756760 877326 1416881 1704880 2154380
Private Sectore Banks
Foreign Banks
Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key
Business Statistics, IBA
Exhibit 2 : Commercial Banks in India : Assets/Gross and Net Non Performing Assets
as on March 31 (Rs Crore)
2009
2010
2011
Net NPA
Gross NPA
Total Assets
2009
SBI
2010
2011
2009
2010
2011
19535
25326
9677
10870
12347
2733
3998
5066
1192
1960
2444
34265
40304
9337
15407
19605
17638
18243
7412
6506
4574
Foreign Banks
7134
5071
2997
2976
1283
6445
Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key
Business Statistics, IBA
Exhibit 3: Commercial Banks in India : Income as on March 31 (Rs Crore)
Interest Income
Other Income
Total Income
2009
2010
2011
2009
2010
2011
2009
2010
2011
SBI
63788
70994
81394
12691
14968
15825
76479
85962
97219
25407
26960
28434
3382
3425
3415
28789
30385
31849
28198
85071
82807
96827
17860
20422
Foreign Banks
30322
23392
28530
14894
9951
10973
45216
36343
39503
Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key
Business Statistics, IBA
Volume 2 Number 2
Operating Expenses
Total Expenditure
2009
2010
2011
2009
2010
2011
2009
2010
2011
SBI
42915
47322
48868
15649
20319
23015
58564
67641
71883
18855
18906
18150
4439
4964
6130
23294
23870
24280
38961
56957
51206
57115
21779
22851
27606
78737
74057
84722
Foreign Banks
12819
8938
10622
12298
11111
12581
25118
20049
23203
Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key
Business Statistics, IBA
Exhibit 5: Commercial Banks in India : Profit as on March 31 (Rs Crore)
Operating Profit
Provisions and
Contingencies
Net Profit
2009
2010
2011
2009
2010
2011
2009
2010
2011
SBI
17915
18321
25336
8794
9155
17071
9121
9166
8265
5495
6515
7569
2721
3248
3970
2774
3267
3598
49298
63003
20198
23506
31616
21618
25793
31388
24195
29173
32831
13327
16061
15119
10868
13111
17712
Foreign Banks
20099
16294
16299
12589
11560
8589
7510
4734
7710
Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key
Business Statistics, IBA
Exhibit 6: Commercial Banks in India : Credit and Investment Deposit Ratio as on
March 31 (percent)
Credit Deposit Ratio
Spread as %
of Assets
Investment Deposit
Ratio
2009
2010
2011
2009
2010
2011
2009
2010
2011
SBI
73.11
78.58
81.03
37.19
36.78
31.65
2.16
2.25
2.66
74.33
74.36
76.12
30.82
30.16
28.88
2.08
2.24
2.75
70.56
73.11
30.37
31.32
29.77
2.2
2.15
2.56
78.13
76.86
79.57
41.63
43.04
42.09
2.74
2.75
2.84
Foreign Banks
77.25
70.34
81.24
60.89
68.63
68.76
3.93
4.01
3.63
Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key
Business Statistics, IBA
21
22
Volume 2 Number 2
Return of Assets
2009
2010
2011
2009
SBI
26.72
30.04
32.02
1.04
0.88
0.71
19.06
20.8
25.25
0.96
1.00
1.04
22.7
25.6
1.00
1.00
0.99
27.66
30.86
32.58
1.1
0.94
Foreign Banks
48.96
55.42
54.22
1.76
0.22
2010
2011
2009
2010
10.69
14.25
13.39
11.98
12.2
13.19
13.53
13.13
12.07
13.22
13.2
13.5
16.7
15.1
15.2
17.4
16.5
18.1
17.7
14.3
17.3
17
2010
2011
12.3
12
11.92
12.1
12.1
12.2
1.09
15
1.88
15
Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key
Business Statistics, IBA
Exhibit 8: Average maturity and all-in-cost ceilings
Average Maturity Period
Note: All-in-cost Ceilings over 6 month LIBOR is for the respective currency of borrowing
or applicable benchmark (as on July, 2010), Source: Master Circular No. 8 /2010-11,
RBI/2010-11/8, July 01, 2010, RBI.
Exhibit 9: Data on External Commercial Borrowing (ECB) and Foreign Currency
Convertible Bonds (FCCB) of Indian Companies
Month
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Amount US$(bn)
1.16
1.27
1.62
2.47
1.6
2.83
1.13
1.7
1.67
1.34
0.45
1.11
0.298
0.494
1.92
Month
Amount US$(bn)
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
2.01
1.09
1.51
2.58
2.35
1.57
1.32
2.19
4.32
2.82
0.696
1.79
1.64
1.09
3.09
Source: Financial Express, Oct, 23, 2010 and Database on Indian Economy, RBI
2011
Volume 2 Number 2
Source: Compiled based on the data collected from Handbook of Statistics on Indian
Economy, RBI, 2010
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Volume 2 Number 2
Exhibit 12: Annual Average Exchange Rate of Indian rupee vis--vis US dollar and
Euro
Source: Compiled based on the data collected from Handbook of Statistics on Indian
Economy, RBI, 2010
Author Information
1 Assistant Professor, Institute of Public Enterprise,
Osmania University Campus, Hyderabad, Andhra Pradesh, India
Email Id: Indersekharyadav@gmail.com
Volume 2 Number 2
ABSTRACT
This case narrates the real life story of a business venture situated in
the city of Ahmedabad. The case focuses on the strategy adopted by
the managers of the institute & its repercussions then after. The case
is meant for the marketing class of post graduate students with
emphasis on Market Segmentation and Positioning strategy. It also
discusses the implications of business diversification. The case also
offers ample scope of analyzing the leadership qualities of the top
management. The beneficiaries will be all such newly start up
organizations which come across such typical situations of targeting
especially in the subcontinent. The case is based on real life
experience. However, it has been presented in a disguised manner so
as to protect the identity of the organization.
Keywords: Competitive Examinations, Diversification,
Segmentation and Positioning, Market Strategy, Service Quality
Introduction
What can be the reason behind this worrying state of affairs? Palashkumar murmurs
looking at the financial report submitted by Shikhar Sen, the business head of newly
expanded venture TRIUMPH TUTORIALS - a Coaching Institute for
IAS/CAT/Banking and other competitive Examinations. The enrolments have taken a
southward movement in the third year by twenty one percentage points compared to last
year. Is there enough market for this? he further contemplates studying the poor
enrolments of the last year. It has turned into disastrous venture, which he once considered
to be a revenue spinner for him. The mystery further deepens when he learns about the
proliferate business of other players in the similar businesses. He further gets astonished
when the business consultant hired for investigating the causes of the dire state of the
business puts to his notice the fabulous performance of less promising institutes, which
have mushroomed since the last advertisement of State Public Service Commission for
Class-I & II cadre.
The Inception
Palashkumar, a successful businessman, has experienced many of such situations and dealt
with them with professional knack. Palashkumar is a businessman from a mediocre family,
and has become a well-to-do businessman with his labor and contemporary management
style. He has an established business of Gold Jewellery at the age of 65 years and his
IMT CASE JOURNAL, JAN - JUNE 2012
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Volume 2 Number 2
company, TRIUMPH JEWELERS, ranks amongst the top five Jewelers of the country.
The company is Head Quartered at Rajkot, a City of the Gujarat State. They are the sole
provider of the Gold Bars to most of the Jewelers of the State. TRIUMPH JEWELERS,
once a small Jewellery Showroom has now become the most renowned name in the field of
creative crafting, carving, and designing of Gold Jewellery. The growth of TRIUMPH
JEWELERS can mainly be attributed to the visionary approach of its founder
Palashkumar towards the transformation of a small Jewellery shop to a famous gold
Jewellery designing firm.
The Growth
Palashkumar adopted the strategy of minimum margin and higher turnover initially to
capture local market. He focused on purity of Jewellery and quality service. In those days
(in 1980s), it was common to have the impure Jewellery being sold in the market to make
money within short time. His attitude with customers made him win loyalty. This resulted
into increased customer base in Rajkot city. Then onwards, he did not look back. He started
advertising in radio and local news papers also. This made TRIUMPH JEWELERS, the
most sought-after brand in the State of Gujarat. He did not limit his horizons and targeted
the market outside the state too. To be the most favoured brand, the thrust was given on
customer services and creative designs. Keeping this in mind, he made sure that his jewelry
should have the design which no one else in the market could offer. For this he hired the
services of the well qualified designers from the Institute of Jewellery Designing and from
NID. He exhibited his jewelry in the National Jewelry Design Expo at Mumbai organized
in hotel Ashoka. He contracted with one of the Bollywoods upcoming actresses in 1998,
who was a established star in the film industry by then. His decision to have her face in
Exhibitions and TVs had helped the brand to increase brand awareness and won him a great
applause for his designer jewelry and it soon became an established Brand in the industry
throughout the country.
The Diversification
For business reasons, Palashkumar maintained good relationship with many of the bank
officials, which proved handy in short term financial crisis. He was having a good rapport
with, Shikhar Sen who was a senior manager of a nationalized Bank. Shikhar Sen made a
proposal of a joint venture for the Coaching of IAS/CAT/Banking and other competitive
Examinations. Palashkumar was hesitant initially, as it would be totally dark zone for him.
Moreover, an idea of going for unrelated diversification did not encourage him. He asked
for some time to think over Shikhars proposal. He discussed about this new business idea
with his two sons. Both of them objected it strongly and instead proposed to venture into the
field of imparting of jewellery design training, which would rather make more sense. They
explained to Palashkumar about the worthiness of related diversification wherein they had
enough knowledge and this backward integration could ensure the continuous flow of
skilled jewelry designers for their own organization. However, Palashkumar opined that
even at that juncture they were getting sufficient number of quality jewelry designers and
expressed his confidence on Shikhar Sens knowledge in the field of competitive
examinations. Another reason for going with Shikhars idea was his fascination for coveted
job since his young days and deep rooted desire to serve the society through the
establishment of an educational institute. He offered Shikhar Sen a Directors post with the
profit-sharing option and asked to shoulder all the responsibility pertaining to the new
venture. As Palashkumar was quite impressed with Shikhar Sens approach with the
customers, he had given nod to invest the funding for the same.
Volume 2 Number 2
Nisarg Joshi, Narayan Baser, Harishchandra Singh Rathod & Apurv Raval
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Volume 2 Number 2
(Sardar Patel Institute of Public Administration, a Govt. of Gujarat run IAS Training
Institute at Ahmedabad) after completion of his MBA. Tirth was able to design the study
material in the subject of Public Administration and some areas of General Studies as well
as Reasoning Abilities Section of MBA and Banking Entrance Examinations. He was
successful to avail the services of some of the most successful tutors in the field of UPSC
and CAT Entrance Examinations as full time faculties. The pay-package offered by him
made many prominent faculty members (of different specializations viz. History, Political
Science, Public Administration, etc.) tempted to relocate themselves in Ahmedabad. The
appointment of Tirth relaxed Shikhar Sen of lot of strategic issues related to TRIUMPH
TUTORIALS. He focused on hiring the best talent from throughout the country. He
betted on the quality study material for which he contracted with the most knowledgeable
faculty. He understood the significance of human resources in a true sense and opened his
money bags for the same. He wanted to beat Bright Tutorials, the market leader in the
country in the postal coaching for UPSC and IIT Entrance Examinations.
The Team
Shikhars team comprised of Tirth performing multiple roles of a faculty coordinator, an
HR Manager, and of a faculty. Shikhar Sen appointed two marketing executives on the
advice of Tirth for educational advertising. Tirth believed that the college-going students
read news papers and are competent in analyzing any national or international event.
Moreover, a focused approach should be inculcated amongst the college students. He
reminded Shikhar of long gestation period in this industry, as they had to work from the
scratch. Tirth appointed eight full-time faculty members from different areas and
contracted with other six faculty members for study material preparation. He appointed
four typists to assist the faculty members.
Shikhar Sens Strategy
Shikhar Sen was very ambitious and decided to target the elite competitive examinations
like UPSC (for IAS, IPS, IFS), CAT, and IIT in the beginning. He wanted to compete
with the established players in the respective fields. He supported his decision in front of
Tirth by the logic that he had the best quality tutors and the world class infrastructure.
However, Tirth was not fully convinced with this strategy of targeting the upper segment
(in terms of the stature of the competitive examinations, and not in terms of the target
audience or pricing), as it meant battling with Bright Tutorials in IAS and IIT (Indian
Institute of Technology) postal coaching, directly battling with established brand like
MASTERS IAS, AIMs Coaching, etc. and many other Delhi-based coaching institutes
for class room coaching in the national market and with SPIPA & SPSS (Sardar Patel Seva
Samaj) in the local market. Tirth explained that the aspirants for such elite examinations
would never rely on a new entrant like us, as it is a matter of their career and long cherished
dream. He even resisted the strategy of offering CAT Coaching on the same grounds. He
was of the opinion of going only for GCET (Gujarat Common Entrance Test for MBA and
MCA), as Gujaratis (People of Gujarat) are gifted with the business acumen and are highly
successful in business worldwide. This made him confident of getting enough students.
The Response
A warm response was expected considering the most hyped inaugural ceremony which
showed off the strengths of TRIUMPH TUTORIALS in terms of faculty members and
infrastructural facilities. However, to their dismay the enrolments were not as expected and
even after three years the brand awareness was very low. The students community could
IMT CASE JOURNAL, JAN - JUNE 2012
Volume 2 Number 2
Nisarg Joshi, Narayan Baser, Harishchandra Singh Rathod & Apurv Raval
not dare to experiment even though the efforts from every front i.e. faculty and marketing
were tremendous. The aspirants rather preferred to be enrolled in the established institutes
like SPIPA, SPSS for UPSC (Union Public Service Commission) and Topers Institute,
Intellect Learning Center, Excellent Career Academy, Lamppost for CAT coaching. Others
even migrated to Delhi for the same.
The Meeting
In midst of such condition, a meeting was summoned by Palashkumar to determine the
future course of action. It steamed with hot exchange of thoughts between Shikhar Sen and
Tirth. Other faculty members and Marketing Executives also put up their view point about
the situation.
Palashkumar: It is unfortunate to have such a poor performance after the three years of
inception. He has just tabled the comparative income statement (Exhibit 1) and balance
sheet (Exhibit 2) in the meeting towards his team with very dissatisfactory gestures. He also
handed over Exhibit 3 showing different financial ratios of last three years. He showed his
concern about the declining profit margin and growth in income.
We have to work on the improvement of Service Quality, Shikhar Sen added.
Sir, our efforts are dedicated to offer them the best quality: a faculty member replied.
There must be something wrong with the quality; otherwise the students would have
definitely queued to get into our institute, Shikhar Sen responded.
Sir, the students are not ready to hand over their fate in our hands. They felt trusting on the
new institute meant jeopardizing the career. Marketing Executive opined showing the
enrollment status across different programmes (Exhibit 4).
It is not only about the Service Quality, it has a lot to do with the brand image of our
institute. We have been thrown into the ocean to fight with the giants like. (He was
hesitant in naming the competitors) said another Marketing Executive.
It is all damn excuses of non-performers like you. One can be convinced by showing the
tangibles and the reputed names of our faculty members. Shikhar Sen said angrily.
Tirth: Sir, the problem lies with the strategy, not with the quality of coaching service
Shikhar Sen: What do you mean?
It is as simple as you selecting the most renowned school for your kid in the first standard.
You could not risk your kids career. Tirth replied calmly.
But, every organization has the starting point. One has to fight hard to get noticed.
Shikhar Sen put the point with confidence.
You are right, sir. One has to start at some point but one can start from the grass root and
obviously not with the sky scrapers as you intended. Tirth explained.
To aim high is not crime, dear Shikhar replied.
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Volume 2 Number 2
Sir, with due respect to your tall aims, one has to go gradually for expansion particularly in
the industry like this Tirth further elaborated.
Dont you have the example of the big successes even in the service industry? Shikhar
questioned doubting the logic of Tirth.
It is always there, but academic service is bit different, wherein your customers decisions
have a much greater impact to their lives compared to other services like restaurant,
tourism, or housekeeping. Tirth explained.
Then, what is the solution? Shikhar asked with confused state of mind.
Sir, better we would get ourselves firmly placed in the local market first. Tirth Said.
But, the response for the regular classes (located at Ahmedabad only) was not much
different. Moreover, the major chunk of revenue had been targeted from the regular classes
only and the postal course was the secondary business. Shikhar asked.
Sir that is what I mean to convey. The local market for UPSC has not much potential and
for CAT coaching, the preference is towards the more renowned institutes. The serious
candidates had moved towards Delhi for better coaching. Tirth Said.
Therefore, at first we should start with the GPSC (Gujarat Public Service Commission)
and GCET (Gujarat Common Entrance Test for MBA and MCA) competitive
examinations. GPSCs advertisement for Class-I & II officers had been announced last in
2006 and GCET has been conducted every year. Approximately 150000 aspirants appear
for each. Therefore the problem of not enough students would not arise. Once we become
an established name for these examinations, we could move upward and target the elite
examinations like UPSC, or IIM. Tirth explained.
We offered those even, but to our surprise we could not make our ground in GPSC and
GCET examinations. Shikhar questioned.
Sir, it was due to Success Mantra and Navyug foundations competition. Marketing
Executive replied.
It might be because we got more expanded than our resources allowed us. Tirth opined.
Now, what is the way out? Shikhar questioned.
Sir, we will have to start a fresh. Let us focus on a few courses and that too at the lower
level. We can go for gradual expansion. Tirth proposed.
Where is the Triumphant Strategy?
Tirth is quite clear about how Shikhar Sen should pursue. He recommended targeting the
GPSC, GCET, Banking examinations initially, as there were a huge number of aspirants for
these examinations. Targeting the UPSC or IIM (Indian Institute of Management) aspirant
could be done, once we could be an established brand in the students community. He was
confident about his team and said once we deliver the successful candidates, they would
spread the positive word-of-mouth. The concern here is to attract the customers to consume
our services. As there could not be a trial purchase, the first time purchase should be given
greater emphasis. Once some use it, others are bound to follow.
IMT CASE JOURNAL, JAN - JUNE 2012
Volume 2 Number 2
Nisarg Joshi, Narayan Baser, Harishchandra Singh Rathod & Apurv Raval
However, Shikhar Sen blamed the marketing executives for the poor show. He feared about
dilution of the brand image by opting for the state-level examinations.
Shikhar Sen is not ready to wind up his venture just because of the fear of further loss.
Mr. Palashkumar leaves the report and heads towards his residence with thoughts of
continuing the TRIUMPH TUTORIALS with the same strategy or not.
31
32
Volume 2 Number 2
EXHIBITS
Exhibit 1: Income Statement
Triumph Tutorials
INCOME
2007-08
2008-09
2010-11
Operating Income
Students' Fees - Regular
Students' Fees - Fast track
Students' Fees - Distance
Total Operating Income
2,615,000
969,000
392,000
3,976,000
3,265,000
997,000
327,000
4,589,000
2,550,000
815,000
252,500
3,617,500
24,000
25,000
11,000
60,000
49,050
28,000
13,000
90,050
60,000
30,000
9,000
99,000
Total INCOME
4036000
4679050
3716500
EXPENSES
Operating Expenses
Accounting and Legal
Advertising and Publicity
Depreciation
Dues and Subscriptions
Faculty Development
Insurance
Interest Expense on short term loan
Interest Expense on long term debt
Maintenance and Repairs
Office Supplies
Postage and stamp
Salaries to Teaching staff
Salaries to Non-teaching staff
Telephone and Internet
Web Hosting and Domains
Other
Total Operating Expenses
2007-08
2008-09
2009-10
3,976
89,460
750,000
119,280
119,280
75,000
84,000
220,000
37,500
79,520
79,520
795,200
318,080
99,400
357,840
39,760
3,267,816
4,589
103,253
750,000
137,670
183,560
67,500
220,000
33,750
183,560
91,780
1,606,150
367,120
114,725
413,010
91,780
4,368,447
3,618
81,394
750,000
108,525
180,875
60,000
36,000
220,000
30,000
144,700
72,350
1,447,000
289,400
90,438
325,575
217,050
4,056,924
768,184
268,864
499,320
310,604
108,711
201,892
(340,424)
(340,424)
Non-Operating Income
Interest Income
Career consultancy
Other
Total Non-Operating Income
Volume 2 Number 2
Nisarg Joshi, Narayan Baser, Harishchandra Singh Rathod & Apurv Raval
2007-08
2008-09
2009-10
98,510
397,600
98,034
594,144
178,790
458,900
131,053
768,743
113,076
361,750
121,708
596,534
545,000
1,800,000
450,000
4,500,000
6,750,000
7,295,000
600,000
1,600,000
400,000
4,000,000
6,000,000
6,600,000
8,394,144
8,063,743
425,424
7,621,958
2007-08
2008-09
2009-10
35,784
700,000
159,040
894,824
41,301
321,230
362,531
32,558
300,000
289,400
621,958
Long-Term Liabilities
Long-term debt
Total long-term liabilities
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
Owner's Equity
Owner's investment
Retained earnings
Total owner's equity
Total Liabilities & Owner's Equity
5,000,000
499,320
5,499,320
8,394,144
5,000,000
701,212
5,701,212
8,063,743
5,000,000
300,000
2,000,000
500,000
5,000,000
7,500,000
7,800,000
5,000,000
7,621,958
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Volume 2 Number 2
2007-08
0.34
0.66
1.53
0.53
12.37
2008-09
0.29
2.12
1.41
0.41
4.31
15.93
2009-10
0.34
0.96
1.52
0.52
-9.16
-20.57
2007-08
25
11
2008-09
40
24
2009-10
30
13
2007-08
33
15
10
2008-09
38
22
8
2009-10
28
15
5
2008-09
2009-10
14
13
16
15
11
9
10
8
6
5
5
4
Volume 2 Number 2
Nisarg Joshi, Narayan Baser, Harishchandra Singh Rathod & Apurv Raval
2008-09
2009-10
10
8
10
7
8
6
10
8
9
7
8
6
7
6
6
5
5
4
Regular
General Studies
Optional 1 and 2
Fast Track
General Studies
Optional 1 and 2
Distance
General Studies
Optional 1 and 2
Clerical
Probationary Officers
Lakshya
10000
30000
(INR)
Sure Success
9000
25000
(INR)
Lamppost
Intellect
Learning
Center
Excellent
Career
Academy
17000
12000
8000
25000
20000
11500
21000
11000
8500
Excellent
Career
Academy
15000
10000
5000
(INR)
Learning
Curve
Institute
13000
9000
4000
Regular
Fast Track
Distance
20000
15000
9500
22000
18000
11000
35
36
Volume 2 Number 2
(INR)
Fee Structure: UPSC (Union Public Service Commission )
Preliminary Examination
Triumph
SPIPA Success AIMS Institute Master's
Tutorials
Mantra (Delhi based) IAS (Delhi
based)
Regular
General Studies
20000 No Charge
22000
30000
30000
Optional 1 and 2
25000 No Charge
30000
35000
40000
Fast Track
General Studies
12000
NA
14000
16000
18000
Optional 1 and 2
20000
NA
22000
24000
26000
Distance
General Studies
8000
NA
10000
12000
10000
Optional 1 and 2
10000
NA
11000
13000
15000
Mains and Interview
Triumph
SPIPA Success AIMS Institute Master's
Tutorials
Mantra (Delhi based) IAS (Delhi
based)
Regular
General Studies
Optional 1 and 2
Fast Track
General Studies
Optional 1 and 2
Distance
General Studies
Optional 1 and 2
30000
40000
No Charge
No Charge
30000
45000
40000
80000
45000
85000
20000
25000
NA
NA
22000
27000
30000
60000
33000
63000
13000
15000
NA
NA
15000
18000
20000
30000
24000
32000
(INR)
Tirth
Classes
9000
18000
4500
8000
NA
NA
Volume 2 Number 2
Nisarg Joshi, Narayan Baser, Harishchandra Singh Rathod & Apurv Raval
Navyug
Foundation
Tirth
Classes
13500
25000
14500
24000
15000
25500
9000
15000
8000
14600
10000
15000
10750
15900
12000
20400
7000
11000
5000
8500
6000
5000
5000
7000
7000
8000
4500
6500
NA
NA
Annexure
1.UPSC EXAMINATIONS
2.SPIPA
1. UPSC EXAMINATIONS
Sr. No.
1.
2.
3.
4.
5.
6.
7.
Details
UPSC advertises normally in the month of November /
December in Employment News
Preliminary Examination of objective type is held every year in MAY.
Preliminary examination result - JULY / AUGUST.
Mains Examination Descriptive type test held in - OCTOBER /
NOVEMBER.
Mains Examination result in MARCH
Interview (viva - voce) APRIL-MAY at New Delhi.
Final Result MAY
Source: www.upsc.gov.in/
SPIPA
SPIPA was established by the Government of Gujarat in 1962 as the State Level
Administrative Training Institution for training government functionaries. It became an
autonomous body (registered under the Indian Societies Act) in October, 2004. The
Institute aims to provide state of the art training in areas related to public administration and
governance so as to enhance the competence of the government functionaries in delivering
services in their respective fields. Government of Gujarat has started Civil Service
Examination Study Centre since September, 1992 at the Sardar Patel Institute of Public
Administration (SPIPA) Ahmedabad for imparting training to the youth of Gujarat who
aspire to join Union Civil Services (IAS/IPS/IFS /Group - 1 & 2),conducted through
UPSC. An integrated coaching which concentrates on all the three stages of Civil Service
Examination i.e. Prelim, Mains and Interview. The rich experienced faculties affiliated
with SPIPA are helpful to candidates not only for General studies but also for optional
IMT CASE JOURNAL, JAN - JUNE 2012
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Volume 2 Number 2
subjects. The rich Library is equipped with the latest material & books for General Studies
and optional subjects of Civil Services Examination. A spacious, well ventilated reading
room for candidates has been provided. A wide range of Magazines and News Papers are
also available. SPIPA provides free Lodging and Boarding to the outstation candidates of
Reserved Category. Lodging and Boarding is also provided to outstation candidates of the
General Category at concessional rates. Stipend of Rs. 250/- per month is payable to
reserved category candidates. Regular Coaching is being provided through expert faculties
for the General studies and Optional Subjects. Series of group discussions and
presentations by the candidates on current events are regularly organized. Frequently test
on General Studies and Optional subjects Papers and Essay Writing are conducted to check
the performance of the candidates. Sardar Patel Institute of Public Administration,
Ahmedabad is conducting two Orientation Course each of 5 days for 200 students free of
costs for Graduates and Students who have appeared in the final year exam of Graduation,
to create awareness about Civil Services Examination (IAS/IPS etc.) conducted by Union
Public Service Commission. For Orientation Course Applications are invited through
English & Gujarati Newspapers. It is observed that success ratio of the civil service
examination could be improved if the students start preparation for examination right from
School level rather than after graduation as being the common practice in Gujarat. To
generate mass awareness amongst students at the early stage, SPIPA study centre conducts
In campus and off campus career guidance seminar throughout the State. If any
school/college is interested in arranging several carrier guidance seminars & if they contact
SPIPA, we will extend all kind of help. There are 53 candidates till date who have cleared
UPSC Examinations.
Source: www.spipa.gujarat.gov.in/
Author(s) Information
1. Assistant Professor, National Institute of Cooperative Management, Gandhinagar,
Gujarat. Email id: nisargnicm@gmail.com
2. Associate Professor, National Institute of Cooperative Management, Gandhinagar,
Gujarat. Email id:baser_narayan@yahoo.com
3. Associate Professor, National Institute of Cooperative Management, Gandhinagar,
Gujarat. Email id: drhsrathod@gmail.com
4. Associate Professor, P.G.Rao Institute of Management Studies, Veda, Gujarat.
Email id: apoorva3040@gmail.com
Volume 2 Number 2
ABSTRACT
This paper covers the development of strategy map showing the
interrelationship among the organizations internal process and
intangible assets and differentiation advantage and demonstrates
how collection of integrated and aligned activities enable the firm to
offer a value proposition product leadership. The company is
referred to in this paper as Dream Labs (DL) in order to preserve
confidentiality of the material. After a brief discussion on the
background of generic strategy, competitive advantage of
differentiation and the company, the concept of strategy map and
balanced scorecard is defined, and the applicability of this concept to
DL is explored through three logical steps. First, the various
objectives in the four perspectives, viz., financial, customer, internal
processes and learning and growth are identified. Second, the
strategy map is developed by establishing the cause effect
relationships between the objectives identified in the 1st step. Finally,
measures and targets corresponding to each and every objective are
identified.
Keywords: Competitive Advantage, Differentiation, Strategy Map,
Balanced Scorecard.
Introduction
A firm differentiates itself from its competitors when it provides something unique that is
valuable to buyers beyond simply offering a low price (Porter, 1985). A firm is said to have
a differentiation advantage, when it has a superior customer willingness to pay as compared
to the industry average player, while maintaining suppliers opportunity cost parity or
proximity.
The opportunity of gaining differentiation advantage is based on the slope of the
indifference curve, reflecting the tradeoff by rational consumers between the quality and
price of products. Differentiation can be physical or perceptual. In reality, differentiation is
part physical and part perceptual. Differentiation is also seen from the point of view of
horizontal (uniqueness appealing a few) or vertical (uniqueness appealing a larger number
of people in the target segment). A restaurant or an automobile offers greater opportunities
for differentiation than products such as computer memory chips, cement, or wheat, which
are very much standardized. Such products are called commodities because they lack
opportunity for physical differentiation. However, even commodity products can be
differentiated in ways that create customer value: Anything can be turned into a valueIMT CASE JOURNAL, JAN - JUNE 2012
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Volume 2 Number 2
added product or service for a well-defined or newly created market, claims Tom Peters
(Peters, 1987). Cement is the ultimate commodity product, yet Cemex the Mexican-based
supplier of cement and ready-mix concrete, has established itself as the worlds biggest
supplier using a strategy that emphasizes building solutions. One component of this
strategy is ensuring that 98% of deliveries are on time (compared to 34% for the industry as
a whole), (Ghemawat, 2004).
A firm that follows a strategy of differentiation creates more value than its competitors by
offering products that have higher customer willingness to pay than its rivals. This can
happen in three qualitatively different ways. First, the differentiator can achieve
differentiation parity by making products with the same opportunity cost but at a higher
willingness to pay than its rivals. A good example is the Japanese automakers in the 1980s,
whose family sedans (e.g., Honda Acord) were no more costly to produce than Americanmade models but offered superior performance and reliability. Second, the differentiator
might achieve cost proximity, which entails a suppliers opportunity cost that is not too
much higher than competitors. This characterizes the Japanese car makers today relative to
their Korean competitors. Finally, a firm could offer substantially higher customer
willingness to pay and suppliers opportunity cost, which arguably describes BMWs small
car offering (their 1 series and 3 series compact sports sedans).
Ultimately, in the process of successful differentiation, the strategist very closely monitors
the behavior of the customers willingness to pay and the suppliers opportunity cost. A
close analysis of the value chain helps to gain insights into the drivers of the uniqueness as
well as the cost of such uniqueness, thereby choosing a set of value chain activities to focus
on. Balanced scorecard has been found to be a meaningful too to capture the associated
activities in the form of strategic themes/ objectives.
Formulation of a successful differentiation strategy takes us to two fundamental aspects of
business strategy. First, the product, i.e., what need does it satisfy, which takes us to the
product attributes. Finally, the customer, i.e., by what criteria do customers choose and
what motivates them. The differentiation strategy would then focus on selecting product
attributes and product positioning thereof; selecting target customer group; ensuring
customer/ product compatibility; and evaluating costs and benefits of differentiation.
Dream Labs
Background
It is a pathology laboratory organization of repute in India. It also has operation in the
Middle-east, Nepal and Bangladesh. Today, it is recognized as a premier clinical pathology
laboratory and a centre of innovation. Established in 1949, Dream Labs today is the most
respected and largest diagnostic service provider in India and enjoys equal respect in
overseas operations. For strict adherence to international standards and benchmarks, it has
a proven track record of almost six decades. Dream Labs offers more than 1,650 different
types of tests and has a pan India presence in all important locations in India, in the form of
patient service centers and state-of-the-art laboratories. It has over 1000 employee serving
over 7 million customers every year. Dream Labs has continuously focused its effort on
making its pathology services highly reliable, thereby gaining trust since 1949. Leveraging
the trust factor, it has emerged as one of the highest accredited laboratories in the country,
serving delightfully over 7 million customers per year. Using state-of-the-art technology
and highly skilled personnel, it aspires to continue to provide supreme quality of service
and continue to earn the trust of millions of people in the times to come. With its world-class
IMT CASE JOURNAL, JAN - JUNE 2012
Volume 2 Number 2
diagnostic services, it aims to reach out to every nook and corner of India. And keeping
sight of its mission, it is rolling out well thought expansion plans to achieve this goal.
Key elements of the plan are:
Expansion into new markets - 150 Labs By 2013
Strategic alliances/ acquisition of existing players
Expansion in Public-Private-Partnerships (PPP) mode
Dream Labs had a long history of consistent growth in both earnings and revenues.
Executive management felt, however, that the company needed to become much better at
executing strategy. For Dream Labs, success at executing strategy meant two things: First,
it had to deliver financial success, defined by achieving a compounded annual growth rate
(CAGR) of earnings of 15 percent on a rolling five-year basis, while sustaining its historic
CAGR of 15 percent in revenues. Second, Dream Labs had to transform itself. Dream Labs
executives believed that their markets and their position in those markets provided an
enormous opportunity to shift from being a very good company to (in the words of Jim
Collins) being a truly great company, with differentiation focus. Becoming a great
company would require Dream Labs to sharply focus on what was strategically important,
to unplug a number of activities, and to be more clearly alignedfrom top to bottomas
an organization. Thus the approach is to create a strategy map capturing the cause and effect
relationship between key factors in the four perspectives and balanced scorecard
conceptualized by Norton and Kaplan.
Exhibit : 1 shows a generic strategy map for companies with differentiation advantage. This
is adapted from the work of Norton and Kaplan.
The key internal processes are in the innovation cluster. The companies must excel at
anticipating customers needs and discovering new opportunities for superior products and
services. They must maintain an optimal balance among (1) creating new scientific and
technological breakthroughs through fundamental research, (2) introducing these technical
breakthroughs through new product platforms, and (3) scaling-up their existing platform
products with not only incremental but still innovative derivative products. They must have
superb product development processes that bring new products to the market quickly. And
they must provide protection to their innovative products through excellence in patenting,
regulatory, and branding processes, (Norton & Kaplan, 2006.)
The operations management processes for companies with differentiation advantage are
not the lowest cost in the industry. The operating processes must, however, be robust so that
they can accommodate the continual introduction of new products. Such companies want
operating processes that can ramp up rapidly so that manufacturing capacity constraints do
not inhibit market-share penetration. Considering the changes in profile of customers, viz.,
their motivations and/ or criteria they choose, the operating processes must also be flexible
to allow for minor changes in product characteristics. This must be based on duly validated
feedback from the marketplace. The process should permit mid-way experimentation to
reduce and optimize manufacturing costs, once product characteristics have been
stabilized. All these features indicate that flexibility and improvement of operating
processes are more important to product leadership companies than production of highly
standardized products through low-cost operations. The price premiums from the
customized features of innovative products cover more than their somewhat higher
production costs incurred towards creating uniqueness. But inflexible operating processes
normally delay the production upgrade or introduction of innovative new products.
IMT CASE JOURNAL, JAN - JUNE 2012
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Volume 2 Number 2
Customer management objectives focus on two critical processes. First, companies with
differentiation advantage want to identify their key customers and listen to them and learn
about their expectations. In the process, they capture valuable insights product attributes.
The ability to listen and learn from customers in general and demanding customers in
particular would enable the company to generate new ideas for new capabilities. However,
quite often than not, new ideas do not always come from existing customers. It is because,
innovative product capabilities are very new and different from existing ones, and
therefore, even the most advanced customers cannot appreciate the benefits from enhanced
utility. So differentiators also need to be able to educate customers about the benefits from
improved functionality. The company through their customer engagement personnel must
be able to demonstrate how customers can capture the value from new product
characteristics being offered. Objectives that capture changes in customers own processes
may indicate the success from new product functionality.
Companies that continually introduce radically new products must be vigilant at managing
regulatory and social processes associated with their new products. Without much
experience in the production or customers usage of the new products, product leadership
companies must strive to avoid adverse side effects from their introductions. The
companies should have objectives relating to improving product safety, employee and
customer health, and environmental impacts from their short-run production of these new
products. Since the products of these innovation-based companies will typically have short
life cycles, these companies must be highly sensitive to the total environmental costs,
including product take back, over the life cycle of their products. And the companies must
have excellent government relations so that new products and services receive any
necessary regulatory approval, and that delays associated with regulatory approval are
minimized.
Strategy Map of Dream Labs
As a multi-location management company, each Dream Labs laboratory had a consistent
customer value proposition and a different way of creating value for those customers.
Therefore, Dream Labs had a collection of strategies (customer intimacy, operational
excellence, innovation) depending on the laboratory and its customer base. Its enterprise
strategy map was purposefully broad because it represented a portfolio of strategies
considering wide spread of the laboratories. The strategy map (see Figure-2)
communicated an equal balance between shareholder value and a passionate culture.
Whereas each Dream Labs laboratory had a different path for creating value, the corporate
strategy ensured that the financial, customer, internal process, and people perspective
priorities would be collectively advanced.
Vision: Dedicated to improve the health of patients through unsurpassed diagnostic
insight: The overarching vision was to maintain the highest ethical standards and quality;
and be the undisputed leader in providing world class diagnostic services.
Mission: Passionate about the kind of company we are building together: The
professional passion shared by Dream Labs employees makes the company distinct and
competitively vital. Sustaining passion would build superior shareholder value and
advance the goal of building an enduring company.
Our core values and purpose are the foundation of everything we do: Dream Labs core
values were common and shared across the firm. Everything Dream Labs did would be
IMT CASE JOURNAL, JAN - JUNE 2012
Volume 2 Number 2
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Volume 2 Number 2
customer requirements for specifications and performance agreements, and always aim to
provide customers with an experience that exceeded their expectations.
I5: Continually improve safety, efficiency, and quality: To become a great company,
Dream Labs must find ways to continuously improve the safety, productivity, and quality of
its operations.
Learning and growth Perspective
P1: Attract and retain the right people: The key to Dream Labs continued success was
the ability to grow and develop its talent pipeline. The right people would have the
competencies and values consistent with Dream Labs culture and strategic objectives.
P2: Build a high-performance culture: Vital to the future of Dream Labs was fostering a
values-driven, high-achievement, and team-oriented culture in which people could fulfill
their potential.
P3: Enable the strategy through technology platforms: Technology was essential for
enabling the strategy. The right technology platforms would improve return on capital and
allow greater focus on building enduring relationships.
Balanced Scorecard: After establishing the strategy map which reflects the cause and
effect relationship capturing the essential objectives in the four perspectives, the balanced
scorecard is built. A part of the balanced scorecard is given in Table - 1. This essentially
gives the measures and targets for all the objectives. Once the measures are in place, setting
targets become straight forward and clear. The measures are based on the principles of
quantity/ quality/ time (QQT).
The Results
In 2009, DL set a goal to increase service revenue by 38% and ROCE to 22% by 2011. DL
launched the BSC in April 2009. Results for 2011 show that the major financial indicators,
including, cash flow from operations and core earnings per share were the strongest in the
past five years. Executive management attributed some of this success to the Balanced
Scorecard. It was noted, There is huge strategic value in using the strategy map and
Balanced Scorecard to clarify the role of a corporate strategy and to describe the strategy
and performance expectations of the laboratories, and Each of 1000 employees is now
linked to the strategy through individual or team Balanced Scorecards.. The strategy map
is given in Exhibit 2 and the balanced scorecard is given in Exhibit 3.
References
1. Hax, A. & Wilde, D. (2001). The Delta Project: Discovering New Sources of
Profitability in a Networked Economy (New York: Palgrave, 2001), 81104.
2. Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and
Competitors. New York: Free Press
3. Porter, M. (1996). What Is Strategy? Harvard Business Review (NovemberDecember
1996): 64
4. Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior
Performance. New York: Free Press.
IMT CASE JOURNAL, JAN - JUNE 2012
Volume 2 Number 2
5. Treacy, M. & Wiersema, F. (1995). The Discipline of Market Leaders. Reading, MA:
Addison-Wesley, 1995
6. Kaplan, R. S. & David P. Norton, D. P. (2001). The Strategy-Focused Organization:
How Balanced Scorecard Companies Thrive in the New Business Environment
(Chapter 3, pp. 83-99). Boston: Harvard Business School Press.
7. Ghemawat, P. (2004). The Globalization of Cemex. Harvard Business School
Publishing: November.
8. Grant, R. M. (2010). Contemporary Strategy Analysis . John Wiley & Sons Ltd. Peters,
T. (1987)Thriving on Chaos (p.56). New York: Knopf.
9. Kim, W. C. & Mauborgne, R. A. (1997). Value Innovation: The Strategic Logic of
High Growth Harvard Business Review (January 1997), 103-112
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Volume 2 Number 2
EXHIBITS
Exhibit 1 : Generic strategy map
Long-Term Shareholder Value
Productivity Strategy
Financial
Perspective
Gross Margins :
New Products
Revenue from
New Products
Products and services that expand performance Boundaries into the highly desirable
Customer
Perspective
Operations Management
Internal
Perspective
First Market
Rapid
Introduction
Products
Flexible
Robust
Process
Supply
capacity
for rapid
growth
Customer Management
In-time
Experimentation &
improvement
New Customer
Segment
Innovation
Educate
customers about
complex new services/
products
High
performance
product
development
Capture
customer ideas
for new products/
services
product
development
time : ideaMarket
Human capital
Deep
functional
expertise
Creative,
versatile employees,
cross-functional
teamwork
informational capital
Prototyping
and
simulation
PLM/
CAD/CAM
applications
Organization capital
Creativity,
innovation
Volume 2 Number 2
Increase Return on
Capital
Grow Revenue
Motivated &
Prepared People
Internal Process
Customer
Financial
Grow Operating
Margin
Build Enduring
Relationship
Strategically
Enter New
Markets
Meet Requirements
& Exceed Expectations
Offer innovative
Solutions
Continually Improve
Safety, Efficiancy &
Quality
Build High
Performance Culture
Measure
Target: 2011
Service Revenue
Increase by 38%
Return on Capital
Employed
Increase by 22%
Increase by 12%
Customer
Perspective
Customer Satisfaction
Index
8 in a scale of 1-10
Internal
Perspective
Profit contribution by
segment
Market share in targeted
segments
Increase by 25%
80%
38
Financial
Perspective
46% or increase by
20%, whoever is
higher
16
47
48
Volume 2 Number 2
Learning
and growth
Perspective
Objective
Measure
Target: 2011
Excellent: 75%
Very Good: 25%
48 hours
Less than 15%
Number of instances of
Less than 1 per
workplace related sickness/ month per Lab
injuries.
Cost per test
Reduce by 10%
Achievement of Core
Values
Excellent grade in
staff survey: 80%
Portfolio of IT applications
required of the strategy
Author Information
1 Faculty Member, School of Management, KIIT University, Bhubaneswar-751024, India.
Email id: sarashok@gmail.com
Volume 2 Number 2
Volume 2 Number 2
ANNUAL SUBSCRIPTION
Price per volume (2 issues) : Rs.1000 (India) US $100 (Foreign)
For subscription kindly contact
Dr. Rabindra Ku Jena
Editor, IMTCJ
Volume 2 Number 2
International Conference on Inclusive & Sustainable Growth. (ISG12), October 4-6, 2012
Submission Deadline: 15th September, 2012
4th International Conference on Information Technology & Business
Intelligence (ITBI-12), November 23-25, 2012
Submission Deadline: 30th August, 2012
3rd International Case Conference (ICC-12), Nov 29th - Dec 1st , 2012
Submission Deadline: 5th October, 2012
Some selected cases presented in these conferences will be considered for publication in
the forthcoming issues of IMT Case Journal.
For further details regarding the submission of papers in these conferences, please visit
www.imtnagpur.ac.in