CHANGES AFTER LIBERALISATION

Opportunities
1.

Entry into business has become easier than what it used to be in pre-liberalised era which was marked by industrial licensing and several types of clearances from various government agencies. Liberalization has eased the process of business restructuring either by way of divesting some business by an organization or acquiring other businesses.

2.

3.

Liberalization has opened the path to private-sector organizations for the participation in management of public-sector companies through acquisition of majority or controlling shareholding as the government has adopted the policy of disinvestment. Liberalization has paved the way for acquiring businesses abroad which adds to competitive advantages to the acquiring companies. Post-liberalisation, raising of funds has become much easier because of fewer restrictions on this process.

4.

5.

Threats
1.

Liberalization has posed a kind of competition with which Indian companies have not confronted in the past.

2.

Entry of many new players in business field has posed acute pressure on productive resources, both human and non-human. Foreign Institutional Investors (FIIs), sometimes, interfere with the management process of companies in which these FIIs have substantial shareholdings through stock market operations. With the increased limit of FIIs holding up to 49 percent, there may be threat of takeover of companies because promoters will not have controlling stake in share holding.

3.

4.

Strengths and weakness in Marketing

Strengths Weaknesses

1. 2. 3.

Favourable company image Diversified product-mix High market share

1. 2. 3.

Poor company image Single or limited product Low market share

4.
5. 6. 7. 8. 9. 10.

Growing or maturing stage of product life cycle

Effective and efficient distribution channel Efficient and motivated sales force with contacts with large number of customers Efficient promotional efforts and proper product positioning Efficient marketing research and feedback system Pricing commensurate with product and market features Review and strategy updating of marketing

4.
5. 6. 7. 8. 9. 10.

Declining product life cycle

Ineffective distribution channel Inefficient sales force with limited contact with customers Lack of promotional efforts Defective or no marketing research Pricing unrelated features to product and market

Stagnant marketing strategy

Strengths and weakness in Human Resources Area

Strengths Weaknesses

1. 2. 3. 4. 5. 6. 7.

Highly skilled personnel High learnability Favourable attitudes to change High motivation and morale High personnel retention Low personnel absenteeism Effective industrial relations

1. 2. 3. 4. 5. 6. 7.

Low skilled personnel Low learnability Unfavourable attitudes to change Low motivation and morale High personnel turnover High personnel absenteeism Ineffective industrial relations

Strengths and weakness in General Management

Strengths Weaknesses

1. 2. 3. 4.

Transformational leadership Future-oriented to management High organizational image and prestige Sound organizational climate based on mutual trust and respect Sound and practices suitable management

1. 2. 3. 4.

Transactional leadership Present-oriented to management Low organizational image and prestige Low organizational climate based on authoritarian culture and mutual suspicion

5.

5.

Ineffective management practices

6.

Suitable organization structure consistent with external and internal demands

Well-maintained external relationships

6.

Lack of well-defined or organization structure

ill-defined

7.

7.

Lack of external relationships

Strengths and weakness in Finance

Strengths Weaknesses

1. 2. 3. 4. 5. 6. 7.

Low capital cost Sound capital structure Sound financial planning capitalization and proper

1. 2. 3. 4. 5. 6. 7.

High capital cost Defective and rigid capital structure Bad financial planning undercapitalization either over or

Advantages of tax concessions Widely distributed shareholding Cordial relations with shareholders and financiers Efficient and effective accounting systems and procedures

High incidence of taxes Shareholding in a few hands Lack of cordial relations with shareholders and financiers Lack of proper procedures accounting systems and

IDENTIFICATION OF STRENGTH & WEAKNESS

Strengths and weakness in production/operations
Strengths Weaknesses

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Well-balanced allocation and use of resources Favourable locational pattern of plants and offices Adequate use of production capacity Low cost of production Low break-even point Efficient and effective procedures Abundant and multi sources of raw materials supply Effective inventory control system Adequate and effective research and development Holding of well-established patent right

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Defective allocation and use of resources Unfavourable locational pattern of plants and offices Inadequate use of production capacity High cost of production High break-even point Ineffective procedures Scarce and limited sources of raw materials supply Ineffective inventory control system Inadequate and ineffective research and development No patent right

FORCES SHAPING COMPETITION

Potential entrants

Threats of entry

Industry Competitors Braining power of suppliers Rivalry among competitors Braining power of buyers

Suppliers

Buyers

Threat of substitute product Substitutes

BCG MATRIX
Relative Market Share
20% High Low

Industry Growth Rate

15% 10%

STARTS

QUESTION MARKS

05%

CASH COWS

DOGS

BUSINESS STRENGTH/COMPETITIVE POSITION

STRONG
INVEST/ SIGNAL

GREEN

AVERAGE

WEAK

HIGH

YELLOW

SELECT/ EARN

MEDIUM

HARVEST DIVEST

RED

LOW

Hofers product/market evolution matrix

PRODUCT/MARKET EVOLUTION STAGE
COMPETITIVE POSITION
STRONG AVERAGE WEAK

Development

Growth B Shake out D Maturity Saturation Decline E F C

A: Developing Winner B: Potential Winner C: Future Winner D: Established Winner E: Cash Cows F: Dog

THE DIRECTIONAL POLICY MATRIX

Business Sector Prospect Company scompetitive abilities
Unattractive Average Attractive

Weak

Divestment

Imitation/Phased withdrawal

Phase withdrawal/cash generation Expansion/product differentiation Market leadership innovation

Phased Average withdrawal/ merger

Strong

Maintenance of position/market penetration

Growth/market segmentation

Diversificatio n/cash generation

SPACE DIAGRAM AND RECOMMENDED STRATEGIES

Corporate Financial Strength Stability Conglomerate Diversification Diversification Corporate Competitive Advantage Conservative Aggressive Concentric Diversification Vertical Integration

Industry Strength

Divestment Liquidation Retrenchment

Defensive Environmental Stability

Competitive

Concentric Merger Conglomerate Merger Turnaround

DIFFERENT GRAND STRATEGIES A. Stability strategy is adopted because:

1. It is less risky, involves less changes and people feel comfortable with things as they are.
2. The environment faced is relatively stable. 3. Expansion may be perceived as being threatening. 4. Consolidation is sought through stabilising after a period of rapid expansion.

Examples:
A packaged tea company provides special service to its institutional buyers in order to encourage bulk buying and thus improve its marketing efficiency. A copier machine company provides better after-sales service to its existing customers to improve its company and product image and increase sales of accessories and consumables. A steel company modernises its plant to improve efficiency and productivity.

B. Growth strategy is adopted because:

1. It may become imperative when environment demands increase in pace of activity.
2. Psychologically, strategists may feel more satisfied with the prospects of growth from expansion; chief executives may take pride in presiding over organisations perceived to be growthoriented. 3. Increasing size may lead to more control over the market vis-vis competitors. 4. Advantages from the experience curve and scale of operations may accrue.

Examples:
A chocolate manufacturer expands its customer groups to include middle-aged and old persons to its existing customers comprising children and adolescents.
A stockbrokers firm offers personalised financial services to small investors apart from its normal functions of dealing in shares and debentures in order to increase the scope of its business and spread its risks. A printing firm changes from the traditional letter press printing to desk top publishing in order to increase its production and efficienty.

C. Retrenchment strategy is adopted because:

1. The management no longer wishes to remain in business either partly or wholly due to continuous losses and unviability. 2. The environment faced is threatening. 3. Stability can be ensured by reallocation of resources from unprofitable to profitable businesses.

Examples:
A pharmaceutical firm pulls out from retail selling to concentrate on institutional selling in order to reduce its sales force and increase marketing efficienty. A corporate hospital decides to focus only on speciality treatment and realise higher revenues by reducing its commitment to general cases which are typically less profitable to deal with. A training institution attempts to serve a large clientele through the distance learning system and discard its face-to-face interaction methodology of training in order to reduce its expenses and use the existing facilities and personnel more efficiently.

D. Combination strategy is adopted because:

1. The organisation is large and faces complex environment. 2. The organisation is composed of different businesses, each of which lies in a different industry requiring a different response.

Examples:
A paints company augments its offerings of decorative paints to provide a wider variety to its customers (stability) and expands its product range to include industrial and automotive paints (expansion). Simultaneously, it decides to close down the division which undertakes large-scale painting contract jobs (retrenchment). Over the years, strategic changes at a large business group indicate that it has been strengthening its manufacturing base and divesting its trading activities. Stability has been aimed at in some of its divisions by retreching the unprofitable products and services while major expansion has taken place in the case of its industrial products and construction business. A variety of grand strategies have thus been followed, both sequentially and simultaneously, creating a complex structure of strategies in line with the nature of the conglomerate that the company actually is.

CHOICE OF STRATEGY
1. 2. 3. 4. Organisation Mission Nature of Environment. Organisation Strength and weaknesses. Past strategies. a) Defender b) Prospectors c) Analyzers d) Reactors 5. Personal Factors i) Value system of Top Managers Pragmatic and moralistic (England) Key Words for Indian Managers a) High production. b) Profit maximisation. c) Customer service & satisfaction. d) Subordinates. e) Labour union. f) Aggressiveness. g) Achievement. h) Change. i) Conflict etc.

ii) Managerial attitude towards risk. iii) Managerial power relationship. Mintzberg has identified three ways in which strategic decisions are made. a) Judgment. b) Bargaining (group of decision makers with conflicting objective). c) Analysis.

CHECKLIST FOR CHOICE OF STRATEGY i) Does the strategy fit managements value philosophy, knowhow, personality and sense of social responsibility? ii) Is the strategy consistent with internal strength, objectives and policies of the organisations. iii) Does the strategy not conflict with other strategies of the organisation? iv) Is the strategy likely to produce a minimum of new adminstrative problems for the organisation. v) Does the organisation have sufficient resources to implement the strategy. vi) Does the strategy balance the acceptable minimum risk with maximum profiti potential consistent with organisational resources. vii) Does the strategy require too much or too large of organisations resources. viii) Is the pay back period of the strategy acceptable in the light of changing organisation. ix) Is the strategy consistent with environment x) Does the identification of strategic alternation take into account all relevant environmental factors honestly & impartially. xi) Has the strategy been properly evaluated. xii) Has the strategy been tested against the appropriate criteria such as past, present and prospective economic potential, social and technological trends. xiii) Is the strategy acceptable to the major constituents of the organisation. xiv) Does the strategy take into consideration the product life cycle. xv) Does the strategy rush to revolutionary product to the market.