Session 6: Corporate Strategy & Diversification

 Corporate strategy- captures a set of choices that a corporation makes to create value through
configuration and coordination of its multi-market activities. Pertains to the whole organization.
Find synergy for the whole corporation.
 Competitive strategy- a set of choices confined to a single market. Corporate strategy, if
designed and executed well, will increase business units’ competitive advantage over and above
what they could otherwise achieve.
 Corporate scope- the markets in which the corporation has chosen to maintain a competitive
presence.
 Porter’s Tests (of Value Creation):
o Better off Test- does the presence of the corporation in the market improve the total
competitive advantage of business units over and above what they could achieve on
their own?
o Attractiveness test & Cost of Entry test usually cancel out each other, so Better Off Test
is used.
o Value can also be created by restructuring, transferring resources & economies of scope
 Ownership Test- Does ownership of the business unit produce a greater competitive advantage
than an alternative arrangement would produce?
 Horizontal Diversification- simultaneous ownership of two or more units that utilize a similar set
of tangible and intangible resources
 Economies of Scope- exists if the total cost of producing two goods jointly is less than the
combined cost of producing each product separately.
o Multi-purpose tangible/intangible assets can be used for this.
o It can increase WTP for products as firms provide a one-stop solution for multiple
products (eg: IBM, Honda, etc)
 Vertical Integration- A corporation owns business units that make inputs for other business units
within the corporation (upstream and downstream).
 To check Global scope (expand abroad or not), use the same better-off & ownership tests
 Advantages of globalization-
o Factor Cost differences- locating overseas to exploit lower prices of inputs in other
countries
o Economies of Scale
o Knowledge Transfer: Japanese lean manufacturing concepts used by US firms
 A major disadvantage of diversification is the costs involved, especially in coordination.
 Advantages of Diversification-
o Economies of Scope- using a resource across multiple activities uses less of that
resource than when the activities are carried out independently. Resources can be
intangible (brands) or tangible (higher the fixed cost, greater the economies of scope)
o Organizational capabilities of parent firm (parenting advantage)
o Conglomerates/ firms as internal capital markets- allocation of budget across firms
o Internal labor market- transfer of staff between internal firms (eg: Tata)
 Resources (capital doesn’t count)
o General- brand equity, management practices. Can be used in unrelated businesses also
 o Specific- Farther away we go from the core business, the lesser useful they become
 No empirical evidence that unrelated diversification will make a firm worse off
 BCG Matrix: Market share 1.4 implies 40% higher share than next player & 1 implies same share
as next competitor. X implies the growth rate of economy.
o Issues with such matrices- Market share alone is pointless- doesn't say anything about
profitability. Matrices don’t capture inter-relationships & corporate wide competencies-
they are too simplistic.

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Session 7: Global Strategy

 Global strategy means catering to both localization & economies from standardization
 Convergence in global economies has created a chance for standardization of products &
services (aided by advances in ICT, Supply chain, trade, productivity gains, etc.)
 Global expansion allows-
o Efficiency- Low-Cost inputs, Scale & Scope
o New Markets- growth & arbitrage
o Knowledge
o Competitive position (share skills, global scanning- being up to date with
changes/opportunities in the market, cross subsidization of businesses across
geographies)
o Risk mitigation by diversification
 However, there are costs (cost of foreignness) involved- co-ordination, adaptation, lack of local
knowledge, networks, legitimacy
 Further, challenges to globalization-
o Protectionist measures, tariff barriers
o Supply chain risks
o Job loss in importing nations
 Standardization- offering same product/services globally. Value chain dispersed and integrated
globally.
o Cost involved- Coordination, reporting, exchange rates, responsiveness
 Localization- Tailoring products to specific markets
o Costs- Loss of scale, learning, siting, cross-subsidization, sharing
 Trans-national strategies- combination of above two (glocal?). Integration does not equal
standardization.

 AAA triangle- (firms need to prioritize between the 3A’s to define their strategy- which A or
which combinations give the most leverage)
o Adaptation- boost revenues and market share by maximizing a firm’s local relevance
o Aggregation- deliver economies of scale by creating regional or sometimes global
operations; standardize offering and group together the development and production
processes
o Arbitrage- exploitation of differences between national or regional markets, often by
locating separate parts of the supply chain in different regions
 Importance of each A changes across the life cycle of a firm. The pursuit of AA strategies
requires considerable organizational and material innovation
 Achieving AAA is kind of elusive for firms. Each A should be a good fit to overall business
strategy
o Some barriers are managerial limitations, cultural issues (focus on specific A’s mindset)
& competitor’s actions
o To even try AAA- a firm must be operating in an environment in which the tensions
among adaptation, aggregation, and arbitrage are weak or can be overridden by large
scale economies or structural advantages, or in which competitors are otherwise
constrained
 GEMS has achieved AAA to a considerable degree-
o Aggregation- higher economies of scope, scale & acquisition capabilities
o Arbitrage- Pitcher-Catcher concept of having teams coordinate between old & new sites
till the new site achieves the performance metrics of older site
o Adaptation- country specific marketing, providing services, in China- for China idea

Session 8: Digital Strategies & Platforms

 Pipeline business is like controlling a linear series of activities or say by back/forward integration
 Rise of Platform businesses- scale has become more relevant than differentiation. Focusing on
the demand side economics unlike convention
 Network effects- bring together producers & consumers in high value exchanges where the
assets are Information & exchange. Value rises with more no. of users
 IT has made the building of platforms so much easier & simpler. Easier to capture, analyze &
exchange huge amounts of data
 Basic structure of a platform-
 o Owners- control IP & governance
o Providers- serve as interface with users
o Producers- Create offerings
o Consumers- use the offerings
 Platform business requires orchestrating resources, facilitating external interactions, maximizing
ecosystem value. Such firms must be wary of who to let in & how much access to give in the
ecosystem. Also, new metrics are needed to monitor such systems
 Porter's 5 forces might fail for platform as it sees external forces as depletive while, they add
value. Focus is on designing systems that maximize value creation by increasing engagements.
 Threats in platform systems-
o Established platform with superior network effects
o Target an overlapping customer base with a distinctive offering
o Platforms that collect the same type of data that your firm does suddenly go after your
market
 Setting rules & architecture important for platforms. These can change over time.
 Digital technologies-
o Are knowledge intensive
o High capital costs, low production costs, Marginal cost=0 in most cases
o Switching costs are significant
o Network externalities exists & complements can add to the moat
 Tipping point- a point in time where a firm’s standard becomes the convention
 Properties of Internet-
o Mediating technology, Universality, Network externalities, Distribution channel, Time
moderator, Reduces Information asymmetry, Infinite virtual capacity, Low-cost common
standard, Creative destroyer, Transaction cost reducer
 Digital disruption- more pervasive, fundamental, speedy & impactful
o Can alter/ replace business models (impacts value chain). Can diminish competitive
advantage faster
o Rise of Digital platforms- unbundling and recombining resources and altering their
linkages, creating new resources and value creating logics
 Sharing economy in digital systems- (due to lower transaction costs)
o Enables monetization & trading of fractional excess assets- say extra seat in my car on
the way to office
 Barriers in digital economy-
o Entry barriers (like network effects)
o Rivalry (price wars due to faster information dissemination)
o Bargaining power of buyers & suppliers
o Role of complements

Session 9: Knowledge Management

 Knowledge management strategies- Integrate with broader corporate/ business strategies
o Codification- Storing learnings in computer Database
o Personalization- depending on people- computers only used as a communication means.
 o Right incentives needed to promote knowledge sharing

 Knowledge mgmt. strategy should reflect competitive strategy- create value for customers,
support economic model & guide how people deliver on it
 Do Not Straddle- 80-20 split: 80% of their knowledge sharing follows one strategy, 20% the
other. Executives who try to excel at both strategics risk failing at both.
 Questions to answer while choosing knowledge management strategy-
o Do you offer standardized or customized products? (Customization- personalization
model helpful)
o Do you have a mature or innovative product? (If yes, reuse of data by codification
works)
o Do your people rely on explicit or tacit knowledge to solve problems? (explicit= codify)
 Transforming Data to information to knowledge- increasing meaning & relevance such that
knowledge is a framework with value
 Knowledge can be- Tacit or codifiable. Tacitness depends on Complexity, Non-quantifiability and
non-measurability & subtlety.
 Knowledge Spiral- transformation from Tacit to Codified & vice-versa
o Codified to Tacit- internalization
o Tacit to codified- externalization
o Tacit to tacit- socialization
 Tacitness-
 o Contextual- Implied as everyone understands a fact
o Inaccessible (neither understandable, neither able to articulate) eg: Nadal’s tennis skills
o Accessible (understand but can’t articulate- mostly used by managers)
 Learning cycle of an organization- (action on knowledge)
o Scanning (become aware)- Codifying (note down)- Abstracting (generalize)- Diffusing
(share with others)- Absorbing (application in new situations)

Session 10: Corporate/Organizational Culture

 Organizational culture consists of a set of basic assumptions that have developed because of the
organization’s attempts to adapt to internal and external problems. It consists of the basic
beliefs & values internalized by organization’s members
 Challenges in corporate culture-
o Deciding between level of control & delegation
o Maintaining consistent behavior in face of employee turnover
 How does a strong work culture lead to a strong performance-
o Better social control
o Enhanced goal alignment
o Enhance motivation & performance
 Maintaining/creating culture can be done by socialization (interaction between employees) or
by selection (selecting the right fit of candidates- not a sustainable way)
 Leadership & co-workers are the two important sources of socialization pressure. But excess
force from leadership can be counterproductive. However, leaders can still signal culture.
 Firms should enshrine the culture in organizational practices, espoused values & cultural
artifacts. But these values should also evolve with time
 How should leaders build trust- especially in MNCs which has employees of different cultural
backgrounds-
o Right Mindset
o Patience & understanding are key
o Understand own & other member’s background
o Understand the importance of results and character
 Ask key questions about the culture: How trusting is it? How performance oriented is it? How
hierarchical and autocratic is it?
 Two major types of workplace systems:
o Results Driven places- interdependence, creating win-win situations, focus on long haul
o Character Driven places- managers earned trust by showing their commitment through
their willingness to make financial, personal and emotional investments in the well-
being of the group; make small promises (related to employee well-being mostly) &
deliver on them; bonding over commonalities; managers took the first step in building
trust.

7S Model
 An ideal organization is aligned/fits with its environment. Both internal & external alignment are
important.
 The seven key elements of an organization that are critical in understanding an organization’s
effectiveness are: (a high degree of “fit,” or internal alignment, among these 7 is needed)
o Strategy- The ways in which competitive advantage will be achieved
o Structure- The way in which tasks and people are specialized and divided, and authority
is distributed. The mechanisms by which the activities of the members of the
organization are coordinated.
o Systems- The formal processes and procedures used to manage the organization
o Staffing- The organization’s approaches to recruitment, selection, and socialization. How
people are developed; how recruits are trained, socialized, and integrated; and how
their careers are managed
o Skills- The distinctive competencies that reside in the organization
o Style- The leadership style of top management and the overall operating style of the
organization. Style impacts the norms people follow and how they work and interact
with each other and with customers
o Shared value- The core or fundamental set of values that are widely shared in the
organization and serve as a guiding principle
 These 7S’s are inter-linked, can’t be viewed in isolation. Tailoring one requires modifying others
accordingly
 Strategy, structure, and systems are the “hard S’s which are easier to change than their
counterparts I.e., the “softer S’s” – staffing, skills, style and shared values. These are harder to
change directly, and it takes longer to do so.
 Schein’s framework

 Challenges in corporate cultures-

o Difference in culture/goals across functions
o Differences across nations (individuality, risk taking, power/hierarchy, age, background,
attitude towards gender, contextual effects, rules/relationships, punctuality, etc.)