PRACTITIONER SESSION : MR. SANJAY UPENDRAM, CEO AMARTHI CONSULTANCIES

It’s always pleasure to have Industry practitioners for a session. This time it is Mr. Sanjay Upendram, CEO and Co-Founder of Amarthi Consultancies for strategy. With a magnificent industry expertise of more than 15 years, he worked with many globally renowned clients like BMW, Ford, Pfizer, Britannia and GM. His experiences of developing National Manufacturing Policy for India and advising companies like Britannia were really enlightening.

The whole session was maintained interactive ranging from basic questions to practical process of strategic analysis. Acknowledging the significance of strategy to a company, he also emphasized on the importance of operations i.e., the practical implication of strategy.

Illustrating the kind of work they pursue in handling the clients’ managerial issues, he threw some light upon the process of building and analyzing a strategy. For any problem in order to come up to a solution (strategy), he presented a 4 step hypothesis testing process to find the cause.

·         Problem identification

·         Hypothesis framing

·         Analysis framework need to be used

·         Relevant data required for analysis

A problem may have many hypotheses which are the possible reasons for the problem. Once we frame the hypothesis, the framework that we plan to execute for the analysis is important.

Depending upon the nature of problem and the hypothesis, we can analyze the internal or the external factors associated with it. In this context, he briefed us about various frameworks that can be used for external analysis like PESTLE/PESTEL, Porter’s five force model along with those for internal analysis like Value chain analysis, Resource based view and SWOT analysis.

Once the framework of analysis is considered, the next thing is the data to be analyzed. It is important to know what all data is required to substantiate our analysis and how can we acquire this data.

This complex process of breaking down the problem is not only clearly explained but also practically illustrated in the class. This being the basis for finding the roots of the problem, helps formulating the strategy to solve real life complex problems in a company.

This was indeed an enlightening session right from the industry practitioner for all future MBA’s of IMT, Hyderabad. 

Contributed by:-

Phanendra Saride

Section C

Strategic Management

CASE ANALYSIS -ARCOR: GLOBAL STRATEGY AND TURBULENCE

Globally, the confectionary industry is a highly competitive industry and attractive in the emerging and developed markets, Wherein North America and Western Europe accounted for over two-thirds of sales. The manufacturing sectors are usually located near suppliers. Industry has high transportation cost because of bulky raw materials. Chocolate and candy manufacturing is a complicated process which requires automated heavy machinery which increases investment. The consumers are more prices conscious in the emerging markets because of the low income whereas in these budding countries, for e.g. US and U.K. they are more brand sensitive. The confectionary industry has many constraints due to consumer’s different tastes and preferences in different regions.

Argentine confectionery manufacturer, Arcor Group, was already Latin America's leading candy producer and an exporter to over 100 countries. It wanted to be known for: “Good quality at affordable price”. Most of the domestic sales were from candy and chocolates, cookies brought around 25% of the sales individually. It was slowly moving out of the big cities and entering the interiors. As Argentina was facing problems because of suppliers, it started producing on its own. It started investing more so that their products reached the market, however, unlike competitors spent less on marketing.

By the end of 1990, it planned to expand in various international markets. The Argentina crisis did not only force them to rethink about global expansion but also about their domestic agenda. Foreign investors were losing confidence in the Argentinean market because of economic crisis and they started to withdraw funds. Arcor was able to fight with the external environment, however with time its sales fell drastically. Sales declined by 40% as compared to the previous year which made them rethink whether they should continue to produce at pre crisis levels. Arcor brought in changes according to their competitors, though these changes were costly, these were brought about to help the company understand the consumer behaviour. They further tightened the regulations for their retailers.

At the end of 2002, the crisis began subsiding and business was recovering. Post crisis Arcor restructured its international division adding more employees and catered to newer markets. Arcor was then analyzing how to become global with production facilities and distribution networks in various regions, such as North America, Europe, and Asia. Luis Pagani, vice president, Arcor began exploring various routes his company could follow. International plans excited him but he couldn’t ignore the crisis. Thus, he decided to maintain contacts with the global partners so that no opportunity is left unturned.

The company could explore options of globalising by either entering the Mexican market, where it can easily understand the US market, however the supplier network is well managed there which is a constraint for Arcor. They could locally tie up with the distributors and offer them to enter in markets where Arcor has a dominant share such as Latin America.

The Company could also consider the option of entering the untapped Asian market having non premium segments, price sensitive customers and where it can easily establish a good distribution network however competitor’s presence may prove to be a barrier for the company.

As there are pros and cons of entering any market, the company would have to carefully explore each opportunity and threat so that in the long run it can prove to be dominant players.

Contributed by:-

Ambika Mathur

Section C

Strategic Management

Does Birla want to be seen in every business or does it concentrate on its core business?

Ø  Vision of Aditya Birla Group is ‘To be premium global conglomerate with a clear focus on each business’.

Ø  In 1995 Kumar Birla inherited with a US$ 1.5 billion conglomerate with investment in cement, textile, aluminum, fertilizers, tea, carbon black, sponge iron, shipping, palm oil refining, chemicals and assortment of small business, mostly to support vertical integration. Aluminum and textile had major share in revenue.

Ø  In the decade of reform beginning in 1996, the Birla Group followed several principles, first, the “rule of three” mandated that company should be among top 3 player in the world or at least in a region for any particular investment. Second was to grow a business in a sector where the group had dominant present and track record of strong performance. Third was increase in vertical integration to reduce cost structure and improve cost efficiency .Fourth, economies of scale was to be found by consolidating similar business unit into larger firms.

Ø  By 2008 Birla Group had three flagship companies; Grasim Industries, Hindalco Industries and Aditya Birla Nuvo (AB Nuvo).Grasim and Hindalco focused on commodity business and was following principle of vertical integration, while AB Nuvo was shifting its balance from value companies to growth sector.

Ø  From the above facts we can say that Birla was focusing on its core business, it was also focusing on vertical integration to reduce operating cost. Similarly the Birla Group perused a dual track strategy of improving return for value business while using its cash flow to expand into growth sector.

Contributed by:-

Umang Bhone

Section B

Strategic Management

Is the over diversified Birla Conglomerate is good for Aditya Birla Group?

Different companies diversify for an array of reasons. In some cases, it’s a survival strategy, for instance, if one company makes the bulk of its sales at a particular time of year, it makes sense to consider diversification at a different time of year. By extending the portfolio of products or services one can ensure a regular revenue stream from January through to December. In other words, a vendor selling ice cream can diversify into a hot soup joint during winter. However, there are plenty of other good reasons for diversification, not least by extending one’s range of goods or services one can either sell more products to the existing customers or reach out to new markets. This can supercharge the growth prospects. And perhaps the biggest reason for doing it is to extend a brand reputation into other markets, with the knowledge that one ‘winner’ could be the drop of rain that starts the heavy downpour, making your business bigger than you ever imagined.

Something similar to this has been observed in the diversification of Aditya Birla Group. In fact they over diversified, leading to a conglomerate diversification. Conglomerate diversification is a growth strategy in which a company tends to grow by accruing entirely unrelated products and markets to its existing business. A company that consists of a grouping of businesses from unrelated streams is called a conglomerate. In conglomerate diversification, a firm generally introduces new products using different technologies in new markets. Conglomerates diversify their business risk through profit gained from profit centres in various lines of business.

The Aditya Birla group is one of the fastest growing industrial houses in the country. Grasim, a group company, was incorporated as Gwalior Rayon Silk Manufacturing (Weaving) Co Ltd in 1947. The Aditya Birla Group’s strategy has been to diversify into capital-intensive businesses and become a cost-leader by leveraging on its various strengths. Apart from Grasim, major companies in the group include Hindalco Industries Ltd (aluminium), Indian Rayon (Cement, VFY, carbon black, insulators etc), Indo-Gulf Fertilizer (Fertilizer - Urea), Tanfac Industries (Chemicals for aluminum), Bihar Caustic & Chemicals Ltd (Caustic Soda/ chlorine), Hindustan Gas Industries (gas producer), Birla Growth Fund (financial services), Mangalore Refinery (oil refinery). Grasim holds a 58.6% stake in Kerala Spinners Ltd, which manufactures synthetic/ blended yarn. Grasim’s fully owned subsidiaries, Sun God Trading and Investments Ltd and SamruddhiSwastik Trading and Investments Ltd, are into asset based financing. The group also owns several companies in Thailand, Indonesia and Malaysia manufacturing textiles, synthetic/ acrylic yarn, rayon, carbon black and other chemicals. Furthermore, they also have entered into the Business of Education through their reputed Birla High Schools and Engineering & Management schools.

Companies diversify because of several reasons: for economies of scale and scope, to widen the market base and enhance market power, to stabilize their profit by scalability, to gain a better percentage of market share, to counter competitive threats etc. For Birla it is one of the motives to diversify into an unrelated sector to hedge its bets against the risks of economic or cyclical downturns that impact certain industries. Birla also enjoyed the advantage of operating multiple business types within one corporate umbrella by allocating company resources strategically to address the needs of each company. The Birla Corporate employees shared responsibilities for roles such as human resources, buying, and information technology across the corporation.

Like two sides of a single coin, over diversification can also be pernicious to a company. One of the most significant and typical drawbacks of branching out into unrelated business arenas is that one can spread their collective talents too thin. Leaders in a company usually have expertise, strategic planning abilities, and leadership qualities specific to the given industry or business sector. The chances that a leadership group can provide consistent high-quality direction of drastically different companies are limited. Even with leaders who have diverse abilities, the time and energy requirements to optimize results in unrelated companies are significant. Also, many companies avoid unrelated diversification as a general business rule because of the lack of synergy that exists. When one has related diversity, one can more easily integrate into company brand, philosophies, resources and partnerships to take full advantage. With unrelated diversification, many companies intentionally have to keep each diverse enterprise segregated to avoid diluting the respective brand images of each business.

Diversification can put any company on the fast track to growth but if the strategy fails it can also burn up money. Now, it is an indeed prudent choice to differentiate between whether to diversify or to focus. It is not at all a sagacious decision to diversify into unrelated business unless and until the company has become stable as well as profitable.

Contributed by:-

Bitan Banerjee

Section A

Strategic Management

BIRLA #1: THE “UNKNOWN” GLOBAL INDIAN CONGLOMERATE

The Aditya Birla Group is an Indian multinational conglomerate headquartered in Mumbai, Maharashtra, India. The group is primarily structured around its three holding companies: Grasim Industries, Hindalco Industries and AB Nuvo. These companies through their respective subsidiaries are into various areas like viscose staple fiber, metals, cement (largest in India), viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers, insulators, financial services, telecom, BPO and IT services. Many of them exist to support the group's strategy of vertical integration.

In terms of statistics, when Kumar Birla took over the reins from his father, the turnover was only $2 billion and overseas operations accounted for a miniscule part of the overall business with only Egypt, Thailand and Indonesia being major centers. Under KM Birla's strong leadership the group's turnover spiraled to over $40billion. It has expanded operations to more than 40 countries including Australia, Dubai, and reaching out to North America, Canada, Brazil, Germany, Italy, Spain, Hungary and China. Sixty percent of the group's revenues come from abroad and several thousand people are being hired globally for their business operations.

Apart from above, Kumar Birla Carried out several other changes such as:

Globally the Aditya Birla Group isà a metal powerhouseà No.1 in viscose staple fiberà No.1 in carbon blackàThe 4th largest producer of insulatorsàThe 5th largest producer of acrylic fiberàAmong the top 10 cement producers globallyà Among the best energy-efficient fertilizer plantsàThe largest Indian MNC with manufacturing operations in the USA

In India, the group isà The largest fashion (premium branded apparel) and lifestyle playerà The second-largest manufacturer and largest exporter of viscose filament yarnà The largest producer in the chlor-alkali sectorà Among the top three mobile telephony companiesà A leading player in life insurance and asset managementà Among the top two supermarket chains in the retail businessà Among the top 6 BPO companiesà The largest manufacturer of linen fabric

However, the Birla group still has to go a long way in becoming India's #1 conglomerate there are four possible reasons behind this lag:

Contributed by:-

Prasoon Aggarwal

Section A

Strategic Management