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

The Walt Disney Company : The Entertainment King

Will acquisitions & expansion in Media Networks affect any other SBU ? Substantiate.

If we design the BCG matrix for the 5 SBU’s of The Walt Disney, Media falls in Star which shows it has high growth rate and high market share. Since the media comes in the star framework of BCG Matrix. It is believed that they should make more investment (i.e. expansion) in the media networks and it will not affect other SBUs of Disney, In fact it will help them to improve upon their marketing strategies. While making any decisions related to investment or acquiring in the media networks they should consider the following factors:

1. They had acquired ABC Channel but unfortunately there was rift between ABC and Disney due to Disney's cultural micro-management. So Disney’s work culture and ethics was quite different from that of ABCs. So they may expand or acquire their media networks but before doing so, they should make sure that the company can handle high work pressure as Disney would have to avoid future controversies because that could affect its business activity.

2. Second thing is they should not go towards that media which does not have any relations with their core business. Because if you expand and invest in media which is totally opposite to your core business, you may not be accepted their which will mount unnecessary costs and losses and will also affect your core business which you are known for.

3. Moreover if we see the revenues generated by Media Networks through year 1996 to 2000, we can observe that it is continuously growing with average YOY growth of 25.43%, which is the maximum among all the SBU’s. This gives strong evidence that it has got potential to not only get cash but also help other SBU to grow or help them grow by sharing their revenues.

Therefore they should expand in those media networks which will help them to stick with their business philosophy, "timeless family entertainment". If they do that, that will also help them in marketing their business better because marketing is all about doing right things at right time at right place. Hence, expansion/acquisition in Media Networks is very much independent of their fate and will generate more cash and will contribute in increment of the Walt Disney Revenue, if done properly.

Contributed by:-

Amit Gunjan

Section A

Strategic Management

The Walt Disney Company : The Entertainment King

The company should go for acquisition in which SBU? and why?

The Walt Disney Company  has its roots lying deep within the Disney Brothers Studio started by Walter Elias Disney along with his brother Roy Disney in the year 1923.Disney is known to be the creator of evergreen characters like Mickey Mouse,Snow White ,etc.

The company went public in the year 1940 and further expanding into televisions and Theme Parks in the year 1955.The years 1971 and 1976 mark two major expansions of Disney with the opening up Florida and Tokyo Disney worlds. Besides this, it also went on to start Touchstone to target the adult movie-goers.

By the 1980s Disney as a company diversified into many businesses, incurring a heavy cost but was not able to generate significant financial returns from these areas. As a result, the overall financial condition of the company deteriorated and the performance of different divisions fell.

When Michael Eisner joined the company as the CEO in the year 1984 Disney invested heavily in animation technology and focused on the growth and development of its theme-parks. The investments paid-off and some Disney movies like “The Lion King” broke box-office records. However, Disney again incurred heavy investment and acquired ABC ltd, the second biggest acquisition in the history of US.

By 2000, Disney stepped into a number of streams including:

ü  Media-Networks

ü  Studios and Entertainment

ü  Theme-Parks

ü  Internet and

ü  Consumer Products

The diversification strategy followed by the company was high on both corporate and operational relatedness.

The theme-parks generated more cash flows for the company; however this generation is approaching a stage of excess than what is required for the company to run efficiently.

However, the company has had a high market share with tremendous growth opportunities in its flagship unit i.e.Media Networks and Entertainment which is the reason why 50^th anniversary of Snow-White and the 60^th Anniversary of Mickey-Mouse were big hits.

The company should therefore, continue its focus on media and entertainment,its flagship units,as these areas have high market share and tremendous growth opportunities.It can even go for further acquisitions in this sphere, like its decision to aquire Buena-Vista distribution networks, and maintain its dominant position in this sphere.

Contributed by:-

Divya Shukla

Section A

Strategic Management

The Walt Disney Company : The Entertainment King

Formulate & explain the BCG matrix for Walt Disney SBU's

The Walt Disney Company founded by Walt and Roy Disney in 1923 is today a highly diversified company with many Strategic Business Units (SBU’s) , namely: theme parks and resorts, studio entertainment, consumer products, media network and internet and media marketing.

BCG matrix for Disney’s SBU’s:

Cash cow ·         Theme parks	Dogs ·         Consumer products
Stars ·         Studio ·         Media	Question mark ·         Internet

Low

Growth    

High

High                                               Market share                                               Low

Ø  Theme parks: Disney’s theme parks are considered to be cash cows with a large market share but low market growth rate. The maximum revenue of the company comes from the park. The company earned 6803 million in 200, but its market growth is low.

Ø  Studio: Disney’s studio can be placed both in cash cow and stars, however shall be more in the stars. With a high market share and high growth, Studio still generates good revenue, despite being Disney’s first company due to its feature animation and motion picture, home video, television and cable production, and stage plays. But market growth is slowly moving towards the lower end.

Ø  Media: media network will also be a star for the company as its growth in income increased with the acquisition of ABC television, TV and radio stations and in cable network such as ESPN, Disney channels. It had a high market share with a growth of 21% from 7970 million in 1999 to 9651 million in revenue in the year 2000.

Ø  Consumer products: these mainly come under the category of dogs as the business growth and the market share are low.

Ø  Internet: Internet can be described as question mark for the company. Internet has a high market growth. Disney has just entered in the market in 1996 and does not cover a large market share. Thus, adding up to this division in the grid. Also, Disney can any time exit the market as there are almost nil capital expenditures.

Contributed by:-

Surbhi Sondhi 

Section A

Strategic Management

The BCG Growth-Share Matrix

The Boston Consulting Group, a leading consulting firm, developed and popularized a product portfolio analysis framework in 1970 that helps managers develop organizational strategy based on the relative market share of businesses and the growth of respective markets. BCG Matrix helps firm to decide how much money to invest in its strategic business units (SBU).There are 2 axis and 4 quadrants in BCG Matrix. X-axis and Y-axis indicate relative market share and market growth rate respectively. Market growth rate is the projected rate of sales growth for the market being served by a particular business division. Relative market share is defined as the ratio of a division's own market share in a particular industry to the market share held by the largest rival firm in that industry.

In business, SBU is a profit center which focuses on product offering and market segment. SBU varies from company to company. In bigger organizations, a SBU could be a company division, a single product or a complete Product Line. In smaller organizations, it might be the entire company. After identifying the SBUs, the task is to categorize each SBU within one of the 4 matrix quadrants:

1.      Stars (High growth, high market share)- Star SBUs have a high market share in a high growth market and typically need substantial investment to maintain and support their rapid and significant growth. Stars also generate large amounts of cash for the organization. Business strategies for these SBUs could be market development, product development, and backward, forward and horizontal integration.

2.      Cash Cows (Low growth, high market share) - Cash cow SBUs have a large share of market in low-growth markets or industries. Because of their strong competitive positions and their minimal reinvestment requirements, these businesses often generate cash in excess of their needs. Cash cows are yesterday’s stars and the current foundation of corporate portfolios. Business strategies for these SBUs could be diversification, retrenchment, product development and ‘milk’ to fund other business.

3.      Dogs (Low growth, low market share) - Dog SBUs have a relatively small share in a low-growth market. They may barely support themselves. In some cases, they actually drain off cash resources generated by other SBUs. Best strategies for these SBUs could be liquidation, retrenchment or divest it as soon as they get the best price.

4.      Question Marks (High growth, low market share)-These SBUs have a low share in high-growth market. Question marks are cash guzzlers because their rapid growth results in high cash needs, while their small market share results in low cash generation. These are ‘Question marks’ because it is uncertain whether management should invest more cash in them to gain a larger share of the market or eliminate them. Business strategies for these SBUs could be market penetration, product development, and divestiture, keep it going and improve or sell it. 

Furthermore, we can understand the BCG position of a SBU with help of a product life cycle curve given below:

Contributed by:-

Padmanabh Upadhyay

Section B

Strategic Management

Samsung Electronics

Is SMIC a threat to Samsung Electronics?

Samsung is the largest conglomerate in South Korea and according to Gartner report it maintains a lead in the smart-phone market. It has stood against many brands like Philips, Kodak and Panasonic.Samsung is the market leader in memory chip technology and constantly remained ahead of its competitors. Samsung was able to create new market and was developing new applications of memory and latest better technology. Since their operations & their Net Income have always been increasing except when there was an economic downturn. However, even during a downturn they have always been able to maintain their profits and never ran into losses. They have always invested heavily in R&D and hired and tried to retain right talent and trained them so that they could effectively help Samsung Electronics to move ahead.

By 2010, China was expected to become the world’s second largest purchaser of semiconductors after US (Source: HBS Case, Samsung Electronics). And SMIC revenues have increased from $50.3 million in 2002 to $365.8 million in 2003 and have dual listing on the NYSE and Hong Kong Stock Exchange.  In spite of all these facts, it is not a threat to Samsung Electronics. If we see their Operating Margin it is (-) 9.3% compared to 24.1% of Samsung. Moreover, Samsung seems to be a market leader in this industry as it has the highest profit compared to its competitors like Micron, Infineon, and Hynix. SMIC’s profit is less than Hynix and Infineon. So before competing with Samsung, SMIC has to first compete with Hynix and Infineon, thus it is definitely not a threat to Samsung.

Contributed by:-

Ravi Kant

Section A

Strategic Management

Samsung Electronics

What advantage does Samsung get from undertaking differentiation strategy/ Cost Strategy? Explain.

“A leader of innovation with affordable price – Samsung.”

Samsung with its varied product range has covered all the categories in the consumer electronics which was one of the reasons for its success. Its Innovative products, adhering to the Quality and reliability of the product makes it stand apart from its competitors.

Innovation and R&D are the building blocks of Samsung. Samsung has invested heavily in Research & Development that helps the company to innovate and create new products that helped the company to grow into a Global powerhouse.Heavy investment in the semiconductors in 1983-85 initially cost much but later paid off to the company where it had a cost advantage compared to its competitors.

South Korea was the largest exporter of semiconductors exporting 25.1bn in 2004 of which Samsung alone exported for 22% of the total Korea’s exports.

The company set up competing product development teams throughout its operations to increase its efficiency and to get the better technology from its global R&D sites.

Cost effective value chain helped the company to sustain as a market leader for 1 years since 1992.

In the later generations the company started moving from legacy products to high value niche products and frontier products which gave great profit margins to the company making it still a market leader.

In 1994 Lee realized that Samsung had lost track on product quality and burned the shoddy Samsung products. In late 1990’s it could gain back its reliability and performance appreciation from its major customers.

Investment in HRM also added a great return for Samsung. Its strategy in adopting and managing people made it to be renowned across the globe.  

 In later years, Samsung started facing threat from the giants like China manufacturers. Cost leadership can have an advantage for a company, but to sustain for the future, it needs to adopt differential strategies based on the environment prevailing.

Contributed by:-

Kedareshwari Nanduri

Section C

Strategic Management