MANAGEMENT POLICY AND STRATEGY SESSION - V

1. MANAGEMENT POLICY AND STRATEGYSESSION - V Core Competence and Strategic Intent Prof. Sushil Department of Management Studies Indian Institute of Technology, Delhi INDIA Email: sushil@dms.iitd.ernet.in Prof.Sushil\Canada\Session-V

2. CORE COMPETENCE • Core competence is a bundle of skills and technologies that enables a company to provide a particular benefit to customers’. • For example, • A Sony – benefit is pocketability • core competence is miniaturization • At Federal Express – benefit is on time delivery • core competence is logistics management • At Motorola– benefit is untethered communication • core competence is wireless communication. Prof.Sushil\Canada\Session-V

3. TO BE CONSIDERED CORE COMPETENCE A SKILL MUST MEET THREE TESTS • Customer Value: Core competencies are the skills that enable a firm to deliver a fundamental customer benefit. • Competitor Differentiation:A capability must also be competitively unique power trains is a core competence at Honda which has never been so at Ford/s. Honda’s ability to produce some of the world’s best engines and power trains does provide customers with highly valued benefits of superior fuel economy, zippy acceleration, less noise and vibration. Prof.Sushil\Canada\Session-V

4. TO BE CONSIDERED CORE COMPETENCE A SKILL MUST MEET THREE TESTSContd... • Extendibility: A core competitive is truly core when it focus the basis for entry into new product markets. SKF, the world’s leading manufacturer of roller bearing has competencies in antification, precision engineering and making perfectly spherical devices. In order to achieve extendibility, SKF must be capable of manufacturing the round, high precision recording heads that go inside a VCR, most of which are now manufactured by Japanese firms. Prof.Sushil\Canada\Session-V

5. RISKS OF IGNORING CORE COMPETENCIES • Opportunities for growth will be needlessly turned down. • As a company divisionalies and fractures into ever smaller business units, competencies may become fragmented and weakened. • The lack of core competence perspective can desensitize a company to its growing dependence on outside suppliers of core products. • A company focused only on end products may fail to invest adequately in new core competencies that can propel growth in the future. Prof.Sushil\Canada\Session-V

6. RISKS OF IGNORING CORE COMPETENCIESContd... • A company that fails to understand the core competence basis for competition in its industry may be surprised by new entrants who rely on competencies developed in other end markets. • Companies insensitive to the issue of core competence may unwittingly relinquish valuable skills when they divest an under-performing business. Prof.Sushil\Canada\Session-V

7. CORE COMPETENCE PERSPECTIVE • Identifying existing core competencies • Establishing a core competence acquisition agenda • Building core competencies • Deploying core competencies • Protecting and defending core competence leadership Prof.Sushil\Canada\Session-V

8. ROYAL DUTCH/SHELL • Looked at every firm that had been around for more than a century. • Found 40 firms from Europe, US and Japan some having histories >200 years. The oldest was Stora of Sweden with a 700 years history. • So what was common in the strategy of longest-enduring firms? • Conservative in financing, leaving room to maneuver when the world changed in unpredictable ways. • Top management active in society-inquisitive about the developments in a variety of fields. Prof.Sushil\Canada\Session-V

9. ROYAL DUTCH/SHELLContd... • A strong sense of identity and cohesion within the organisations. “Who are we?” - clear answer, even it company changed the core business. • Stora - went from copper mining to chemicals to forestry to paper • Great tolerance for experimentation at their margins - and tried neither to control more insist that all the probing be relevant to core business. Prof.Sushil\Canada\Session-V

10. INTEGRAL VALUES • As organizations cultivate the ability to change constantly how can the corporate ship be kept stable? • Through core values, which act as stabilizers when the sea of change become turbulent. • Royal Dutch/Shell’s study of long lasting firms - All had a strong sense of identity • James Collins and Jerry Porras study - “Built to Last”. • Most respected high performing companies with another successful company in the same industry. • Johnson and Johnson with Bristol-Myers Squibb • Merck with Pfizer • GE with Westing house • Sony with Kenwood • Procter and Gamble with Colgate • Hewlett-Packard with Texas Instruments • All the companies for at least 50 years in business Prof.Sushil\Canada\Session-V

11. INTEGRAL VALUESContd…. • Focus of the research was not why the companies survived - but why the higher-performing company did better than its counterpart. • Conclusion? - Leading firms had stronger and more enduring core values, The values didn’t appear just on a plague in the entrance hall but were what the organizations managed by. Sony - To be a pioneer, not following others but doing what seems impossible Motorola - Continuous self-renewal Wal-Mart - Swimming upstream, against conventional wisdom. Prof.Sushil\Canada\Session-V

12. ENHANCING CORE VALUES • A Relativistic strategy must reflect and reinforce core values, not try to change them • Specific manifestations of the core values can and should be changed, but not the core values themselves. • There is no such thing as corporate values - only the shared values of the individuals whom the corporation comprises • Core values cannot be denied but transformed. Johnson & Johnson Core value: The firm’s first responsibility is to all those who use its products. • 1982 - Seven people in Chicago area took analgesic Tylenol and died within minutes. Somebody tempered and laced them with cyanide • J&J immediately recalled every Tylenol capsule in US. Mounted an aggressive campaign to alert public. • The estimated cost was $ 100 million Prof.Sushil\Canada\Session-V

13. ENHANCING CORE VALUES Contd... • Organizational values feed into strategy development through the process of sharing, understanding and committing. Tata • Late 1970s - Created a division • Management declared values to new workforce-Not just maintaining high quality but providing work places where every individual would be treated with dignity and respect. No matter how serious the differences of opinion, they should be resolved by non violent, open and honest discussion. • General Manager - Upbraided an employee - CEO • 1980s worker union - disrupted collective bargaining. • The values had stabalized Tata through the storm Prof.Sushil\Canada\Session-V

14. GUIDED BY THE LIGHT - VISION • Corporate vision provides the point of reference on the horizon, a becon of light. • Components of vision • specify Aspiration, a unique long-term achievement that the organization is striving for. • offer Inspiration, which acts as a supermagnet, pulling the organization onward and upward through change. • Invite Perspiration, suggesting how the people in the organization can bring that achievement closer everyday. • Normally the focus is on the statement rather than on the vision. • The core values have to act as a foundation to every vision. Komatsu - Small is Beautiful • Japanese manufacture of earth-moving equipment • Main competitor was Caterpillar • Vision - “Encircle Caterpillar” Prof.Sushil\Canada\Session-V

15. PRAGMATIC ROUTES TO A SHARED VISION • TELLING: The CEO creates a vision and advises the organization to follow it. • SELLING: The CEO believes in a vision and encourages the organization to follow it. • TESTING: The CEO has some ideas about a vision and gets the organization’s reaction. • CONSULTING: To put together a vision, the CEO gets creative input from the organization. • CO-CREATING: Together, the CEO and the rest of the organization create a shared vision. Prof.Sushil\Canada\Session-V

16. TIPS ON THE FIVE APPROACHES Telling • Need during a crisis when top management pressured to make dramatic change • Make it clear whether anything in the vision is negotiable. Then let the organization fill in details. • If you provide all details, nothing left for others to contribute Selling • Open channels of communication • Need to focus on what is important to people throughout the organization • Need to show how it ties into what is important to you as well. Prof.Sushil\Canada\Session-V

17. TIPS ON THE FIVE APPROACHESContd... Testing • Supply as much background material. • See which bits they support most, which least. • Do everything to improve quality of responses-ensuring anonymity of feedback. • Don’t test only by questionnaires - face-to-face interviews Consulting • If you know you don’t have all the answers yourself. • Set the ground rules for the visionary exercise, building the safeguard against distortion. • Make sure someone collects anonymous written comments at the end of each session. • If your organization is not prepared to coordinate the feedback of flooded ideas testing is a better option. Prof.Sushil\Canada\Session-V

18. TIPS ON THE FIVE APPROACHESContd... Co-creating • Everyone in the organization starts by creating own personal vision. • Teams to articulate their sense of common purpose. • Teams that are interdependent align visions. • The goal is alignment and compatibility not uniformity • Combine to create a hierarchy to aligned visions. Prof.Sushil\Canada\Session-V

19. VISIONS OF QUALITY Cadillac The Mission of the Cadillac Motor Company is to engineer, produce, and market the world’s finest automobiles known for uncompromised levels of distinctiveness, comfort, convenience, and refined performance. Through its people, who are its strength, Cadillac will continuously improve the quality of its products and services to meet or exceed customer expectations and succeed as a profitable business. Prof.Sushil\Canada\Session-V

20. VISIONS OF QUALITYContd….. Motorola Deduction to quality is a way of life at our company, so much so that it goes far beyond rhetorical slogans. Our ongoing program of continued improvement reaches out for change, refinement, and even revolution in our pursuit of quality excellence. It is the objective of Motorola, Inc., to produce and provide products and services of the highest quality. In its activities, Motorola will pursue goals aimed at the achievement of quality excellence. These results will be derived from the dedicated efforts of each employee in conjunction with supportive participation from management at all levels of the corporation. Zytec Zytec is a company that competes on value; is market driven; provides superior quality and service; builds strong relationships with its customers; and provides technical excellence in its products. Prof.Sushil\Canada\Session-V

21. WHY ORGANISATION MISSION • Focus Human Effort in a Common Direction • Organization Not Pursuing Conflicting Purposes • Establishes Broad Areas of Job Responsibilities • Basis for Development of Organization Objectives Prof.Sushil\Canada\Session-V

22. What is a Company Mission? The fundamental purpose that sets a firm apart from other firms of its type and identifies the scope of its operations in product and market terms. Prof.Sushil\Canada\Session-V

23. MISSION STATEMENT MAYTAG • “To improve the quality of home life by designing, building, marketing and servicing the best appliances in the world.” GILLETTE • “We will invest in an master the key technologies vital to category success.” Prof.Sushil\Canada\Session-V

24. MISSION STATEMENTS • Arvind Mills “To achieve global dominance in select business built around our core competencies through continuous product and technical innovations and customer orientation with a focus on cost-effectiveness.” • Godrej Soaps “We shall operate in existing and new businesses which profitably capitalize on the Godrej brand and our corporate image of reliability and integrity. Our objective is to delight our customers, both in India and abroad. We shall achieve this objective through continuous improvement in quality, cost as well as customer service.” • Wipro “Be among the 10 most admired Indian corporations. Corporation And by 2000, have international operations/exports contribute more than 50% of corporation profit after tax.” Prof.Sushil\Canada\Session-V

25. Key Components of a Mission Statement Specifies basic product or service Identifies primary market to be served Specifies principal technology for production or delivery Reflects company’s concern for survival Reflects company’s philosophy Identifies company’s self-concept Reflects company’s concern for public image Prof.Sushil\Canada\Session-V

26. Formulating a Mission: Indispensable Components AMAX’s principal products are molybdenum, coal, iron ore, copper, lead, zinc, petroleum and natural gas, potash, phosphates, nicke, tungsten, silver, gold, and magnesium. Indicates basic product or service Specifies primary market To anticipate and meet market needs of farmers, ranchers, and rural communities within North America. (CENEX) Indicates principal technology Control Data is the business of applying microelectronics and computer technology in two general areas: computer-related hardware and computing enhancing services, which include computation, information, education, and finance. Prof.Sushil\Canada\Session-V

27. Formulating a Mission: Economic Goals • Reflect firm’s intention to secure survival through growth and profitability • A firm unable to survive is incapable of satisfying any of its stakeholders • Profitability is the clearest indication of a firm’s ability to satisfy principal claims of employees and stockholders • Growth is tied to firm’s survival and profitability The company will conduct its operation prudently, and will provide the profits and growth which will assure Hoover’s ultimate success. Prof.Sushil\Canada\Session-V

28. Formulating a Mission: Company Philosophy Reflects basic beliefs, values, aspirations, and philosophical priorities to which strategic decision makers are committed We believe human development to be the worthiest of the goals of civilization and independence to be the superior condition for nurturing growth in the capabilities of people. (Sun Company) Prof.Sushil\Canada\Session-V

29. Formulating a Mission: Public Image Reflects public’s expectations which makes achievement of firm’s goals more likely We are sensitive to our image with our customers and the business community. Commitments to customers are considered sacred, and we are upset with ourselves when we do not meet our commitments. We strive to demonstrate to the business world on a continuing basis that we are credible in describing the state of the corporation, and that we are well organized and in complete control of all things that determine the numbers. (Intel Corporation) Prof.Sushil\Canada\Session-V

30. Formulating a Mission: Self-Concept • Characteristics • Based on management’s perception of how others will respond to company • Directs behavior of people employed by company • Determined partly by response of others to company • Incorporated in mission statements communicated to people inside and outside company Hoover Universal is a diversified, multi-industry corporation with strong manufacturing capabilities, entrepreneurial policies, and individual business unit autonomy. Prof.Sushil\Canada\Session-V

31. Trends in Mission Components • New issues increasingly becoming integral parts of mission statements • Sensitivity to consumer wants • “The customer is our top priority!” • Emphasis on extensive product safety programs • Concern for quality • “Quality is job one!” • Emphasis on quality in manufacturing • New philosophy - quality is the norm Prof.Sushil\Canada\Session-V

32. IDENTIFYING MISSION STATEMENT COMPONENTS: A COMPILATION OF EXCERPTS FROM ACTUAL CORPORATE MISSION STATEMENTS 1. Customer-market We believe our first responsibility is to the doctors, nurses, and patients, to mothers and all others who use our products and services, (Johnson & Johnson)To anticipate and meet market needs of farmers, ranchers, and rural communities within North America. (CENEX) 2. Product-service AMAX’s principal products are molyb- denum, coal, iron ore, copper, lead, zinc, petroleum and natural gas, potash, phosphates, nickel, tungsten, silver, gold, and magnesium. (AMAX). 3. Geographic We are dedicated to the total success of domain Corning Glass Works as a worldwide competitor.(Corning Glass). Prof.Sushil\Canada\Session-V

33. IDENTIFYING MISSION STATEMENT COMPONENTS: A COMPILATION OF EXCERPTS FROM ACTUAL CORPORATE MISSION STATEMENTSContd…. 4. Technology Control Data is the business of applying microelectronics microelectronics and computer technology in two general areas: computer- related hardware and computing-enhancing services, which include computation, information, education, and finance, (Control Data) 5. Concern for In this respect, the company will conduct its Survival operation prudently, and will provide the profits and growth which will assure Hoover’s ultimate success. (Hoover Universal) 6. Philosophy We are committed to improve health care throughout the world. (Baxter Travenol) We believe human development to be the worthiest of the goals of civilization and independence to be the superior condition for nurturing growth in the capabilities of people. (Sun Company) Prof.Sushil\Canada\Session-V

34. IDENTIFYING MISSION STATEMENT COMPONENTS: A COMPILATION OF EXCERPTS FROM ACTUAL CORPORATE MISSION STATEMENTS Contd…. 7. Self-concept Hoover Universal is a diversified, multi-industry corporation with strong manufacturing capabilities, entrepreneurial policies, and individual business unit autonomy. (Hoover Universal) 8. Concern for We are responsible to the communities in Society which we live image and work and to the world community as well (Johnson & Johnson) Also, we must be responsive to the broader concerns of the public, including especially the general desire for improvement in the quality of life, equal opportunity for all, and the constructive use of natural resources. (Sun Company) Prof.Sushil\Canada\Session-V

35. ORGANIZATIONAL OBJECTIVES • Target(s) Towards Which Organisation Directs Its Efforts • Importance • Guide in Decision Making • Guide For Increasing • Organisation Efficiency • Guide For Performance Appraisal • Types • Short Run • Long Run • Hierarchy Prof.Sushil\Canada\Session-V

36. CACI’S LONG-TERM OBJECTIVES, 1990-1997 • REVENUE • Increase revenue range to $ 167- $176M or better in FY 90 (FY 90 bookings at $ 170M). • FY 91: Revenue in the $193-$202M range; bookings at $195-$205M range. • Increase company revenue 15-20 per cent per year steadily over next decade. • Consistently increase revenues to $ 500 M per annum by 1997 or earlier. Steady manageable and consistent profitable growth. Prof.Sushil\Canada\Session-V

37. CACI’S LONG-TERM OBJECTIVES, 1990-1997 • PROFITABILITY • Achieve four per cent NAT or better as an annual corporate target for return on revenues, moving to five per cent CAT by mid-90s. • Individual departments and divisions must target NAT percentage profits at 50-100 per cent above company levels (i.e., 6-8 per cent moving to 7.5 - 10 per cent) • SHAREHOLDERS’ VALUE • Increase stock price (market value) to $ 20 per share or better by 1997 (current share basis). Prof.Sushil\Canada\Session-V

38. Types of Long-Term Objectives Profitability Employee Development Productivity Employee Relations Competitive Position Technological Leadership Public Responsibility Prof.Sushil\Canada\Session-V

39. OBJECTIVES - 3M • To achieve 10% annual growth in earnings per share. • To achieve 20-25% return on equity • To achieve 27% return on capital employed Prof.Sushil\Canada\Session-V

40. Acceptable Achievable Flexible Criteria used in preparing objectives Measurable Understandable Suitable Motivating Qualities of Long-Term Objectives Prof.Sushil\Canada\Session-V

41. What is the Balanced Scorecard? • Set of measures directly linked to a company’s strategy • Includes four measures to evaluate a company’s performance • Financial performance • Customer knowledge • Internal business processes • Learning and growth Prof.Sushil\Canada\Session-V

42. Vision and Strategy The Balanced Scorecard Financial “To succeed financially, how should we appear to our shareholders?” Internal Business Processes “To satisfy our shareholders and customers, what business processes must we excel at?” Customer “To achieve our vision, how should we appear to our customers?” Learning and Growth “To achieve our vision, how will we sustain our ability to change and improve?” Prof.Sushil\Canada\Session-V

43. INDIAN INC. LEARNS COOPERATION • Business Cooperation: When bitter business rivals get together to cooperate instead of competing • Reason: Indian environment no longer supports survival of the fittest, even the biggest corporate giant to either gang up or give up. • Modes • Common or garden variety of contract manufacturing Ex: HM making engines for Ford or BMWs. Prof.Sushil\Canada\Session-V

44. INDIAN INC. LEARNS COOPERATIONContd…. • Co-marketing arrangement: Possessive pharma companies are willing to share their new drugs with rivals. • Cross Branching: In cement sector allied companies plans to manufacture rival bands to take advantage to geography or technology(as rival steel companies for e-com) • Joint Venture: Sony Ericsson JV for mobile phones to take on the might of market leader Nokia Wockhardt and Ranbaxy have come together to take on the American market. Prof.Sushil\Canada\Session-V

45. INDIAN INC. LEARNS COOPERATIONContd…. Analysis of Industries • Pharma • Co-marketing --> Changing mindsets • Came in India last year when three majors GSK, Ranbaxy and Cipla hands together for Ciprofloxacin by Ranbaxy Prof.Sushil\Canada\Session-V

46. INDIAN INC. LEARNS COOPERATIONContd…. Pharma • It involves companies selling the same drug under different brand names, unlike US where two or more firms sell the same brand. Leads to: • Economies of Scale to one firm • Ready make product to other firm • Similar cost to both the firms • No hassles from Government for the second firm • Ex: Ranbaxy Co-market Cipla + GSK + Zydus Cadia • Cipla alliance GSK + Nicholas Piramal • Nicholas Piramal + Avintis Prof.Sushil\Canada\Session-V

47. INDIAN INC. LEARNS COOPERATIONContd…. Tech. + New Drug Short Lead time 2-3 weeks High Competition Expensive SCM Firm B Firm A Brand B Brand A Doctors and Users Immediate Distribution Prof.Sushil\Canada\Session-V

48. INDIAN INC. LEARNS COOPERATIONContd…. Cement • Fragmented industry --> Consolidation --> Cross Branding --> Slash in transport cost • Commodity Business --> Brand Building (Better logistics management) Cross Branding • Rolling out cement from the other’s facility to improve logistic management • Ex. Gujarat Ambuja + ACC and Grasim + L&T • Controlling 50% of the total capacity Prof.Sushil\Canada\Session-V

49. INDIAN INC. LEARNS COOPERATIONContd…. Auto • Primarily Ford gets engine from South Africa, Now from HM Telecom • Sony Ericsson JV • Ericsson: No. one Global player in Tele Infra and owns fundamental tech • Sony: No. one Global player in Audio and Video • Strengths in product planning, design user interface and other Prof.Sushil\Canada\Session-V

50. INDIAN INC. LEARNS COOPERATIONContd…. Steel • Sail+Tata Steel 50% Consumption Market • Selling Combined selling through www.metaljunction.com • Production Sail: Not right slabs to roll Tata Steel: Not right size • Technology working together to increase the efficiency of Blast furnace Prof.Sushil\Canada\Session-V