SM CASE

Complied by Pioneer Institute of Professional Studies, Indore

MANAGING HINDUSTAN UNILEVER STRATEGICALLY*

Unilever is one of the world's oldest multinational companies. Its origin goes back to the 19lh century when a group of companies operating independently, produced soaps and margarine. In 1930, the companies merged to form Unilever that diversified into food products in 1940s. Through the next five decades, it emerged as a major fast-moving consumer goods (FMCG) multinational operating in several businesses- In 2004, the Unilever 2010 strategic plan was put into action with the missio'n to 'bring vitality to life' and 'to meet everyday needs for nutrition, hygiene and personal care with brands that help,people feel good, look good and get more out of life'. The corporate strategy is of focusing on core businesses of food, home care and personal care. Unilever operates in more than 100 countries, has a" turnover of €39.6 billion and net profit of €3.685 billion in 2006 and derives 41 per cent of its income from the developing and emerging economies around the world. It has 179,000 employees and is a culturally-diverse organisation with its top management coming from 24 nations. Internation-alisation is based on the principle of local roots with global scale aimed at becoming a 'multi-local multinational'. The genesis of Hindustan Unilever (HUL) in India, goes back to 1888 when Unilever exported Sunlight soap to India. Three Indian subsidiaries came into existence in the period 1931-1935 that merged to form Hindustan Lever in 1956. Mergers and acquisitions of Lipton (1972), Brooke Bond (1984), Ponds (1986), TOMCO (1993), Lakme (1998) and Modern Foods (2002) have resulted in an organisation that is a conglomerate of several businesses that have been continually restructured over the years. HUL is one of the largest FMCG company in India with total sales of Rs. 12,295 crore and net profit of 1855 crore in 2006. There are over 15000 employees, including more than 1300 managers.

The present corporate strategy of HUL is to focus on core businesses. These core businesses are in home and personal care and food. There are 20 different consumer categories in these two businesses. For instance, home and personal care is made up of personal wash, laundry, skin care, hair care, oral care, deodorants, colour cosmetics and ayurvedic personal and health care, while food businesses have tea, coffee, ice creams and processed food brands. Apart from the two product divisions, there are separate departments for specialty exports and new ventures.

Strategic management at HUL is the responsibility of the board of directors headed by a chairman. There are five independent and five whole-time directors. The operational management is looked after by a management committee comprising the Vice Chairman, CEO and managing director and executive directors of the two business divisions and functional areas. The divisions have a lot of autonomy with dedicated assets and resources. A divisional committee having the executive director and heads of functions of sales, commercial and manufacturing looks after the business level decision-making. The functional-level management is the responsibility of the functional head. For instance, a marketing manager has a team of brand managers looking after the individual brands. Besides the decentralised divisional structure, HUL has centralised some functions such as finance, human resource management, research, technology, information technology and corporate and legal affairs.

Unilever globally and HUL nationally, operate in the highly competitive FMCG markets. The consumer markets for FMCG products are finicky: it's difficult to create customers and much more difficult to retain them. Price is often the central concern in a consumer purchase decision requiring producers to be on continual guard against cost increases. Sales and distribution are critical functions organisationally. HUL operates in such a milieu. It has strong competitors such as the multinationals

Complied by Pioneer Institute of Professional Studies, Indore - 1 -


Proctor & Gamble, Nivea or L'Oreal and formidable local companies such as, Amul, Nirma or the Tata FMCG companies to contend with. Rivals have copied HUL's strategies and tactics, especially in the area of marketing and distribution. Its innovations such as new style packaging or distribution through women entrepreneurs are much valued but also copied relentlessly, hurting its competitive advantage.

HUL is identified closely with India. There is a ring of truth to its vision statement: 'to earn the love and respect of India by making a real difference to every Indian'. It has an impeccable record in corporate social responsibility. There is an element of nostalgia associated with brands like Lifebuoy (in-troduced in 1895) and Dalda (1937) for senior citizens in India. Consequently, Indians have always perceived HUL as an Indian company rather than a multinational. HUL has attempted to align its strategies in the past to the special needs of the Indian business environment. Be it marketing or human resource management, HUL has experimented with new ideas suited to the local context. For instance, HUL is known for its capabilities in rural marketing, effective distribution systems and human resource development. But this focus on India seems to be changing. This might indicate a change in the strategic posture as well as a recognition that Indian markets have matured to the extent that they can be dealt with by the global strategies of Unilever. At the corporate level, it could also be an attempt to leverage global scale while retaining local responsiveness to some extent.

In line with the shift in corporate strategy, the locus of strategic decision-making seems to have moved from the subsidiary to the headquarters. Unilever has formulated a new global realignment under which it will develop brands and streamline product offerings across the world and the subsidiaries will sell the products. Other subtle indications of the shift of decision-making authority could be the appointment of a British CEO after nearly forty years during which there were Indian CEOs, the changed focus on a limited number of international brands rather than a large range of local brands developed over the years and the name-change from Hindustan Lever to Hindustan Unilever.

The shift in the strategic decision-making power from the subsidiary to headquarters could however, prove to be double-edged sword. An example could be of HUL adopting Unilever's global strategy of focussing on a limited number of products, called the 30 power brands in 2002. That seemed a per-fectly sensible strategic decision aimed at focusing managerial attention to a limited set of high-potential products. But one consequence of that was the HUL's strong position in the niche soap and detergent markets suffering owing to neglect and the competitors were quick to take advantage of the opportunity. Then there are the statistics to deal with: HUU has nearly 80 per cent of sales and 85 per cent of net profits from the home and personal care businesses. Globally, Unilever derives half its revenues from food business. HUL does not have a strong position in the food business in India though the food processing industry remains quite attractive both in terms of local consumption as well as export markets. HUL's own strategy of offering low-price, competitive products may also suffer at the cost of Unilever's emphasis on premium priced, high end products sold through modern retail outlets.- There are some dark clouds on the horizon. HUL's latest fmancials are not satisfactory. Net profit is down, sales are sluggish, input costs have been rising and new food products introduced in the market have yet to pick up. All this while, in one market segment after another, a competitor pushes ahead. In a company of such a big size and overpowering presence, these might still be minor events or developments in a long history that needs to be taken in stride. But, pessimistically, they could also be pointers to what may come.34

Questions1. State the strategy of Hindustan Unilever

in your own words.2. At what different levels is strategy

formu lated at HUL?3. Comment on the strategic decision-

making at HUL.4. Give your opinion on whether the shift in strategic decision-making from India to Unilever's headquarters could prove to be advantageous to HUL or not



PUTTING TOGETHER THE STRATEGIC INTENT AT DABUR INDIA LIMITED*

Cholera, malaria and plague have been killer dis-eases in India. In 1884, Dr. S.K. Burman em-barked on a mission to provide nature-based, effective and affordable treatment for these killer diseases for ordinary people in far-flung villages of Bengal. He adopted ayurveda, the traditional Indian system of medicine. Dr. Burfnan established a pharmacy that set up a manufacturing plant in 1896 and research laboratories in 1919, becoming a full-fledged private company in 1936 that 50 years later, in 1986, became a public limited company. He came to be known as Daktar {Indian pronunciation of 'doctor') Burman. The or-ganisation he founded came to be known as Dabur.

Dabuivis a leading consumer goods company in India, having three subsidiary companies and 13 manufacturing plants. It operates in nearly 50 countries, making it an Indian multinational company. Within the company, there are two strategic, business units (SBUs): Consumer Care Division (CCD) and Consumer Health Division (CHD). CCD deals with consumer products in personal care and health care. CHD deals with classical ayurvedic medicines. It markets its products through an extensive wholesale and retail network of 47 agents, 5000 distributors and 1.5 million retail outlets.

The vision of Dabur is stated as: 'Dedicated to the health and well being of every household.' There is no specifically-stated mission statement but a statement of strategic intent having several elements such as:

• Developing a platform to become a global ayurvedic leader

• Synthesising knowledge of ayurveda and herbs with modern science to develop natural solutions for meeting the health and personal care needs

• Providing superior returns to shareholders relative to rivals in industry

• Being a responsible corporate citizen committed to environmental protection

• Nurturing core brands across categorieswithin India and outside

• Being a professionally managed employerattracting, developing and retaining qualitypersonnel

• Improving operational efficiency byleveraging technology

There are six core values that Dabur practices: ownership, passion for winning, people develop-ment, consumer focus, team work and innovation. Its- corporate positioning statement is 'celebrate life' that goes with its bright green and brown coloured logo depicting a banyan tree.

The brand name 'Dabur' is claimed to mean different things to different people. It operates at three distinct levels: as the company's corporate brand identity, the mother brand for a whole range of products and it also percolates down to indi-vidual product names.

Dabur has tried to alter the product concept of ayurveda medicines as consumer products sold over the counter. For instance, it has the distinc-tion of changing the product concept of chyavanprash from being a traditional compound of herbs and plant extracts having anti-oxidant properties, to a branded consumer product sold over the counter for general health upkeep of the whole family.1

Dabur follows a four-year time horizon strate-gic planning. The 2002-2006 strategic plan envisaged Dabur becoming a Rs. 2000 crore-company by the period 2006-2007. It has been successful in realising that objective. In the next four-year strategic plan, its objectives are to continue the growth momentum at a similar pace. It aspires to be a global FMCG company where more revenues come from outside India. In the next strategic plan, it aims to raise the revenue share from



international operations from the present 12 per cent to 20 per cent.

The business model of Dabur is based on pushing through high growth parameters, in the range of 10 to 15 per cent annually, in the core domestic FMCG businesses in the consumer care division and even higher growth rates of 25 to 30 per cent annually from businesses outside consumer care.

The strategies adopted are a combination of internal growth and external growth through acquisition that it terms as organic and inorganic growth respectively.

Generally, Dabur haS performed well except in cases where it had to deal with tough competition in the intensely competitive consumer goods in India. Analysts say that the company has perhaps been eyeing too many divergent new product categories over the years.

Dabur's strategy for the nextfew years seems to be: growth through domestic and international acquisitions, launching new products and penetrating deeper into rural Indian markets.

In the near future, Dabur will have to decide whether it wishes to be a pure herba brand or a leading FMCG player, neither of which it can claim to be with conviction today.'



WHAT LIES IN STORE FOR THE RETAILING INDUSTRY IN INDIA?*

India is not known/ as the 'nation of shopkeepers', yet it has as many as 5 -million retail outlets of all shapes and sizes. Some other optimistic estimates place the number at as high as 12 million. Whatever be the number, India can claim to have the highest number of retail outlets per capita in the world. But almost all of these are small outfits occupying an average of 500 square feet in size, managed by family members, having negligible investment in land and assets, paying little or no tax and known as the kirana dukaan ('mom and pop' stores in the U.S. or the corner grocery stores in the U.K.). These outlets offer mainfy food items and groceries - the staple of retailing in India. Customer contact is personal and one-on-sne, often running through generations, There are a limited number of items offered often sold on credit—the payment to be collected at the end of the month. The quality of items is standard, with moderate pricing.

There is great hype about the growth and prospects of organised retailing industry in India. It must be noted, however, that organised retailing constitutes barely 2 per cent of the total retailing industry in India, the rest 98 per cent being under the control of the unorganised, informal sector of kirana dukaans. Market research agencies and consultants come up with encouraging forecasts retailing industry in many developing countries around the world. In the post-liberalisation period, there is more openness and awareness of the international developments among, Indians. The ease of travel abroad and the exposure through television and Internet have increased the awareness of the urban Indian consumer to the convenience of modern shopping. The modern retail formats thus have gained

about this segment of the retailing industry. For instance, A.T. Kearney's Global Retail Development Index ranks 30 emerging countries on a 100- point scale. Its 2007-ranking places India at number one for the third consecutive year, with 92 points, followed by Russia and China. The size of the organ-ised retailing industry is estimated at US $8 billion and projected to grow at a compound annual growth rate of 40 per cent to US $22 billion by 2010. Overall, the Indian retailing industry is expected to grow from the current US $350 billion to US $427 billion by 2010 and US $635 billion by 2015.

The economic environment in the post-liberalisation period after 1991, has created several factors that have made this high growth of the organised retailing industry possible, India's impressive economic growth rate of 9 per cent is the prime driver of increasing disposable incomes in the hands of the consumer. The growing size of the consuming class in India, in tandem with the entry and expansion of the organised sector players in recent years, has set the pace for corporate investment in retail business. Practically, every major Indian business group is looking for opportunities in the growing retailing industry. Among them are the big names in the Indian corporate sector such as the AV Birla group, Bharti, Godrej, ITC group, Mahindras, Reliance, Tatas and the Wadia group.

The international environment presently is replete with examples of the fast-paced growth of the a clear trend of low prices being the determining factor in purchase decisions by the cost-conscious Indian consumer. But, lower prices may not be a major issue with the higher-income groups that may place greater emphasis on the quality of products and retail service, store ambience and convenience of shopping. For the majority of Indian consumers however, price is likely to remain a significantly important issue in the purchase decision. Competition



acceptance in India. Carrefour, Tesco and Wal-Mart are the international players already operating in India, with several others like Euroset, Supervalue and Starbucks having plans to enter soon. These international companies bring to India the latest developments in the retailing industry and help(to set up a benchmark for the domestic players. The market environment is one of the most significant in terms of the growth and prospects of the retailing industry in India. !n terms of geography, the reach of the organised retailing industry has been growing. In addition to the mega-cities of Mumbai and Delhi, cities sueh as Bangalore, Pune, -Hyderabad, Kolkata and Chennai are also witnessing a boom in organised retail activity. Retailers are now trying to focus on smaller cities such as Nagpur, Indore, Chandigarh, Lucknow or Cochin. There are interesting possibilities regarding the retail formats. Traditionally, street carts, pavement shops, kirana stores, public distribution systems, kiosks, weekly markets and such other formats unique to India, have been in existence for a long time. At present, most organised retail formats are imitations of those used abroad. These include hyper and supermarkets, convenience stores, department stores and specialty chains. Among these formats, a notable trend has been the development of integrated retail-cum-entertainment centres and malls as opposed to stand-alone developments. Besides these, there are some attempts at indigenous formats aimed at the rural markets such as those by ITC's Choupal Sagar, DSCL's Hairyali Kisaan Bazaarand Godrej group's Godrej Aadhar. Pricing is an important issue in the retailing industry. Generally, the bulk buying yield lower costs of procurement for the big retailers—a part of which they pass on to the customer in the form of . lower prices. In food retailing, for instance, there is The socio-cultural environment offers many interesting insights into the changing tastes and preferences of the urban and semi-urban Indian consumer. There is a large rural market consisting of nearly 720 million consumers, spread over more than 600,000 villages. India's consumers are young: 70 percent of the country's citizens are below the

the purchase decision. Competition has already accelerated with many Indian business groups having entered or likely to enter this booming industry. The political environment in India is ambiguous in terms of its support to the organised retailing industry. This is obvious as the unorganised sector/ ^employs nearly 8 per cent of the Indian population and is widely spread geographically. The overwhelming presence in terms of 98 per cent of the total retailing industry also is a significant political issue. In a democracy, the politics of numbers makes it imperative for the political class to adopt an ambiguous stand. In some cases, politicians have acted in favour of the unorganised sector by disallowing the setting up of large retail outlets in some states. Overall, however, there is ambiguity as there are several environmental trends in favour of the development of the organised retailing industry. In the regulatory environment, there has been a gradual easing of the restrictions albeit at a slow pace, in view of the ambiguous political stance as indicated above. Interestingly, the retailing industry is still not recognised as an industry in India. Foreign direct investment of up to 100 per cent is not permitted though it is possible for foreign players to enter through the routes of franchise agreements, cash-and-carry wholesale trading and strategic licensing agreements. Another problem area is of the real estate laws at the level of state governments that are yet to be clear on the issue of allowing large stores. Restructuring of the tax structure for the retailing industry is another regulatory issue requiring governmental action. However, tariffs on imported consumer items have been gradually aligned to meet the prescribed WTO norms and reduction of import restrictions are likely to help the growing organised retailing industry. apparel retailers are establishing collaborations with their vendors. Another area of concern is the severe shortage of skills in retailing. Human resource development for the retailing industry has picked up lately but may take time to fill the gap caused due to the shortage of personnel.



age of 36 and half of those are under 18 years of age. These people have deep roots in the local culture and traditions, yet are eager to get connected with and know the outside world. According to a DSP Merrill Lynch report, the key; factor providing a thrust to the retail boom in India is the changing age profile of spenders. A group of seven million young Indians in their mid-twenties, earning over US$ 5000 per year, is emerging every year. This group constitutes people who are enthusiastic spenders and like to visit the new ' format retail outlets for the convenience and time-saving they offer, Malls are also being perceived as not just places -for shopping, but for spending leisure time and as meeting places. There has been an emergence of a combination of the retail outlet and entertainment centres having multiplexes, with food courts and video game parlours.

But there are some pitfalls too. For instance, organised retailing in India has had to deal with the misconception among middle-class consumers that the modern retail formats being air conditioned, sophisticated places are bound to be more expensive.

The supplier environment probably offers the biggest constraint on the growth of the retailing industry in India. Reaching India's consumers cost effectively is a distribution nightmare, owing to the sheer geographical size of the country and the presence of traditional, fragmented distribution and retailing networks and erratic logistics. For instance, the apparel segment that is one of the two top segments, the other being food, have had to invest in back-end processes to support supply chains. Supply chain management and merchandising practices are increasingly converging and

The technological environment for the organised retailing industry straddles many areas such as IT support to supply chain management, logistics, transportation and store operations. Some global retailers have demonstrated that an innovative use of technology can provide a substantial strategic Advantage. The large number of store Kerns, the diversity-of sourcing and the gigantic effort required to coordinate actions in a large retail context is ideal for using IT as a support function. For instance, an innovative use of IT can help in a wide variety of functions such as quick information processing and timely decision-making, reduction in processing costs, real-time monitoring and control of operations, security of transactions and operations inte-gration. The availability of supply chain management, customer relationship management and merchandising software can help much while performing activities such as ordering and tracking inventory items, warehousing, transportation and customer profiling.

Overall, the Indian scenario offers an interesting mix of possibilities and challenges. A successful model of large-scale retailing appropriate for the Indian context is yet to emerge. The modern retail formats accepted globally are in the process of implementation and their acceptability is yet to be established.25

Questions1. Identify the opportunities and threats that

theretailing industry in India offers to local andforeign companies.

2. Prepare an ETOP for a company interestedin entering the retailing industry in India.



STATE BANK OF INDIA BANKS ON ITS CAPABILITIES*

State Bank of India (SBl) is Ihdia's largest bank, with an extensive network of more than 9000 branches and 6000 ATMs, its organisational capability profile offers an interesting study into the strengths and weaknesses, competencies and capabilities of india’s prime public sector bank

Financial capability factors: SBl enjoys a comfortable capital position as it is adequately capitalised, designed to deai with asset side risks and support the business growth, fts funding profile is strong, underpirvned by its strong retail deposit base/ SBI's strong franchise gives it access to a steady source of stable retail funds. Its cost of deposits is optimum.

The bank.maintains a healthy liquidity position owing to a continual accretion to deposits, large limits in the call market and significant surplus statutoryjiquiciity ratio-related investments. SBl is estimated to have a good earnings profile with diverse income streams. The bank's core fee income bolsters its revenue profile though there is a likelihood of a slow down owing to the opening of government business like tax collection to other banks and increased competition.

The bank's cost structure is rigid as the fixed employee cost accounted for 74%. of .the operating expenditure in 2004-05. The bank's operating costs wifl remain high in the medium term.Marketing capability factors; SBl has been losing market share over decades. There is a consistent gap between deposit and credit growth. As a leading public sector bank, it is obliged to shoulder social responsibilities such as investing in priority sectors. SBf has been trying to unlock its brand equity though unsuccessfully. It has a strong retail base and wide geographical reach. The bank's fund based and fee income earnings certain other critical areas. There is a need to reduce and redeploy

the workforce but this is a sensitive industrial relations issue in a country

are diversified across industries, regions, asset classes and customer segments. Marketing initiatives such as on-line tax returns filing and faster transfer of funds are in placebo protect its dominant position in the government business. The bank has entered the market of term lending to the corporate sector and infrastructure financing, traditionally the domain of the financial institutions. It has increased its thrusUn retail assets and has built a strong market position in Housing loans.

Operations capability factors: SBl, through its non-banking subsidiaries, offers a host of financial services, viz., merchant banking, fund management, factoring, primary dealership, broking, investment banking and credit cards. SBl has commenced its life 'insurance business by setting up a subsidiary, .SBl Life Insurance Company Limited. SBl, along with its associate banks, offers a wide range of banking products and services across its different client markets.

The asset quality of the bank, a vital performance indicator in the banking industry is of average level. It has a high level of gross non-performing assets, a bane of the banking industry anywhere. It faces challenges to develop effective credit appraisal and collection systems in order to contain the non-performing assets in retail finance.

The bank also has a clear technology strategy that will enable it to compete with the new generation private sector banks in customer service and operational efficiency. The increasing focus on upgrading the technology back-bone of the bank will enable it to leverage its reach better, improve service levels, provide new delivery platforms and improve operating efficiency to counter the threat of competition effectively. Personnel capability factors: Being the -largest bank in the country has its downsides. It faces the dual problems of overstaffing and understaffing inGeneral management capability factors: The general management of the bank is quite competent. It has leveraged its corporate lationships pursued business growth



selectively and has judiciously not competed on the basis of interest rate.

where bank unions are strong.. Information management capability factors: The SBI commissioned Tata Consultancy Services, the global software solutions and consulting services company, to supply, customise and implement the centralised core banking system. The project is claimed to be one of the largest projects of its kind in the world in terms of the number of branches, customers and transaction volume when completed. The, information- management capabilities, which SBI Group will seek to develop using the core banking solution, include personalised customer service, 24X7 banking through diverse types of delivery channels, fast product launch and customer relationship management.

The performance indicators used by the SBI are: capital adequacy ratio, -business per employee, profit per employee, return on assets, net IMPA ratio and deposits and advances.

The banking industry in India is currently under an intense phase of change. The public sector banks are trying to consolidate on the'''' basis of their large network and customer base. The ' private sector banks are adopting mergers and acquisitions to increase their size. The trend is towards consolidation around well-identified core competencies.1



STRATEGIC MOVES BY THE MAHINDRA GROUP*The corporate journey of the Mahindra Group started in 1945 when-one of the two brothers, K.C. Mahindra—the other being J.C. Mahindra—was on a visit to the U.S. Both brothers were professionals working with Tata Steel and Martin Burns respectively. K.C. Mahindra visualised manufacturing jeeps for the rugged Indian roads. A franchisee for assembling Willys jeep was set up as Mahindra & Mohammad in association with Ghuiam Mohammad, who later became a finance minister in post-independence Pakistan.

In 1948, Mahindra & Mahindra came into being. Keshub Mahindra is the Chairman of the Group ^and Anand G. Mahindra is the managing director at present. The first diversification came in 1953 when Otis Elevator (India) was formed. In 1956, the shares of the Mahindra Group were listed on the Bombay Stock Exchange.

The decade of 1953-63 saw diversification mainly through collaborations and joint ventures with foreign companies. The Group entered varnishes, and resins, machine tools, sintered products, alloy and special steel, and finally tractors in 1963. Tractors remain a core business at the Mahindra Group and it is a market leader in the industry and a global player now.

In 1965 came a major thrust into the automobile industry with the commencement of production of light commercial vehicles. The first international foray in the form of exports of utility vehicles and spare parts started in 1969, making it the first attempt at geographical diversification for.the Group.

The next two decades, till 1985, were interspersed with strategic actions aimed at expansion in its mainline business of tractors. A major diversification occurred in 1986 with the Group entering the information technology sector. The milestone of India's second liberalisation in 1991, coincided with the Mahindra Group's diversifying into financial services.

A reorganisation exercise was carried out in 1994 to create six strategic business units

automotive, farm equipment, infrastructure, trade and financial services, information technology and Systech (systems and technologies). The next five years, till the dawn of 2000, were marked by several related and unreteted diversification moves into realty and infrastructure, passenger cars, holiday resorts, consultancy and education.By 2001, the Mahindra Group was not really in a good shape financially, with revenues of Rs 4352 crore, net profit of Rs 12f crore, and return on capital employed at 6.9 per cent. That made it embark on a financial reengineering plan, codenamed, Operation Blue Chip, involving debt restructuring, defining the financial criteria that each business in the Group had to meet, etc

In the post-2001 period, the Group has been focusing on internationalisation through mergers and acquisitions and joint ventures. The Group has been operating in several markets around the world in Europe, Africa, South America, South Asia, South-East Asia and the Middle East. Its earlier experience of having a joint venture with Ford was not happy. Now it is to be seen whether its joint ventures with Renault of France and International Truck and Engine Corporation of the U.S. prove to be successful. Going by the popularity of its vehicles like Scorpio, it may well look forward to success.

The Mahindra Group today is a 60-year old, widely diversified, US$4-bil!ion-group with 58 subsidiaries, 4 joint ventures and 9 associate companies. It businesses span a wide range of sectors, industries and markets, including trade and financial sen/ices, automotive technology, information technology, infrastructure development and defence systems. Yet, tractors and utility vehicles of its automotive and farm equipment are its core businesses. The logic behind some of the diversifications may not be apparent—at least in the short-run—but Anand Mahindra, managing director, defends the strategic posture by saying 'I see myself as a venture capitalist and we have to constantly reallocate resources to newer ventures.7'



18. What is meant by being a first mover in an indus try? a late mover?

19. What are the advantages and disadvantages in Being a first mover in an industry? a late mover20. What is meant by the market location

tactics of business strategy?21.Explain these market location tactics of

business strategy: (a) market leadership (b) market chal lenger fc) market follower (d) market nicher.

22.What are the characteristics of business strate gies in a growth industry?

23. How can organisations leverage home-country advantages for their international business strate gies?

24. How can digitalisation help an organisation attain cost leadership?

Discussion/Application Questions

1.Build up an argument to demonstrate how most competitive interaction occurs at the level of busi ness strategy, which is where competitive advan tage in an industry is won or lost by a company,

2.Based on the idea of business definition, of a com pany of your choice, identify the business strafe gies that company could adopt.

3.Discuss Michael Porter's approach to defining generic competitive (or business) strategies.

4.Select a company which is a market leader in a competitive industry in India (you could, for in stance, take Hindustan Levers in the FMCG in dustry). Identify the sources of competitive advan tage of your chosen company.

5. For each of these business strategies, describe how they are used, under which conditions are they used and the associated benefits and risks: (a) cost leadership (b) differentiation (c) focus.

6. Discuss the conditions under which an organisation can attain cost leadership and differentiation simultaneously. How is this achieved?

7. Is your business school a first mover/late mover in the management education industry in India? What are the advantages and disadvantages in either case?

8. Write a convincing argumentative note on the topic: 'Good timing is crucial for a successful business strategy'.

9. Describe the market location tactics employed by organisations. Highlight the approaches to be used in each of the different types of such tactics.

10. Identify the features of business strategies that would be appropriate under the following industry conditions (a) embryonic {b} growth (c) maturity and (d) decline.

11. Discuss the manner in which organisations can leverage India's home-country advantages and theirown advantages in adopting business strate-gies internationally.

12. Build up arguments in favour of the proposition that digitalisation itself does not create competitive advantage for an organisation. The way that an organisation can use and manage digitalisation creates competitive advantage.

13. Describe the different ways in which digitalisation can help organisations in achieving cost leadership, differentiation arid focus.



COOL COMPETITIVE STRATEGIES WHIRLPOOL INDIA*

Whirlpool India is a part of the multinational company, Whirlpool Corporation that is a global manufacturer and marketer of home appliances, with its headquarters at Michigan in the U.S.A. It is claimed to be the world's largest white goods company, a status it reached in 2006. Whirlpool Corporation has annual sales of more than $18 billion, more than 73,000 employees and more than 70 manufacturing and technology research centres around India Limited was acquired to facilitate entry into the refrigerator market in India. A majority ownership in the joint venture with TVS led to the emergence of Whirlpool of India Limited in 1996.

The vision of Whirlpool India articulated in 1998 is stated as: 'Every home, everywhere, with pride, passion and performance'. The mission statement enunciated in 2003 is 'Everybody creating loyal customers for life'. The objectives of innovation, operational excellence, customer-centric approach and diversified talent are claimed to be embedded within business goals, processes and work culture. In 2002, the company launched an initiative called 'Whirlpool Strategic Architecture' as the implemenv tation framework to achieve its vision and mission.

Whirlpool India is one of the popular brands of home appliances in India. The business portfolio of the company consists of four lines: air treatment, fabric care, food preparation and foodstream solutions. The product portfolio includes air conditioners, microwave ovens, refrigerators and washing machines. The company claims to hold a market share of 25 per cent in the refrigerator market, 10 per cent in the microwave oven market and 16 per cent in the'washing machines market in 2006. There are three manufacturing units situated at Faridabad, Pondicherry and Pune. Whirlpool has transformed itself from an accomplished manufacturer to a consummate marketer— a process that is said to be achieved through a brand building framework that aimed at building excellent brands and engendering customer loyalty. In doing so, the

company claims to have relied on one of its the world in 2007. Among its eleven major brands are Whirlpool, jMaytag and KitchenAid that are produced in 13 countries and marketed to consumers in over 170 countries around the world. The initial internationalisation of Whirlpool Corporation began in 1958 when it entered Brazil. Serious efforts came in the 1980s when it started adopting an aggressive strategy to be a world-class company. India was identified as a growth market sometime in the iate-1980s. Entry into India was made through a joint venture wi'.h TVS Group to produce automatic washers at Pondicherry. In 1995, Kelvinator of facilities have ISO certification and have also adopted the six-sigma quality technique for quality management in 1-999. Care has been taken to create adequate capacity for the long-run, along with eco-friendly technology. Regional Technology Centres at Pune and Pondicherry are involved in design engineering aimed at continual upgrades of features and styling and customisation of products. There is also a global consumer design centre for Asia based at Delhi, indicating the*company's commitment to using India as a technology base for its Asian operations. The Pune-based design centre has online connectivity with other Whirlpool design centres around the world, enabling optjpium utilisation of modelling and analysis software. Digitalisation is a progressive process at Whirlpool India. For instance, it has incorporated digital manufacturing technology into its washing machine manufacturing operations. The software connects Computer Assisted Design data with assembly times and the cost of materials, simplifying the planning and ordering phase, resulting in the application of a customer-centric marketing strategy. The company website was re-launched in 2006 and was made more interactive, providing a forurn not only for information but also for performing the sales functions.

Whirlpool India is a recognised export house with an export-oriented unit based at Pondicherry, to produce KitchenAid appliances for the export markets in the U.S. It is also exporting refrigerators and washing machines to South Asia, Asia-Pacific, Latin America and West Asia, Russia and East Eu-ropean countries and claims to be the largest exporter of home appliances from India. Exports constitute 13 per cent of the turnover of the company and reached Rs. 200 crore in 2006-2007. The market positioning of Whirlpool India is based on the theme: 'your partner in homemaking'. Customer focus drives innovations in product design and changes. Product differentiation is built on customer



responsiveness for the demanding Indian consumer. An example of such responsiveness is its realisation that the Indian climate

core competence of 'customer excellence', the other two being innovation and opera-tional excellence. The transformation process has five elements of: market leadership through customer loyally, innovation diversity with inclusion and core competence, passion for customer excel-lence and operational excellence. The end result is a customer-centred organisation. These five elements form the core of the company's strategy and guides strategic planning and implementation.The manufacturing facilities of Whirlpool India at Faridabad and at Ranjangaon near Pune, are dedicated to making refrigerators and at Pondicherry, to washing machines. All production quite successful, along with an advertising cam-paign based on the theme, 'Ice, Ice Baby'. Other special features like movable trays, space for large bottles and strong body to withstand the heavy toads a typical Indian home subjects its appliances to, have driven its product changes and design.

The consumer durables or the white goods industry in India is a growing industry, albeit at a slow rate. There are strong competitors such as the multinationals LG or Samsung and strong domestic players such as Godrej and Voltas. It's a tough market for the best of marketers. The Indian consumer is hard-to-convince and demands value for money and is not swayed easily by the hype built, around products through advertising campaigns. Future plans of Whirlpool are mostly to concentrate on the existing businesses, except a related diversification into water purifiers where it plans to leverage its retail distribution strength. Whirlpool products are available across 11000 retail outlets in over 150 cities and towhs in India. There are no new manu-

facturing units in the pipeline. Whirlpool India had sales of Rs. 1592 crore for the year ending March 2007 and a net loss of Rs. 5.32 crore, an improvement over the past year's loss of Rs, 38.1 crore. It expects to turn around by 2008 through sustained productivity improvements and cost reduction.21

Questions

1. Analyse the case to identify the type of ge neric business strategy or strategies Whirl pool India is adopting.

2. In your opinion, what is the stage of industry development in the consumer durables in dustry in India? Depending on your answer, comment on whether Whirlpool India's ge neric business strategies are appropriate.

3. What aspects of internationalisation of Whirl- pool India can you identify in the case? Dis-cuss briefly.

4. What aspects of digitisation of Whirlpool India can you identify in the case? Discuss briefly.



Notes and References1. K. Gopalan, "Mariwala's shopping spree",

Busi ness Today, Apr 9, 2006, p. 44; P. Mukherjee, "Marico to roll out new products, plans acquisitions", rediff.com, Jan 16, 2007; Marico—-information update, April 26, 2007, available at Com-pany website at http://www.maricoindia.com /, Retrieved june 25, 2007

2. C. A. Montgomery and M. E. Porter, Strategy:Seeking and Securing Competitive Advantage,Harvard Business School Publishing, Boston,1991, p. xiv.

3. Shafer, Scott M. & Smith, H. Jeff & Under, Jane C., 2005, "The power of business models," Business Horizons, Elsevier, vol. 48(3), pages 199-207.

4. C.W.L. Hill & G.R. Jones, Strategic Management: An Integrated Approach, Boston, Houghton Miffiin, 2007, p. 6.

5. The major writings of Michael E. Porter that explain his theory, principles and techniques of strategy and allied issues are in the form of three books: mpetitive Strategy Techniques for Analyzing Industries and Competitors,(1980) Competitive Advantage: Creating and Sustaining Superior Performance (1985) and The Competitive Advantage of Nations, (1990).

6. J.D. Hunger & T.L. Wheelen, Strategic Manage-ment, Addison Wesley, Reading, Mass., 1999,p 121

Z. Rahman & S. K. Bhattacharya, "Sources of first- mover advantages in emerging markets—an Indian perspective", European Business Review, Vol. 15, No. 6, 2003, pp. 359-369.1) P. Kotler, Marketing Management,

Prentice-Hall of India, New Delhi,.1999, pp. 231-247.

2) T. L. Wheelen & D. Hunger, Strategic Management and Business Policy, 10lh

ed., Upper Saddle River, NJ, Prentice Hall, 2006.

3) M.A. Carpenter & W.G. Sanders, Strategic Management: A Dynamic Perspective, Upper Saddle River, NJ, Prentice Hall, 2007, pp. 142-144; C.W.L. Hill & G.R. Jones, Strategic Management: An Inte grated

4) Approach, Boston, Houghton Miffiin, 2007, pp. 201-204.

5) Website of Board of Industrial and Financial Reconstruction http://www.bifr.nic.in/geninfo.htm. Retrieved June 24, 2007.

6) Website of India Brand Equity Foundation at http://www.ibef.org/, Retrieved June 25, 2007.3.

7) Willcoxson & R. Chatham, "Progress in the IT business relationship: a longitudinal assessment", Journal of Information Technology, London, Mar. 2004, Vol.19, Issue 1; pp. 71-80



MADHYA PRADESH RURAL LIVELIHOOD PROJECT HELPS CREATE A BETTER LIFE FOR THE RURAL POOR*More than two-thirds of India's billion-plus population lives in rural areas and over 300 million of them are classified as poor people, earning, less than US$ 1 per day. Rural poverty is a scourge that afflicts three out of four people living in the rural areas. Poverty is most prevalent among the scheduled caste and tribes living in the states of Bihar, Jharkhand, Chhattisgarh, Madhya Pradesh, Orissa, Rajasthan and West Bengal. A major cause of poverty among rural people in India 1s lack of access for both individuals and communities, to productive assets and financial resources.

Among the several organisations working in the government and non-governrnental sectors is the Macihya Pradesh Society for Rural Livelihoods Promotion that is an autonomous organisation registered under the Madhya Pradesh Societies Act created to implement the Madhya Pradesh Rural Livelihoods Project (MPRLP). The MPRLP project is being implemented In two phases, based on time periods of 2004-2007 for 822 villages and 2007-2012 for 3000 villages in eight tribal dominated districts of Madhya Pradesh. These districts are: Anupur, Barwani, Dhar, Dindori, Jhabua, Mandla, Shahdol and Sheopur.The strategy of MPRLP is to address the struc-tural causes of rural poverty and develop entrepreneurial skills to promote self-employment, aided by an effort to change the perception of the rural poor to accept poverty not as destiny but as a temporary status that can be changed. There are two components of the strategy; strengthening the resource base that generates livelihood and fostering micro-enterprises that provide employment and income opportunities to the rural people. The strategy focuses on seven areas of Pradesh, Orissa and West Bengal. The project receives funds from the State government for un-dertaking various activities, which are reimbursed by the DF1D through the Government of India. The major task of the MPRLP is to channel resources and funds to where they are needed. In doing so, the panchayat institutions play a central role in a bottoms-up approach, in sharp contrast to the top-down resource allocation process in government financing. The funds are

channelled from the Zila Panchayat to the Gram Kosh (lit, village fund) of the Gram Sabha (lit. village assembly).watershed and agricultural development, community forest management, micro-enterprises, livestock, fisheries and poultry, support to migrant labour and improving access to information.

In keeping with its nature as a bureaucratic creation, there is an elaborate organisational setup designed to formulate and implement the project. The Minister of Panchayat and Rural Development is the Chairperson of trie Society. An executive committee under the leadership of the Principal Secretary Panchayat and Rural Development oversees the project. The policy making is in the responsibility of an Empowered Committee headed by the Chief Secretary to the Madhya Pradesh government, that provides strategic direction and interdepartmental coordination. The project coordinator leads the State Project Management Unit that is responsible for implementing and monitoring the project. The project coordinator acts as the secretary of the steering group that provides directions for the Livelihoods Forum and development of the work programme. District-level Project Management Committees have been formed that are chaired by the District Collectors. The heads of the Zila Panchayat (lit. district com-mittee} acts as the District Project Coordinator and is supported by the District Project Support Unit for project implementation. Villages are grouped into clusters where multi-disciplinary project facilitation teams and Gram Vikas Samitis (lit. village development committees) and other committees of the Gram Sabha (lit. village board) organise and support execution at the individual level.

The funding for the project is provided by the Department for International Development (DFID) that is the part of the UK Government that manages Britain's aid to poor countries and works to get rid of extreme poverty. The DFID has provided 16.6 million (Rs. 115 crore) for the first phase. Besides the MPRLP, the DFID also funds or is a partner in funding similar projects in Andhra transparency. Contrary to popular perception, there seems to a high level of transparency in the MPRLP as its website provides a lot'of information and



documents pertaining to the various facets of the project. There are other alternative sources on the Internet.such as those of the DFID that

The implementation of the project is based on community involvement which is a crucial sub-cess factor. It is important that decisions about where resources should be invested originate from within the community and that the community is involved in their implementation. The MPRLP acts as a facilitator to raise the level of understanding of the people regarding the reasons, for their poverty arid what^they could do to get out of the vicious cycle. Once such an understanding is created, it becomes easier to motivate the people to adopt measures through joint action and participation in community activities designed to create a sustained livelihood. Examples of the implementation approach are adoption of measures to conserve soil and water and use seed more effectively, training in diamond cutting or making leaf plates.

There is, in general, skepticism in India re-garding the impact that government schemes and projects really have. There is also apprehension •regarding the high level of corruption and lack of

,

corroborate the achievements of the project, making it a reliable assessment based on third-party monitoring and evaluation. Practical measures such as the practice of writing the Gram Kosh account details on the watls or display boards in the villages helps to gain the confidence of the participants. There have been problems arising out of the usual inefficiency of state governments ifi creating the initial administrative structure. Thqre is also concern about the,high administrative costs and delays in sanctions.

During its first phase that ended in July 2007, the project has made a difference to the lives of many other people. For instance, over 20 per cent of households have seen an increase in the income they obtain from farming. This is due, in significant part, to the agricultural training that they have received. Also, food supplies are now more reliable, with 44% of poor households seeing a reduction in the last two years in the length of the 'hungry season' when food stocks reach their annual low. Another welcome feature of the project is the realisation that experiences gained in a project of large size and high complexity can be shared with other governmental agencies and non-governmental organisations for knowledge sharing and transfer of learning.1



STRUCTURE AND SYSTEMS AT NATIONAL THERMAL POWER CORPORATION*

National Thermal Power Corporation (NTPC) established in 1975, is a public sector company set up to accelerate power development in India. It is the largest thermal power generating company in India at present. Its vision is to be a 'world class integrated power major, powering India's growth, with increasing global presence.' The core business of NTPC is engineering, construction and operation of power generation plants. It also provides consultancy in these areas. It has 26 projects based on coal-based and gas-fired power,generation. NTPC has one-fifth of India's capacity for power generation and more than one-fourth of power generated. Its claimed core competence is to 'develop and operate world-class powep- stations'. NTPC is one of the 'nsvaratnas' (lit. nine gems) in the public sector in India. The major challenges before the company are continual upgradation of power technology, non-payment or delayed payment from the state electricity boards, timely execution of projects and tackling environmental issues.NTPC has a long-term corporate plan for 2002-2017. The corporate and business strate-gies of NTPC focus on expansion through integration and internationalisation through joint ventures, acquisition and strategic alliances. Integration strategies mean moving backward to coal mining and forward to power trading and distribution. Internationalisation involves the global strategy of leveraging on its core business of engineering, construction and operation of power generation plants and their maintenance around the world. Long-term plans aim at diversifying its generation mix to include nuclear power, continuing integrating along the power value chain and intensifying internationalisation efforts. evaluated. The MOU system constitutes an overarching control system in public sector enterprises and so is the case with NTPC. The company has received consistent excellent awards since the inception of the MOU system. At the level of the company, there are two board-level committees to oversee audit and management controls functions. The operational performance evaluation of NTPC basically relates to the reliability of power supply and economics of power generation. The typical performance metrics include capacity utilisation, plant load factor, power

In 2003, NTPC, based on the recommenda-tions of the consulting firm, AT Kearney, em-barked on an organisational transformation exercise named Project Disha (lit. direction). Among the 14 initiatives recommended were structural changes, performance management system, rewards and incentives system and IT strategy.

The present organisation structure of NTPC is a hybrid of functional and geographical forms of structure. The chairman and managing director heads NTPC with the directors looking after the functions of technical, projects, finance, operations, human resource, commercial and vigilance. Regional executive directors based at regional headquarters, oversee the region-based divisions of west, south, east and the national capital region that supervise plant-level operations. A separate hydro division operates under director-projects. The corporate headquarter has some staff functions such as corporate planning, materials management, legal and secretarial,

NTPC, which recently opted for SAP as its ERP solution, has engaged BPCL for leading the change management effort. The project, named 'Lakhsya' {lit. aim), aims at efficiency, flexibility of functioning, transparency and quicker response to internal and external stakeholders. The SAP solution is expected to help NTPC achieve a faster exchange of information, improved productivity and reduction of costs, better data consistency, knowledge sharing and unification of planning and budgeting process.NTPC has a memorandum of understanding (MOU) with the Government of India. MOUs are negotiated agreements between the government and the central public sector enterprises. Under the MOU, the public sector enterprise commits itself to a set of objectives to be achieved over a period of time, after which the performance is generation per employee, availability factor, equipment downtime and energy conservation.

NTPC has a comprehensive system of re-wards and incentives that include areas such as industrial relations, productivity, safety and environment. Meritorious employees are awarded the star of the month and employee of the year awards. The company provides higher education support to employees desirous of enhancing their qualifications. Regarding



compensation, the company has to adopt the norms set for public sector enterprises.'

INCORPORATING CORPORATE SOCIAL RESPONSIBILITY INTO STRATEGY AT THE TATA GROUP*

'In a free enterprise, the community is not just an-other stakeholder in business, but is in fact, the very purpose of its existence.' This is a statement of the founder of the Tata group of companies, Jamsetji N Tata. The thinking behind the statement probably drives the corporate social responsibility initiatives at the Tata group of companies.

The Tata group describes itself as 'India's oldest, largest and most respected business conglomerates', a depiction that seems to be quite justified. The group's businesses operate globally through 98 companies—27 of them publicly-listed—in seven business sectors. There are nearly 2,90,000

The tradition of CSR is embedded in the history of the Tata group. The_ J, N. Tata Endowment Scheme was established in 1892. Over the years, individual family members have created a constellation of trusts and endowments that contribute to a wide range of CSR activities. In the words of J. J. (rani, ex-managing director of Tata Steel; 'Some people consider social responsibility as an additional cost; we don't. We see it as part of an essential cost of business, as much as land, power, raw materials and employees.' This is seen in the quantum of funding that is channelled into CSR. The Tata group contributes nearly 30 per cent of its profit after tax, which is an unusually high figure, when other companies or business groups may take pride in putting in just one per cent of profits into CSR. The high social investment come from the Tata trusts that have a controlling interest in the holding company, Tata Sons. This ensures that the dividends paid out are directed to CSR, making the Tata group companies unique in ensuring that personal wealth is converted into social capital.

The Tata group has created a formal structure to direct CSR activities. The Tata Council for Com-munity Initiatives is a centralised agency consisting of the Tata companies' CEOs, charged with the re-sponsibility of directing and coordinating the CSR activities across the group. It is headed by a member of the group corporate centre, one of the two top governance bodies, the other being the group executive office. This is an indication of the high priority accorded by the Tata group to CSR. In order to create accountability, the Tata group has a distinctive evaluation system called the Tata Index for Sustainable Human Development. The Index is a set of guidelines for Tata companies looking to fulfil their social responsibilities. In the words of Anant G. Nadkarni, vice president, group corporate

sustainability, 'We have adopted a business model to drive social responsibility efforts within the group because that way, you ensure a huge network. The Index helps structure our efforts and quantify their effect on the communities and people they are aimed at.'

Of significance is the fact that the Tata Index for Sustainable Human Development is built around the Tata Business Excellence Model that drives business decisions of the group companies. One of

the several areas of business performance in the model is of governance and social responsibility, indicating the strategic priority given to this issue by the Tata group. Typically, business organisations have considered social responsibility as far removed from their mainline business activities. Not so at the Tata group where CSR is a key element in the business model. It is the responsibility of every company in the group to make CSR a component of its strategic plan.

Despite having a centralised network and structural arrangements, the individual Tata companies are autonomous to choose whatever CSR initiatives suit the requirements of the communities they work'with. The strategy that each company evolves is required to be focussed on the needs of the communities in which the company works in. There is a conscious effort to match the strengths and competencies of the company to the developmental needs of the communities being served. Thus, the company is left free to determine the scope of its CSR initiatives, be it in the area of arts and culture, civic amenities, education, environment, health or infrastructure. For instance, the Tata Steel Rural Development Society works at Tata Steel for the rural communities around the operational units, while the Tata Chemicals Society for Rural Development does similar work for Tata Chemicals. Voltas for Women is an exclusively female society consisting of female employees and wives of employees, who work on health and education issues for women. The Tata family trusts consist of the Sir Dorabji Trust and Sir Ratan Tata Trust besides the J. N, Tata Endowment. Some of the prominent Tata-funded institutions are the Indian Institute of Science, Tata Institute for Fundamental Research and Tata Institute of Social Sciences.10'

Questions

1. Collect evidence from the case to support theargument that social responsiveness at theTata group is closely aligned with its strategic management.



2. How would you respond to a critic who saysthat the Tata group engages in CSR activities to enhance the reputation of the Tatabrand and thereby, benefit economicallyfrom its social responsibility initiatives?

STRATEGIC EVALUATION AND CONTROL AT THE APOLLO HOSPITALS NETWORK*Apollo Hospitals Enterprise Limited (AHEL) has the distinction of being the first and the largest corporate hospital network in India, modelled on the Hospital Corporation of America, the world's largest private healthcare providers. Pioneered by Dr. Prathap C. Reddy, it was incorporated as a public limited company in 1979. Its 2007 turnover is Rs- 957 crore and net profit is Rs. 95.4 crore. It has ISO 9002 and the coveted Joint Commission international (JCI) accreditations of the US, enabling it to provide healthcare to Americans who can.then claim healthcare insurance reimbursements.

AHEL is basically a family-owned and family-managed organisation with Dr. Reddy as the executive chairman and his three daughters holding the positions of managing director and executive directors of finance and operations. Dr. Reddy is a visionary medical doctor-entrepreneur and the driving force behind the Apollo network. Professionals manage the individual hospitals. A case in point is of hiring Anne Marie Moncure, who was then executive director at one of the Hospital Corporation of America's hospitals, for the Delhi-based Indraprastha Medical Corporation. But the motive in this case seems to be related to the hospital trying to secure the JCI accreditation rather than a genuine search for top management talent.

The corporate strategy is of expansion through organic as well as inorganic routes, to grow through acquisitions, strategic alliances, interna-tionalisation and digitalisation. The business strategy is of differentiation based on high-quality healthcare at premium price. Focus is created through niches such as medical tourism, offering specialised healthcare facilities for foreigners and non-resident Indians, particularly from the U.S.

and global nursing staffing by education and training of nurses. Several business models are used simultaneously, in line with whatever opportunity arises for establishing strategic alliances with prospective partners.

The Apollo network owns and manages more than 40 hospitals in India and some neighbouring countries. It serves 7.4 million customers and aims at increasing bed capacity by around 30% every year. The business portfolio of AHEL has speciality hospitals and clinics, a chain of pharmacy retail outlets and consultancy services for commissioning and managing hospitals.

There are more than 50 clinical departments for patient care, manned by about 7000 medical professionals. The technological capability of AHEL is seen In the state-of-the-art equipments for diagnostic and therapeutic purposes and in cases of using advanced medical procedures such as cardiac surgery using beating heart technique, of high quality, at a comparatively lower cost internationally. The level of innovation seems to be high as observed in AHEL's introduction of new services such as medical insurance, telemedicine, healthcare business process outsourcing and coming up with new ideas in medical research and treatment.

The strategic control appears to be centralised in the executive team led by Dr. Reddy. From the tactical actions of AHEL reported frequently in the media, it emerges that the growth trajectory being charted is based more on entrepreneurial feats and business opportunism rather than conscious planning. A plethora of business models used eclectically creates a hazy picture of the AHEL's strategic intent. It is possible therefore, that there are instances where the premises of plans may turn out to be faulty, strategic rethinking may be delayed, there might be missed opportunities as well as the existence of risk of choosing options that might not be advisable. On the operational



side, however, things seem to be in hand.

EXERCISING STRATEGIC AND OPERATIONAL CONTROLS AT iGATE GLOBAL SOLUTIONS*

The Bangalore-based iGATE Global Solutions is the flagship company of iGATE Corporation, a NASDAQ-listed, US-based corporation. Known earlier as Mascot Systems, it was set up in India in 1993, to offer IT staffing services. It acquired business process outsourcing (BPO) and contact cen- .institutional and public investors. The revenues for 2006-2007 are over Rs. 805 crore and net profits, Rs. 49.6 crore

The corporate strategies of iGATE are offering integrated IT services and divesting the legacy IT staffing business snci possibly making acquisitions in the domain expertise for financial services businesses. The business strategy is focused differentiation based on the focal points of testing, infrastructure management and enterprise solutions- The competitive tactic is avoiding head-on competition with the formidable larger players in the industry by carving out a niche. The business definition is serving large customers and staying away from sub-contracting work.

iGATE adopts a differentiation business model based on an integrated technology and operations model which it calls as the iTOPS model. This is an advancement over the prevalent model in the ITES industry based on low-cost arbitrage model. iTOPS is based on transaction-based pricing for services and supporting the clients by providing the platform, processes'and services.

The strategic evaluation dnd control has both the elements of strategic ss well as operational controls.

The functional and operational implementation is aimed at achieving four sets of objectives:

(a) Shifting from small customers to large cus tomer (Fortune 1000 companies)

(b) Shifting away from stocking to project-con sulting assignments

(c) Working directly with clients rather than with system integrators

(d)Moving from a local to international markets Some illustrations of the performance indicatorsthat reflect these objectives are:

1. On-shore versus off-shore mix of business revenues: In 2004, this ratio was 55:45 andin 2007, it has improved to 27:73, indicating a much higher revenue generation from offshore business.

alisations from billing have to be higher. The industry norms for ITES are USS18-25 per hour for off-shore and US$ 55-65 per hour for on-shore assignments.

3. The number of large clients from Fortune 1000 companies: Presently, iGATE has nearly half of its more than 100 clients from Fortune 1000 companies, of which the top 10account for 70 per cent of its business.

4. Controlling employee costs: This is an area where concerted effort is required from the HR and finance functions. Hiring less experienced employees lowers the compensation bill. In the IT and ITES industry, attracting and retaining well-qualified and experienced employees is a critical success factor. Theperformance indicator for this objective is the cost per employee.

5. Human resource metrics such as the hiring and attrition rates: In the IT and ITES industry, the human resource metrics such as hir-ing and attrition rates are critical indicators. Increasing the number of employees, and lowering the attrition rate by retaining the ployees is a big challenge. There are presently about 5800 employees, likely to 8500 in the next two years. The attrition 20 per cent presently at iGATE is on the higher side. But such attrition is common in the industry where employee mobiiity is high and employee pinching a widespread trend.

The human resource management function being critical in an industry where so many challenges exist, needs a strong emphasis on training and development, motivation, autonomy and attractive incentives. iGATE has an integrated people management model focusing on developing technical, behavioural and leadership competencies. The three metrics by which the HR function is assessed are: human capital index, work culture and em-ployee affective commitment. The reward system at iGATE consists of meritorious employees across all levels being granted restricted stock options, thus providing an incentive to remain with the company till they become due. The company, though, is an average paymaster, which disadvantage it tries to trade-off by offering a more challenging work



2. Billing rates: Revenue charged from clients on assignments. With project consulting as signments from off-shore clients, where the revenues are typically higher, with lower costs and higher productivity in India, the re

environment, quicker promotions and chances for practising innovation.

Critics say that that iGATE lacks the big-brand appeal of the larger players such as Infosys and Wipro, cannot compete on scale and is still under the shadow of its original business of body-shopping IT personnel.32

Questions

1. Analyse the iGATE case to highlight how it could apply some of the strategic controls



such as premise control, implementation control, strategic surveillance and special alert control.

2. Analyse and describe the process of settingof standards at iGATE. ,

3. Give your opinion on the effectiveness of the role of reward system in exercising HR performance management at iGATE and suggest what improvements are possible, given the environmental conditions in the IT/ITES industry in India at present.


SM CASE

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