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So, welcome to this class. So, in the last class we looked at certain concepts like the
economic value added and how it can be useful for realizing competitive advantage in the market place.
So, we have already looked at this competitive advantage of nations, what are the factors
which were given out by Porter. Even when you look at the national diamond given by
Porter also, what you can visualize is that it adds value to a nation.
We can look at this adding value in four parts: one is with respect to factor condition that
is land, labor, capital, and entrepreneurship; then, the second is the demand conditions;
the third is the role of supporting industries; the fourth is the firms structure rivalry
and strategy. So, in a sense the national diamond what was
enunciated by Porter could also be looked at in four parts with respect to factor conditions,
demand conditions, that is, the type of markets in which you are operating, it may be a monopoly
market or it may be a duopoly market or an oligopoly market, what is the type of market
in which you are there. You have looked at those market conditions,
then the role of the supporting industries and the firm's structure rivalry strategy,
that is how is the intensity of competition in the whole market setup, in which the firm
is operating and what is the type of strategy they are adopting and how all these put together
is impinging a sector, then a country; so it peters down to different levels. So, when
you are looking at the country, what are you trying to really do? You are looking at from
the lower end to the higher end. So, from the firm level, up to the national
level you are going; at the firm level itself you are looking at the all these four parts.
So, when you are moving up, you are again looking at the four parts in a summated manner.
When you are looking at nation, you are looking at these four parts in an aggregated manner.
So, this aggregated manner of looking at these four parts, tells you with respect to a nation,
what is the type of competitive advantage it can have in the market place. To that extent,
all the points that we have discussed earlier, whether it is the balanced score card or whether
the economic value added all these can be useful.
Now, before we go further into other strategic issues, we will discuss a few more matrices
which can be helpful to a nation, first to a firm, then also to a nation at large. So,
this is one of the things is what is called the space matrix; this is called the strategic
position action evaluation matrix. So, this can be helpful for an organizations
overall strategic performance. Kindly note all this we are doing for an organization,
then we take it up to different levels as I mentioned. So, when you look at the aggregate
level, you are looking at the country at large.
So, it has a four quadrant frame work - these four quadrants are aggressive, conservative,
defensive, competitive; what are these four quadrants signifying? So, there are two internal
dimensions - one is the financial strength; that is, the FS.
If you go back to the matrix, you have the FS here, you have the ES here, you have the
CA here, you have the IS here; now what does these things stand for, it is brought out
here. The financial strength or the FS stands for cash flows, liquidity, then the return
on investment, ease of exit from market, etcetera. Then the competitive advantage, CA, stands
for market share, product lifecycle, consumer loyalty, etcetera. The two external dimensions
that you are looking at are the environmental stability ES, that is, the technological changes,
rate of inflation, demand variability, etcetera; then the industry strength - growth potential,
profit potential, technological know how etcetera. So, this is the IS part.
So, you have, as you can see in the space matrix, two internal dimensions and two external
dimensions. Two internal dimensions are the financial strength and the competitive advantages;
then, the two external dimensions you are looking at, are the environmental stability
and the industry strength. Now, using these you can look at these four
quadrants. Suppose, an organization is in this first quadrant with respect to the FS
and IS, you can adopt aggressive strategies; why are you adopting aggressive strategies?
You are adopting aggressive strategies to attain the leadership position in the market
place. Suppose, you are in this quadrant that is the FS and the competitive advantage here
down a little. So, you have to be conservative that is you cannot be aggressive like here,
you have to be conservative. Then the third one quadrant you have to be
defensive and the fourth quadrant is not a very good thing; still you can be competitive.
So, this is the way you can look at your strategic performance, by saying - yours, I mean the
company's strategic performance. So, this is the way a space matrix can be constructed.
Now, let us look at one more grid, this is called the strategic control grid. What is
the objective of this strategic control grid? The objective of this strategic control grid
is to measure the firm, the power that a firm is able to establish in its working environment.
Mapping of this control grid with respect to competitors can give the strategist useful
ideas of the appropriateness of the strategy. So, there are five elements, which contribute
to the manifestation of this power. They are position, profits, process, product and perception.
So, why are we looking at this strategic control grid? We are looking at this grid, to find
out whether the firm is powerful in the market environment that it is operating.
Kindly note that all these exercises are required, whether it is this grid or whether it is this
space matrix or whether it is the different portfolio matrices that we did. We start looking
at the firm level, then we go to the industry level, then we go to the sector level, then
we go to the national level. So, this is how the nations GDP start getting worked out.
So, we say the services sector is contributing to nearly 54 percent of the country's GDP,
what do we mean by that? We mean that when we take all the industries which are coming
under the services sector, whether it is the IT enabled services or whether it is the tourism
services or the hotel services name it, all this coming under the services industry all
that put together; that is the income that is coming from all these industries put together
contributing to the services sector and all that totaled up contributes to 54 percent
of the GDP. So, we look at an organization a firm, then
from a firm we move to the industry where you have number of firms operating in that
particular category; from that industry you move to the sector, from the sector you move
to all the sectors put together, and in the end, you get the aggregate picture with respect
to the country. In order to evaluate all these you go through
all these methods, whether it is the space matrix or whether it is the other portfolio
matrices. So, the organization decides which one to adopt.
So, this strategic control grid can be one more tool for the organization, where it starts
finding out how powerful it is with respect to its market environment. So, working environment,
means, you are really working in the marketplace; kindly note that. Now, similarly, we look
at what is called a web structure. What is this web structure? A set of companies that
use a common architecture to deliver independent elements of overall value propositions that
grows stronger as more companies join. So, what does it tell you? If you just try
to analyze this definition as an individual company, a company feels that the services
that it is able to offer may not be well received in the market place. So, the consumer may
require some additions to this service or complements to the service all this types
of things. Now, suppose, they make a common architecture to service all the needs of these
customers, then they are on a much stronger wicket. So, this web structure essentially
helps them to be on a stronger footing in the market place.
So, what are the two conditions which are required for this web structure to come into
being? One is a common platform, it can be either with respect to technology or geography,
then the second one is the increasing returns to scale. So, if you combine together and
if you are able to operate, then you should be able to get increasing returns to scale
that is you produce more your profits also increase. So, this is the type of manufacturing
this thing. Here in the services, you service more number
of people, your profits also should proportionately increase; so with the cost per service not
being greatly affected. Three types of web are visualized; one is called the market web.
This market web typically refers to shopping malls which have sprung up all over the country
and the consumer web is a typical reader digest type of thing, where you have consumers with
different taste, different interest all being brought in this through the consumer web into
one market or one web structure.
The technology web is where you bring all this technology platforms into one structure;
that is, the windows or whatever etcetera. So, this is how you can look at the web structure.
Now, one more term, this is called X efficiency. What is X efficiency? The X efficiency refers
to measure of a firm's management in minimizing the cost of producing a given output or maximizing
the output given a set of inputs. Kindly note the definition of this X efficiency-
the measure of a firm's management in minimizing the cost of producing a given output or maximizing
the output given a set of inputs. Why do you want to look at this efficiency?
It is supposed to capture the discrepancy between the efficient behavior of firms as
implied by economic theory and their observed behavior in practice. So, you are really looking
at economic theory, purely from a theoretical point of view and its application in practice.
So, the person who introduced this is Libenstein. So, he introduced this theory of inefficiency
generated due to lack of competition. So, X efficiency in a sense refers to lack of
competition not a good thing to have, because if you have no competition then you are really
in the suppliers market not in the buyer's market.
So, is a possibility that the interest of the consumer can get compromised in the whole
process? So, in other words, now, we have looked at almost all the aspects that one
could consider with respect to competitive advantage, whether it is at the firm level
or the industry level or the national level and how could all these matrices be helpful?
So, we looked at all the aspects of this whole gamut of competitive advantage going from
the balanced score card to the BCG matrix new; then the competitive advantage of nations
given out by Porter; then what is meant by the competitive convergence, then the grand
strategy matrix, then we looked at the doom loops, how it is going to destroy the competitive
advantage of nations; then J curve; then the cob web theorem; then we looked at the end
game strategies, then we looked at the economic value added; then we looked at the national
diamond from the four parts, the space matrix, the strategy control grid, the web structure,
and the X efficiency, in fact the theory of inefficiency put out by Libenstein.
So, with all these we have more or less covered all the aspects which we can look at possibly
with respect to competitive advantage, whether it is with respect to a firm starting from
a firm moving up to a nation at large.
Now, we look at a few more issues; that is, we look at one particular set of industries
which we have not looked at till now that is what is called the nonprofit organizations
or the NPO's at large. So, which are these nonprofit organizations?
These are voluntary organizations, many times they do social service. So, you can be looking
at different types of social service rendered by these organizations. So, this NPO's sometimes
bracketed as NGO's depending on the context in which they are operating; so these NPO's
or NGO's are NPO's which are operating in a certain context and many of these NPO's
receive liberal donations from the industries. So, most of these big industries make liberal
donations to different voluntary organizations, so all these NPO's like this cry, action aid
these are all different organization working in certain sectors.
Whether it can for the upliftment of children at an economically lower strata, so that they
can be benefited by studies things like that or provision of basic amenities all those
types of things coming under this umbrella. Now, when you look at the industry making
these types liberal donations, so you have organizations like TATA's, which are very
active. You also have organizations like infosys again vary active in this field.
So, what is the whole gamut of operations of these NPO's in relations to the industries
involved coming under, which head. So, when you look at the industries you can say it
is the corporate social responsibility. Then when you look at the NPO's, you can say
these are providing certain benefits to certain under privileged sections of the economy,
which they were deprived or which they are deprived, which the government itself cannot
provide. So, this the type of this thing. So, being a receptor or being a receiver of
so many donations, that is like these organizations like this action aid or cry or name different
types of organizations; so there are a large number of them operating in each state under
different names; so all these organizations are receiving donations from the industry.
So, for the industry it is the corporate social responsibility, for the receiving organization
it has got a set of objectives, where these donations or where these contributions made,
whether it is by individuals or whether it is by the organizations concerned.
How should it be used? This is an interesting study was done on this particular aspect of
the NPO's, and the objective was how an industry should decide, which NPO it should pick up
for making this type of contribution. Suppose ,there are some ten NPO's and a company like
TATAs wants to give contributions through its CSR umbrella, how much each of these organizations
should get or how do you really get to the idea of getting this type of evaluation.
So, the one thing is this study was done in the Indian context. So, what are the parameters
of NPO choice which you can look at that is the organization can look at. The idea was
with respect to its corporate philanthropy program.
So, in other words, what could be the parameters of NPO choice, which can guide the organization
concerned? To make a decision on the amount of contribution to be made from the organization
side, its corporate philanthropy. So, the whole exercise was to give a theoretical model
for corporate philanthropy. So, this theoretical model for corporate philanthropy, when it
was put out in the Indian context, tried with different organizations like the one which
I gave, so came out with these blocks. One is suppose, you have the NPO in the middle
now, this NPO in the middle. What are the types of when you look at the agency parameters
that is how aware are you about this agency are you aware of this action aid are you aware
of cry we have. So, many organizations like you have this Bosco in Bangalore trying to
pick up children who are homeless. So many of them are deserted children let
us say picking up from railway stations or bus stands, then providing for their welfare,
all those types of things. So, many of these organizations, so which ever might be the
type of organization. What are the factors when you are looking at with respect to the
agency? One is the awareness, second is the confidence, and third is the strategy. So,
the organization is looking at these three factors; How aware is this agency? That is,
what is the type of awareness with respect to the target markets, concern about this
agency. Then the external factors are: one is factors
external to the company, then the social comparisons which can be made put together, that is, the
agency and the external factors you come up with what is called the organizational factors.
The organizational factors are one with respect to image, second with respect to disposition,
third with respect to resources in kind, then fourth with respect to resources monitory,
fifth with respect to the top management, then sixth with respect to the self- interest.
What do you mean by this organization? You look at the agency, you look at the external
factors from the organizational point of view; that is, you are the donating organization,
so whether it is TATAs or Infosys, what are you looking at? You are looking at by donating
x amount of money to this particular agency, what is it that the industry is gaining? Gaining
with respect to image or how is the industry being viewed in its disposition? Then, how
does the industry want to contribute? Does it wants to give in terms of resources in
kind? So, sometimes you may not like to give resources
monitory, because you may think that resources in kind might be better method than resources
monitory, because in times of floods or in times of drought, it may be better to offer
resources in kind, may be food grains, may be some other aspects all those types of things.
Now, from the organizations point of view also, it has to decide whether it will give
resources in kind or monitory resources and it should also look at the top management
of this agency and then what is the type of self-interest that is involved in the whole
setup.
Now, taking all these into account, you derive with respect to an NPO or this study derived
with respect to an NPO, the parameters of choice that is the NPO choice which are the
parameters which came out. 1 - is responsiveness, then 2 - is credibility, 3 - is capability,
4 - is confidence, 5 - is communication, 6 - is channel, 7 - is tangibility, 8 - is top
management. Responsiveness: suppose, there is a certain
situation requiring immediate response, how good is this NPO in giving that response.
Suppose it is found wanting in providing that response, then it may not be desirable to
make contributions to that type of an NPO. So, this is happening in a routine manner
with reference to different NPO's. Because many donors, they are making their own assessment
of all these NPO's before they decide, yes, we are making the contributions to these NPO's
and this will be the volume of the contribution or the quantum of contribution. So, the responsiveness
is one aspect, the top aspect which they go into.
Second is the credibility; this credibility with respect to an NPO is with respect to
not only its working force, but also the top management which is behind this NPO. Suppose,
you find there are many NPO's which are having some ulterior motives, so an organization
or a donor organization has to be extremely careful about contributions being made to
these types of NPO's. The third one is many organizations claim
that is the NPO's claim that they are doing this social service. Question is whether they
are really capable of doing this type of social service. So, a donor organization has to make
an assessment through independent channels, not the channel of the NPO. Because the channel
of the NPO is always bound to give it a good certificate, whether this NPO is having the
capability to provide the type of service that it claims to be providing. Then what
is a confidence of the target segments or the segments who have received or who are
going to receive this type of service in the NPO concerned.
So, all these factors are, kindly note, are extremely crucial, then how is this NPO communicating
with the target segments? So, you find day in and day out, so many charges being leveled.
So, if you really see in the present, in the recent past also and ongoing also, we see
so many contributions, made by so many organizations towards flood relief towards drought relief
it has not reached the target segments. So, where has it gone, where has the money
gone, what is the type of accounting mechanism that has been established, and as the NPO
concerned communicated with this target segments effectively. Then what is the type of channel
that it is adopting to disperse these types of services, that is, the NPO is adopting
and how tangible is its operations that is the transparency. Many of these NPO's do not
disclose data, they want to hide data, they want to operate under a secret veil, the secret
veil or a veil this which is many times having lot of secrets. So, many times you have to
lift that veil to find out what exactly is being done by the NPO.
And then to a large extent the credibility of the NPO will be enhanced by having people
who are known for their integrity in the top management. So, this essentially provides
a theoretical framework.
A theoretical model for the corporate donors how to make an NPO choice, that is, the parameters
of NPO choice. So, in the end, these are the parameters which an organization a donor organization
generally looks at one is the responsiveness, second is the credibility, third is the capability,
fourth is the confidence, fifth is the communication, sixth is the channel, seventh is the tangibility,
and eighth is the top management; so this is a theoretical model as I mentioned.
And certain numbers are given here these numbers are factor rankings, which was obtained in
the factor analysis model, which was used in the Indian context. So, those who are interested
can refer to further interest to those who are further interested in this can refer to
a doctoral dissertation done by a student from the institute of science under my guidance.
This is called the critical factors of corporate philanthropy their impact on monitory contribution
and critical attributes of corporate choice of NPO.
This is an unpublished doctoral dissertation, by a student Sangeetha Mansoor, at the Institute
of Science, available in the library of the Institute of Science, in 2001. So, this is
the way you look at a theoretical model with respect to corporate philanthropy.
So, now, when you look at this model the nonprofit organizations and this model what is the type
of inference that you can make? The inference that you can say with respect to the organization.
So, this is what is brought out here; that is, the 8 important factors of NPO choice.
The NPO itself refers to not for profit sector firms of the economy; they are not interested in making profits,
kindly note. They work toward public or collective good; so kindly note these two points. So,
these organizations they are not working for profit, they are working for public good or
collective good and they are looking at philanthropic service, then community service.
So, the main idea is to look at the community good; that is, what good can be done for the
community at large. Now, why are we looking at all these things with respect to an NPO?
Because there are large number of NPO's which are operating in the Indian context and they
are getting substantial donations from donor organizations. The donor organizations for
them it is the corporate social philanthropy or the social responsibility which is coming
into picture; so, the corporate philanthropy translating into CSR corporate social responsibility.
Now, whether these NPO's themselves whether they should go in for strategic management.
Because of the large number of them which are existing in the Indian market, Indian
context then being recipients of large amounts of donations whether they should go in.
So, when you looked at this study, when you look at all the factors, which a donor organization
might consider on the NPO choice. Now, what is the type of inference that you can draw?
The NPO also should look at strategic management and it should also look at all these factors.
That is how responsive is the NPO, how credible, how capable and what is the confidence level
in the NPO the channels of service adopted, the tangibility, the top management and the
communication. So, this can be useful for the NPO also. In other words what does it
mean? An NPO also which is operating in the Indian context can take certain rudimentary
steps; so they can adopt certain rudimentary steps towards strategic management.
So, what are we trying to say? We are saying whether you are a large industry or whether
you are a medium industry or whether you are a small scale industry, please look at strategic
management in this liberalized context. A small scale industry should not think that
the strategic management is the domain of the large scale industry. Similarly, the medium
scale industry should not think that it belongs to the large scale industry, not to them,
because the scenarios are totally different from the ones, which existed a few years back.
You are operating in a hyper competitive scenario and when you are operating in a hyper competitive
scenario this subject of strategic management becomes imperative for all the types of organizations.
Now, we are saying it is essential even for a nonprofit organization, which is operating
in the Indian context. So, a service organization in the Indian context, which it claims even
that should look at strategic management or at least take some rudimentary steps to look
at strategic management. So, in a sense, what are we trying to say?
We are saying that this entire subject of strategic management, which started in great
earnestness in the Indian context in the late 70s, that is, you had BHEL as the first Indian
organization going in for corporate planning in 1974 followed by other public sector organizations,
then followed by different private sector organizations especially after the liberalization
process in 1991.
And now, when you are approaching this 2011, you find that the gamut of strategic management
or the tentacles of strategic management has really spread it encompasses the entire economy,
whether it is the primary sector or whether it is the secondary sector or the tertiary
sector. We are saying that look at strategic management that is look at where the resources
are being invested and whether it is going to the target markets concerned and what is
the type of advantages that is being realized out of whole scenario.
So, in other words this strategic management is becoming an important component in the
modern day context. So, you are looking at it not only from the organizations, you are
looking at it even for a nonprofit organization. A donor organization looks at the tools of
strategic management even when it is making some contributions to these nonprofit organizations.
So, this is where we stop for this day. So, we have more or less covered all the aspects
of strategic management. So, when you are looking at the Indian market
scenario the ongoing process of liberalization makes it essential for Indian companies to
innovate and become market leaders. So, when it is required to become market leaders the
role of the SME's will have to become entrepreneurial, then Indian companies should strive to draw
technology road maps which help them to predict the future rather than to react it.
Then the NPO's in the Indian context should also look at meaningful options for strategic
management. So, we stop here, we continue in the next class. Thank you.