Case Game: The Case Of Counter-Strategy

CASE GAME
The Case Of Counter-Strategy

Long used to tactical market battles, Total Industries-BT's fictional company-is overwhelmed by the structural changes sweeping through its industry. What must its strategy be? NOCIL's N.M. Dhuldhoya, XLRI's Gita Surie, and Business Consulting Group's K.A. Ramakrishnan deliberate. A BT Case Study.

By R. Chandrasekhar

Abhinav Kumar was totally unprepared for the news. And what surprised the 34-year-old scion of the Kumar family-which had interests in a range of industries including batteries, consumer durables, soaps and oils, and switchgears-was that it was his 36-year-old Wharton School classmate, Rakesh Bhatia, who gave him the scoop over their dinner meeting. Bhatia headed a small engineering company in Phoenix, Arizona (US), but was remarkably networked in the industry.

''I hear your competition just got bigger,'' he ribbed Kumar.

''What do you mean?'' Kumar asked, surprised.

''Haven't you heard that PLT and Control Equipment are talking about a merger?'' The two switchgear companies were competitors of the Rs 1,750 crore switchgear division of Total Industries, Kumar's diversified family-managed company.

Kumar almost choked on his soup when he heard that. Such a merger would mean that Total would, overnight, lose its No. 1 position in the industry; its 23 per cent marketshare in switchgears would be eclipsed by the combined 33 per cent share of PLT and Control.

''Who told you this?'' Kumar asked.

''You are not going to believe this. It was a merchant banker sitting next to me on my flight from New York. In fact, this guy was flying down to Mumbai to meet the CEOs of the companies.''

''Switchgears is our most profitable business, Rakesh. I can't afford to let any competitor to muscle us out of the market.''

''That will happen if the merger happens. The new entity will have better bargaining power with their suppliers and customers; they may take a lead in product development too.''

''That has been our strength so far. We not only launch better products but also deliver better service at cost-effective prices.''

Kumar excused himself to make a phone call. He called Manoj Kohli, the 42-year-old President of the switchgears division, on his mobile. ''Manoj, can you postpone your Pune trip tomorrow? I need to meet you first thing in the morning.'' Manoj knew something big was afoot. With the meeting fixed for 9:00 a.m., Kumar returned to the table.

''I am just curious, Abhi, but tell me, how is the strategy process managed at your company?''

''Well, there's me, dad, and the four division heads. Typically, it's this group which does the strategising.''

''So, I would be right in assuming that the process is more implicit than explicit.''

''We do make our periodic business forecasts and reviews, and each division is clued into what is happening in the industry.''

''How come they missed the news of the merger?'' Rakesh teased Kumar. ''But that's not what I am trying to say,'' continued Bhatia. ''What you are describing is functional strategy. Every company has it. But what really works in the long run is a comprehensive competitive strategy which looks at the industry structure, maps its changing contours, predicts how the competition will change, and puts together a response for your company.''

''I get your point. Although we are a Rs 6,000-crore company, our focus seems to be on marketing battles and not competitive strategy. Had we done our homework, Total may have been merging with PLT or Control,'' conceded Kumar.

Dinner over, Kumar and Bhatia parted ways, promising to meet again before the latter left for Phoenix.

Kohli walked into Kumar's office at 9 a.m. sharp. ''What's up, boss?'' he asked.

''PLT and Control are planning a merger,'' Kumar said matter-of-factly.

''Holy cow! Who told you?''

''Rakesh, I met him for dinner last night. It will take another three months for it to come through, but it is happening.''

''Should we make a counter-bid?'' Kohli ventured.

''With our kind of stock price? It will cost us more than half the family's stake in the business to bid for either PLT or Control. The best bet is to get a defensive strategy in place.''

''Let me get details about the merger. That will be essential before we plan our response,'' said Kohli.

''In any case, we are meeting again. And I've asked Srikant, Ratika, and Guneen to be there too,'' said Kumar, referring to Total's Presidents of consumer durables, batteries, and soaps divisions, respectively.

''Is this about the merger?'' questioned Kohli.

"No, but something to do with it. I think it's high time we got an explicit strategy together. Things are changing much too fast for us to be merely reactive. We need to plan ahead for the next 5 years at least.''

Kumar's father and Total Industry's Chairman, Deepak, was not scheduled to attend the evening meeting. But on an impulse he, on the way to his squash club, decided to join the brainstorming session. That explained why he landed up in shorts and sneakers.

The meeting had not yet started when Deepak walked in.

''Thank you for joining us, Sir,'' Kumar said. He always Sir-ed his father in front of the other executives. He, then, repeated the news of the merger although, by then, almost everybody knew about it.

''In a way,'' Kumar said, ''I'm glad that the merger is happening. For, it has forced us to stop and examine the way we strategise. That is not to say that our strategies are ineffective or slow. We wouldn't be this big had it been so. But the point is, having become a conglomerate we cannot afford discrete strategies. The sum of our divisional approaches will-tomorrow-stop being equal to our corporate strategy. We need to formalise the process of strategy-making, once and for all.''

''We need a framework in which to examine where our business is going, and how to grow it.'' interjected Deepak.

''The basic dilemma in strategy,'' Kumar continued, ''is similar to what we encountered during our vision creation process. What we have to ask ourselves is whether our long-term strategy can be based on the present position of our divisions, or whether we should factor in the emergence of New forces like e-Commerce, scale economies, disruptive technologies, and changes in the traditional configuration of the supply-chain.''

''I guess it has to fit in with our vision of being No. 1 in each of the industries we choose to operate in,'' said Guneen Roy.

''I agree,'' quipped Deepak.

''Me too,'' said Kumar. ''But there doesn't seem to be any consensus on approach. I spoke to several consulting firms this afternoon, before I asked two of them-Strategic Consultants Ltd (SCL), and Transformation Consulting Group (TCG) to fax me details of what they could do for us.''

''And what do they have to say?'' Ratika asked.

''Diametrically opposite things. scl says that our strategy must be based on data of what is, not projection of what will be. It also offers to identify all variables which impact the company's profits. But, I think, a strategy should factor in the future. Besides, SCL won't help implement the strategy.''

''What about TCG?'' Manoj wanted to know.

''TCG wants to look beyond today. Its aim is not to maximise the company's profits in today's markets, but to fundamentally re-configure our business portfolio.''

''But do they agree on the formulation part?'' asked Ratika.

''No. The SCL approach is top-driven. It does not believe in involving employees at different levels in formulating strategy. It forms a team of two of our senior executives, and two of its consultants. This team lays down the strategy. The TCG approach, in contrast, is bottom up. It seeks the active involvement of employees who are asked to define the kind of organisation they want their company to be.''

A restless Deepak piped up. ''Surprising, how divergent their approaches are.''

''TCG's methodology is also different, it comprises four phases: envisioning, external analysis, internal analysis, and developing an action plan. Phase 1 involves asking our employees where they see Total in another 10 years. Phase 2 entails asking managers from each of our four divisions their perceptions of our customers, competitors, and the macro-environment in 2010. They will be asked to define the customers, and the nature of competition.'' ''Sounds like a good idea,'' observed Roy.

''It is. Phase 3, internal analysis, is aimed at enabling managers of individual businesses to look inwards and analyse our performance, and strategic options. The performance of the group would be measured both on financial parameters and non-financial parameters like customer satisfaction and product quality. The employees would, then, try and determine the options available to each business looking at the past strategy, strategic problems, organisational capabilities, and constraints.''

''How will these diverse views get synthesised?'' queried Kohli.

''TCG has a framework for that. Based on these findings, a summary of the strengths and weaknesses of Total will be arrived at. The final part of Phase 3 involves defining the existing competencies and updating our vision. In the final phase, TCG would address issues like which core competencies to build, which product segments to tap, and what type of coalitions to form within the industry.''

''Somehow, I am not convinced,'' said Deepak. ''I fear that Total will end up being a guinea pig for testing strategy formulation. Yet, we do need an explicit strategy for tomorrow. I wonder what we should do?''

THE DISCUSSION