Balancing Profits and CSR: Tata Steel

Flagship Company of the Tata group and the 5^th largest Steel producer in the world Tata Steel’s strategy of investing huge amounts in CSR has been a topic of discussion among employees and other stakeholders for quite some time. I would like to use their example to understand this tightrope walk between CSR and Profits.

There are very different viewpoints about this high expenditure on CSR strategy; some say it is justified and commendable on ethical grounds. It also builds reputation, long-lasting commitment from talented individuals, very good labour-management relations and decades without strike. The other group argues that ultimately the array of non-core activities negatively impacts the core steel business.

SWOT analysis for this strategy:

Strengths:

•         Better work environment for employees

•         Neutralizes the negative impact of business on society

•         Accountability and transparency in business operation

•         Long-term cost savings

Weakness:

•         Loss in focus on core competencies

•         Higher employee costs

Opportunities:

•         Better image

•         Influence investors’ decision to hold its shares

•         Consumers’ and suppliers’ willingness to buy or sell

•         Potential recruits’ eagerness to join it and existing employees’ motivation to stay

Threats:

•         Loss in business due to cost ineffectiveness

•         Increase in expectations

The best way to succeed in such environment is to strike out a balance between the two approaches and we can use the two approaches:

·        Outward looking , concentrating on expectations of stakeholders

o   Social Contribution

o   Ecological Contribution

·        Inward looking, focusing on internal issues and aligning CSR activities with core competencies

o   Economical Contribution

o   Resource Enhancement

It can be seen that CSR activities result into many long-term and intangible benefits thus a myopic view may see it as unnecessary, but at the same time these investment must be accounted very properly and communicated widely. It is also important to align these with the main corporate strategy rather than keeping it tangential. Then only we will get the desired results.  

Scenario Planning

Scenario planning (sometimes called “scenario and contingency planning”) is a structured way for organizations to think about the future. A group of executives sets out to develop a small number of scenarios - stories about how the future might unfold and how this might affect an issue that confronts them. The issue could be a narrow one like whether to make a particular investment, for example. Should Big Bazaar put millions into more retail stores and their attendant car parks, or should it invest in secure websites and a fleet of vans to make door-to-door deliveries? Or it could be much wider like the government contemplating the impact of demographic change on the need for new schools.

Scenario planning has been used by some of the world’s largest corporations, including Royal Dutch Shell, Motorola, Disney and Accenture.

The process of scenario planning usually begins with a long discussion about how the participants think that big shifts in society, economics, politics and technology might affect a particular issue. From this the group aims to draw up a list of priorities, including things that will have the most impact on the issue under discussion and those whose outcome is the most uncertain. These priorities then form the basis for sketching out rough pictures of the future.

Scenario planning is an effective methodology to be prepared for the future and can be very useful especially for organizations operating in unstable environment.

Like all tools and methodologies Scenario planning has got its cons and must keep in mind the following things while doing scenario planning:

·        Treating scenarios as forecasts

·        Constructing scenarios based on too simplistic parameters like optimistic and pessimistic

·        Failing to understand the global impact

·        Failing to focus on areas which could impact the business

·        Failing to involve top executives with experience in the process

·        Not enough imaginative stimulus

·        Lack of an experienced facilitator

When done properly it does prove out to be an efficient tool for strategy making.

Ecological Model of Competition

There have been many efforts to understand the market and find analogies to come up with new and improved strategies. People have tried their hand with Warfare theories and Art of War, relating with creatures like Dolphins, defining markets as Oceans and many more. Another such attempt is Ecological Model of Competition. It is important to understand market and its forces better to gain a perspective which finally facilitates us devise new and effective strategies.

The ecological model of competition is essentially a reassessment of the nature of competition in the economy. Traditional economics models the economy on the principles of physics (force, equilibrium, inertia, momentum, and linear relationships). This can be seen in the economics lexicon: terms like labor force, market equilibrium, capital flows, and price elasticity. This is probably due to historical coincidence. Classical Newtonian physics was the state of the art in science when Adam Smith was formulating the first principles of economics in the 18th century.

According to the ecological model, it is more appropriate to model the economy on biology (growth, change, death, evolution, survival of the fittest, complex inter-relationships, and non-linear relationships). Businesses operate in a complex environment with interlinked sets of determinants. Companies co-evolve: they influence, and are influenced by, competitors, customers, governments, investors, suppliers, unions, distributors, banks, and others. We should look at this business environment as a business ecosystem that both sustains, and threatens the firm. A company that is not well matched to its environment might not survive. Companies those are able to develop a successful business model and turn a core competency into a sustainable competitive advantage will thrive and grow. Very successful firms may come to dominate their industry (referred to as category killers).

This model can be used for better explanation and better understanding.

Blue Ocean Strategy Vs Red Ocean Strategy

 The thought for writing this post came to my mind after I saw this graph given below and I was astonished to see the difference between two strategies and decided to figure out the reasons.

Profit and growth consequences of Blue Ocean Strategy:

Some of the obvious reasons are that it is always difficult to innovate and easy to copy and adapt (the follower position in Marketing Warfare). Implementing Blue Ocean Strategy requires lot of capital and time to get the desired R.O.I. or an absolutely amazing idea (which is very rare). Such an investment can be made by handful of companies and many of them would not be interested in doing so. In the end it boils down to two things that are required Resources and Motivation to break the status quo.

I am strong believer in one theory of economics that market balances itself and the current ratio is in equilibrium, where some companies are going for niche products while others are following the follower strategy. The competition is increasing at a fast pace and it looks like the share of Blue Ocean Strategies will increase as the demand to innovate is higher than ever now.

The Strategy of the Dolphin: Scoring a Win in a Chaotic World

When Dudley Lynch and Paul L. Kordis published their book “The Strategy of the Dolphin: Scoring a win in a chaotic world”, marketing strategies were more or less warfare based.  They came up with the thought which resonates now everywhere i.e. Business Strategy: Not a zero sum game anymore.

The summary of the book at amazon.com says it all about it and what should the future be like for managers.

You don’t have to be a shark to be a success in business.

“Although you don't think of yourself as a shark in business, you are smart, ambitious, and want to succeed. With the challenge of the Information Age looming large on the horizon, your adaptability to change, your search for the elegant solution to every kind of problem, your desire to work with the system and with others toward a common end, defines and shapes your perspective. You don't need the killer instinct. Your talents, your coping skills, your intelligence will help you succeed in the changing world of tomorrow.

Your dolphin personality -- flexible, responsive, and accepting -- represents precisely the attitude that successful managers must adopt. In Strategy of the Dolphin, the authors, innovative business experts, demonstrate that everyone will need to be a dolphin to survive the changes the future will bring. They speak directly to your needs, to your management style, reminding you that your way is perfect for your temperament and goals.”

Dolphins like to win, but they know that others don't have to lose at their expense. This is what the current market is all about. If we get into a cut-throat competition then may be if you are better; then the competitor may bleed more but certainly you will bleed too. Thus it is better to create a win-win situation where you win more than others.

Marketing Warfare Strategies

In the 1980s, business strategists realized that there was a vast knowledge base stretching back thousands of years that they had barely examined. They turned to military strategy for guidance. Military strategy books like “The Art of War” by Sun Tzu, “On War” by Von Clausewitz, and “The Red Book” by Mao Tse Tung became instant business classics. From Sun Tzu they learned the tactical side of military strategy and specific tactical proscriptions. From Von Clausewitz they learned the dynamic and unpredictable nature of military strategy. From Mao Tse Tung they learned the principles of guerrilla warfare. The main marketing warfare books were:

·         “Business War Games” by Barrie James, 1984

·         “Marketing Warfare” by Al Ries and Jack Trout, 1986

·         “Leadership Secrets of Attila the Hun” by A Weiss, 1987

Various Marketing Strategies are summarized below:

·        Offensive marketing warfare strategies - Attack the target competitor with an objective such as “liberating” some of its market share

·        Defensive marketing warfare strategies - Strategies intended to maintain your market share, profitability, sales revenue, or some other objective.

·        Flanking marketing warfare strategies - Operate in areas of little importance to the competitor.

·        Guerrilla marketing warfare strategies - Attack, retreat, hide, then do it again, and again, until the competitor moves on to other markets.

·        Deterrence Strategies - Deterrence is a battle won in the minds of the enemy. You convince the competitor that it would be prudent to keep out of your markets.

·        Pre-emptive strike - Attack before you are attacked.

·        Frontal Attack - A direct head-on confrontation, attacking the core customers of the competitors.

·        Flanking Attack - Attack the competitor noncore customers.

·        Sequential Strategies - A strategy that consists of a series of sub-strategies that must all be successfully carried out in the right order.

·        Alliance Strategies - The use of alliances and partnerships to build strength and stabilize situations.

·        Position Defense - The erection of fortifications.

·        Mobile defense - Constantly changing positions.

·        Encirclement strategy - Envelop the opponents position and attack him from many directions.

·        Cumulative strategies - A collection of seemingly random operations that, when complete, obtain your objective.

·        Counter-offensive - When you are under attack, launch a counter-offensive at the attacker’s weak point.

·        Strategic withdrawal - Retreat and regroup so you can live to fight another day.

·        Flank positioning - Strengthen your flank, increase your core customer base.

·        Leapfrog strategy - Avoid confrontation by bypassing enemy forces.

Current Affairs #2

Another set of 10 Questions to brush up your knowledge.

1.      Which company will pick up a 65 per cent stake in Vietnam’s Hoan My Medical Corporation (HMC) for Rs 289 crore ($64 million)?

2.      Rohit Nandan has been named the new managing director of which airline in India?

3.      Which is the most searched car brand on Google.co.in between January 2010 and May 2011?

4.      Which MNC has lost its suit in India against Thai group Ashique Chemicals for infringement of its registered trademarks?

5.  Which company has agreed to buy 5.5% stake in Vodafone Essar, one of India’s largest telecom companies, for $640 million?

6.    In response to England cricketer Michael Vaughan’s tweet about VVS Laxman, which MNC has launched a campaign in print and on Facebook for its brand?

7.     “Research In Motion” (RIM) last week launched its latest BlackBerry smart-phone in India. What has it been branded as?

8.  Which FMCG major has appointed popular South Indian actress Trisha as its new brand ambassador for its popular selling fairness cream?

9.   Which mobile phone maker HTC Corporation said that it has bought 51 per cent stake in Beats Electronics for USD 309 million?

10. "This is not advertising. This is life @ ____ _____." Which company is running this campaign (TVC currently on air)?