Big Bazaar

Srinivas Gunta
Assistant Professor
Strategic Management
 Discussion Questions

1. What prescriptions from the article by Khanna &

Palepu, if any, are being followed by Big Bazaar?
How?
2. Given the case facts on how Big Bazaar manages its
supply chain and the front end of retailing, contrast
its operating model with the Western retailing
models.
3. How does Big Bazaar manage multiple formats?
Are there any synergies evident across the
formats?
Srinivas Gunta PGP 2011-12 Strategic Management II
 Strange Choices

Food Bazaar: % of sales as rents

Multiple formats: 99 stores
Big Bazaar: 9k, 94k, 44.66k, 43.5k, 40k, 21.01k, 21
Pantaloons: 9k, 50k, 23.1k, 20.5k, 20k, 10.81k, 16
Food Bazaar: 5k, 94k, 14.84k, 10k, 10k, 18.04k, 35
Supply chain strategies
Private brands?
Modern supply chain?
Brand promotion strategies
Pantaloons Femina Miss India
Na Tum Jaano Na Hum (2002)
Srinivas Gunta PGP 2011-12 Strategic Management II
 Is Big Bazaar the Indian Wal-Mart?

450
25000
400
350 20000
300
15000
250
200
10000
150
100 5000
50
0
0
Pantaloon Retail India HUL ITC
Walmart P&G
Ltd
Revenues Net Profit
Revenues Net Profit

2011 ($ Billion) 2011 (Rs. Crores)

Srinivas Gunta PGP 2011-12 Strategic Management II

 How is Big Bazaar performing?
ROE: (Net Profit/Equity) =
(Profit margin)*(Asset turnover)*(Equity multiplier)
= (Net Profit/Sales)*(Sales/Assets)*(Assets/Equity)
Operating efficiency (measured by profit margin)
Asset use efficiency (measured by asset turnover)
Financial leverage (measured by equity multiplier)
Big Bazaar 2001 2002 2003 2004 2005
Net Sales 41.55 65.65 102.36 151.48 249.43
Net Profit 1.47 1.62 2.63 4.55 8.87
Assets 24.33 38.11 49.74 77.55 119.83
Equity 8.30 12.43 15.57 21.83 50.97
NPM 3.54 2.47 2.57 3.00 3.56
Asset turnover 1.71 1.72 2.06 1.95 2.08
Equity Multiplier 2.93 3.07 3.19 3.55 2.35
RoE 17.71 13.03 16.89 20.84 17.40
Srinivas Gunta PGP 2011-12 Strategic Management II
 How did the PRIL group grow?

What is driving the growth?

Advantage
Opportunity
Ambition
How do you grow through franchisees?
Financial or Operating controls?
How do you vet potential franchisees?
Rules of thumb aka Heuristics
Srinivas Gunta PGP 2011-12 Strategic Management II
 Section E Surprise Quiz No. 2

Roll number:__
1. Khanna & Palepu suggest three ways in which
Emerging Giants can compete with competitors
from developed countries. Of these strategies,
what, if any, did Tatas follow in the Jaguar Land
Rover acquisitions? Justify. (8 marks)
2. List three ways in which Big Bazaar mimicked
traditional retail in India. (6 marks)
3. Should Big Bazaar invest in a modern supply
chain? Justify. (6 marks)
Srinivas Gunta PGP 2011-12 Strategic Management II
 Joona do, Naya lo: Economics & Beyond

Raddiwala values old merchandise at 100/-

He gives a 100/- coupon to the consumer for raddi
Big Bazaar gives extra 100/- coupon to consumer
To use the 200/- coupons, consumer spends 800/-
Typical gross margin on 800/- sale = 200/- (25%)
Promo expense on obtaining 200/- = 100/-

Implications?
Mimic traditional retail, build customer trust etc.
Srinivas Gunta PGP 2011-12 Strategic Management II
 Mimicking traditional retail

Touch & assess quality like loose

Recycle joona do, naya lo
Organized overcrowding
Maid servant to memsahib
Bagging fruits/ vegetables
Traditional back-end logistics
Wide variety
Staff support a la Kirana shop expert
Merchandise return privileges
Srinivas Gunta PGP 2011-12 Strategic Management II
 Big Bazaar & a modern supply chain?

Yes
Emphasis on margins and/ or Harmonizing
different state level structures

No
Margins and time taken to set-up

Yes & No
Margins

Srinivas Gunta PGP 2011-12 Strategic Management II

 Khanna & Palepu: Emerging Giants

Exploit understanding of product markets

Geographically proximate developing markets
Low-cost opportunities in advanced markets

Build on familiarity with resource markets

Treat institutional voids as opportunities
What do Tata Groups forays tell you?

Srinivas Gunta PGP 2011-12 Strategic Management II

 Business Groups
Characterized as comprising legally independent firms
operating in multiple and often unrelated industries,
Definition business groups are bound together by persistent
formal ties such as equity and informal ties such as
family (cf. Khanna & Yafeh, 2007:331)

Dominant position in the competitive landscape of

virtually all emerging markets (Granovetter, 1995; Khanna &
Yafeh, 2007; Yiu et al., 2007)
Increasing
Group affiliation a significant predictor of firm
Relevance
performance (Khanna & Rivkin, 2001)

Rise of the new global challengers (Aguiar et al., 2006)

Srinivas Gunta PGP 2011-12 Strategic Management II Joint Research with Manikandan, IIMB
 Business Groups The Puzzle
Institutional voids perspective - Business
groups are a response to institutional
failures in emerging markets (Khanna &
Palepu, 1997; 2000)
lagged development of market
Chilean and Indian business groups intermediaries
expanded their scope, increased Khanna & Palepu (1999)
intermediation, and improved
performance vis--vis non-group firms,
even as the institutional environment in
these countries continued to improve
(Khanna & Palepu, 1999)

However,
Reform process in Chile has been for a longer time and more
extensive than in India

So, can there be an alternate explanation?

Srinivas Gunta PGP 2011-12 Strategic Management II Joint Research with Manikandan, IIMB
 Beyond institutional voids
Institutional voids An efficiency argument
Large diversified business groups have the scope and scale to justify the
fixed costs needed to create the internal structures and processes for
performing the intermediating function (Khanna & Palepu, 2000:888)

In addition to being efficient, are business groups effective too?

Would that explain their continued presence and growth?

We proffer such a complementary view an absorptive capacity (in short, ACAP)

perspective of business groups by focusing on effectiveness of business group
affiliation in engaging with opportunities, right from their recognition to exploitation
Organizations with higher levels of absorptive capacity will tend to be more proactive,
exploiting opportunities present in the environment.. (Cohen & Levinthal, 1990:137)

Srinivas Gunta PGP 2011-12 Strategic Management II Joint Research with Manikandan, IIMB
 ACAP..beyond institutional voids
Absorptive Capacity (ACAP) a firms ability to identify, acquire, assimilate and
exploit new external knowledge to commercial ends (Cohen & Levinthal, 1990)

Antecedents of ACAP Business Group Affiliated firms

Diversity of knowledge base (Cohen & Normally operate in diverse industries
Levinthal, 1990) (cf. Khanna & Yafeh, 2007)

Complementarity of Knowledge Base Have similar organizational structures,

(Cohen & Levinthal, 1990; Zahra & George, strategic outlook and share a common
2002; Van den Bosch et al., 2003) culture and shared language (cf. Leff, 1978)

Prima facie, business group affiliation appears to positively influence ACAP

Srinivas Gunta PGP 2011-12 Strategic Management II Joint Research with Manikandan, IIMB
Tools for Strategy Implementation

Srinivas Gunta
Assistant Professor
Strategic Management
 McKinseys 7-S Framework
S

S S Objective
Checklist?
S Necessary?
Sufficient?
S S

Srinivas Gunta PGP 2011-12 Strategic Management II

 McKinseys 7-S Framework
Structure
Hard Ss
Strategy Systems Strategy
Structure
Shared Values Systems
Soft Ss
Skills Style Style
Staff
Staff
Skills
Shared values
Srinivas Gunta PGP 2011-12 Strategic Management II
 Balanced Scorecard: Prescriptive Tool?

Srinivas Gunta PGP 2011-12 Strategic Management II

 Balanced Scorecard: Drill down

Srinivas Gunta PGP 2011-12 Strategic Management II

 Balanced Scorecard & Strategy

Srinivas Gunta PGP 2011-12 Strategic Management II

 Balanced Scorecard : Diagnostic Tool

How does it help?

Measurement issues
Mind maps
Double-loop
learning

Srinivas Gunta PGP 2011-12 Strategic Management II

 Balanced Scorecard: Energizing Tool?

Need to create events as organizations grow

episodically
Why bring in 7-S framework?
Move closer towards Strategy?

Srinivas Gunta PGP 2011-12 Strategic Management II

 Balanced Scorecard

Prescriptive tool
Diagnostic tool
Energizing tool

Srinivas Gunta PGP 2011-12 Strategic Management II

Strategic Review at Egon Zehnder International

Srinivas Gunta
Assistant Professor
Strategic Management
 Discussion questions

1. Are professional service firms different from other

commercial firms with respect to strategy
formulation? How?
2. How is EZI different from its competitors? (You may
want to focus on philosophy, compensation and
employee turnover among other things).
3. Was the strategic review at EZI a good idea? What
do you think contributed to the initial hesitation
and opposition to the idea of the review? What
were the implications of the review?
Srinivas Gunta PGP 2011-12 Strategic Management II
 How is EZI different?

Philosophy
Clients first; Firm second; Professionals third
Probity: Clients off-limit for 3 yrs.; Employees off-limit
Fixed fee approach
One-firm: Firm to not have outsiders on board
1978 restructuring: Egon Zehnder takes equal equity stake
Lockstep system of compensation
Organic growth & We dont buy Rolodexes.
Attractive environment and life-long careers
High entry barriers but No up-or-out

How easy is it to be EZI?

Srinivas Gunta PGP 2011-12 Strategic Management II
 Recasting Exhibit 3
Russell US Russell
Non-US
Reynolds Heidrick
Heidrick Reynolds
15% &
& 15%
Struggles
EZI Struggles
23%
7% 33%
EZI
25%
Spencer
Korn/Ferr
Stuart Korn/Ferr Spencer y
19% y Stuart 20%
26% 17%

Heidrick
Russell
Asia Pacific & Russell
Reynold South America
Heidrick
& Russell Europe Heidrick
Struggle Reynold &
Reynold s Struggle
s s Struggle
s 7% s
18% EZI 15% s
20% 20%
22% 24%
EZI
EZI 27%
22% Korn/Fe
Spencer rry Spencer Korn/Fe Spencer Korn/Fe
Stuart 26% Stuart rry Stuart rry
14% 17% 34% 16%
18%

Srinivas Gunta PGP 2011-12 Strategic Management II

 Why Strategic Review?

Meiland, Chairman & CEO: Strategy is not relevant

to Professional Service Firms.
What factors indicate the need for strategic review?
US Market
IPOs
Internet: Does IT matter?
Zehnders retirement
Generation gap: Attrition increasing steadily since 1995
Why the resistance?
Timeless principles vs. Daily practices; Do you buy it?
Srinivas Gunta PGP 2011-12 Strategic Management II
 Implications of Strategic Review?
What do you make of the process?
Top-down or Bottom-up
Focus: Internal or External?
A feel-good exercise?
An outlet for younger people to ask questions
Deeply introspective very small changes intensely
comforting
Any substantial and substantive changes at all?
To invest in US and grow organically
Practice vs. Geography
Better measurement and to continue Lockstep
KM to increase productivity; Internet as a complement
Srinivas Gunta PGP 2011-12 Strategic Management II
 Post-recession impact of Strategic Review?

Did the Strategic Review help?

How?
What are implications of appraisal system?
Impact on One-firm?
Implications of not closing offices?
Opening a new office becomes that much more
difficult

Srinivas Gunta PGP 2011-12 Strategic Management II

 How will EZI do?

Through his experience of two downturns -

the Asian crisis and the 2002 dotcom bust -
Brien has noted that there is a shift in his
business from external recruitment to
assessment of internal talent in uncertain
times. Source: http://www.businessworld.in/index.php/Interviews/Value-Based-Leadership.html last accessed Feb 2011

Implications?

Srinivas Gunta PGP 2011-12 Strategic Management II

Mahindra & Mahindra : Creating Scorpio

Source: rjstyles, http://www.flickr.com/photos/rjstyles69/4423727963, via Wikimedia Commons

Srinivas Gunta
Assistant Professor
Strategic Management
 Discussion questions

1. How did the product development process

for Scorpio in M & M differ from that of its
global peers?
2. What appears to be the strategy of M & M
for the global automotive industry? How
does its Product Development strategy
contribute to its global strategy?

Srinivas Gunta PGP 2011-12 Strategic Management II

 Conventional Process of NPD

New Product Development aka NPD

Idea generation: Fuzzy Front-end
Idea Screening
Concept Development and Testing
Business Analysis
Beta Testing and Market Testing
Technical Implementation
Commercialization (often considered post-NPD)
New Product Pricing
Concurrent engineering/ Time to market used to
reduce/ eliminate steps
Srinivas Gunta PGP 2011-12 Strategic Management II
 Strategies for NPD: Stage-gate model

Stages
Stage 0: Discovery
Stage 1: Scoping
Stage 2: Build Business Case
Stage 3: Development
Stage 4: Testing & Validation
Stage 5: Launch
Gates: Deliverables/ Criteria/ Outputs
Go/ Kill/ Hold/ Recycle
Srinivas Gunta PGP 2011-12 Strategic Management II
 Supplementary strategies for NPD

Lean Manufacturing
Six Sigma
Quality Function Deployment: Matching Voice of
Customer to the Voice of Engineer by
exercising control through usage of statistical
techniques (aka Voice of Process).
FMEA: Failure Mode and Effects Analysis
Platform engineering
Standardized product

Srinivas Gunta PGP 2011-12 Strategic Management II

 Section B Surprise Quiz No. 2
Name:________
Roll number:___
1. Justify which of Khanna & Palepus prescriptions is
driving the global strategy of Scorpio. (6 marks)
2. If Scorpio had to go for a new plant, demonstrate the
overall cost advantage it would have had in % terms
vis--vis a global automaker. The latter too is going for
a new plant but on an existing platform. (9 marks)
3. Indicas 2004 local sales are phenomenal. How would
you characterize Geelys 2003 sales? (5 marks)
Srinivas Gunta PGP 2011-12 Strategic Management II
 Section F Surprise Quiz No. 2
Name:________
Roll number:___
1. Who are Tier 1 suppliers? Identify 3 ways in which
they helped Scorpio; Justify. (7 marks)
2. Analytically demonstrate the cost advantage that
Scorpio had in % terms over Fords Chennai plant.
(8 marks)
3. Mahindras international strategy is close to that of
which auto major(s)? Justify. (5 marks)

Srinivas Gunta PGP 2011-12 Strategic Management II

 M&M: Building competence

1995-99: Ford Escort

2000: Launching Bolero
~7800 units in the first year
~13000 units in 2004
Scorpio
1997: Idea genesis
1998: Clay impressions/ Idea refinement
2002 August: Scorpio launched
35000 vehicles sold in 18 months
Srinivas Gunta PGP 2011-12 Strategic Management II
 M&M: Building competence?

Scorpio took close to 6 years

In US, it takes 2 to 3 years
In Japan, it takes 12 to 18 months
Ok, it is more a cost story
Where did they save? (Exhibit 6)
Who would you attribute the cost savings to?
Ok, it is more an organizational story
120 people, 19 cross-functional sub-teams
Entire team reporting to one person
Srinivas Gunta PGP 2011-12 Strategic Management II
 M&M: Building competence?

Company steers away from the conventional

Testing: Law of diminishing returns
Specifies temperature drop than no. of air vents
Ok, it is an inter-organizational story
Koreas Samlip for suspension business
Koreas Wooshin for body shop
USs Lear Corp for total interior work
Lumax works with Korean rather than Japanese
suppliers

Srinivas Gunta PGP 2011-12 Strategic Management II

 M&M: Building competence?

Ok, it is a good marketing story

Bolero: Break Free
Brand identity prism mapped (Exhibit 7)
Scorpio from Mahindra
And they hugely underestimated demand
Well, their strategy is to go global
1600 vehicles in 2004 (181 were Scorpio)
16000 vehicles in 2008 (break-up unavailable)

Srinivas Gunta PGP 2011-12 Strategic Management II

 Scorpio: Kuala Lumpur, Malaysia

http://commons.wikimedia.org/wiki/File:Mahindra_Scorpio_(first_generation)_(front),_Kuala_Lumpur.jpg & http://commons.wikimedia.org/wiki/File:Mahindra_Scorpio_(first_generation)_(rear),_Kuala_Lumpur.jpg

Srinivas Gunta PGP 2011-12 Strategic Management II

 Why go global?

Indian market is booming

2 lakh cars in 1993
10 lakh cars in 2003-04
20 lakh cars in 2009-10; 25 lakh cars in 2010-11
Maruti sells 115,000+ vehicles in January 2012
What about M&M?
Utility vehicles ~ 15% of the market
M&M has over 50% market share
Sells ~20,000 passenger vehicles in January 2012
Srinivas Gunta PGP 2011-12 Strategic Management II
 Scorpio Pik Up: Santiago, Chile

Srinivas Gunta PGP 2011-12 Strategic Management II

 What are they up to?

W-201
High-end
How?: Look at their margins
What did Scorpio achieve?
Confidence in the organization
Car/ utility vehicle distinction removed
Niche player like Suzuki/ Rover +

Srinivas Gunta PGP 2011-12 Strategic Management II

 Prices & Sales break-up
Prices
Bolero ~ 6.8 lakh rupees
Scorpio: 7.5 lakh 12 lakh rupees
Xylo: 7.3 lakh 9.3 lakh rupees
XUV 500: 11.4 lakh 13.4 lakh rupees
Verito (erstwhile Logan): 5 lakh 6.7 lakh rupees
Sales break-up in January 2011 & January 2012
Logan/ Verito: 1120; 1529
Xylo: 2733; 1863
Scorpio: 4304; 4309
Bolero: 8463; 9338
XUV 500: 0; 2286
Total exports: 2117 units including 404 Logans; 3348
Srinivas Gunta PGP 2011-12 Strategic Management II
 Thank You!!

Srinivas Gunta PGP 2011-12 Strategic Management II