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Diversification

Diversification. Cases of Wipro & Bajaj. Scope of presentation. Why diversification When to Diversify Selecting the industry: Related Diversification Strategies Unrelated Diversification Strategies Case study-Wipro Ltd Case Study-Bajaj ltd. Why diversification.

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Diversification

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  1. Diversification Cases of Wipro & Bajaj

  2. Scope of presentation • Why diversification • When to Diversify • Selecting the industry: • Related Diversification Strategies • Unrelated Diversification Strategies • Case study-Wipro Ltd • Case Study-Bajaj ltd

  3. Why diversification • Identify When and Make moves to enter new businesses • Initiate actions to boost combined performance of businesses • Find ways to capture synergy among related business units • Establish investment priorities, steering resources into most attractive business units

  4. When to Diversify? • When it makes sense to diversifydepends on • Growth potential in present business • Attractiveness of opportunities to transfer existing competencies to new businesses • Potential cost-saving opportunities to be realized by entering related businesses • Availability of adequate financial and organizational resources • Managerial expertise to cope with complexity of operating a multi-business enterprise

  5. What Is Related Diversification? • Involves diversifying into businesses whose value chains possess competitively valuable “strategic fits” with the value chain(s) of the present business(es) • Capturing the “strategic fits” makes related diversification better phenomenon to increase shareholder value

  6. Common Approaches to Related Diversification • Sharing of sales force, advertising, or distribution activities • Exploiting closely related technologies • Transferring know-how and expertise from one business to another • Transferring brand name and reputation to a new product/service • Acquiring new businesses to uniquely help firm’s position in existing businesses

  7. What Is Unrelated Diversification? • Involves diversifying into businesses with • Nostrategic fit • Approach is to venture into “any business in which we think we can make a profit” • Firms pursuing unrelated diversification are often referred to as conglomerates

  8. Appeal of Unrelated Diversification • Business risk scattered over different industries • Capital resources can be directed to those industries offering best profit prospects • Stability of profits -- Hard times in one industry may be offset by good times in another industry • If bargain-priced firms with big profit potential are bought, shareholder wealth can be enhanced

  9. Diversification and Shareholder Value • RELATED DIVERSIFICATION • A strategy-drivenapproach to creating shareholder value • UNRELATED DIVERSIFICATION • A finance-drivenapproach to creating shareholder value

  10. Case studyWipro Ltd(Unrelated Diversification)

  11. Wipro Ltd • The Company was Incorporated on 29th December 1945, at Mumbai. • The Company Manufacture vegetable ghee, vanaspati, refined oils including salad oil, soap, waxs and tin containers for packing, crushing and oil milling trading in oils and oilseeds and manufacture of fluid power products. • The Products trade names were "Kisan", "Sunflower" and "Camel

  12. Wipro @ 1967 • Azim premji took over the control of Wipro • 70 million cooking and baking fats Company • Called Western India Vegetable product Limited • Wipro Fluid Power was Wipro’s first diversification in1975, to address the hydraulic equipment requirements of mobile original equipment manufacturers in India

  13. Wipro in 1967 Cooking fat Soap Wax Tin container for packing Trading I n oil Trading in oilseed Wipro in 1994 Vanaspati Toilet soaps Toiletries Hydraulic cylinders Computer hardware Computer software Lightening Financial servics Medical systems Diagnostic systems Leather exports A Product Comparison

  14. Wipro @ 1994 • Called WIPRO Limited • 7.24 billion diversified Wipro Limited • One of the top 100 publicly held companies in India • Market leader in traditional cooking fats business, • No:2 in information technology and medical system • Over the preceding ten years,sales(Cagr rate 26%),PAT(cagr rate 25%) • All the companies under one name-WIPRO Ltd

  15. Wipro consumer products( WIPRO LTD) • Government policy of 9% advantage to a a new entrant in a 4%margin business • Tax evasion is rampant in the case of unorganized player • Decline in margin of vanaspati operation • Entered into toilet soap market through “bubble”and Wipro shikakai(1985) • Followed by santoor when Mysore Sales International was facing a mgmt.trobule(1986) • Baby soft range(J &J –competitors-highly priced)-1990 • Santoor talcum powder and Wipro Baby Soft Talcum Powder introduced(1993)

  16. Wipro InfoTech(WIPRO LTD ) • Absence of any computer industry(exit of IBM)in 1977 • Develop its own minicomputers • Unveiled the Wipro Series 86 in 1981 • Importing PC in knocked down form and marketing them under Genius Range of PC(1982) • 1988,alliance with Sun Microsystems,USA for manufacture and marketing of Sun workstation • Tie up with Seiko-Epson of Japan for manufacture of dot –matrix printer(1993) • End of 1993, strategic alliance with apple to market Macintosh range of computers • 1994-tie up with Nokia for installation,service and maintenance of cellular network

  17. 1967 No diversification 1945 Wipro incorporated 1994 Unrelated diversification 2002 Related diversification

  18. External environment @1994 • WIPRO Vs unorganized player in consumer product • Change in Govt’s economic policies &resulting large scale entry of MNC • Intense competitive environment totally different from past • support needed for each of its business with financial and managerial investment

  19. A new approach for balanced future • Revising the company's basic management approach • Split into eight separate “mini companies” • each with its own separate “equity’ • International tie-up in business where partner brought technology • Access to global market

  20. Organisational structure(1994) products Edible oils soaps, toiletries Hydraulic systems Comps, Commu. IT sol. Software Dev.& services Medical Analytical Instrument GE Medical Systems Lamps & Luminaries Corporate Financial services

  21. Balancing the portfolio • Each business define its key result objective • Right balance between financial joint venture and those without financial partnership • Joint venture partner only when products where product success dependent on technological edge • Related diversification rather than unrelated diversification-homogeneous portfolio

  22. Balancing the growth • Ten year vision-to be among the top ten industrial group in India • Related diversification • More importance on profit after tax and cash flow • Setting up high targets

  23. Balancing management • Values are common though the eight companies are different • Greater integration between the companies • Independent operation except financial assistance • Balanced compensation of employees in different organisation

  24. Wipro @2002 • First software company to get SEI Level 5 & also implemented Six Sigma TQM practices • Appointment of T K Kurien as President of Wipro Health Science • Sales gone up to 34,667 crore with a net profit of 8,661crore • ISO 9002 certification for Network Management, Service Implementation and Customer Relationship Management • Wipro Ltd has acquired a 45 per cent stake in the Internet service provider Wipro Net Ltd, from Dutch telecommunications operator KPN Telecom at Rs 108.8 crore • Wipro Net has entering into a strategic tie up with the US-based Speedera Networks Inc.

  25. Wipro in 1967 Cooking fat Soap Wax Tin container for packing Trading I n oil Trading in oilseed Wipro in 1994 Vanaspati Toilet soaps Toiletries Hydraulic cylinders Computer hardware Computer software Lightening Financial servics Medical systems Diagnostic systems Leather exports A Comparison • Wipro in 2002 • Vanaspati • Toilet soaps • Toiletries • Hydraulic cylinders • Computer hardware • Computer software • Lightening • Financial servics • Medical systems • Diagnostic systems • Leather exports • Software Consulting • Business Process outsourcing • Internet service provider • Healthserices • Enterprise Solution • Six Sigma Consulting

  26. milestones 1980: Diversification into Information Technology 1990: Incorporation of Wipro-GE medical systems 1992: Going global with global IT services division 1993: Business innovation award for offshore development 1995: Wipro gets ISO 9001 quality certification, re-certified twice for mature processes 1997: Wipro gets SEI CMM level 3 certification, enterprise wide processes defined 1998: Wipro first software services company in the world to get SEI CMM level 5 1999: Wipro's market capitalization is the highest in India 2000: Start of the Six Sigma initiative, defects prevention practices initiated at project level 2001: First Indian company to achieve the "TL9000 certification" for industry specific quality standards 2001: World's first PCMM Level 5 company 2001: Ranked 87 among 100 best performing technology companies globally (Business Week, June 2001) 2002: World’s first CMMi ver 1.1 Level 5 company 2002: Ranked the 7th software services company in the world by Business Week (InfoTech 100, November 2002)

  27. Case studyBajaj Group of Companies (Unrelated Diversification)

  28. Bajaj group of Companies • Bajaj Auto is the flagship of the Bajaj Group of Companies. The Group comprises of 26 companies and was founded in the year 1926. The important listed companies in the group are: • Bajaj Auto Ltd. 2&3 wheelers • Maharashtra Scooters 2 wheelers • Bajaj Auto Finance Ltd. Finance company • Mukand Ltd. Steel • Bajaj Hindustan Ltd. Sugar, Industrial alcohol • Bajaj Electrical Ltd. Magnetos, Lamps, Fans

  29. Policies • They approach their responsibilities with ambition and resourcefulness. • They organizes themselves for a transparent and harmonious flow of work. • They respect sound theory and encourage creative experimentation. • And they make their workplace a source of pride.

  30. SWOT Analysis: Strength: • Technical expertise, in collaboration with Kawasaki Heavy Industries, Japan. • Self reliance • Worlds lowest cost manufactures in the market • Extensive service and dealer networks • Higher labour productivity and greater automation • Global-scale production • Lined up a range of 17 twowheelers covering the entire spectrum from motorcycles to scooters to step-thrus & scooterettes

  31. Weaknesses: • In the late seventies there was skid in production due to intermittent labour problems. • Underutilization of capacity • Not considered living with times

  32. Opportunities: • Launching of new products and variants of existing models backed up by appropriate marketing efforts. • Fuel efficiency which is much higher than competitors • Virtual zero maintenance among the products • Bajaj plans to offer CNG models with euro-II compliant • Focusing more on motorcycles to capture the urban market.

  33. Threats: • Hero Honda's switch start automatic transmission 100cc scooter • Competition from MNC's • Government regulations • Dealers not adjusted with changing realities • Change in tastes of consumers • Increase of secondary or resale market for two-wheelers

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