Preparing for Strategist Interview?

For Strategist prepared by: Anand Mohan Sharma [pg07anand_s@mdi.ac.in]

For those preparing for the Strategist Interview, here is an example of the kind of questions you may be asked.

PS : It's a real business case.

There was a time when no airline would give decent service to City A in US. There were 4 flights in a month from there and charged good money but less services. Plus the flights were notorious to be cancelled in the last min, as pilot decided to bypass City A. Now a guy introduces flights from there and gives quality and gets ladies all dressed in eye catching attire, cost is decent and less than those charged by other players. It went okay for few months until the big players decide to lower the prices to cheap levels in order to wash out the new player.
What is the way out if you are the manager of this new airline? Remember you do not have enough cash, since it isn’t Kingfisher with Vijay Mallya’s backing.

The Goal - Book Review

For Strategist prepared by: Monil Chheda [pg07chheda_a@mdi.ac.in]

The Goal is a well written book by Eliyahu M. Goldratt and Jeff Cox emphasizing on the concept of Strategic Cost Management in a manufacturing firm and the challenges in the life of a manager. It’s a fictional story about the life of a production plant manager struggling to turn around his plant to become profitable again and having problems in his personal life further raising questions on the work-life balance of a manager.

Alex, the plant manager had been appointed to make the plant profitable from its dire strait 6 months ago. He has now been given the ultimatum to show results in 3 months. Alex is worried on how he would perform the task and is not sure of what his exact requirements and goals are. The top management has done little to provide any direction and has only been communicating ‘Fear’ of loss of jobs if profitability is not achieved.
Alex is having problems understanding the problems in the plant and is not able to figure out why the plant is losing money. To his surprise he finds the introduction of new technology (robots) has done little to improve efficiency and productivity in the plant.

Luckily he comes across his old physics professor, Jonah who is now a consultant. He advises Alex to clearly define his goal and get 3 measurements that would help him achieve that goal. Alex identifies the 3 measurements as ROI, Net profits and Cash flow which would in turn help the plant to achieve its ultimate goal of making money. Jonah advices that to enable the plant to make money Alex should be able to balance 3 critical areas simultaneously: reducing inventory, reducing operating expense and increase throughput. Alex does extensive research on the functioning of the plant and takes concrete steps to identify bottlenecks and thereafter maximize the use of the bottlenecks to eventually eliminate them. He communicates his new vision to the plant employees and works in coordination with them to reduce inventory.

In the end, the plant dramatically improves efficiency, increases net profits and also attracts new clients. Alex convinces the managements that implementing the method of Theory Of Constraints is indeed better than the traditional cost accounting method.

This book is a great read for budding managers and it emphasizes the importance of inventory, bottlenecks, communication, etc. It gives a good account of manager’s personal and professional life and the emphasis given to performance and clarity of thought at all times.

Consulting Explained

For Strategist prepared by: Anand Mohan Sharma [pg07anand_s@mdi.ac.in]

The diagram from a Paul Friga (Co-author of The Mckinsey Mind) shows the categorization of the Consulting Services. The different domains of consulting are represented in ovals and the dominant companies in that domain are shown in the rectangles.

Where do you want to build a career in?

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BAS : Business Advisory Services
Source : Paul Friga

Blue Ocean Strategy - Book Review

For Strategist prepared by: Anuj Gupta [pg07anuj_g@mdi.ac.in]

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A Blue Ocean is a market space that is created by identifying an untapped set of customers, then delivering to them a compelling new value proposition. This strategy is a way to make the competition irrelevant by creating a leap in value for both the company and its customers. This is done by modifying what is on offer so as to balance the customer needs and the economic cost of meeting those needs. This is as opposed to a Red Ocean, where the market is well defined and heavily populated by the competition. All parties in these markets are engaged in an intense competitive struggle for the same customers, with different and incremental yet easily comparable, value propositions.

The authors, W. Chan Kim and Renée Mauborgne have made a real contribution to advancing the thinking on business strategy, and they have this with a style which does not even make this book a rather dull strategy book. They offer a set of practical frameworks and models that lucidly explains what appears to be fairly obvious points, but are in reality profound insights and breakthrough contributions.

The Blue Ocean strategy is all about avoiding head-to-head competition. Because established markets in the developed world are saturated, head-to-head competition cannot bring attractive returns. At first read, it is so easy to understand and so intuitively obvious, that one is left wondering why everyone doesn’t adopt this approach. By the end of the book, you are left thinking if anyone is able to adopt this approach on a systematic basis. For to do so requires a broad set of multi-disciplinary skills as well as fresh thinking about even the most mundane and pedestrian options. It requires both discipline and inspiration.

Cover Story - Tobacco Industry Analysis

For Strategist prepared by: Valmik Mirani [pg07valmik_m@mdi.ac.in], Monil Chheda [pg07chheda_a@mdi.ac.in]

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OVERVIEW OF THE INDIAN TOBACCO INDUSTRY

India is one of the major producers of tobacco in the world - ranking third with a production of about 600,000 tonnes, after China (3,000,000 tonnes) and USA (700,000 tonnes). India is the fourth largest consumer of tobacco in the world. Many types of tobaccos are grown in India (not all are used for cigarettes). Of the total production, about 30% is of flue-cured virginia (FCV) and the rest is non-virginia type. The later variety includes bidi, natu, burely, chewing, hookah, cigar and snuff varieties. Tobacco is mainly cultivated in Andhra Pradesh, Gujarat, Karnataka and Uttar Pradesh. Some 5 mn people are engaged in tobacco cultivation while another 26 mn are dependent directly or indirectly on the tobacco industry. A substantial part of government's tax revenues (over Rs 60 bn) is drawn from tobacco. While cigarettes contribute nearly 90% of the revenue on tobacco, bidis and others make up for the balance 10%.
Chewing tobacco has been a tradition in India for centuries. Of the total amount of tobacco produced in the country, around 48% is in the form of chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and chewing tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India's total tobacco production. In the rest of the world, production of cigarettes is 90% of total production of tobacco related products.

Despite being the third largest producer, India is only the ninth largest exporter of tobacco and tobacco products in the world. Out of the total tobacco produced in India, only one-third is flue-cured tobacco suitable for cigarette manufacturing. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country

The per capita consumption of cigarettes in India is merely a tenth of the world average. This unique tobacco consumption pattern is a combination of tradition and more importantly the tax imposed on cigarettes over the last 2 decades. Cigarette smokers pay almost 85% of the total tax revenues generated from tobacco.

MAJOR PLAYERS IN INDIA
In India, three major cigarette players dominate the market, primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the market.

ITC:
ITC Limited (ITC) is one of India's foremost private sector companies. ITC has a diversified presence in cigarettes, hotels, paperboards and specialty papers, packaging, agri-business, branded apparel, packaged foods and confectionery, greeting cards and other products. The company is headquartered in Kolkata, India. For the fiscal year ended March 2006 ITC Limited generated revenues of $2,914 million.

GODFREY PHILIPS INDIA LTD:
Godfrey Phillips India Ltd is one of India’s leading cigarette manufacturers. The company’s brands include Red and White, Four Square, Jaisalmer, Cavanders, Tipper and Prince. One of Godfrey Phillips major stakeholders is Philip Morris. It is headquartered in Delhi, India. In the fiscal year ended March 2006, Godfrey Phillips reported sales (net of excise) of $169 million, a 22% increase on the previous fiscal year.

VAZIR SULTAN TOBACCO COMPANY:
Vazir Sultan Tobacco Company is more commonly known as VST Industries and has collaboration with the BAT Group UK. The company manufactures and distributes cigarettes under the brands names of Charms, Charminar, and Gold. The company is headquartered in Hyderabad, India .

MARKET OVERVIEW & GOVERNMENTREGULATIONS
The Indian tobacco market generated total revenues of $9.9 billion in 2007, this representing a compound annual growth rate (CAGR) of 6.6% for the five-year period spanning 2003-2007.

The cigarette industry is expected to grow at a modest rate only of around 1 to 2% or less as a result of the government policies, growing public awareness against the product and the ever increasing tax levies. India's per capita consumption of tobacco is less than half of the global average of 0.8 kg to 1.8 kg (incidentally, China's is around 2.62 kg). The number of tobacco smokers in India is placed at 250 mn. Cigarettes, although an urban phenomenon, have steadily penetrated into the rural areas.
The Indian excise tariff on cigarettes is higher than the rates prevailing in other countries. High excise duties have resulted in the expansion of the cheaper non-cigarette tobacco segment. The government has made legislative interventions to curtail the use of tobacco products. It has prohibited sale of tobacco products within a distance of 100 metres of schools, educational institutions, hospitals and medical institutions and smoking in public places. It has also banned all forms of tobacco advertising and insists on statutory warning on all packages of tobacco products, as being injurious to health in a manner which makes it prominent and effective.

Organized cigarette sales in the country are declining but the tobacco consumption is rising. Cigarette sales in the organized sector declined by 4% between 1996-97 and 2001-02. Lately it is growing at around 1.5% to 2% a year. But contraband trade in cigarettes is said to be rising at a substantially high rate. Contraband's entry into the market is routed through Nepal and Bangladesh. Mumbai alone accounts for nearly half of all contraband cigarettes into the country.

MARKET VOLUME
The Indian tobacco market grew by 1.1% in 2006 to reach a volume of 99.1 billion sticks. The compound annual growth rate of the market volume in the period 2002-2006 was 2.6%.

Source: Datamonitor

MARKET SHARE
ITC is the leading companies in the Indian tobacco market, holding a 72% share of the market's volume. Godfrey Philips accounts for a further 12% of the market's volume.
Source: Datamonitor

References
Datamonitor
www.whoindia.org