Growth through disruptive Innovation

• Key Idea - The phenomenon, by virtue of which a new organization comes up with a value
proposition which alters the rules of the game for industry is disruptive innovation.
• Growth Strategies-
• Route1: developing new market altogether
• Used when people find utility in a product but the ability to own it has been constrained.
• So taking into consideration active needs and the constraints of target customer new product can be
launched – make sure there is no alternative for fast assimilation
• Route2: Introducing new rules of games in existing market
1. To analyze if product is offering more features than customer wants
2. Increasing feature and corresponding price will give segmentation
a. customer stick to existing consumption – feature are not more than existing
b. Customer cease consumption – neither interested in new feature nor price – simple new product with basic
features can be offered
• Building disruptive innovation capability
• Route1: In-house capability Development
• Need to think out of box and different from traditional thought process of organization
• Route2: Capability development through alliance
• To achieve growth fast you can use inorganic ways as below after some proper analysis of the firm you are
going to 1. Collaborate or 2. Acquire. If error is made in assessment it will cost organization heavily.
• Route3: special purpose vehicle
• For organization aligned with needs of big business it would be difficult to start disruptive project due to
internal dynamics in such case it is advisable to give such project organizational status.
 Growth through disruptive Innovation
• Sustaining Vs Disruptive Tradeoff
• Sustaining innovation receives greater marginal attention than disruptive.
• Organization must ensure it allocates separate funds for both
• Disruptive innovation follows different trajectory so it should not be ignored but
handled differently than sustaining
• Should not be only judge on year on year financials
• Illustration –
• Apple iPod/iTunes - emerging market with uncertainty – element of route 3 -
bundling iTunes with iPod
• Nintendo’s Wii – considering active need and target customer constraint –
element of route 1- realizing huge market for non gamers
• Tata Nano – developing new market- element of route1 – car which is perceived
as utility which might have constraint with respect to owning it
 Growth through Mergers and Acquisitions
• Key concept-
• Merger- 2 relatively equal organization coming together to form single organization-
• Seller-buyer merger-vertical merger
• Competitor come together – horizontal merger – greater market share – control over value chain
• Conglomerate merger -
• Acquisition- taking ownership of other organization
• Friendly Acquisition vs Hostile takeover
• If acquiring organization takeover the target with prior consent - friendly
• Take over target when deal is refused, by means of purchasing equity of target from shareholder- hostile
• In case of hostile acquisition everything would be jeopardized if the attrition of key human resource takes place. So it is
better in such case to try for friendly route
• Friendly Acquisition- mantra
Ability to manage acquisition deal to achieve the intended purpose is rare
• Gate1- Keeping the Radar vigilant
• Disciplined screening process will help to streamline screening of all potential targets
• The deal should have overall fit with the strategy of acquirer
• Gate2 – Getting priorities straight
• Calculating fair value is difficult at initial sense so it is better to align strategic sense
• Understand merits of potential deal to further investment
• Chalk out non negotiable attributes essential for deal to work out as expected - In case of mismatch call off
deal
• Negotiation related to positions of top management of target should be also negotiated in such a way that
both sides sees it as beneficial
 Growth through Mergers and Acquisitions
• Friendly Acquisition- mantra
• Gate 3 –Pre negotiation
• Cross checking of the claims and perception of target before final negotiation
• Develop a sense whether the values, systems and processes of target are suitable for integration
• Also known as stage of due diligence
• Gate 4 – Striking the deal
• Detailed and granular deal details are worked out
• Difference of opinion are ironed out to the satisfaction of both
• To spread the work in multiple team
• Finding similar alternatives to target – increases bargaining power also keep in mind that acquisition of proposed
target might face competition. Should not let their guard down
• Gate5 - Deal closure and Integration
• Ensure that it is able to convince all its stakeholder about the merits
• Need to ensure integration of acquired organization
• Modes of Deal Payment
• At elemental level payment can take place either in cash or stock but in practice many hybrid option
are possible
Cash Stock
• Shareholder of the acquired org cede ownership, acquirer • Shareholder of the acquired organization are paid share of
takes loss and the brunt is borne by shareholder acquiring organization for surrender of target shares
• While ownership of acquiring remains unaltered and are at • It takes place at predetermined exchange ratio, known as
advantage swap ratio
• . Acquiring organization should have liquidity • Ownership is diluted of existing shareholders
 Growth through Mergers and Acquisitions
• Illustrations:
• PepsiCo acquisition Quaker oats
• ‘Pre negotiation’ and ‘striking deal’ part was done meatculously over long period which
helped in smooth transition in acquiring process for both organization without any loss
• Also ‘getting priorities straight’ was given much importance like 1. getting paid in stock 2. not
ready to overpay
• HP- Compaq merger-
• Was somewhat of failure because it didn’t adhere to set guidelines
• Merger thin was approved by 51.4 % majority which most of key member came to know at
later stage
• Also both organization operated in certain incompatible business (like Hp offered high end
computer while Compaq was offering low margin PC.)
• Conclusion-
• M & A are somewhat similar entities with subtle differences varying from legal
aspects, financial structures and strategic view point
• It can be done in multiple ways as explained before
• Cash is preferred when risk is low and vice-versa.
• Payment in stock dilutes the ownership of owner