Diversification CaseStudyofWiproBajaj

8/2/2019 Diversification CaseStudyofWiproBajaj

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Diversification

Cases of Wipro & Bajaj


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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


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Why diversification

Identify When and Make moves to enter newbusinesses

Initiate actions to boost combined performanceof

businesses Find ways to capture synergyamong related business

units

Establish investment priorities, steering resources intomost attractive business units


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When to Diversify?

When it makes sense to diversifydepends on

Growth potentialin present business

Attractiveness of opportunities totransferexisting competenciestonew businesses

Potential cost-saving opportunitiestobe realized by entering related businesses

Availabilityof adequate financial and organizationalresources

Managerial expertiseto cope with complexity ofoperating a multi-business enterprise


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What Is Related Diversification?

Involves diversifying into businesses whose value chainspossess

competitively valuable strategic fitswith the value chain(s) of

the present business(es)

Capturing the strategic fitsmakes related diversification better

phenomenon to increase shareholder value


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Common Approaches to Related Diversification

Sharing of sales force, advertising, ordistribution activities

Exploiting closely related technologies

Transferring know-how and expertisefrom one business to another

Transferring brand name andreputation to a new product/service

Acquiring new businesses to uniquelyhelp firms position in existingbusinesses


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Involves diversifying into businesses with

Nostrategic fit

Approach is to venture into any businessin which we think we can make a profit

Firms pursuing unrelated diversificationare often referred to as conglomerates

What Is Unrelated Diversification?


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Appeal of Unrelated Diversification

Business risk scattered over different industries

Capital resources can be directed to thoseindustries offering best profit prospects

Stability of profits -- Hard times in one industrymay be offset by good times in another industry

If bargain-priced firms with big profit potential are

bought, shareholder wealth can be enhanced


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Case study

Wipro Ltd(Unrelated Diversification)


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Wipro Ltd

The Company was Incorporated on 29th December1945, at Mumbai.

The Company Manufacture vegetable ghee, vanaspati,refined oils including salad oil, soap, waxs and tincontainers for packing, crushing and oil milling trading inoils and oilseeds and manufacture of fluid powerproducts.

The Products trade names were "Kisan", "Sunflower"

and "Camel


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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 Wipros first diversification in1975, to address the hydraulic equipment requirementsof mobile original equipment manufacturers in India


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A Product Comparison

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


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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 rate26%),PAT(cagr rate 25%)

All the companies under one name-WIPRO Ltd


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Wipro consumer products( WIPRO LTD)

Government policy of 9% advantage to a a new entrantin a 4%margin business

Tax evasion is rampant in the case of unorganizedplayer

Decline in margin of vanaspati operation Entered into toilet soap market through bubbleand

Wipro shikakai(1985)

Followed by santoor when Mysore Sales International

was facing a mgmt.trobule(1986) Baby soft range(J &Jcompetitors-highly priced)-1990

Santoor talcum powder and Wipro Baby Soft TalcumPowder introduced(1993)


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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 andmarketing of Sun workstation Tie up with Seiko-Epson of Japan for manufacture of dotmatrix

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 ofcellular network


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1945Wipro incorporated

1967No diversification

1994Unrelated diversification2002Related diversification


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External environment @1994

WIPRO Vs unorganized player in consumer product

Change in Govts economic policies &resulting large scale entry of

MNC

Intense competitive environment totally different from past

support needed for each of its business with financial andmanagerial investment


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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


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Organisational structure(1994)

Azim premjichairman

Wiproonsumer prd.

1947

Wipro fluidPower1975

WiproInfotech

1981

WiproSystems

1983

WiproFinancialServices

1992

WiproBiomed

1989

WiproLightening

1991

wiproGE1990

P.S.PaiPresident

M.S.RaoPresident

Ashok SootaVice Chairman

Ashok SootaVice Chairman

VInod WahiChief Executive

VIvek PaulPresident

Varun Nijhawanpresident

S.R.GopalanChief Executive

Group Companies

products

Hydraulicsystems

Comps,Commu.IT sol.

SoftwareDev.&

services

MedicalAnalyticalInstrument

GEMedicalSystems

Lamps&

Luminaries

CorporateFinancialservices

Edible oilssoaps,

toiletries


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Balancing the portfolio

Each business define its key result objective

Right balance between financial joint venture and thosewithout financial partnership

Joint venture partner only when products where productsuccess dependent on technological edge

Related diversification rather than unrelateddiversification-homogeneous portfolio


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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


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Wipro @2002

First software company to get SEI Level 5 & also implemented SixSigma 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, ServiceImplementation and Customer Relationship Management

Wipro Ltd has acquired a 45 per cent stake in the Internet serviceprovider Wipro Net Ltd, from Dutch telecommunications operatorKPN Telecom at Rs 108.8 crore

Wipro Net has entering into a strategic tie up with the US-basedSpeedera Networks Inc.


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A Comparison

Wipro in 1967

Cooking fat

Soap

Wax

Tin container forpacking

Trading I n oil

Trading inoilseed

Wipro in 1994

Vanaspati

Toilet soaps

Toiletries

Hydraulic cylinders Computer hardware

Computer software

Lightening

Financial servics Medical systems

Diagnostic systems

Leather exports

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 Processoutsourcing

Internet service provider

Healthserices

Enterprise Solution

Six Sigma Consulting


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milestones

1980: Diversification into Information Technology1990: 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 defined1998: 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 specificquality standards

2001: World's first PCMM Level 5 company

2001: Ranked 87 among 100 best performing technology companies globally (Business Week,June 2001)

2002: Worlds 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)


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Case study

Bajaj Group of Companies(Unrelated Diversification)


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Policies

They approach their responsibilities withambition and resourcefulness.

They organizes themselves for a transparentand harmonious flow of work.

They respect sound theory and encouragecreative experimentation.

And they make their workplace a source ofpride.


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SWOT Analysis:

Strength:

Technical expertise, in collaboration with KawasakiHeavy 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 theentire spectrum from motorcycles to scooters to step-thrus & scooterettes


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Weaknesses:

In the late seventies there was skid in production dueto intermittent labour problems.

Underutilization of capacity

Not considered living with times


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Opportunities:

Launching of new products and variants of existingmodels 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-IIcompliant

Focusing more on motorcycles to capture the urbanmarket.


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Threats:

Hero Honda's switch start automatic transmission100cc 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

Diversification CaseStudyofWiproBajaj

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