Diversification
Cases of Wipro & Bajaj
Scope of presentation
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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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Identify When and Make moves to enter new
businesses
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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
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When to Diversify?
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When it makes sense to diversify depends 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
What Is Related Diversification?
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Involves diversifying into businesses whose value chains possess
competitively valuable “strategic fits” with the value chain(s) of
the present business(es)
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Capturing the “strategic fits” makes related diversification better
phenomenon to increase shareholder value
Common Approaches to Related Diversification
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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
What Is Unrelated Diversification?
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Involves diversifying into businesses with
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No strategic fit
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Approach is to venture into “any business
in which we think we can make a profit”
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Firms pursuing unrelated diversification
are often referred to as conglomerates
Appeal of Unrelated Diversification
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Business risk scattered over different industries
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Capital resources can be directed to those
industries offering best profit prospects
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Stability of profits -- Hard times in one industry
may be offset by good times in another industry
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If bargain-priced firms with big profit potential are
bought, shareholder wealth can be enhanced
Diversification and Shareholder Value
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RELATED DIVERSIFICATION
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A strategy-driven approach to creating shareholder value
UNRELATED DIVERSIFICATION
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A finance-driven approach to creating shareholder value
Case study
Wipro Ltd
(Unrelated Diversification)
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
Wipro @ 1967
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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 in
1975, to address the hydraulic equipment requirements
of mobile original equipment manufacturers in India
A Product Comparison
• Wipro in 1967
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Cooking fat
Soap
Wax
Tin container for packing
Trading I n oil
Trading in oilseed
• Wipro in 1994
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Vanaspati
Toilet soaps
Toiletries
Hydraulic cylinders
Computer hardware
Computer software
Lightening
Financial servics
Medical systems
Diagnostic systems
Leather exports
Wipro @ 1994
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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
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)
Wipro InfoTech(WIPRO LTD )
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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
1945
Wipro incorporated
2002
Related diversification
1967
No diversification
1994
Unrelated diversification
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
A new approach for balanced future
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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
Organisational structure(1994)
Azim premji
chairman
Group Companies
Wipro
Consumer prd.
1947
Wipro fluid
Power
1975
P.S.Pai
President
M.S.Rao
President
Wipro
Infotech
1981
Wipro
Systems
1983
Wipro
Biomed
1989
Ashok Soota
Ashok Soota
VInod Wahi
Vice Chairman Vice Chairman Chief Executive
wiproGE
1990
VIvek Paul
President
Wipro
Lightening
1991
Wipro
Financial
Services
1992
Varun Nijhawan S.R.Gopalan
president
Chief Executive
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
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
Balancing the growth
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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
Balancing management
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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
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.
A Comparison
• Wipro in 1967
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Cooking fat
Soap
Wax
Tin container for
packing
– Trading I n oil
– Trading in
oilseed
• Wipro in 1994
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Vanaspati
Toilet soaps
Toiletries
Hydraulic cylinders
Computer hardware
Computer software
Lightening
Financial servics
Medical systems
Diagnostic systems
Leather exports
• Wipro in 2002
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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
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
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
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)
level 5
specific
Case study
Bajaj Group of Companies
(Unrelated Diversification)
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:
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Bajaj Auto Ltd.
2&3 wheelers
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Maharashtra Scooters
2 wheelers
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Bajaj Auto Finance Ltd.
Finance company
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Mukand Ltd.
Steel
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Bajaj Hindustan Ltd.
alcohol
Sugar, Industrial
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Bajaj Electrical Ltd.
Fans
Magnetos, Lamps,
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.
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 stepthrus & scooterettes
Weaknesses:
• In the late seventies there was skid in production due
to intermittent labour problems.
• Underutilization of capacity
• Not considered living with times
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.
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 twowheelers