Letter B

Backward Integration: Moving along the value chain towards the inputs side. By producing internally some or all of the inputs, the firm can benefit in various ways. The firm can avoid sharing proprietary data with its suppliers. This can be an important factor if the exact specifications of the component parts may reveal the key characteristics of the final product's design to the supplier. Backward integration may result in inputs with closely controlled specifications, enabling the firm to improve quality and differentiate its product. If the inputs are critical, backward integration helps the firm to gain greater control of the value chain and to mitigate the high bargaining power of suppliers. Some good examples of backward integration are India’s largest aluminium manufacturer Hindalco setting up a power plant, Reliance moving into petroleum refining and Tata Steel setting up its own township in Jamshedpur and mines and collieries in various parts of Orissa and Bihar.
(See Vertical Integration)

Balanced Scorecard: Designed by Robert Kaplan and David Norton, the Balanced Scorecard provides a comprehensive set of objectives and performance measures to monitor a company’s progress. These include:
• Financial performance (revenues, earnings, return on capital, cash flow);
• Customer value performance (market share, customer satisfaction, customer loyalty);
• Internal business process performance (productivity, quality, delivery, etc)
• Learning and Growth (Percent of revenue from new products, employee suggestions, rate of improvement, employee morale, knowledge, turnover, use of best demonstrated practices).

The challenge in implementing the balanced scorecard lies in identifying the key metrics and measuring them on an ongoing basis so that the firm can systematically achieve its objectives. Too many metrics can make things complicated. So a few key metrics must be carefully chosen.
(See Alignment)

Bargaining Power of Buyers : One of the forces in Porter’s Five Forces Model. The higher the bargaining power of buyers, less attractive the industry. The bargaining power of buyers is high under the following circumstances:

• Few buyers who purchase in large quantities.
• Low switching costs, resulting in low loyalty.
• Many relatively small sellers
• The item being purchased is not an important one for buyers, and they can take it or leave it.
• Buyers have a lot of information about competitive offers, which they can use for bargaining.
• There is a good possibility that buyers may decide to integrate backwards, i.e make the product rather than buy it.
(See Five Forces Model)

Bargaining Power of Suppliers : One of the forces in Porter’s Five Forces Model. Higher the bargaining power of suppliers, the less attractive the industry. Bargaining power of suppliers tends to be high under the following circumstances:

• The purchase is important to the buyer.
• Buyers face high switching costs.
• There are few alternative sources of supply
• Any particular buyer is not an important customer of the supplier
• There is a strong possibility that the supplier may integrate forward.
(See Five Forces Model)

Barnard, Chester: One of the first management thinkers to think differently from the then gurus, Frederick Taylor and Max Weber. Barnard spent the whole of his career as a business executive with the Bell Telephone Company. He wrote two influential books, The Functions of the Executive (1938) and Organization and Management (1948). Barnard emphasized the importance of communication and shared values in organizations.

Barnard excelled at organization-building skills. His tenure as CEO was marked by a sense of public service and personal integrity that are almost unimaginable to many today. He showed exemplary commitment to corporate welfare policies. For example, in 1933, at the height of the Depression, Barnard announced a no-layoff policy choosing to reduce employees’ working hours instead.
Management authority, he realized, rested in its ability to persuade, rather than to command. The challenge was to balance the inherent tension between the needs of individual employees and the goals of an organization. He also recognized that much of the creative potential of an organization lay in informal networks, not in the formal hierarchy. He understood the role of constructive conflict.

Barnard viewed the organization as a complex social system. The main challenge for management was achieving cooperation among the groups and individuals to facilitate the achievement of organizational goals, i.e. resolving the tension between achieving organizational goals and the need for individuals to achieve personal goals. Organizational goals could not be accomplished unless the leadership of the organization acknowledged individual aspirations and devised a means of helping employees achieve them.

For Barnard, conventional incentive schemes were essentially, a self-fulfilling prophecy. Much before Maslow, Barnard argued that beyond a certain level of equitable compensation, employees would not necessarily be motivated by financial incentives. Bonuses and incentives only created a culture of greed.

Barnard argued that management had to focus on the “strategic” few that would offer “the greatest leverage over the outcomes of a particular decision”. He suggested that deciding what decisions not to make was as important as which decisions to make. “The fine art of executive decision consists in not deciding questions that are not now pertinent, in not deciding prematurely, in not making decisions that cannot be made effective, and in not making decisions that others should make.” Here, Barnard seemed to be in agreement with Peter Drucker.

Barriers to Entry: One of the five forces in Porter’s Famous Five Forces model. Barriers to entry are the obstacles that a firm must overcome to enter an industry. When high entry barriers exist in an industry, competition is usually less intense and profitability tends to be high. On the other hand, when entry barriers are low, new firms can enter the industry. While demand may not go up immediately, they bring additional capacity along and reduce the overall level of profitability in the industry. The barriers to entry can be tangible or intangible. Tangible barriers include capital, and various kinds of physical assets like plant and machinery and infrastructure. Tangible barriers are easier to replicate than intangible barriers, like brands, corporate reputation, customer loyalty and relationships with vendors/distribution channels.

Barriers to entry may be high under the following circumstances:

Economies of Scale: If there are major cost advantages to be gained from operating on a large scale or scope then new entrants will not find it easy.

Learning Curve: If low unit costs can be achieved by accumulated learning, inexperienced new entrants will be at a unit cost disadvantage.

Knowledge & Skills: Access to process knowledge and particular skills can make entry difficult.

Customer Brand Loyalty: Customers may have preferred brands, or they may have strong relationships with their existing suppliers. New entrants have to persuade customers that it is worth incurring switching costs and move to the product of a new entrant.

Capital costs: High capital costs involved in setting up production facilities, R&D centers, dealer networks and brand building will limit the number of potential entrants.

Distribution Channels: It is often difficult for a new player to break into an existing distribution network. If all major distribution outlets are already closed to the new entrants, they may have to make heavy investments in setting up their own direct distribution network.

High Switching Costs: High switching costs for customers constitute a barrier to entry.

Government Policy: Government may restrict licenses, issue exclusive franchises or establish regulations that are troublesome and costly to implement.

Access to low-cost inputs: This may act as a barrier to entry if potential entrants do not have such access to inputs which competitors enjoy.

(See Barriers to Imitation, Five Forces Model)

Barriers to Imitation: With innovations rapidly diffusing, the key to success in today’s business environment is creating barriers to imitation. In general, tangible assets are easier to replicate, compared to intangible resources. Thus brands create formidable barriers to imitation but large factories can be easily replicated. Similarly, when a way of working is built into the company’s culture, imitation becomes difficult. For example, just-in-time, in which Toyota is a master is less about techniques and more about corporate philosophy and culture. That is why companies have found it difficult to implement Just-in-Time even though so much has been written about it and Toyota allows managers from all over the world to visit its factories.
(See Barriers to Entry, Five Forces Model)

Bartlett, Christopher A: Famous for his work on globalization and strategic management. Bartlett is the author/coauthor of several books, including Managing Across Borders and Individualized Corporation both coauthored with Sumantra Ghoshal. Managing Across Borders is considered one of the best ever books written on business management and possibly the most authoritative book on globalization. The book has been translated into several languages.
(See Sumantra Ghoshal, Globalization)

BCG Growth-Share Matrix: The Boston Consulting Group (BCG) has developed a matrix to help companies analyze their product lines and businesses. The 2x2 matrix considers two factors, market growth rate and the company's market share, as indicated below.

High Low
High
Stars Question Marks
Low Cash Cows Dogs
Market Growth

Accordingly, the BCG matrix divides products/businesses into four categories:
• Stars: These high growth products in a fast growing market, need more resource commitments. For a company like Satyam Computer Services, the ERP implementation business is a star.
• Cash Cows: These are low growth, high market share products, where minimal investments are envisaged. Indeed, cash cows provide the cash flows that support other businesses. The soaps and detergents business is a cash cow for Hindustan Lever Ltd.
• Question Marks: These are low market share business units in high growth markets. Investment is needed to build them into stars. The foods division of HLL falls in this category as also the games business of Microsoft, and the retailing venture of Reliance. The long term profitability of these businesses is by no means certain.
• Dogs: These are low growth and low market share businesses which generate just enough cash to maintain themselves. They are businesses from which the company is likely to withdraw in the near future. IBM thought the PC business was a dog and sold it to the Chinese computer manufacturer, Lenovo.

Businesses evolve over time. According to the conventional product life cycle, question marks may turn into stars, and become cash cows if the market growth falls, finally becoming dogs towards the end of the cycle. It is, however, not necessary that businesses must evolve in this fashion. A star may turn into a dog overnight if a disruptive technology emerges in an industry. That is what happened to mini computers when PCs arrived. On the other hand, a cash cow can be converted into a star by brand repositioning or by targeting a new customer segment. In India, Cadbury’s has attempted to reposition its chocolates as products that can also be consumed by adults.
(See GE 9 Cell Planning Grid)

Beachhead Market: A market similar to a targeted strategic market but which provides a low risk learning opportunity. For example, Austria/ Switzerland can be considered beachhead markets for companies planning to enter Germany. Singapore is a beach head market for the Asian region.
(See Globalization)

Benchmarking: A process by which a company compares itself with another company, in the same or different industry on how well it is faring on various parameters. Benchmarking helps companies in setting stretch targets, improving the way of functioning and avoiding complacency. (See Best Practices)

Best Practices: The most effective way to carry out a business activity or process. The term 'best' is highly subjective, is context dependent and also seems to imply that no further improvements are possible. Many people now prefer the term good practice. Best practices are often contextual. So transferring them across organizations may not be as easy as it often looks. Sometimes even within an organization, transfer of a best practice across departments/ functions can be a challenge. When best practices are embedded in an organization’s culture, replication in another organization becomes very difficult.
(See Benchmarking, Barriers to Imitation)

Big Hairy Audacious Goals (BHAGS): A term coined by James C Collins and Jerry I Porras in their well known book “Built To Last”. Visionary Companies set Big Hairy Audacious Goals (BHAGS) that raise the bar and inspire people across all levels.
Examples of BHAGS include:
• Boeing’s decision to commit to a Boeing 707 or 747
• Walt Disney’s decision to create Disneyland
• Henry Ford’s declaration, “We will democratize the automobile”
• Dhirubhai Ambani’s ambition of constructing the world’s largest petroleum refinery.

A BHAG should be consistent with the company’s core ideology. It should be so clear and compelling that it must require little or no explanation. It must get people excited and pumped up. A BHAG should fall well outside the comfort zone. While it is important for people in the organization to believe they can pull it off, it should require tremendous effort. A BHAG should be so bold and compelling in its own right that even if the organization’s leaders disappeared, it would continue to inspire progress.
(See Core Ideology, Corporate Purpose)

Blue Ocean Strategy: Most companies focus on beating the competition. But according to W Chan Kim and Renee Mauborgne, two of the most respected scholars today in the area of strategy, the best way to beat the competition is to stop trying to beat the competition.

Markets can be divided into red oceans and blue oceans. Red oceans represent the known or existing market space. Blue oceans denote the non existent or unknown market space. In red oceans, industry boundaries are defined and accepted, and the basis for competing is known. Here, companies try to grab market share from each other. As competition intensifies, both profitability and growth decline and products become commodities. Blue oceans, in contrast, represent untapped markets, in which the rules of the game are still not defined. There are highly profitable growth opportunities.

Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. Identification of blue oceans cannot be done by looking at the past. About 100 years back, many of today's industries, automobiles, music recording, aviation, petrochemicals, health care, and management consulting were unheard of or had just begun to emerge. Only 30 years back, industries like mutual funds, cell phones, gas-fired electricity plants, biotechnology, discount retail, express package delivery, minivans, snowboards, coffee bars, and home videos, did not exist in a meaningful way.

Blue ocean strategy is the result of a new mindset that moves the attention of companies away from competitors to alternatives and from customers to non-customers. It involves changing the rules of the game through the careful examination of factors that:
• can be eliminated.
• should be reduced well below the industry's standard.
• should be raised well above the industry's standard.
• should be created.

In most industries, a common definition tends to emerge of who the target buyers are and what value they are looking for. Some industries compete principally on functionality. Other industries compete largely on emotional appeal.

But what is often overlooked is that the appeal of most products or services is rarely intrinsic. Through the way they have competed in the past, companies unconsciously shape buyers' expectations. Over time, functionally oriented industries may become more functionally oriented while emotionally oriented industries may become even more emotionally oriented. In the process, aspirations of customers may be ignored.

When companies are willing to challenge the conventional wisdom, they often find new market space. In emotionally oriented industries, removing frills may create a fundamentally simpler, lower-priced, lower-cost business model that customers would welcome. Conversely, functionally oriented industries can often infuse commodity products with new life by adding a dose of emotion.

Swatch transformed the functionally driven budget watch industry into an emotionally driven fashion statement. The Body Shop did the reverse, transforming the emotionally driven cosmetics business into a functional, no-nonsense one.
(See Chan Kim, Renee Mauborgne, Value Innovation)

Bottom-of-the-pyramid: A term coined by the well known guru, C K Prahalad . Till recently, marketers ignored the people in the lower income groups, because of their low per capita purchasing power. The current thinking is that people at the Bottom-of-the-pyramid comprise a huge market with distinctive characteristics. By understanding these characteristics and tailoring the marketing mix suitably, companies have major opportunities to exploit this market. The Bottom-of-the-pyramid is driven by factors like affordability, access and availability.

Affordability. The key to success at the bottom of the pyramid is affordability without sacrificing acceptable levels of quality.

Access. Distribution patterns for products and services must take into account where the poor live as well as their work patterns. Distribution networks must penetrate deeply into small towns and villages. Most BOP consumers work the full day before they have enough cash to purchase the necessities for that day. Stores that close at 5:00 PM have no relevance to them, as their shopping begins after 7:00 PM. Further, BOP consumers cannot travel great distances. Stores must be easy to reach, often within a short walk. This calls for effective penetration of the distribution network.

Availability. Often, BOP consumers make their purchase decision, based on the cash they have on hand at a given point in time. They tend to buy for immediate consumption. Availability is a critical factor in serving BOP consumers.

Brainstorming: A useful technique for generating new ideas when confronting an unfamiliar situation or a problem. A group activity in which members are encouraged to speak freely, say the first answer that strikes them about how to solve a problem, no matter how weird or absurd. Having obtained as many ideas as possible, the group then examines each one in more detail to determine the feasibility of implementation.

Brand Management: For companies across industries today, brands are becoming increasingly important in the quest to gain competitive advantage. Brands symbolize trust, reputation and quality. Brands are intangible assets that are not easy to imitate. The high valuation of many of the successful companies today is on account of the brands they own. Brand management must be considered an integral part of corporate strategy and not just the marketing function. No wonder, most CEOs get personally involved in branding related matters.

Breakeven Analysis: Companies incur two kinds of costs, fixed costs which are incurred, independent of the level of production and variable costs which vary with the level of output. The breakeven point is the level of output at which the firm makes just enough profit to cover its overheads. The difference between price and variable cost is called contribution. In the short run, a firm may operate below the breakeven point just to recover part of the overheads. But in the long run, the firm must operate above the breakeven point and fully recover its overheads, to justify its existence.

Bureaucracy: Bureaucracy refers to the administrative execution and enforcement of rules. A bureaucratic organization is characterized by standardized procedure, formal division of responsibility, hierarchy, and impersonal relationships. Examples of everyday bureaucracies include governments, armed forces and courts. Bureaucracies enforce order and discipline, especially while handling routine matters. But beyond a point they can also frustrate employees. A key task of managers in knowledge-based-organizations is to eliminate bureaucracy.
Business Ethics: Business ethics is a form of applied ethics that is concerned with the various moral or ethical problems that can arise in a business setting; and any special duties or obligations that apply to persons who are engaged in business. Ethics is a normative discipline, which involves making specific judgments about what is right or wrong, about what ought to be done or what ought not to be done. In some situations, if not all, what is right depends on the context. Many companies have a code of ethics that helps employees understand what actions are acceptable and what are not. (See Code of Ethics)
Business Forecasting: Business forecasting is an integral part of strategic planning. Various types of forecasts are used by companies depending on the situation:

Economic Forecasts are published by governmental agencies and private economic forecasting firms. A business can use these forecasts as a starting point.

Financial Forecasts include forecasts of financial variables such as the amount of external financing needed, earnings and cash flows.

Sales Forecasts project future sales for the company's goods or services for a certain period.

Technological Forecasts estimate the rate of technological progress.

Qualitative forecasting approaches are based on judgment and opinion. These include Expert opinions, Delphi and Consumer surveys. Quantitative approaches either crunch historical data (time series analyses) or associative data (causal forecasts). Time series methods include Moving averages, Exponential smoothing and Trend analysis. Causal forecasts include Simple regression, Multiple regression and Econometric modeling. Quantitative models work well in a relatively stable environment. In a highly volatile business environment, the qualitative approach based on human intuition and judgment is more useful than number crunching.

The choice of a specific forecasting technique will depend on various factors like:

• the cost of developing the forecasting model,
• the relationships being forecasted,
• time horizon,
• degree of accuracy desired
• data availability

Business Model: The way a company runs its business. A company’s business model must address three issues. Who are the customers? What are they looking for? How do we deliver the products or services needed by customers better than how competitors can? These questions may look simple. But it is the ability to address these questions well that determines the effectiveness of a business model. Business model design implies making major trade offs, deciding which customer segments not to serve, which activities not to do in-house, what kind of risks to avoid and so on. Business model innovation, which goes far beyond process or product innovation, is essentially about changing the rules of the game.
(See Process Innovation, Product Innovation, Value Chain)

Business Process Reengineering (BPR): BPR involves the radical redesign of core business processes to achieve dramatic improvements in productivity, cycle times, and quality. In BPR, companies start from scratch and redesign existing processes, to increase efficiency and to deliver more value to the customer, often by reducing organizational layers and eliminating unproductive activities. Functional organizations are transformed into cross-functional teams with a strong process orientation. Information technology (IT) is used to improve data dissemination and decision-making. BPR must be completed before a major IT intervention. Otherwise, the existing inefficiencies will get amplified.
(See Process Innovation)

Business Risk: Refers to the degree of uncertainty associated with a firm’s sales volume and price realization. This risk is core to the business. Market characteristics and the firm’s business model together determine business risk. Business risk is not easy to quantify. Yet, companies should try to go beyond qualitative statements and arrive at some numbers wherever possible.
(See Enterprise Risk Management)

Buy Back: When a firm has more capital than it needs, it may buy back shares from the market. Buy backs are often viewed positively by the market because they signal that the company is prepared to return cash to shareholders instead of frittering it away on unproductive investments or meaningless diversification. Companies may also resort to buy backs when the management feels the market is undervaluing the shares in relation to the intrinsic value.