Letter G

Game Theory: Game theory is a branch of applied mathematics that is useful in analyzing situations where players choose different actions in an attempt to maximize their returns. First developed as a tool for understanding economic behavior, game theory is now used in many diverse fields, ranging from biology and psychology to sociology and philosophy. Game theory is relevant in strategy formulation in that it studies decisions under circumstances where various players interact. In other words, game theory studies choice of optimal behavior when costs and benefits of each option are not fixed, but depend upon the choices exercised exercised by other individuals. Porter’s Competitive Strategy seems to draw heavily from game theory.
(See Competitive Strategy, Oligopoly)

Garbage In, Garbage Out: The quality of inputs into any process determines the quality of output. If incorrect data is entered for processing, the output will be garbled. Similarly, if incompetent people are recruited, the organization will under-perform.

Generic Strategy: A term associated with Michael Porter. A company must be committed to one of three generic strategies in order to compete effectively in the market place:

• Cost Leadership: Here the firm lays great emphasis on improving cost competitiveness. Cost leadership is facilitated by efficient-scale facilities, tight overhead control, careful selection of customers and standardization of activities. Gujarat Ambuja has pursued this strategy in the Indian cement industry. Maruti has done this in the Indian car industry. The largest retail chain in the world, Wal-Mart is also a cost leader. So is Dell in the PC industry.
• Differentiation: A business strategy, which attaches more importance to providing value to customers in a unique way, which competitors cannot easily imitate. Different methods can be employed to achieve differentiation: design or brand image, technology, features, and customer service. In the process of differentiation, the firm cannot afford to ignore costs. But cost cutting is not the primary focus here. The emphasis is on creating unique value and charging a premium for it. A good example is Mercedes Benz.
• Focus: A means of gaining competitive advantage by concentrating on one particular aspect of a product / service / market / geographic region that is important to a particular type of customer. In this way, a firm can be more effective than the other players in that chosen segment.
(See Cost Leadership, Differentiation, Focus, Competitive Strategy)

Ghoshal, Sumantra: One of the most well known management gurus of our times, Ghoshal (1948 - March 2004) graduated from Delhi University and worked for Indian Oil Corporation, rising through the management ranks before moving to the United States on a Fulbright Fellowship in 1981. There, he produced simultaneously two Ph.D. dissertations at the MIT Sloan School of Management and then at Harvard Business School. He joined INSEAD Business School at France and later London Business School. His book Managing Across Borders: The Transnational Solution, coauthored with Christopher Bartlett has been listed as one of the most influential management books ever written and has been translated into nine languages. Ghoshal’s extensive research for the book led to the conclusion that global companies need to combine three capabilities – global standardization to cut costs, local customization where necessary to suit the needs of national markets and knowledge sharing across business units. Ghoshal is also well known for his Purpose-Process-People doctrine. Instead of concentrating on Strategy, Structure and Systems, top management must articulate a purpose, redefine management processes and show a high degree of commitment to the development of people.
(See Purpose-Process-Principle Doctrine)

Global Corporations: An organization with a global network of subsidiaries across the world. When used in the strict sense of the term, a global company is one which emphasizes uniform products and policies across the world. It does not take into account the need to customize its products and services to suit the needs of specific markets. In contrast, a multinational corporation (MNC) lays great emphasis on being sensitive and responsive to differences in national environments around the world. An MNC is organized as a portfolio of several national entities. Operations in different countries are managed on a stand-alone basis, without any serious attempts to integrate them. The Dutch multinational, Philips till recently, followed this model. Unilever is another good example. The problem in MNCs is that due to weak global integration, the firm may lose valuable opportunities for cutting costs, improving efficiency and leveraging organizational knowledge. According to Ghoshal & Bartlett, today’s business environment demands both global standardization and local customization, giving rise to a new breed of MNCs, called the Transnational corporation. Such a company strikes the right balance by standardizing those activities where scale and efficiency are important and customizing where responsiveness to customer needs is the priority.
(See Globalization)

Global Industry: It is an industry in which strategic moves in one country have to be made after taking into account the global implications. Typically, these are industries where there are significant economies of scale and the need for local customization is minimal. In a global industry, the strategic positions of competitors in major markets are fundamentally affected by their overall global positions. In such an industry, firms have to coordinate their activities worldwide to emerge as global leaders. (See Global Value Chain Configuration, Multi Domestic Industry)

Global Leverage: It is the advantage, a global corporation is able to realize due to scale efficiencies, co-ordination and integration of worldwide operations and the ability to transfer good ideas and best practices across the world. For example, a global corporation can defend itself against an attack by a competitor in its home country with a counter attack in the competitor's home country. A global company can also leverage its world wide pool of talent and capabilities. Global leverage results when cost and strategic advantages are combined.
(See Comparative Advantage, Strategic Advantage)

Global Value Chain Configuration: Firms can be in business only if the activities they perform, add value for their customers. If they can add value efficiently and effectively and charge a price which is more than the total cost of the activities, they can make a profit. The value chain, a concept developed by Michael Porter, is a useful tool for analyzing the value adding activities of a company. While the value chain is important for all companies, in the case of global companies, a highly sophisticated and well-coordinated approach to value chain management becomes critical. This is because global companies must carefully locate different activities in different countries to optimize the effectiveness of the value chain as a whole.

Global value chain configuration increases competitive leverage by helping a company access global resources and capabilities. In a multi domestic company, each subsidiary’s competitive position is determined locally. On the other hand, global companies, by taking an integrated view of their worldwide activities, are better equipped not only to cut costs but also to generate value. At the same time, managing a network of activities spread across the world, poses major challenges.
(See Comparative Advantage, Global Leverage, Process Networks, Strategic Advantage, Value Chain)

Globalization: A very commonly used term, globalization can mean different things to different people. At a broad level, globalization refers to the growing economic interdependence among countries, reflected in the increasing cross border flow of goods, services, capital and technical know how. The booming Business Process Outsourcing (BPO) business in India is a reflection of this trend. At the level of a specific company, it refers to the degree to which competitive position is determined by the ability to leverage physical and intangible resources and market opportunities across countries.

There are a number of factors driving globalization. More and more countries across the world are embracing free market philosophy and dismantling trade barriers. Better and cost effective ways of communication are making the world a smaller place. Due to the heavy R&D costs involved in developing new products, the pressure is increasing on companies to look for global markets to quickly recoup their investments. Satellite television is playing an important role in creating global markets by promoting uniform tastes among customers across the world.

Globalisation has created major opportunities for poor countries. In the past, poor countries remained poor and rich countries remained rich for generations. Now societies can develop skills and wealth in a much shorter time. In less than 40 years, Singapore has gone from developing country to developed country status. Taiwan and South Korea are also good examples. Globalization has leveled the playing ground for smaller companies. What matters in the global economy is not simply size; it is other intangible factors such as nimbleness, reputation and the ability to innovate.

At the same time, the more global we become, the more tribal is our behavior. John Naisbitt, author of Global Paradox, has argued that the more we become economically interdependent, the more we become possessive about our core basic identity. Fearing globalization and, by implication, the imposition of a western (predominantly American) culture, many countries have become paranoid about preserving their distinctiveness and identity.

This book is more concerned with how companies globalize. Typically, the process of globalization of companies evolves through distinct stages.

In the first stage, companies normally tend to focus on their domestic markets. They develop and strengthen their capabilities in some core areas.

In the second stage, companies begin to look at overseas markets more seriously but the orientation remains predominantly domestic. The various options a company has in this stage are exports, setting up warehouses abroad and establishing assembly lines in major markets. The company gets a better understanding of overseas markets at low risk, but without committing large amounts of resources.

In the third stage, the commitment to overseas markets increases. The company begins to take into account the differences across various markets to customize its products suitably. Different strategies are formed for different markets to maximize customer responsiveness. The company may set up overseas R&D centers and full-fledged country or region specific manufacturing facilities. This phase can be referred to as the multinational or multi-domestic phase. The different subsidiaries largely remain independent of each other and there is little coordination among the different units in the system.

In the final stage, the transnational corporation emerges. Here, the company takes into account both similarities and differences across different markets. Some activities are standardized across the globe while others are customized to suit the needs of individual markets. The firm attempts to combine global efficiencies, local responsiveness and sharing of knowledge across different subsidiaries. A seamless network of subsidiaries across the world emerges. It is very difficult to make out where the home country or headquarters is.
(See Comparative Advantage, Global Leverage, Strategic Advantage)

Goals: Goals represent desired future states of organizations. Goals should not be confused with objectives. Since goals represent the end state, they are more long term oriented. Objectives represent the building blocks of the goal and are more short term oriented.
(See Long Term Objectives)

Golden Handcuffs: Retaining good employees has become one of the major concerns of any organization. Golden handcuffs refer to deferred compensation, incentives and attractive retirement plans to boost employee loyalty and motivation levels especially in senior level positions. A good example is employee stock options.
(See Golden Hello, Golden Key)

Golden Handshake: It refers to a large cash sum, part of which may be tax free, paid to employees who are forced to leave before the end of a service contract. It is a method to reduce the number of employees in the organization and consequently cut salary expenses.

Golden Hello: A payment made to a senior executive as an incentive to join a company. This payment is meant to compensate for the benefits forgone by leaving the previous employer and for the additional risks, the executive is taking.

Golden Key: The key, which unlocks golden handcuffs, in order to pay off people not thought to be worth keeping.
(See Golden Handcuffs)

Golden Parachute: A provision that enables senior managers to exit from the company with handsome separation packages in case of events such as a hostile takeover.

Govindarajan, Vijay: Well known for his pioneering book, “Strategic Cost Management” coauthored with John K Shank. Govindarajan has also done pioneering work in the areas of learning, innovation and globalization. His most recent book, “Ten Rules for Strategic Innovators — from Idea to Execution” co-authored with Chris Trimble in 2005, provides a blue print for business innovation.
(See Strategic Cost Management, Strategic Innovation)