Diversification

Cases of Wipro & Bajaj

 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
 Why diversification

• Identify When and Make moves to enter new

businesses
• 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
 When to Diversify?

• 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?

• Involves diversifying into businesses whose value chains

possess competitively valuable “strategic fits” with the value
chain(s) of the present business(es)
• Capturing the “strategic fits” makes related diversification better
phenomenon to increase shareholder value
Common Approaches to Related Diversification

• 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?

• Involves diversifying into businesses with

– No strategic fit
• Approach is to venture into “any business
in which we think we can make a profit”
• Firms pursuing unrelated diversification
are often referred to as conglomerates
 Appeal of Unrelated Diversification

• Business risk scattered over different industries

• Capital resources can be directed to those

industries offering best profit prospects

• Stability of profits -- Hard times in one industry

may be offset by good times in another industry

• If bargain-priced firms with big profit potential are

bought, shareholder wealth can be enhanced
 Diversification and Shareholder Value

• RELATED DIVERSIFICATION

– A strategy-driven approach to creating shareholder value

• UNRELATED DIVERSIFICATION

– 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

• 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 • Wipro in 1994

– Cooking fat – Vanaspati
– Soap – Toilet soaps
– Wax – Toiletries
– Tin container for packing – Hydraulic cylinders
– Trading I n oil – Computer hardware
– Trading in oilseed – Computer software
– Lightening
– Financial servics
– Medical systems
– Diagnostic systems
– Leather exports
 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 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 )

• 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 1967
Wipro incorporated No diversification

2002 1994
Related diversification 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

• 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
Wipro Wipro fluid Wipro Wipro Wipro Wipro
wiproGE Financial
Consumer prd. Power Infotech Systems Biomed Lightening
1990 Services
1947 1975 1981 1983 1989 1991
1992

P.S.Pai M.S.Rao Ashok Soota Ashok Soota VInod Wahi VIvek Paul Varun Nijhawan S.R.Gopalan
President President Vice Chairman Vice Chairman Chief Executive President president Chief Executive

products

Edible oils Comps, Software Medical GE Lamps Corporate

Hydraulic Dev.&
soaps, Commu. Analytical Medical & Financial
systems services
toiletries IT sol. Instrument Systems Luminaries 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

• 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

• 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 • Wipro in 1994 • Wipro in 2002
– Cooking fat – Vanaspati – Vanaspati
– Toilet soaps
– Soap – Toilet soaps – Toiletries
– Wax – Toiletries – Hydraulic cylinders
– Computer hardware
– Tin container for – Hydraulic cylinders – Computer software
packing – Computer hardware – Lightening
– Trading I n oil – Computer software – Financial servics
– Medical systems
– Trading in – Lightening – Diagnostic systems
oilseed – Financial servics – Leather exports
– Software Consulting
– Medical systems – Business Process
– Diagnostic systems outsourcing
– Internet service provider
– Leather exports – 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 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 specific
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)
 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:
• Bajaj Auto Ltd. 2&3 wheelers
• Maharashtra Scooters 2 wheelers
• Bajaj Auto Finance Ltd. Finance company
• Mukand Ltd. Steel
• Bajaj Hindustan Ltd. Sugar, Industrial
alcohol
• Bajaj Electrical Ltd. 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 step-
thrus & 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 two-
wheelers