 Good morning class. We ended the previous class wherein I had provided the information that we would be using for this class to understand the key success factors that made Redbus successful. Now by now you will understand the way in which this entire transformation has taken place in the bus transportation industry. Thanks to the intervention, the business intervention of Redbus that the travel experience as well as the bus operational experience itself has undergone a positive change. Now if you ask the question what made this possible, what are the key success factors? The first and foremost KSF for such a huge transformation a successful transformation I must say that was that it was driven by technology. It was a technologically driven transformation which was able to scale up to handle huge traffic. So a technology solution capable of scaling up because the key is just not the technology but also its potential to scale up as the volume keeps expanding. Remember that this service is to a market which has explosive potential in terms of the volume. We are talking about travelers who use the bus. So you understand what type of numbers that I am talking about. And this was possible thanks to Redbus choice of using Amazon cloud and I think it was also the first organization to use Google's BigQuery which is a tool that can do an analysis of massive data sets because that is what passengers do when they choose between different buses, seats, prices, rules. They make a real time analysis of tons of data and they also had a call center in place. So primarily the fundamental engine that drove this business was the technology that formed the backbone of this operation. The second thing was the performance or the service performance that it ensured that it is real time thanks to the technology and that it was not only real time but also very, very reliable. The third thing that Redbus though I did not share it in the previous class that they were able to do was to experiment and then demonstrate to the bus operators that this is a workable proposition. So the experimentation path was a key success factor. What it did was you see in this new business that Redbus was wanting to do it requires a great amount of trust from the bus operators on Redbus capabilities. So you had to build that confidence level on bus operators. It is not just trying to sell a new software and asking bus operators to use that because you have the software in hand. Rather Redbus did a different approach where it went to the bus operators and said look I will block a few seats in the bus operators that it had discussions with. So it blocked a few seats, paid for those seats and then got back, used Redbus, the bus, the Redbus technology, the centralized database and brought passengers to this and made sure that the blocked seats were sold. So this it was able to do on a pilot basis to demonstrate its capabilities that this would definitely be a successful business proposition. The fourth key success factor was its ability to finance its business, financing options. I did not share enough information on that because that is not the scope of our discussion but the very business idea that it was generating was enough to convince a group of venture capitalists that they had good mentors from Thai which is a not for profit organization that encourages entrepreneurship and you see that they were able to, this is a capital intensive in terms of the technology that it had to put in place to get this business done. So it was a capital intensive industry but one thing that they were able to do is that they had a negative networking capital balance which means that they were able to have their working capital requirements met. When we talked about accounting, working capital is the amount of capital that is required to run the day to day operations of the organizations so that they were able to meet with the amount that they collect from the passengers and before they give it to the bus operators that interim period was enough to take care of their working capital requirements and this is from a financing perspective. I do not spend more time on that because that is not the scope of our discussion. And lastly the opportunity that it was able to seize, seizing the opportunity from the business climate, this in my view is a key success factor that has to be in organizations that are entrepreneurial of this type. You see they found that this entire bus transportation industry was so disorganized and on the other hand that there was a great boom in terms of the internet traffic, the telephone connectivity, the communication technology and all that. Now they were able to bring both of them to provide a coherently, coherently synergistic platform whereby they transformed the way in which bus transportation was happening in the country. So these are by and large the key success factors that made red bus a successful organization and now I will bring you from 2006 up to 2012. So end of the business year of 2012 if you ask me what is the success of red bus it can be measured in different ways that it was the market leader in the online bus transportation industry. It was clearly ahead of the market. Remember by the time it started 2006-2007 this is no longer an exclusive domain. You had others also jumping into this line of business but nobody had the bandwidth of red bus and that is why you find you know there are some online bus ticketing companies, ticket goos or simply bus. You also had another bus company called the bus ticket voila. So all these are competition but definitely not anywhere close to red bus which was clearly the market leader end of 2002. In terms of revenue 0.4 million the end of the year in which it started 2006-2007 to around 345 million rupees by end of 2012. The success of red bus is its capacity to bring together all the bus operators that is where you know the small time competition it is very difficult for them to break it is not that it is not possible but the reliable service the way in which they have built this network with the bus operators that is also one of the key success factors that I forgot to mention is so critical for red bus success that today it has over 800 bus 800 plus bus operators into its fold 25 plus offices of its own call centers and all that 450 plus employees 40,000 plus distribution centers sales and distribution centers and in terms of coverage the breath at which it offers in terms of numbers 19,000 plus bus services per day across 20 states. You can imagine the type of volume that it handles per day this by any stretch of imagination would put red bus as a successful organization that it is able to handle 19,000 plus bus services per day. At this point of time it still believes that end of 2012 that there is a huge untapped market. The reason that it is a huge untapped market is because there is a constant change in the socioeconomic scenario that is happening in the country. There is more internet penetration, there is more need to commute, more businesses adding more to the workforce as a result of which there is constant race for bus tickets. Now with this scenario in hand red bus is confronted with a number of options and I will tell you what are those options and then leave it to the class to decide on what could be the best option based on some of the learnings that we had in the previous sessions on strategy. So the options that are available for red bus, option one remember when we did the porters five forces I was talking about the backward integration. So in line with that the option one that red bus had was to run its own buses, vertical mobility or backward integration as I said before that it is not only now in the business of selling tickets but it could be a KPN by itself, it could be a Sharma transport by itself, it could be a red bus bus and using red bus service to book its own tickets get passengers for its own bus service. So the option one that it had, it has before it is whether it can run its own bus services. Option two is probably it can go global. The bus service in US and advanced economies in Europe of course they have private bus operators and all of them having their own online portals but there is not any big systemic aggregator like red bus even in the advanced markets up. So whether red bus could be providing this aggregation service to advanced economies is another option that it has before it. But one thing that it has to also ask itself is whether those economies, the transportation industry there in terms, measure in terms of the volume of passengers that use, whether it will be able to provide that much of economies of scale that is required to have such a huge technology intensive solution as a result of which the capital that is required is so huge. Whether there is enough economies of scale in these economy, in these advanced countries or even smaller countries like a Malaysia or a Singapore or a Hong Kong where still bus transportation is not uncommon. The reason that it is so successful here in this country is because the volume of traffic is so huge. So the key question before addressing this issue of going global is whether such countries can provide them enough economies of scale considering that the volume of traffic that they handle is not as huge as it is in our case for which they need to do some country specific socioeconomic analysis. The other option, option 3 is to increase its portfolio, increase portfolio of servings. By this I mean that it can provide you know booking solutions for air travel, for hotels, for cabs. This probably is another option that it has in hand. The reason that this is, this could be a good option. I will just give you some data points for you to take a decision. Is it the online travel industry in India is booming? It was 62 billion in 2007 to around 380 billion in 2011. So the annual growth rate is close to 50%. The online travel industry is booming and online travel industry is the biggest, has the biggest share in terms of the total online, the e-commerce that happens in country. Almost 75 to 80% of the e-commerce transactions in our country is related to travel and tourism. So the online travel industry is a booming business proposition that Redbus should consider as a viable option. And there is also a consumer logic to this that people making bus bookings will be interested in making hotel bookings, will be interested in making air travel bookings, will be interested in booking cabs, tourism packages. So there is a consumer logic as well. And there is also revenue logic built into this. Even if let's assume 10% of the existing bus ticketing consumers, customers of Redbus decide to buy even an etiquette. So if 10% of the customers buy etiquettes from Redbus, that the revenue that it can generate is probably 10 times more than what the same number of customers would have given Redbus buying bus tickets. So it means that it is, you have the capacity to increase your top line with very minimum effect in the middle line, which means the expenses, the costing. There is a huge benefit to increase the revenue pie, but by not making proportionately huge investments and incurring huge expenses. That's the nature of the air travel. The last option, I'm not saying it is last, probably the fourth option is don't do anything, but just focus on the core, core focus. Here again, this is also an interesting proposition for Redbus. The reason being that it's a huge market here. I'll give you some data point to support that. The bus transportation industry, the previous one was about the online transportation and tourism industry, but the bus transportation industry alone, end of 2012 is close to around 13,500 crores, with around 22 to 23 crores of tickets being sold every year. So the bus transportation industry is valued end of 2012 close to rupees 13,500 crores. This is the bus transportation industry's revenue size, and it is poised to grow because the historical growth rate is being 25% every year. So there is a huge untapped market, and the high rate of adoption of the modern communication technology and internet, because there has been a huge growth of the internet from 2007 to 2012, as a result of which there is clear signal that more and more of passengers are adopting themselves to this online mechanisms. And the online travel and tourism industry growth is predominantly driven by the bus transportation industry or the travel industry. As a result of which it makes a lot of sense for red bus to tell itself, look, we are the best in what we are doing now. So one option could be is to just focus on the core competence that we have, because we have enough reasons to believe that there is a huge untapped market that we can still go and serve. And of course, the other easy way is to tell the option, not easy, easy in terms of saying it is probably sell it off and exit. This I do not want the class to consider as an option for your discussion, because that includes some inputs on how to value organizations, it includes corporate valuation to find the present value, the net present value of the future stream of cash flows that red bus is going to earn over a period of time in the future. So let us not get into those financing nitty gritties, valuation stuff, we will restrict the discussion to these four options. Now the reason that the previous classes will be useful for you is what I will be doing is just leave the class with some ideas parked in your mind, so that you can do this homework and you can decide you are the CEO of red bus. As a protagonist for this case, you decide which option you want to choose, option 1 to 4, you decide based on some analysis that I want you to make. Now how do you make that analysis? You need to know how the industry is, you need to understand the behavior of the industry for which you can use Porter's five forces to see whether the entry barrier is higher or low, think about the technology intensive network, the brand image of, I am just giving you some flash points for you to think before you make this analysis, brand image of the red bus, whether it is easy for new players to create the same level of brand image or the bargaining power of suppliers higher or low, it could be low because bus operators anyway they depend on intermediaries and agents for booking or it could be even high from the technology supplier perspective that given that it is a technology intensive business model that anybody who supplies the technology or red bus has to rely on the ones who provide this technology as a result of which they have higher bargaining power as a supplier or the bargaining power of customer, of course this is a classic case of demand being so great greater than the supply, absolutely no switching cost because it is online whether it is red bus or anybody else and as long as you know the service that it is offering is identical, switching cost is very minimum. So how can I differentiate to make sure that I have inbuilt switching cost in terms of the customer experience, it could be intangible also or even alternative modes of transport gives the better bargaining power to customers, then thread of substitutes you could view from different perspectives a threat whether it is medium or low as I said before other modes of transport, even other modes of communication like video conferencing and the inter rivalry and see whether the inter rivalry is that force is high or low because it is a huge demand and supply, huge market whether there is going to be price war and of course being a very capital intensive industry you know you need huge lead times for profitability, the relationship that you built with stakeholder is important whether there is going to be rivalry in breaking such relationship. So, these are all things that you need to analyze when you have to do this porters 5 force analysis to understand to characterize the bus transportation industry because this is also going to provide you with some information for you to decide on which of those options that you need to exercise. The second thing that probably you could be doing is also to do the value change, remember we had all those value activities you have primary, you have support activities. So, primary is all basically your you know the real time inventory upload, then customer booking all up to travel and here what runs the support activities the analytics, the metrics that they have used, the technology infrastructure, the infrastructure set up in terms of distribution network, call centers. So, you have to do a deep value chain analysis. So, that when you do this value chain analysis you will understand that there are some key value outputs and each of these value activities are responsible for providing those value outputs that the technology was able to aggregate all the suppliers that somewhere in the value chains certain things were happening that was able to add was able to remove the information as symmetry and add more symmetry to the information that was required by passengers and bus operators. It provided a platform for interfacing the customers in this case both the bus operators as well as the passengers and also it is an operationally complex business mechanism, but it appears to be very simple. So, where is this value coming out from that such an operationally complex mechanism appears to be simple of course, there is operational complexity the trust and transparency. So, these are all the value propositions that I already told you, but you should look at these value activities and see where which of these activities is able to generate these value proposition that red bus is able to deliver because these are the ones that you will nurture. These are the ones that you will be able to reinforce more positively, strongly reinforce, reiterate it in whichever option or some of those value activities would be specific and gives you a competitive advantage in some of the options that we discussed not necessarily in all. So, you need to understand the key value activities and for that you will be using the value chain and when you are doing all this the four options that you have in hand you have to dispassionately look at them and I will just give you some aspects to be considered and of course, the challenges associated with each of these options. So, that you are able to consider those aspects and see how you will overcome this challenge and within these four options whichever you find makes a lot of business sense whichever you think that the challenges are complex, but if we are able to overcome that the return on the investment that we are going to make on that particular option is going to be the highest. So, these are things that you have to do it yourself. So, if you look at option one which was going sorry which was the backward integration where red bus runs its own services. For that you need to do the bus the aspects that you will have to first look is the bus transport industry. You will have to do a study on whether the bus transport industry is a profitable venture or not. You will have to see what should be the optimal vacancy position. So, that bus trips are profitable do you have enough data yes we have data the data analytics. So, we have existing data that can help us. So, you have to do take the existing data to study the bus transport industry. You have to do as I said before the capacity utilization and the associated challenges if you are running your own buses it means basically it is a capital intensive you own your buses manpower, drivers cleaners and since we are talking about buses maintenance cost of these buses is competition severe you have enough bus operators competition we will be able to compete and there again you are providing your service to bus operators for your customers and then you are going to become a bus operator yourself. So, you are going to be a competitor to your own customer whether it is worth it not that you should not whether it is a worthy option you have to take the decision based on all these aspects and your capacity to overcome the challenges that these that this option will present you with. The second one was going global option to global this one was backward integration own buses. Here you need to understand the global internet penetration whether the markets that you want to go whether they are highly advanced or not as high or as you see in the case of India you need to understand their demographics their socio economic or you need to know whether there is any other global player with similar domain expertise in those countries and the challenges that you will have again is as I said this is a technology intense you want to do it in a different country. So, you have a capital expenditure you have a new organizational culture when you cross boundaries geographic boundaries you have across nations a new organizational culture a shift in bargaining power because when you go to foreign locations you might not be able to exercise the same amount of bargaining power as you could do in your own country then is there a cross border business subsidy why should red bus India you know invest its surplus in its operation outside as we subsidizing cross border business. So, these are some of the challenges when you do option two the next one is option three which is you know new product services new offerings remember in answer of matrix it is for the same market but new products. So, we call that the market development strategy sorry the product development strategy again in this case you will have to study very closely the internet penetration in India the demographic shift because you know there might be a huge customer base that would like to shift from bus to air travel want to stay in hotels want to take family on vacations so the demographic shift some of the challenges that it will be encountering is it has to build a new network of you know air travel companies airlines hotels cabs etcetera and then there is huge competition existing competition and your positioning as red bus itself you are changing yourself from a niche in this case is addressing a specific need of you know bus travelers to an all play niche to an all play guy. So, you are increasing the operational complexity now you are adding more dimensions to the existing complexity how you will be able to overcome these challenges then lastly the option four is I would say the product prahalad's C K prahalad's view of building on core competence of course there is also C K prahalad's view on the option three that using the core competence you are trying to go elsewhere option two also using that core competence you are going to go global option one I would not say because we are not using the core competence to run the bus bus are running your own buses is a different ball game altogether. Option four is more about focus photo is generic strategy on focus just on the bus travelers because you know that there is untapped market C tier two and three cities town another booming today are talking about big data analytics. So, whether you can have a data analytics revenue model use this data sell it to bus manufacturers you can sell it to the bus operators themselves you could use this data to demonstrate to the state government transport centers transportation department and tell them look this is a proven tested model. So, you could study the aspect of expanding your business and include not just private, but even state government buses and you could also probably build a brand red bus just like the a medias did for the airline industry talk about bus transportation then it is red bus the technology the brand that is built. So, it is synchronous with red bus for the bus transportation industry for which the challenges you have to build further scalable models probably you cover more OTAs build business firewalls I call them business firewalls make sure that competition is not able to break the relationship that you have developed with other bus operators that is the challenge that you will have to do if you decide to choose option four. So, you are here with four options run your own buses go global and all of these are in addition to the existing ones run your own buses go global expand your product and service offerings or deepen your market share by concentrating on what you are doing right now thinking that to be the core competence you remain focused and expand the market share within India. So, what you would you should be doing I leave this as homework as you call it you can go back do a five forces analysis to understand the characteristic feature of this industry do a value chain analysis to find those value activities that contribute substantially to the key value proposition that red bus is able to deliver and map them with all these options that are available. So, that you will be able to find an option that actually tries to engulf as much as possible all the value activities that that itself is a worthy option that you should consider and within these four options understand the aspects that need to be studied very deeply it is kind of doing a business proposal understand the demographic shift understand the socio economic changes that is happening in different geographies understand whether you need whether you have enough volume if you decide to replicate the same bus transportation bus ticketing business in new geographies and if you feel that this can be done then you need to have a blueprint on how you are going to overcome these challenges that I have highlighted. And then you will have to put all of them in place. So, that the entire jigsaw is fixed and then you choose which model that you need which option you need to take based on the business objectives that you have in mind the business objective that red bus has is by 2015 it wants to be a 1 billion dollar organization whether you would be able to meet those objectives by choosing one of the option or your option could be do even to do all the four together or could do more than one. So, you need to take such decisions based on some of the inputs that I have given in the previous classes on strategy. And as I said in the beginning of the previous class you might not even consider these options, but gut feel decide to you know I will stick to the core business and you will feel success you will end up being a successful organization in the years to come, but again the endeavour for this class is even if it is a gut feel you understand the decision making of face bus from a strategic perspective then you will realize that though you call it gut feel somehow it fits itself into the Prahalad model or the Porto's model or the Ansoff matrix because strategic model is about taking a very big broad decision that provides the direction for organizations this direction tells the organization this is the way to go on which you will have to implement your business plans strategy is not as I said before it is not just desiring to merge it is not desiring to sell business be the market leader that is not strategy. The broad direction that it gives that provides you that competitive advantage over a sustained period of time in this case red bus the competitive advantage that it gained by being the first mover is that it was able to aggregate all the bus operators because it had a technology platform that could support this that was its core competence it could have this competitive advantage for six years right from the time it started. So as the CEO of red bus you do not go and look at red bus website now and see what it is doing thing tell yourself that you are on April 10th 2012 and you want to present make a presentation to another round to some venture capitalist seeking another round of capital tell them what you are going to do for the next five years whether it is going to be option one two three four and if you need to tell them and convince them why that this is the option that would build a sustainable business model for red bus the new necessarily have to do this potos five fours or the value chain or study the answer of matrix because you need to develop the strategic mindset before you take the real decisions inside the business organizations and that is what I would want you to do as homework take this inputs and start doing this exercise and then decide which option you would choose and then you go and visit the website and understand what red bus is doing now there is no right answer for this case study that you have in hand you might decide to you might have decided to go option two and you had enough reasons to support that decision but then after you do this you go to the red bus website and you find that they stuck with option three it is not that you are wrong except that option three was also successful one nobody knows what would have happened to red bus had it chosen option two because it does not chosen to do that so there is no right answer that this is the right option that you will have to choose all options are right but it depends on what type of analysis that you are able to do and what type of mechanisms that you are able to put in place to overcome the challenges that is more important and for that you should have a strategic mindset that can talk the language of strategy which in essence is the capacity for business leaders to put in place a mechanism that can provide a competitive advantage over a sustained period of time thank you very much.