Strategic Management

Compiled by: PTM Batch 07-10

[STRATEGIC MANAGEMENT] Class notes by Prof. Sanjayan Nair given during the class lectures. These notes have various concepts

explained point wise with illustrations. This will help to recall the teachings during the lectures & explain

it in examination & in future.

Strategic Management Notes by Prof. Sanjayan Nair

Notes Compiled by: Students of PTM Batch 07-10| 2

Contents Strategic Management Process .................................................................................................................... 4

ANSOFF’s Matrix ........................................................................................................................................... 5

Strategy Development Process ..................................................................................................................... 6

Environmental External Analysis................................................................................................................... 7

Corporate Governance (C.G.) ........................................................................................................................ 9

What is Strategy ? ....................................................................................................................................... 10

Why Strategy? ............................................................................................................................................. 10

STRATEGIC MANAGEMENT PROCESS (5 Stage Process) ............................................................................. 11

SCA (Sustainable Corporate Advantage) ..................................................................................................... 15

Analysis of the external environment ......................................................................................................... 17

Key Economic Indications of an Industry .................................................................................................... 18

Porter’s 5 Forces Model .............................................................................................................................. 21

Strategic Options to achieve Competitive Advantage ................................................................................ 26

Environment Scanning ................................................................................................................................ 29

Core Competencies ..................................................................................................................................... 30

Product Life Cycle (PLC) .............................................................................................................................. 32

1) International PLC ............................................................................................................................. 32

Value Chain ................................................................................................................................................. 33

2) Industry Value Chain ....................................................................................................................... 34

Strategies to remedy a poor cost advantage: ............................................................................................. 35

Porters’ Generic Strategy ............................................................................................................................ 38

1) Cost – Low cost provider strategy – Broad segments. ................................................................ 38

2) Broad – Differentiation Strategy (Quality Leader) ...................................................................... 40

3) Best Cost Provider Strategy ........................................................................................................ 41

4) Focused Low Cost Strategy – Niche ............................................................................................ 42

5) Focused Differentiation Strategy ................................................................................................ 43

Beyond Competitive Strategy ..................................................................................................................... 44

3) Strategic Alliances ........................................................................................................................... 44

4) Mergers & Acquisitions ................................................................................................................... 45

Short Notes ................................................................................................................................................. 47

1) Horizontal Integration Strategy – ................................................................................................... 47



2) Vertical Integration – ...................................................................................................................... 47

3) Outsourcing strategies – ................................................................................................................. 48

4) Offensive Strategy – (Rewrite the Rules of the business) ............................................................... 48

5) Defensive Strategy : ........................................................................................................................ 51

Competing in foreign markets .................................................................................................................... 52

STRATEGIES TO ENTER FOREIGN MARKETS ................................................................................................ 54

1) EXPORT STRATEGY .......................................................................................................................... 54

2) Licensing strategy:........................................................................................................................... 54

3) Franchising ...................................................................................................................................... 55

4) Multi Country strategy or Global strategy ...................................................................................... 55

STRATEGIES TO ACHIEVE COMPETITIVE ADVANTAGE IN FOREIGN MARKETS ........................................... 56

Tailoring strategies to fit specific Industry situation and/ or company situations. .................................... 57

Strategic Changes in fast / rapid / high velocity / turbulent Market: ......................................................... 59

Strategies for mature industries ................................................................................................................. 60

Strategies in declining or stagnant industries ............................................................................................. 63

Fragmented Industries ................................................................................................................................ 64

Strategy for Industry Leaders ...................................................................................................................... 66

Strategy for Runner up firms ...................................................................................................................... 67

Turn around strategies for critically sick companies / crises ridden co’s ................................................... 69

BCG Portfolio Matrix: Share Growth Matrix ............................................................................................... 71

Diversification ............................................................................................................................................. 78

Strategic Audit............................................................................................................................................. 83

Change Management .................................................................................................................................. 85

Acquisition / Takeover Strategies: .............................................................................................................. 88

Identifying Competition .............................................................................................................................. 89

1) Who is a competitor? ...................................................................................................................... 89

LEADERS COMPETITIVE STRATEGIES ........................................................................................................... 90

1) What makes Leader a “ Leader” / Characteristics. What makes him special? ............................... 90



Strategic Management Process 1) Strategy is all about positioning. E.g.: Hero Honda, Enfield.

2) Package sizes of biscuits, Shampoos. E.g.: Bru coffee sold cheaply, bought even in rural areas.

Objective: Each organization has particular objective based upon the particular type of organization.

1) Commercial Organization

2) Government Organization

3) NGO

4) Co-op Organization

2nd

Strategy of organization is pricing.

E.g.: Ambuja Cement – incurred low cost, so able to give products at low prices.

Maruti Cars- Low price, High quality. Helps to hold the organization in good faith for a long time

In ‘76 Government divided organisations 3 types of company

A) Government companies can compete

B) Government and Pvt co can compete

C) Totally open co Pvt

Focus not on profits, 1/3 for development and 2/3 for project

NGO: Objective is to reach maximum no. of beneficiaries. Strategy will be diff more towards

service.

Michael Porter: If a company is able to achieve high returns then it has a good strategy. (Competitive

Strategy) E.g.: Infosys PAT is 28%, compared higher than TCS and Satyam. Maruti is no.1 in automobile

industry.

Any entrepreneur starts a business, starts it a vision. E.g.: Reliance group has never focused on exports,

it’s only when petrol prices moved, and they got into exports.

Vision: Where you want to see yourself 5, 10, 15 yrs down the line, It’s easy to understand and

communicate to the employees.

Mission: Defines the boundaries of the organization. e.g.: which products and services will the company

offer.

ICICI grown too fast. L&T will be leading infrastructure and continue to be no.1

Retail business has 4-5 formats and 40 areas. E.g.: Reliance before startup retail had 40 business heads

in each area identified.

Company can divide itself into various strategic divisions (Investment centric) who has complete

responsibility, freedom to manage, source suppliers.



Companies are divided on the basis the following 4 principles:

1) Investment Centers

2) Profit Centers

3) SBU’s

4) Cost centers – supporting dept and not generating revenue.

SWOT can be done at each of these levels. Objectives are set after SWOT and benchmarks.

ANSOFF’s Matrix

Organic Growth & Inorganic Growth. In terms of diversification risk is set off against different products,

risk exposure is minimum



Strategy Development Process

1. Corporate Level Strategy – BCG matrix

Corporation which are diversified

Companies, Group Companies – Diversified products

2. Business Level Strategy

Strategy for a particular product.

E.g. TCS – Strategy for service

• System Integration

• Infrastructure – Lowest Cost Strategy

• Products – High Price Strategy

E.g. Bharti Airtel is not a traditional telecomm company with a complete outsourced

model compared to an E-portal (Create a market, bring suppliers and customers

together)

Outsourced model is sharing profits with the other company – old school of thought by

incurring costs internally you can save costs by yourself.

After Bharti Airtel – the thoughts have changed. Higher margin, Operating profit,

Flexibility.

Corporate Level 5 years plan:

1. Capital Expenditure

2. Project Management

Corporate Level 1 year plan

1. Balance scorecards from a plan or an annual plan

2. Annual plans should be broken in monthly plans

3. Collecting data for monthly performance, constant measurement of critical success factor e.g.

Birla group of company follow daily reporting, they monitor daily cash flow, inventory levels.

TATA’s have survived mainly due to diversification. Birla has not achieved diversification their strength is

daily reporting.

Retail one of the best in India. High value to customers thru the KIRANA stores.

High opportunities varied sizes of market in each segment e.g. automobiles



Environmental External Analysis

A continuous process includes.

1. Scanning – Identifying early signals of changes & trends

2. Monitoring – Ongoing observations of external environmental changes and trends.

3. Forecasting – Developing projections of anticipated outcomes based e.g. with construction 245

industries grow depend on it, Roads & houses will boost growth.

4. Assessment – Determining the timing & importance

General Environment

A) Socio-cultural segment

1. Women in workplace – If both are working lot of industries get impacted e.g. fast food,

hotels, crèche

2. Workforce diversity- Malayalees mostly in Mumbai than in any other cities; Indian most

in Silicon valley

3. Attitudes about quality of work life, previously people used to work 8 hrs now its 13/14

hrs, Gym and food out in work place. Ergonomic chair & desks at workplaces.

4. Concerns about environment: Carbon emission

5. Shift in work and carrier preferences: Shifts jobs is now a career growth, previously it

used to be counted as no commitment. Movement is not a barrier today. Purchasing of

products earlier was for lifetime; today you buy products for only max of 3 Yrs.

6. Shifts in products & services preferences.

B) Economic Segment.

1. Inflation Rates: Inflation is one which motivates the growth for the company. One

reason why Japanese companies fail: Since of no inflation, Since people above 60 Yrs do

not spend, therefore no growth since no demand. Japans economy is not worth

investing as no returns. They themselves are investing outside. Should be moderate 4 to

5 % inflation in an economy. Inflation accelerates an environment for growth.

2. Interest Rates: Have to be competitive. It increases the affordability of an individual,

Average age of person buying a house now is 27 yrs vs. 42 yrs earlier. This creates

competitiveness for individuals, corporate & governments. EMI’s earlier were 3 to 4

times the cost with 18% of interest which now is only 8.5%.

3. Trade Deficits or Surpluses

4. Budget deficits or Surpluses

5. Personal Savings Rate: In India it is 35% as compared to US its 7% earlier it used to be

negative.

6. Business Savings rate

7. GDP



C) Political / Legal Segment:

1. Antitrust Laws: No Monopoly should exist. No correlation, practices of some companies

to not allow other companies to come up.

2. Taxation Laws: In 70’s Inc > 100000 97.5% Tax. High tax exemption of investment by

industries E.g., Gujarat, Himachal Pradesh,

E.g. Nano in Gujarat since if tax breaks since his products can become competitive.

3. Deregulation Philosophy: Cement earlier was highly regularized. Sugar could be bought

only through PDS. 3 types of Cars vs. 150 models today.

4. Labor Training Laws

5. Educational Philosophies and Policies:

60% in agriculture contribute 17% to GDP. It is contributing the highest. Education has

changed the income groups of Tier I and Tier II cities. It has given growth to middle and

low income family.

D) Technological Segment:

1. Product Innovation.

E.g.: Telecom-Mobile Wallet. Reach is excellent.

2. If all Transactions are electronic GDP can grow by 1%

3. Application of knowledge

4. Focus of Pvt and Govt supported R & D’s

5. New Communication Technologies.

E) Global Segment:

1. Important political events: E.g. Obama- President

2. Critically Global Markets-BRIC

3. Newly Industrialize Segments

F) Demographic Segment

1. Population Size

2. Age Structure- India Young 15-34 Buying power. Pocket money 100 vs. 1000 today. POP

culture.

3. Geographic Distribution

4. Ethnic Mix.

5. Inclusive Distribution: Richest- Poorest

G) Industry Environment:

1. A set of factors that directly influences 5 yrs plans are capex, Project management 1 yr

plan – annual plan are more strategic in nature.

2. Goal setting is done at top where you need to benchmark. In benchmarking you need to

look at best practices.

3. Fastest growing IT Company in India listed abroad is Cognizant.

4. WFW is largest R&D services in the world.

5. Goal setting also uses a balanced scorecard.



Corporate Philosophy

70% of the companies in US are family driven businesses. Driven by the family. TATAs have a code of

conduct for employees, fairness in dealing with everyone, trust are the important points in corporate

philosophy.

Strategy is decided by corporate philosophy.

Corporate Governance (C.G.)

Infosys is a good example of C.G. C.G, starts with accounting & reporting. This needs to be accurate for

decision making.

1. Basic people who run the company are different from the owners of the company. The

ownership is different from the management.

2. The Board of director is the most powerful in the company.

3. Quality of the management, Sales growth, P&L are indicators of good company

4. Delegation of authority.

5. SEBI guideline is that there should be a compensation board to fix the compensation of the CEO

& the top management. All the persons liability should be also monitored

6. Audit committees need to be set-up cannot report to MD, should report to the audit committee

of the board.

7. Board should comprise of expert from that industry, legal expert, marketing expert, CA.

8. Some board members are given compensation or bonus. E.g.: M&M

9. Power of expenditure has to be defined very clearly. Limits for each level right from MD to the

lower level, i.e. signatories.

10. Delegation of Power.

11. How the plan, target, Budget are prepared.

12. Implementation of the plan.

13. Monitoring of the performance on a monthly basis.

14. Committees for Investors, Shareholder’s governance, audit strategy, compensation.

Action that is a Blueprint & a ‘roadmap’ with clarity of objectives that needs to be achieved short term &

long term.

List of activities, competent resources needed.(without short term objectives managers have no

prescription for doing business, no roadmap to competitive advantage, no game plan for pleasing

customers or achieving good performance.)



What is Strategy ?

Strategy is when a firm expenses its intent to adopt a current & future course of action that is blueprint

&roadmap with clarity of objectives that need to be achieved in short term and long term.

Why Strategy?

1. Survival.

2. Respond to changes in external environment.

3. The need to grow.

4. Respond to changes in customer expectations.

5. Corporate social responsibility amongst stakeholders.

6. Increase share of the market & profitability.

7. Manage competition effectively & gain business dominance in the industry.

8. Build competencies & capabilities. Technical expertise, financial capabilities

9. Customer acquisition in growing markets. Getting new customers (pursuing larger customer

base)

Strategic Management is the 5 stage processes & then over true initiating whatever corrective

adjustments in the Vision, Objective, Strategy and execution are deemed appropriate

Strategic Vision is a Roadmap if a company’s future providing specifics about-

a. Technology and Customer focus � the geographic and product markets to be pursued

b. The capabilities it plans to develop & the kind of company that management is trying to

create



STRATEGIC MANAGEMENT PROCESS (5 Stage Process)

I) Develop a strategic vision for the company

Vision – Mission statement [vision is panoramic view of where we are going & giving specifics to

business plans]

Vision – Identifies specifics competencies of the organisation, core competencies, states your basic

strength & where you wish to be [Sense of Direction]

Mission – is methodology – People, Process, Policy to get there

1. Firm exhibits strategic intent to favorably alter its market position

GE’s e.g.: “We will emerge as global leaders & the preferred choice of the consumer segment we

choose to serve. Using Technology & innovative services we will delight the customer & be

committed to their success by stake holders creating wealth “

2. The strategic vision should be intrinsically, closely linked with companies ethics, value, beliefs-

E.g.., Quality, building stakeholder relationships

Customer Services

CSR

Economic Value add (wealth creation)

Creating a great place to work

Committed to the success of Internal & External stakeholders

3. The firm should communicate its strategic vision to all stake holders linked to value chain creation

P – Price

O – Operations

C- Costs

K – Knowledge

E – Expenditure

T – Training

S – Services

E.g.: NANO � Supply Chain Cost increased Loss / Costs of 1500 Crores even before producing a

Car. Excellent Case of Ethics

Walmart � Hypermarket, sells all merchandise across categories below MRP. 70000

Merchandise 8000 stores across

Model is based on-

- Low Cost leadership

o Scale – Single longest player as a buyer of Merchandise

- Whatever they save based on SCM cost pass it to the customer & part of it is retained to

open new store

Walmart’s KSF is “Price” is to give the best price to his customer

Profitability is based on excellent SCM & not pricing of final goods



Most People should have in depth knowledge of organisation

Importance of Strategic Vision : Imperative to look beyond today & think strategically about the

a. Impact of new technologies on the horizon

b. Low customer needs and expectations are changing

c. What will it take to overtake or outrun the competitors

d. Which promising market opportunities to be aggressively pursued

e. Other external and internal factors the company needs to prepare for future

“There is no escaping the need for the strategic vision”

II) Setting Objectives :

The firm makes an attempt to convert strategic vision into specifics KPIs – creating results & outcome

the company wishes to achieve out of strategic intent. There are principally two types of objectives

namely classify Financial Objectives & Strategic Objectives

1) Financial Objectives

i. Increase the EPS

ii. Increase Credit ratings

iii. Acceptable Return on Investment (EVA)

iv. Stock Price appreciation (or MVA – Market Value Add)

v. Good Cash Flow

vi. Good Credit worthiness

vii. Higher Dividends

viii. Growth in Earnings / Revenue

ix. Higher Profit Margins

State the objective that serve the Management intends not only to deliver financial performance but

also to improve position of the organisation :

a. Competitive Advantage

b. Business Position

c. Long Range Business Prospects



2) Strategic Objectives

i. Increase in x% of top line and y% in bottom line this is the intent, outcome will be financial.

ii. Improve cash flow eg: negotiate with creditors, create a system.

iii. Increase share of market.

iv. Reduce Overall cost of production.

v. Rate of innovation: Increase revenue through new product introduction and capitalise on

first mover advantage.

vi. Adopt top bottom approach, this is also called, commander approach.

vii. Create stable earning during recession; de-risk the business( Infosys gets internal customers

diverse from banking products across many sectors. Monte-Carlo, winter wear company ,

now also in summer wear after saturation in core business areas. Inability to grow into

current market.

viii. Improve technology leapfrogging into future. Eg: Sony Walkman, Apple I-pod etc.

ix. Increase share of voice ( jargon of advertising) and augment perceived brand value.

x. Expand into new geographic market and new customer segments through brand and

product line extensions.

Eg: Dettol

a) Antiseptic

b) Talcum Powder

c) Soap

d) Band-Aid Adhesive Tape.

3) Social Objectives.

i) Corporate Governance

Transparency around financial health of the company, to the stake holders.

CSR( Corporate Social Responsibility )

i. Promise of quality and supply of product at affordable price.

ii. Concern for Environment.

Products and Practices of the businesses will not do damage to the

environment.

iii. Philanthropy

Pledging to the under- privileged members of the society.

iv. EVA for shareholders.



III) Outlining Corporate Strategy.

i) The firm needs to identify a framework of initiatives to be used as a part of overall corporate

strategy in order to establish a dominant business position, across either multiple segments

in a narrow industry or across diversified businesses.

Eg: ITC.

Paper, Tobacco, Hotels, Apparels, FMCG

Pioneer in contract farming concept of e choupal.

Strategy Pyramid

Integrate all levels of plans / strategic intent into overall capacity.



SCA (Sustainable Corporate Advantage)

Kotlers

- effectively sell what you produce

- Managing and acquiring customers

Porters

1. Business is marketing

2. Rise above average probability; eg – differentiation

3. Managing competition - kill competition and stay ahead

4. Marketing to create industry leadership / dominate business position and create distance from

your competition

5. Achieve by serving multiple industrial segments, benefit areas, price points

- Eg. HLL, multiple products, all segments, multiple price points in a narrow industry – NIRMA –

bottom end segment

*Most important for any business

SHORT VISION + OBJECTIVE + STRATERGY = A STRATEGIC PLAN



IV) Strategic Execution – “Make it happen”

- The underlying essence of strategic execution comes from a price leadership

- The firm undertakes the operations to shape the current and future performance of core

business activities in support of the objectives around the strategic intent and also taking both

internal and external factors into consideration

- It involves creating strategic business fit for succeeding.

Important fits include strategy and operations capabilities; strategy and reward structure, strategy and

internal support system, strategy and organisational culture

� Resources

o PC & MAC

o Access to markets,

o Finance

o Technology

� Capabilities

o Delivery

- A firms ability to compete in a chosen industry

Eg: TCL – A Chinese company had resources but no capabilities to deliver

- Create and develop budgets to support various initiatives

- Facilitate strategy execution by utilising best practices in areas around process and policy

- Introduce or pursue change management if required to create conducive work climate

- Create good intellectual capital (role of H.R.) within the organisation, initiate performance

management system and organisation development as mandatory and motivation and culture

building

V) Fine Line Strategy

- Identify lap indicators through performance gap analysers based on past results in periodic

reviews. Improve and control for future sustainable performance.

- Identifying lead indicators and commit resources in totality in order to neutralise competition

- Increase strategic intent from a firm generally leads to better financial performance

- Test if winning strategy – competitive advantage test, the performance test



Analysis of the external environment

1. Supply chain – eg; Disney chooses its suppliers very carefully. Child labour etc.

2. Competition – Preventive measures

3. Oligopoly – ploughing system

4. Social trends – Luxury, entertainment, working women

Eg; Van Heusen, Allen Solly for women; movies every week

- Industries differ widely in their characteristics, competitive situations and future profit

prospects.



Key Economic Indications of an Industry

1) What is market size? Growth and structural all activeness of the industry?

Investments ,rate of returns, entry barriers , no. of players, survival capacity, money making capacity,

early growth, early maturity saturation , decline etc.

2) Competitive forces between players, Pepsi v/s coke

Fragmentation of market share, price wars and innovations high cost of R&D cost of old increases, how

often established players choose to attack each other.

SCOPE OF RIVALRY - Geographic area, having presence in foreign mkt. long term success.

3) Stage in the PLC-change in consumer preferences will reflect the weight of R&D, demand and supply.

4) Levels of differentiation adopted by various players in industry,-one special value that customer gets

from you and non of rivals are ready to pay for it-special attribute differentiation

E.g. Dove v/s other soaps

LEVEL -1= ME TOO LEVEL of differentiation extremely low e.g. mineral water, any water can substitute

with anyone.

It is a push market e.g. Gelusil - initially was a 1st

mover Features-chewable, flavored

ENO-looks like soda, sachet Rs5/-this gives the customer delight

Product features differentiation means technology, in v high differentiation industry each co. has its own

niche.



5) Level of vertical and horizontal integration

Forward integration

Supply chain to consumer= Horizontal integration

Refineries MEQ

Largest in Asia 2nd

in world

fully integrated co.

now vertical integration

SURF=high HIGH end

acquired

RIN=medium

MEDIUM

WHEEL=low

POY Fabric

VIMAL

Retail Consumer

Petroleum PTA POY

NAFTA

VIP

Aristo

HLL



6) Economies of scale---

Is prevalent in purchases, manufacturing, advertising, shopping etc. in this industry.

Because of large scale of having advantage over small scale

7) Learning curve---

a) Cut throat competition, price wars aggressive tactics

b) Fence and sharp- parle v/s bour bon

c) Moderate- acceptable

d) Weak—satisfied with market share



Porter’s 5 Forces Model

If you can manage all 5 forces, you can have Sustainable Corporate Advantage (SCA). SCA is

a) Industry dominance/market leader

b) Above industry average profit



BARGAINING POWER OF SUPPLIER----

a) Level of technology

b) No. of suppliers

c) Switching costs

d) Threat of backward integration

e) Few large suppliers

f) Suppliers service, delivery

g) Whether industry member are major customer of supplier

COMPETITION IN INDUSTRY----

a) No. of players

b) SOM distribution

c) CAGR growth in last 3-5 years

d) Individual brand power

e) Rivalry between players

f) Exit barriers

g) Industry profitability

h) Rate of innovation

i) SOV

j) Switching costs

THREAT OF SUBSTITUTE---

Relative price

Relative value

Relative performance

Cost of Switching

Perceived reliability, sustainability and scalability.

THREAT OF NEW ENTRANTS---

a. Threat of entry changes as industry prospects grows higher or dimmer and as entry barriers rise

or fall.

b. Entry Barriers:-

c. Scalability: - Economies of scale in production and other areas of operations.

d. Government Regulations:- Environment entry standards as entry cost

e. Open to SBF (Strategic Business fit)

f. Access to technology

g. Access to Supply chain

h. Access to Market

i. High Capital requirement



BARGAINING POWER OF CUSTOMER---

a) Volumes/frequency of purchase

b) Buyer’s needs—rate if change of expectation

c) Cost of Switching

d) Buyers ability o backward integrate

e) Price sensitivity / Brand loyalty /Substitution

f) Levels of differentiation Vs Needs

Option available

Well informed buyers ----Internet ---increases bargaining powers of buyers

I) Competition in Industry

1. Existing Industry profiling

Example: IDEA only in Maharashtra entry difficult, rural good potential, penetration becomes

difficult.

2. Share of market distribution –market size unstoppable market.

----20 players fragmented

3. Individual brand power is playing a role in customer loyalty

Example: Nescafe , Moov , Vicks, Nokia . Industry is dominated by top guns.

4. Rivalry : Coke & Pepsi

Industry where it’s high cost of operation s is very high . Advantage Is highest, Promotion is high,

Plants across.

Example: Cadbury scwepper could not sustain when they shut the supply chain for Cadbury.

Industry is most profitable.

5. Industry profit:- Cost/Profit of Industry

6. Advantage of Innovation : First move advantage

7. Share of Voice –Cost of advantage –Coke is the highest

8. Cost of switching :- risk of reversal.

II) Bargaining power of Supplier

1. Where he has the technical/Quality/IPR his role becomes strong.

If industry is 100 and supply is 95---Supplier is strong

If industry is 100 and supply is 125---Buyer is strong

Example: Reliance



If highly dependent on supplier should I evaluated “Backward integration”

Example : Maruti—backward integration with Suzuki.

III) Bargaining power of Customer

1. Volumes

2. Innovation –rate of change will depend on rate of change of customer.

a. Latent Needs (Future) – first Mover Advantage

b. Current Needs

3. Buyer’s ability to backward integrate will work only in B2B situation and not in B2C.

a. Partnerships are important between seller & buyer in a competitive environment.

Example:

i. WalMart provides manufacturers with daily sales at each store so that they can

maintain inventory to keep shelves at WalMart stock.

ii. Dell partnered with corporate customers and gives online system within time which has

out considerable pressure on other PC makers.

4. Water-Product cost is less than SC cost.

5. Level of different r/s needs

Example: Shampoo-for different types of hairs.

IV) Threat of new Entrants

Government reputation –IKEA

Higher the entry barriers , higher the exit barrier

i. Less will be no of players in Industry

ii. More rivalry

iii. Increase profits

iv. Structurally Attractive

Decrease in EB – more players , more Rivalry, decreased profits

Retaliation: Sony & Nintendo are fighting Microsoft entry in video games with Xbox.

V) Threats of Substitutes

E.g. Contact Lens, Aluminium car Engines - Tata Nano.

i. Relative Price & Performance was better therefore the weight of engines was less.



Who are the Users of this Model?

The users of this model will be :-

a. Existing Players

b. Entrants looking for Diversify.



To Understand structural attractiveness of the industry :-

The company or firm that manages to leverage the 5 forces to their collective advantage ( i.e. manage

industry competition, create dominant position with both customers & suppliers who have resource

capabilities to thwart/block/neutralize the threat of new entrants & can create or nullify substitute

products) will be enjoying sustainable competitive advantage.

a.) Industry Dominance/ Market Leader

b.) Earn above average profits

Strategic Options to achieve Competitive Advantage

1.) Strategy based on critical success factors (CSF)

CSF are competitive factors which affect industry members ability to prosper in the market place.

CSF

�

Core Competencies ( SBF resource capability ) ( inherent strength)

�

Brand Promise

�

Differentiation/ Positioning

�

Core Value Proposition

E.g.. Of CSF

1. Economies of Scales – Reliance

2. Cost Leadership - Least cost ITC HUL

a. Cost low – sell low L superia

b. Cost low – sell VFM M Vivel Sunsilk

c. Cost low - Sell ↑ H FOW Dove

In all these products principal Raw material is the same which constitutes 90% of the products. Scale

brings down cost/ unit.

3. Pricing – Supply Chain Efficiencies.

E.g. WalMart – They too have the scale

4. Technology & Innovation :- Sony



5. Product line Base : Firm that serves broad industry categories in multiple benefit areas with a variety

of price points along with brand line extensions.

6. Related Skills & Capability – skilled talented workforce.

7. Overall Low Cost.

Positioning :

Mother brand ( Brand Equity)

Extend the brand into other Areas E.g. Dettol , Bandaids, Handwash, Soaps, Antiseptic lotion. With core

value proposition remaining same.

Change the form of the Product E.G. Liril – Soaps, Talcum Powder, Deos

E.g. . Colgate- Complete Oral Solution care form.

Line is vertical extension , Brand is Horizontal.

Any Company having various price points, multiple products for multiple segments.

A firm needs to identify the Key Success Factors from any of the above points & concentrate all

resources behind the same to create a SCA ( Sustainable Competitive Advantage)

Use KFS’s as cornerstones of Company’s Strategies and gain SCA by excelling in 1 KSF

2.) Strategy based on Relative Superiority

To create a distinctive competency from within internal value chain activities & use it to exploit relative

weakness of other industry competitors. E.g. Haldirams – Ethnic Snacks.

Impulse purchase Category E.g. Lays came up with Kurkure.

Guerilla Players- Plays war in his strength play within a certain geographic location. E.g. Balaji, Wagh

Bakri Chai Garden Fresh snacks.



3.) Strategy based on Aggressive Initiatives

E.g. New Honda Model arrow v/s S x 4 of Maruti

�

Fantastic Model

An initiative that is undertaken to dislodge established player in the industry by challenging the current

strategic business fit. This would include product design, technology, cost inputs & at times unique

advertising measures.

4) Employ strategic degrees of freedom

Ansoff’s share growth matrix refers to strategic options for growth that is available with the firm

Markets

New Existing

Products

New

Diversification Strategy

Inorganic Growth

Product Development

Strategy

Inorganic Growth

Existing

Market Expansion

strategy

Inorganic Growth

Market Penetration

Strategy

Organic Growth



Environment Scanning

1. Internal

Identify a firm’s resource strengths.

a. A core or distinctive competencies or a special skilled expertise area for e.g..:

technology, low cost mfg capabilities, Six Sigma, Unique Service or aggressive

advertising initiatives (Skill, Specialized Expertise)

b. Assets inclusive of state of art PL & Mac, advantage arising out of a real estate location,

broad distributed infrastructure, R&D / Quality systems, Possession of valid patents /

IPR, high credit ratings, access to customer data, customer loyalty arising out of brand

equity. Some of the assets are tangible and others are intangible. (Valuable Physical

Assets) (Valuable Organizational Assets)

c. Intellectual Capital / Availability of Competent Human Resource & Leadership generally

with a commander top down approach which challenges employees to seek higher

levels & hence create a high performance enterprise. (Valuable Human & Intellectual

Assets & Capabilities)

d. Competitive capabilities that includes those competencies required to effectively

compete in the chosen industry which includes

i. innovation,

ii. short product development cycles,

iii. short time to market (time to react to change to a competitive move, agility to

move);

iv. dealer network;

v. supply chain efficiencies;

vi. & adopting new technologies & changes as part of integral work culture

e. Firms’ Business Position (Achievement of Attributes)

Analysing Leadership position in areas like

i. Cost Leadership

ii. Quality Leadership

iii. Share of Market

iv. Technologically superiority

v. Wider product line offering

f. Forge Better partnerships (Competitive Valuable Attributes and JVs) with supply chain to

i. improve quality & reduce cost

ii. Strategic alliances or JVs that give a firm access, superior technology, markets or

services



All of the above factors contribute to what is called “Competitive Assets”. The caliber of firms

economic strength is determinant of its competencies and there for its position in the market

place.

Analyzing completive power of company’s resources.

Strength Weakness

Internal

• Nullify

• Improve

External

Opportunities Threats

• Segments

• Geographies

• Need gap areas

• Govt. Regulations

• Competition

• Changes in Consumer

preferences

• Obsolescence

• Substitutes

Core Competencies

It is the internal capability in the Value chain where a company performs best which hence becomes

central to the success of the firms’ strategy & its competitiveness. Its arises out of the knowledge and

capabilities that resides within its people and its assets.

E.g..:

i. HUL – Distribution

ii. Star Bucks – control over coffee beans

iii. Reliance – Scale

iv. Sony – Innovations

v. P&G – Quality Leadership

Distinctive Competence :

Is the value chain activity being part of core competence also incidentally enjoys industry leadership and

benchmark for other to follow. It hence represents competitively superior resource strength and forms

the basis for sustainable competitive advantage.

E.g.. Toyota & Honda – both enjoy quality leadership with short time to market globally



Principles regarding managing competencies:

1. It should be hard to replicate for any other competition.

e.g..: Wal-Mart’s prices globally arising out of supply chain efficiencies.

2. It should be sustainable over a longer period of time.

e.g..: digital cameras have diminished the business for Kodak or Fiji films

3. It should be technologically and hence competitively superior.

e.g..: Sony invented walkman. Apple moved it with iPod and Sony doesn’t have strength in

software

4. The core / distinctive competences should be integrated with other capabilities and resources

that the company possesses and act as a force multiplier.

5. Leader companies possess a distinctive competence or superior resource capabilities which is

what gives them industry dominance

6. Weakness or lack of strategic business fit amounts to a competitive liability which may get

seriously exploited by a competition



Product Life Cycle (PLC)

1) International PLC

1. Inventor from a developed country � saturates the parent country

2. The inventor exports to G5 / G8 nations

3. Licensing G5 / G8 and start exports to developed nations which are not part of G5 / G8

4. License it to developed nations / exports to developing nations

5. License / JV / M&A in low cost developing nations – scale to make the low cost base a global

hub.

6. Inventor + G5 / G8 + dev. nations become largest importer (Leontiff’s Paradox) – wherever

labour intensive. E.g.. USA has become largest importers of automobiles.

E.g.. Tech / capital intensive / IPR / Patent – Boeing, Airbus; it doesn’t happen. The inventor

continues to be the largest producer.



Value Chain

It consists of various activates that a firm undertakes both internal and external in the quest to deliver

value to various stakeholders of the company.

The 2 primary functionality in value chain are

1. Strategic cost management

2. Quality and value delivering

- Every value chain activity in an organization should be treated as a cost centre with every effort

being maintained to drive down cost without adverse effect on functionality. (Input cost v/s profit

delivered)

E.g.. Makers of Bakery goods; hotels ; Airlines ; Retail ;

Changes from Industry to Industry

- An increase in the firms’ cost per unit will make it competitively vulnerable v/s rivals in the industry.

However, in the quest to enhance value delivery there could be an incidence leading to increased

levels of differentiation thus raising input cost. The firm should make good the increased cost input

through a higher price realization. Where in the incremental price differential should be greater

than the raised value of input cost.

↑ Function ↔price ↑ Vol leads to profits

↑price leads to profits

↓Price leads to profits

- Either cost should work with volumes or absolute price advantage.

- A value chain consists of a continuous link of activities that a firm peruses like product design,

manufacturing, marketing distribution and after sales service which finally delivers high end

customer delight

Sustainable Extra value has replaced USP.

Benefits, Attributes and Features at ^ SC or lower price

E.g..: Sales & Marketing – P&G, Sony v/s Oil Drilling Cos; Delivery for Dominos v/s Starbucks

- Each activity in Value chain gives rise to cost and ties up assets. E.g..: Design of a product has huge

impact on no. of different parts and components, their manufacturing cost and assembling cost into

a finished product.



- Any functions related to non revenue function are supported functions, enable primary functions to

perform better. Support functions are cost centre.

- The combined cost of all above value chain activities comprises the internal cost structure of the

firm, which needs to be benchmarked against competing rivals in the industry. This benchmark will

enable the firm to understand its

i. Relative cost position viz a viz Industry players

ii. Value Chains of Rival Cos. often differ; Music, iTunes; Outsourced v/s assembled; low cost

v/s high end of mkt.

2) Industry Value Chain

- If the supplier has a huge margin, you can look into backward integration.

- If channel partners are having huge margins than you look at forward integration, bargain with

channel partners.



- Where it is sold, the moment of truth to the customer & finally converting into an ownership

experience.

- Company Value Chain activities are often closely linked to the Value Chain of their suppliers and the

forward allies or customer to whom they sell. Therefore need to understand an industry’s entire

Value Chain for delivering a product or SVC to customer & not just the Cos. own Value Chain.

- Costs, performance, differentiation and Quality inputs instituted by a firm influences internal

product costing directly. If a firm can work closely with suppliers to enhance quality delivery keeping

cost low it can enhance a firms’ cost and competitive advantage.

Hence, it is critical for firms to work collaboratively with supply chain partners to institute competitive

advantage at the time of inception of the value chain.

E.g..: Nano working with suppliers in the Value Chain, Aluminum Can Manufacturer being proximal to

the brewery plant.

Strategies to remedy a poor cost advantage:

1. You should undertake strategic cost analysis for internal and outsourced value chain activities

and benchmark against the industry cost structure to understand performance gap.

2. Challenge current work practices & institute best used methods (TQM, Kaizen, Six Sigma) for

high cost and critical activities in the value chain.

3. Eliminate low cost, non value add activities to out sourced partners (make or buy, rent / lease or

buy property)

4. By pass certain activities non crucial for success in the business; for e.g..:

a. Channel partner distribution being by passed by Eureka Forbes & Amway

b. Amazon.com using brick & click internet as major distribution channel

5. Relocate production & R&D facilities and after sales services to low cost producing nations. E.g..:

a. Auto industries coming to India

b. US Biotechnology Cos. coming to India for R&D

c. BPOs in India for after sales service and currency enrichment

6. Invest in PL & Machines that increases production, saves cost and enhances capacity utilization

and scale

7. Use lower price raw materials through substitution and reverse engineering. E.g..:

a. Aluminum and fiber enforced plastics being used instead of stainless steel.

8. Simplify product design and production processes by initiating integration of plant and machine

viz-a-viz product design to have greater flexibility in value delivery. E.g..:

a. Toyota pick up truck converted to Toyota SUV her in India for 20 lacs – Fortuner.

9. Negotiate more favorable prices with suppliers, collaborate to infuse JIT systems and integrate

logistics.



10. Backward integrate into high cost critical activities

11. Reduce channel partner margin or align it to volume sales, rework costs of logistics and

warehousing in this area channel & customer related Value Chain.

12. Use of the internet as a major channel in the sales / purchase model.

13. Share resources in non-competing, non critical areas with competitors. E.g..: code sharing,

airport maintenance facilities.

This is important where it is a price sensitive industry where you cannot command a price. This

is in mid size or lower economy segment.

Cost should be kept low � price sensitivity � mid VFM ,

lower economy

� Low levels of differentiation; e.g.. Bottled water

� Low involvement levels, cost of switching is low, generic substitution is high;

e.g.. Soft drinks industry

A. Production

1. Move from Glass � Plastic PET

2. Cartons � shrink wraps (plastic boards)

3. Tower Perform weight; Bisleri mould design changed to changed the weight from 20

gms to 15 gms.

4. Automation to reduce labors being used.

B. Selling and distribution cost (Core Activity)

1. Trucks changed from Petrol to Diesel to CNG

2. Manpower Costs – Driver – salesman – Delivery boy (Route map given to delivery boy).

Part of it was done through channel partners; bylanes – small distribution; bulk can biz –

Outsourced for large Cans

3. Franchise Models or Contract Packers : small towns like Indore. Here it is fixed cost for

per bottle produced

4. Contract labour on per day basis were used

C. Financial

1. Hedging ; for fuel for airlines

Is Co. Competitively weaker or stronger than rivals?

Key success factors / Strength Measure

1. Quality / Product Performance

2. Reputation / Image

3. Manufacturing Capability

4. Technological skills

5. Dealer / Network / Distribution Capability

6. New product innovation capability

7. Financial Resources



8. Relative Cost Position

9. Customer Service Capabilities

Company Strategy Business Strategy

Narrower than Business Strategy

Management’s action plan for competing

successfully and providing superior value to

customer

How to compare but also how mgmt should

address strategy issues confronting business

Internal initiatives, offensive or defensive to

counter the rivals in improving its position



Porters’ Generic Strategy

A competitive strategy involves specific action plans that are deployed by the mgmt to compete in a

category successfully while achieving a Competitive Edge over rivals.

(5 forces � position of the organisation in market and how the organization gets structured based on

strategic choice).

It should be linked whether the firm’s target is a broad or a narrow segment (broad – High end , Mid,

Low market, multiple price points; Narrow – J & J – Babies and infants) or

Whether the advantage arising out of strategy pursued is linked to low cost or high quality.

Cost Leader � Broad – Serving at low price

� Niche Narrow / focused (sell at premium price)

Quality Leader (Differential Level) � Broad – Colgate with variety of products and

broad spectrum of buyers

� Niche Narrow / focused – Armani, Hugo /boss

Best cost providers – decrease cost , increase functions – more value for money; by giving good /

excellent features at lower price than rivals

1) Cost – Low cost provider strategy – Broad segments.

E.g..: Walmart, Coke, Pepsi, Water Brands;

a. Firms achieves low cost leadership through continuous driving down input cost in its value

chain, operating business in a highly cost effective manner.

b. However, the firm does not compromise on basic / desirable attributes / features which are

perceived as value by the customer.

c. However, the firm has resource capabilities to create these attributes at a lower cost than

competition and hence stands as the basis for the advantage. The advantage is sustainable

provided the advantage cannot be replicated by competitors.

d. Company can utilize following 2 options to capitalize low cost leadership into Sustainable

Competitive Advantage (SCA)

i. Use low cost edge and adopt penetrative pricing in price sensitive mass markets to

gain share of market and hence scale. However, the size of price cut should

preferably be less than cost advantage created to generate above average industry

margins. If the price cut is equal or marginally greater than cost advantage then the

incremental sale and absolute rupee value generated should create advantage.

ii. Maintain current market share at existing prices and earn higher profits per unit as

compared to industry.



To achieve cost advantage – a firms’ cumulative costs across its value chain must be lower

than the competitors’ cumulative costs

i. Value Chain activities performed efficiently

ii. Revamp firms’ value chain to by pass some activities

When to use this strategy

i. When price rivalry in the industry is high and the customer segment is price

sensitive

ii. There are few avenues to peruse product differentiation and hence all available

brands seem to appear similar

iii. No. Of sellers in the industry are high and there is an over-supply in products and

services

iv. Buyer expectations are low. Cost of switching is low and customer base exerts large

bargaining power over the industry.

Disadvantages of perusing this strategy

i. Overly aggressive pricing and can often nullify the cost advantage. Cost leader firms

in an attempt to maintain market share particularly in the phase of regional threats

may often resort to cutting price over and above the cost advantage. E.g..: HUL v/s

Nirma – HUL had to back down with the reduction in the prices of their shampoos

and soaps.

ii. SCA arising out of cost leadership is more often than not susceptible to replication

by rivals. Hence, long terms sustainability often holds the key to the success of the

strategy

E.g..: Fedex – using hub spoke model to send parcels collected in evening and sorted

between 11 – 3 am

Southwest Airlines – No frills, meals & seating, online, no commission, reservation

sys, baggage, transfers & cost attached

Dell Computers – Assembling and marketing PCs – Online, blink of an eye product –

build to order strategy, decrease inventory cost.

iii. Too much freebees or reduction of price often compromises on the final output, the

quality, thereby output of the final offerings



2) Broad – Differentiation Strategy (Quality Leader)

When the buyers needs and preferences are too diverse to be fully satisfied by a standard product;

Serve all price segments (High – Med – Low); Multiply products, Multiple SKU, Multiple benefits,

Multiple brands

P1 � S1 � B1

P2 � S2 � B2

P3 � S3 � B3

1. Firm peruses a differentiated segmentation or benefit segmentation strategy where in it

identifies a no. of homogenous segments where buyer needs vary and firm, customizes its

product offerings to suit those individual needs with multiple products.

2. This strategy can be pursued when for the buyer it is a high involvement category where

buyer needs and wants are diverse within the category and each cannot be satisfied by a

single product.

3. Firm needs to do extensive research on buyers’ needs and wants and offer products with a

variety of differentiated attributes, each promising to create a special value proposition for

the chosen segment

4. Firms should proceed to incorporate the desired attributes in the product as indicated in the

findings of the research

5. Competitive advantage arises out of many segments of buyers desiring differentiated

attributes gets attached to the value being offered by the firms’ multiple product offerings.

All buyer need gaps, benefit areas and price points are covered up in the pursuit of this

strategy.

6. Pursuit of such strategy offers following advantages to the firm:

i. It commands a price premium arising out of differentiated attributes and hence

higher value perception for the buyers. It increases overall unit sales since it serves

multiple benefit areas at multiple price points hence encompassing the larger

prospect base

ii. It helps gain a long term buyer loyalty

iii. Like always the differentiation variable adopted should be sustainable (difficult to

copy) in the long run in order to create an advantage. E.g..: Colgate – Max Fresh –

Crystals – patented.

As a rule differentiation yields a longer lasting and more profitable competitive edge when it’s

based on

1. Product innovation

2. Technical superiority

3. Product Quality and Reliability

4. Comprehensive Customer Service

5. Unique Completive Capabilities



Approaches to this strategy

1. Incorporate product attributes which lower the cost of buying or usage for the customer.

E.g..: Dish wash Liquid – Peril

2. Increase product performance, quality and reliability of the offering, ease to use,

convenience or durability

3. Incorporate such features tangible or intangible (emotional) that increase buyer satisfaction.

(MRF tyres in rainy season)

4. Deliver value through a continuous innovative approach that competitors’ find difficult to

keep pace with. E.g..: Sony, Japanese cars (Newer model faster than American manufactures

can)

5. The cost of achieving differentiation should be lower than the price premium change to avail

of profit advantage.

When to use :

1. When buyers have distinct and multiple preferences within a category

2. Few firms offer highly differentiated products or a multi brand strategy within the industry

3. When fatigue factors are high and rapid pace of innovation keeps buyers continuously

involved in the category. E.g. PCs, Cell Phones, Video Games, MP3 Players,

4. Many ways to differentiate a product and buyers perceive this differentiation as values. E.g..

TVs, Furniture

Disadvantages:

1. Over differentiation especially into areas where customers do not see value often raise

input costs but do not receive favorable buying response from customer.

a. Increased in price premium may not justify the raised input cost of achieving

differentiation.

2. Risk v/s return analysis may be counter productive if the product does not have a

sustainable run.

3. A low cost strategy can defeat a differentiation strategy firm if buyers do not see any special

perceived value in the differentiated offerings

4. Not understanding as identifying what buyers consider as value.

3) Best Cost Provider Strategy

Low cost provider of an upscale product

Target is value conscious buyers, waiting to pay a fair price for extra feature or good service

Position itself in the middle with medium quality product at lower prices than rivals or high quality

product at a average or slightly higher price



Often substantial buyers prefer mid range products than cheap, basic products ; E.g. : Toyota

applied this for Lexus brands

1. This is where perceived functionality for the buyer is higher than the cost he pays, i.e. value

for money strategy

2. Firm is able to deliver more perceived value in key quality and attribute areas like

performance and service while beating the competitors’ expectation on price

3. Firm achieves “Best Cost” provider status when it has capabilities to incorporate good to

excellent quality and features at a lower cost than rivals

4. However, the firm can get “stuck in the middle” between low cost providers and

differentiated cost leaders and hence firms of this kind should pursue a hybrid strategy. E.g.

: Premium Padmini; Nike cheapest shoe starts at 599 up to 3999

5. Competitive advantage of a low cost provider is powerful when a firm offers a better

product at a lower price, equal to or at times under priced. E.g.: Tata cars from 7 lacs to 3

lacs at least 15 Products

6. Firm should be able to, if the need arises, upscale the product further & hence create more

variance than competition at lower input costs.

4) Focused Low Cost Strategy – Niche

E.g.. Ginger hotels – aimed at business traveler at low cost

Nirma; Walmart; Pvt Label Products – STOP, Tasty Treat Foods

It aims to lower cost and secure a competitive advantage by serving a niche segment of buyers

and at a price lower than competition



5) Focused Differentiation Strategy

Targeted at upscale buyers waiting to pay a big premium price

1. Aims at achieving SCA by serving in narrow audience of buyers with highly customized

products specifically suited to that individual buyers’ requirements

2. Such industry players are also known as “niche marketers”; e.g. : Rolex, Porsche, Ferrari,

Harley Davidson, Hummer, Armani

When to use

1. The target market should be big enough to growth and profit potential

2. Differentiated market leaders serving multiple segments often choose to ignore niche

customer requirements hence this offers a business opportunity to more focused

players

3. It is also difficult and costly for multi segment players to serve a niche segment

4. In every industry category there will be different niche in different benefit areas

5. In this ball game, narrow specialization is the key; e.g. : EBay – focused online global

auction, Google – Internet search engine

Conclusions :-

A firm needs to decide which generic strategy it must adopt as part of its mission and vision statement.

It is perhaps the most important strategic commitment that a firm makes which sets out the roadmap

for the rest of the firms’ activities be it a strategic business fit , development of resources and

capabilities or any further actions it may undertake in its quest for SCA & industry dominance over its

rivals.



Beyond Competitive Strategy

3) Strategic Alliances

It is a formal agreement between 2 or more separate companies in where there is a strategically

relevant collaboration, contribution of resources, shared risk, shared controls and mutual dependence.

Involves joint marketing, sales, distribution, production, design collaboration, R&D, development of new

technologies or products

Firms largely pursue the following action plans in quest for competitive advantage namely:

a. Build a global presence

b. Create resource capabilities that help open new market opportunities arising out of inventing

new technologies

While pursuing such initiatives even the most progressive firms find gaps in their skills and resources

capabilities that make them competitively vulnerable.

The fastest way to bridge such gaps is to form strategic alliances with other firms having such

resources and collaborating for mutual benefit rather than go in for costly and time consuming

process of internal creation

Definition: It is a collaborative partnership where 2 or more companies join forces in select focus

areas to achieve a mutually beneficial strategic outcome

Companies like TATA and Ranbaxy even believe in equity investment and technology know how

partnerships with suppliers since suppliers are viewed as partners in progress, similarly Microsoft

has many alliance partners especially amongst software developer firms.

5 factors make a strategic alliance

i. Critical to the Companies achievement of an important objective

ii. Helps build, sustain, or enhance core competence or a competitive advantage

iii. Block a competitive threat

iv. Helps open important new market opportunities

v. Mitigates a significant risk to a co’s business

The best alliance formed are highly selective and focused on specific value chain creation activities

with intent on obtaining a special mutually beneficial competitive outcome

SCA emerges if the combined resource capabilities give a force multiplier edge effect over

competition



Areas of strategic alliance could be:

1. Sharing of technology and new product development ; e.g. Fiat – Peugeot have got excellent

diesel engine across the world technology is got from them

2. Manufacturing expertise, sharing of new competencies developed.

3. Gain access to supply chain of alliance firms

4. Improved access to market and customers through joint distribution efforts

5. Share resources which are non competing and have the same cost platforms. E.g. Volkswagen

and Porsche – gasoline electric hybrid engine

Alliances open up learning opportunities that help partner leverage their own resource

strengths.

The stability of a strategic alliance is dependent on how well partner work together and build

advantage through their commitment to the alliance.

E.g. PC industry – diff. Cos. diff parts, diff countries

UA, AA, CO, NW, Delta formed Orbitz to compete Expedia and Travelocity

Accenture – SAP, Oracle, Siebel, BEA

4) Mergers & Acquisitions

When alliances and partnerships do not go for enough in providing a company access to a desirable

resource capability, ownership becomes a more viable route, which finally allows for actual integration

of resources and processes.

Merger is pooling of organizations having similar resource strengths joining hands to form a new

company. Often with a new name with varying degrees of ownership depending on stake holding.

E.g.. Sandoz and Ciba – now called Novartis across the world

Daimler – Chrysler

Brook Bond and Lipton merged to become Brooke bond India later taken over by HUL

Acquisition is when a strong firm, down out player in the industry becomes the acquiring firm which

outright purchases the operations of the weak firm i.e. the acquired firm.

Principally, though mergers & acquisitions are a parallel process, it may differ in terms of engagement,

ownership levels, management control and financials. However, the objective remains the same i.e. the

quest to fill a resource vulnerability gap and in turn attain SCA.



Mergers and Acquisitions are defined by the following Strategic Objectives:

1. It often helps to stop 2 dominant firms from fighting each other globally and at some point joining

hands into a single firm can create a simple large market share which can be used to marginalize the

rest of competition.

2. Combined resource effectiveness will result in scale and reduce cost per unit. Unprofitable,

vulnerable units available with the single company can also be closed to cut losses

3. Increased Geographic area coverage and quick foothold into new markets and into new segments

that the single companied did not have.

E.g. Diameter Chrysler got a foothold into S.E. Asian market. It was a no rising situation for Chrysler

as it got entry into these markets and they did not fight each other.

4. Expand firms business into new categories.

E.g. PepsiCo food world market with Quaker Oats and Gatorade – Drinks sports. Getting into Health

Foods. Oats was a breakfast category. Capability to create verities and get into cereals. In sports

drinks get into other drinks.

5. To gain access to new technologies without investing in internal R & D and establish presence in

newer and emerging markets.

E.g.. Intel takeover at least 300 small companies across globe to enhance its service delivery

platform to broaden its technology delivery capabilities.

Hence the main objective of a mergers and acquisition is for a firm to be able to fill a resource gap

capability instantly then seeking it from the acquired firm.



Short Notes

1) Horizontal Integration Strategy –

Definition – The firm extends its competitive operating scope within the same industry that it currently

participates in. It may involve expanding this firm’s activities backward into the sources of supply or

forward directed towards value chain activities on end users.

The extent of integration full v/s partial will be governed by

a) Criticality of activity in the final value delivery to the customer.

b) If there is a substantial margin to be saved which currently rests with the supplier. In the final

outcome the levels of integration should help strengthen the firm’s competitive position in

terms of cost savings and materially enhance a firm’s technical capabilities and resource

strengths.

Integrating forward will reduce the bargaining power of distributors and agents and margins afforded to

them would be a cost savings to the company.

Disadvantages –

1) It increases capital expenditure and hence increased risk of doing business.

2) In fast paced high innovation industries, such investments can become fast obsolete.

3) Outsourcing generally proves cheaper particularly for non core activities and firm will need to

justify cost savings vis-à-vis investment in integration.

4) Horizontal Integration can create issues related to matching capacities between output and

input if each activity.

E.g.. Automobile co. buying an ancillary company which does not match its output capacity.

2) Vertical Integration –

It is when the firms seek to serve more and broader segments of consumers with highly differentiated

customized or benefit areas of that segments.

E.g.. VIP went in Aristo in the Lower segment. Choose is go for a different segment and create an instant

foothold into that segment.



3) Outsourcing strategies –

Definition – The firm chooses to handout a non core value chain activities which it is performing at a

relative higher cost to a third party which in turn allows the firm –

a) Guaranteed cost savings

b) Scope to concentrate on central value chain activities.

c) Even in Central value delivery areas line for expansion. In fuel delivery systems in Automobiles

most industries do not possess internal capabilities.

Basis for this strategy. –

1. The third party has proven expertise at performing such activities better at a lower cost per unit.

2. Activity outsourced is not very critical to the firm’s final value delivery process. E.g. Automobile

Industry – Rubber Parts, Non Core Parts are outsourced.

3. It reduces the firm’s risks and exposures to market obsolesce. (Change in Technology) e.g. CRT

Television – Plasma – LCD – LED = Buyer Preferences.

4. It improves company’s time to market and flexibility.

4) Offensive Strategy – (Rewrite the Rules of the business)

1. It is a basis for creating a Sustainable Competitive advantage arising out of initiatives hat have

yielded the firm a distinctive cost advantage, differentiation advantage / resource / capability

advantage.

2. Offensive strategies are aimed at dislodging a favourable market position of a rival

3. The time required to create that edge will depend on the firm’s internal capabilities as well as

the nature of competition

Eg: Toyota is capable to transfer their technology across the world in a very short time.

4. The offensive move undertaken should ideally build a quick advantage over a competition, the

longer it takes, competition will attempt to neutralise the advantage.

5. Competitors will respond to neutralise a firm’s advantage hence the firm should have a follow

on strategy to defend the newly acquired competitive advantage.

Types of offensive strategies:

1. Initiatives undertaken to match or exceed competitors strengths in any of the following ways:

a) Offer equally good quality product at lower price, such strategy achieves the offsets of the

price cuts.

b) Achieve a cost advantage first thus scale for good quality products and then cut price. This

can be pursued by 1st

mover advantage.



c) Leap frog is the next generation products using technology that makes rivals products

obsolete.

Company in advance started serving the latent needs. When other companies started serving

the current needs.

Innovation and early adopts are the early buyers i.e. 16% of the total population of buyers.

2.

a) Capitalise on Competitors weakness:

Attach rivals products that capitalise in quality, performance and features.

b) Pursue customer acquisition thus aggressive advantage and communication.

c) Pursue a new segment of buyers where the rival firm is weak.

E.g. Nirma attached the lower end segment. HUL had to make a product to compare in this

segment.

3. Simultaneous initiatives on multiple fronts.

a) Aims to create a multi faceted offensive on the following fronts mainly :

i) Price

ii) SOV

iii) Highly differentiated features or extended levels of promotion across

geographies.

E.g. McDonalds has different products for India based on Indian Culture (Beef, Pork and Oil

Used) Instead of snacks positioned as meal, fine dinning restaurant.

b) Such campaigns on multiple fronts can force rivals to adopt defence strategies.

4. It is known as the encirclement strategy.

a) Do not take the competition head on. Create products in the need gap left out by the rivals.

e.g. Santro was used to encircle the Zen differentiated variants. Maruti had to then come out

with Wagon R.

b) Introduce new technologies – leap frog and overwrite the rules of the industry at times

making the strategic business fit of the industry obsolete for e.g. Digital Camera – film

Companies – Kodak, Fuji.

c) Launch initiatives to build a strong presence in geographic areas. Where competition is

weak, in recent times, Big Bazaar has gone to tier III cities, small towns, whereas, organised

players are concentrating on big cities.



d) Create new products and hence new segments that satisfy niche buyer’s needs e.g. Harley

Davidson.

5. Guerrillas Offensive (Plays on inherent strengths [do not come out in open])

a) Suited for small regional players who cannot attach national leaders du to lack of resources

e.g. Vadilal

b) It uses focused hit and run policy but within a confirmed geographic area. For eg. Price cuts

within state, free goods, increased margins to distributors, increased local advantage and

promotion.

6. Pre-emptive strikes :

a) Proactive moving to attain an advantageous and dominating position over rivals which

cannot be duplicated easily.

For e.g.:

i. Location advantage

ii. Exclusive franchising arrangements.

iii. Exclusive arrangements with distribution and logistics provide to drive down costs.

iv. Leap frogging

Who do you choose to attach – Choosing rivals to attach ?

1) Market leaders – E.g. Nirma Attach HUL in regional location.

2) Runner up and Follower up firms.

3) Local and regional firms

4) Financially weak firms who are keen to exit the business.



5) Defensive Strategy:

1) All firms in the competitive environment all susceptible to attach from rival firms.

2) After achieving dominance/ competitive advantage, sustainability becomes on issue as rivals try

to recover lost ground.

3) As follow on or a defensive strategy reduces the of that attach or else reduces the impact

of such as attach or at times discourages the rival firms from attaching.

Types of defensive strategy:

1) Leap Frogging

2) Add new features, new models, increase the product line and depth, fill in all new need gaps

and benefit areas to prevent encirclement.

3) Create economy price points to cater to the lower segments to prevent attacks on a price war

fronts.

4) Increase the levels of service, after sales service, warranties, guarantees to prevent customer

from switching.

5) Increase the levels of promotional input e.g. trade promotions, cross promotions, free goods.

6) Give better margins to the dealers.



Competing in foreign markets

1) Why to enter foreign markets

i. To gain access to new geographics since the home country is saturated.

ii. To acquire more customers, revenues, increase profits from operating in multiple countries.

iii. To enhance scale and reduce cost per unit thus increasing firms competition ability.

iv. Leverage the firm’s core competencies into a position of a competitive advantage in

domestic and international markets.

v. To spread the business of a simple invention over a large consumer base thus deviating

dependencies on home country.

P – Political – Government, Stability, Regulations, Policies, Political Governance, Laws can be

enforced, Red tapism.

E- Economy – GDP growth @ , banking system, Currency, Standard of living, Per Capita Income,

taxation, spending capacity, Inclusive Growth.

S – Socio cultural – Local ethics taken care e.g. McDonalds, triumph ladies under garments,

social fabric, Moral fabric should be understood, localisation is very important. Need to

understand local choices culture, taste e.g. Papad, Pickle E.g. Ivory soap wouldn’t work in India

because of no smell.

T – Technology – E.g. Toyota brought Quabes which was outdated globally, with competition

growing up they had to bring in Innova.

This is to be done for structural attractiveness of a country.

2) Strategic options to enter into new markets

1. Do I need to go Global

2. MNC’s.

Global is better economies of scale. MNCs will have to have separate strategic fit for each

country.

MNC :-

Low cost functions would be advantageous

Currency Fluctuations

Skilled workforce required in each country



Favourable Govt Policies required.

1. Vocational advantage eg. Brazil , India (BRIC countries)

2. Forex fluctuations :- Appreciating local currency against global currency would reduce the MNC’s

cost advantage.

3. Increased per capita income, increased inflation would reduce cost advantage in such a nation.

4. A shift in foreign policy like shifts in foreign direct investments would nullify home cost

advantage.

3) Features of Global competition

1. Prices & competitive conditions across geographic locations are strongly linked.

2. The same group of companies compete across geographical locations around the globe for

leadership status eg. Samsung , Sony

3. Resource capabilities and competitive advantage built in the home base can be transferred and

supplemented by growing operations in other countries, collectively amounting to a firm’s

Global competitive advantage.

4. Firm’s lack of competitive advantage in one country can adversely affect its business in other

countries.

Eg. Auto industry outsourced to India , if this goes bad, it impacts the parent country.

Eg:- Automobiles , Aircrafts , Xerox machines , Consumer durables , watches, digital cameras, are

some examples of global competition.

4) Features of MNC:-

1. Competition, competitive forces vary from country to country.

2. Buyers in different countries get attached to different attribute sets, features or benefits in the

product , hence making product customization mandatory.

3. Values, lifestyle , culture, consumer behaviour , customs, traditions, Language , attitudes ,

perceptions and beliefs differ from region to region eg:- Apparels / Fashion goods , Home and

personal care products , Ready to eat foods like Lays , in different flavours.

4. In MNC , firms competed for national honours from country to country and success in one

country does not signal the abilities for success in another country.

5. In MNC strategy , the power of company’s strategy and resource capabilities developed in one

country need not enhance it’s competitiveness in another country.

6. Competitive advantage, if secured in one country is confined to that country only

& the strategic business fit cannot be transferred to another country of operation.

Eg:- Banking is one segment , Insurance is another, Television network , FMCG products , Hotel

industry eg. Marriott.

7. As the category matures , product tends to move in the maturity stage of the PLC , then

consumer tastes start to converge across the world , in certain common areas and hence the

case forms where an MNC player can integrate his product towards a global platform and sell

the same product across countries yet keeping certain aspects, the advertising and promotion

customised based on local cultural differences.



STRATEGIES TO ENTER FOREIGN MARKETS

1) EXPORT STRATEGY

i) Maintain the home country or any other low cost production base as hub and exports goods

to the foreign markets using either co owned or foreign controlled forward distribution

channel.

ii) It is an excellent initial strategy for a new player to test market a new concept in a new area

and formulate the future business strategy of the firm.

iii) It is adopted by firms who have limited access and understanding of the foreign market and

do not have enough volumes to justify investments.

iv) It is a low cost entry strategy and is sustainable provided there is an advantage arising out of

location and low cost. E.g. Hyundai has made India as hub since of low cost, transportation,

production. Etc.

v) Export strategy will become non sustainable if :-

a) the mfg cost at the home location is high

b) Cost of shipping increases with the distance.

c) Exchange rate fluctuations make the home base loose the cost advantage.

2) Licensing strategy:

----tech Expertise in business process

-----money

Local operations, knowledge

Pays Royalty as a % of sales usually 3-5%

i) Dominant global firm transfers rights of proprietary technology / proven expertise to a

renowned national player in a developed country.



ii) The patented product firm has technical know how but limited capabilities and intent to enter

new geographic areas

iii) Licensing avoids the risk of investing in a country whose business dynamics is unfamiliar to the

patented firm, political unstable, economically unstable, risky proposition.

iv) The patent firm generates income from royalty. E.g. Pharmacy firms and software firms are 2 big

giants here.

Disadvantages

Handing out proprietary technology with lower or no control over its forward usage can provide

challenge to the patented firm.

3) Franchising

Best suited for service and retail industry.

Franchiser has tried and tested model, i.e. proven across multiple geographies. Franchisee possesses

local operational knowledge and local infrastructure to do business. (Bears most of costs and risks)

Franchisor transfers business knowledge and know how, creates quality standards and trains local

resources in conducting the business effectively. The foreign franchisor may modify product or service

delivery if it deems fit, and hence maintains quality and control.

E.g. Mc Donald’s, Pizza Hut, Marriot etc

Payment is Royalty.

4) Multi Country strategy or Global strategy

1. If customer segments in different countries demand different features, benefits advantages, from a

product category, with a great degree of customization then the firm should adopt a MC Strategy.

2. However if the product specification demanded by the end user does not largely differ then the firm

may pursue Global strategy.

3. The nature of rivalry in each nation will be typical to that confined area, in terms of types of rivals,

and the extent of competitive moves. Again this calls for a multi country approach.

4. Whenever the company’s strategic business fit does not suit across border transfer, the firm is best

suited for multi Country Competition.



STRATEGIES TO ACHIEVE COMPETITIVE ADVANTAGE IN FOREIGN

MARKETS

1) Using Location advantage.

i. Use Ltd low cost advantages location having a distinct geography advantage.

E.g. Nike use china and Korea for mass producing its shoes for supply across the world while a

PC Manufacturer would prefer a Taiwan as a low cost base where intellectual capabilities

specific to the industry are available.

ii. Build advantage out of scale i.e. to create large centralized resources in specific low cost

locations and utilize them to distribute products and services across the globe. E.g. Pantene

shampoo earlier made in Malaysia now being made in India. (Scales of Economy)

iii. Learning curve and experience effects particularly around the cost advantage is also confined to

the home base location.

iv. They should concentrate on locations that have superior resource capabilities like Manpower, R

& D Infrastructure (markets ports, ware housing facilities) e.g. Jebel Ali- Dubai, Singapore ports

that has more turnaround time.

2) Leverage Core competencies and resource strengths to compete effectively in new countries thus

cross border transfers and create a dominating presence in the new country. E.g. Wal-Mart uses the

proven supply chain everywhere that gives them the cost advantage. They create regional Hubs.

3) Use Cross border co-ordination to build SCA e.g. Whirlpool has created 14 low cost home bases

across the world which delivers to 170 countries & they have internet as an IT platform globally to

transfer their product innovation, production process and best practices across regions quickly.

Hence production schedules can be co-ordinate globally; shipments can be made from different

centers, often to nullify the change in Govt. Policy, exchange rate fluctuations or stock build ups.

4) Using Cross market subsidies to wage strategic offensive.

Support competitive moves in a foreign market with resources and profits delivered from a

developed and a profitable market (profit Sanctuary). The cash support received by the developing

market can be used to finance advertising and promotions, price wars and product development.

5) Strategic Alliances and Joint ventures in foreign markets: These are also an entry method into

foreign market. JV- difference of an ownership. There has to be a dominating partner who has got

the management control.

Strategic alliance is where one or more partners share resources and capabilities in certain niche

areas of the value chain with neither company having stake or management control in the other.



In the case of joint ventures one or more partners come together and share all resource capabilities

across the value chain often altering the name of the Merged Firm.

The new entity generally has a major stakeholder as a dominant partner who exercises management

control.

Tailoring strategies to fit specific Industry situation and/ or company

situations.

1. Strategies in emerging market: (Introductory and growth stage of the PLC) Industry in formative

stage e.g. VOIP, telecom, Organic foods e banking hybrid cars etc

Features of this situation:

i. Market is new and hence business forecasting is speculative as is the probability of success.

ii. Access to technology is difficult for other rivals if the product is patent. It is well known that

monopolies are never conducive to growing new markets and are often a decisive to

customer welfare. E.g. MTNL service improved after other player came.

iii. Market forces are particularly competing technologies fair competition and the level playing

field tends to broaden the scope of the industry and helps give the best in the category to

the customers.

iv. Entry barriers often pose a challenge for the establishing a level playing field.

v. Extent of experience of learning curve effect is low.

vi. How to influence 1st time buyer (early adapters) overcome their resistance and establish a

category poses challenge.

vii. Rapid rates of innovation and technology substitution can erode the inventor’s first mover

advantage.

viii. Creation of supply chain effectiveness in securing the raw materials.

ix. The firm’s financial sustainability till the sales and revenue takes off.



2. Strategies Used:

i. Have wide latitude in experimenting with different strategic approaches since lack of

established rules.

ii. Capitalize inventors 1st

mover advantage / pioneering status and quickly establish product

and technical superiority with either a focused or broad differentiation strategy.

iii. Get the product 1st

time right and formulate improvements quickly before competition finds

up.

iv. Form strategies alliance with critical suppliers, the arrangement should be such that you

block out access to rivals.

v. Pursue new customer groups, (e.g. HORLICKS 8-15, junior –infants 4-9 & women HORLICKS

was extended into the middle aged lady segment) new user application areas (e.g. Kellogg-

repositioned from breakfast to and time snacks) and new geographic markets rapidly to stay

ahead of the competition.

vi. As the PLC progress towards maturity firms in pursuit of customer acquisitions should

reduce entry barriers for new customers and create ownership experience for the existing

ones to create brand loyalty. E.g. Sachets are very low cost entry barriers instead of big

shampoo bottles. Low cost entry of trial.

vii. Use price cuts or lower price points to attract the next level of Buyers (early maturity or late

maturity)

viii. 1st

movers and early leaders (2nd

or 3rd

Players) must constantly strive to strengthen

resource capabilities to sustain advantage to ward off the threat off cash rich late entrants

or aspiring industry leaders from parallel sectors.

ix. All strategies pursued must be aimed art long term sustainability often short term

profitability.



Strategic Changes in fast / rapid / high velocity / turbulent Market:

Market growth is 2 digits, organization should be more or equal to market growth otherwise it is erosion

of market or losing of ground.

Features of this type of Markets:

1. It is characterized by short PLC’s high rates of technology changes and high rates of Innovation.

2. In such categories consumers preferences evolves very quickly thus raising the rate of obsolescence.

3. There is a constant threat of the entry of new rivals generally with imitations or substitutes.

4. This industry / category see the rivals frequently challenging each other with competitive moves to

gain industry dominance. Often, a combination of above parameters is undertaken by more than 1

Rivals in the industry.

E.g. Pharmaceutical, Social media, networking sites, Video, gaming telecom PC etc

Options available:

1. A firm may choose to be reactive to change by choosing to respond appropriately to rivals moves

with a cost / differentiation advantage.

2. Firm can anticipate change, plan and prepare to react as and when rivals launch offensives.

3. Proactively lead in the change in the category by using offensive tactics aimed at dominating the

category or even changing the underlying rules of the business generally through leapfrogging. (First

movers Advantage)

Strategic Options:

1. Invest heavily in R & D, drive technology & innovation as the cornerstone of the business i.e. be a

driver of change.

2. Develop quick response capabilities to counter rival moves by being able to shift resources and

competencies across geographies, create new capabilities and have a short time to market.

3. Develop strategic tie ups with the suppliers & forward channel partners in critical areas particularly

in and around technical expertise, in order to block out access to competition.

4. Expand company geographic coverage.

5. Initiate fresh action initiatives proactively even when rivals are silent.

6. Keep companies products and services modern and contemporary & reinvent the same well before

obsolescence or whenever consumer expectations may change.

Conclusion: Hence, in fast paced markets critical success factors include technological expertise,

quick response times, degree of innovation & flexibility and adaptability of the strategic business fit,

to meet current and future opportunities.



Strategies for mature industries

Features of the market:

1) Product Life Cycle: (PLC)

A category evolves through a Life cycle: e.g... Product Lifebuoy, Company HUL, category –toilet soap.

1st

Stage - At Introduction Stage

People going for new product - 3.5% snobs, 13.5 % EPs – hear the review

Also here as it is usually an innovation, there is monopoly, no advertising and promotion. Pricing – use

skimming, here profits are negative and you are recovering product cost. No product revenue.

2nd

stage - Growth Stage

Oligopoly – diff. suppliers, diff. product pricing, product variance – 5, 10, 15 cos. And as competition

rises the price decreases. Benefit areas grow, brand and line extensions occur.

Here you are creating penetration. Functions of penetration are availability, affordability, awareness is

created – usage happens. Therefore if the penetration becomes 100%, all consumers are targeted, and

there is saturation in the market.

Growth @ is the same as CAGR. Here is when the market shares have stabilized. E.g... Telecom.



3rd

Saturation (Maturity Phase)

Is when growth has stabilized and there is no penetration, cash generated is much higher, no price cuts,

even if competition reduces prices, if the market share is not eroding. Here you lower advertising but

increase your promotions.

4th

Decline

Only if customer preferences change or obsolescence takes place. E.g. lifebuoy – earlier mass market.

Alternative, try repositioning – “for who”, “for what” e.g... Lifebuoy as an antigerm for kids.

Features of Mature Markets:

1. Growth at compounded has slowed down equal to growth of population of the country, or the

economy.

2. Market Share distribution is clear and customers are generally brand loyal.

3. All the potential buyers have access to the industry’s products and services since penetration is

near 100%

4. Growth option include

a. Snatching business from competition thru’ promotion

b. Last round of untapped buyers from the late majority or laggards.

5. Bargaining power of the buyers increase, therefore more options available in the market.

6. Industry rivalry may increase as growth rate slows, convert competitor customers to yours.

7. Greater emphasis is placed on service, driving down costs by reaching levels of scale and

increasing ownership experience (using guarantees, warranties, in all creating an ownership

experience – that is trouble free usage)

8. Rate of innovation decreases as new application areas are difficult to come by.

9. Industry profitability may be lower due to competitive pressures within the industry.

10. Merger and Acquisitions takes place among former rivals and weak players may get taken over.

Strategic options:

1) Cut down non-profitable and non-performing product models which will not significantly alter

the firm’s competitive position.

2) Withdraw operations from non performing, non contributing geographical areas.

3) Place emphasis on value chain innovation thus

a) Lowering cost of each activity

b) Improving product and service delivery

c) Improving design layouts

d) Integrating it as far as possible

e) Reducing new design to market cycle time

f) Outsourcing high cost activities and non core functions

g) Use of internet as a distribution or purchase model



4) Increase the purchase volume of the existing using promotions, broaden the usage areas.

E.g.: Kellogg snacks versus Maggie snacks; 25% more in bottled water; provide complementary

and ancillary services; convenience stores have added video rentals, PCOs, ATM service.

5) Acquire Regional players.

6) Enter International markets.

Conclusion:

The biggest mistake that most firms make in mature markets is to lose the original

Focus and steer a middle course armed at blending low cost and differentiation, hence

Compromising the value needs of the target segment.

Such moves can leave the firm “stuck in the middle” with no clear focus or

Commitment towards a generic strategy it initially adopted and it slides down into an

Average “me too” image in terms of perception amongst its buyers thus neutralizing its

Advantage.

E.g.: Zodiac - never compromises on quality even if sales are low

Mega mart- Around sales happens here



Strategies in declining or stagnant industries

Market features:

1) Many firms operate in industries where demand has stagnated or started to decline.

2) Firms generally harvest cash from such businesses and even think of exiting such businesses as a

part of end game strategy.

3) However a strong and committed player can achieve satisfactory performance through clever

strategy even in declining markets.

4) It is about encashing all available opportunities into profitable ventures. Cash flow and RoI

makes more sense for the business than growth per se.

5) Grabbing market share from a non focused competition and an acquisition of weak firms makes

for viable strategic options.

Strategic options include:

1) Pursue a focused strategy by seeking the most attractive and profitable segment from the many

niches that the market offers and do a first rate job in meeting buyer expectations. E.g.: Airline

demand never declines, demand shifts into new usage area.

2) Stress on differentiation – creation of extra value based on product modification giving rise to

enhanced quality and inducing buyers to trade upwards. This can be done by introducing one or

more value added features that did not exist earlier. E.g.: Garnier - Shampoo and oil sold

together. Many firms attempt to move up the value chain in terms of product offering. E.g.:

Tetra pack milk and place (specific packs for modern trade super markets).

3) Drive down costs to its lowest by utilizing full experience or learning curve effects plus the

benefits of scale which will affect the bottom-line.

The above 3 strategies are part of Porter’s generic strategies and are not mutually

Exclusive.

Common mistakes:

1) Getting trapped in a war of attrition.

2) During too much of the harvested cash out of the business leaving it cashless to fight

competition.

3) Spending to much on was hog brands with low ROI.



Fragmented Industries

Definition: A category populated with many often 100s of midsize small firm often organized and

disorganized that compete as a rivals in the industry with no player really acquiring a substantial market

share, competitive advantage on industry leadership.

E.g.: Book publishing industry, real estate, banking, printing industry, Transportation, Restaurant chain,

furniture industry, paper and paper board, packaged water, health care and salt.

Reason for market fragmentation

1. The market demand is very extensive the market size is very large & hence there is room for

multiple players to co-exist simultaneously & cater to the wide variety of buyers needs across

geographic location.

2. Such categories have low entry and exit barriers.

3. In such a category scale often scale doesn’t amount to any kind of advantage hence smaller and

regional player can compete on equal footing.

4. Often buyer demand small lot of custom and highly differentiated product offering & hence volume

are not large enough to support the investment on critical value chain that may yield into

competitive advantage.

5. In category like apparels, the market for the product is often global & companies face similar

competitive pressure in all countries.

6. Too many competitive technology &business process give rise to multiple product variance

&customers have ample choice (high bargaining power) to switch e.g.: restaurant and fast food

quick service.

7. Industry is too young & nascent aspirant with many aspiring contenders, yet no firm has any special

resource advantage to capitalize on

8. Low entry barrier ensure the threat of new entrants and threat of substitutes is always high.

9. Hence strategy to compete can arise out of

a) Serving a broad or focused target Broad =HLL, Focused=Johnson & Johnson

b) Pursue a low cost or niche differentiation strategy.

Strategic option

1) Create standard operating procedure to identify with levels of customer expectations.

E.g.: Quick service restaurants, walmart retails mart. Croma Airline

Firms operating in the fragmented industries particularly service will look to standardize the value

delivery across geographic often globally.

2) Be a low cost operator particular when the category is price sensitive or the industry has intense

rivalry.

3) Firms can offer economy products having no frills, keep overhead low & dedicated their operation

to create cost effectiveness, saving for which can be used for price wars.



4) Pursue focused differentiation strategy based on

a. Product type- niche Harley Davidson, Hummer, Porsche

Focused based on:

Customer type: Where is the need of the customer? Customer becomes cornerstone of the

strategy.

E.g.: bargain customer, luxury/status brands (Rolex, omega), Fine dining restaurants.

5) Firm may pursue focused based on geographic & attempt to dominate local/regional territories

(Guerilla companies).

6) Firm in fragmented industries need to employ strategic degree of freedom i.e. to employ one or

more of the above option concurrently to achieve advantage.

Strategy of the companies pursuing rapid growth:

It is tailored for firm who are focused to achieve above average industry growth rate in term of revenue

& profitability YOY.

Essential component of portfolio strategy will include:-

a) Strategy for short term: will be company fortify and extend the company big position into all

existing category & segment that the industry series. This will typically include adding new product

lines, extending the brand, entering new geographic territories & launching offensive strategy aimed

at grabbing market share by capitalizing opportunities in to growth areas

b) Medium Jump initiatives 3-5 years horizons aims to leverage the existing resources & compatibilities

to extra new business that promise growth potentials

c) Long range planning – Strategic initiatives to show the seeds for the business of the future by the

aggressive pursing R&D, initiating the startup ventures & looking to commercialize the new product

ideas.

Conclusion: Most times restrict their activities to option (a) & do not aggressively pursue options (b) &

(c). Firms need to shine the right balance & priorities the things of 3 options. Risk factor is pursuing the

option (b) & (c) are high. Since it stays away from the firms core competencies & big for with a firm

ending up entering a big it was not switched to mixture of 3 increases the odd of & provide protection

against adversity in present or newly entered by.



Strategy for Industry Leaders

Powerful & stronger than average industry players who have a successful & a proven strategy out

Porter’s generic model which resulted in SCA, Industry leadership & dominance.

E.g.: Starbucks in coffee, Microsoft in s/w, MacDonald’s in quick service restaurant service

category, Noha in Mogles, Genttle in Ragos, HP in printers, Levis in Denim, Aruagon in E-tailing,

E-bay – online Auction, Walmart – every day low pricing.

Key concern areas would be to fortify leadership & defend from attackers

Strategic options include:

1. Offensive strategy:

a) Leaders generally stay in the offensive to capitalize 1st

mover advantage retaining constantly

proactive with high rates of innovation.

b) It hence forces rivals to always be in the catch up mode by constantly introducing new

technologies such firms believes that being offensive in the best form of defense.

c) Leader firm constantly strives to create new benchmark, new product ideas, offer more

attractive & differentiate attributes with high service levels at a lower cost than the rest of the

industry.

d) Include initiative to expand the category in terms of the usage (e.g.: Kellogg – breakfast ->

snacks -> wt. loss , Mobile coke 500ml,250 ml, can party pack)

a. New segments (e.g.: Horlicks – children, Jr. Horlicks, Women Horlicks)

b. New markets (New geographic)

2. Fortify in defense strategy

a) Hold on to current market share, strengthen the business position by capitalizing first mover

advantage & sustain competitive advantage.

b) Raised operating levels / value delivery by investing in the areas the customer service,

advertising, promotions & product innovations

c) Introduce more products & brands in multiple benefits areas at multiple price points to serve

broad customer segment to present encirclement by competition

d) Make it harder for a customer to switch by value adding the augmented product in the areas of

the personalized service & reorganization ,offering loyalty programs, offering extended

warrantees & guarantees, offering exchanges & upgrades

e) Keep the price vs. quality ratio attractive; add capacities to discourage new entrants if there is

an anticipated future demand.

f) Block out competition

a. Applying for the patents & IPR

b. Renegotiate contractual terms for exclusivity with supply chain partners & forward

channel partners



3. Big Daddy Strategy OR Muscle flexing strategy

a) Leaders generally react sharply to offensive move by threading industry player by matching or

exceeding the price cut, launching aggressively counter initiation in advertising & promotions,

offering better deals & bargains, increasing distribution margins flattering an enrichment, last

but not the list leap frogging

b) Resort to arm twisting if a leadership power does exits.

E.g.: Reliance does this in finished goods area, create a block for importing by the supplier

influence the government

E.g.: Coke, Pepsi, Cadbury & Schweppes.

Strategy for Runner up firms

1) Runner up firms are market challengers generally not the pioneering firms, Cash rich industry

leaders generally known as “2nd

tier firms “

2) They strive for increased market share in the quest for competitive Advantage & Industry

Leadership.

3) They however lack in some firm resource capabilities (Scale , technology, Scales & marketing

expertise & finance )

4) Lower Brand Equity.

Strategic approaches:-

1. Offensive Strategy:-

i. You cannot beat the leader thru a try harder strategy or an invitation process. Firm’s needs to

create its own capabilities to counter attack Leaders distinctive short set is apart from rivals &

draw buyers attention aspiring challenge needs to strategy. To aim at build SCA & eliminate imp

competitive disadvantages. Never take the leader lead on with an initiative strategy.

ii. Introduce next generation technology or break through new product ideas by introducing a

better product than the first mover with highly differentiated attributes.

iii. Continuously built a favorable perception amongst targeted consumers in terms of Brand Image

& reputation through appropriate advertising & communication.

iv. Adapt to evolving market conditions & changing consumer preferences over the large player’s

who are generally known to be slow in reacting the change.

v. Forge strategic alliance & rework/renegotiate contracts with supply chain & distributers.



vi. Drive down costs & use cost advantage to win consumers through price discounting.

vii. Adopt an extra value differentiated strategy based on quality /technological superiority increase

service levels & high rate of innovation.

Conclusion: - Such offensive Strategies can help challengers nibble away market shares from Leaders.

2. Growth via acquisition:-

i. Runner up firms can merge with like sized firms or choose to acquire a financially weak regional

firm to gain foothold in new customer segments & increased share of market. However after

Merger & Acquisition the management should have capabilities to integrate the operations of

the new entity & the combined force multiplier effect should create stronger resource

capabilities leading to advantage.

3. Vacant Niche Strategy:-

i. Focused on a specific segment or a need benefit application area i.e. currently vacant since

leaders choose to ignore this opportunity. E.g... Colgate variant such as active salt tooth paste

Dabur acquiring Balsara for ayurvedic toothpaste room freshener & hygiene products. Air

Deccan pioneer in the low cost segments on feeder routes (Non metro)

ii. The area or niche selected should represent a profitable business opportunity.

iii. Pursue “ A CONCENTRATED SEGMENT SPECIALIST STRATEGY “ were a firm trains its

competitive efforts on a very narrow front or just in terms of product design, usage & target

segment chosen exp. Johnson & Johnson. Their advantage in superior techno depth, expertise

valued highly by customers & capability to beat rivals.

iv. Superior product strategy where the firm uses a focused differentiation start by giving the

product offering attributes viewed as unique & extra value by customers arising out of superior

product quality. Exp: - Raymond as a company pursue this. All value chain activities performed

internally & externally are aimed at satisfying the quality conscious customer. E.g.:- Tiffany in

Diamond, Bally in Sholes.

v. Distinctive image strategy :- were in a firm adopts a strong positioning stands & hence develops

a reputation around a particular value delivery area

E.g.: Pricing Walmart, Bigbazar, providing for prestige & quality at lower price points as

compared to competition in the same category exp:- Skoda lowest in 10-13 lakh superior service

ICICI Bank, 8 to 8 banking.

Unique product attributes/innovation (Sony) or creative advertising (Amul)



Turn around strategies for critically sick companies / crises ridden co’s

Features of crisis ridden co’s

1) It happens when firms compete in an industry with generic commodity products, low levels of

differentiation thus the PLC and as the industry matures they at the best achieve an also ran “me

too” status.

2) Such firms manage below average industry profitability and do not posses required resources and

capabilities to compete effectively in the industry

3) They are financially weak and have deployed an inefficient competitive strategy often with poor

execution capabilities. In a weak economy/ recession and fast changing consumer preferences can

further weaken the business position for such firms.

4) All above factors can lead to financial debt due to high cost and low price realization further

burdened by excess capacity and inventory.

5) Often such firms adopt overtly aggressive pricing in the quest for scale and market share ignoring

profitability at times. They yet get beaten by more focused rival and lack of innovation and in-house

R&D is the reason for lack of any kind of credible response.

Strategic Options:

1) Offensive turn around strategy

a) Pump in financial resources (CDR – Corporate Dept Restructuring); revamp product line

either on a low cost focus or a high differentiated focus in order to appeal to consumers.

2) Fortify and defend :

Use variation and alternatives pursued by rival to capture market share form the chosen rival

3) Strategy revision in following acres:

i) Revamp all internal operations and revisit cost across the value chain

ii) Revisit all functional area strategies

iii) Merge or acquire small, weak regional players that compliment the firms strategic business

fit.

iv) Compete on a narrow front as close as possible to core competences in product line and

geographics.



4) Boost Revenues

a) Revenue building options include price cuts, value for money products extending he line

giving value added services & increase level of promotions. This will be adopted if the firm

pursues focused cost leadership.

b) Pursue a focused differentiation strategy improve quality and brand image and serve the

quality conscious segment at higher prices

5) Sell off all non-performing assets, non-viable plants, reduce workforce and employ content

labour, eliminate wastages & unnecessary frills from the product design that consumer’s don’t

perceive as values (Bring in cash)

6) Combination efforts of many of the above point’s turnaround strategies are fraught with danger

and high risk & more often than not fail due to lack of financial resources.

Conclusion: In case if the turnaround strategies don’t work as part of the end game firm may pursue

liquidation as the last resort. Liquidation strategy may be:

a) A quick exit by selling off to a stronger rival

b) A slow exit after harvesting short term cash flows.



BCG Portfolio Matrix: Share Growth Matrix

Boston consulting group introduces this matrix to help highly diversified companies engaged in multiple

related & unrelated business activities to understand:

1) The competitive business strength of the fir within the various categories that it competes in.

2) Whether the performing businesses are generating surplus cash & whether the cash is required to

support the business

3) Identify businesses having weak competitive position to understand future prospects and cash

needs

Conclusion:

Hence the BCG portfolio share growth matrix is a “Financial Tool” which helps a firm identifies future

investment needs including the source of surplus funds to the airing businesses which are cash negative

& require funds.

Highly diversified companies into related & unrelated businesses, restructure the organisations by

industry type wherein each business has a standalone independent identity known as SBU or Business

Vertical.

Each SBU constitutes the firm’s activities in a chosen industry category which has its own cast / profit

structure and business dynamics. The business of the SBU is headed by an Industry specialist who

receives a one time investment from the parent / holding company for the startup venture & is

expected to sustain its business activities from the operating revenues thereafter.

Post breakeven the subsidiary SBU continues to fund itself from the internal accruals & after a pre-

determined period starts paying royalty to the holding company.



BCG Matrix of Google as a company



1. STAR:

In the introductory and growth stage of PLC the market is characterised by high growth rates and that

firm having the largest market share is a structurally attractive industry is known to be a “STAR”.

2. ? or Problem child:

Is that firm which is a high growth structurally attractive market has weak competitive business position

due to each of industry leadership.



3. CASH COW:

Cash cows are those stars that enjoyed market dominance in the fast growth market, which continue to

maintain their leadership position as the category matures.

Cash Cow enjoys the largest market share, above industry average price realisation and profitability and

unlike stars the surplus cash is not required to support the future of the business. It is from cash cows

that the company can drain funds for growing problem child/? Who are generally cash –ve but yet

competing in structurally attractive industries where customer acquisition is paramount.

4. DOG :

Are such firms whose products despite being in the market all the lifecycle have not managed to secure

any sizable market share or advantage. They suffer from a weak business position and since we are in

the matured stage of PLC where growth has stagnated and market share are defined, it becomes

extremely difficult to recover.

Hence for dogs unlike cash cows, the market will be structurally unattractive.

Problem Child STAR CASH COW DOG

Business

Position

Comparatively

weak

Leadership

/dominance

Leadership

/dominance

Weak

Industry

Attractiveness

Highly

Attractive/High

growth.

Afraid to pursue

aggressive

customer

acquisition.

Highly

attractive/high

growth

Firm to pursue

aggressive

customer

acquisition

Attractive /

Rotate and

Harvest

Cash.

Unattractive

due to lack of

business

position.

Stage in PCL Growth Growth Mature Mature

Product Aggressively

pursue a broad

product life.

Strategy broad

on line

extension.

Same as

Problem Child

Maintain all

profitable

and broad

product lines

that help

firm to

achieve

leadership.

Narrow down

to only

profitable and

contributing

products(Areas

of Strengths)

Price Selective price Reactive Price Maintain Will come to



cuts. cuts. Prices cost + pricing.

Place Intense

distribution

Maintain Narrow down

to focus on

performing

geographical

areas.

Advertisement /

Promotion

Aggressive

pursue SOV to

acquiring SOV to

acquire

customer

Do it on

seasonal

reactive

advantage

Withdrawn

Cash Position Negative and

not sufficient to

meet the

demand of

business.

Positive Highly

positive

Negative or

positive

depending on

how broadly

stretched.

Profit

Disposition

N:1, N.A. in fact

it needs

investment.

Profits are

reinvested.

Use for

future

investment

N.A.

Future Strategy a)Receive

Investment from

cash cow

brands.

b)Pursue various

offensive

strategies to

gain market

share.

a)Offensive

strategy

b)Fortify and

defend to

maintain

leadership

position and

advantage.

a)Maintain

leadership

position in

mature

market i.e.

defend core

business

position.

b)Rotate and

Harvest cash

c)Rotate

basis of

investment

a)Operate

around areas

of strength

b)Harvest

available cash

as part of end

game strategy.

c)Exit thus

_____


Conclusion:

Movement of portfolio

1) Corporate planners need to observe the movement of the responsible businesses

vis-à-vis industry with regard to competitive business position.

2) To understand which businesses are cash

investments.

3) It helps to identify the cash cows which provide the firm a source of funds for future

investment.

4) Ideally is high growth markets firms would want

leadership and

markets.

BCG Matrix of Maruti Suzuki

• SWIFT

• SWIFT DESIRE

• ZEN ESTILO

2 STAR

• ALTO

• WAGNOR

• Maruti

3. COW

Notes by Prof. Sanjayan Nair

Notes Compiled by: Students of PTM Batch 07

Corporate planners need to observe the movement of the responsible businesses

vis industry with regard to competitive business position.

To understand which businesses are cash positive and which categories require

It helps to identify the cash cows which provide the firm a source of funds for future

Ideally is high growth markets firms would want therein ‘?’ to move towards

leadership and become “stars” which in turn will become “Cash cows” as mature

ALTO

WAGNOR

Maruti 800

• GRAND VITARA

• A STAR

1 QUESTION MARK

• Baleno

• Omini

• Versa

4.DOG


Corporate planners need to observe the movement of the responsible businesses

positive and which categories require

It helps to identify the cash cows which provide the firm a source of funds for future

‘?’ to move towards

in turn will become “Cash cows” as mature

Baleno

Omini

Versa



Diversification

Definition: Most companies have their roots in a simple industry which form the substantial portion of

the revenue and profits

Diversification becomes unattractive strategy when a company runs out of the profitable growth

opportunities in its core business

The purpose of diversification is to build and enhance share holder value and to create this, the

diversified company must enter into big areas which add synergies under a common management as

compared to a standalone company.

Objectives:

1. Add value to existing or new customer base.

2. Augment company advantage by broadening present businesses.

3. Transfer existing capabilities to new businesses.

4. Save in costs by integrating cross business strategy fits.

The attempt should be to create synergy and fits across core value chain activities like R&D, technology,

supply chain, manufacturing and distribution.

Economies of Scope:

Are cost reduction that arise from a firm operating in multiple business environment, related and

unrelated, the economies of which can be leveraged across the strategic fits in the value chain.

Types of Diversification:

1) Introduction related areas

Where there is a matching value chain and there exists a comparatively valuable relationship which can

be leveraged in various areas. Hence, Standalone firm looks to add business whose value chain possess a

similar strategic fits to that of the existing business. Hence :

a) Firm can transfer expertise and technology for one business to another.

b) Combine activities of each business into a single operation identity often at lower cost.

c) Share a common mother branding.



Target audience is different. Cost/Profit structure is different.

Plastic from this

industry is used

for lenses

(Baby care Products) Jonson & Jonson

Surgical

Equipment and

hospital

products

Sanitary Napkins

Personal Care

Skin care lotions -

Neutrogena

Acuvue Contact

Lenses

Band Aids,

First Aids Prescription

Drugs and

Over the

counter

products

Jaipur Foot

Prosthetic &

Medical Device

(Surgical

Equipments)

Mother Brand TATA MOTORS

LCV’s

B2C Buses

B2B

Commodity Vehicles / Trucks

B2B



d) Create enhanced resource strength and capabilities through related diversification i.e. transferable.

Leveraging of cross business strategic fit :

1. R&D and technology :

Diversifying into businesses where there is potential for sharing common technology and its

derivatives result in potential time and cost savings in R & D and product development.

2. Supply chain :

Can perform better at lower cost if potential exists for transfer of skills in procuring Raw Materials

from a common supply chain there by increasing the bargaining power of suppliers to negotiate

lower input costs.

3. Manufacturing :

Strategy fits in production related activities can give rise to advantage provided diversifying firm can

incorporate common integrated designs, quality control systems, standard operating procedures, JIT

and training, that can be seamlessly transferred to other businesses.

4. Distribution:

Since the product type is longly the same in related diversification, distribution activities can be

done at a lower cost by sharing common existing facilities.

5. Sales:

Variety of cost savings arises when the same sales force can be used to sell multiple product lines.

Advantages:

i. Related diversification can lead to huge cost savings whenever two competing value chain can

be interpreted to consolidate overall business position.

ii. Related diversification is hence an attractive option when the integrated value chain strategic fit

is converted in a SCA over rivals.

Baked

Snacks Aliva Bottled

Water

PEPSICO

Quaker Oats &

B/F Cereals Frito Lays,

First acquired

Uncle Chips

Lipton Iced

Tea

Soft Drinks

Juices (Supply stores

are different but

distribution is same) Sport Drinks

GALTORADE



2) Into unrelated areas:

Certain companies who are cash rich from their existing businesses are willing to diversify into ANY

INDUSTRY WITH GOOD PROFIT OPPORTUNITIES. There is no deliberate attempt to seek a strategic

resource fit in value chain alignment with existing businesses.

The base pre-condition for the unrelated diversification is that the business should be acquired under

good financial terms and has a bright future. Such firms aim to acquire companies of following types.

a) Those whose assets are undervalued.

b) Firms under financial stress.

Widely diversified firms serving broad industries in unrelated areas are known as “CONGLOMERATES.”

Advantages:

1) Business risk is scattered over diverse industries

2) Resources may be employed in areas that represent the best profit opportunity.

3) Companies de-risk their business and earn stable profits due to diversification i.e. hard times

in one industry will be offset by good times in another industry.

E.g. ITC, Aditya Birla Group, Larsen and Toubro.

Disadvantages:

1) No company advantage arises since the value chain share no cross border strategy fit.

2) Company diversifies into areas and businesses where it has no experience or proven

capabilities to succeed.

3) Contribution of related and unrelated diversification:

This is when a company’s core business account form nearly 75% of its total revenue earned, the

remaining share coming from small related and unrelated businesses.

The general strategies for entering new businesses are M&A, Greenfield internal startup and JV’s and

alliances.

E.G. Suzuki Motor Corporation – 75% ->Bikes and Cars -> Supply chain & Parts.



Parameters to Judge Diversification

Whether diversification is warranted or not is done by the following methods:

1) Industry attractiveness test:

Using 5 forces model where in sole criterion should be that the chosen industry must yield good ROI.

2) Cost of entry test:

The entry barriers of the cost to entry for the target industry must not be exorbitant or protective to

make it in attractive. Since the larger the gestation time to achieve. Breakeven, larger is the risk and

hence threat potential to erode profitability.

However, structurally attractive industries have been known to be expensive to get into & buying an

existing company with strong market entry costs. Hence the cost of entry test can help the firm

understand the prospects of profitability and company’s ability to deliver shareholder value.

3) “Better OFF “ Test:

Company diversifying into new business must offer potential for firms existing business + the new

business in order to perform better.

Diversifying firms need to test whether cross strategic fits will enhance the company’s competitive

ability in reducing costs, transferring skills and technologies & leveraging combined resource into

competitive advantage.



Strategic Audit

It is an operational framework designed to access whether the firm’s corporate strategy is delivering the

desired results. Any strategy that is formulated is generally speculative & the critical risks or success

often lies with the external environment which is non controllable.

Hence, firms resort to periodic appraisals of the KPI’s & to access performance gaps and their solution as

part of the audit outcome.

Some organizations do strategic audits as a matter of periodic routine while some forms conduct it

when they see negative operating signals.

What are the KPIs?

1. Qualitative and Quantitative performance indicators namely

a. Market Share

b. Net Realisation

c. Profit Margins

2. Stock Price & Earning per share

3. Market penetration, launching of new product ideas and the success there of.

4. Extent of value delivery, brand image & perception by consumers.

5. Are the policies & action plans as per the strategy approach appropriate?

6. Does the strategy build company’s strength and resource capabilities adequate enough to gain

competitive advantage?

7. Whether the company’s strategy is workable for the future.

Implementation of the audit

It aims in understanding whether the strategy employed has helped the company to meet its

benchmarked KPI’s. Following Questions need to be asked as the part of the audit.

1. Whether strategy is consistent with the firm’s culture, capabilities, values & ethics.

2. Whether the strategy is structured to achieving stated marketing business objectives.

3. Whether the information systems in the company monitor strategic implementation and provides

for real time, business intelligence that helps the firm to fine tune strategy.

4. Whether there is a consensus within the company’s strategic formulation and implementation.

5. Whether there is weight balance in the company’s efforts in monitoring the present & preparing for

the future.

6. Whether the strategy deployed is consistent with the actual business priorities of the firm.



Conclusion:

It is the best way to address & access a wide array of complex and independent issues that need to be

analysed to reap growth and profits fro strategic planning.

Firm also need to periodically visit core value chain activities to ensure that technology & processes are

contemporary & their costs are an industry benchmark.



Change Management

Change Management can be diagrammatically represented as

When it happens

1. Take over Mergers and Acquisition \ Cross border (New Geographic)

2. Retrenchment \ Ethical Downsizing

3. Culture change \ New management

4. Adopting New Technology\ Business Process

Pre- requisites for Change Management

1. Pain – When a critical mass of information is disseminated to employees which breaks the

current status quo within organisation

2. Remedy – Certain desirable and accessible actions that solve issues around the current state

and move it towards the desired state

Key Issues facing the Management –

a) Will the people choose to accept change

b) If they don’t should you force change

c) Under forced change, will it result in desirable benefits

Present

State

Transient

State

Desired

State

Pain Remedy



Major requirements to affect change?

1. Continuous commitment and involvement of Top Management

2. High Degree of Trust and integrity on the change management agent who drives change

3. Patience in terms of time frame needed to allow benefits of change to be seen in organisation

4. Change is generally an expensive process that needs to be done if current status is even more

costly

5. The change driver should understand that introducing change will result in significant disruption

in firm’s working and employees lives

6. Change should be consistent with the current culture of the organisation for it to be largely

successful.

Change management process.

Stage 1: Choosing the target actions

i. Identifying the broad areas to change.

ii. Select the best available opportunities to communicate that change is required and how it

will affect them

iii. Communicate to all concerned the intended benefits and gain employees commitment to

initiate the process.

Stage 2: Setting realistic goals and timeframes

i. Test the feasibility of employees embracing change by initialising the localised area with a

focused group of employees.

ii. Develop a clear understanding of the future requirements I n terms of resources and

capability to adapt change.

iii. Develop specific goals and action plans with timeframe and commitment from all

shareholders. To achieve change stake.



Stage 3: Implementation

i. Initiate the plan by involving all those who must change, constantly communicating the

need for change and methodology being adopted.

ii. Create a clear shift in working patterns through mentoring. Counselling, teaching, and

directing methods thought trai8ng and start moulding employees. From transient state

towards desired state.

iii. Demonstrate the effectiveness of plane and progress towards new state with tangible

benefits as proved.

Stage 4: Review process

i. Periodic review during implementation, encourage and support people who are making

efforts to change.

ii. Define the process based on employee feedback

Stage 5: Rebalance organisation to change state.

i. Identify the ripple effects of change on overall organisation in terms and its systems, write

down to department and individual levels.

ii. Integrate these changes towards new systems and attitude of desired state at individual

level

iii. Integrate these changes towards the new systems and attitudes of the desired state.

Stage 6: Consolidation

i. Audit accomplishment against the original goals.

ii. Identify what work and create a tried & tested module out of the same.

iii. Share the entire learning process across the organization.



Acquisition / Takeover Strategies:

Targeted Options

1. Look for company for net operating losses but have strong turnaround prospects.

2. Seek a cashless company, which has not exploited its market potential or has undervalued licensed.

3. Seek an under capitalized company where promoter’s stake low and mount a hostile takeover

initiative.

4. Watch out for family run business with no proven successor.

Steps involved in Takeover Process

1. Estimate the degree of over subscription of the stock of the company that you intend to acquire in

consultation with primary market brokers.

2. On the basis of this information, apply for a quantum of shares whose allotment exceeds the

promoter’s stake.

3. Purchase further shares from the market to increase the holding in the company.

4. Offer shares to be bought out from financial institutions that are looking to exit.

5. Buyout foreign investors and minority NRI stakeholders with an offer of marginal premium.

6. Make an open offer to Indian stakeholders or their portfolio managers by offering suitable premium.

7. Initiate all out stock market purchase on all stock exchanges with maximum publicity.



Identifying Competition

1) Who is a competitor?

i. A firm that competes in the same industry or Category with identical product & services. E.g. Asian

Paints, ICICI. Companies supplying substitutes or duplicates in an allied area can be perceived as indirect

competition.

ii. Those who Offer Product & Services to the same consumer/ Industry segment. E.g. Surf& Ariel / Nirma -

Wheel.

iii. Those firms which have similar cost profit structure, strategic business fit & similar scope of business

strategies.

iv. Those firms which offer products & services near similar price points.

In goods that are bought on “Impulse” – there is more chances of “Fatigue Factor”. So the product line

becomes huge. E.g. various types of Biscuits. In order to deal with fatigue factor products have to -

diversify.

1. Allied Areas. 2. Original Positioning ( should not loose)



LEADERS COMPETITIVE STRATEGIES

1) What makes Leader a “Leader” / Characteristics? What makes him special?

1. First Mover Advantage (Pioneer) becomes a benchmark in the category.

2. These companies are known for high level of differentiation of Innovation due to access of

Technology & hence always stay a step ahead of competition.

3. Having the largest market share, they enjoy Cost Leadership due to scale consideration

(economies of scale) helping them to buy Raw Materials at cheapest prices. They often

Backward Integrate.

4. They have excellent distribution Infrastructure of extremely competent personnel.

5. Share of Voice (SOV) is generally highest in the Industry & Considerably monies are spent on

brand building activities.

Leaders Strategies

1. Position Defense- Defense of created Leader Market share.

a. Innovative / Leap Frogging (think Ahead)

b. Defend existing products share of Market ( Offensive strategy)

Selective Price Cuts.

• Extend the brand/ extend line.}

• Serve Multiple benefit areas } ENCIRCLEMENT STRATEGY

• Serve multiple Price points}

• Serve multiple SKU’S }

• Lowering Entry barriers ( makes the product Affordable)

“Affordability drives Consumption”

Create trials

Increase SOV (Advertisement)

2. CHALLENGER STRATEGIES STRENGTH (SOM)

1. Attach the leader from all sides ( Offensive)

E.g. Mc Donald’s- Leader – Standardisation of product in all outlets. Burger kings – challenger. E.g.

Earlier soups were available in Cans but now in coastal areas it would rust so Maggi came up with

soup powders.

2. BYPASS Strategy:-

E.g. Pepsi became a complete Beverage Solution company from a Carbonated Soft drinks Company.

Pepsi – Juices- Snacks food –Lays.

3. Strategies of Attack.

a. Replicate Market Leader Strategy.

b. Lower Price

c. Encircle him ↑ Product ↑ Price



↑ Good / Better Product – same price.

↑Product --↓ Price

↓ Product -- ↓ Price.

3. FOLLOWERS – DISCOUNTING STRATEGY

“FOLLOWERS HAVE NO STRATEGY”

i. Followers create or sell imitation products/ “ME TOO” Products with low level of

differentiation.

ii. They serve price sensitive markets & use the discounting strategy as the biggest weapon.

iii. They serve price sensitive products generally a lower segment of markets.

They should play by there strength Low Cost imitations, volumes, Pricing.

E.g. Wall Mart- 7000 stores across the world. (low segment players)

↓

(He works on Cost Leader Strategy) e.g. Cambridge (uses cost leadership strategy)

4. NICHER

They are known as “segment Specialist” – focused strategies. They conduct Business activities in narrow

line in terms of:-

a. Type of Product

b. Consuming Segment Chosen

c. Niche should adopt focused strategies centered around areas of core competency& strength

namely,

1. Quality – Differentiated Products- Armani, Porche Cars, Hummer, Harley.

2. Cost – Cambridge, Nirma, Wall mart. ( volumes)

Nicher Produces only High End or Low End products. They are never in the Middle Segments.



Vote of Thanks

Heartfelt thanks to following students who contributed in compiling these notes. These all are part of

Welingkar Institute of Management, Part time masters Batch Year 07-10.

Thanks a lot to you all & All the Best!

� Rupesh Malewadkar MMM

� Swapnil Pednekar MIM

� Sonal Khanolkar MMM

� Sandesh Desai MIM

� Tejal Rajgore MHRDM

� Dr. Murtuza MHRDM

� Virendra Dubey MMM

� Bhushan Malshe MMM

� Prasad Vinod MMM

� John Bosco MMM

� Santosh Kotian MMM

� Amit Karnik MMM

� Vaishali Jhaveri MMM

� Bhaskar Soni MMM

� Abhijeet Dabhade MMM

� Pragati Pednekar MFM

� Karen Reuben MMM

� Anurag Singh MMM

� Venkatesh Swaminathan MMM

� Sandeep Kambli MIM

� Tejas Kulkarni MIM

� Richard Varghese MIM

� Rajesh Panchal MIM

Strategic Management

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