3 Strategy Lecture 4 5

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Analyzing CompetitiveLandscape of Business

(Teaching Notes)

Dr S. K. Majumdar

Note: This Teaching Notes contains many of my own work as well as it

has adapted slides from variety of sources.



The Strategy FocusedOrganization *

Mission:“Why We Exist”

Core Values:“What We believe In”

Vision: “What We Want to Be”

Strategy: “Our Game Plan how to win)”

Goals For Implementing Strategy Metrics):

“What We Need to Do”

OUTCOMES

Satisfied

Shareholders

Delighted

Customers

Effective

Process

Motivated and

Prepared Workforce

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e S t r a t e g y F

o c u s e d Or g

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a t i on

, R o b e r t K

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B u s i n e s s S c h o ol P r e s

s ,2 0 0 1

23-Jan-14 SEC 2Dr. S. K. Majumdar



These Slides are Assimilation of

Various View Points and Issuesof Strategy Formulation

23-Jan-14 SEC Dr. S. K. Majumdar 3



The Definition of Value


price

e PerformancValue

price

Innovation y Flexibilit TimelinessQualityValue

P I F T QValue

Question is: How to create differentiation and Lowering costs?



Strategic Planning and Analysis

• Planning how to get more than yourfair share involves:

1. Scanning the overall environment

2. Scanning and researching the industryenvironment

3. Researching direct competitors

4. Researching a firm’s skills andresources

5. Analyzing current strategy




Determining Strategy

• To determine strategy, answer the followingquestions:

– Which of our products/services are the mostdistinctive?

– Which of our products/services are the mostprofitable?

– Which of our customers are the most satisfied?

– Which customers, channels, or purchaseoccasions are most profitable?

– Which of the activities in our value chain are themost different and effective.

– How can we make everything better? Now!




Key Questions are

1. What are those products, services and policies

that would win the hearts and minds of target

customers and impel them to pay?

2. How do you create and deliver those products,

services and values for your customers?

3. How do you defeat your competitors in this

war of creativity?

4. What are the most useful tools and techniques?




To Develop a Winning Formula, One has to Find out:

1. What is the type of Organization? (Industry/Business Sector Analysis)2. What are its Products & Services? (Value Propositions)

3. Who are its Customers? (Target Customers – Market Segmentation)

4. Who are its Competitors? [Competitive Landscape 5 Force Analysis]

5. What is Target Market (Market Segmentation & Market Positioning)?6. What are the Generic Macro and Micro Variable of Market? (ES)

7. What are the Prevailing Market Forces (Industry 5 Force Analysis)

8. What are the Drivers, Deterrents and Enablers of Business

9. What are Cause and Effect Relationships between and among the macro

and micro variables and Forces (Research Results & Fishbone Diagram)

10. What are the company specific, product specific and situation specific

variables for which, one has to develop a winning strategy?




Organizational Type

Organization Type Main Focus

For Profit Make Money

Not for Profit Save Money


Ownership Type Controller

Private Limited OwnerPublic Limited Share Holders

Cooperative Members

Public Sector Government or Trustees

Operational Status Scale of Operation

National Mostly Domestic Focus

Multi-National Operates in Many Countries

Trans National Operates in Many Countries



Operational Domain Holdups CSF

Manufacturing RM, Process Know-How Efficiency

Mining Availability, Community Technology,

Energy RM, Technology, Pollution R&D, Operational EfficiencyAgriculture Land, labour, climate, Fertility Production, Preservation & Distn.

Banking & Finance Capital, Rules & Regulations Service, Security & Reliability

IT & Telecom Knowledge & Skills R&D, Speed, Service, etc

Insurance

Retailing

Tours and Travels

Logistics

Pharmaceuticals

Healthcare

Real-estate

Infrastructure

Education

Consulting




Analysis of Industry Characteristics

• Emerging

• Maturing,

• Stagnant

• Declining

GrowthPerspective

• Short and Simple Value Chain

• Long and Complex Value ChainComplexity

• Fragmented

• NetworkedConnectivity




Analysis of Product Characteristics

Product

• Physical, Digitize-able, Knowledge or Service• Consumer Product, Intermediary or Industrial Product

• Utility Product, Aesthetic, Commodity or An Object of Desire

Process

• Simple, Complex, Very Complex

• Emerging, Matured Process

Durability

• Perishable (Limited Shelf-Life)

• Durable,

• Long Lasting




Analysis of Market Characteristics

• Domestic

• International (Foreign)Location

• Emerging

• Maturing

• Saturated

• Declining

GrowthPerspective

• Virgin (No Competition)• Low Competition

• Moderate

• Hyper Competitive

Competition




Analysis of Actor’s Market Standing

• Small• Medium

• LargeSize

• New Entrant• Leader

• Runner-up

• Laggard

MarketStanding

• Highly Flexible

• Moderately Flexible

• Low FlexibilityFlexibility




The Proactive and Reactive Elements of Strategy




Five Forces that Shape the Industry Competition




The Five Forces Model of Competition




Role of the Macro-Environment

Source: Michael Porter, ―How Competitive Forces Shape Strategy,‖ Harvard Business Review, March-April 1979

Rivalry amongEstablished

Firms

BargainingPower of

Suppliers

BargainingPower of

Customers

Risk of entry by

New Competitors

Threat ofSubstitute Products

& Services

Political/Legal

Environment

the Euro

deregulation

Technology

Environment

in formation age

biotech advances

Demographic

Environment

Women, ethnic groups, famil ySocial Environment

Macroeconomic

Environment

globalization






The Determinants of Competition


i i i



Neutralizing The Five

Competitive Forces

Force

Entry

Rivalry

Substitutes

Buyers

Suppliers

Method for Neutralizing Force

Erecting barriers (isolatingmechanisms ) create & exploit economies of scale,aggressive deterrence, design in switching costs, etc.

Compete on non-price dimensions: costleadership, differentiation, cooperation, etc.

Improve attractiveness compared to substitutes: better service, more features, etc..

Reduce buyer uniqueness: forward integrate,differentiate product, new customers, etc..

Reduce supplier uniqueness: backwardintegrate, obtain minority position, second source, etc..




23-Jan-14

Creating Lasting Value

1. True value lies at the

intersection of the three circles

2. Lasting value is difficult to

imitate3. Lasting value is durable — it

does not depreciate

4. Lasting value is captured by the

resource owner

5. Lasting value requires your

resource to be better than

competitors

Appropriability

Scarcity Demand

Value Creation Zone

27Dr. S. K. Majumdar



Competition and Cooperation






Changing Life Cycle of Industry

Time

S a l e s V o l u m e

Emergence Convergence Coexistence Dominance

Established Industry

Emerging Industry




Preparing for the Future : The Role of Scenario

Analysis in Adapting to Industry Change

Stages of Multiple Scenario Analysis:

1. Identify major forces driving industry change

2. Predict possible impacts of each force on the industry

environment

3. Identify interactions between different external forces

4. Identify 2-4 most likely/ most interesting scenarios:

configurations of changes and outcomes

5. Consider implications of each scenario for the company

6. Identify key signposts pointing toward the emergence ofeach scenario

7. Prepare contingency plan




MANAGE REQUIRED CHANGE TO ATTAIN COMPETITIVENESS

BusinessAssessment

Strategic

Decision

Making

Change

Management

Breakthrough

PlanningSystem

Innovation requires the

planned cannibalization

of established, familiar,

customary or

comfortable ways of

working…

whether in products or

services, competencies

or human relationships

or the organization

itself.

Conclusion:

Innovation means

that you must be

organized to

allow constant

change.




Strategy Rests On Unique Activities

• The essence of strategy is choosing to

perform activities differently than rivals do.

•

Strategic positions can be based oncustomers‟ needs customers‟

accessibility, or the variety of a company’s

products or services.

• Change is happening too fast.

• Remember “Structure follows Strategy”


What Factors Are Driving Industry Change and



What Factors Are Driving Industry Change and

What Impacts Will They Have?


• Industries change because Market forces

are driving industry participants

to alter their actions

• Driving forces are the

major under lying causes

of changing industry and

competitive conditions

• Where do driving forces originate? – Outer ring of macro-environment

– Inner ring of micro-environment



CHAIN OF CAUSATION

Our Survival is dependent upon Growth of business

Our business growth is largely determined by Customer

Satisfaction

Customer satisfaction is governed by Quality, Price and

Delivery

Our process capability is greatly limited by Variation

Process variation leads to an increase in Defects, Costs and

Cycle -Time

To eliminate variation, we must apply the right Knowledge

To apply the Right Knowledge, we must first Acquire it

To acquire new knowledge, we must have the Will to Survive




Gary Hamel: New FoundationsOLD BRICK NEW BRICK

Top management is responsible

for setting strategy

Everyone is responsible

for setting strategy

Getting better, getting faster

is the way to win

Rule-busting innovation

is the way to win

IT creates competitive advantage Unconventional business concepts

create competitive advantage

Being revolutionary is high risk More of the same is high risk

We can merge our way to

competitiveness

There‟s no correlation between

size and competitiveness

Innovation equals new products

and new technology

Innovation equals entirely new

business concepts

Strategy is the easy part,

Implementation the hard part

Strategy is the easy only if you‟re

content to be an imitator

Change starts at the top Change starts with activists

Our real problem is execution Our real problem is innovation

Big companies can‟t innovate Big companies can become gray-hairedrevolutionaries



Economic Sense of Business Model

• A business model addresses “How do we Make/Save money in the business ”

– Is the strategy capable of delivering good bottom-line results?

• Do the revenue-cost-profit economics of the strategy make good business sense?

– Look at revenue streams the strategy is expected to produce

– Look at associated cost structure and potential profit

margins – Do resulting earnings streams and ROI indicate the strategy makes sense

and the company has a viable business model for making money?




Four Dimensions of Strategy

Differentiation (Quality; Uniqueness;

e.g., Luxury cars, Fashion Industry,

Brand Name Drugs)

Cost Leadership (Price;

e.g., Wal-Mart, Southwest

Airlines, Generic Drugs)

Responsiveness/ Speed (Reliability;

Quickness; Flexibility;

e.g., Dell, Overnight Delivery Services)

Competitive Advantage through which

the company market share is attracted


Value Vision

Compliance (Core

Ideology and Big, Hairy,

Audacious Goals (BHAGs)

Visionary Institution; e.g.

Tata Nano, Infosys )



Three Generic Strategies

• There are three generic (primary)

strategies:

–

Differentiation – Focus (niche marketing)

– Cost leadership

•

These definitions characterizestrategic positions at the simplest and

broadest levels.




Secondary Strategies

• Within the three basic strategies, there areseveral secondary strategies: – Defense: Block competition to avoid losing

market share.

– Offense: Attack competition head on.

– Flanker Brand: Establish new position.

– Fighting Brand: Create a new brand tocompete with competitive new brand.

– Guerrilla Marketing: Force competition torespond with small resources.

– Ambush Marketing




Generic Strategies and Industry Forces


Industry

Force

Generic Strategies

Cost Leadership Differentiation Focus

Entry

Barriers

Ability to cut price in

retaliation deters potential

entrants.

Customer loyalty can

discourage potential

entrants.

Focusing develops core

competencies that can act

as an entry barrier.

BuyerPower

Ability to offer lower price topowerful buyers.

Large buyers have less

power to negotiate because

of few close alternatives.

Large buyers have less

power to negotiate because

of few alternatives.

Supplier

Power Better insulated from

powerful suppliers.

Better able to pass on

supplier price increases to

customers.

Suppliers have power

because of low volumes, but

a differentiation-focused firm

is better able to pass on

supplier price increases.

Threat of

Substitutes Can use low price to defend

against substitutes.

Customer's becomeattached to differentiating

attributes, reducing threat of

substitutes.

Specialized products & core

competency protect against

substitutes.

Rivalry Better able to compete on

price.

Brand loyalty to keep

customers from rivals.

Rivals cannot meet

differentiation-focused

customer needs.



Profitable Niche

Measurable, Sizable, Reachable

Niche strategy advantages:

– Flexible, can adapt to new needs, small range

of needs.

– Efficient for promotion, distribution.

– Reduces competitive pressure.

– With few competitors, can be highly profitable.




Assessing Industry Attractiveness


The degree to which an industry is

ttr ctive or un ttr ctive is not the

same for all industry participants

or potential entrants.

The opportunities an industry

presents depend partly on a

company‟s ability to c pture them.





THE FIRM

Goals and

Values

Resources and

Capabilities

Structure and

Systems

THE

INDUSTRY

ENVIRONMENT

•Competitors

•Customers

•SuppliersSTRATEGY

STRATEGY

The

Firm-Strategy

Interface

The

Environment-Strategy

Interface

Shifting the Focus of Strategy Analysis:

From the External to the Internal Environment


Industry Value Chain Position of Firm



Industry Value Chain Position of Firm

Dr. S. K. Majumdar 46

Administrative Coordination & Support Services

Human Resource Management

Technology Development

Procurement of Resources

InboundLogistics

Operations OutboundLogistics

Marketingand

Sales

CustomerService

S u p p

o r t

P r o c e

s s e s

P r i m a r y B u s i n e s s

P r o c e s s e s

23-Jan-14 SEC






Cost Analysis

McKinsey’s Business System

Source: Bales, et al., 1980

Technology

Design

Development

Manufacturing

Procurement

Assembly

Distribution

Transport

Inventory

Marketing

Retailing

Advertising

Service

Parts

Labor


V l C i O i



Value Creation Options

V = Perceived Customers’ Value

P = Price

C = Costs

V – P = Customer Surplus

P – C = Profit Margin

V

PC

V – P

P – C

C

P – Controlled by Market & Completion, can not be easily increasedC – Can be decreased by efficient & innovate Production & Distribution Processes

V – P: Attracts customers P – C = Decreased Profitability.

Strategy = V, P, C to Profitability

Dr. S. K. Majumdar23-Jan-14 SEC 50





Strategic Options in Operations


Products Services

Process

and

Technology

Capacity

HumanResources Quality

FacilitiesSourcing Operating

Systems



Which Strategy to Use?

Depends on your answer to the

following:

• Is it worth fighting?• Are you strong enough to fight?

• How strong is your defense?

• Do you have any choice but to fight?




Whom To Attack?

• Weak management

• Weak financial resources

• Weak execution

• Weak corporate commitment

• Weak/old technology, design, and/or

functionality

• Weak innovation




Matching Strategy to Company’s Situation


Most important

drivers shaping a

firm’s strategic

options fall into two

categories

Firm’s Competitive

Capabilities,

Market Position,Opportunity

Attractiveness

Nature of industry

and competitive

conditions

Strategy Making in Nine Commonly



Strategy-Making in Nine Commonly

Encountered Situations

(1) companies competing in emerging industries,

(2) companies competing in turbulent, high-velocity markets,

(3) companies competing in mature, slow-growth industries,

(4) companies competing in stagnant or declining industries,(5) companies competing in fragmented industries,

(6) companies pursuing rapid growth,

(7) companies in industry leadership positions,(8) companies in runner-up positions, and

(9) companies in crisis conditions.


F t f E i I d t



• New and unproven market

• Proprietary technology

• Lack of consensus regarding which of several competing

technologies will win out

• Low entry barriers

• Experience curve effects may permit cost reductions as volume

builds

• Buyers are first-time users and marketing involves inducing

initial purchase and overcoming customer concerns

• First-generation products are expected to be rapidly improved

so buyers delay purchase until technology matures• Possible difficulties in securing raw materials

• Firms struggle to fund R&D, operations and build resource

capabilities for rapid growth

Features of an Emerging Industry


Strategy Options for Competing




in Emerging Industries

• Win early race for industry leadership by employing a bold,

creative strategy

• Push hard to perfect technology, improve product quali ty , and

develop attractive performance features

• Consider merging with or acquir ing another f irm to

– Gain added expertise – Pool resource strengths

• When technological uncertainty clears and a dominant

technology emerges, try to capture any f i rst-mover advantages by

moving quickly• Form strategic all iances with

– Companies having related technological expertise or

– Key suppliers






in Emerging Industries (continued)

• Pursue new customers and user applications

• Enter new geographical areas

• Make it easy and cheap for f i rst-time buyers to try

product

• Focus advertising emphasis on

– Increasing frequency of use

– Creating brand loyalty

• Use price cuts to attract price-sensitive buyers


Strategic Hurdles for Companies



Strategic Hurdles for Companies

in Emerging Industries

• Raising capital to finance initial operations until – Sales and revenues take off

– Profits appear

– Cash flows turn positive

• Developing a strategy to ride the wave of industry growth – What market segments to pursue

– What competitive advantages to go after

• Managing the rapid expansion of facilities and sales to

position a company to contend for industry leadership

• Defending against competitors trying to horn in on the

company’s success


What Is the Key to Success for



What Is the Key to Success for

Competing in Rapidly Growing Markets?

A company needs a Strategy for growing faster

than the market average so that it

• Can boost its market share and• Improve its competitive standing vis-à-vis

rivals


I d t M t it Th St d t F t



• Slowing demand breeds stiffer competition

• More sophisticated buyers demand bargains

• Greater emphasis on cost and service

• “Topping out” problem in adding production capacity

• Product innovation and new end uses harder to come by

• International competition increases

• Industry profitability falls

• Mergers and acquisitions reduce number of rivals

Industry Maturity: The Standout Features






Strategic Pitfalls in a Maturing Industry

• Employing a ho-hum strategy with no distinctivefeatures thus leaving firm “stuck in the middle”

• Being slow to mount a defense against stiffening

competi tive pressures

• Concentrating on s hort-term profits rather thanstrengthening long-term competitiveness

• Being slow to respond to price-cutting

• Having too much excess capacity

• Overspending on marketing

• Failing to aggressively pursue cost reductions


Stagnant or Declining Industries: The



Stagnant or Declining Industries: The

Standout Features

• Demand grows more slowly than economy as whole (or

even declines)

• Advancing technology gives rise to better-performing

substitute products• Customer group shrinks

• Changing lifestyles and buyer tastes

• Rising costs of complementary products• Competitive battle ensues among industry members for

the available business





• Pursue focus strategy aimed at fastest growing market segments• Stress differentiation based on quality improvement or product

innovation

• Work diligently to drive costs down

– Cut marginal activities from value chain

– Use outsourcing

– Redesign internal processes to exploit e-commerce

– Consolidate under-utilized production facilities

– Add more distribution channels

– Close low-volume, high-cost distribution outlets

– Prune marginal products

gy p p g

in a Stagnant or Declining Industry


End-Game Strategies for Declining



g g

Industries

• An end-game strategy can take either of two paths

– Slow-exit strategy involving

• Gradual phasing down of operations

• Getting the most cash flow from the business

– Fast-exit strategy involving

• Disengaging from an industry during early stages of

decline

• Quick recovery of as much of a company’s

investment as possible


F f Hi h V l i M k



Features of High-Velocity Markets

• Rapid-fire technological change

• Short product life-cycles

• Entry of important new rivals

• Frequent launches of new competitive moves

• Rapidly evolving customer expectations


Meeting the Challenge of High-Velocity Change



g g g y g





• I nvest aggressively in R&D

• Initiate f resh actions every few months

• Develop quick response capabil i ties

– Shift resources

– Adapt competencies

– Create new competitive capabilities

– Speed new products to market

• Use strategic partnerships to develop

specialized expertise and capabilities

• Keep products/services fresh and exciting


in High-Velocity Markets


Keys to Success in Competing



• Cutting-edge expertise

• Speed in responding to new developments

• Collaboration with others

• Agility

• Innovativeness

• Opportunism

• Resource flexibility

• First-to-market capabilities

Keys to Success in Competing

in High Velocity Markets


Competitive Features



p

of a Fragmented Industry• Absence of market leaders with large market shares or widespread

buyer recognition• Product/service is delivered to neighborhood

locations to be convenient to local residents

• Buyer demand is so diverse that many firms

are required to satisfy buyer needs

• Low entry barriers

• Absence of scale economies

• Market for industry’s product/service may be globalizing, thus putting

many companies across the world in same market arena

• Exploding technologies force firms to specialize just to keep up in theirarea of expertise

• Industry is young and crowded with aspiring contenders, with no firm

having yet developed recognition to command a large market share






Three Strategy Horizons for Sustaining Rapid Growth




Strategies Based on a



g

Company’s Market Position

• Industry leaders

• Runner-up firms

• Weak or crisis-ridden firms


Industry Leaders:



y

The Defining Characteristics

• Strong to powerful market position

• Well-known reputation

• Proven strategy

• Key strategic concern – How to sustain

dominant leadership position


Strategy Options: Industry Leaders



gy p y


Stay-on-the-Offensive Strategy

Fortify-and-Defend Strategy

Muscle-Flexing Strategy

Stay-on-the-Offensive Strategies



y g

• Be a first-mover, leading industry change

• Best defense is a good offense• Concentrate on achieving a competitive

advantage

and then widening the advantage over time

• Relentlessly pursue continuous improvement

and innovation, being first to market with

– Technological improvements

– New or better products – More attractive performance features

– Customer service improvements


Stay-on-the-Offensive Strategies (continued)



y g ( )

• Aggressively seek out ways to

– Cut operating costs

– Establish competitive capabilities rivals cannot match

– Make it easier for potential customers to switch their purchases from other

firms to the leader’s own products

• Aggressively attack profit sanctuaries of important rivals

• Launch fresh initiatives to expand overall industry demand – Spur creation of new families of products

– Make product more suitable for consumers

in emerging-country markets

– Discover new uses for product

– Attract new users of product

– Promote more frequent use

• Grow faster than industry, taking market share from rivals


Fortify-and-Defend Strategy



Fortify and Defend Strategy

• Make it harder for new firms to enter and

for challengers to gain ground

• Hold onto present market share• Strengthen current market position

• Protect competitive advantage

Objectives


Fortify-and-Defend Strategy:



y gy

Strategic Options

• Increase advertising and R&D• Provide higher levels of customer service

• Introduce more brands to match attributes of rivals

• Add personalized services to boost buyer loyalty

• Keep prices reasonable and quality attractive

• Build new capacity ahead of market demand

• Invest enough to remain cost competitive

• Patent feasible alternative technologies• Sign exclusive contracts with best suppliers and

distributors





• Play competi tive hardball with smaller

rivals that threaten leader’s position

• Signal smaller rivals that moves to cutinto leader’s business will be hard fought

• Convince rivals they are better off playing

―follow-the-leader‖ or else attacking each other rather the industry leader

Muscle-Flexing StrategyObjectives


Muscle-Flexing Strategy:



• Be quick to meet price cuts of rivals• Counter with large-scale promotional campaigns if

rivals boost advertising

• Offer better deals to rivals’ major customers

• Dissuade distributors from carrying rivals’ products

• Provide salespersons with documentation about

weaknesses of competing products

• Make attractive offers to key executives of rivals

• Use arm-twisting tactics to pressure present customers

not to use rivals’ products

Strategic Options





• Running afoul of antitrust laws

• Alienating customers with bullying tactics

• Arousing adverse public opinion

Muscle-Flexing StrategyRisks


Types of Runner-up Firms



yp p

• Market challengers

– Use offensive strategies to gain market share

•Focusers

– Concentrate on serving a limited portion of market

• Perennial runners-up

– Lack competitive strength to do more thancontinue in trailing position


Obstacles Runner-Up Firms Must



Overcome

• When big size is a competitive asset , firms

with small market share face obstacles

in trying to strengthen their positions – Less access to economies of scale

– Difficulty in gaining customer recognition

– Inability to afford mass media advertising

– Difficulty in funding capital requirements


Strategic Options for Runner-Up Firms



Strategic Options for Runner Up Firms

• When big size provides larger rivals with a

cost advantage , runner-up firms have two

options – Bui ld market share

• Lower costs and prices to grow sales or

• Out-differentiate rivals in ways to grow sales

– Withdraw from market


Offensive Strategies for Runner-Up Firms: Building

M k Sh



• Acquire smaller r ivals to expand company’s market reach

and presence• Find innovative ways to drive down costs

to win customers from higher-priced rivals

• Craft an attractive dif ferentiation strategy

• Pioneer a leapfrog technological breakthrough

• Be first-to-market with new or better products and build

reputation for product leadership

• Outmaneuver slow-to-change market leaders in adapting to

evolving market conditions and customer needs

• Forge strategic all iances with key distributors, dealers, or

marketers of complementary products

Market Share


Rule of Offensive Strategy



Rule of Offensive Strategy

Runner-up firms should avoid

attacking a leader head-on with an

imitative strategy, regardless of the

resources and staying power an

underdog may have!




Vacant Niche Strategy for Runner-Up

Fi



• Focus strategy concentrated on end-useapplications market leaders have

neglected

• Characteristics of an ideal vacant niche – Sufficient size to be profitable

– Growth potential

– Well-suited to a firm’s capabilities

– Hard for leaders to serve

Firms


Specialist Strategy for Runner-Up Firms



• Strategy concentrated on being a leaderbased on

– Specific technology

– Product uniqueness

– Expertise in

• Special-purpose products

• Specialized know-how

• Delivering distinctive customer services

Specialist Strategy for Runner Up Firms


Superior Product Strategy for Runner-Up

Fi



• Differentiation-based focused strategy based on – Superior product quality or

– Unique product attributes

• Approaches – Fine craftsmanship

– Prestige quality

– Frequent product innovations – Close contact with customers to

gain input for better quality product

Firms


Distinctive Image Strategy for Runner-Up



• Strategy concentrated on ways tostand out from rivals

• Approaches

– Reputation for charging lowest price – Prestige quality at a good price

– Superior customer service

– Unique product attributes – New product introductions

– Unusually creative advertising

Firms


Content Follower Strategy for Runner-Up

Fi



• Strategy involves avoiding – Trend-setting moves and

– Aggressive moves to steal

customers from leaders

• Approaches

– Do not provoke competitive retaliation

– React and respond

– Defense rather than offense

– Keep same price as leaders

– Attempt to maintain market position

Firms


Weak Businesses: Strategic Options



g p

• Launch an offensive turnaround strategy

(if resources permit)

• Employ a forti fy-and-defend strategy

(to the extent resources permit)

• Pursue a fast-exit strategy

• Adopt a harvest strategy(a slow-exit type of end-game strategy)


Achieving a Turnaround: The Strategic



Options

• Sell off assets to generate cash and/or

reduce debt

• Revise existing strategy

• Launch efforts to boost revenues

• Cut costs

• Combination of efforts


What Is a Harvest Strategy?



gy

• Steers middle course between status quo and

exiting quickly

• Involves gradually sacr if icing market position

in return for bigger near-term cash flow/profit

• Objectives

– Short-term - Generate largest feasible cash flow

– Long-term - Exit market


Types of Harvest Options



yp p

• Reduce operating expenses to rock-bottom• Hold reinvestment to minimum

• Place little priority on new capital investments

• Emphasize stringent internal cost controls

• Trim advertising and promotion expenses

• Do not replace employees who leave

• Shave equipment maintenance


When Should a Harvest Strategy BeC id d?



• Industry’s long-term prospects are unattractive• Building up business would be too costly

• Market share is increasingly costly to maintain

• Reduced levels of competitive effort will not triggerimmediate fall-off in sales

• Firm can re-deploy freed-up resources

in higher opportunity areas• Business is not a major component of

diversified firm’s portfolio of businesses

Considered?


Liquidation Strategy



• Wisest strategic option in certain situations

– Lack of resources

– Dim profit prospects

– May serve stockholder interests better than bankruptcy

• Unpleasant strategic option

– Hardship of job eliminations

– Effects of closing on local community

Liquidation Strategy


10

Commandments for Crafting Successful

B i St t i



1. Always put top priority on crafting and executing

strategic moves that enhance a firm’s competitive

position for the long-term and that serve to establish

it as an industry leader.

2. Be prompt in adapting and responding to changing

market conditions, unmet customer needs and

buyer wishes for something better, emerging

technological alternatives, and new initiatives ofrivals. Responding late or with too little often puts a

firm in the precarious position of playing catch-up.

Business Strategies


10 Commandments for Crafting Successful

B i St t i



3. Invest in creating a sustainable competitive advantage,for it is a most dependable contributor to above-

average profitability.

4. Avoid strategies capable of succeeding only in the best

of circumstances.5. Don’t underestimate the reactions and the commitment

of rival firms.

6. Consider that attacking competitive weakness is usually

more profitable than attacking competitive strength.7. Be judicious in cutting prices without an established cost

advantage.

Business Strategies


10 Commandments for Crafting SuccessfulBusiness Strategies



8. Employ bold strategic moves in pursuing differentiationstrategies so as to open up very meaningful gaps in quality

or service or advertising or other product attributes.

9. Endeavor not to get “stuck back in the pack” with no

coherent long-term strategy or distinctive competitive

position, and little prospect of climbing into the ranks of the

industry leaders.

10. Be aware that aggressive strategic moves to wrest crucial

market share away from rivals often provoke aggressive

retaliation in the form of a marketing “arms race” and/orprice wars.

Business Strategies


The Bottom Line




The Bottom Line

• We are in business to make or save money

• We make money by serving customers’ wants and needs

better than our competition

• We save money by reducing waste and, or increasing

productivity

• We compete in dynamic market place

• To shine in the competition, we need to understand

customers’ wants and preferences and produce those

goods and services, which have significant value to the

users and has the ability to pay for them.



The Role of Top Management



The Role of Top Management

• Role of top management is:

– Defining an organization’s position and strategy

– Making trade-offs

– Forging fit among activities

– Building an innovation machine

• And strategy may have to change along with

major structural changes in an industry --flexibility is vitally important.


Exercise



Exercise

• Prepare the Mission and Vision statement for

the Organization

• Identify the Competitive Landscape of the

Organization

• Conduct TOWS Analysis

• Draw the Value-Chain Diagram,

•

Assess Present Market Standing and• Develop a Strategic Vision and Action Plan

for the Organization




Contact Details

Swapan Kumar Majumdar Professor of Information Systems , Operations Management

and Strategy

BTech, PGDM (IIM-B), MSc (London School of Economics) MPhil (Imperial College,

London), PhD (IIT-D)

Indian Institute of Management - Shillong

Mayurbhanj Complex, Nangthymmai; Shillong - 793014

Tel: +91 (0364) 230 8016 (0); +91 (0364) 230 8072 (R);

Mob: +91 (0) 9436701138

eMail: [email protected]; [email protected];www.iimshillong.in

3 Strategy Lecture 4 5

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