Strategic Management Process

• Identify the current Mission, Vision and

Objective
• Industry Analysis
• External Environmental Analysis
• Internal Environmental Analysis
• Development of Alternative Strategies
• Evaluation and Choice of Strategies
 Mission/ Vision Elements
• Product (s) / Services
• Market/ Geographical Distribution
• Quality Initiative
• Customer Orientation
• Environment Orientation
• Ethical Orientation and Corporate
Governance
• Employee Orientation
MBO
Tool For Allocating Resources: Portfolio’s Matrix
 Business Mix of ITC Ltd.
FMCG
• Cigarettes
• Foods
• Greeting, Gifting & Stationery
• Safety Matches
• Agarbattis

Paperboards & Packaging

• Paperboards & Specialty Papers
• Packaging
 Business Mix (Cont’d)

Agri - Business
• Agri-Exports
• e-Choupal

Hotels

Group Companies
• ITC Infotech; etc.
 Business wise Sales data
Business/ Year Growth Value (Rs in Crore)
% 2005 2004

FMCG-Cigarettes 8.4 10002.54 9230.27

FMCG-Others 85.2 563.39 304.16
Hotels 124.1 577.25 257.53
Agribusiness 4.2 1780.07 1708.77
Paper & pkg. 24.9 1565.31 1253.29
Net revenue 12.99 13349.58 11815.04
 CAGR during FY 2005-2008
Category CAGR Growth parameters
Cigarettes 10.9 % Pricing power
Hotels 22.7% Inward traffic, occupancy
Paper 17.2 % Capacity utilization, value
added products
Agri 34.3 % E-choupal, choupal sagar,
business
FMCG- 60.2 % Fast track, decent share.
Others
 The BCG Matrix for ITC Ltd.
Stars ?
•Hotels •FMCG- Others
•Paperboards/
Packaging.
•Agri business.
Cows Dogs
•FMCG-Cigarettes
 Limitations
• High market share/Growth is not the only
success factor.
• Assumes market growth rate. A firm may
grow the market.
• Linkage between market share and
profitability is questionable.
• Market attractiveness & Competitive
strength is also important.
Economist Michael E. Porter identified………

Source : Harvard Business Review / January 2008 / hbr.org

Rivalry Among Existing Competitor (1)

• Rivalry happen when:

– A firm is challenged by competitor action
– A company recognize opportunity to improve
market position

• Normally result in lower profitability

– Action will invite competitive response
– Depend on the intensity and basis of
competing
Rivalry Among Existing Competitor (2)
• Rivalry can increase profitability and expand market
if:
– Each competitors aim to serve different needs and market
segment with different mixes of
• price
• products
• service
• features
– Better in meeting the customer needs
– But DOES IT HAPPEN??
• Cola Drinks
• Mobile Service Providers
• Any Other???
Rivalry Among Existing Competitor (3)

• Rivalry is intensified if:

– Competitors are roughly equal in size
– Industry growth is slow
– Exit barrier is high
– High fixed cost
– Low differentiation in product
– Aspiration for leadership
• Normally intensifies over time
• Alter by mergers and acquisitions and
innovation
Rivalry Among Existing Competitor (4)

• Basis of competition:
– Price – reduce profit
– Product features • Less likely to reduce profit
– Support service
• Improve value and increase
– Delivery time
barrier to entry
– Brand image
Rivalry Among Existing Competitor (5)

• Price competition occur if:

– Product are nearly identical & less switching
cost
– Fixed cost is high
– To improve efficiency of production
– Product is perishable
Bargaining Power of Buyer (1)

• The aim is to maximize profit

– Capture more value by forcing down price
– Demanding better quality
– Demanding greater level of service
Bargaining Power of Buyer (2)

• A buyer has negotiating leverage if:

– There are few buyers
– Buyer volume is big
– Products are standardized or undifferentiated
– Few / little switching cost
– Ability of backward integration
– IT / Internet
Bargaining Power of Buyer (3)

• A buyer is price sensitive if:

– price/total purchase is high
– Buyer earn low profit
– Quality of buyer’s product is little affected by
product purchased
– Product purchased has little effect on buyer’s
other cost
Threats of New Entrants
• The easier it is for new companies to enter the
industry, the more cutthroat competition there
will be. Factors that can limit the threat of new
entrants are:

– Existing loyalty to major brands

– High fixed costs
– Scarcity of resources
– High costs of switching companies
– Government restrictions or legislation
Bargaining Power of Supplier

• If one supplier has a large enough impact to

affect a company's margins and volumes,
then it holds substantial power.

– There are very few suppliers of a particular product

– There are no substitutes
– Switching to another (competitive) product is very
costly
– The product is extremely important to buyers
– The supplying industry has a higher profitability than
the buying industry
The Power of Substitutes
Products or Services (1)
• Substitutes allow the customer to shift loyalty to another
product based on:=
• Preference to the substitute
• Relative price performance of the substitute
• Buyers switching costs
• Perceived level of product differentiation.
The Power of Substitutes
Products or Services (2)
• When there is one product successful, it also leads to the
creation of other products that can perform the same
functions as the product of the same industry.
• A close substitute product constrains the ability of firms in
an industry to raise prices.
• When there are substitutes, it puts a cap to the profits an
industry can obtain.
The Power of Substitutes
Products or Services (3)

• By having Distinctive Brand Image

• Porter recommends that by doing advertising,
product quality improvement, marketing, R&D
and product distribution, an industry can improve
its collective position against the substitute.
 Conclusion
• Today IT/ digitalization, unstable economy condition
or needs, government laws, globalisation, customer
expectation and organization reinvention have become
powerful forces and will continue to do so in the coming
years. Porters model doesn’t clearly or touches much on
those.

• Porters model IS NOT INVALID but can be the basic for

strategy development, management technique and
theories. An industry must do a careful market
observations and internal and external factors,
understand the limitations from this model and study
where their company intends to go in future.