History What is strategy? An action a company takes to attain superior performance.

. The concept of Strategy Introduction: The top management of an organization is concerned with the selection of a course of action from among different alternatives to meet the organizational objectives. The process by which objectives are formulated and achieved is known as strategic management and strategy acts as the means to achieve the objective. Strategy is the grand design or an overall plan which an organization chooses in order to move or react towards the set of objectives by using its resources. Strategies most often devote a general programme of action and an implied deployed of emphasis and resources to attain comprehensive objectives. An organization is considered efficient and operationally effective if it is characterized by coordination between objectives and strategies. There has to be integration of the parts into a complete structure. Strategy helps the organization to meet its uncertain situations with due diligence. Without an appropriate strategy effectively implemented, the future is always dark and hence, more are the chances of business failure. Meaning of strategy : The word strategy has entered in the field of management from the military services where it refers to apply the forces against an enemy to win a war. Originally, the word strategy ha s been derived from Greek, strategos which means generalship. The word as used for the first time in around 400 BC. In management, the concept of strategy is taken in more broader terms. According to Glueck, Strategy is the unified, comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the environment and is designed to ensure that basic objectives of the enterprise are achieved through proper implementation process This definition of strategy lays stress on the following: a) Unified comprehensive and integrated plan b) Strategic advantage related to challenges of environment c) Proper implementation ensuring achievement of basic objectives

However, various experts do not agree about the precise scope of strategy. Lack of consensus has lead to two broad categories of definitions: strategy as action inclusive of objective setting and strategy as action exclusive of objective setting. Nature of Strategy: Based on the above definitions, we can understand the nature of strategy. A few aspects regarding nature of strategy are as follows: Strategy is a major course of action through which an organization relates itself to its environment particularly the external factors to facilitate all actions involved in meeting the objectives of the organization Strategy is the blend of internal and external factors. To meet the opportunities and threats provided by the external factors, internal factors are matched with them Strategy is the combination of actions aimed to meet a particular condition, to solve certain problems or to achieve a desirable end. The actions are different for different situations Due to its dependence on environmental variables, strategy may involve a contradictory action. An organization may take contradictory actions either simultaneously or with a gap of time. For example, a firm is engaged in closing down of some of its business and at the same time expanding some Strategy is future oriented. Strategic actions are required for new situations which have not arisen before in the past Strategy requires some systems and norms for its efficient adoption in any organization Strategy provides overall framework for guiding enterprise thinking and action The purpose of strategy is to determine and communicate a picture of enterprise through a system of major objectives and policies. Strategy is concerned with a unified direction and efficient allocation of an organizations resources. A well made strategy guides managerial action and thought. It provides an integrated approach for the organization and aids in meeting the challenges posed by environment Essence of Strategy: Strategy, according to a survey conducted in 1974, includes the determination and evaluation of alternative paths to an already established mission or objective and eventually, choice of the alternative to be adopted. Strategy is characterized by four important aspects:

Long term objectives Competitive Advantage Vector Synergy

What is the strategic management process? The process by which managers choose a set of strategies for the enterprise to pursue its vision. Ansoff Matrix: Product-Market Grid To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firms present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoffs matrix is shown below: Existing Products Existing Markets New Markets 1. 2. 3. 4. Market Penetration Market Development New Products Product Development Diversification

Ansoffs matrix provides four different growth strategies: Market Penetration the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. Market Development the firm seeks growth by targeting its existing products to new market segments. Product Development the firms develops new products targeted to its existing market segments. Diversification the firm grows by diversifying into new businesses by developing new products for new markets. Selecting a Product-Market Growth Strategy (The four growth strategies) The market penetration strategy is the least risky since it leverages many of the firms existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. 1. Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firms core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a

market development strategy typically has more risk than a market penetration strategy. 2. A product development strategy may be appropriate if the firms strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. 3. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the suicide cell. However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk. But this model lacked... Hence bcg came into existence. Boston Consulting Group (BCG) Growth-Share Matrix BCG Matrix BCG growth share matrix is based on the observation that a companys business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name growth-share. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability The relative market share serves as a measure of SBU strength in the market. The market growth rate provides a measure of market attractiveness. Each of the corporations product lines or business units is plotted on the matrix according to both the growth rate of the industry in which it competes and its relative market share.

The Boston Consulting Group Portfolio Matrix

Stars Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. They are typically at the peak of their product life cycle. Stars generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate. Often they need heavy investment to sustain their growth. Eventually their growth will slow and will become cash cows. Cash Cows Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They typically bring in far more money than is needed to maintain their market share. In this decline stage of their life cycle, these products are milked for cash that will be invested in new question marks. Question marks Question marks are businesses or products with low market share but which operate in higher growth markets. Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. A question mark (also known as a problem child) has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after years of cash consumption it will degenerate into a dog when the market growth declines. Management have to think hard about question marks which ones should they invest in? Which ones should they allow to fail or shrink? Dogs Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture. The Boston Consulting Group (BCG) Portfolio Matrix simplicity is its strength the relative positions of the firms entire business portfolio can be displayed in a single diagram. Its limitation is market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage. The BCG growth-share matrix overlooks many other factors in these two important determinants of profitability Then G.E appointed Mc.kensey and said bcg s oly abt share and growth. Hence a different method is reqired.

Hence, 9 matrices GE/McKinsey Matrix It is the business portfolio framework developed by General Electric with the help of McKinsey and Company, a consulting firm. GE Business Screen includes nine cells based on long-term industry attractiveness and business strength/competitive position Factors that Affect Market Factors that Affect Competitive Attractiveness: Strength: - Market Size - Strength of assets and competencies - Market growth - Relative brand strength - Market profitability - Market share - Pricing trends - Customer loyalty - Competitive intensity / rivalry - Relative cost position (cost structure - Overall risk of returns in the industry compared with competitors) - Opportunity to differentiate products and - Distribution strength services - Record of technological or other - Segmentation innovation - Distribution structure (e.g. retail, direct, - Access to financial and other investment and wholesale) resources Plotting the Information: Each business unit can be portrayed as a circle plotted on the matrix, with the information conveyed as follows: Market size is represented by the size of the circle. Market share is shown by using the circle as a pie chart. The expected future position of the circle is portrayed by means of an arrow.

The green zone indicates go ahead. It includes the strong SBUs in which the company should invest and grow. They go for Expansion Strategies The yellow zone indicates wait and see. It includes SBSs that are medium in overall attractiveness. They should maintain their level of investments. They go for Stability Strategies The red zone indicates stop. It includes SBUs that are low in overall attractiveness. They go for Retrenchment Strategies (Divestment and Liquidation). The shading of the above circle indicates a 40% market share for the strategic business unit. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors, and that the business unit is in an industry that is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle. Six-step approach for the implementation of the McKinsey Matrix: 1. Specify drivers of each dimension. The corporation must carefully determine those factors that are important to its overall strategy. 2. Determine the weight of each driver. The corporation must assign relative importance weights to the drivers. 3. Score the SBUs on each driver. 4. Multiply weights and scores for each SBU. 5. View resulting graph and interpret it. 6. Perform a review/sensitivity analysis. Make use of adjusted other weights and scores (there may be no consensus).

School of thought 1 2

1. 2. 3. 4.

Adaption Position Execution Concentration

The Main Components of the Strategic Planning Process

Process: I. SWOT Strengths Weakness Opportunities Threats Situation Analysis

II.

Strategy Direction Vision and mission (Mission Sets out why the organization exists and what it should be doing)

Difference between Business Vision and Company Mission Business Vision of a Company: A vision gives direction for the desired future scope and position of a company: It deals with the future. It is ambitious. It is expressed in simple terms understandable at all levels of the company. It does not deal with details, but is concrete. It does not deal with solutions. It opens space for creative forward thinking, based on an (emotionally appealing) picture It is not a secret plan but an open declaration. A vision serves to create a common mind set throughout the organization. It helps to mobilize people. It creates momentum and initiative: Am I doing enough to increase the fit of my business with the corporate vision? Mission of a firm: Mission of a firm is the expression of its strategic intent. Strategic intent is the fundamental ends a firm wants to pursue. Mission statement also reveals the selfconcept of the firm. Thus, the mission of the business is a qualitative statement of overall business position that summarizes the key points with regard to products, markets, geographic locations and unique competencies. A mission statement abstracts the important points to guide the development of business. Besides others there are two pieces of information that must be contained in the mission statement. Clear definition of current and future business scope and second the unique competencies that distinguish the firm from others in the same industry. Following is the detailed description of the contents of the mission statement; i) Core values: It is the beliefs which guide the behavior of the firm. This is to be encoded in the mission statement so that the employees understand that it has to be followed at any cost. ii) Core purpose: It is the fundamental end for which an organization exists. It is the very reason of the existence of the firm in the market. iii) BHAGit represents Big Hairy Audacious Goal. This implies, that the mission statement should be organized in such a manner that it fires ups the competitive zeal of the employees. In their celebrated article, Garry Hamel and C.K.Prahlad state that rather than trimming ambitions to match available resources, managers should instead

leverage resources to reach seemingly unattainable goals. This challenge is at the heart of a proper mission statement. iv) Vivid description of future: A mission statement is grossly incomplete without the clear definition of the expected future business scope. This has got two dimensions; business and ethical. Business dimensions includes; Scope of the firm: the description of current and future market scope, product scope, geographical reach scope and customer scope. Positioning strategy: This explains on what basis the firm wants to compete and how the firm wants itself to be known in the market. There are two ways to create value for money for shareholders- cost leadership strategy and product differentiation strategy. The image of the firm will depend on this positioning strategy. Responsibilities to the stakeholders: Here the firm has to spell out how it wants to treat its different stakeholders. III. IV. Strategy Formulation 3 levels Implementation Strategic planning Strategic Thinking Process: Strategic Intent Comprehensive Intelligent opportunism Long term oriented Thinking on time Testing (hypothesis) And others Views: 1. Resource based (EVA) 2. Based 3. based Environment External (External Analysis Identify strategic opportunities and threats in the operating environment)and Internal

External includes: I. II. III. IV. V. Legal Socio cultural Economic influences Technological environment Industry

Analyzing Industry Structure Opportunities and threats are competitive challenges arising for changes in industry conditions. Analytic tools such as the five forces model help managers formulate appropriate strategic responses. Michael Porter:

5 forces of competition: a. b. c. d. e. Potential Competitors Rivalry Among Established Companies Competitive Structure The Bargaining Power of Buyers The Bargaining Power of Suppliers

The model of the Five Competitive Forces was developed by Michael E. Porter 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on an understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. 1. Bargaining Power of Suppliers The term suppliers comprises all sources for inputs that are needed in order to provide goods or services. Supplier bargaining power is likely to be high when: The market is dominated by a few large suppliers rather than a fragmented source of supply, There are no substitutes for the particular input, The suppliers customers are fragmented, so their bargaining power is low, The switching costs from one supplier to another are high, There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when The buying industry has a higher profitability than the supplying industry, Forward integration provides economies of scale for the supplier, The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products), The buying industry has low barriers to entry. In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization. 2. Bargaining Power of Customers Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high when: They buy large volumes, there is a concentration of buyers, The supplying industry comprises a large number of small operators The supplying industry operates with high fixed costs, The product is undifferentiated and can be replaces by substitutes, Switching to an alternative product is relatively simple and is not related to high costs,

Customers have low margins and are price-sensitive, Customers could produce the product themselves, The product is not strategically important for the customer, The customer knows about the production costs of the product There is the possibility for the customer integrating backwards.

3. Threat of New Entrants The threat of new entries will depend on the extent to which there are barriers to entry. These are typically: Economies of scale (minimum size requirements for profitable operations), High initial investments and fixed costs, Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets, Brand loyalty of customers Protected intellectual property like patents, licenses etc, Scarcity of important resources, e.g. qualified expert staff Access to raw materials is controlled by existing players, Distribution channels are controlled by existing players, Existing players have close customer relations, e.g. from long-term service contracts, High switching costs for customers Legislation and government action 4. Threat of Substitutes A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. The threat of substitutes is determined by factors like: Brand loyalty of customers, Close customer relationships, Switching costs for customers, The relative price for performance of substitutes, etc. 5. Competitive Rivalry between Existing Players This force describes the intensity of competition between existing players (companies) in an industry. Strong competition pressurizes on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing players is likely to be high when: There are many players of about the same size, Players have similar strategies There is not much differentiation between players and their products, etc. Competitor analysis:

Competitors Analysis
image & positioning size, growth & profitability
current & Past strategies

objectives and commitment

Understanding competitors
strength & weakness

organization & culture exit barriers

cost structure

Identifying current competitors: Ansoff matrix: Indy and sector Internal environment: Tangible resources 1. 2. 3. 4. 5. Human Financial (diagram) Knowledge Physical General MPs Value chain:

Performance Implication:

Choosing a Generic Business-Level Strategy

Product/Market/Distinctive-Competency Choices and Generic Competitive Strategies
Cost Leadership Differentiation
Product Differentiation
Market Segmentation
Low (principally by price)
Low (mass market)

Focus
Low to high (price or uniqueness)
Low (one or a few segments) Any kind of distinctive competency

High (principally by uniqueness)

High (many market segments) Research and development, sales and marketing

Distinctive Competency

Manufacturing and materials management

TABLE 6.1
Copyright 2001 Houghton Mifflin Company. All rights reserved. 6-3

Competitive parity Competing industry also has the same resources (similarity in firms Different in no way) Resources crnt, Future Financial Performance Future Profitability Finance:

current
Financial
performance

future
customer satisfaction product quality
Internal Analysis

Sale/ROA/ EVA

brand association relative cost

new product development

employee capability

Financial performance: Profitability ratio Leverage Ratio Liquidity ratio Who require? (Concerned) Share holders, employees Sale/ROA/EVA Customer satisfaction Brand loyalty Exit interview

Product quality Competitors Customer satisfaction

Brand association Perception of brand Sophisticated

Relative cost New product development

Employee capability Human resource: CEO Vision, core values, organization learning and development, develop strategy Styles of leadership: Commander style: Strategy formulated at top by CEO and directs managers Change style: CEO formulates and plans changes in system Collaborative style: invites participation and group discusses and agrees on strategy Cultural style: Fosters organizational unity all members make decisions that are consistent with vision Creasier style: Authority at lower levels to formulate their own strategy, by encouraging Innovation using creative energies of all members of organization.

Conditions affecting managerial decisions about resources, capabilities and core competencies (imp)

Core competency having sustainability: Sustainability of a competitive advantage

Strategic groups: Within an industry, a competitor grouping using similar strategies that differ from other industry groups. The Concept of Strategic Groups Strategic group is a group of firms within an industry which face the same environmental forces, have same resources and follow similar strategy in response to the environmental forces. To carry on the value chain analysis it is very important that the firm identifies the strategic group to which it belongs. Porter suggests the following dimensions to identify differences in firm strategies within an industry: i)specialization, ii) brand identification, iii) a push versus pull marketing strategy, iv) vertical integration, v)channel selection, vi) product quality, vii) technological leadership, viii) cost position, ix)service, x) price policy, xi) financial and operating leverage, xii) relationship with parent company, xiii) relationships with home and host government.

We should try to locate in the same group all firms with comparable characteristics and following a similar competitive strategy. Essentially the concept of strategic grouping is a very pragmatic approach aimed at cataloguing firms within an industry in accordance with the way they have chosen to seek competitive advantage. This segmentation is useful when one faces a high diversity of competitive positions in a fairly complex and heterogeneous industry. Typical examples of this situation are global industries with a wide variety of players, some being totally international and some purely local. A useful tool that can guide the separation of strategic group in an industry is the so called strategic mapping. This is a two dimensional display that helps to explain the different strategies of the firm. These two dimensions should not be interdependent because otherwise the map would show an inherent correlation. Most important, managers must choose those dimensions that are most salient and relevant to their own particular industry. Though according to Porter, move from one strategic group to another is very difficult, because every strategic group creates its own image in the market place, the following points should be kept in mind: Strategic groups can shift over time as the needs of the customers or different technologies evolve in the marketplace. Therefore managers should not assume that membership in a particular strategic group permanently locks the firm into a fixed strategy. With sufficient resources and focus, firms can enter or exit strategic groups over time. Entire strategic groups and the firms that compose them can emerge and disappear over time. Thus as the environment changes, the competitive conditions that define a strategic group may work against the entire collection of the firms, resulting in the groups long term decline if competitive conditions intensify. In recent years one of the more enduring trends that have defined a growing number of industries is the hastening pace of consolidation. Competitors are now seeking to buy or merge with their rivals to limit the effects of fierce price wars that negatively impact profitability. Thus consolidation within and among industries can also markedly redefine the underlying stability and membership of strategic group. Future objectives Current strategy Assumptions Capabilities Response Perpetual mapping

Strategic direction

INFLUENCES ON STRATEGIC DIRECTION

internal stakeholder external stakeholder Strategic Direction Vision Mission Business Definition Organizational values broad environment

Organizational Actions Competitive Strategies Managing Internal & External stakeholders Implementation

feedback that guide impressions, expectations and behavior

Outcomes Growth Market success Better reputation

feedback that guide impressions, expectations and behavior

Business definition: Customer needs product differentiation (what) Customer groups market segmentation (who) Distinctive competencies competitive actions (how) Organizational values: Philosophy Value systems that shape organization Strategy formulation: 1. Business-Level Strategies 2. Functional level Strategies 3. Corporate level Strategies

Business-Level Strategies

Responsibilities
Direction setting

Key issues
Establish mission, ethics, long term goals of single business unit Creation and communication of short term goals

Analysis of business situation

Broad environment analysis, Internal and external analysis of resources and capabilities Identify Strength, weakness, opportunities and threats Indentify sources of sustainable competitive advantage

Selection of strategy

Generic Approach Strategic posture

Management of resources

Acquisition of resources Ensuring development of functional strategies Development of organizational design Development of organizational control system

Business level or generic or competitive strategies Business level strategies are popularly known as generic or competitive strategies. Michael Porter classified these strategies into overall cost leadership, differentiation and focus. The first two strategies are broader in concept as their competitive scope is wide enough whereas the third strategy i.e the focus strategy has a narrower competitive scope. The experience curve : Cost has been correlated with the accumulated experience by the experience curve. Let us take the example of production; The underlying principle behind the experience curve is that as total quantity of production of a standardized item is increased, its unit manufacturing cost decreases in a systematic manner. The concept of the experience curve was presented by BCG in 1966 and since then it has been accepted as an important phenomenon. Causes of experience curve effect; Improved productivity of labour Increased specialization Innovation in production methods Value engineering and fine tuning Balancing production line Methods and system rationalization The experience curve relationship provides a good framework for managerial considerations for predicting industrial scenario with respect to future costs, profit margins, and corresponding cash flows for the managers own as well as his/her competitors operations.

Competitive strategies like the below mentioned can be developed based on experience curve; 1. Selling product at most competitive price 2. Maximising profits by selling at the highest price the market can afford 3. Selling at a higher price initially but crashing the prices later to keep the competition out.

1. Low cost provider strategy The firms operating in this highly competitive environment are always on the move to become successful. To strive in this competitive environment the firms should have an edge over the competitors. To develop competitive advantage, the firms should produce good quality products at minimum costs, etc. This means that the firms should provide high quality at low cost so that the customer gets the best value for the product he/she is buying. One such competitive strategy is overal l cost leadership, which aims at producing and delivering the product or service at a low cost relative to its competitors at the same time maintaining the quality. According to Porter, following are the prerequisites of cost leadership 1. Aggressive construction of efficient scale facilities 2. Vigorous pursuit of cost reduction from experience 3. Tight cost and overhead control 4. Avoidance of marginal customer accounts 5. Cost minimization To sustain the cost leadership throughout, the firm must be clear about its accomplishment through different elements of the value chain. Though low cost can be one of the most important competitive advantages enjoyed by firms all over the globe it does have its own drawback. Some are Initiation by the competitive firms Threat of competitive firms from other countries Firm losing cost leadership due to fast technological changes, which require high capital investment Threat by competitors to capture still lower cost segments

Competition based on other than cost. 2. Differentiation Strategy Every individual customer is unique in itself so is his/her preferences regarding tastes, preferences, attitudes, etc. These needs of the customers are fulfilled by the firms by producing differentiated products. In our day-to-day life we see many such examples of differentiated products. Most of the fast moving consumer goods like biscuits, soaps, toothpastes, oils, etc come under the category of differentiated products. To satisfy the diverse needs of the customers, it becomes essential for the firms to adopt a differentiation strategy. To make this strategy successful, it is necessary for the firms to do extensive research to study the different needs of the customers. A firm is able to differentiate from its competitors if it is able to position itself uniquely at something that is valuable to buyers. Differentiation can lead to differentiatial advantage in which the firm gets the premium in the market, which is more than the cost of providing differentiation. The extent to which the differentiation occurs depends on the overall strategy of the firm. Previously differentiation was viewed narrowly by the firms, but in the present scenario it has become one of the essential components of the firms strategy. Reliance Infocomm, offers varied products like different facilities to its customers in the CDMA telephones. This is differentiation. There are a number of factors which result in differentiation. Some of them are; To compete against the rivals To create entry barriers for newcomers by building a unique product To reduce the threats arising from the substitutes To develop a differentiation advantage Different areas of differentiation; Purchasing quality of components and material acquired Design aesthetic appeal Manufacturing minimization of defects Delivery speed in fulfilling customer orders, reliability in meeting promised delivery items HRM improved training and motivation increases customer service capability Technology management permits responsiveness to the needs of specific customers Financial management improves stability of the firm Marketing building of product and company reputation through advertising Customer service providing pre-sales information to customers Sources of differentiation Its not only the low price at which different products are offered, which creates differentiation, instead the firm can differentiate from its competitors by providing something unique, which is valuable to the customers of that product. Differentiation occurs from the specific activities a firm performs and how they affect the buyer. Some examples of differentiation; Ability to serve customers needs anywhere Simplified maintenance for the customers Single point at which the buyer can purchase

Superior compatibility among products Uniqueness Factors/Drivers for differentiation; Policy choice every firm decides its own policies regarding the activities to be performed and the activities to be ignored. The policy choices are basically related to the type of services to be provided to the customers, the credit policy, to what extent a particular activity be adopted, the content of activity, skill and experience required by the employees, etc Links the uniqueness of a product depends to a large extent on the links within the value chain with suppliers and distribution channels, the firm deals with. If the firm has a good link with suppliers and has a sound distribution channel, then it becomes easy for the firm to produce and supply the product to the end users Timing the firms can achieve uniqueness by encashing the opportunities at the right time. If the timing is perfect then a successful differentiation strategy can be adopted. Location this is one of the important factors for the firms to have uniqueness. For example a bank may have its branch which is accessible to the customers, then the bank will gain an edge towards other banks. Interrelationships a better service can be offered to the customers by sharing certain activities e.g sales force with the firms sister concerns. Learning To peform better and better, continuous improvement is necessary and this comes through continous learning Integration The firm can be termed as unique, if its level of integration is high. The integration level means the coordination level of value activities Scale Larger the scale, more will be the uniqueness. If small volumes of products are produced , then the uniqueness of the product will be lost over a longer period of time. A very good example can be home-delivery services. The type of scale leading to differentiation varies depending on the individual firms activities Institutional factors This factor sometimes play a role in making a firm unique, like relationship of management with employees Differentiation is governed by value activities in a value chain and these activities in turn are governed by certain driving factors which make the form unique Cost of differentiation. Differentiation generally involves costs. The differentiation adds costs as it involves added features to cater to the needs of the customers. Usually the cost is incurred in the following cases: Increased expenditure on training Increased advertising spend to promote the product Cost of hiring highly skilled salesforce Use of more expensive material to improve the quality of the product, etc Advantages of differentiation; Premium price for the firm Increase in number of units sold Increase in brand loyalty by the customers

Sustaining competitive advantage Disadvantage of differentiation; Uniqueness of the product not valued by buyers Excess amount of differentiation Loss due to differentiation 3. Focus Strategy The third business level strategy is focus. Focus is different from other business strategies as it is segment based and has narrow competitive scope. This strategy involves the selection of a market segment, or group of segments, in the industry and meeting the needs of that preferred segment (or niche) better than other market competitors. This is also known as niche strategy. In focus strategy, the competitive advantage can be achieved by optimizing strategy for the target segments. Focus strategy has two variants. They are; a) Cost focus - Cost focus is where a firm seeks a cost advantage in the target segment. This is basically a niche-low cost strategy whereby a cost advantage is achieved in focusers target segment. According to Porter, cost focus exploits differences in behavior in some segments. In this the focuser concentrates on a narrow buyer segment and outcompetes rivals on the basis of lower cost. b) Differentiation focus Differentiation focus is where a firm seeks differentiation in the target segment. In this, the firm offers niche buyers something different from rivals. Firm seeks differentiation in its target segment. Differentiation focus exploits the specific needs of buyers in specified segments. Eg. MayBach luxury car which is targeted to segment where customers can afford to pay a sum as large as Rs.5.4 crores. Following are the situations where a focus strategy is efficient; Market segment large enough to be profitable Market segment has good growth potential Market segment is not significant to the success of major competitors Focuser has efficient resources Focuser is able to defend against challenges High costs are difficult to the competitors to meet the specialized need of the niche Focuser is able to choose from different segments Advantages of focus strategy; Focuser can defend against Porters competitive forces Focuser can reduce competition from new firms by creating a niche of its own Threat from producers producing substitute products is reduced The bargaining power of the powerful customers is reduced Focus strategy, if combined with low-cost and differentiation strategy, would increase market share and profitability Risks of focus strategy; Market segment may not be large enough to generate profits Segments need may become less distinct from the main market Competition may take over the target-segment

survival,survival,survival create entry barriers Turbulence & fragmented quality at its most superior So much R&D

difficult to differentiate dominant design prevails others either exit or adapt price can only match with level of service cost reduction
commodity decline

Unit Sales volume

nos of competitors increase era of differentiation

price competition bankruptcy, buyouts sell off

TIME
Market Size Source of advantage

Strategy

What they do

Low-cost leadership

Broad

Low cost of production

firms attempt to manufacture a product or provide a service at low cost.

Differentiation

Broad

Features, benefits, colors, shape, brand, after sales, personality

firms attempt to provide products that are preferred above other competing products
firms attempt to provide product that is attractive and also produce at a low cost

Best Value

Broad Narrow Narrow Narrow

Low cost and preferred product Low cost of production

Focus through low cost

Focus through differentiation

niche marketing niche marketing niche marketing

Preferred product
Low cost and preferred product

Focus through best value

Broad market environment: Risks: Narrow market (focus through low cost) focus strategies Competitive dynamics Strategies that reflect competitive dynamics(imp)

Strategies that reflect competitive dynamics

first mover advantages

aggressive strategy collaboration government intervention

threat of retaliation barriers to imitation strategic flexibility

avoidance strategy

Defensive
Secure Position Defend your position Consolidate resources Robust Position of the product Feed and service inputs to maintain such position Maintain mobility: Do not stay at one place, constantly develop markets, products diminish the chances of localizing the defense Pre-emptive : Obstruct, block, prevent before the competitor strikes anticipate an attack

Flank position: Deny a position to competitor by occupying a position before hand,

Counter offensive : immediate counter attack tit-for-tat response, without a retaliatory lag at the same space on which the company is being targeted Withdrawal : pull out of a market completely.

Erosion of a SCA
Exploitation Returns from a Sustainable Competitive Advantage

Launch

Counterattack

Time (Years)

Which market should be chosen? Capability resources Branding Positioning