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SVKM’s NMIMS UNIVERSITY

MBA 2008-09

STRATEGIC
MANAGEMENT

Dr AMIT RANGNEKAR
Strategic Management- Dr Amit Rangnekar

Topic Sub Topic Page No


Strategic Management • Concepts 1
• SM Process
• SWOT
• Vision, Mission
External Environmental • General Environment 6
Analysis • PEST
• Industry Environment
• Porters 5 Forces
• How to analyse industry
Internal Environmental • Components 10
Analysis • Resources, Capabilities,
Competence
• Competitive Advantage
• Value Chain Analysis
Business Level Strategy • Customers, Segments, Markets, 15
• Cost Leadership, Differentiation,
Focus,
Competitive Rivalry & • Dynamics, 20
Competitive Dynamics • Rivalry,
• Response
Corporate Level Strategy • Diversification, 23
• Integration
Acquisition & Restructuring • M&A, Restructuring 25
Strategies
International Strategy • National Advantage 27
• Multi-domestic
• Global
• Transnational
• International Entry Modes
Cooperative Strategy • Strategic Alliances, JV 29
Business Tactics • 36
Takeover Defense Strategies • 37
Strategic Options / Strategic • 38
Focus
Distinctive Capability • 39
Development
Goals & Measures • 40
NMIMS 2007-08 Strategic Management

Strategic Management
Objectives- Help understand concepts, tools, processes & applications of strategic
management. Provide insights into the business environment, competitive analysis and the
practice of strategic management through theory and case studies.

Concepts
• Strategy- Directing action towards desired outcome
• Corporate strategy- business/es you should be in
• Business strategy- tactics to beat the competition
• Functional strategy- operational methods to implement the tactics
• Enterprise strategy- matching internal capabilities with external environment
• Strategic Competitiveness- Firm successfully formulates & implements a value-
creating strategy
• Strategic Management Process- Full set of commitments, decisions, & actions
required for a firm to achieve strategic competitiveness & earn above-average
returns
• Risk- Investor’s uncertainty of economic gains/ losses resulting from particular
investment
• Average Returns- Returns equal to investor earnings expectations from other
investments with similar amount of risk
• Above-average Returns- Returns in excess of what an investor expects to earn
from other investments with a similar amount of risk
• Strategic flexibility: Capabilities to respond to demands & opportunities in
dynamic & uncertain competitive environments

Strategic management- Process by which organizations analyze & learn from


stakeholders inside & outside the firm, establish strategic direction, create strategies to help
achieve established goals & execute strategies to satisfy key organizational stakeholders

Strategic Management Process


• Study the external and internal environments
• Identify marketplace opportunities and threats
• Determine how to use core competencies
• Use strategic intent to leverage resources, capabilities & core competencies to win
competitive battles
• Integrate formulation and implementation of strategies
• Seek feedback to improve strategies

Dr Amit Rangnekar 1 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

Current Competitive Landscape


• Perilous business world, global operations, M&A abound, hyper competition
• Pricing pressures, constant technology change & innovation, huge investments
• Emerging markets, growing importance of services, changing demographics
• Globalisation, outsourcing, geography is history, regulatory threats

Global Economy
• Global Economy- Goods, people, skills & ideas move freely across borders
• Globalization- "Producing where it is most cost effective, sourcing capital from
where it's cheapest and selling it where it is most profitable" Narayana Murthy
• Increased economic interdependence among countries- flow of goods & services,
finance & knowledge across country borders leading to increased opportunities
• Technology- Technology change, perpetual / disruptive innovation, design
• Information- Converting information to knowledge, competitive advantage

Industry- strong influence on the firm’s performance, properties include


• economies of scale
• barriers to market entry
• diversification
• product differentiation
• degree of concentration of firms in the industry

Dr Amit Rangnekar 2 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

SWOT Analysis- Used to assess a new business venture or proposition.


Quadrants contain criteria (not exhaustive or exclusive) used to analyse either SWOT

Strengths (Internal) Weaknesses (Internal)

USP's, capabilities, competitive advantage, Disadvantages of proposition, capabilities


resources, experience, knowledge, data, gaps, lack of presence & strength, lack of
financials, marketing, reach, communication, reputation, presence and reach, financials,
service, innovation, location, geography, own known vulnerabilities, timescales,
price, value, quality, accreditations, processes, deadlines and pressures, supply chain,
systems, IT, culture, values, behaviour, morale, commitment, leadership,
management, reputation, legacy processes & systems, management,
attrition
Opportunities (External) Threats (External)

Market / business / product developments, PEST, competitive intentions, market


industry potential, competitors' vulnerabilities, demand,
industry, demographics or lifestyle trends, contracts and partners, sustaining
technology, innovation, global influences, capacities, finances & capabilities,
new markets, industry verticals / horizontals, obstacles, insurmountable weaknesses,
niches, geographies, surprise, new contracts, industry cycles,
information and research, partnerships, seasonality
distribution, volumes, production, economies,
season, influences

Vision & Mission- To energize employees to work towards corporate goals, visions &
missions. Should be internalised by executives & constantly communicated to employees.
Many companies use vision & mission statements only in annual report or reception..

Vision
• A short, succinct, and inspiring statement of what an organization intends to
become and achieve, in the future, often stated in competitive terms
• Refers to the category of broad, all-intrusive and forward-thinking intentions
• Image of a business goal before the organization sets out to reach them
• Describes future aspirations, without specifying the means used to achieve them

Mission Statement
• An organization's vision translated into a written form
• Concretises a leader's view of the direction and purpose of the organization
• Vital element for corporate leaders to motivate employees & instill sense of priority

Setting Goals
• Major outcome of strategic road-mapping and strategic planning, based on the
vision and mission statement
• Long-range, specific and realistic goals set through strategic planning, translated
into activities that will ensure reaching the goal through operational planning.

Dr Amit Rangnekar 3 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

Industrial Organisation (I/O) model of above average returns


External environment imposes pressures & constraints that determine strategies leading to
above-average returns

Area Activity Action


The external environment Study General , industry, competitor
Attractive industry Locate Structural characteristics suggest
above average returns
Strategy formulation Identify Strategy to earn above average returns
Assets & skills Develop or acquire To implement chosen strategy
Strategy implementation Use Effective implementation
Superior returns Earn Earn above average returns

Resource-Based Model of Above-Average Returns


Assumes that the organization is a collection of unique resources & capabilities, which
provide the basis for its strategy, which is the primary source of its returns

Area Activity Action


Resources Identify Inputs in a firms production process
Firm’s capabilities Determine Integrated set of resources required to
perform, in an integrative manner
Competitive advantage Potential of Ability to outperform rivals
Attractive industry Locate To exploit opportunities
Strategy Select To earn above average return
Superior returns Earn Earn above average returns

Resources and Capabilities (R&C)


Resources- Inputs into a firm’s production process- Capital equipment, employee skills,
patents, finances, talent
Capabilities- Capacity of a set of resources required to perform, in an integrative manner.
A capability should not be highly imitable but should be manageable and controllable

Key Criteria of Resources and Capabilities


• Valuable- R&C are valuable when they allow a firm to take advantage of
opportunities or neutralize threats in external environment
• Rare- R&C are rare if possessed by few, if any, current and potential competitors
• Costly to Imitate- R&C are costly to imitate when other firms either cannot obtain
them or are at a cost disadvantage in obtaining them
• Nonsubstitutable- R&C are nonsubstitutable when they have no structural
equivalents

Core Competencies
When the 4 key criteria of R&C are met, they become core competencies, and serve as a
source of competitive advantage. Managerial competencies are especially important

Dr Amit Rangnekar 4 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

Strategic Intent
• Company's vision of what it wants to achieve in the long term
• Must convey a significant stretch for the company, a sense of direction, discovery,
and opportunity that can be communicated as worthwhile to employees
• Should focus so on tomorrow's opportunities than on today's problems

Strategic Mission
• Statement of firm’s unique purpose
• Describes scope of operations in product & market terms
• Externally focused, inspiring and relevant to all stakeholders

Stakeholders
Individuals and groups affected by the firm’s performance and who have claims on it’s
performance.

Stakeholder Groups
Capital Market Stakeholders
• Shareholders, banks & lenders expect firm to enhance the wealth entrusted
• Returns should be commensurate with the degree of risk to the shareholder
Product Market Stakeholders
• Customers- Demand reliable products at low prices
• Suppliers- Seek loyal customers willing to pay highest prices for goods and services
• Host communities- Want companies willing to be long-term employers and
providers of tax revenues while minimizing demands on public support services
• Union officials- Want secure jobs and desirable working conditions
Organizational Stakeholders
• Employees & managers- Expect a stimulating and rewarding work environment,
satisfied by a company that grows and actively develops their skills

Strategic Leaders
People responsible for the design and execution of strategic management processes (Top
management). They will decide how resources will be developed or acquired, at what
price resources will be obtained, and how resources will be used

Organizational Culture
The complex set of ideologies, symbols and core values, shared throughout the firm, that
influence how the firm conducts business

Dr Amit Rangnekar 5 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

External Environmental Analysis

Components of the External Environmental Analysis


Scanning Identifying early signals of environmental changes & trends
Monitoring Analysing and observing environmental changes & trends
Forecasting Developing projections of anticipated outcomes
Assessing Determining environmental trends for firms’ strategic management

The external business environment may be divided into 2 sectors: Broad & task
Broad Environment- forms the context within which the firm and its task environment
exist. Consists of domestic and global forces
• political trends (e.g. open markets)
• economic trends (e.g. growing economy)
• socio-cultural trends (e.g. demographics)
• technological trends (e.g. internet)

Task Environment- The task environment consists of external stakeholders- groups or


individuals outside the organization that are significantly influenced by or have a major
impact on the organization, like:
• Customers
• Suppliers
• Competitors

General environment (PEST- DG)

Dimensions in the broader society that influence industry and the firms within it

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NMIMS 2007-08 Strategic Management

PEST analysis
Quadrants below contain criteria (not exhaustive or exclusive) used to analyse either PEST
Political Economic
Ecological/environmental issues Domestic / International economy
Legislations / regulatory / policy Taxes, levies, FDI, interests
Government term and change Stock markets and exchange rates
Funding, grants and initiatives Seasonality/weather issues
Lobbies / pressure groups Market and trade cycles
Wars and conflict Industry Specific factors
Social Technological
Lifestyle trends Competing & emerging technologies
Demographics R&D
Psychographics Technology/solutions maturity
Consumer attitudes and opinions Manufacturing costs / capacity
Law changes affecting social factors Information and communication
Consumption & buying patterns Innovation
Events and influences Licensing, patents, IPR issues
Ethnic / ethical / religious factors Disruptive innovation

Industry Environment Analysis

5 Forces of competition (Porter)

1) Threat of New Entrants: Entry


Barriers
• Economies of scale- Marginal
efficiency improvements, firm
experiences as it incrementally increases
its size. Advantages and disadvantages
of large-scale and small-scale entry
• Product differentiation- Unique
products, Customer loyalty, competitive
prices
• Capital requirements- Physical
facilities, Inventories, Marketing
activities, Availability of capital
• Switching Costs-One-time costs
customers incur when buying from different supplier. Costs of new equipment or
retraining employees
• Access to Distribution Channels- Stocking or shelf space, price breaks, cooperative
advertising allowances
• Cost Disadvantages- Independent of Scale- proprietary product technology, favorable
access to raw materials, desirable locations
• Government policy- Licensing and permit requirements, deregulation of industries

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NMIMS 2007-08 Strategic Management

Expected retaliation- Responses by existing competitors may depend on a firm’s present


stake in the industry (available business options)

2) Bargaining Power of Suppliers


• Supplier power increases when:
• Suppliers are large and few in number
• Suitable substitute products are not available
• Individual buyers are not large customers of suppliers and there are many of them
• Suppliers’ goods are critical to buyers’ marketplace success
• Suppliers’ products create high switching costs.
• Suppliers pose a threat to integrate forward into buyers’ industry

3) Bargaining Power of Buyers


• Buyer power increase when:
• Buyers are large and few in number
• Buyers purchase a large portion of an industry’s total output
• Buyers’ purchases are a significant portion of a supplier’s annual revenues
• Buyers can switch to another product without incurring high switching costs
• Buyers pose threat to integrate backward into the sellers’ industry

4) Threat of Substitute Products


• The threat of substitute products increases when:
• Buyers face few switching costs
• The substitute product’s price is lower
• Substitute product’s quality and performance are equal to or greater than the
existing product
• Differentiated industry products, valued by customers, reduce this threat

5) Intensity of Rivalry Among Competitors


• Industry rivalry increases when:
• There are numerous or equally balanced competitors
• Industry growth slows or declines
• There are high fixed costs or high storage costs
• There is a lack of differentiation opportunities or low switching costs
• When the strategic stakes are high
• When high exit barriers prevent competitors from leaving the industry

Unattractive industry Attractive industry


(Low profit potential) (High profit potential)
Low entry barriers High entry barriers
Suppliers and buyers have strong positions Suppliers and buyers have weak positions
Strong threats from substitute products Few threats from substitute products
Intense rivalry among competitors Moderate rivalry among competitors

Dr Amit Rangnekar 8 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

How to analyse Industry - (Michael Porter, HBR-Jan, 2008)


• Good industry analysis looks at average profitability over a period
• 3-5 year period can distinguish temporary/ cyclical changes from structural changes
• Industry analysis should not declare an industry attractive or unattractive but help
understand the underpinnings of competition and the root causes of profitability
• Analyse industry structure quantitatively, than qualitatively with lists of factors
• Quantify the 5 forces: %age of buyer's total cost accounted for by industry's product
(to understand buyer price sensitivity); %age of industry sales required to fill a
plant or operate logistical network of efficient scale (to assess barriers to entry);
buyer's switching cost (to determine inducement an entrant or rival must offer
customers).
• Define relevant industry: Products, exclusive/ indirect industry, scope, competition
• Identify & segment participants- buyers, suppliers, competitors, substitutes &
potential entrants
• Assess drivers of each competitive force- determine which are strong & weak- Why
• Determine overall industry structure & consistency- profitability levels & reasons,
controlling factors; are more profitable players better positioned wrt the 5 forces
• Analyse future changes (+/-) in each force
• Aspects of industry structure, influenced by company, competitors or new entrants

Common Pitfalls
• Defining industry- too broadly or too narrowly.
• Paying equal attention to all forces than focusing on the most important ones.
• Confusing effect (price sensitivity) with cause (buyer economics).
• Using static analysis that ignores industry trends.
• Confusing cyclical or transient changes with true structural changes.
• Framework used to declare industry - attractive/ unattractive, than use it for
strategic choices

Strategic Groups
A set of firms emphasizing similar strategic dimensions and using similar strategies
Internal competition between strategic group firms is greater than between firms outside
that strategic group. More heterogeneity in performance of firms within strategic groups

Strategic Dimensions
Extent of technological leadership, product quality, pricing policy, distribution channels
customer service

Competitor Analysis
Competitor Intelligence- Gather information & data to understand and better anticipate:
• Competitor’s direction (future objectives)
• Competitor’s capabilities and intentions (current strategy)
• Competitor’s beliefs about the industry (assumptions)
• Competitors (capabilities)

Dr Amit Rangnekar 9 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

The internal environment


Outcomes of internal and external environmental analyses
Internal- Firms determine what they can do- unique resources, capabilities &
competencies (sustainable competitive advantage)
External- Firms determine what they may choose to do

Internal Environmental Analysis


• Involves analyzing and evaluating internal stakeholders (managers, employees, owners
and the BOD) & an organization’s resources and capabilities
• Purpose of internal analysis is to determine strengths & opportunities for competitive
advantage and weaknesses & organizational vulnerabilities to be corrected

Creating Value
• By exploiting core competencies or competitive advantages, firms create value
• Value is measured by a product’s performance characteristics and its attributes for which
customers are willing to pay
• Firms create value by innovatively bundling & leveraging their resources & capabilities

Components of internal analysis

Conditions affecting decisions wrt resources, capabilities & core competencies


• Uncertainty- regarding characteristics of the general and the industry
environments, competitor’s actions, and customers preferences
• Complexity- regarding interrelated causes shaping a firm’s environment and
perception of the environment
• Intraorganisational conflicts- among people making decisions and those affected
by them

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NMIMS 2007-08 Strategic Management

Resources
• Inputs into a firm’s production process- Capital equipment, employee skills,
patents, finances, talent
• Organization is made up of resources: financial, physical, human, general
organizational (structure, systems, culture, reputation, stakeholder relationships
• Source of a firm’s capabilities & assets, including people & value of its brand name
• Broad in scope, cover a spectrum of individual, social & organizational phenomena
• Represent inputs into a firm’s production process, such as: Capital equipment, skills
of employees, brand names, financial resources, and talented managers
• Tangible - Seen & quantified- financial, physical, production resources
• Intangible - Deep roots in firms history- trust, innovation, knowledge, reputation
• Effective development or acquisition of organizational resources may be the most
important reason that some organizations are more successful than others

Capabilities
• Capacity of a set of resources to perform, in an integrative manner. Capability
should not be highly imitable but should be manageable & controllable
• Firm’s capacity to deploy resources, integrated to achieve a desired end state
• Emerge over time by complex interactions among tangible & intangible resources
• Often based on developing, carrying and exchanging information and knowledge
through the firm’s human capital
• The foundation of many capabilities lie in unique skills and knowledge of firm’s
employees, and functional expertise

Function Capability Firm


Distribution Effective logistics ITC, HUL
HR Training / Retaining Eureka Forbes / AV Birla
MIS Effective & efficient inventory control Big Bazaar
Marketing Branding/Promotion/Customer service Paras/ Hutch/ Maruti
R&D Innovation/Technology/Sophistication Apple / Gillette / Bose
Management Diverse industries Tata / Reliance/ Videocon
Manufacturing Volumes / Economies Chinese / Nokia

Key Criteria of Resources and Capabilities (R&C)


• Valuable- R&C valuable when they allow a firm to take advantage of opportunities
or neutralize threats in external environment
• Rare- R&C rare if possessed by few, if any, current and potential competitors
• Costly to Imitate- R&C costly to imitate when other firms either cannot obtain
them or are at a cost disadvantage in obtaining them
• Nonsubstitutable- R&C nonsubstitutable when they have no structural equivalents

Dr Amit Rangnekar 11 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

Core Competencies
When the 4 key criteria of R&C are met, they become core competencies, and serve as a
source of competitive advantage. Managerial competencies are especially important
• Resources & capabilities that serve as a source of a firm’s competitive advantage:
• Activities, a firm performs especially well compared to competitors, and through
which the firm adds unique value to its goods or services over a long period of time
• Emerge over time through an organizational process of accumulating and learning
how to deploy different resources and capabilities

Competitive Advantage
• Firms achieve strategic competitiveness and earn above-average returns when their
core competencies are effectively- acquired, bundled or leveraged
• Over time, competitors may duplicate benefits of any value-creating strategy

Sustainable Competitive Advantage- when competitors are unable to duplicate firm’s


value-creating strategy. Comes from a resource that is valuable in the market, possessed by
only a small number of firms (rare), and costly or difficult to imitate in the short term.

Four Criteria of Sustainable Competitive Advantage


Capabilities Advantage
Valuable Help a firm neutralize threats or exploit opportunities
Rare Are not possessed by many others
Costly to imitate Historical: Unique & valuable organizational culture/ brand
Ambiguous cause: Causes & uses of a competence unclear
Social complexity: Interpersonal relationships, trust, and friendship
Nonsubstitutable No strategic equivalent

Creating competitive advantage


• Core competencies, in combination with product-market positions, are the firm’s
most important sources of competitive advantage
• Core competencies of a firm, in addition to its analysis of its general, industry, and
competitor environments, should drive its selection of strategies

Outcomes of combinations of criteria of Sustainable Competitive Advantage


Capability Capability Capability Capability Competitive Performance
valuable Rare costly to Non- consequences implications
imitate substitutable
No No No No Competitive Below average
disadvantage returns
Yes No No Yes/No Competitive Average returns
parity
Yes Yes No Yes/No Temporary Average to
competitive above-average
advantage returns
Yes Yes Yes Yes Sustainable Above-average
competitive returns
advantage

Dr Amit Rangnekar 12 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

Value Chain Analysis: Template that allows firm to understand parts of its operations that
create value & those that do not
• Understand their cost position
• Identify means to facilitate implementation of a chosen business-level strategy
• Primary activities involved with: A product’s physical creation, a product’s sale
and distribution to buyers, the product’s service after the sale
• Support activities- provide support necessary for primary activities to take place
• Shows how a product moves from raw-material stage to the final customer
• To be a source of competitive advantage, a resource or capability must allow the
firm: To perform an activity in a manner superior to the way competitors perform it,
or to perform a value-creating activity that competitors cannot complete

The Value-Creating Potential of Primary Activities


• Inbound logistics- Store & disseminate inputs (materials, inventory)
• Operations- Convert inputs from inbound logistics to final product form (machining,
packaging, assembly, etc.)
• Outbound logistics- Collecting,
storing & physically
distributing product to
customers (goods warehousing,
order processing)
• Marketing and sales- Providing
means and inducing customers
to purchase products
(advertising, promotion,
distribution channels, etc.)
• Service- Enhancing or maintain
a product’s value (repair,
training, adjustment)
• Procurement- inputs to produce
firm’s products (raw materials
& supplies)
• Technological development-
Improving firm’s product &
processes in manufacturing
(process equipment, basic
research, product design, etc)
• HR management- Recruiting, training and compensating personnel
• Firm infrastructure- Supporting the work of the entire value chain (management,
planning, finance, accounting, legal, government relations, etc.)
• Effectively and consistently identify external opportunities and threats
• Identify resources and capabilities, support core competencies

Examine each activity wrt competitors’ abilities & rate as superior, equivalent or inferior

Dr Amit Rangnekar 13 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

The Challenge of Internal Analysis


Significantly influence firm’s ability to earn above-average returns
To develop and use core competencies, managers must have
• Courage, self-confidence, integrity, capacity to deal with uncertainty & complexity
• Willingness to hold people (and themselves) accountable for their work

Outsourcing- The purchase of a value-creating activity from an external supplier


• Few organizations possess resources and capabilities required to achieve
competitive superiority in all primary and support activities
• By focusing on fewer capabilities firm can concentrate on creating value
• Specialty suppliers can perform outsourced capabilities more efficiently

Outsourcing Rationale Outsourcing Issues


Business focus Outsource to firms possessing core competence of performing primary
or supporting outsourced activity
Access to world-class Evaluate activities where firm itself can create & capture value
capabilities
Accelerate business re- Risky to outsource primary & support activities used to neutralize
engineering benefits environmental threats
Flexibility Outsource critical capabilities or activities that stimulate development
of new capabilities & competencies

Cautions and Reminders


• Core competencies will not continue to provide a source of competitive advantage
• Core competencies may become core rigidities, generate inertia & stifle innovation
• Determining what the firm can do through continuous and effective analyses of its
internal environment increase the likelihood of long-term competitive success

Dr Amit Rangnekar 14 amitrangnekar@gmail.com


NMIMS 2007-08 Strategic Management

Business level strategy


• Integrated & coordinated set of
commitments & actions, firm uses to gain
competitive advantage by exploiting core
competencies in specific product markets
• Intended to create differences between
firm’s position relative to rivals
• Positioning- Decide whether to
• Perform activities differently- lower
overall costs, cheaper process) or
• Perform different (valuable) activities-
capability to differentiate product /service and command premium price

Business-Level Strategic Issues


Customers are the foundation of successful business-level strategy
• Who will be served by the strategy?
• What needs those target customers have that the strategy will satisfy?
• How those needs will be satisfied by the strategy?

Customers: Who, What, Where


Firms must manage all aspects
Cons ume r Customers Industrial of their customer relationship
Markets Markets with

• Reach: firm’s success and connection to customers


• Richness: depth & detail of 2-way information flow between firm & the customer
• Affiliation: facilitation of useful interactions with customers
Basis for Customer Segmentation
Consumer Markets
• Demographic factors (age, income, sex, etc.)
• Socioeconomic factors (social, religion, FLC stage)
• Geographic factors (cultural, regional, urban, rural)
• Psychological factors (lifestyle, personality traits)
• Consumption patterns (heavy, moderate, light users)
• Perceptual factors (benefit segmentation, perceptual map)

Industrial Markets
• End-use segments
• Product segments (technology, production economics)
• Geographic segments (country, regional differences)
• Common buyer segments (product market & geographic
segments)
• Customer size segments

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NMIMS 2007-08 Strategic Management

Customer Needs to Satisfy


What How
• Related to a product’s • Determine core competencies necessary to
benefits and features satisfy customer needs
• Representing desires in • Use core competencies to implement value
terms of features and creating strategies that satisfy customers’ needs
performance capabilities • Firms with capacity to continuously improve,
innovate & upgrade competencies can expect to
meet /exceed customer expectations across time

Competitive scope
Scope- Dimensions, including product groups, customer segments & geographic markets
• Broad scope- firm competes in many customer segments
• Narrow scope- firm selects a segment / group of segments in the industry and tailors
its strategy to serving them at the exclusion of others

Five Business-Level Strategies (Porter)

Competitive advantage
Cost Uniqueness
Broad Cost leadership Differentiation
Target Integrated Cost
leadership /
Competitive Narrow Differentiation
scope Target
Focused cost leadership Focused differentiation

Cost Leadership Strategy


• Integrated set of actions taken to produce relatively standardized goods/services
with features acceptable to many customers, at lowest competitive cost

Cost saving actions required are:


• Building efficient scale, manufacturing facilities, simplifying production processes
• Tightly controlling/minimising production/ sales/R&D and service costs
• Monitoring costs of activities provided by outsiders

How to obtain a Cost Advantage


Cost Drivers Value Chain
Alter production process New raw material
Change in automation Forward integration
New distribution channel Backward integration
New advertising media Change location relative to suppliers or buyers
Direct sales in place of indirect sales
Strategy- Determine and control Strategy -Reconfigure, if needed

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NMIMS 2007-08 Strategic Management

Examples of Value-Creating Activities Associated with the Cost Leadership Strategy

Cost Leadership Strategy of incumbents for


New Entrants frighten off by economies of scale & time to scale the learning curve
Suppliers mitigate suppliers’ power by absorbing cost increase due to low cost
position or by ability to make very large purchases
Buyers mitigate buyers’ power by driving prices far below competitors, causing
them to exit, thus shifting power with buyers back to the firm
Substitutes well positioned to invest to create substitutes, or buy patents developed
by potential substitutes, or lower prices to maintain value position
Competitors due to cost leader’s advantageous position, rivals hesitate to compete on
basis of price, lack of price competition leads to greater profits

Competitive Risks of cost leadership strategy


• Obsolescence of good/services producing processes due to competitors’ innovations
• Focus on cost reductions at expense of customers’ perceptions of differentiation
• Competitors may use own core competencies to imitate the cost leader’s strategy

Differentiation
An integrated set of actions taken to produce goods or services (at an acceptable cost) that
customers perceive as being different in ways that are important to them
• Nonstandardised products
• Customers value differentiated features more than they value low cost

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NMIMS 2007-08 Strategic Management

How to Obtain a Differentiation Advantage

Differentiation Strategy of incumbents for


New entrants Defend by offering new products with equal performance but lower price
Suppliers Mitigate by absorbing price increase due to higher margins, pass on
power higher supplier prices to buyers loyal to differentiated brand
Buyers power Mitigate buyers’ power as well differentiated products reduce customer
sensitivity to price increases
Substitutes Well positioned relative to substitutes, brand loyalty to differentiated
threat product may deter customers trying new products or switching brands
Competitors Defends against competitors because brand loyalty to differentiated
product offsets price competition

Focus strategies
An integrated set of actions taken to produce goods or services that serve the needs of a
particular competitive segment (buyer group) or different segment of a product line or
different geographic markets

Factors That Drive Focused Strategies


• Large firms may overlook small niches
• A firm may lack the resources needed to compete in the broader market
• Firm can serve a narrow market segment more effectively than larger competitors

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NMIMS 2007-08 Strategic Management

• Firm can direct resources to value chain activities to build competitive advantage

Integrated Cost Leadership/ Differentiation Strategy


Firm using an integrated cost leadership/differentiation strategy in a better position to:
• Adapt quickly to environmental changes
• Learn new skills and technologies more quickly
• Effectively leverage its core competencies while competing against its rivals

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NMIMS 2007-08 Strategic Management

Competitive Rivalry & Competitive Dynamics


Competitors- Firms operating in the same market, offering similar products and targeting
similar customers
Competitive Dynamics- Ongoing actions and responses taking place between all firms
competing within a market for advantageous positions
Competitive behavior- The set of competitive actions & competitive responses the firm
takes to build or defend its competitive advantages and to improve its market position
Competitive dynamics- The total set of actions and responses taken by all firms
competing within a market
Multimarket competition- Firms competing against each other in several product or
geographic markets

Competitive Dynamics

A Model of Competitive Rivalry


Firm’s competitive actions have noticeable effects on competitors & elicit competitive
responses. Market success is a function of individual strategies & consequences of their use

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NMIMS 2007-08 Strategic Management

Competitor analysis
• Understand competitors future objectives, current strategies, assumptions & capabilities
• Predict competitor behaviour, anticipate response, form competitive actions & responses
• Market commonality & resource similarity with competitors

Competitive rivalry- Ongoing actions and responses taking place between an individual
firm and its competitors for an advantageous market position

Strategic action or response- A market-based move that involves a significant


commitment of organizational resources and is difficult to implement and reverse

Tactical action or response- A market-based move taken to fine-tune a strategy. Usually


involves fewer resources and is relatively easy to implement and reverse

Competitive action- A strategic or tactical action the firm takes to build or defend its
competitive advantages or improve its market position

Competitive response- A strategic or tactical action the firm takes to counter the effects of
a competitor’s competitive action

Factors Affecting Likelihood of Attack


First mover Allocate funds for product innovation, aggressive advertising, R&D
Can gain loyalty of customers committed to the firm’s goods or services
Difficult for competitors to take market share
Second Responds typically through imitation
mover Studies customer reactions to innovation, avoids mistakes & huge spends
May develop more efficient processes and technologies
Late mover Responds to competitive action after considerable time has elapsed
Slow to succeed, lesser share & average returns than first & second movers
Small firms More likely to launch quicker competitive actions, rely on speed and
surprise to defend competitive advantages or develop new ones
Large firms Likely to initiate more competitive and strategic actions over a period

Quality exists when firm’s goods or services meet or exceed customers’ expectations
Product Quality Dimensions
• Performance—Operating characteristics
• Features—Important special characteristics
• Flexibility—Meeting operating specifications over some period of time
• Durability—Amount of use before performance deteriorates
• Conformance—Match with preestablished standards
• Serviceability—Ease and speed of repair
• Aesthetics—How a product looks and feels
• Perceived quality—Subjective assessment of characteristics (product image)

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NMIMS 2007-08 Strategic Management

Service Quality Dimensions


• Timeliness—Performed in the promised period of time
• Courtesy—Performed cheerfully
• Consistency—Giving all customers similar experiences each time
• Convenience—Accessibility to customers
• Completeness—Fully serviced, as required
• Accuracy—Performed correctly each time

Competitive dynamics
Slow cycle market Fast cycle market Standard cycle
market
Competitive Shielded from Not shielded from Moderately shielded
advantage imitation for long imitation from
periods of time
Sustainability High Low Partial
Imitation Costly Quick & inexpensive moderate
Strategy Concentrate on Competitors reverse Upgrade quality is
competitive actions engineer to quickly continuously
& responses to imitate or improve on Firms seek large
protect, maintain & firm’s products market shares
extend proprietary Non-proprietary Firms gain customer
advantage technology diffused loyalty through brand
rapidly names
Firms carefully control
operations
Industry Pharma R&D patents Reverse engineering HUL, P&G
Disney characters firms- Indian pharma
PC makers

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NMIMS 2007-08 Strategic Management

Corporate level strategy


Corporate-level Strategy (Companywide)
Specifies actions taken by a firm to gain a competitive advantage by selecting & managing
a group of different businesses competing in several industries and product markets

Business-level Strategy (Competitive)


Each business unit in a diversified firm chooses a business-level strategy as its means of
competing in individual product markets

Diversification
When a firm chooses to diversify beyond a single industry and operate businesses in
several industries. Firm creates value by productively using excess resources.

Product diversification concerns scope of the industries and markets in which the firm
competes and how managers buy, create and sell different businesses to match skills and
strengths with opportunities presented to the firm

Diversification levels
Low Single business >95% revenue from single
1
business
Dominant 70-95% revenue from single 1 2
business business
Moderate Related <70% revenue from dominant
to High constrained business and all businesses share 1
product, technological & 2 3
distribution linkages
Related linked <70% revenue from dominant
business and limited linkages 1 2 3
between businesses
Very Unrelated <70% revenue from dominant
High business and no linkages between 1 2 3
businesses

Diversifying to Enhance Competitiveness


Related Diversification- Firm creates value by building upon or extending its resources,
capabilities and core competencies
• Economies of scope- Cost savings that occur when a firm transfers capabilities and
competencies developed in one of its businesses to another of its businesses
• Sharing activities
• Transferring core competencies
• Market power- when firm can sell its products above the existing competitive level
and/or reduce the costs of its primary & support activities below competitive level
• Vertical integration-
• Backward integration—a firm produces its own inputs
• Forward integration- firm operates own distribution system to deliver its outputs

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NMIMS 2007-08 Strategic Management

Unrelated Diversification
• Financial economies- cost savings through improved allocations of financial
resources, create value through efficient internal capital allocations, purchase other
corporations & restructure their assets
• Efficient internal capital allocation- Corporate office distributes capital to SBU to
create overall value
• Business restructuring-
• Creates value by buying & selling other firms’ assets in external market
• Focus on mature, low-technology businesses, not reliant on a client orientation

Reasons for Diversification


Incentives and Resources with Neutral Effects on Strategic Competitiveness:
• Antitrust regulation, Tax laws
• Low performance, Uncertain future cash flows
• Risk reduction for firm
• Tangible resources, Intangible resources

Managerial Motives (Value Reduction)


• Diversifying managerial employment risk
• Increasing managerial compensation

Strategic Motives
• Economies of scope (related diversification)
Sharing activities
Transferring core competencies
• Market power (related diversification)
Blocking competitors through multipoint competition
Vertical integration
• Financial economies (unrelated diversification)
Efficient internal capital allocation
Business restructuring

Diversification Methods- Internal Ventures, M&A, JV

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NMIMS 2007-08 Strategic Management

Acquisition & Restructuring Strategies

Internal Ventures
Internal ventures make use of the R&D programs of the organization
• Advantages- Control over the venture, information not shared, profits retained
• Disadvantages- High failure risk, lot of time to execute, Internal resources locked

Mergers and Acquisitions (M&A)


Mergers & acquisitions sometimes undertaken to “buy” innovation than produce in-house
• Add scale
• Fast way to enter new markets and geographies
• Acquire new products / services / technologies / knowledge and skills
• Vertically integrate
• Fill needs in the corporate portfolio

• Merger- when 2 firms agree to integrate operations on a relatively co-equal basis


• Acquisition- strategy where a firm buys a controlling, or 100% interest in another
firm, to make the acquired firm a subsidiary business within its portfolio
• Takeover- A special type of acquisition when the target firm did not solicit the
acquiring firm’s bid for outright ownership
• Most research indicates that mergers and acquisitions perform poorly

Horizontal acquisition
•Acquisition in the same industry increases firm’s market power by exploiting
cost-based and revenue-based synergies
•Acquisitions with similar characteristics result in higher performance than those with
dissimilar characteristics

Vertical acquisitions
•Acquisition of a supplier or distributor of one or more of the firm’s goods or services
•Increases a firm’s market power by controlling additional parts of the value chain
Related acquisitions
•Acquisition of a company in a highly related industry
•Difficulty in implementing synergy, make related acquisitions difficult to implement

Reasons for acquisitions Problems with acquisitions


Increased market power Overestimation of synergies
Overcoming entry barriers Recovering deal premium
Low risk compared to NPD Integration
Develop new capabilities Inadequate target evaluation
Competition Managing size
Diversification Too much diversification
Faster to market than NPD Complacency

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NMIMS 2007-08 Strategic Management

Why Mergers Don’t Work Why Mergers Work


• Large or extraordinary debt • Strong relatedness
• Overconfident or incompetent • Friendly negotiations
management • Low-to-moderate debt
• Ethical concerns
• Changes in top management team and/or
• Continued focus on core strengths
organizational • Careful selection of & negotiations with
• Inadequate analysis (due diligence) target firm
• Diversification away from the firm’s • Strong cash or debt position
core • Similar firm cultures & management styles
• Sharing resources across companies

Restructuring
• A strategy through which a firm changes its set of businesses or financial structure
• Failure of an acquisition strategy often precedes a restructuring strategy
• Due to changes in the external or internal environments

Restructuring strategies:
Strategy What happens Short term outcomes Long term outcomes
Down Reduction in number of Reduced labour costs Loss of human
sizing employees/operating More efficient operations capital
units Lower performance
Down Divestment / spin-off to Reduced debt costs Higher performance
scoping eliminate non core Strategic controls emphasis
businesses & refocus
Leveraged A party buys the firm’s Strategic controls emphasis Higher risk
buyouts assets to take it private High debt costs
Can correct managerial
mistakes, facilitate
entrepreneurial growth

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NMIMS 2007-08 Strategic Management

International Strategy
Strategy where a firm sells its goods or services, outside its domestic market.

Determinants of National Advantage


• Factors of production: the inputs necessary to compete in any industry- Labour,
land, natural resources,
capital, infrastructure and
an educated workforce
• Demand conditions:
nature and size of domestic
buyers’ needs can lead to
scale-efficient facilities,
efficiency can lead to
domination in own / other
countries

• Related & supporting


industries: supporting
services, facilities, suppliers especially for support in design and distribution
• Firm strategy, structure and rivalry: Cooperative and competitive systems

Reasons for pursuing an international strategy range from


• New opportunities, market expansion, product life cycle extension
• Higher potential for product demand and better value realisation
• IPR opportunities, access to technology or R&D or distribution channels
• Economies of scale or learning
• Location advantage- access to raw materials, low cost labour, key customers and
energy sources

Multidomestic strategy- Strategy and


operating decisions are decentralized to
strategic business units (SBU) in each
country
• Products & services tailored to local
markets
• SBUs independent across countries
• Assumes markets differ by country
or regions
• Competition focus in each market
• Common strategy of EU firms due
to variety of cultures & markets

Global strategy- Products are standardized


across national markets
• Business-level strategy decisions

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NMIMS 2007-08 Strategic Management

are centralized in the home office


• SBU assumed to be interdependent
• Emphasizes economies of scale
• Lack local market responsiveness
• Requires resource sharing and coordination across borders (hard to manage)

Transnational strategy- Seeks to achieve both global efficiency and local responsiveness
• Difficult to achieve because of simultaneous requirements
• Strong central control and coordination to achieve efficiency
• Decentralization to achieve local market responsiveness
• Must pursue organizational learning to achieve competitive advantage

Choice of International Entry Mode


Type of Entry Characteristics Dynamics
Exporting High cost, low control The firm has no foreign
manufacturing expertise and requires
investment only in distribution.
Licensing Low cost, low risk, little control, The firm needs to facilitate the
low returns product improvements necessary to
enter foreign markets.
Strategic Shared costs, shared resources, The firm needs to connect with an
alliances shared risks, problems of experienced partner already in the
integration targeted market.
Acquisition Quick access to new market, The firm needs to reduce its risk
high cost, complex negotiations, through the sharing of costs.
problems of merging with
domestic operations
New wholly Complex, often costly, time The firm’s intellectual property rights
owned consuming, high risk, maximum in an emerging economy are not well
subsidiary control, potential above-average protected, the number of firms in the
returns industry is growing fast, and the need
for global integration is high.

Risk in the International Environment


• Political: Political instability, civil & international war, nationalization of resources
• Economic- Interdependent with political & include fluctuations in forex rates, wage
rates, enforcing property rights and unemployment
• Cultural- local customs, traditions and language

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NMIMS 2007-08 Strategic Management

Cooperative Strategy
Strategy in which firms work together to achieve a shared objective to create customer
value and establish a favorable position relative to competitors

Strategic Alliance
Combine resources and capabilities of firms to create a mutually competitive advantage.
To co-develop, co-market or distribute goods and services. Competitive advantage
developed through a cooperative strategy is called a collaborative or relational advantage.

Types
• Joint Venture- 2 or more firms create an independent firm by sharing some of their
resources and capabilities
• Equity Strategic Alliance- Partners own different equity shares in separate
company
• Non-equity Strategic Alliance- 2 or more firms develop a contractual relationship
to share some of their unique resources and capabilities

International Cooperative Strategies


• Cross-border Strategic Alliance- firms across nations combine R&C to create a
competitive advantage, in either domestic / international markets
• Synergistic Strategic Alliance- Allows risk sharing by reducing financial
investment
• Host partner knows local market and customs
• Difficult to manage differences in styles, cultures or regulatory constraints
• Risk of partner gaining technology access and becoming a competitor

Reasons for Strategic Alliances


Market Reason
Slow Cycle •Gain access to a restricted market (Insurance JVs in India)
•Establish a franchise in a new market
•Maintain market stability (e.g., establishing standards)
Fast Cycle •Speed up development of new goods or service (Dell)
•Speed up new market entry
•Maintain market leadership
•Form an industry technology standard
•Share risky R&D expenses, overcome uncertainty
Standard Cycle •Gain market power (reduce industry overcapacity)
•Gain access to complementary resources
•Establish economies of scale
•Overcome trade barriers
•Meet competitive challenges from other competitors
•Pool resources for very large capital projects
•Learn new business techniques

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NMIMS 2007-08 Strategic Management

Business-Level Cooperative Strategies


• Complementary strategic alliances- Vertical, Horizontal
• Competition response strategy
• Uncertainty reducing strategy
• Competition reducing strategy
• Complementary Alliances- Combine partner firms’ assets in complementary ways
to create new value. Include distribution, supplier or outsourcing alliances where
firms rely on upstream or downstream partners to build competitive advantage
• Franchising- Spreads risks and uses resources, capabilities, and competencies
without merger or acquisition. A contractual relationship
• Alternative to growth through M&A

International Cooperative Strategies


• Cross-border Strategic Alliance- Firms with headquarters in different nations
combine resources and capabilities to create a competitive advantage
• Synergistic Strategic Alliance- Allows risk sharing by reducing financial
investment.
• Network Cooperative Strategy
• Several firms agree to form multiple partnerships to achieve shared objectives

Competitive Risks of Cooperative Strategies


• Partners may act opportunistically or misrepresent competencies
• Partners fail to make committed resources & capabilities available to partners
• One partner may make investments specific to the alliance while its partner does
not

Strategic Alliances and Joint Ventures


• Resource sharing--marketing, technology, raw materials and components, financial,
managerial, political
• Speed of entry
• Spread risk of failure
• Increase strategic flexibility
• Learn from venture partners

Problems with Strategic Alliances and Joint Ventures


• Only partial control and shared profitability
• High administrative costs
• Possible lack of fit
• Risk of opportunism
• Foreign joint ventures are even more risky due to potential for miscommunications,
misunderstandings and lack of shared knowledge about the constraints of the external
environment

Strategic Direction

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NMIMS 2007-08 Strategic Management

• Setting long-term goals and objectives, like- mission & vision


• Defines the purposes for which an organization exists & operates

Strategy Formulation
• Strategy is an organizational plan of action intended to accomplish goals.
• Corporate strategy formulation refers to domain definition, or the choice of business
areas. Usually decided by the CEO and the BOD.
• Business strategy formulation involves domain direction and navigation, or how to
compete in a given area. Usually decided by SBU heads & managers.
• Functional strategy formulation contains the details of how the functional areas such as
marketing, operations, finance, and research should work together to achieve the
business-level strategy.

Strategy Implementation and Control


• Strategy implementation involves creating the functional strategies, systems, structures,
and processes needed by the organization in achieving strategic ends.
• Strategic control refers to the processes that lead to adjustments in strategic direction,
strategies, or the implementation plan when necessary.
• Strategic restructuring involves a renewed emphasis on what an organization does well,
combined with a variety of tactics to revitalize the organization and strengthen its
competitive position.

Alternative Perspectives on Strategy Development


Traditional Strategic Management Process
• Situation Analysis--Strengths, Weaknesses, Opportunities and Threats (SWOT)
• Strategies should take advantage of strengths and opportunities or neutralize or
overcome weaknesses and threats
• Environmental Determinism--the best strategy involves adapting to environmental,
technical and human forces
• Strategy is deliberate (always planned and intended by management)

Business Level strategies

Business-Level Strategy Formulation Responsibilities


• Direction setting—Mission, vision, ethics, goals
• Situation analysis—Compilation and assessment of information
• Selection of strategies—Generic strategy (cost leadership, differentiation, best cost,
focus) and strategic posture (specific strategies)
• Management of resources—Acquisition and/or development of resources leading to
competitive advantage

Business-Level Strategies- Growth & Competitive Strategies


Growth Strategies

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NMIMS 2007-08 Strategic Management

• Investment in resources to achieve growth in sales (assuming the industry is attractive)


• Investments over time may involve a redefinition/expansion of organizational scope
• Concerns: Activities and resources to invest in, implications for scope and complexity,
and the timing relative to competitors

Growth Strategies
Internal Strategies External Strategies
• Market penetration • Horizontal integration
• Market development • Alliance formation
• Applications development
• Product development

Rate at Which Firms Introduce New Products or Enter New Markets


Prospectors- First mover Analyzers- Follow the first mover when opportunity is
proven
Defenders- Defensive strategy Reactors- No distinct strategy

Competitive Strategies-Value propositions associated with generic competitive strategies


Differentiation: Offer value to customers by providing them preferred product / service
Cost leadership: Offer value to customers by providing them with a standard product or
service produced at lower cost (and typically offered at a lower price)
Best cost: A combination of the first two options.

Note: these strategies assume that the firm is seeking a broad customer base. If the firm is
pursuing a particular market segment it is using a “focus” strategy.

Differentiation
Create Value Through Uniqueness
• Superior Quality
• Innovations and Research
• Speed and Flexibility
• Reputation and Brand Name
• Creative advertising
Customers Must Be Willing to Pay More for Uniqueness
• Added costs vs. incremental price

Cost Leadership
• Accurate Demand Forecasting and High Capacity Utilization
• Economies of Scale
• Technological Advances
• Learning/Experience Effects

Typical Learning/Experience Curve


Best Cost

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NMIMS 2007-08 Strategic Management

• Combination of cost leadership and differentiation


• May actually be the dominant strategy among the most successful companies Today
• Either:
• The same resources/activities that allow cost reductions also allow differentiation.
(e.g., automation that lowers costs and improves speed and service).
• Profits from cost reductions are used to invest in differentiating features, and vice
versa.

International Expansion Tactics


• Exporting
• Licensing
• Franchising
• Joint Venture
• Greenfield Venture
Global Product/Market Strategy
• Multidomestic Product/Market Strategy
• Global Product/Market Strategy
• Transnational Product/Market Strategy
Corporate Strategies
• Concentration
• Vertical Integration
• Unrelated Diversification
• Related Diversification
Advantages of Concentration
• Allows a firm to master one business
• In-depth knowledge
• Easier to achieve competitive advantage
• Organizational resources under less strain
• Prevents proliferation of management levels and staff functions
• Sometimes found more profitable than other strategies (dependent on industry, of course)

Disadvantages of Concentration
• Risky in unstable environments
• Product obsolescence and industry maturity
• Cash flow problems

The Vertical Supply Chain


When to Vertically Integrate
Common reasons for vertical integration
• Increased control over quality of supplies or the way the product is marketed

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NMIMS 2007-08 Strategic Management

• Better information about supplies or markets


• Greater opportunities for differentiation through coordinated effort
• Opportunity to make greater profits by performing another function in vertical supply
chain

Transactions Costs and Vertical Integration


Basic Proposition: Firms should buy what they need from the market as long as
transactions costs are low.
• Transactions costs are reflected by the time and resources needed to create and enforce a
contract to purchase goods and services.
• If transactions costs are high, the market fails to provide the best deal
• Transactions costs are high (the market fails) if:
Highly uncertain future
One or small number of suppliers
One party to a transaction has more knowledge about the transaction than the other
An organization has to invest in an asset that can only be used to produce a specific
good or service (asset specificity)

Unrelated Diversification
• Large, highly diversified firms are called conglomerates
• Not a high performing strategy for most firms (with a few notable exceptions) in
industrialized nations like the U.S.
• Difficult for a top manager to understand and appreciate the core technologies, key
success factors and special requirements of each business area

Related Diversification
• Based on tangible and intangible relatedness
• In theory, can lead to synergy (but synergy is often illusive)
• Often a higher performing strategy than unrelated diversification (lower risk and higher
profitability)
• Can lead to corporate-level distinctive competencies

Requirements for Synergy Creation


Relatedness
• Tangible--same physical resources for multiple purposes
• Intangible--capabilities developed in one area can be used elsewhere
• Fit
• Strategic-matching of organizational capabilities-complementary resources & skills
• Organizational--similar processes, cultures, systems and structures
• Managerial actions to share resources and skills
• Benefits must outweigh costs of integration

Portfolio Models

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NMIMS 2007-08 Strategic Management

Strategy Implementation

Learning Objectives
To understand:
• the role of leadership in successful execution of strategies
• how culture and organizational energy influence the success of strategy implementation
• functional strategies and their importance to strategy implementation
• the stages firms encounter as they execute global strategies
• basic organizational structures, and their strengths and weaknesses
• the various roles played by foreign subsidiaries

Four Primary Responsibilities of Leaders


• Design organizational purpose, vision and core values
• Develop policies, strategies and structure
• Create an environment for organizational learning
• Serve as a steward for the organization
Situational Leadership
• Leadership style should fit the situation
• Effective leaders can employ range of styles- coercive to coaching to consensus-building
• Most successful leaders exhibit a high degree of emotional intelligence
Organizational Culture
An organization’s culture, the system of shared values that guides employee beliefs and
behavior, influences the success of strategy implementation.
• Often reflects the values and leadership styles of top executives
• Human resource management practices can influence culture – recruitment, training,
performance evaluation

Challenge of the Future


• Technological advancements, including communications and the Internet
• Globalization
• Blended cultures, diverse and mobile labor pools
• New companies from emerging markets
• More educated, demanding customers
• Increased concern about governance and social responsibility

Challenges for managers:


• retaining valuable employees
• creating and preserving competitive advantage
• holding back new entrants

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NMIMS 2007-08 Strategic Management

• serving increasingly demanding customers


• choosing and timing technology investments at a time when change is so rapid
• major shocks associated with terrorism, new diseases and wars
Business Tactics (Strategic Management, Alex Miller)
Anticipatory Engagement
Offensive Preemption Attack
• Pioneer • Frontal
• Attack • Flank
• Intimidate • Guerilla
• Capture • Siege
Defensive Deterrence Response
• Raise structural barriers • Counter attack
• Expect retaliation • Fast follow
• Discourage attack • Retrenchment
• Diplomatic peacekeeping • Withdrawal

Scenario: An internally consistent view of what the future might turn out to be – not a
forecast, but one possible future outcome (Porter).

Scenarios help us to understand today better by imagining tomorrow, increasing the


breadth of vision and enabling us to spot change earlier … Effective future thinking brings
a reduction in the level of crisis management and improves management capability,
particularly change management.

Growth Strategies
The different routes to growth fall broadly into 5 options, but, they are not mutually
exclusive and can overlap. They maybe limited by available resources, but require a clear
focus on objectives and a sustained level of commitment.

• Organic growth
• Mergers and acquisitions
• Integration
• Diversification
• Specialisation

Business level growth strategies: New products, new markets, new geographies

Takeover defense strategies

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NMIMS 2007-08 Strategic Management

Crown Jewels
A defense against a takeover in which a company sells its most precious assets to a friendly
buyer. The suitor then disappears since the target of its pursuit has gone elsewhere and the
company rebuys its assets from its friend.

Pac-man defense
A takeover, in which the target bites back, and makes an offer to take over the shares of the
suitor. The name is derived from a once popular video game.

Poison Pill
A range of devices designed to make a takeover unpalatable to the swallower (acquirer). Eg
accompany might borrow a large sum of money in order to distribute it immediately as
dividends to the company’s shareholders; or it might make an issue of preferred stock that
gives shareholders the right to redeem it at a hefty premium after a takeover
Scorched Earth

Shark Repellant
A smell put out by a company to deter potential suitors. Eg A leaked announcement about a
‘secret’ contract to pay millions to existing managers should the company be taken over.

Scorched Earth defense


A defense against a takeover that involves destroying (or selling) large parts of the
business, or atleast ensuring that they will be destroyed should the company that owns
them be taken over. It is a somewhat drastic defense that also involves an awkward irony;
what should you do if it succeeds, and the suitor is deterred? How do you make grass grow
again on the scorched earth?

White Knight
A firm that comes to the rescue of a company that is in the throes of an unwelcome
takeover.

Dawn Raid
An early morning purchase on the stock market, of a large block of a company’s shares, by
an investor who has an eye on taking over the company. Aimed at pre-empting any other
potential raider from gaining a similar stranglehold on the takeover target.

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NMIMS 2007-08 Strategic Management

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NMIMS 2007-08 Strategic Management

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NMIMS 2007-08 Strategic Management

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