[Strategic Management 3.

0- Dr Amit Rangnekar]

Strategic Management 3.0 MBA Notes
f

Dr Amit Rangnekar
amitrangnekar@gmail.com For MBA Class Notes and Case study presentations on strategic management/ brand management/ marketing management, visit www.dramitrangnekar.com
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[Strategic Management 3.0- Dr Amit Rangnekar]

Strategic Management – MBA- NMIMS University; MMS- Mumbai University ____________________________________________________________________ Instructor: Dr Amit Rangnekar Email: amitrangnekar@gmail.com Web: www.dramitrangnekar.com Cell: +91 98200 27699 _____________________________________________________________________ Objectives: Deliver contemporary concepts, tools, and models of strategic management, using the pedagogy of case studies and class interaction. Initiate structured thinking to help understand, plan, apply and implement strategies successfully. Evaluation Criteria: Class Participation 10% Table of Contents Topic 1 Strategic Analysis 2 3 4 External Environment Internal Environment Corporate Level Student Assignments 10% Group Presentation 10% Mid Term Examination 20% Written Examination 50%

Sub Topic
Industry, market, competition SWOT, PESTLE, Industry Attractiveness (Porters 5 Forces) Resources, capabilities, Value Chain, Core competence Growth, stability, retrenchment Approaches, strategies Approaches, strategies Drivers, Failures, Strategic

Cases from

PP 4 7

Samsung Tatas Samsung ITC P&G-Gillette Moser Baer, Lupin Piramal Essel Propack Faze 3

12 17 19 20 22 25 27 29 33 37

4a Integration 4b Diversification 4c Acquisition 4e Co-operative 5 6 7 8 Business Level Strategic Frameworks Competitive Dynamics Strategy Implementation

4d Internationalisation Approaches, strategies
Approaches, strategies Generic, specific, competitive strategies, competitive advantage BCG Matrix, GE-McKinsey Matrix, Ansoff Matrix Dynamics and rivalry Leadership, People, Structure, Systems, Culture, Actions, Audits,

Dabbawallas Avantha Group

Other reading material:
Notes Strategic Management from www.dramitrangnekar.com Books Strategic Management- Haberberg, Rieple / Hitt, Ireland/ Strickland, Thomson Strategic Market Management- Aaker, Kellogg on strategy- Dranove,Marciano Reads HBR Centennial Issue on Strategy January 2008

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About the Author
Dr Amit Rangnekar, MBA (Marketing) and PhD (Business Strategy) from NMIMS, Mumbai, has over 2 decades of progressively responsible pharma industry experience with Centaur Pharmaceuticals. In 2006 Dr Rangnekar was awarded a 10 nation scholarship to Europe by the Government of Denmark to complete his doctoral research. His co-authored book "Cases in Indian Management" was launched in Mumbai, Dubai and London in 2008. Embarking onto teaching as a hobby in 2003, Dr Rangnekar is a visiting faculty at Mumbai's leading B-Schools. His repertoire of insightful notes and compelling case studies have added value to over 10,000 MBA students. He shares his thoughts and knowledge with a global audience through his immensely popular website and blog, which have together clocked over 900,000 hits. Dr Rangnekar has presented on various business case studies on marketing, branding and business strategy, at B-schools and corporates across India and Europe. He has been a faculty at global leadership programmes of numerous Fortune 100 companies in Europe and Asia. He is also an external guide for two PhD research scholars. Co-ordinates Email amitrangnekar@gmail.com , amit@dramitrangnekar.com

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Concise class notes on marketing, branding and strategic management  Researched Case studies in power point presentation (ppt)  Tips on PhD, Pharma and deliverables  Various publications of the author, Insights into pharmaceutical industry Notes adapted through readings, cases and notes from- Harvard Business School/ Review, Ivey, Stanford, Kellogg, MIT Sloan, LBS, Insead, Wharton, Emory; publications by Porter, Kotler, Keller, Kapferer, Nirmalya Kumar & Mckinsey; Economic Times, Indian and international business magazines, and the internet. Garnished with my own experience, insights & knowledge.

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[Strategic Management 3.0- Dr Amit Rangnekar]

1 Strategic analysis
Situation analysis External factors Internal factors Consumers Competitors Environment Resources Capabilities Skills

Concepts  Strategy- Directing action towards desired outcome  Corporate strategy- business/es industries to be in/enter/exit  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- successful implementation of value-creating strategy  Risk- Investor’s uncertainty of economic gains/ losses from particular investment  Average Returns- Returns = earning expected from other similar risk investments  Above-average Returns- Returns > from other other similar risk investments  Strategic flexibility: Capabilities to respond to demands & opportunities in dynamic & uncertain competitive environments Strategic management- Process by which organizations analyze & learn from stakeholders, 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 opportunities & threats • Determine how to use core competencies • Use strategic intent to leverage resources, capabilities & core competencies to win competitive battles, earn above-average returns • Integrate formulation and implementation of strategies • Seek feedback to improve strategies

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Analysing Industry  Structure- Consolidated (Auto, Telecom)/ fragmented (Restaurants, Laundry)  Competition- Monopoly (Railways, Gillette, Amul) / duopoly (Pepsi-Coke, BoeingAirbus)/ oligopoly (Pharma, Steel, Auto, Telecom)  Market structure- Leader, challenger, followers, nicher (LCFN)  Lines- Broad (Electronics, Auto)/ narrow (Steel, Telecom, Hotels)  Consolidation- Oligopoly or process where few players dominate, generally through M&A or through regulations- Mobile services, steel, cement, tyres  Fragmentation- A market of many players with small market shares, no clear leader / leaders- Restaurants, Saloons, laundry  Concentration- The extent to which a small number of firms account for a high proportion of sales in an industry- Telecom services & handsets, airlines Competition

Category

Need fulfilled Brand Competitors Basic Same products, F&B, price Beverages Refreshment Coke, Pepsi, Thums Up Chocolates Dessert/ Dairy Milk, 5Star snack Celebrations Films Cars Entertainment PVR, Fame Adlabs Transportation Maruti, Hyundai, Tata

Product Competitors Same class, F&B & price differ Tea, Lemon, Bisleri Mithai, Namkeens Ice creams, Fruits Small/Big cars, SUVs

Generic Competitors Different products solve same problem/ basic need Regular water Aniseed, Candy, Sugar

Single screen, Drama TV, Shopping, Internet Taxi, Auto, bus, train, walk

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Analysing Competition  Satisfy same / similar needs- Segments served  Direct / indirect - Eg Coke- direct Pepsi, indirect Bottled water, juice, beer  Products? Brands, categories dependence? Channels? Pricing strategies?  Management and financial resources? Objectives? Core competencies?  Alliances, purpose? Market success? Share of market /voice /mind /heart? Analysing customers  Who are our customers, segments? How do they respond to marketing programs  Buying- What, where, when, frequency, how do they choose, use, why do they prefer  Long term value of customers Adding Value at the Corporate Level- Key Top Management issue (Prof Hax, MIT) 1. Environmental scan at corporate level: Assess external forces impacting the firm 2. Mission of the firm: Choose competitive domains and the way to compete 3. Business segmentation: Select planning and organizational focus 4. Horizontal strategy: Pursue synergistic linkages across business units 5. Vertical integration: Define boundaries of the firm 6. Corporate philosophy: Define relation between firm and stakeholders 7. Strategic posture of the firm: Identify strategic thrust- corporate, business & functional planning challenges and corporate performance objectives 8. Portfolio management: Assigning priorities for resource allocation and identifying opportunities for diversification and divestment 9. Organization & managerial infrastructure: Align organization structures, managerial processes & systems, in consonance with firm culture to facilitate strategy implementation 10. HRM of key personnel: Selection, development, appraisal, reward & promotion

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2 External Environment
The Environment

The external business environment may be divided into 2 sectors: Broad & task Broad Environment- context within which 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- consists of external stakeholders- groups / individuals outside the organization but significantly influenced by or have a major impact on the organization: Customers, Suppliers, Competitors Strategic fit- effective match and management of environmental opportunities and threats with organisational strengths and weaknesses Strategic Groups- Set of firms with similar strategic dimensions & using similar strategies. Intra strategic group firm competition greater than intra. More heterogeneity in performance of firms within strategic groups. Eg Cars, PC, Airlines, segmented by sensitivity to price, quality, technology & service Environmental scan formalizes the process of understanding external forces impacting the firm. There are three different types of analyses to support this process: economic overview, primary industrial sectors, and basic external factors. Components of the External Environmental Analysis Scanning Identify early signals of environmental changes & trends Monitoring Analyse and observe environmental changes & trends Forecasting Develop projections of anticipated outcomes Assessing Determine environmental trends for firms’ strategic management

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SWOT Analysis- assess the internal / external environment a firm operates in Strengths (Internal) Weaknesses (Internal)
USP's, capabilities, competitive advantage, resources, experience, knowledge, data, financials, marketing, reach, communication, service, legacy innovation, location, geography, price, value, IT quality, accreditations, processes, systems, culture, values, behaviour, management, reputation, Proposition, capabilities gaps, presence, strength, reputation, reach, financials, vulnerabilities, timescales, deadlines, pressures, supply chain, morale, attrition, commitment, leadership, processes & systems, management,

Opportunities (External)
Market / business / NPD, NMD, industry phase and potential, competitor vulnerabilities, global influences, demographics or lifestyle trends, technology, innovation, niches, verticals / horizontals, geographies, new contracts, research, partnerships, distribution, volumes, production, economies, season, influences

Threats (External)
PEST, competitive intentions, market demand, contracts and partners, sustaining capacities, finances & capabilities, obstacles, insurmountable weaknesses, industry cycles, seasonality

The external business environment PESTLE analysis

Dimensions in the broader society that influence industry and the firms within it Political
Environmental, legislative, regulatory, policy, stability, initiative, lobbies, war and conflict, pressure groups, unions

Economic
Economy, global trends, taxes, levies, FDI, interest, inflation, unemployment, GDP, Stocks, forex, climate, market, trade cycles, industry specific factors

Sociocultural
Demographics, lifestyles, social mobility, educational levels, Attitudes, opinions, beliefs, buyer behaviour, ethnic & religious factors

Technological
Competing & emerging technologies, R&D, costs and capacities, PLC, solutions, innovation, information, communication, IPR, licensing, disruption

Legal
Legislative structure, anti-trust laws, trade/ foreign trade, employment, exit policies

Environmental
Sustainability, green issues, energy, natural factors

How to analyse Industry - (Michael Porter, HBR-Jan, 2008) www.dramitrangnekar.com 8 amitrangnekar@gmail.com

[Strategic Management 3.0- Dr Amit Rangnekar]

    

     

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

Common Pitfalls  Defining industry- too broadly or too narrowly.  Pay 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.  Use framework for strategic choices than declare industry - attractive/ unattractive Industry Environment Analysis/ industry attractiveness (Porter’s 5 Forces model) 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

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Government policy- Licensing and permit requirements, deregulation of industries

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 large few in number  Suitable substitute products not available Individual buyers not large customers of suppliers, 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 large and few in number, purchase large portion of industry’s 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, substitute product’s price is lower  Substitute product’s quality and performance => existing product  Differentiated industry products, valued by customers, reduce this threat 5) Intensity of Rivalry among Competitors  Industry rivalry increases when:  Numerous or equally balanced competitors  Industry growth slows or declines  High fixed costs or high storage costs  Lack of differentiation opportunities or low switching costs  High strategic stakes, High exit barriers prevent competitors industry exit Unattractive industry (Low profit potential) Low entry barriers Suppliers and buyers- strong positions Strong threats from substitute products Intense rivalry among competitors Attractive industry (High profit potential) High entry barriers Suppliers and buyers- weak positions Few threats from substitute products Moderate rivalry among competitors

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The Value Net (Drive Industry Profits Up)- Brandenberger & Nalebuff  Complementary products- (Telecom Towers for mobile signal, HD Plasma TV)  Cooperation with buyers & suppliers  Coordination among competitors Effect of Industry Forces on Value, Cost & Price (P82Walker 2e) Effect on Industry force Value Cost Stronger rivalry Raise value to Increase cost compete associated with higher value Stronger buyers Raise value to compete Stronger suppliers Lower value Raise costs Lower entry costs

Price Lower price to compete Lower price to compete Lower price to keep new entrants out Lower price to compete

More powerful Raise value to substitues compete Industry cooperation Between firm & Raise value to buyers buyers without comparable rise in supplier costs Between firm & Raise value to firm suppliers without comparable rise in supplier costs Between firm & Raise value to competitors industry buyers without comparable rise in industry costs (shared innovation) Complements Effective Raise value to complements industry buyers without comparable rise in industry costs

Lower firm costs without comparable drop in buyer value Lower supplier costs without comparable drop in firm value Lower costs in industry without comparable drop in value to industry buyers (shared innovation) Raise potential price necessary to compete (cooperative pricing)

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3 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 • Helps 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 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- interrelated causes shaping firm’s environment and its perception • Intraorganisational conflicts- among decision makers and those affected by them Resources  Inputs into a firm’s production process- Capital equipment, employee skills, patents, finances, talent, brands, financial resources, and talented managers www.dramitrangnekar.com 12 amitrangnekar@gmail.com

[Strategic Management 3.0- Dr Amit Rangnekar]

 Organization is made up of resources: financial, physical, human, general organizational (structure, systems, culture, reputation, stakeholder relationships  Source of a firm’s capabilities & assets- people & value of its brand name  Broad in scope- spectrum of individual, social & organizational phenomena  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  By developing, carrying, exchanging information & knowledge through firm’s HR  Foundation in unique skills, knowledge of firm’s employees, functional expertise Function Distribution HR MIS Marketing R&D Management Manufacturing Capability Effective logistics Training / Retaining Effective & efficient inventory control Branding/Promotion/Customer service Innovation/Technology/Sophistication Diverse industries Volumes / Economies Firm ITC, HUL Eureka Forbes / AV Birla Big Bazaar Paras/ Hutch/ Maruti Apple / Gillette / Bose Tata / Reliance/ Videocon Chinese / Nokia

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

When 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:

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 Activities, a firm performs especially well compared to competitors, and through which 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 Creating competitive advantage  Core competencies + product-market positions= source of competitive advantage  Core competencies + environmental analysis (industry/competitor) drive strategy Sustainable Competitive Advantage- competitors unable to duplicate firm’s valuecreating strategy. Comes from a resource that is valuable, possessed by only a small number of firms (rare), and costly or difficult to imitate in the short term.

Cautions and Reminders  Core competencies may not continue to provide source of competitive advantage  Core competencies may become core rigidities, inertia may 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 Outcomes of combinations of criteria of Sustainable Competitive Advantage (SCA)
Capability valuable No Yes Yes Capability Rare No No Yes Capability costly to imitate No No No Capability Nonsubstitutable No Yes/No Yes/No Competitive consequences Competitive disadvantage Competitive parity Temporary competitive advantage SCA Performance implications Below average returns Average returns Average to aboveaverage returns Above-average returns

Yes

Yes

Yes

Yes

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Value Chain Analysis: Template that allows firm to understand parts of its operations that create value & competitive advantage, and those that do not  Understand cost position  Identify means to facilitate implementation of a chosen business-level strategy  Primary activities involved with: product’s physical creation, product’s sale & distribution to buyers, product’s after sales service  Support activities- provide necessary support to enable primary activities  Shows how a product moves from raw-material stage to the final customer  To be source of competitive advantage, R/C must allow firm: To perform an activity in a superior manner wrt how competitors perform it, or 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 logisticsCollecting, storing & physically distributing product to customers (goods warehousing, order processing)  Marketing and salesProviding 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

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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  Earlier as someone makes it cheaper, then faster, then better, now because you don't want to get into it (in house maintenance, peons, security) Outsourcing Rationale Business focus Access to world-class capabilities Accelerate business reengineering benefits Flexibility Outsourcing Issues To firms possessing core competence of performing primary or supporting outsourced activity Evaluate activities where firm itself can create & capture value Risky to outsource primary & support activities used to neutralize environmental threats Outsource critical capabilities or activities that stimulate development of new capabilities & competencies

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4- Corporate level strategies
Corporate-level Strategy (Which industry to be in, enter, divest) Specifies actions a firm takes to gain competitive advantage by selecting & managing a group of different businesses competing in several industries and product markets Corporate Level Strategy Industries, Markets, Geographies Business Level Strategy Markets, Segments, Vertical scope, Geographical scope Core competencies, synergies, Low cost, differentiation, financial value underlying resources Organisation structure, systems / process, people, culture, leadership

Competitive Domain Competitive Advantage Execution

Source: MIT-Sloan 2006

Grand Strategies
Strategy/ Sub strategy How A Growth Strategies 1 Concentration Vertical Integration (with/without M&A) Reliance, Videocon, Samsung Horizontal Integration (with/without M&A) Pfizer, Piramal 2 Diversification (Core biz < 5% Tatas, <25% AV Birla, <50% ITC, <75% M&M, >75% Reliance) Concentric related / adjacent industries / Amul, M&M, J&J, Roche, product lines- same category Dabur, ACK, Samsung Conglomerate Diversify into unrelated / unallied ITC, Godrej, Tata, AV Birla, industries Wipro, L&T, GE, RIL 3 External Mechanisms Mergers (rare) 2 entities combine to 1, pool Astra-Zeneca, Ciba+ Sandoz= interests Novartis Acquisitions 1 firm acquires another- hostile/ Airtel-Zain, Kingfisherfriendly, instant scale- customers, Deccan, rank, capacity, global reach Tata Corus, Vodafone- Hutch Tata- JLR/Daewoo, Strategic Acquisitions Scope- product, markets, M&M- Ssangyong, Reva, Kinetic segments, geographies
Apple-Siri; MS-Skype Google-Motorola,Orkut, Y-Tube VW- Lamborghini, Ducati

Who

Strategic Alliances

2/more firms ally to achieve mutually beneficial & strategically significant objective/es B Stability Strategies

Tata-Fiat, McDonalds-Coke, Star 1 Alliance of global airlines, Co branded credit cards, RIL-BP Bisleri, Ghari Nirma Parle Products

1 Pause/ cautiously proceed 2 No change 3 Profit strategies C Retrenchment Strategies 1 Turnaround 2 Captive Company 3 Selling out 4 Bankruptcy 5 Liquidation

CG, Apple Ballarpur paper Ranbaxy/NPIL Lehman Bros Madhavpura bank

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Grand Strategy Matrix
Rapid Market Growth     Q2 Market Development Product Development Horizontal Integration Divestment/ Liquidation Q1  Market Development  Product Development  Integration  Related diversification

Weak Competitive Position

 Retrenchment  Diversification  Divestment/ liquidation Q3

Strong Competitive Position  Related Diversification  Unrelated Diversification Q4

Slow Market Growth Market Entry Deterrence Strategies (Kellogg) Entry barrier Effective when Comment Sunk costs Incumbent has incurred and entrant has not Production barriers Economies of scale,scope Access to critical inputs, superior location, process, subsidies, patents, Long standing relationships with suppliers and customers Few supply side entry barriers Few channels, hard to replicate Entrants not sure of demand / costs Tough reputation, compete in multiple markets Low marginal costs, flood market, cause price dips Dominant position Patent defense costs

Example USFDA, R&D, Plant, Distribution, Advertising Baddi Generics

Reputation

Switching costs Tie up access Limit pricing Predatory pricing Hold excess capacity

Quality, reliability, service, difficult to establish Differentiation, prevent imitation High shared channel margins Permanently low profit margin Deep pockets, anti trust scrutiny Sunk costs

P&G, Parle

Mobile MNP, Apple ecosystem

Amul Big Retail

Samsung , Foxconn TV

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4a Integration Industries consists of various stages and phases eg Pharmaceuticals have clinical trials, R&D, API, Formulations, Contract Manufacturing, Trade, Retail as vertical stages and phases of its value chain.

Vertical integration- degree to which a firm owns its upstream suppliers and downstream buyers  Vertical scope- ensures control, costs, differentiation- significant business impact  Forward integration- expansion of activities downstream  Backward intregration- expansion of activities upstream  Samsung- Memory, CPU, Camera, Screen, Music, Hardware  Apple- Hardware, Software, Ecosystem  Reliance- Gas, Oil, Refinery, Petroleum, Petrochemicals, Trading, Retail  Benefits of Vertical Integration  Reduce transportation costs, better SCM co-ordination, distribution breadth  Increased inputs control, cost advantages, capture up/ downstream margins  Entry barriers of scale, access to resources  Drawbacks of Vertical Integration  Capacity balancing issues, sunk costs, new competencies compromise existing  Decreased ability to increase product variety, regulatory/technology changes  Complexity of different competitors and structures in stages and phases, Horizontal Integration- M&A of business activities at same level of the value chain  Internal expansion, M&A of firms offering similar products and services, diversify  General Motors- Amalgamation of 300 auto companies in 1930s- post depression  Standard Oil- acquisition of 40 refineries  Pfizer- M&A Warner-Lambert, Pharmacia, Wyeth  Amar Chitra Katha Comics- Print, TV, Films, Website, Games, Mobile  M&M- Jeeps expansion, M&A, Cars and Trucks JV, M&A Electric Cars, 2 wheelers  Advantages of Horizontal Integration  Economies of scale (reach, customers, capacities) by volumes  Economies of scope (products, markets, segments, geographies) by sharing resources or synergies  Increased market power (over suppliers, channel partners, customers, markets)  Pitfalls of Horizontal Integration- anti-trust / restrictive practices, no synergies www.dramitrangnekar.com 19 amitrangnekar@gmail.com

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4b Diversification When a firm chooses to operate businesses in several industries. Firm creates value by productively using excess resources. Product diversification concerns scope of the industries and markets in which firm competes and how managers buy, create and sell different businesses to match skills and strengths with opportunities presented. Diversification levels Low Single business
Pfizer

Dominant business Moderate Related to High constrained
Reliance M&M, Essel

Related linked
ITC, AV Birla

>95% revenue from single business 70-95% revenue from single business <70% revenue from dominant business and all businesses share product, technological & distribution linkages <70% revenue from dominant business and limited linkages between businesses <70% revenue from dominant business and no linkages between businesses

1 1 2

1 2 3

1

2

3 2 3

Very High Tata, GE

Unrelated

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2

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 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

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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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4c Acquisition & Restructuring 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 also 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/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 Increased market power Overcoming entry barriers Low risk compared to NPD Develop new capabilities Competition Diversification Faster to market than NPD Problems with acquisitions Overestimation of synergies Recovering deal premium Integration Inadequate target evaluation Managing size Too much diversification Complacency

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Why Mergers Don’t Work • Large or extraordinary debt • Overconfident/incompetent management • Ethical concerns • Changes in top management team and/or organizational • Inadequate analysis (due diligence) • Diversification away from firm’s core

• • • • • • • •

Why Mergers Work Strong relatedness Friendly negotiations Low-to-moderate debt Continued focus on core strengths Careful selection, negotiations with target firm Strong cash or debt position Similar firm cultures & management styles Sharing resources across companies

Takeover defense strategies Crown A defense against a takeover in which a company sells its most precious assets Jewels 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 A takeover, in which the target bites back, and makes an offer to take over the defense shares of the suitor. The name is derived from a once popular video game Poison A range of devices designed to make a takeover unpalatable to the swallower Pill (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 A defense against a takeover that involves destroying (or selling) large parts of Earth the business, or atleast ensuring that they will be destroyed should the defense 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? Shark A smell put out by a company to deter potential suitors. Eg A leaked Repellant announcement about a ‘secret’ contract to pay millions to existing managers should the company be taken over. White A firm that comes to the rescue of a company that is in the throes of an Knight unwelcome takeover. Dawn An early morning purchase on the stock market, of a large block of a Raid 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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Restructuring  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 Down sizing Reduction in number of employees/ operating units Down Divestment / spin-off scoping to eliminate non core businesses & refocus Leveraged A party buys firm’s buyouts assets to take it private. Can correct managerial mistakes, facilitate growth

Short term outcomes Reduced labour costs More efficient operations Reduced debt costs Strategic controls emphasis Strategic controls emphasis High debt costs

Long term outcomes Loss of human capital Lower performance Higher performance Higher risk

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4d Internationalisation
Strategy where a firm sells its goods or services, outside its domestic market. Competitive advantage of Nations- Porter’s Diamond

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 scaleefficient 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 for 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

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Global strategy- Products are standardized across national markets  Business-level strategy decisions 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 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 High cost, low control Exporting Licensing Strategic alliances Acquisition
Low cost, low risk, little control, low returns Shared costs, shared resources, shared risks, problems of integration Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations Complex, often costly, time consuming, high risk, maximum control, potential above-average returns

Dynamics
The firm has no foreign manufacturing expertise and requires investment only in distribution. The firm needs to facilitate the product improvements necessary to enter foreign markets. The firm needs to connect with an experienced partner already in the targeted market. The firm needs to reduce its risk through the sharing of costs.

New wholly owned subsidiary

The firm’s intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high.

International Entry Strategies Exporting Tata International Licensing Franchising Joint Ventures Acquisitions Green-Field Development Production Sharing Turnkey Operations BOT Concept Management Contracts Disney- Smyle, Mahavir books; Tommy Hilfiger-Titan, Hardcastle –Mcdonalds, Jubilant-Domino’s Maruti-Suzuki, Hero-Honda Tata-Daewoo(Korea), Bharti-Zain (Africa) EsselPropak in China Samsung-Sony-LG L&T Punj Lloyd, Samsung, Infrastructure projects Taj Hotels, Four Seasons

Risk in the International Environment  Political: instability, war, nationalization of resources  Economic- forex rates, wage rates, property rights and unemployment  Cultural- local customs, traditions and language

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4e Co-operative Strategy
Strategy in which firms work together to achieve a shared objective to create customer value and establish a favorable position relative to competitors JV Licensing Franchising Strategic alliance Technology tie-up Maruti-Suzuki, Hero-Honda Tommy Hilfiger-Titan, Mahavir Disney McD- Hardcastle, RIL- Marks & Spencer/ Hamley Tata-Fiat, Global Airlines, Reliance-BP Benz- IIT Delhi, Novartis- Harvard Medical

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

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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 alliance other 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 Why Strategic Alliances  Access new markets- Mobil- BP in EU  Access local distribution network- P&G-Godrej soaps, Hershey-Godrej confectionery, Nokia- HCL  Improve manufacturing processes, access new technology– HCL-HP  Access management know-how – Elbee-UPS couriers  Access additional financial resources – Nissan- Renault  Achieve risk reduction– collaborative research Siemens+ Philips in semiconductor  Pre-empt competition- General Motors- SAIC Problems with Strategic Alliances and Joint Ventures • Only partial control and shared profitability • High administrative costs • Possible lack of fit • Risk of opportunism • Foreign JV are even more risky due to potential for miscommunications, misunderstandings and lack of shared knowledge about the constraints of the external environment

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5 Business Level Strategies & Frameworks
Strategic Direction • Setting long-term goals and objectives - vision • Defines the purposes for which an organization exists & operates- mission Business-level Strategy (How to gain competitive advantage) • Each SBU chooses a business-level strategy to compete in individual markets  Integrated & coordinated set of commitments & actions, firm uses to gain competitive advantage by exploiting core competencies in specific 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) activitiescapability to differentiate product /service and command premium price Customers: Who, What, Where  Who/ What/ How those needs will be served by the strategy?  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, p-map) Industrial Markets  End-use segments  Product segments (technology, economies)  Geographic segments (country, regional differences)  Common buyer segments (markets & geographies)  Customer size segments Customer Needs to Satisfy What How  Related to a product’s  Which core competencies satisfy customer needs benefits and features  Use core competencies to implement value  Representing desires in creating strategies that satisfy customers’ needs terms of features and  Continuously improve competencies, innovate, performance capabilities meet /exceed customer expectations www.dramitrangnekar.com 29 amitrangnekar@gmail.com

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Competitive scope Scope- Dimensions- 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 Cost leadership Differentiation Integrated Cost leadership / Differentiation Focused cost leadership Focused differentiation

Broad Competitive Target scope Narrow Target

Cost Leadership Strategy- Integrated set of actions to produce 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 Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales Strategy- Determine and control

Value Chain New raw material Forward integration Backward integration Change location relative to suppliers or buyers Strategy -Reconfigure, if needed

Cost Leadership Strategy of incumbents for New Entrants frighten off by economies of scale & time to scale 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, cause them to exit, shifting power with buyers back to the firm Substitutes invest to create substitutes, or buy patents developed by potential substitutes, lower prices to maintain value position Competitors due to 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 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 www.dramitrangnekar.com 30 amitrangnekar@gmail.com

[Strategic Management 3.0- Dr Amit Rangnekar]

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

Differentiation- Integrated set of actions taken to produce goods / services (at 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 How to Obtain a Differentiation Advantage

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Differentiation Strategy of incumbents for New entrants Defend by 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 Mitigate buyers’ power as well differentiated products reduce power customer sensitivity to price increases Substitutes Well positioned relative to substitutes, brand loyalty to threat differentiated product may deter customers trying new products or switching brands Competitors Defends against competitors because brand loyalty to differentiated product offsets price competition 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 Focus strategies- Integrated set of actions that produce goods / services to serve a particular competitive segment (buyer group) / different segment of a product line / 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  Firm can direct resources to value chain activities to build competitive advantage

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6 Strategy Frameworks Various business level strategic frameworks to gain competitive advantage Framework Purpose 1 Porter Generic business strategies Generic sources of competitive advantage 2 Kellogg Specific business strategies Strategies to gain competitive advantage 3 Ansoff Product-market growth matrix Product-market growth strategies 4 BCG Growth Share Matrix Market growth-relative market helps in
5 6

GE Matrix/ Business Screen Mckinsey 7S model

portfolio planning, recommending strategy Analyse current portfolio, determine businesses to invest/protect/harvest/divest/ Successful strategy implementation

1 Generic Business Strategies- Porter 3 sources of competitive advantage-Cost leadership, Differentiation, Focus Competitive Advantage- A sustainable competitive advantage gained by offering customers greater value and benefits through better PQRSTUV & people
Competitive advantage

Cost focus

Differentiation focus

Low Cost High Cost Differentiation  Intense Competition, brand clutter - 25000 pharma firms, 4 cars in 1983, 400 2011  Spoilt for choice- 4 car models 1983, 14 in 1993, 83 in 2003, 400+ in 2012  Select 1/more vacant differentiated needs, position firm to meet criteriaDomino’s  Differentiators- PQRSTUV, design, delivery, reach, delight  Competitive advantage in a broad range of market / industry segments  Differentiated goods/services satisfying needs- sustainable competitive advantage  Specific targeting, price insentive, value focus- high prices & margins- Apple, Intel  Innovation and improvement important  Competitive advantage with additional costs, but increased revenue will offset

Differentiation Focus or Niche strategy  Specialise within 1/ more small market segments with different customer needs  Competitors target broader customers group, brands not meeting demand  Tour Operators- Nepal or HP or South only, Glaxo- Pharmaceuticals  Niche- Specialization by narrow segment / market / industry, but specialist niches disappear in long term- often used by smaller firms- Florist, Sports shop  Cost focus– Difficult to achieve if industry depends on scale economies- telecom  Eg Country - China- Manufacturing, Infra, Govt; India- Services, IT, entrepreneur www.dramitrangnekar.com 33 amitrangnekar@gmail.com

Narrow

Cost Leadership  Cost leader low price- competitive advantage lowest cost, ‘no frills’- Amul  Low cost not always low price- Toyotahigh quality, lower costs, better margins

Competitive scope

Overall cost leadership

Differentiation

Broad

[Strategic Management 3.0- Dr Amit Rangnekar]

2 Specific Business Strategies (Kellogg) Strategies to gain competitive advantage Grow larger GE, RIL, Pfizer Downsize Avon, Sara Lee, Tata’s 1990s, Merck 1996 Diversify into new markets Walmart, Amul, Pepsi Dominate a niche Ferrari, Dabbawallas Outsource production process IKEA, Nike, Airtel Integrate production process Armani, Tiffany, D&G Be cost leader even if quality is sacrificed Nano, Kia Be quality leader even if costs increase BMW, Samsung, 4 Seasons Drive rivals from the market Microsoft, Essel Propack Co-operate with rivals Sony, BMS, Pfizer Innovate Apple, Intel Imitate Nokia, Indian pharma industry Exercise: Identify specific strategies of SBU in a conglomerate / brands in a portfolio 3 Ansoff’s product-market growth matrix (HI Ansoff 1957) Offers product-market growth strategies that set the direction for business strategy Existing product Market penetration • Increase share of customer spending • Increase MS • Non-users to users • Maruti- Rural India penetration • Titan- Sonata • Apple- iPod/iPhone variants Market development • New markets • New distribution channels • New geographical areas • Maruti- Exports • Titan- Exports • Apple- Emerging markets New product Product development • Product modification, new features • Different quality levels • New products • Maruti- Ritz, Swift • Titan-Edge, Automatic • Apple- iPad Diversification • Build • Buy- M&A • Ally- JV • Maruti- Driving schools • Titan- Fastrack, Eye+ • Apple- Retail, TV
Relative Market Share Star 4 Question mark 3 5 2 1

Existing market

New market

4 BCG Matrix- Growth Share Matrix Matrix, 25% 1968 (Tata SBU, Parle Biscuits)  Link market growth and relative market share to determine prospects for various SBU/ brands. Helps to plan portfolio, recommend strategy 10%  Question Mark -Low share of high growth market, consume resources, generate littleweigh risk/rewards  Stars- Leaders, high share of high growth 0% 10x market, high promotion costs, generate high www.dramitrangnekar.com 34

?
Market Growth
0.1x

6 7 Cash Cow 1x 8 Dog

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   

income, invest Cash cows- Leader, high share of low growth market, generate cash, low investment, ex-stars, economies, profits, fund others, milk Dogs-Low share of low growth market, no cash generation, consume cash, rid, divest Portfolio balance critical, reduce dogs, milk cash cows build stars Limitations- Profitability, trends, environment, SBU sensitivities not considered

5 GE matrix or Growth Share Matrix or Business Screen Helps analyse current portfolio and determine which businesses should receive more/less investment and which should be divested.
S trong  Market Attractiveness v Business strengths 4  Optimal business portfolio to fit firm High strengths, exploit attractive 3 industries/markets  Circle is SBU, Circle size= industry/ Medium market size, pie size = SBU MS 2  Arrows= growth of SBU/industry Low  SBU's to invest, build, harvest, divest? 1  Forecast for N3-5Y- strategy, competition, 4 PLC, technology, policy, incorporate in length Invest/Grow direction of arrows Medium Weak

Market Attrac tiveness

3 2 Business S trength S elec tivity/Earnings

1

&
Harvest/Divest

Strategies for SBU in various quadrants Business strength (Resources, competencies, brands, MS, customer loyalty, cost structures,
distribution, access to finances, raw material, technology, innovation)

Market attractiveness (Market size, growth,
profitability, pricing freedom, rivalry, risks v returns, differentiation, segments, channels)

High Strong Medium Weak Invest Invest Protect

Medium Invest Protect Harvest

Low Protect Harvest Divest

Implementation of portfolio analysis  Identify drivers important to overall strategy, assign relative importance weights  Score SBU's each driver, Multiply weights times scores for each SBU, Interpret results Market Attractiveness: size, growth, profits, potential, differentiation rivalry Business Strength: Assets, competence, brands, MS, growth, loyalty, margin, technology / innovation, distribution, capacity, financial resources, cost structure  GE Matrix v BCG- 3*3 grid, allows more sophistication, broader  Limitations- Core competencies not represented, SBU Interactions not considered Exercise- For a diversified conglomerate, outline SBU strategies by plotting GE matrix

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6 Mckinsey 7-S Framework- strategy successfully implemented if all 7 elements present  Strategy, Structure, Systems-hardware, others software  Shared values- What firm stands for, shared beliefs & attitudes  Strategy- Operational Plans to reach identified goals. Environment, competition, customers  Structure-How the SBUs relate to each other  System-Procedures, processesfinancial/hr/mktg/mis  Staff- Able people, well trained Style- Common way of thinking & behaving eg smiles

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7 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- Set of competitive actions & competitive responses the firm takes to build or defend its competitive advantages and 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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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 Allocate funds for product innovation, aggressive mover 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. Studies customer mover reactions to innovation, avoids mistakes & huge spends. May develop more efficient processes and technologies Late Responds to competitive action after considerable time mover has elapsed. Slow to succeed, lesser share & average returns than first & second movers Small More likely to launch quicker competitive actions, rely firms on speed and surprise to defend competitive advantages or develop new ones Large Likely to initiate more competitive and strategic actions firms over a period

Apple, Intel

Samsung

Nokia, Sony HTC

Dell, HP

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 www.dramitrangnekar.com 38 amitrangnekar@gmail.com

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 

Aesthetics—How a product looks and feels Perceived quality—Subjective assessment of characteristics (product image)

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 Competitive Shielded from advantage imitation for long periods Access to a restricted market (Insurance JVs) Establish a franchise in a new market Maintain market stability (e.g., establishing standards)

Sustainability Imitation Strategy

Industry

Fast cycle market Not shielded from imitation Fast development of new goods (Dell) Speed up new market entry (Coke- Parle M&A, P&G-Godrej JV) Maintain market leadership Form an industry standard (GoogleAndroid) Share R&D costs, overcome uncertainty (Clinical trials) High Low Costly Quick, inexpensive Concentrate on Competitors competitive reverse engineer to actions/responses to quickly imitate or protect, maintain & improve on firm’s extend proprietary products advantage Non-proprietary technology diffused rapidly Pharma R&D patents CE- Mobiles, Tabs

Standard cycle market Moderately shielded Gain market power (reduce industry overcapacity) Gain access to complementary resources Establish economies of scale Overcome trade barriers Meet competitive challenges Pool resources for large capital projects Learn new business techniques Partial Moderate Upgrade quality continuously Seek large market shares Gain customer loyalty through branding Control operations HUL, P&G, Biscuits

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