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MB 0052 Strategic Management and Business Policy
Question No. (1) What is a strategy company? Explain some of the major reasons for lack of
strategic management in some?
Answer:- Meaning of Strategy:- The word ‘strategy’ comes from Greek strategies, which refers to a
military general and combines stratus (the army) and ago (to lead). The concept and practice of
strategy and planning started in the military, and, over time, it entered business and management.
The key or common objective of both business strategy and military strategy is the same, i.e., to
secure competitive advantage over the rivals or opponents. We will discuss the similarity between
business and military strategies in detail later.
Evolving Definitions of Strategy
Seven definitions of strategy are given below which have evolved over a period of more than 30 years
(1962–96). During this evolutionary process, different authors have focused on different aspects of
the definition of strategy. Let us see these definitions.
Chandler (1962): The determination of the basic long-term goals and objectives of an enterprise and
the adoption of the courses of action and the allocation of resources necessary for carrying out these
goals.
Andrews (1962): The pattern of objectives, purpose, goals and the major policies and plans for
achieving these goals stated in such a way so as to define what business the company is or is to be
and the kind of company it is or is to be.
Ansoff (1965): The common thread among the organization’s activities and product-markets ... that
defines the essential nature of business that the organization was or planned to be in future.
Glueck (1972): A unified, comprehensive and integrated plan designed to assure that the basic
objectives of the enterprise are achieved.
Mint berg (1987): A pattern in a stream of decisions and action. (Mintz berg distinguishes between
intended strategies and emergent strategies. These are discussed in Unit 2).
Ansoff (1984): Basically, a strategy is a set of decision-making rules for the guidance of
organizational behavior.
Porter (1996): Developing and communicating the company’s unique position, making trade-offs,
and, forging fit among activities.
Lack of Strategic Management in Some Companies
Some companies do not undertake strategic planning and management. Some other companies do
strategic planning, but receive no support from managers and employees. In some other cases,
managers and employees do not get enough support from the top management. A number of such and
other reasons explain why certain companies do not take to strategic planning and Management.
David (2003) has mentioned various reasons for poor or no strategic planning and management by
companies. These are discussed below:
1. Poor reward structure: When an organization achieves success, it often fails to reward its
managers or planners. But when failure occurs, the company may punish the managers concerned. In
such a situation, it is better for individual managers to do nothing than to risk trying to achieve
something, fail and be punished.

RAJNI 2. However. they may rely less on formalized planning and more on individual initiative and decisions. There could be experience of failures also. which are different from those envisaged in the plan. impractical or inflexible. this is not appropriate. But. Fear of failure: Whenever something new or different is attempted. This is basically inertia against change or fear for change. Self-interest: When management has achieved status. Fear of the unknown: Managers may not be sure of their abilities to learn new skills or take on new roles or adapt to new system. 3M’s . This happens with many companies and is a clear sign of nonprofessionalization. cases in which plans have been cumbersome. But they forget that time spent on planning is an investment. there is a chance of success. 5. Honda’s core competence is in engines (for cars and motorcycles). Fire-fighting: An organization may be so deeply engrossed in crisis management and fire fighting that it may not have time to plan and strategize. Core competence is not just a single strength or skill or capability of a company. Honest difference of opinion: Some managers may sincerely think that a plan is not correct. Forethought and planning are the right virtues and are signs of professionalism. it often sees a new plan or a new system as unnecessary or a threat. 10. both tangible and intangible. Too expensive: Some organizations are culturally opposed to spending resources on matters like planning which do not produce instant or immediate results. in due course. 7. 9. 6. Waste of time: Some organizations view planning as a waste of time because no tangible marketable products are produced through planning. or. Question No. and this may lead to difference of opinions among them and eventually to lack of planning due to lack of consensus. They feel that spending on planning is a wasteful expenditure. that is. Canon’s core competence lies in optics. Many companies and managers may like to avoid strategic planning and management for fear of failure. imaging and laser control. Sony has a core competence in miniaturization. it is ‘interwoven resources. there is also some risk of failure. Overconfidence or overestimating experience leads to complacency and ultimately can bring downfall. privilege or self-esteem through effectively using an old system. Different people in different jobs in the same organization may have different perceptions of the same Situation. 8. Overconfidence: As managers gain experience. Content with success: If an organization is generally successful. They may see the situation from a different viewpoint. 4. they forget that success today does not guarantee success tomorrow. Previous bad experience: Managers may have had previous bad experience with planning. they may have aspirations for themselves or the organization. Core competence gives a company a clear competitive advantage over its competitors. 3. and there would be returns. technology and skill’ or synergy culminating into a special or core competence. but. Xerox’s core competence is in photocopying. the top management or individual managers may feel that there is no need to plan and strategize because everything is fine. (2) Explain the following: (a) Core competence (b) Value chain analysis Answer: (a) Core Competence Core competence of a company is one of its special or unique internal competences. 11. They would like to avoid recurrence of this.

(b) Value Chain Analysis Various competences and resources of an organization can be integrated into a chain of activities which an organization performs to meet customer demand. testing. Benchmarking is a good way and is generally recommended for undertaking performance standard and also for differentiating between good and bad performance. Inbound logistics: These are activities concerned with receiving. For tangible products (industrial or consumer goods). To achieve core competence.e. Operations: These are activities involved in transforming various inputs into final product or service. transportation of inputs. Hamel and Prahalad. help to improve the ‘effectiveness or efficiency’ of primary activities. assembly. outbound logistics.RAJNI core competence is in sticky tape technology. etc. marketing and sales and service. This is important because managers often take an internal view of value and either miss or deliberately overlook the customer perspective. Inbound logistics also include materials handling. support the primary activities. the chain can appropriately be called a value chain. storing and distributing or delivering final products to customers. These activities can be divided into two broad categories: primary activities and support activities. 1990) that the central building block of the corporate strategy is core competence. Since each of these activities is expected to create value when it is performed. Sony’s core competence in manufacturing allows the company to make everything from the Sony walkman to video cameras to notebook computer. this would include . as the name indicates. cameras and image scanners. laser printers. (b) It should lead to a level of performance in a product or process which is significantly better than those of competitors. Primary activities are directly concerned with the creation or delivery of a product or service or customer value. According to them. Primary activities can be divided into five major areas: inbound logistics. a particular competence level of a company should satisfy three criteria: (a) It should relate to an activity or process that inherently underlies the value in the product or service as perceived by the customer. about the whole process through which continuous change and improvement take place which lead to or sustain clearly differentiated advantage. Michael Porter (1985) introduced the concept of value chain analysis. it has become common for professional companies to do this analysis. Operations also include machinery. Support activities. imaging and microprocessor controls have enabled it to enter markets as seemingly diverse as copiers. Canon’s core competence in optics. Now. JVC’s in video tape technology. or. i. a new marketing campaign or an innovative price policy/strategy) are not robust and are likely to be short lived. but. Core competence is not about such incremental changes or improvements. two of the greatest exponents of core competence. Hamel and Prahalad defined core competence as the combination of individual technologies and production skills that underlie a company’s product lines.. correctly. storing and distributing raw materials and inputs to the production or service division. (c) It should be robust. Value chain analysis helps in understanding how value is created in organizations through various activities. ITC’s in tobacco and cigarettes and Godrej’s in locks and storewels. argue in ‘The Core Competence of the Corporation’ (HBR. difficult for competitors to imitate. etc. Outbound logistics: These include collecting. many advantages gained in different ways (like a superior product feature. operations. stock control. In a fast changing world. packaging. . more.

etc. general management. sports events. Procurement: This relates to the processes for acquiring or purchasing various resource inputs like raw materials. selling. channel selection. both primary and support. human resource management and organizational infrastructure. Service: These include activities which maintain or enhance value of a product or service such as installation. process development). (e. supply of spares and prompt after-sales service. An organization may have core competence in manufacturing processes that produce engineering products of unique specifications very difficult for competitors to match or imitate. machinery. outbound logistics and marketing and sales. strategic planning. are being performed so that contribution of each activity to organizational objectives or goals can be measured. In the case of service. R&D. Primary activities and support activities may appear to be two separate blocks. First is a competence in individual activities (for example. and. channel management. First. The value chain in an organization in terms of primary activities and support activities and the value or margin these activities are expected to create.. etc. operations or production or marketing). materials handling. quality control. etc. Marketing and sales: These comprise activities such as advertising. equipment.g. If a particular activity is not contributing satisfactorily. managing. Marketing and sales provide the most important link between the company and the customer. intermediate inputs. It is the combined effect of all these activities which creates or destroys value. but. sales force management. Competences or activities in the value chain can contribute to customer value in two ways.. Technology development is fundamental to the innovative capacity of an Organization. pricing. etc. it should ascertain how different activities. Second is the competence in linking activities together. Key technologies are concerned directly with the product.g. directly or indirectly. training and developing people within the organization.). entertainment events. product design. they are all interconnected activities in a cohesive value chain.. these may be more concerned with arrangements for bringing customers close to the service location. Support activities can be divided into four categories: procurement. HRM is concerned with recruiting. training. values and culture. MIS. (e. In using the value chain. But. review and necessary action. Technology mainly supports operations. the company may not be able to gain competitive advantage from this unless it is able to take care of its inbound logistics. More specifically.RAJNI warehousing. Organizations can effectively use value chain analysis to identify the weak links (and also the strong links) in the chain for further analysis. repair. Human resource management: This provides support to all primary activities in the value chain. an organization should concentrate on two aspects. Infrastructure also comprises organizational structures. Supports all primary activities..g. sales promotion. technology development. thereby ensure that they do not contribute to conflicting goals. in reality. (e. etc. required . This includes the ability to integrate all the separate activities (both primary and support activities) to deliver some customer value. Technology development: Technology is involved in all value creations. Infrastructure. etc. etc. transportation.) or with processes. Infrastructure: This is the organizational system including finance. Procurement primarily supports inbound logistics and operations.

have affected business conditions. Given below are two contrasting Indian examples of the impact of political Environment on business. Many companies perform individual activities efficiently. and. conflicting political ideologies. internal dissensions within the ruling party.IT companies have found Hyderabad. . (b) Technology Technology. and caused serious law and order problems during December. Major risk factors identified by Rubock are: electoral majority of the party in power. had encouraged and ensured use of IT in governance by simplifying rules and procedures.RAJNI changes can be made in that. Electronic products are a good example. Political stability improves business environment and encourages economic and business activities. also reduced government revenue. This sector is experiencing the most rapid changes today. etc. Technological changes lead to the shortening of product life cycles and create new sets of consumer expectations. and. Rubock (1971) has developed an analytical framework for identifying and assessing political risks which may affect business conditions. in the absence of a proper coordination mechanism. Improved political relations between the US and China in the mid-70s resulted in trade agreement between the two countries.to be the most hospitable location for development of IT. their overall effectiveness is low. advance signals on technological developments are available through research and development and industry/trade journals and magazines. mostly because of highly supportive political climate. Chandrababu had taken keen personal interesting IT. international power alignments and alliances. Political instability produces the opposite effects. The progressive political philosophy of Chandrababu Naidu during his tenure as the chief minister of Andhra Pradesh led to the creation of ‘Cyberabad’. the events disrupted transport. Questions No. slowed down industrial production and growth of exports. One can clearly see the technological revolution in the colour TV market. (3) Describe in brief the following environmental factors which a business strategist considers: (a) Political factors (b) Technology Answer: (a) Political Factors Political factors or political conditions can have significant impact on industry. offering concessions and building good supportive Infrastructure. Many companies are reengineering their organizational processes for performing various activities in their value chain in an integrated way. The trade agreement provided opportunities to US Electronics manufacturers to commence operations in China. insurgencies in border areas. Sometimes. This is the job of strategic management. business and the corporate. 1992 and January 1993. but also to international relations. but. There are many instances where deteriorating political relations between countries (India and Pakistan). as an environmental factor. Apart from the apprehensions of political instability. Political factors do not refer to only national political conditions or relations. The second aspect is the coordination or integration of various activities into a cohesive value chain. influences strategic planning and Management in a number of ways. The Ayodhya-Babri Masjid episode became a political issue and provoked violence in different parts of the country. strengths of the parliamentary opposition parties. nicknamed by the media as ‘Cyberabad’. The solution to this is integrated value chain. Companies in the pharmaceutical industry. Sources of political risks can be many.

The Indian automobile industry gives a good illustration. Hindustan Motors (Ambassador) and Premier Automobiles (Padmini) had to improve their vehicle performances in terms of fuel efficiency. or accrual or accumulation of losses. So. For example. Major symptoms or criteria or situations which signal towards the need for a turnaround strategy are:  Steadily declining market share. recovery may be more or less successful than in others.  Negative profit or accumulating losses. But. pet bottles. aesthetic appeal. are continuously aware of Developments in new formulations and drugs in the world through medical journals and periodicals. With the introduction of Maruti 800 which caught the imagination of consumers. for example.Turnaround Strategy Corporate turnaround may be defined as organizational recovery from business decline or crisis. Developments in information technology are greatly affecting the competitive position of companies. Business decline for a company means continuous fall in turnover or revenue. cellophane. etc. including profitability. products and services. These situations are: . Corporate crisis means deepening or perpetuation of a decline. Similarly. carrying of the product more convenient and has definitely reduced the cost of packaging and the product.  Accumulation of debt. in some situations. Slatter (1984) contends that there are four recovery situations in terms of feasibility or success. (4) Write a brief note on Turnaround strategy. some strategy analysts describe business decline in terms of current comparisons also. like business performance.  Continuous negative cash flow. business or organizational decline. These symptoms are actually different performance criteria of companies. relative to industry rates or averages or even relative to economic growth of the country. the situation should be carefully reviewed to assess the extent of recovery possible before undertaking any such programmes. Given a strategy. Turnaround strategies are usually required for crisis situations. That is why turnaround strategy may be said to be an extension of restructuring strategy. compared with the past. operations. companies which ignore these developments face a crisis and eventually may even face extinction. packaging. This has made the packing more attractive. But what they did was to bring in peripheral changes only and those were not enough. corporate restructuring can provide the solutions.  Falling share price in a steady market. etc. But.RAJNI for example. In a different way. Technological development also provides an opportunity to companies to develop new products. a turnaround or recovery becomes highly imperative. eroding profit. Answer:. If organizational decline is not continuous or severe. Corporate or business decline manifests itself in many forms or symptoms. it almost becomes a turnaround strategy as mentioned above in the case of Voltas. Questions No. driving comfort. deep freezers and trawlers have influenced the operations of the companies. containerized movement of cargo. When restructuring is very comprehensive and leads to corporate recovery. With some or all these symptoms becoming clearly visible (these symptoms are generally interrelated) for a company. is understood in relative terms.  Mismanagement and low morale. technological developments affect a company’s raw material. developments in the plastics and packaging industry have brought in new packaging in the form of tetra packs. On the other hand. that are. The result: Padmini is extinct today with Ambassador following suit (some extension of life has been given to Ambassador by the government and the public sector).

VCR). wholesale reshuffling of portfolios. Sustained recovery situation is one in which successful turnaround is possible for sustained growth. obsolete machinery is replaced. because the company is not competitive. Some cost reduction programmes may be successful. divestment or liquidation may be a better option. accountability for performance is focussed and so on. The bloodbath over. A company in such an industry or situation can either go for divestment or turnaround if it foresees or can create a niche in the industry and if the growth prospects can be created. involves sweeping changes like firing of staff. which. half the staff at Chrysler Corporation disappeared. clear cost disadvantage exists and demand for the company’s product is in decline stage.00. he asserts his authority. controls are toughened. marketing is strengthened. At GE. generally infuses a strong sense of participation among the employees and many critical decisions become participative decisions. tries to create a new work culture. Temporary recovery situation exists when there can be initial successful recovery. Non-surgical turnaround adopts the opposite approach. but.000 to 59. centralizes functions and spears some convenient scapegoats.000 employees (40 per cent) were axed to complete the surgery. Realistically non-recoverable situation is one in which chances of survival are very little. the company is strong in terms of competence. This type of turnaround also is generally brought about by the new helmsman. managers. consensus. 000. forms groups within the organization to brainstorm together on what needs to be done to get over the crisis. Turnaround management of the humane type may involve negotiated and humane layoffs and divestiture. This may happen primarily because the industry is in a declining phase (say.00. among other actions. there are two methods of corporate turnaround: surgical and nonsurgical. he spends a great deal of time in trying to understand organizational problems and deliberating on them. etc. But. not a bloodbath. The operations in surgical turnaround are like this: the first step is to replace the chief executive of the ailing company by a new ‘iron’ chief. Then he goes about firing employees en masse and auctioning/selling whole plants and divisions ‘until the fat is satisfactorily cut to the bone’.RAJNI (a) Realistically non-recoverable situation. peaceful means— revamping or recovery through meetings. Surgical Turnaround and Non-surgical Turnaround Generally. business decline might have been caused by internal organizational factors or external or environmental conditions which the company is able to deal with effectively. 000 of a workforce of 4. Some call it bloodbath or bloodshed. discussions. At British Leyland. In such cases. cut its labour force by two-thirds to 3500 to turn itself around. sustained turnaround is not possible. (b) Temporary recovery situation. In such a situation. There are many examples of . at Imperial Chemical Industries (ICI). but. Sustained survival situation means that recovery is possible but potential for future growth does not exist. Inherently. How ‘bloody’ this sort of turnaround can be may be seen from the examples of companies like the US video games manufacturer Atari. closing down operations. that is. more commonly practiced in the West. The new chief promptly gets into action. etc. He issues pre-emptor orders. (d) Sustained recovery situation. This can happen because repositioning of the product is possible. at British Steel. (c) Sustained survival situation . He takes all the stakeholders including unions into confidence. the product mix is revamped. black and white TV. audio cassettes. half the company’s production capacity and 80 per cent of workforce were gone. the labour force was reduced from 90. 000 lost their jobs. 1. persuasions. 84. The surgical method. and. the potential for improvement is low. and revenue generation is also possible at least for some time.

A typical strategic alliance exhibits five essential features or characteristics: (a) Two or more organizations join together to pursue a defined objective or goal during a specified period. the Indian public sector steel giant. Volkswagen. and. It can also be a functional area where they have very little expertise. We have already given the example of Boeing and their Japanese partners. This definition can be expanded and made more comprehensive in terms of essential features or characteristics of strategic alliance. Questions No. etc. Lucas. .RAJNI successful turnarounds of the humane type including Enfield. We give here the example of SAIL. He estimates that he talked to over 25. contended Krishnamurthy. (c) The alliance partners contribute. product. rapid increases in coal prices and freight rates threatened a loss in 1985–86. in this. got perception of how the company was doing and what employees thought should be done to improve performance and turn around the company. What are its characteristics and objectives? Answer:. on a continuing basis. staff and workers in SAIL. Different authors have analysed the objectives or purposes or reasons for strategic alliance. Krishnamurthy entered the scene as Chairman. SPIC. The turnaround strategy finally emerged from discussions at all levels. SAIL in mid-1985. process. Its losses were about `100 crore during 1982–83 and `200 crore in 1983–84. A price rise during 1984–85 saw SAIL break even in that year. but. He spent several months talking to small groups of executives. Air India. The steel ministry and SAIL management then called for another price hike. Objectives and Forms of Strategic Alliance The basic objective behind all strategic alliances is to secure competitive or strategic advantage in the market. All strategic alliances have long-term objective or purpose. (e) The partners jointly exercise control over the performance or progress of the arrangement with regard to the defined goal or objective and share the benefits or results collectively.Strategic Alliance Strategic alliance may be defined as cooperation between two or more organizations with a common objective.000 employees to identify operating problems. Six objectives or purposes are more commonly observed: (a) Development of a new product: In the pharmaceutical industry. many strategic alliances are formed between pharmaceutical companies and research laboratories and institutions for R&D. skills and capabilities) by the partners for mutual benefit. develop a new product or technology. They look towards other organizations to supplement or augment their resources or capabilities for the fulfillment of their objective. shared control and contributions (in terms of resources. Many companies realize that they do not possess adequate resources—financial and managerial—to pursue an innovation. officials. (5) Define the term ‘strategic alliance’. in one or more strategic areas like technology. He promptly lobbied against price increase on the ground that efficiency had to be improved. (d) The relationship among the partners is reciprocal with partners sharing specific individual strengths or capabilities to render power to the alliance. But. (b) The organizations pool their resources and investments and also share risks for their mutual (and not individual) interest/benefit. new product development takes place on a continuous basis. design. Indian steel was already the costliest in the world and any further increase in steel price would have ruinous effects on the economy. BHEL and SAIL. remain organizationally independent entities.

(c) Reducing manufacturing cost: Co-production.. (e) Marketing and Sales: This is common in both national and international business. In the semi-conductor industry. involves considerable cost. In a multiple alliance. potential competitors swap their products for distribution in the respective markets where they have well-established distribution systems. and. In the telecommunication sector. i. Collaboration leverages the resources and technical expertise of two or more companies. is essentially a position of superiority of an organization in relation to its competitors.(a) Competitive Advantage Analysis Competitive advantage. (d) Entering new markets: This is often the objective in international business. (f) Distribution: In pharmaceutical and other industries where distribution represents high fixed cost.. funding is involved and funding can be by one of the parties or all of them. none of the parties invest any equity capital in such alliances. also called strategic advantage. and they swap licences. As mentioned above. many areas of business—from R&D to distribution— provide scope for strategic alliance.e. IBM and Apple Computer have formed an alliance for development of hardware and software technologyfor a new generation of desktop computers. if research laboratories or institutions are involved. is a good form of strategic alliance to reduce manufacturing cost through economies of scale. For example.RAJNI (b) Development of a new technology: Development of technology is a long-term process. marketing or sales. which includes both technology and operations. etc. i. Many foreign companies enter into strategic alliances with some local companies (host country) to enter into and establish themselves in that country. etc. during their initial years. Questions No. Usha Martin and Telekom Malaysia. both create mutual through complementarity of hotel and airline services. Ranbaxy has formed a strategic alliance with Eli Lilly of the US to fulfil its mission of becoming a research-based international pharmaceutical company. technology development or transfer. Some of the Japanese electronic manufacturing companies like Matsushita Electricals. most of the funding is done by the corporate concerned. had entered into strategic alliances with some US electrical or electronic manufacturers for entering into the US market. ‘Piggybacking’ is a common form of strategic alliance. But. (6) Write short notes on the following: a) Competitive advantage b) Porter’s Competitive threat model Answer:. Many manufacturers in India have marketing and sales arrangements with companies like MMTC and Tata Exports for both domestic and international marketing. common in the pharmaceutical industry. Many such alliances exist between the US and Japanese pharmaceutical companies. In the field of agricultural development. many companies in the US and Japan feel ‘shorthanded’ in their R&D. Hindustan Unilever and ICICI have entered into a partnership project for contract farming of wheat and rice in MP and Haryana. SPIC group and Telstra. Strategic alliances are non-equity based. A good example of synergistic benefits from a strategic alliance is that of Taj hotels and British Airways. Samsung Electronics and IBM Korea have entered into an agreement to swap Patents for design and manufacture of semiconductors. The nature of funding depends on the type of strategic alliance. also. whether new product development. a number of strategic alliances have been formed between Indian and foreign companies: Crompton Greaves and Millicom. many times. A more formal Definition of competitive advantage is: ‘Competitive advantage exists when there is a match between the Competences of a firm and the factors critical for success .. and also the parties involved.e.

a product strategy for an industrial good without proper design. i. As the management of competitive advantage.. South (1981) has given a definition of competitive advantage which also gives a good perspective: ‘The process of strategic management is coming to be defined. Developing Competitive Advantage Competitive advantage can be secured through two primary routes: product manufacturing and marketing route. These three factors are: how to compete (basics). The objective or goal here is to employ a strategy to thwart competitors who may lack strength in relevant assets and skills or is weak in some other strategic applications. corporate strategy should be based on appropriate assets. and whom to compete against.e. The third important factor for competitive advantage is competitor position. The next important factor is the choice of the target product-market. etc. competitor position For securing competitive advantage. in fact. developing and managing core competence are the keys to strategic success. But these strategies or the way a company competes is not the only key to. manufacturing and quality control capabilities will not deliver the results or any sustainability to the product or quality. however. business assets and skills. offering a bundle of benefits or value to the customer. quality reputation. But.RAJNI Within its industry that permits the firms to outperform competitors. special capabilities. The marketing route reflects marketing mix application. According to Hamel and Prahalad (1990). a process of . developing and taking advantage of enclaves in which a Tangible and preservable business advantage can be achieved. (b) Porter’s Competitive Threat Model . There are at least three other strategic factors which are essential for creation of a competitive advantage which can be sustained over time. Core competences. Important business assets are customer base. i. are not the only sources of competitive advantage. flight safety is important to airline passengers: so. competition strategy. if an airline is perceived to be strong on safety. positioning. long shelf life and national distribution. The product-making route and the marketing route are obviously not exclusive to each other. Many forms of competition exist. Procter and Gamble’s Pringle potato chips had many assets like consistent quality. We shall see this later. distribution strategy. A well-planned strategy duly supported by assets and skills may not succeed because it does not work in a particular market. or the complete course for success. proper engineering or skilled staff. and therefore. promotion strategy. For example. etc. A corporate strategy can consist of various individual strategies like product strategy. advantages of companies and businesses are based on core competence of these companies. i. pricing strategy. complementary to or supporting or reinforcing each other. Special assets and skills of a company can also be termed as core competence or distinctive competence of the company. etc. etc. they are. superior product design. The definition shows that superiority of a company over its competitors exists because the company has developed some unique competence—core. For example. The product manufacturing route reflects core competences. then a competitive advantage can exist in terms of provision of flight safety or better flight security. these assets adversely affected the taste perception which was considered to be the most important factor in the market. in fact.e. good management or company image. where to compete. product–market selection.. competence or distinctive competence—which matches the environmental actors or success factors in the industry in a better way than the capabilities of competitors..e. that is. skills and capabilities.

to a large extent. Competitive intensity or rivalry depends. the buyer purchases a very significant proportion of total output of the supplier— can happen typically in industrial products. then starts growing steadily and becomes significant till the product enters the decline stage. Colgate and Pepsodent are good examples. they can become stronger bargainers or create competition among suppliers under certain specific conditions. Substitution of need means that a new product or service makes an Existing product or service redundant. ii. air conditioner manufacturers competing with colour televisions or music systems or home theatres for snatching a share in ‘fixed’ household income. Industry (existing) competitors 2. on the stage of the product life cycle. For example. for industrial or service products. backward integration into supplier’s product—a truck or car manufacturer beginning to make components or accessories like Tata Motors or an air conditioner manufacturer also making compressors like Carrier Aircon or a colour TV manufacturer also making picture tubes like Sony. Substitution may take three different forms: product-for-product substitution. particularly if it is a market leader or challenger. Substitution depends on whether an alternative product offers higher perceived value to the customers.. no close substitutes available for the product offered by the supplier . This is the battle for market share and is the most immediate concern of a company. Bargaining power of suppliers: Suppliers. . Surf and Ariel. the industry consists of a large number of small operators so that buyers can easily create competition among them. Competition is practically non-existent at the introduction stage. substitutes are available or there is no product differentiation. Product-for-product substitution or substitution for the same use are same. Ongoing battles between Coca-Cola and Pepsi. or sellers. Some of these conditions are: i. These are: 1. generally in a weak bargaining position. But. Porter (1980) in his pioneering work on competitive strategy had identified five major types of competitive threats which are valid even today. Threat of substitutes 3. substitution of need and generic substitution. i. Generic substitution takes place when different products or services compete for a share in the same family income or household income: for example. Such market conditions are : i. Threat of substitutes: Substitute products reduce demand for a particular product or a category of products because some customers switch over to the alternatives. Threat of new entrants Industry competitors: Various degrees or intensities of competitive rivalry exist in the market for a product. Bargaining power of suppliers 5. Bargaining power of buyers: Buyers are generally in a better bargaining position. e-mail substituting for postal service or mobile phones substituting for landlines. Cost of switching a supplier is low. for example. can be strong bargainers under certain conditions. Bargaining power of buyers 4. there is no long-term contract. or. IT has provided e-Commerce as a tool which has generally made secretarial services or printing redundant to a large extent. iv. The most difficult task in this is to properly assess the magnitude of existing competition and correctly foresee the threat from new and emerging competitors. Iii.e.RAJNI A vital task of a strategist is to anticipate and/or recognize the nature of competition and potential threat from competitors and to develop appropriate response strategies.

iii. But. Threat of new entrants: Many times. for example. new entrants pose a major threat to the existing market players. most of the established products and brands in consumer and industrial markets today were new entrants at some point of time. enters into production of motor cycles (TVS-Suzuki). a carbon black producer entering into tyre manufacturing and competing with tyre manufacturers or TVS (earlier Lucas-TVS). for example. Weston TV. Maruti Suzuki’s entry into the Indian car market. Forward integration into buyer’s product. etc. iv. ICs and chips in electronic products which can be bought only from few or selected suppliers. the product(s) sold by the supplier(s) is an important or critical input in the buyer’s product. We have the examples of Padmini (earlier Fiat) cars. Vimal fabrics in the Indian textile market and Titan in the Indian watch market are well known. In fact. HMT watches. Examples of entry of Toyota and Honda in the US car market (and also in the global market). traditionally a component or accessories maker. Forecasting the emergence of new entrants is very important for existing competitors and it is also one of the most difficult jobs. . High switching cost of changing a supplier—may be because the supplier manufactures a special product or the product is clearly differentiated. companies which fail to foresee the new entrants or ignore them may even face disastrous results.RAJNI ii.