Compiled by: PTM Batch 07-10

[STRATEGIC MANAGEMENT]
Class notes by Prof. Sanjayan Nair given during the class lectures. These notes have various concepts explained point wise with illustrations. This will help to recall the teachings during the lectures & explain it in examination & in future.

Strategic Management

Notes by Prof. Sanjayan Nair

Contents
Strategic Management Process .................................................................................................................... 4 ANSOFF’s Matrix ........................................................................................................................................... 5 Strategy Development Process ..................................................................................................................... 6 Environmental External Analysis................................................................................................................... 7 Corporate Governance (C.G.)........................................................................................................................ 9 What is Strategy ? ....................................................................................................................................... 10 Why Strategy? ............................................................................................................................................. 10 STRATEGIC MANAGEMENT PROCESS (5 Stage Process) ............................................................................. 11 SCA (Sustainable Corporate Advantage)..................................................................................................... 15 Analysis of the external environment ......................................................................................................... 17 Key Economic Indications of an Industry .................................................................................................... 18 Porter’s 5 Forces Model .............................................................................................................................. 21 Strategic Options to achieve Competitive Advantage ................................................................................ 26 Environment Scanning ................................................................................................................................ 29 Core Competencies ..................................................................................................................................... 30 Product Life Cycle (PLC) .............................................................................................................................. 32 1) International PLC............................................................................................................................. 32

Value Chain ................................................................................................................................................. 33 2) Industry Value Chain ....................................................................................................................... 34

Strategies to remedy a poor cost advantage: ............................................................................................. 35 Porters’ Generic Strategy ............................................................................................................................ 38 1) 2) 3) 4) 5) Cost – Low cost provider strategy – Broad segments. ................................................................ 38 Broad – Differentiation Strategy (Quality Leader) ...................................................................... 40 Best Cost Provider Strategy ........................................................................................................ 41 Focused Low Cost Strategy – Niche ............................................................................................ 42 Focused Differentiation Strategy ................................................................................................ 43

Beyond Competitive Strategy ..................................................................................................................... 44 3) 4) Strategic Alliances ........................................................................................................................... 44 Mergers & Acquisitions ................................................................................................................... 45

Short Notes ................................................................................................................................................. 47 1) Horizontal Integration Strategy – ................................................................................................... 47 Notes Compiled by: Students of PTM Batch 07-10| 2

Strategic Management 2) 3) 4) 5)

Notes by Prof. Sanjayan Nair

Vertical Integration – ...................................................................................................................... 47 Outsourcing strategies – ................................................................................................................. 48 Offensive Strategy – (Rewrite the Rules of the business)............................................................... 48 Defensive Strategy : ........................................................................................................................ 51

Competing in foreign markets .................................................................................................................... 52 STRATEGIES TO ENTER FOREIGN MARKETS ................................................................................................ 54 1) 2) 3) 4) EXPORT STRATEGY .......................................................................................................................... 54 Licensing strategy:........................................................................................................................... 54 Franchising ...................................................................................................................................... 55 Multi Country strategy or Global strategy ...................................................................................... 55

STRATEGIES TO ACHIEVE COMPETITIVE ADVANTAGE IN FOREIGN MARKETS ........................................... 56 Tailoring strategies to fit specific Industry situation and/ or company situations. .................................... 57 Strategic Changes in fast / rapid / high velocity / turbulent Market: ......................................................... 59 Strategies for mature industries ................................................................................................................. 60 Strategies in declining or stagnant industries ............................................................................................. 63 Fragmented Industries ................................................................................................................................ 64 Strategy for Industry Leaders...................................................................................................................... 66 Strategy for Runner up firms ...................................................................................................................... 67 Turn around strategies for critically sick companies / crises ridden co’s ................................................... 69 BCG Portfolio Matrix: Share Growth Matrix ............................................................................................... 71 Diversification ............................................................................................................................................. 78 Strategic Audit............................................................................................................................................. 83 Change Management .................................................................................................................................. 85 Acquisition / Takeover Strategies: .............................................................................................................. 88 Identifying Competition .............................................................................................................................. 89 1) Who is a competitor? ...................................................................................................................... 89

LEADERS COMPETITIVE STRATEGIES........................................................................................................... 90 1) What makes Leader a “ Leader” / Characteristics. What makes him special? ............................... 90

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Strategic Management

Notes by Prof. Sanjayan Nair

Strategic Management Process
1) Strategy is all about positioning. E.g.: Hero Honda, Enfield. 2) Package sizes of biscuits, Shampoos. E.g.: Bru coffee sold cheaply, bought even in rural areas. Objective: Each organization has particular objective based upon the particular type of organization. 1) 2) 3) 4) Commercial Organization Government Organization NGO Co-op Organization

2nd Strategy of organization is pricing. E.g.: Ambuja Cement – incurred low cost, so able to give products at low prices. Maruti Cars- Low price, High quality. Helps to hold the organization in good faith for a long time In ‘76 Government divided organisations 3 types of company A) Government companies can compete B) Government and Pvt co can compete C) Totally open co Pvt Focus not on profits, 1/3 for development and 2/3 for project NGO: Objective is to reach maximum no. of beneficiaries. Strategy will be diff more towards service. Michael Porter: If a company is able to achieve high returns then it has a good strategy. (Competitive Strategy) E.g.: Infosys PAT is 28%, compared higher than TCS and Satyam. Maruti is no.1 in automobile industry. Any entrepreneur starts a business, starts it a vision. E.g.: Reliance group has never focused on exports, it’s only when petrol prices moved, and they got into exports. Vision: Where you want to see yourself 5, 10, 15 yrs down the line, It’s easy to understand and communicate to the employees. Mission: Defines the boundaries of the organization. e.g.: which products and services will the company offer. ICICI grown too fast. L&T will be leading infrastructure and continue to be no.1 Retail business has 4-5 formats and 40 areas. E.g.: Reliance before startup retail had 40 business heads in each area identified. Company can divide itself into various strategic divisions (Investment centric) who has complete responsibility, freedom to manage, source suppliers.

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Strategic Management

Notes by Prof. Sanjayan Nair

Companies are divided on the basis the following 4 principles: 1) 2) 3) 4) Investment Centers Profit Centers SBU’s Cost centers – supporting dept and not generating revenue.

SWOT can be done at each of these levels. Objectives are set after SWOT and benchmarks.

ANSOFF’s Matrix

Organic Growth & Inorganic Growth. In terms of diversification risk is set off against different products, risk exposure is minimum

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Strategic Management

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Strategy Development Process
1. Corporate Level Strategy – BCG matrix Corporation which are diversified Companies, Group Companies – Diversified products 2. Business Level Strategy Strategy for a particular product. E.g. TCS – Strategy for service • System Integration • Infrastructure – Lowest Cost Strategy • Products – High Price Strategy E.g. Bharti Airtel is not a traditional telecomm company with a complete outsourced model compared to an E-portal (Create a market, bring suppliers and customers together) Outsourced model is sharing profits with the other company – old school of thought by incurring costs internally you can save costs by yourself. After Bharti Airtel – the thoughts have changed. Higher margin, Operating profit, Flexibility. Corporate Level 5 years plan: 1. Capital Expenditure 2. Project Management Corporate Level 1 year plan 1. Balance scorecards from a plan or an annual plan 2. Annual plans should be broken in monthly plans 3. Collecting data for monthly performance, constant measurement of critical success factor e.g. Birla group of company follow daily reporting, they monitor daily cash flow, inventory levels. TATA’s have survived mainly due to diversification. Birla has not achieved diversification their strength is daily reporting. Retail one of the best in India. High value to customers thru the KIRANA stores. High opportunities varied sizes of market in each segment e.g. automobiles

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Strategic Management

Notes by Prof. Sanjayan Nair

Environmental External Analysis
A continuous process includes. 1. Scanning – Identifying early signals of changes & trends 2. Monitoring – Ongoing observations of external environmental changes and trends. 3. Forecasting – Developing projections of anticipated outcomes based e.g. with construction 245 industries grow depend on it, Roads & houses will boost growth. 4. Assessment – Determining the timing & importance General Environment A) Socio-cultural segment 1. Women in workplace – If both are working lot of industries get impacted e.g. fast food, hotels, crèche 2. Workforce diversity- Malayalees mostly in Mumbai than in any other cities; Indian most in Silicon valley 3. Attitudes about quality of work life, previously people used to work 8 hrs now its 13/14 hrs, Gym and food out in work place. Ergonomic chair & desks at workplaces. 4. Concerns about environment: Carbon emission 5. Shift in work and carrier preferences: Shifts jobs is now a career growth, previously it used to be counted as no commitment. Movement is not a barrier today. Purchasing of products earlier was for lifetime; today you buy products for only max of 3 Yrs. 6. Shifts in products & services preferences. Economic Segment. 1. Inflation Rates: Inflation is one which motivates the growth for the company. One reason why Japanese companies fail: Since of no inflation, Since people above 60 Yrs do not spend, therefore no growth since no demand. Japans economy is not worth investing as no returns. They themselves are investing outside. Should be moderate 4 to 5 % inflation in an economy. Inflation accelerates an environment for growth. 2. Interest Rates: Have to be competitive. It increases the affordability of an individual, Average age of person buying a house now is 27 yrs vs. 42 yrs earlier. This creates competitiveness for individuals, corporate & governments. EMI’s earlier were 3 to 4 times the cost with 18% of interest which now is only 8.5%. 3. Trade Deficits or Surpluses 4. Budget deficits or Surpluses 5. Personal Savings Rate: In India it is 35% as compared to US its 7% earlier it used to be negative. 6. Business Savings rate 7. GDP

B)

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Strategic Management C)

Notes by Prof. Sanjayan Nair

Political / Legal Segment: 1. Antitrust Laws: No Monopoly should exist. No correlation, practices of some companies to not allow other companies to come up. 2. Taxation Laws: In 70’s Inc > 100000 97.5% Tax. High tax exemption of investment by industries E.g., Gujarat, Himachal Pradesh, E.g. Nano in Gujarat since if tax breaks since his products can become competitive. 3. Deregulation Philosophy: Cement earlier was highly regularized. Sugar could be bought only through PDS. 3 types of Cars vs. 150 models today. 4. Labor Training Laws 5. Educational Philosophies and Policies: 60% in agriculture contribute 17% to GDP. It is contributing the highest. Education has changed the income groups of Tier I and Tier II cities. It has given growth to middle and low income family.

D)

Technological Segment: 1. Product Innovation. E.g.: Telecom-Mobile Wallet. Reach is excellent. 2. If all Transactions are electronic GDP can grow by 1% 3. Application of knowledge 4. Focus of Pvt and Govt supported R & D’s 5. New Communication Technologies. Global Segment: 1. Important political events: E.g. Obama- President 2. Critically Global Markets-BRIC 3. Newly Industrialize Segments Demographic Segment 1. Population Size 2. Age Structure- India Young 15-34 Buying power. Pocket money 100 vs. 1000 today. POP culture. 3. Geographic Distribution 4. Ethnic Mix. 5. Inclusive Distribution: Richest- Poorest Industry Environment: 1. A set of factors that directly influences 5 yrs plans are capex, Project management 1 yr plan – annual plan are more strategic in nature. 2. Goal setting is done at top where you need to benchmark. In benchmarking you need to look at best practices. 3. Fastest growing IT Company in India listed abroad is Cognizant. 4. WFW is largest R&D services in the world. 5. Goal setting also uses a balanced scorecard.

E)

F)

G)

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Strategic Management

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Corporate Philosophy 70% of the companies in US are family driven businesses. Driven by the family. TATAs have a code of conduct for employees, fairness in dealing with everyone, trust are the important points in corporate philosophy. Strategy is decided by corporate philosophy.

Corporate Governance (C.G.)
Infosys is a good example of C.G. C.G, starts with accounting & reporting. This needs to be accurate for decision making. 1. Basic people who run the company are different from the owners of the company. The ownership is different from the management. 2. The Board of director is the most powerful in the company. 3. Quality of the management, Sales growth, P&L are indicators of good company 4. Delegation of authority. 5. SEBI guideline is that there should be a compensation board to fix the compensation of the CEO & the top management. All the persons liability should be also monitored 6. Audit committees need to be set-up cannot report to MD, should report to the audit committee of the board. 7. Board should comprise of expert from that industry, legal expert, marketing expert, CA. 8. Some board members are given compensation or bonus. E.g.: M&M 9. Power of expenditure has to be defined very clearly. Limits for each level right from MD to the lower level, i.e. signatories. 10. Delegation of Power. 11. How the plan, target, Budget are prepared. 12. Implementation of the plan. 13. Monitoring of the performance on a monthly basis. 14. Committees for Investors, Shareholder’s governance, audit strategy, compensation. Action that is a Blueprint & a ‘roadmap’ with clarity of objectives that needs to be achieved short term & long term. List of activities, competent resources needed.(without short term objectives managers have no prescription for doing business, no roadmap to competitive advantage, no game plan for pleasing customers or achieving good performance.)

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Strategic Management

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What is Strategy ?
Strategy is when a firm expenses its intent to adopt a current & future course of action that is blueprint &roadmap with clarity of objectives that need to be achieved in short term and long term.

Why Strategy?
1. 2. 3. 4. 5. 6. 7. 8. 9. Survival. Respond to changes in external environment. The need to grow. Respond to changes in customer expectations. Corporate social responsibility amongst stakeholders. Increase share of the market & profitability. Manage competition effectively & gain business dominance in the industry. Build competencies & capabilities. Technical expertise, financial capabilities Customer acquisition in growing markets. Getting new customers (pursuing larger customer base)

Strategic Management is the 5 stage processes & then over true initiating whatever corrective adjustments in the Vision, Objective, Strategy and execution are deemed appropriate Strategic Vision is a Roadmap if a company’s future providing specifics abouta. Technology and Customer focus the geographic and product markets to be pursued b. The capabilities it plans to develop & the kind of company that management is trying to create

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Strategic Management

Notes by Prof. Sanjayan Nair

STRATEGIC MANAGEMENT PROCESS (5 Stage Process)
I) Develop a strategic vision for the company Vision – Mission statement [vision is panoramic view of where we are going & giving specifics to business plans] Vision – Identifies specifics competencies of the organisation, core competencies, states your basic strength & where you wish to be [Sense of Direction] Mission – is methodology – People, Process, Policy to get there 1. Firm exhibits strategic intent to favorably alter its market position GE’s e.g.: “We will emerge as global leaders & the preferred choice of the consumer segment we choose to serve. Using Technology & innovative services we will delight the customer & be committed to their success by stake holders creating wealth “ 2. The strategic vision should be intrinsically, closely linked with companies ethics, value, beliefsE.g.., Quality, building stakeholder relationships Customer Services CSR Economic Value add (wealth creation) Creating a great place to work Committed to the success of Internal & External stakeholders 3. The firm should communicate its strategic vision to all stake holders linked to value chain creation P – Price O – Operations C- Costs K – Knowledge E – Expenditure T – Training S – Services E.g.: NANO Supply Chain Cost increased Loss / Costs of 1500 Crores even before producing a Car. Excellent Case of Ethics Walmart Hypermarket, sells all merchandise across categories below MRP. 70000 Merchandise 8000 stores across Model is based on- Low Cost leadership o Scale – Single longest player as a buyer of Merchandise - Whatever they save based on SCM cost pass it to the customer & part of it is retained to open new store Walmart’s KSF is “Price” is to give the best price to his customer Profitability is based on excellent SCM & not pricing of final goods Notes Compiled by: Students of PTM Batch 07-10| 11

Strategic Management

Notes by Prof. Sanjayan Nair

Most People should have in depth knowledge of organisation Importance of Strategic Vision : Imperative to look beyond today & think strategically about the a. Impact of new technologies on the horizon b. Low customer needs and expectations are changing c. What will it take to overtake or outrun the competitors d. Which promising market opportunities to be aggressively pursued e. Other external and internal factors the company needs to prepare for future “There is no escaping the need for the strategic vision”

II) Setting Objectives : The firm makes an attempt to convert strategic vision into specifics KPIs – creating results & outcome the company wishes to achieve out of strategic intent. There are principally two types of objectives namely classify Financial Objectives & Strategic Objectives 1) Financial Objectives i. ii. iii. iv. v. vi. vii. viii. ix. Increase the EPS Increase Credit ratings Acceptable Return on Investment (EVA) Stock Price appreciation (or MVA – Market Value Add) Good Cash Flow Good Credit worthiness Higher Dividends Growth in Earnings / Revenue Higher Profit Margins

State the objective that serve the Management intends not only to deliver financial performance but also to improve position of the organisation : a. Competitive Advantage b. Business Position c. Long Range Business Prospects

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Strategic Management 2) Strategic Objectives i. ii. iii. iv. v. vi. vii.

Notes by Prof. Sanjayan Nair

viii. ix. x.

Increase in x% of top line and y% in bottom line this is the intent, outcome will be financial. Improve cash flow eg: negotiate with creditors, create a system. Increase share of market. Reduce Overall cost of production. Rate of innovation: Increase revenue through new product introduction and capitalise on first mover advantage. Adopt top bottom approach, this is also called, commander approach. Create stable earning during recession; de-risk the business( Infosys gets internal customers diverse from banking products across many sectors. Monte-Carlo, winter wear company , now also in summer wear after saturation in core business areas. Inability to grow into current market. Improve technology leapfrogging into future. Eg: Sony Walkman, Apple I-pod etc. Increase share of voice ( jargon of advertising) and augment perceived brand value. Expand into new geographic market and new customer segments through brand and product line extensions. Eg: Dettol a) Antiseptic b) Talcum Powder c) Soap d) Band-Aid Adhesive Tape.

3) Social Objectives. i) Corporate Governance Transparency around financial health of the company, to the stake holders. CSR( Corporate Social Responsibility ) i. Promise of quality and supply of product at affordable price. ii. Concern for Environment. Products and Practices of the businesses will not do damage to the environment. iii. Philanthropy Pledging to the under- privileged members of the society. iv. EVA for shareholders.

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Strategic Management

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III) Outlining Corporate Strategy. i) The firm needs to identify a framework of initiatives to be used as a part of overall corporate strategy in order to establish a dominant business position, across either multiple segments in a narrow industry or across diversified businesses. Eg: ITC. Paper, Tobacco, Hotels, Apparels, FMCG Pioneer in contract farming concept of e choupal.

Strategy Pyramid

Integrate all levels of plans / strategic intent into overall capacity.

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SCA (Sustainable Corporate Advantage)
Kotlers Porters 1. Business is marketing 2. Rise above average probability; eg – differentiation 3. Managing competition - kill competition and stay ahead 4. Marketing to create industry leadership / dominate business position and create distance from your competition 5. Achieve by serving multiple industrial segments, benefit areas, price points Eg. HLL, multiple products, all segments, multiple price points in a narrow industry – NIRMA – bottom end segment effectively sell what you produce Managing and acquiring customers

*Most important for any business SHORT VISION + OBJECTIVE + STRATERGY = A STRATEGIC PLAN

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Strategic Management

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IV) Strategic Execution – “Make it happen” The underlying essence of strategic execution comes from a price leadership The firm undertakes the operations to shape the current and future performance of core business activities in support of the objectives around the strategic intent and also taking both internal and external factors into consideration It involves creating strategic business fit for succeeding.

-

Important fits include strategy and operations capabilities; strategy and reward structure, strategy and internal support system, strategy and organisational culture Resources o PC & MAC o Access to markets, o Finance o Technology Capabilities o Delivery A firms ability to compete in a chosen industry Eg: TCL – A Chinese company had resources but no capabilities to deliver Create and develop budgets to support various initiatives Facilitate strategy execution by utilising best practices in areas around process and policy Introduce or pursue change management if required to create conducive work climate Create good intellectual capital (role of H.R.) within the organisation, initiate performance management system and organisation development as mandatory and motivation and culture building

V) Fine Line Strategy Identify lap indicators through performance gap analysers based on past results in periodic reviews. Improve and control for future sustainable performance. Identifying lead indicators and commit resources in totality in order to neutralise competition Increase strategic intent from a firm generally leads to better financial performance Test if winning strategy – competitive advantage test, the performance test

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Strategic Management

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Analysis of the external environment

1. Supply chain – eg; Disney chooses its suppliers very carefully. Child labour etc. 2. Competition – Preventive measures 3. Oligopoly – ploughing system 4. Social trends – Luxury, entertainment, working women Eg; Van Heusen, Allen Solly for women; movies every week Industries differ widely in their characteristics, competitive situations and future profit prospects.

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Strategic Management

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Key Economic Indications of an Industry
1) What is market size? Growth and structural all activeness of the industry? Investments ,rate of returns, entry barriers , no. of players, survival capacity, money making capacity, early growth, early maturity saturation , decline etc. 2) Competitive forces between players, Pepsi v/s coke Fragmentation of market share, price wars and innovations high cost of R&D cost of old increases, how often established players choose to attack each other. SCOPE OF RIVALRY - Geographic area, having presence in foreign mkt. long term success. 3) Stage in the PLC-change in consumer preferences will reflect the weight of R&D, demand and supply. 4) Levels of differentiation adopted by various players in industry,-one special value that customer gets from you and non of rivals are ready to pay for it-special attribute differentiation E.g. Dove v/s other soaps

LEVEL -1= ME TOO LEVEL of differentiation extremely low e.g. mineral water, any water can substitute with anyone. It is a push market e.g. Gelusil - initially was a 1st mover Features-chewable, flavored ENO-looks like soda, sachet Rs5/-this gives the customer delight Product features differentiation means technology, in v high differentiation industry each co. has its own niche.

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Strategic Management

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5) Level of vertical and horizontal integration

POY

Fabric VIMAL

Retail

Consumer

Forward integration Supply chain to consumer= Horizontal integration

Petroleum Refineries MEQ

PTA

POY

NAFTA Largest in Asia 2nd in world

fully integrated co.

now vertical integration SURF=high VIP acquired RIN=medium HLL Aristo WHEEL=low MEDIUM HIGH end

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Strategic Management 6) Economies of scale---

Notes by Prof. Sanjayan Nair

Is prevalent in purchases, manufacturing, advertising, shopping etc. in this industry. Because of large scale of having advantage over small scale

7) Learning curve--a) Cut throat competition, price wars aggressive tactics b) Fence and sharp- parle v/s bour bon c) Moderate- acceptable d) Weak—satisfied with market share

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Strategic Management

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Porter’s 5 Forces Model
If you can manage all 5 forces, you can have Sustainable Corporate Advantage (SCA). SCA is a) Industry dominance/market leader b) Above industry average profit

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BARGAINING POWER OF SUPPLIER---a) Level of technology b) No. of suppliers c) Switching costs d) Threat of backward integration e) Few large suppliers f) Suppliers service, delivery g) Whether industry member are major customer of supplier COMPETITION IN INDUSTRY---a) No. of players b) SOM distribution c) CAGR growth in last 3-5 years d) Individual brand power e) Rivalry between players f) Exit barriers g) Industry profitability h) Rate of innovation i) SOV j) Switching costs THREAT OF SUBSTITUTE--Relative price Relative value Relative performance Cost of Switching Perceived reliability, sustainability and scalability.

THREAT OF NEW ENTRANTS--a. Threat of entry changes as industry prospects grows higher or dimmer and as entry barriers rise or fall. b. Entry Barriers:c. Scalability: - Economies of scale in production and other areas of operations. d. Government Regulations:- Environment entry standards as entry cost e. Open to SBF (Strategic Business fit) f. Access to technology g. Access to Supply chain h. Access to Market i. High Capital requirement

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Strategic Management

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BARGAINING POWER OF CUSTOMER--a) b) c) d) e) f) Volumes/frequency of purchase Buyer’s needs—rate if change of expectation Cost of Switching Buyers ability o backward integrate Price sensitivity / Brand loyalty /Substitution Levels of differentiation Vs Needs

Option available Well informed buyers ----Internet ---increases bargaining powers of buyers I) Competition in Industry

1. Existing Industry profiling Example: IDEA only in Maharashtra difficult. entry difficult, rural good potential, penetration becomes

2. Share of market distribution –market size unstoppable market. ----20 players fragmented 3. Individual brand power is playing a role in customer loyalty Example: Nescafe , Moov , Vicks, Nokia . Industry is dominated by top guns. 4. Rivalry : Coke & Pepsi Industry where it’s high cost of operation s is very high . Advantage Is highest, Promotion is high, Plants across. Example: Cadbury scwepper could not sustain when they shut the supply chain for Cadbury. Industry is most profitable. 5. 6. 7. 8. Industry profit:- Cost/Profit of Industry Advantage of Innovation : First move advantage Share of Voice –Cost of advantage –Coke is the highest Cost of switching :- risk of reversal.

II) Bargaining power of Supplier 1. Where he has the technical/Quality/IPR his role becomes strong. If industry is 100 and supply is 95---Supplier is strong If industry is 100 and supply is 125---Buyer is strong Example: Reliance Notes Compiled by: Students of PTM Batch 07-10| 23

Strategic Management

Notes by Prof. Sanjayan Nair

If highly dependent on supplier should I evaluated “Backward integration” Example : Maruti—backward integration with Suzuki. III) Bargaining power of Customer 1. Volumes 2. Innovation –rate of change will depend on rate of change of customer. a. Latent Needs (Future) – first Mover Advantage b. Current Needs 3. Buyer’s ability to backward integrate will work only in B2B situation and not in B2C. a. Partnerships are important between seller & buyer in a competitive environment. Example: WalMart provides manufacturers with daily sales at each store so that they can maintain inventory to keep shelves at WalMart stock. ii. Dell partnered with corporate customers and gives online system within time which has out considerable pressure on other PC makers. 4. Water-Product cost is less than SC cost. 5. Level of different r/s needs Example: Shampoo-for different types of hairs. IV) Threat of new Entrants Government reputation –IKEA Higher the entry barriers , higher the exit barrier i. ii. iii. iv. Less will be no of players in Industry More rivalry Increase profits Structurally Attractive i.

Decrease in EB – more players , more Rivalry, decreased profits Retaliation: Sony & Nintendo are fighting Microsoft entry in video games with Xbox.

V) Threats of Substitutes E.g. Contact Lens, Aluminium car Engines - Tata Nano. i. Relative Price & Performance was better therefore the weight of engines was less.

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Strategic Management

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Who are the Users of this Model? The users of this model will be :a. Existing Players b. Entrants looking for Diversify.

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Strategic Management

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To Understand structural attractiveness of the industry :The company or firm that manages to leverage the 5 forces to their collective advantage ( i.e. manage industry competition, create dominant position with both customers & suppliers who have resource capabilities to thwart/block/neutralize the threat of new entrants & can create or nullify substitute products) will be enjoying sustainable competitive advantage. a.) Industry Dominance/ Market Leader b.) Earn above average profits

Strategic Options to achieve Competitive Advantage
1.) Strategy based on critical success factors (CSF) CSF are competitive factors which affect industry members ability to prosper in the market place. CSF

Core Competencies ( SBF resource capability ) ( inherent strength)

Brand Promise

Differentiation/ Positioning

Core Value Proposition E.g.. Of CSF 1. Economies of Scales – Reliance 2. Cost Leadership - Least cost ITC HUL a. Cost low – sell low L superia b. Cost low – sell VFM M Vivel Sunsilk c. Cost low - Sell ↑ H FOW Dove In all these products principal Raw material is the same which constitutes 90% of the products. Scale brings down cost/ unit. 3. Pricing – Supply Chain Efficiencies. E.g. WalMart – They too have the scale 4. Technology & Innovation :- Sony Notes Compiled by: Students of PTM Batch 07-10| 26

Strategic Management

Notes by Prof. Sanjayan Nair

5. Product line Base : Firm that serves broad industry categories in multiple benefit areas with a variety of price points along with brand line extensions. 6. Related Skills & Capability – skilled talented workforce. 7. Overall Low Cost. Positioning : Mother brand ( Brand Equity)

Extend the brand into other Areas E.g. Dettol , Bandaids, Handwash, Soaps, Antiseptic lotion. With core value proposition remaining same. Change the form of the Product E.G. Liril – Soaps, Talcum Powder, Deos E.g. . Colgate- Complete Oral Solution care form. Line is vertical extension , Brand is Horizontal. Any Company having various price points, multiple products for multiple segments. A firm needs to identify the Key Success Factors from any of the above points & concentrate all resources behind the same to create a SCA ( Sustainable Competitive Advantage) Use KFS’s as cornerstones of Company’s Strategies and gain SCA by excelling in 1 KSF

2.) Strategy based on Relative Superiority To create a distinctive competency from within internal value chain activities & use it to exploit relative weakness of other industry competitors. E.g. Haldirams – Ethnic Snacks. Impulse purchase Category E.g. Lays came up with Kurkure. Guerilla Players- Plays war in his strength play within a certain geographic location. E.g. Balaji, Wagh Bakri Chai Garden Fresh snacks.

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3.) Strategy based on Aggressive Initiatives E.g. New Honda Model arrow v/s S x 4 of Maruti

Fantastic Model An initiative that is undertaken to dislodge established player in the industry by challenging the current strategic business fit. This would include product design, technology, cost inputs & at times unique advertising measures.

4) Employ strategic degrees of freedom Ansoff’s share growth matrix refers to strategic options for growth that is available with the firm Markets New Diversification Strategy New Inorganic Growth Products Existing Market Expansion strategy Inorganic Growth Existing Product Development Strategy Inorganic Growth Market Penetration Strategy Organic Growth

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Environment Scanning
1. Internal Identify a firm’s resource strengths. a. A core or distinctive competencies or a special skilled expertise area for e.g..: technology, low cost mfg capabilities, Six Sigma, Unique Service or aggressive advertising initiatives (Skill, Specialized Expertise) b. Assets inclusive of state of art PL & Mac, advantage arising out of a real estate location, broad distributed infrastructure, R&D / Quality systems, Possession of valid patents / IPR, high credit ratings, access to customer data, customer loyalty arising out of brand equity. Some of the assets are tangible and others are intangible. (Valuable Physical Assets) (Valuable Organizational Assets) c. Intellectual Capital / Availability of Competent Human Resource & Leadership generally with a commander top down approach which challenges employees to seek higher levels & hence create a high performance enterprise. (Valuable Human & Intellectual Assets & Capabilities) d. Competitive capabilities that includes those competencies required to effectively compete in the chosen industry which includes i. innovation, ii. short product development cycles, iii. short time to market (time to react to change to a competitive move, agility to move); iv. dealer network; v. supply chain efficiencies; vi. & adopting new technologies & changes as part of integral work culture e. Firms’ Business Position (Achievement of Attributes) Analysing Leadership position in areas like i. Cost Leadership ii. Quality Leadership iii. Share of Market iv. Technologically superiority v. Wider product line offering f. Forge Better partnerships (Competitive Valuable Attributes and JVs) with supply chain to i. improve quality & reduce cost ii. Strategic alliances or JVs that give a firm access, superior technology, markets or services Notes Compiled by: Students of PTM Batch 07-10| 29

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All of the above factors contribute to what is called “Competitive Assets”. The caliber of firms economic strength is determinant of its competencies and there for its position in the market place. Analyzing completive power of company’s resources. Strength Weakness • Nullify • Improve

Internal

Opportunities • Segments • Geographies • Need gap areas

External

Threats • Govt. Regulations • Competition • Changes in Consumer preferences • Obsolescence • Substitutes

Core Competencies
It is the internal capability in the Value chain where a company performs best which hence becomes central to the success of the firms’ strategy & its competitiveness. Its arises out of the knowledge and capabilities that resides within its people and its assets. E.g..: i. HUL – Distribution ii. Star Bucks – control over coffee beans iii. Reliance – Scale iv. Sony – Innovations v. P&G – Quality Leadership Distinctive Competence : Is the value chain activity being part of core competence also incidentally enjoys industry leadership and benchmark for other to follow. It hence represents competitively superior resource strength and forms the basis for sustainable competitive advantage. E.g.. Toyota & Honda – both enjoy quality leadership with short time to market globally

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Principles regarding managing competencies: 1. It should be hard to replicate for any other competition. e.g..: Wal-Mart’s prices globally arising out of supply chain efficiencies. 2. It should be sustainable over a longer period of time. e.g..: digital cameras have diminished the business for Kodak or Fiji films 3. It should be technologically and hence competitively superior. e.g..: Sony invented walkman. Apple moved it with iPod and Sony doesn’t have strength in software 4. The core / distinctive competences should be integrated with other capabilities and resources that the company possesses and act as a force multiplier. 5. Leader companies possess a distinctive competence or superior resource capabilities which is what gives them industry dominance 6. Weakness or lack of strategic business fit amounts to a competitive liability which may get seriously exploited by a competition

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Product Life Cycle (PLC)

1) International PLC
1. Inventor from a developed country saturates the parent country

2. The inventor exports to G5 / G8 nations 3. Licensing G5 / G8 and start exports to developed nations which are not part of G5 / G8 4. License it to developed nations / exports to developing nations 5. License / JV / M&A in low cost developing nations – scale to make the low cost base a global hub. 6. Inventor + G5 / G8 + dev. nations become largest importer (Leontiff’s Paradox) – wherever labour intensive. E.g.. USA has become largest importers of automobiles. E.g.. Tech / capital intensive / IPR / Patent – Boeing, Airbus; it doesn’t happen. The inventor continues to be the largest producer.

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Value Chain
It consists of various activates that a firm undertakes both internal and external in the quest to deliver value to various stakeholders of the company. The 2 primary functionality in value chain are 1. Strategic cost management 2. Quality and value delivering Every value chain activity in an organization should be treated as a cost centre with every effort being maintained to drive down cost without adverse effect on functionality. (Input cost v/s profit delivered) E.g.. Makers of Bakery goods; hotels ; Airlines ; Retail ; Changes from Industry to Industry An increase in the firms’ cost per unit will make it competitively vulnerable v/s rivals in the industry. However, in the quest to enhance value delivery there could be an incidence leading to increased levels of differentiation thus raising input cost. The firm should make good the increased cost input through a higher price realization. Where in the incremental price differential should be greater than the raised value of input cost.

↑ Function ↔price ↑price ↓Price -

↑ Vol leads to profits leads to profits leads to profits

Either cost should work with volumes or absolute price advantage. A value chain consists of a continuous link of activities that a firm peruses like product design, manufacturing, marketing distribution and after sales service which finally delivers high end customer delight Sustainable Extra value has replaced USP. Benefits, Attributes and Features at ^ SC or lower price E.g..: Sales & Marketing – P&G, Sony v/s Oil Drilling Cos; Delivery for Dominos v/s Starbucks

-

Each activity in Value chain gives rise to cost and ties up assets. E.g..: Design of a product has huge impact on no. of different parts and components, their manufacturing cost and assembling cost into a finished product. Notes Compiled by: Students of PTM Batch 07-10| 33

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-

Any functions related to non revenue function are supported functions, enable primary functions to perform better. Support functions are cost centre. The combined cost of all above value chain activities comprises the internal cost structure of the firm, which needs to be benchmarked against competing rivals in the industry. This benchmark will enable the firm to understand its i. Relative cost position viz a viz Industry players ii. Value Chains of Rival Cos. often differ; Music, iTunes; Outsourced v/s assembled; low cost v/s high end of mkt.

-

2) Industry Value Chain

-

If the supplier has a huge margin, you can look into backward integration. If channel partners are having huge margins than you look at forward integration, bargain with channel partners.

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Where it is sold, the moment of truth to the customer & finally converting into an ownership experience. Company Value Chain activities are often closely linked to the Value Chain of their suppliers and the forward allies or customer to whom they sell. Therefore need to understand an industry’s entire Value Chain for delivering a product or SVC to customer & not just the Cos. own Value Chain. Costs, performance, differentiation and Quality inputs instituted by a firm influences internal product costing directly. If a firm can work closely with suppliers to enhance quality delivery keeping cost low it can enhance a firms’ cost and competitive advantage.

-

-

Hence, it is critical for firms to work collaboratively with supply chain partners to institute competitive advantage at the time of inception of the value chain. E.g..: Nano working with suppliers in the Value Chain, Aluminum Can Manufacturer being proximal to the brewery plant.

Strategies to remedy a poor cost advantage:
1. You should undertake strategic cost analysis for internal and outsourced value chain activities and benchmark against the industry cost structure to understand performance gap. 2. Challenge current work practices & institute best used methods (TQM, Kaizen, Six Sigma) for high cost and critical activities in the value chain. 3. Eliminate low cost, non value add activities to out sourced partners (make or buy, rent / lease or buy property) 4. By pass certain activities non crucial for success in the business; for e.g..: a. Channel partner distribution being by passed by Eureka Forbes & Amway b. Amazon.com using brick & click internet as major distribution channel 5. Relocate production & R&D facilities and after sales services to low cost producing nations. E.g..: a. Auto industries coming to India b. US Biotechnology Cos. coming to India for R&D c. BPOs in India for after sales service and currency enrichment 6. Invest in PL & Machines that increases production, saves cost and enhances capacity utilization and scale 7. Use lower price raw materials through substitution and reverse engineering. E.g..: a. Aluminum and fiber enforced plastics being used instead of stainless steel. 8. Simplify product design and production processes by initiating integration of plant and machine viz-a-viz product design to have greater flexibility in value delivery. E.g..: a. Toyota pick up truck converted to Toyota SUV her in India for 20 lacs – Fortuner. 9. Negotiate more favorable prices with suppliers, collaborate to infuse JIT systems and integrate logistics. Notes Compiled by: Students of PTM Batch 07-10| 35

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10. Backward integrate into high cost critical activities 11. Reduce channel partner margin or align it to volume sales, rework costs of logistics and warehousing in this area channel & customer related Value Chain. 12. Use of the internet as a major channel in the sales / purchase model. 13. Share resources in non-competing, non critical areas with competitors. E.g..: code sharing, airport maintenance facilities. This is important where it is a price sensitive industry where you cannot command a price. This is in mid size or lower economy segment. Cost should be kept low price sensitivity mid VFM , lower economy Low levels of differentiation; e.g.. Bottled water Low involvement levels, cost of switching is low, generic substitution is high; e.g.. Soft drinks industry A. Production 1. Move from Glass Plastic PET 2. Cartons shrink wraps (plastic boards) 3. Tower Perform weight; Bisleri mould design changed to changed the weight from 20 gms to 15 gms. 4. Automation to reduce labors being used. B. Selling and distribution cost (Core Activity) 1. Trucks changed from Petrol to Diesel to CNG 2. Manpower Costs – Driver – salesman – Delivery boy (Route map given to delivery boy). Part of it was done through channel partners; bylanes – small distribution; bulk can biz – Outsourced for large Cans 3. Franchise Models or Contract Packers : small towns like Indore. Here it is fixed cost for per bottle produced 4. Contract labour on per day basis were used C. Financial 1. Hedging ; for fuel for airlines Is Co. Competitively weaker or stronger than rivals? Key success factors / Strength Measure 1. Quality / Product Performance 2. Reputation / Image 3. Manufacturing Capability 4. Technological skills 5. Dealer / Network / Distribution Capability 6. New product innovation capability 7. Financial Resources Notes Compiled by: Students of PTM Batch 07-10| 36

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8. Relative Cost Position 9. Customer Service Capabilities Company Strategy Business Strategy Narrower than Business Strategy Management’s action plan for competing How to compare but also how mgmt should successfully and providing superior value to address strategy issues confronting business customer Internal initiatives, offensive or defensive to counter the rivals in improving its position

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Porters’ Generic Strategy
A competitive strategy involves specific action plans that are deployed by the mgmt to compete in a category successfully while achieving a Competitive Edge over rivals. (5 forces position of the organisation in market and how the organization gets structured based on strategic choice). It should be linked whether the firm’s target is a broad or a narrow segment (broad – High end , Mid, Low market, multiple price points; Narrow – J & J – Babies and infants) or Whether the advantage arising out of strategy pursued is linked to low cost or high quality. Cost Leader Broad – Serving at low price Niche Narrow / focused (sell at premium price)

Quality Leader (Differential Level) Broad – Colgate with variety of products and broad spectrum of buyers Niche Narrow / focused – Armani, Hugo /boss Best cost providers – decrease cost , increase functions – more value for money; by giving good / excellent features at lower price than rivals

1) Cost – Low cost provider strategy – Broad segments. E.g..: Walmart, Coke, Pepsi, Water Brands; a. Firms achieves low cost leadership through continuous driving down input cost in its value chain, operating business in a highly cost effective manner. b. However, the firm does not compromise on basic / desirable attributes / features which are perceived as value by the customer. c. However, the firm has resource capabilities to create these attributes at a lower cost than competition and hence stands as the basis for the advantage. The advantage is sustainable provided the advantage cannot be replicated by competitors. d. Company can utilize following 2 options to capitalize low cost leadership into Sustainable Competitive Advantage (SCA) i. Use low cost edge and adopt penetrative pricing in price sensitive mass markets to gain share of market and hence scale. However, the size of price cut should preferably be less than cost advantage created to generate above average industry margins. If the price cut is equal or marginally greater than cost advantage then the incremental sale and absolute rupee value generated should create advantage. ii. Maintain current market share at existing prices and earn higher profits per unit as compared to industry. Notes Compiled by: Students of PTM Batch 07-10| 38

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To achieve cost advantage – a firms’ cumulative costs across its value chain must be lower than the competitors’ cumulative costs i. Value Chain activities performed efficiently ii. Revamp firms’ value chain to by pass some activities When to use this strategy i. When price rivalry in the industry is high and the customer segment is price sensitive ii. There are few avenues to peruse product differentiation and hence all available brands seem to appear similar iii. No. Of sellers in the industry are high and there is an over-supply in products and services iv. Buyer expectations are low. Cost of switching is low and customer base exerts large bargaining power over the industry. Disadvantages of perusing this strategy i. Overly aggressive pricing and can often nullify the cost advantage. Cost leader firms in an attempt to maintain market share particularly in the phase of regional threats may often resort to cutting price over and above the cost advantage. E.g..: HUL v/s Nirma – HUL had to back down with the reduction in the prices of their shampoos and soaps. ii. SCA arising out of cost leadership is more often than not susceptible to replication by rivals. Hence, long terms sustainability often holds the key to the success of the strategy E.g..: Fedex – using hub spoke model to send parcels collected in evening and sorted between 11 – 3 am Southwest Airlines – No frills, meals & seating, online, no commission, reservation sys, baggage, transfers & cost attached Dell Computers – Assembling and marketing PCs – Online, blink of an eye product – build to order strategy, decrease inventory cost. iii. Too much freebees or reduction of price often compromises on the final output, the quality, thereby output of the final offerings

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2) Broad – Differentiation Strategy (Quality Leader) When the buyers needs and preferences are too diverse to be fully satisfied by a standard product; Serve all price segments (High – Med – Low); Multiply products, Multiple SKU, Multiple benefits, Multiple brands P1 S1 B1 P2 S2 B2 P3 S3 B3 1. Firm peruses a differentiated segmentation or benefit segmentation strategy where in it identifies a no. of homogenous segments where buyer needs vary and firm, customizes its product offerings to suit those individual needs with multiple products. 2. This strategy can be pursued when for the buyer it is a high involvement category where buyer needs and wants are diverse within the category and each cannot be satisfied by a single product. 3. Firm needs to do extensive research on buyers’ needs and wants and offer products with a variety of differentiated attributes, each promising to create a special value proposition for the chosen segment 4. Firms should proceed to incorporate the desired attributes in the product as indicated in the findings of the research 5. Competitive advantage arises out of many segments of buyers desiring differentiated attributes gets attached to the value being offered by the firms’ multiple product offerings. All buyer need gaps, benefit areas and price points are covered up in the pursuit of this strategy. 6. Pursuit of such strategy offers following advantages to the firm: i. It commands a price premium arising out of differentiated attributes and hence higher value perception for the buyers. It increases overall unit sales since it serves multiple benefit areas at multiple price points hence encompassing the larger prospect base ii. It helps gain a long term buyer loyalty iii. Like always the differentiation variable adopted should be sustainable (difficult to copy) in the long run in order to create an advantage. E.g..: Colgate – Max Fresh – Crystals – patented. As a rule differentiation yields a longer lasting and more profitable competitive edge when it’s based on 1. 2. 3. 4. 5. Product innovation Technical superiority Product Quality and Reliability Comprehensive Customer Service Unique Completive Capabilities

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Approaches to this strategy 1. Incorporate product attributes which lower the cost of buying or usage for the customer. E.g..: Dish wash Liquid – Peril 2. Increase product performance, quality and reliability of the offering, ease to use, convenience or durability 3. Incorporate such features tangible or intangible (emotional) that increase buyer satisfaction. (MRF tyres in rainy season) 4. Deliver value through a continuous innovative approach that competitors’ find difficult to keep pace with. E.g..: Sony, Japanese cars (Newer model faster than American manufactures can) 5. The cost of achieving differentiation should be lower than the price premium change to avail of profit advantage. When to use : 1. When buyers have distinct and multiple preferences within a category 2. Few firms offer highly differentiated products or a multi brand strategy within the industry 3. When fatigue factors are high and rapid pace of innovation keeps buyers continuously involved in the category. E.g. PCs, Cell Phones, Video Games, MP3 Players, 4. Many ways to differentiate a product and buyers perceive this differentiation as values. E.g.. TVs, Furniture Disadvantages: 1. Over differentiation especially into areas where customers do not see value often raise input costs but do not receive favorable buying response from customer. a. Increased in price premium may not justify the raised input cost of achieving differentiation. 2. Risk v/s return analysis may be counter productive if the product does not have a sustainable run. 3. A low cost strategy can defeat a differentiation strategy firm if buyers do not see any special perceived value in the differentiated offerings 4. Not understanding as identifying what buyers consider as value.

3) Best Cost Provider Strategy

Low cost provider of an upscale product Target is value conscious buyers, waiting to pay a fair price for extra feature or good service Position itself in the middle with medium quality product at lower prices than rivals or high quality product at a average or slightly higher price Notes Compiled by: Students of PTM Batch 07-10| 41

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Often substantial buyers prefer mid range products than cheap, basic products ; E.g. : Toyota applied this for Lexus brands 1. This is where perceived functionality for the buyer is higher than the cost he pays, i.e. value for money strategy 2. Firm is able to deliver more perceived value in key quality and attribute areas like performance and service while beating the competitors’ expectation on price 3. Firm achieves “Best Cost” provider status when it has capabilities to incorporate good to excellent quality and features at a lower cost than rivals 4. However, the firm can get “stuck in the middle” between low cost providers and differentiated cost leaders and hence firms of this kind should pursue a hybrid strategy. E.g. : Premium Padmini; Nike cheapest shoe starts at 599 up to 3999

5. Competitive advantage of a low cost provider is powerful when a firm offers a better product at a lower price, equal to or at times under priced. E.g.: Tata cars from 7 lacs to 3 lacs at least 15 Products 6. Firm should be able to, if the need arises, upscale the product further & hence create more variance than competition at lower input costs.

4) Focused Low Cost Strategy – Niche

E.g.. Ginger hotels – aimed at business traveler at low cost Nirma; Walmart; Pvt Label Products – STOP, Tasty Treat Foods It aims to lower cost and secure a competitive advantage by serving a niche segment of buyers and at a price lower than competition

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5) Focused Differentiation Strategy

Targeted at upscale buyers waiting to pay a big premium price 1. Aims at achieving SCA by serving in narrow audience of buyers with highly customized products specifically suited to that individual buyers’ requirements 2. Such industry players are also known as “niche marketers”; e.g. : Rolex, Porsche, Ferrari, Harley Davidson, Hummer, Armani When to use 1. The target market should be big enough to growth and profit potential 2. Differentiated market leaders serving multiple segments often choose to ignore niche customer requirements hence this offers a business opportunity to more focused players 3. It is also difficult and costly for multi segment players to serve a niche segment 4. In every industry category there will be different niche in different benefit areas 5. In this ball game, narrow specialization is the key; e.g. : EBay – focused online global auction, Google – Internet search engine Conclusions :A firm needs to decide which generic strategy it must adopt as part of its mission and vision statement. It is perhaps the most important strategic commitment that a firm makes which sets out the roadmap for the rest of the firms’ activities be it a strategic business fit , development of resources and capabilities or any further actions it may undertake in its quest for SCA & industry dominance over its rivals.

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Beyond Competitive Strategy
3) Strategic Alliances
It is a formal agreement between 2 or more separate companies in where there is a strategically relevant collaboration, contribution of resources, shared risk, shared controls and mutual dependence. Involves joint marketing, sales, distribution, production, design collaboration, R&D, development of new technologies or products Firms largely pursue the following action plans in quest for competitive advantage namely: a. Build a global presence b. Create resource capabilities that help open new market opportunities arising out of inventing new technologies While pursuing such initiatives even the most progressive firms find gaps in their skills and resources capabilities that make them competitively vulnerable. The fastest way to bridge such gaps is to form strategic alliances with other firms having such resources and collaborating for mutual benefit rather than go in for costly and time consuming process of internal creation Definition: It is a collaborative partnership where 2 or more companies join forces in select focus areas to achieve a mutually beneficial strategic outcome Companies like TATA and Ranbaxy even believe in equity investment and technology know how partnerships with suppliers since suppliers are viewed as partners in progress, similarly Microsoft has many alliance partners especially amongst software developer firms. 5 factors make a strategic alliance i. Critical to the Companies achievement of an important objective ii. Helps build, sustain, or enhance core competence or a competitive advantage iii. Block a competitive threat iv. Helps open important new market opportunities v. Mitigates a significant risk to a co’s business The best alliance formed are highly selective and focused on specific value chain creation activities with intent on obtaining a special mutually beneficial competitive outcome SCA emerges if the combined resource capabilities give a force multiplier edge effect over competition

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Areas of strategic alliance could be: 1. Sharing of technology and new product development ; e.g. Fiat – Peugeot have got excellent diesel engine across the world technology is got from them 2. Manufacturing expertise, sharing of new competencies developed. 3. Gain access to supply chain of alliance firms 4. Improved access to market and customers through joint distribution efforts 5. Share resources which are non competing and have the same cost platforms. E.g. Volkswagen and Porsche – gasoline electric hybrid engine Alliances open up learning opportunities that help partner leverage their own resource strengths. The stability of a strategic alliance is dependent on how well partner work together and build advantage through their commitment to the alliance. E.g. PC industry – diff. Cos. diff parts, diff countries UA, AA, CO, NW, Delta formed Orbitz to compete Expedia and Travelocity Accenture – SAP, Oracle, Siebel, BEA

4) Mergers & Acquisitions
When alliances and partnerships do not go for enough in providing a company access to a desirable resource capability, ownership becomes a more viable route, which finally allows for actual integration of resources and processes. Merger is pooling of organizations having similar resource strengths joining hands to form a new company. Often with a new name with varying degrees of ownership depending on stake holding. E.g.. Sandoz and Ciba – now called Novartis across the world Daimler – Chrysler Brook Bond and Lipton merged to become Brooke bond India later taken over by HUL Acquisition is when a strong firm, down out player in the industry becomes the acquiring firm which outright purchases the operations of the weak firm i.e. the acquired firm. Principally, though mergers & acquisitions are a parallel process, it may differ in terms of engagement, ownership levels, management control and financials. However, the objective remains the same i.e. the quest to fill a resource vulnerability gap and in turn attain SCA.

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Mergers and Acquisitions are defined by the following Strategic Objectives: 1. It often helps to stop 2 dominant firms from fighting each other globally and at some point joining hands into a single firm can create a simple large market share which can be used to marginalize the rest of competition. 2. Combined resource effectiveness will result in scale and reduce cost per unit. Unprofitable, vulnerable units available with the single company can also be closed to cut losses 3. Increased Geographic area coverage and quick foothold into new markets and into new segments that the single companied did not have. E.g. Diameter Chrysler got a foothold into S.E. Asian market. It was a no rising situation for Chrysler as it got entry into these markets and they did not fight each other. 4. Expand firms business into new categories. E.g. PepsiCo food world market with Quaker Oats and Gatorade – Drinks sports. Getting into Health Foods. Oats was a breakfast category. Capability to create verities and get into cereals. In sports drinks get into other drinks. 5. To gain access to new technologies without investing in internal R & D and establish presence in newer and emerging markets. E.g.. Intel takeover at least 300 small companies across globe to enhance its service delivery platform to broaden its technology delivery capabilities. Hence the main objective of a mergers and acquisition is for a firm to be able to fill a resource gap capability instantly then seeking it from the acquired firm.

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Short Notes
1) Horizontal Integration Strategy –
Definition – The firm extends its competitive operating scope within the same industry that it currently participates in. It may involve expanding this firm’s activities backward into the sources of supply or forward directed towards value chain activities on end users. The extent of integration full v/s partial will be governed by a) Criticality of activity in the final value delivery to the customer. b) If there is a substantial margin to be saved which currently rests with the supplier. In the final outcome the levels of integration should help strengthen the firm’s competitive position in terms of cost savings and materially enhance a firm’s technical capabilities and resource strengths.

Integrating forward will reduce the bargaining power of distributors and agents and margins afforded to them would be a cost savings to the company. Disadvantages – 1) It increases capital expenditure and hence increased risk of doing business. 2) In fast paced high innovation industries, such investments can become fast obsolete. 3) Outsourcing generally proves cheaper particularly for non core activities and firm will need to justify cost savings vis-à-vis investment in integration. 4) Horizontal Integration can create issues related to matching capacities between output and input if each activity. E.g.. Automobile co. buying an ancillary company which does not match its output capacity.

2) Vertical Integration –
It is when the firms seek to serve more and broader segments of consumers with highly differentiated customized or benefit areas of that segments. E.g.. VIP went in Aristo in the Lower segment. Choose is go for a different segment and create an instant foothold into that segment.

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3) Outsourcing strategies –
Definition – The firm chooses to handout a non core value chain activities which it is performing at a relative higher cost to a third party which in turn allows the firm – a) Guaranteed cost savings b) Scope to concentrate on central value chain activities. c) Even in Central value delivery areas line for expansion. In fuel delivery systems in Automobiles most industries do not possess internal capabilities.

Basis for this strategy. – 1. The third party has proven expertise at performing such activities better at a lower cost per unit. 2. Activity outsourced is not very critical to the firm’s final value delivery process. E.g. Automobile Industry – Rubber Parts, Non Core Parts are outsourced. 3. It reduces the firm’s risks and exposures to market obsolesce. (Change in Technology) e.g. CRT Television – Plasma – LCD – LED = Buyer Preferences. 4. It improves company’s time to market and flexibility.

4) Offensive Strategy – (Rewrite the Rules of the business)
1. It is a basis for creating a Sustainable Competitive advantage arising out of initiatives hat have yielded the firm a distinctive cost advantage, differentiation advantage / resource / capability advantage. 2. Offensive strategies are aimed at dislodging a favourable market position of a rival 3. The time required to create that edge will depend on the firm’s internal capabilities as well as the nature of competition Eg: Toyota is capable to transfer their technology across the world in a very short time. 4. The offensive move undertaken should ideally build a quick advantage over a competition, the longer it takes, competition will attempt to neutralise the advantage. 5. Competitors will respond to neutralise a firm’s advantage hence the firm should have a follow on strategy to defend the newly acquired competitive advantage.

Types of offensive strategies: 1. Initiatives undertaken to match or exceed competitors strengths in any of the following ways: a) Offer equally good quality product at lower price, such strategy achieves the offsets of the price cuts. b) Achieve a cost advantage first thus scale for good quality products and then cut price. This can be pursued by 1st mover advantage. Notes Compiled by: Students of PTM Batch 07-10| 48

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c) Leap frog is the next generation products using technology that makes rivals products obsolete. Company in advance started serving the latent needs. When other companies started serving the current needs. Innovation and early adopts are the early buyers i.e. 16% of the total population of buyers. 2. a) Capitalise on Competitors weakness: Attach rivals products that capitalise in quality, performance and features. b) Pursue customer acquisition thus aggressive advantage and communication. c) Pursue a new segment of buyers where the rival firm is weak. E.g. Nirma attached the lower end segment. HUL had to make a product to compare in this segment. 3. Simultaneous initiatives on multiple fronts. a) Aims to create a multi faceted offensive on the following fronts mainly : i) ii) iii) Price SOV Highly differentiated features or extended levels of promotion across geographies.

E.g. McDonalds has different products for India based on Indian Culture (Beef, Pork and Oil Used) Instead of snacks positioned as meal, fine dinning restaurant. b) Such campaigns on multiple fronts can force rivals to adopt defence strategies. 4. It is known as the encirclement strategy. a) Do not take the competition head on. Create products in the need gap left out by the rivals. e.g. Santro was used to encircle the Zen differentiated variants. Maruti had to then come out with Wagon R. b) Introduce new technologies – leap frog and overwrite the rules of the industry at times making the strategic business fit of the industry obsolete for e.g. Digital Camera – film Companies – Kodak, Fuji. Launch initiatives to build a strong presence in geographic areas. Where competition is weak, in recent times, Big Bazaar has gone to tier III cities, small towns, whereas, organised players are concentrating on big cities.

c)

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Create new products and hence new segments that satisfy niche buyer’s needs e.g. Harley Davidson.

5. Guerrillas Offensive (Plays on inherent strengths [do not come out in open]) a) Suited for small regional players who cannot attach national leaders du to lack of resources e.g. Vadilal It uses focused hit and run policy but within a confirmed geographic area. For eg. Price cuts within state, free goods, increased margins to distributors, increased local advantage and promotion.

b)

6. Pre-emptive strikes : a) Proactive moving to attain an advantageous and dominating position over rivals which cannot be duplicated easily. For e.g.: i. ii. iii. iv. Location advantage Exclusive franchising arrangements. Exclusive arrangements with distribution and logistics provide to drive down costs. Leap frogging ?

Who do you choose to attach – Choosing rivals to attach

1) Market leaders – E.g. Nirma Attach HUL in regional location. 2) Runner up and Follower up firms. 3) Local and regional firms 4) Financially weak firms who are keen to exit the business.

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5) Defensive Strategy:
1) All firms in the competitive environment all susceptible to attach from rival firms. 2) After achieving dominance/ competitive advantage, sustainability becomes on issue as rivals try to recover lost ground. 3) As follow on or a defensive strategy reduces the of that attach or else reduces the impact of such as attach or at times discourages the rival firms from attaching. Types of defensive strategy: 1) Leap Frogging 2) Add new features, new models, increase the product line and depth, fill in all new need gaps and benefit areas to prevent encirclement. 3) Create economy price points to cater to the lower segments to prevent attacks on a price war fronts. 4) Increase the levels of service, after sales service, warranties, guarantees to prevent customer from switching.

5) Increase the levels of promotional input e.g. trade promotions, cross promotions, free goods. 6) Give better margins to the dealers.

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Competing in foreign markets
1) Why to enter foreign markets i. ii. iii. iv. v. To gain access to new geographics since the home country is saturated. To acquire more customers, revenues, increase profits from operating in multiple countries. To enhance scale and reduce cost per unit thus increasing firms competition ability. Leverage the firm’s core competencies into a position of a competitive advantage in domestic and international markets. To spread the business of a simple invention over a large consumer base thus deviating dependencies on home country.

P – Political – Government, Stability, Regulations, Policies, Political Governance, Laws can be enforced, Red tapism. E- Economy – GDP growth @ , banking system, Currency, Standard of living, Per Capita Income, taxation, spending capacity, Inclusive Growth. S – Socio cultural – Local ethics taken care e.g. McDonalds, triumph ladies under garments, social fabric, Moral fabric should be understood, localisation is very important. Need to understand local choices culture, taste e.g. Papad, Pickle E.g. Ivory soap wouldn’t work in India because of no smell. T – Technology – E.g. Toyota brought Quabes which was outdated globally, with competition growing up they had to bring in Innova.

This is to be done for structural attractiveness of a country.

2) Strategic options to enter into new markets 1. Do I need to go Global 2. MNC’s. Global is better economies of scale. MNCs will have to have separate strategic fit for each country. MNC :Low cost functions would be advantageous Currency Fluctuations Skilled workforce required in each country Notes Compiled by: Students of PTM Batch 07-10| 52

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Favourable Govt Policies required. 1. Vocational advantage eg. Brazil , India (BRIC countries) 2. Forex fluctuations :- Appreciating local currency against global currency would reduce the MNC’s cost advantage. 3. Increased per capita income, increased inflation would reduce cost advantage in such a nation. 4. A shift in foreign policy like shifts in foreign direct investments would nullify home cost advantage. 3) Features of Global competition 1. Prices & competitive conditions across geographic locations are strongly linked. 2. The same group of companies compete across geographical locations around the globe for leadership status eg. Samsung , Sony 3. Resource capabilities and competitive advantage built in the home base can be transferred and supplemented by growing operations in other countries, collectively amounting to a firm’s Global competitive advantage. 4. Firm’s lack of competitive advantage in one country can adversely affect its business in other countries. Eg. Auto industry outsourced to India , if this goes bad, it impacts the parent country. Eg:- Automobiles , Aircrafts , Xerox machines , Consumer durables , watches, digital cameras, are some examples of global competition.

4) Features of MNC:1. Competition, competitive forces vary from country to country. 2. Buyers in different countries get attached to different attribute sets, features or benefits in the product , hence making product customization mandatory. 3. Values, lifestyle , culture, consumer behaviour , customs, traditions, Language , attitudes , perceptions and beliefs differ from region to region eg:- Apparels / Fashion goods , Home and personal care products , Ready to eat foods like Lays , in different flavours. 4. In MNC , firms competed for national honours from country to country and success in one country does not signal the abilities for success in another country. 5. In MNC strategy , the power of company’s strategy and resource capabilities developed in one country need not enhance it’s competitiveness in another country. 6. Competitive advantage, if secured in one country is confined to that country only & the strategic business fit cannot be transferred to another country of operation. Eg:- Banking is one segment , Insurance is another, Television network , FMCG products , Hotel industry eg. Marriott. 7. As the category matures , product tends to move in the maturity stage of the PLC , then consumer tastes start to converge across the world , in certain common areas and hence the case forms where an MNC player can integrate his product towards a global platform and sell the same product across countries yet keeping certain aspects, the advertising and promotion customised based on local cultural differences.

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STRATEGIES TO ENTER FOREIGN MARKETS
1) EXPORT STRATEGY
i) Maintain the home country or any other low cost production base as hub and exports goods to the foreign markets using either co owned or foreign controlled forward distribution channel. It is an excellent initial strategy for a new player to test market a new concept in a new area and formulate the future business strategy of the firm. It is adopted by firms who have limited access and understanding of the foreign market and do not have enough volumes to justify investments. It is a low cost entry strategy and is sustainable provided there is an advantage arising out of location and low cost. E.g. Hyundai has made India as hub since of low cost, transportation, production. Etc. Export strategy will become non sustainable if :a) the mfg cost at the home location is high b) Cost of shipping increases with the distance. c) Exchange rate fluctuations make the home base loose the cost advantage.

ii)

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2) Licensing strategy:
----tech -----money Expertise in business process

Local operations, knowledge Pays Royalty as a % of sales usually 3-5% i) Dominant global firm transfers rights of proprietary technology / proven expertise to a renowned national player in a developed country.

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ii) The patented product firm has technical know how but limited capabilities and intent to enter new geographic areas iii) Licensing avoids the risk of investing in a country whose business dynamics is unfamiliar to the patented firm, political unstable, economically unstable, risky proposition. iv) The patent firm generates income from royalty. E.g. Pharmacy firms and software firms are 2 big giants here. Disadvantages Handing out proprietary technology with lower or no control over its forward usage can provide challenge to the patented firm.

3) Franchising
Best suited for service and retail industry. Franchiser has tried and tested model, i.e. proven across multiple geographies. Franchisee possesses local operational knowledge and local infrastructure to do business. (Bears most of costs and risks) Franchisor transfers business knowledge and know how, creates quality standards and trains local resources in conducting the business effectively. The foreign franchisor may modify product or service delivery if it deems fit, and hence maintains quality and control. E.g. Mc Donald’s, Pizza Hut, Marriot etc Payment is Royalty.

4) Multi Country strategy or Global strategy
1. If customer segments in different countries demand different features, benefits advantages, from a product category, with a great degree of customization then the firm should adopt a MC Strategy. 2. However if the product specification demanded by the end user does not largely differ then the firm may pursue Global strategy. 3. The nature of rivalry in each nation will be typical to that confined area, in terms of types of rivals, and the extent of competitive moves. Again this calls for a multi country approach. 4. Whenever the company’s strategic business fit does not suit across border transfer, the firm is best suited for multi Country Competition. Notes Compiled by: Students of PTM Batch 07-10| 55

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STRATEGIES TO ACHIEVE COMPETITIVE ADVANTAGE IN FOREIGN MARKETS
1) Using Location advantage. i. Use Ltd low cost advantages location having a distinct geography advantage. E.g. Nike use china and Korea for mass producing its shoes for supply across the world while a PC Manufacturer would prefer a Taiwan as a low cost base where intellectual capabilities specific to the industry are available. ii. Build advantage out of scale i.e. to create large centralized resources in specific low cost locations and utilize them to distribute products and services across the globe. E.g. Pantene shampoo earlier made in Malaysia now being made in India. (Scales of Economy) Learning curve and experience effects particularly around the cost advantage is also confined to the home base location. They should concentrate on locations that have superior resource capabilities like Manpower, R & D Infrastructure (markets ports, ware housing facilities) e.g. Jebel Ali- Dubai, Singapore ports that has more turnaround time.

iii. iv.

2) Leverage Core competencies and resource strengths to compete effectively in new countries thus cross border transfers and create a dominating presence in the new country. E.g. Wal-Mart uses the proven supply chain everywhere that gives them the cost advantage. They create regional Hubs. 3) Use Cross border co-ordination to build SCA e.g. Whirlpool has created 14 low cost home bases across the world which delivers to 170 countries & they have internet as an IT platform globally to transfer their product innovation, production process and best practices across regions quickly. Hence production schedules can be co-ordinate globally; shipments can be made from different centers, often to nullify the change in Govt. Policy, exchange rate fluctuations or stock build ups. 4) Using Cross market subsidies to wage strategic offensive. Support competitive moves in a foreign market with resources and profits delivered from a developed and a profitable market (profit Sanctuary). The cash support received by the developing market can be used to finance advertising and promotions, price wars and product development. 5) Strategic Alliances and Joint ventures in foreign markets: These are also an entry method into foreign market. JV- difference of an ownership. There has to be a dominating partner who has got the management control. Strategic alliance is where one or more partners share resources and capabilities in certain niche areas of the value chain with neither company having stake or management control in the other.

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In the case of joint ventures one or more partners come together and share all resource capabilities across the value chain often altering the name of the Merged Firm. The new entity generally has a major stakeholder as a dominant partner who exercises management control.

Tailoring strategies to fit specific Industry situation and/ or company situations.
1. Strategies in emerging market: (Introductory and growth stage of the PLC) Industry in formative stage e.g. VOIP, telecom, Organic foods e banking hybrid cars etc Features of this situation: i. ii. Market is new and hence business forecasting is speculative as is the probability of success. Access to technology is difficult for other rivals if the product is patent. It is well known that monopolies are never conducive to growing new markets and are often a decisive to customer welfare. E.g. MTNL service improved after other player came. Market forces are particularly competing technologies fair competition and the level playing field tends to broaden the scope of the industry and helps give the best in the category to the customers. Entry barriers often pose a challenge for the establishing a level playing field. Extent of experience of learning curve effect is low. How to influence 1st time buyer (early adapters) overcome their resistance and establish a category poses challenge. Rapid rates of innovation and technology substitution can erode the inventor’s first mover advantage. Creation of supply chain effectiveness in securing the raw materials. The firm’s financial sustainability till the sales and revenue takes off.

iii.

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Have wide latitude in experimenting with different strategic approaches since lack of established rules. Capitalize inventors 1st mover advantage / pioneering status and quickly establish product and technical superiority with either a focused or broad differentiation strategy. Get the product 1st time right and formulate improvements quickly before competition finds up. Form strategies alliance with critical suppliers, the arrangement should be such that you block out access to rivals. Pursue new customer groups, (e.g. HORLICKS 8-15, junior –infants 4-9 & women HORLICKS was extended into the middle aged lady segment) new user application areas (e.g. Kelloggrepositioned from breakfast to and time snacks) and new geographic markets rapidly to stay ahead of the competition. As the PLC progress towards maturity firms in pursuit of customer acquisitions should reduce entry barriers for new customers and create ownership experience for the existing ones to create brand loyalty. E.g. Sachets are very low cost entry barriers instead of big shampoo bottles. Low cost entry of trial. Use price cuts or lower price points to attract the next level of Buyers (early maturity or late maturity) 1st movers and early leaders (2nd or 3rd Players) must constantly strive to strengthen resource capabilities to sustain advantage to ward off the threat off cash rich late entrants or aspiring industry leaders from parallel sectors. All strategies pursued must be aimed art long term sustainability often short term profitability.

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Strategic Changes in fast / rapid / high velocity / turbulent Market:
Market growth is 2 digits, organization should be more or equal to market growth otherwise it is erosion of market or losing of ground.

Features of this type of Markets: 1. 2. 3. 4. It is characterized by short PLC’s high rates of technology changes and high rates of Innovation. In such categories consumers preferences evolves very quickly thus raising the rate of obsolescence. There is a constant threat of the entry of new rivals generally with imitations or substitutes. This industry / category see the rivals frequently challenging each other with competitive moves to gain industry dominance. Often, a combination of above parameters is undertaken by more than 1 Rivals in the industry. E.g. Pharmaceutical, Social media, networking sites, Video, gaming telecom PC etc

Options available: 1. A firm may choose to be reactive to change by choosing to respond appropriately to rivals moves with a cost / differentiation advantage. 2. Firm can anticipate change, plan and prepare to react as and when rivals launch offensives. 3. Proactively lead in the change in the category by using offensive tactics aimed at dominating the category or even changing the underlying rules of the business generally through leapfrogging. (First movers Advantage) Strategic Options: 1. Invest heavily in R & D, drive technology & innovation as the cornerstone of the business i.e. be a driver of change. 2. Develop quick response capabilities to counter rival moves by being able to shift resources and competencies across geographies, create new capabilities and have a short time to market. 3. Develop strategic tie ups with the suppliers & forward channel partners in critical areas particularly in and around technical expertise, in order to block out access to competition. 4. Expand company geographic coverage. 5. Initiate fresh action initiatives proactively even when rivals are silent. 6. Keep companies products and services modern and contemporary & reinvent the same well before obsolescence or whenever consumer expectations may change. Conclusion: Hence, in fast paced markets critical success factors include technological expertise, quick response times, degree of innovation & flexibility and adaptability of the strategic business fit, to meet current and future opportunities.

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Strategies for mature industries
Features of the market: 1) Product Life Cycle: (PLC)

A category evolves through a Life cycle: e.g... Product Lifebuoy, Company HUL, category –toilet soap. 1st Stage - At Introduction Stage People going for new product - 3.5% snobs, 13.5 % EPs – hear the review Also here as it is usually an innovation, there is monopoly, no advertising and promotion. Pricing – use skimming, here profits are negative and you are recovering product cost. No product revenue. 2nd stage - Growth Stage Oligopoly – diff. suppliers, diff. product pricing, product variance – 5, 10, 15 cos. And as competition rises the price decreases. Benefit areas grow, brand and line extensions occur. Here you are creating penetration. Functions of penetration are availability, affordability, awareness is created – usage happens. Therefore if the penetration becomes 100%, all consumers are targeted, and there is saturation in the market. Growth @ is the same as CAGR. Here is when the market shares have stabilized. E.g... Telecom.

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3rd Saturation (Maturity Phase) Is when growth has stabilized and there is no penetration, cash generated is much higher, no price cuts, even if competition reduces prices, if the market share is not eroding. Here you lower advertising but increase your promotions. 4th Decline Only if customer preferences change or obsolescence takes place. E.g. lifebuoy – earlier mass market. Alternative, try repositioning – “for who”, “for what” e.g... Lifebuoy as an antigerm for kids.

Features of Mature Markets: 1. Growth at compounded has slowed down equal to growth of population of the country, or the economy. 2. Market Share distribution is clear and customers are generally brand loyal. 3. All the potential buyers have access to the industry’s products and services since penetration is near 100% 4. Growth option include a. Snatching business from competition thru’ promotion b. Last round of untapped buyers from the late majority or laggards. 5. Bargaining power of the buyers increase, therefore more options available in the market. 6. Industry rivalry may increase as growth rate slows, convert competitor customers to yours. 7. Greater emphasis is placed on service, driving down costs by reaching levels of scale and increasing ownership experience (using guarantees, warranties, in all creating an ownership experience – that is trouble free usage) 8. Rate of innovation decreases as new application areas are difficult to come by. 9. Industry profitability may be lower due to competitive pressures within the industry. 10. Merger and Acquisitions takes place among former rivals and weak players may get taken over.

Strategic options: 1) Cut down non-profitable and non-performing product models which will not significantly alter the firm’s competitive position. 2) Withdraw operations from non performing, non contributing geographical areas. 3) Place emphasis on value chain innovation thus a) Lowering cost of each activity b) Improving product and service delivery c) Improving design layouts d) Integrating it as far as possible e) Reducing new design to market cycle time f) Outsourcing high cost activities and non core functions g) Use of internet as a distribution or purchase model Notes Compiled by: Students of PTM Batch 07-10| 61

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4) Increase the purchase volume of the existing using promotions, broaden the usage areas. E.g.: Kellogg snacks versus Maggie snacks; 25% more in bottled water; provide complementary and ancillary services; convenience stores have added video rentals, PCOs, ATM service. 5) Acquire Regional players. 6) Enter International markets.

Conclusion: The biggest mistake that most firms make in mature markets is to lose the original Focus and steer a middle course armed at blending low cost and differentiation, hence Compromising the value needs of the target segment. Such moves can leave the firm “stuck in the middle” with no clear focus or Commitment towards a generic strategy it initially adopted and it slides down into an Average “me too” image in terms of perception amongst its buyers thus neutralizing its Advantage. E.g.: Zodiac - never compromises on quality even if sales are low Mega mart- Around sales happens here

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Strategies in declining or stagnant industries
Market features: 1) Many firms operate in industries where demand has stagnated or started to decline. 2) Firms generally harvest cash from such businesses and even think of exiting such businesses as a part of end game strategy. 3) However a strong and committed player can achieve satisfactory performance through clever strategy even in declining markets. 4) It is about encashing all available opportunities into profitable ventures. Cash flow and RoI makes more sense for the business than growth per se. 5) Grabbing market share from a non focused competition and an acquisition of weak firms makes for viable strategic options. Strategic options include: 1) Pursue a focused strategy by seeking the most attractive and profitable segment from the many niches that the market offers and do a first rate job in meeting buyer expectations. E.g.: Airline demand never declines, demand shifts into new usage area. 2) Stress on differentiation – creation of extra value based on product modification giving rise to enhanced quality and inducing buyers to trade upwards. This can be done by introducing one or more value added features that did not exist earlier. E.g.: Garnier - Shampoo and oil sold together. Many firms attempt to move up the value chain in terms of product offering. E.g.: Tetra pack milk and place (specific packs for modern trade super markets). 3) Drive down costs to its lowest by utilizing full experience or learning curve effects plus the benefits of scale which will affect the bottom-line. The above 3 strategies are part of Porter’s generic strategies and are not mutually Exclusive. Common mistakes: 1) Getting trapped in a war of attrition. 2) During too much of the harvested cash out of the business leaving it cashless to fight competition. 3) Spending to much on was hog brands with low ROI.

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Fragmented Industries
Definition: A category populated with many often 100s of midsize small firm often organized and disorganized that compete as a rivals in the industry with no player really acquiring a substantial market share, competitive advantage on industry leadership. E.g.: Book publishing industry, real estate, banking, printing industry, Transportation, Restaurant chain, furniture industry, paper and paper board, packaged water, health care and salt.

Reason for market fragmentation 1. The market demand is very extensive the market size is very large & hence there is room for multiple players to co-exist simultaneously & cater to the wide variety of buyers needs across geographic location. 2. Such categories have low entry and exit barriers. 3. In such a category scale often scale doesn’t amount to any kind of advantage hence smaller and regional player can compete on equal footing. 4. Often buyer demand small lot of custom and highly differentiated product offering & hence volume are not large enough to support the investment on critical value chain that may yield into competitive advantage. 5. In category like apparels, the market for the product is often global & companies face similar competitive pressure in all countries. 6. Too many competitive technology &business process give rise to multiple product variance &customers have ample choice (high bargaining power) to switch e.g.: restaurant and fast food quick service. 7. Industry is too young & nascent aspirant with many aspiring contenders, yet no firm has any special resource advantage to capitalize on 8. Low entry barrier ensure the threat of new entrants and threat of substitutes is always high. 9. Hence strategy to compete can arise out of a) Serving a broad or focused target Broad =HLL, Focused=Johnson & Johnson b) Pursue a low cost or niche differentiation strategy.

Strategic option 1) Create standard operating procedure to identify with levels of customer expectations. E.g.: Quick service restaurants, walmart retails mart. Croma Airline Firms operating in the fragmented industries particularly service will look to standardize the value delivery across geographic often globally. 2) Be a low cost operator particular when the category is price sensitive or the industry has intense rivalry. 3) Firms can offer economy products having no frills, keep overhead low & dedicated their operation to create cost effectiveness, saving for which can be used for price wars. Notes Compiled by: Students of PTM Batch 07-10| 64

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4) Pursue focused differentiation strategy based on a. Product type- niche Harley Davidson, Hummer, Porsche Focused based on: Customer type: Where is the need of the customer? Customer becomes cornerstone of the strategy. E.g.: bargain customer, luxury/status brands (Rolex, omega), Fine dining restaurants. 5) Firm may pursue focused based on geographic & attempt to dominate local/regional territories (Guerilla companies). 6) Firm in fragmented industries need to employ strategic degree of freedom i.e. to employ one or more of the above option concurrently to achieve advantage.

Strategy of the companies pursuing rapid growth: It is tailored for firm who are focused to achieve above average industry growth rate in term of revenue & profitability YOY. Essential component of portfolio strategy will include:a) Strategy for short term: will be company fortify and extend the company big position into all existing category & segment that the industry series. This will typically include adding new product lines, extending the brand, entering new geographic territories & launching offensive strategy aimed at grabbing market share by capitalizing opportunities in to growth areas b) Medium Jump initiatives 3-5 years horizons aims to leverage the existing resources & compatibilities to extra new business that promise growth potentials c) Long range planning – Strategic initiatives to show the seeds for the business of the future by the aggressive pursing R&D, initiating the startup ventures & looking to commercialize the new product ideas. Conclusion: Most times restrict their activities to option (a) & do not aggressively pursue options (b) & (c). Firms need to shine the right balance & priorities the things of 3 options. Risk factor is pursuing the option (b) & (c) are high. Since it stays away from the firms core competencies & big for with a firm ending up entering a big it was not switched to mixture of 3 increases the odd of & provide protection against adversity in present or newly entered by.

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Strategy for Industry Leaders
Powerful & stronger than average industry players who have a successful & a proven strategy out Porter’s generic model which resulted in SCA, Industry leadership & dominance. E.g.: Starbucks in coffee, Microsoft in s/w, MacDonald’s in quick service restaurant service category, Noha in Mogles, Genttle in Ragos, HP in printers, Levis in Denim, Aruagon in E-tailing, E-bay – online Auction, Walmart – every day low pricing. Key concern areas would be to fortify leadership & defend from attackers Strategic options include: 1. Offensive strategy: a) Leaders generally stay in the offensive to capitalize 1st mover advantage retaining constantly proactive with high rates of innovation. b) It hence forces rivals to always be in the catch up mode by constantly introducing new technologies such firms believes that being offensive in the best form of defense. c) Leader firm constantly strives to create new benchmark, new product ideas, offer more attractive & differentiate attributes with high service levels at a lower cost than the rest of the industry. d) Include initiative to expand the category in terms of the usage (e.g.: Kellogg – breakfast -> snacks -> wt. loss , Mobile coke 500ml,250 ml, can party pack) a. New segments (e.g.: Horlicks – children, Jr. Horlicks, Women Horlicks) b. New markets (New geographic) 2. Fortify in defense strategy a) Hold on to current market share, strengthen the business position by capitalizing first mover advantage & sustain competitive advantage. b) Raised operating levels / value delivery by investing in the areas the customer service, advertising, promotions & product innovations c) Introduce more products & brands in multiple benefits areas at multiple price points to serve broad customer segment to present encirclement by competition d) Make it harder for a customer to switch by value adding the augmented product in the areas of the personalized service & reorganization ,offering loyalty programs, offering extended warrantees & guarantees, offering exchanges & upgrades e) Keep the price vs. quality ratio attractive; add capacities to discourage new entrants if there is an anticipated future demand. f) Block out competition a. Applying for the patents & IPR b. Renegotiate contractual terms for exclusivity with supply chain partners & forward channel partners Notes Compiled by: Students of PTM Batch 07-10| 66

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3. Big Daddy Strategy OR Muscle flexing strategy a) Leaders generally react sharply to offensive move by threading industry player by matching or exceeding the price cut, launching aggressively counter initiation in advertising & promotions, offering better deals & bargains, increasing distribution margins flattering an enrichment, last but not the list leap frogging b) Resort to arm twisting if a leadership power does exits. E.g.: Reliance does this in finished goods area, create a block for importing by the supplier influence the government E.g.: Coke, Pepsi, Cadbury & Schweppes.

Strategy for Runner up firms
1) Runner up firms are market challengers generally not the pioneering firms, Cash rich industry leaders generally known as “2nd tier firms “ 2) They strive for increased market share in the quest for competitive Advantage & Industry Leadership. 3) They however lack in some firm resource capabilities (Scale , technology, Scales & marketing expertise & finance ) 4) Lower Brand Equity. Strategic approaches:1. Offensive Strategy:i. You cannot beat the leader thru a try harder strategy or an invitation process. Firm’s needs to create its own capabilities to counter attack Leaders distinctive short set is apart from rivals & draw buyers attention aspiring challenge needs to strategy. To aim at build SCA & eliminate imp competitive disadvantages. Never take the leader lead on with an initiative strategy. ii. Introduce next generation technology or break through new product ideas by introducing a better product than the first mover with highly differentiated attributes. iii. Continuously built a favorable perception amongst targeted consumers in terms of Brand Image & reputation through appropriate advertising & communication. Adapt to evolving market conditions & changing consumer preferences over the large player’s who are generally known to be slow in reacting the change. Forge strategic alliance & rework/renegotiate contracts with supply chain & distributers. Notes Compiled by: Students of PTM Batch 07-10| 67

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Drive down costs & use cost advantage to win consumers through price discounting. Adopt an extra value differentiated strategy based on quality /technological superiority increase service levels & high rate of innovation.

Conclusion: - Such offensive Strategies can help challengers nibble away market shares from Leaders.

2. Growth via acquisition:i. Runner up firms can merge with like sized firms or choose to acquire a financially weak regional firm to gain foothold in new customer segments & increased share of market. However after Merger & Acquisition the management should have capabilities to integrate the operations of the new entity & the combined force multiplier effect should create stronger resource capabilities leading to advantage.

3. Vacant Niche Strategy:i. Focused on a specific segment or a need benefit application area i.e. currently vacant since leaders choose to ignore this opportunity. E.g... Colgate variant such as active salt tooth paste Dabur acquiring Balsara for ayurvedic toothpaste room freshener & hygiene products. Air Deccan pioneer in the low cost segments on feeder routes (Non metro) The area or niche selected should represent a profitable business opportunity. Pursue “ A CONCENTRATED SEGMENT SPECIALIST STRATEGY “ were a firm trains its competitive efforts on a very narrow front or just in terms of product design, usage & target segment chosen exp. Johnson & Johnson. Their advantage in superior techno depth, expertise valued highly by customers & capability to beat rivals. Superior product strategy where the firm uses a focused differentiation start by giving the product offering attributes viewed as unique & extra value by customers arising out of superior product quality. Exp: - Raymond as a company pursue this. All value chain activities performed internally & externally are aimed at satisfying the quality conscious customer. E.g.:- Tiffany in Diamond, Bally in Sholes. Distinctive image strategy :- were in a firm adopts a strong positioning stands & hence develops a reputation around a particular value delivery area E.g.: Pricing Walmart, Bigbazar, providing for prestige & quality at lower price points as compared to competition in the same category exp:- Skoda lowest in 10-13 lakh superior service ICICI Bank, 8 to 8 banking. Unique product attributes/innovation (Sony) or creative advertising (Amul) Notes Compiled by: Students of PTM Batch 07-10| 68

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Turn around strategies for critically sick companies / crises ridden co’s
Features of crisis ridden co’s

1) It happens when firms compete in an industry with generic commodity products, low levels of differentiation thus the PLC and as the industry matures they at the best achieve an also ran “me too” status. 2) Such firms manage below average industry profitability and do not posses required resources and capabilities to compete effectively in the industry 3) They are financially weak and have deployed an inefficient competitive strategy often with poor execution capabilities. In a weak economy/ recession and fast changing consumer preferences can further weaken the business position for such firms. 4) All above factors can lead to financial debt due to high cost and low price realization further burdened by excess capacity and inventory. 5) Often such firms adopt overtly aggressive pricing in the quest for scale and market share ignoring profitability at times. They yet get beaten by more focused rival and lack of innovation and in-house R&D is the reason for lack of any kind of credible response.

Strategic Options: 1) Offensive turn around strategy a) Pump in financial resources (CDR – Corporate Dept Restructuring); revamp product line either on a low cost focus or a high differentiated focus in order to appeal to consumers. 2) Fortify and defend : Use variation and alternatives pursued by rival to capture market share form the chosen rival 3) Strategy revision in following acres: i) Revamp all internal operations and revisit cost across the value chain ii) Revisit all functional area strategies iii) Merge or acquire small, weak regional players that compliment the firms strategic business fit. iv) Compete on a narrow front as close as possible to core competences in product line and geographics.

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4) Boost Revenues a) Revenue building options include price cuts, value for money products extending he line giving value added services & increase level of promotions. This will be adopted if the firm pursues focused cost leadership. b) Pursue a focused differentiation strategy improve quality and brand image and serve the quality conscious segment at higher prices 5) Sell off all non-performing assets, non-viable plants, reduce workforce and employ content labour, eliminate wastages & unnecessary frills from the product design that consumer’s don’t perceive as values (Bring in cash) 6) Combination efforts of many of the above point’s turnaround strategies are fraught with danger and high risk & more often than not fail due to lack of financial resources. Conclusion: In case if the turnaround strategies don’t work as part of the end game firm may pursue liquidation as the last resort. Liquidation strategy may be: a) A quick exit by selling off to a stronger rival b) A slow exit after harvesting short term cash flows.

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BCG Portfolio Matrix: Share Growth Matrix
Boston consulting group introduces this matrix to help highly diversified companies engaged in multiple related & unrelated business activities to understand: 1) The competitive business strength of the fir within the various categories that it competes in. 2) Whether the performing businesses are generating surplus cash & whether the cash is required to support the business 3) Identify businesses having weak competitive position to understand future prospects and cash needs Conclusion: Hence the BCG portfolio share growth matrix is a “Financial Tool” which helps a firm identifies future investment needs including the source of surplus funds to the airing businesses which are cash negative & require funds. Highly diversified companies into related & unrelated businesses, restructure the organisations by industry type wherein each business has a standalone independent identity known as SBU or Business Vertical. Each SBU constitutes the firm’s activities in a chosen industry category which has its own cast / profit structure and business dynamics. The business of the SBU is headed by an Industry specialist who receives a one time investment from the parent / holding company for the startup venture & is expected to sustain its business activities from the operating revenues thereafter. Post breakeven the subsidiary SBU continues to fund itself from the internal accruals & after a predetermined period starts paying royalty to the holding company.

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BCG Matrix of Google as a company

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1. STAR: In the introductory and growth stage of PLC the market is characterised by high growth rates and that firm having the largest market share is a structurally attractive industry is known to be a “STAR”. 2. ? or Problem child: Is that firm which is a high growth structurally attractive market has weak competitive business position due to each of industry leadership.

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Strategic Management 3. CASH COW:

Notes by Prof. Sanjayan Nair

Cash cows are those stars that enjoyed market dominance in the fast growth market, which continue to maintain their leadership position as the category matures. Cash Cow enjoys the largest market share, above industry average price realisation and profitability and unlike stars the surplus cash is not required to support the future of the business. It is from cash cows that the company can drain funds for growing problem child/? Who are generally cash –ve but yet competing in structurally attractive industries where customer acquisition is paramount. 4. DOG : Are such firms whose products despite being in the market all the lifecycle have not managed to secure any sizable market share or advantage. They suffer from a weak business position and since we are in the matured stage of PLC where growth has stagnated and market share are defined, it becomes extremely difficult to recover. Hence for dogs unlike cash cows, the market will be structurally unattractive. Problem Child Business Position Industry Attractiveness Comparatively weak Highly Attractive/High growth. STAR Leadership /dominance CASH COW Leadership /dominance DOG Weak

Highly Attractive / attractive/high Rotate and Harvest growth Cash. Afraid to pursue Firm to pursue aggressive aggressive customer customer acquisition. acquisition Growth Growth Mature Maintain all profitable and broad product lines that help firm to achieve leadership.

Unattractive due to lack of business position.

Stage in PCL Product

Mature Narrow down to only profitable and contributing products(Areas of Strengths)

Aggressively Same as pursue a broad Problem Child product life. Strategy broad on line extension.

Price

Selective

price Reactive Price Maintain

Will come to 75

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Strategic Management

Notes by Prof. Sanjayan Nair
cuts. cuts. Prices Maintain cost + pricing. Narrow down to focus on performing geographical areas.

Place

Intense distribution

Advertisement / Aggressive pursue SOV to Promotion acquiring SOV to acquire customer Cash Position Negative and Positive not sufficient to meet the demand of business.

Do it on Withdrawn seasonal reactive advantage

Highly positive

Negative or positive depending on how broadly stretched.

Profit Disposition

N:1, N.A. in fact Profits are Use for N.A. it needs reinvested. future investment. investment a)Receive a)Offensive Investment from strategy cash cow b)Fortify and brands. defend to b)Pursue various maintain offensive leadership strategies to position and gain market advantage. share. a)Maintain leadership position in mature market i.e. defend core business position. a)Operate around areas of strength b)Harvest available cash as part of end game strategy. thus

Future Strategy

b)Rotate and c)Exit Harvest cash _____ c)Rotate basis of investment

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Strategic Management Conclusion: Movement of portfolio

Notes by Prof. Sanjayan Nair

1) Corporate planners need to observe the movement of the responsible businesses vis-à-vis industry with regard to competitive business position. vis 2) To understand which businesses are cash positive and which categories require investments. 3) It helps to identify the cash cows which provide the firm a source of funds for future investment. 4) Ideally is high growth markets firms would want therein ‘?’ to move towards leadership and become “stars” which in turn will become “Cash cows” as mature markets. BCG Matrix of Maruti Suzuki

• SWIFT • SWIFT DESIRE • ZEN ESTILO
2 STAR

• GRAND VITARA • A STAR
1 QUESTION MARK

• ALTO • WAGNOR • Maruti 800
3. COW

• Baleno • Omini • Versa
4.DOG

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Diversification
Definition: Most companies have their roots in a simple industry which form the substantial portion of the revenue and profits Diversification becomes unattractive strategy when a company runs out of the profitable growth opportunities in its core business The purpose of diversification is to build and enhance share holder value and to create this, the diversified company must enter into big areas which add synergies under a common management as compared to a standalone company. Objectives: 1. Add value to existing or new customer base. 2. Augment company advantage by broadening present businesses. 3. Transfer existing capabilities to new businesses. 4. Save in costs by integrating cross business strategy fits. The attempt should be to create synergy and fits across core value chain activities like R&D, technology, supply chain, manufacturing and distribution. Economies of Scope: Are cost reduction that arise from a firm operating in multiple business environment, related and unrelated, the economies of which can be leveraged across the strategic fits in the value chain. Types of Diversification: 1) Introduction related areas Where there is a matching value chain and there exists a comparatively valuable relationship which can be leveraged in various areas. Hence, Standalone firm looks to add business whose value chain possess a similar strategic fits to that of the existing business. Hence : a) Firm can transfer expertise and technology for one business to another. b) Combine activities of each business into a single operation identity often at lower cost. c) Share a common mother branding.

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TATA MOTORS

Mother Brand

LCV’s B2C

Buses B2B

Commodity Vehicles / Trucks B2B

Target audience is different. Cost/Profit structure is different. (Baby care Products)

Jonson & Jonson

Surgical Equipment and hospital products

Sanitary Napkins Personal Care Skin care lotions Neutrogena

Jaipur Foot Band Aids, First Aids Prescription Drugs and Over the counter products Prosthetic & Medical Device (Surgical Equipments)

Plastic from this industry is used for lenses

Acuvue Contact Lenses

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PEPSICO

Quaker Oats & B/F Cereals

Baked Snacks Aliva Frito Lays, First acquired Uncle Chips Lipton Iced Tea Juices (Supply stores are different but distribution is same) Bottled Water Sport Drinks GALTORADE

Soft Drinks d) Create enhanced resource strength and capabilities through related diversification i.e. transferable. Leveraging of cross business strategic fit : 1. R&D and technology : Diversifying into businesses where there is potential for sharing common technology and its derivatives result in potential time and cost savings in R & D and product development. 2. Supply chain : Can perform better at lower cost if potential exists for transfer of skills in procuring Raw Materials from a common supply chain there by increasing the bargaining power of suppliers to negotiate lower input costs. 3. Manufacturing : Strategy fits in production related activities can give rise to advantage provided diversifying firm can incorporate common integrated designs, quality control systems, standard operating procedures, JIT and training, that can be seamlessly transferred to other businesses. 4. Distribution: Since the product type is longly the same in related diversification, distribution activities can be done at a lower cost by sharing common existing facilities. 5. Sales: Variety of cost savings arises when the same sales force can be used to sell multiple product lines. Advantages: i. Related diversification can lead to huge cost savings whenever two competing value chain can be interpreted to consolidate overall business position. Related diversification is hence an attractive option when the integrated value chain strategic fit is converted in a SCA over rivals.

ii.

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Strategic Management 2) Into unrelated areas:

Notes by Prof. Sanjayan Nair

Certain companies who are cash rich from their existing businesses are willing to diversify into ANY INDUSTRY WITH GOOD PROFIT OPPORTUNITIES. There is no deliberate attempt to seek a strategic resource fit in value chain alignment with existing businesses. The base pre-condition for the unrelated diversification is that the business should be acquired under good financial terms and has a bright future. Such firms aim to acquire companies of following types. a) Those whose assets are undervalued. b) Firms under financial stress. Widely diversified firms serving broad industries in unrelated areas are known as “CONGLOMERATES.” Advantages: 1) Business risk is scattered over diverse industries 2) Resources may be employed in areas that represent the best profit opportunity. 3) Companies de-risk their business and earn stable profits due to diversification i.e. hard times in one industry will be offset by good times in another industry. E.g. ITC, Aditya Birla Group, Larsen and Toubro. Disadvantages: 1) No company advantage arises since the value chain share no cross border strategy fit. 2) Company diversifies into areas and businesses where it has no experience or proven capabilities to succeed. 3) Contribution of related and unrelated diversification: This is when a company’s core business account form nearly 75% of its total revenue earned, the remaining share coming from small related and unrelated businesses. The general strategies for entering new businesses are M&A, Greenfield internal startup and JV’s and alliances. E.G. Suzuki Motor Corporation – 75% ->Bikes and Cars -> Supply chain & Parts.

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Parameters to Judge Diversification Whether diversification is warranted or not is done by the following methods: 1) Industry attractiveness test: Using 5 forces model where in sole criterion should be that the chosen industry must yield good ROI. 2) Cost of entry test: The entry barriers of the cost to entry for the target industry must not be exorbitant or protective to make it in attractive. Since the larger the gestation time to achieve. Breakeven, larger is the risk and hence threat potential to erode profitability. However, structurally attractive industries have been known to be expensive to get into & buying an existing company with strong market entry costs. Hence the cost of entry test can help the firm understand the prospects of profitability and company’s ability to deliver shareholder value. 3) “Better OFF “ Test: Company diversifying into new business must offer potential for firms existing business + the new business in order to perform better. Diversifying firms need to test whether cross strategic fits will enhance the company’s competitive ability in reducing costs, transferring skills and technologies & leveraging combined resource into competitive advantage.

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Strategic Audit
It is an operational framework designed to access whether the firm’s corporate strategy is delivering the desired results. Any strategy that is formulated is generally speculative & the critical risks or success often lies with the external environment which is non controllable. Hence, firms resort to periodic appraisals of the KPI’s & to access performance gaps and their solution as part of the audit outcome. Some organizations do strategic audits as a matter of periodic routine while some forms conduct it when they see negative operating signals. What are the KPIs? 1. Qualitative and Quantitative performance indicators namely a. Market Share b. Net Realisation c. Profit Margins 2. Stock Price & Earning per share 3. Market penetration, launching of new product ideas and the success there of. 4. Extent of value delivery, brand image & perception by consumers. 5. Are the policies & action plans as per the strategy approach appropriate? 6. Does the strategy build company’s strength and resource capabilities adequate enough to gain competitive advantage? 7. Whether the company’s strategy is workable for the future.

Implementation of the audit It aims in understanding whether the strategy employed has helped the company to meet its benchmarked KPI’s. Following Questions need to be asked as the part of the audit. 1. Whether strategy is consistent with the firm’s culture, capabilities, values & ethics. 2. Whether the strategy is structured to achieving stated marketing business objectives. 3. Whether the information systems in the company monitor strategic implementation and provides for real time, business intelligence that helps the firm to fine tune strategy. 4. Whether there is a consensus within the company’s strategic formulation and implementation. 5. Whether there is weight balance in the company’s efforts in monitoring the present & preparing for the future. 6. Whether the strategy deployed is consistent with the actual business priorities of the firm.

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Strategic Management Conclusion:

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It is the best way to address & access a wide array of complex and independent issues that need to be analysed to reap growth and profits fro strategic planning. Firm also need to periodically visit core value chain activities to ensure that technology & processes are contemporary & their costs are an industry benchmark.

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Change Management
Change Management can be diagrammatically represented as

Present State When it happens

Pain

Transient State

Remedy

Desired State

1. Take over Mergers and Acquisition \ Cross border (New Geographic) 2. Retrenchment \ Ethical Downsizing 3. Culture change \ New management 4. Adopting New Technology\ Business Process

Pre- requisites for Change Management 1. Pain – When a critical mass of information is disseminated to employees which breaks the current status quo within organisation 2. Remedy – Certain desirable and accessible actions that solve issues around the current state and move it towards the desired state

Key Issues facing the Management – a) Will the people choose to accept change b) If they don’t should you force change c) Under forced change, will it result in desirable benefits

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Major requirements to affect change? 1. Continuous commitment and involvement of Top Management 2. High Degree of Trust and integrity on the change management agent who drives change 3. Patience in terms of time frame needed to allow benefits of change to be seen in organisation 4. Change is generally an expensive process that needs to be done if current status is even more costly 5. The change driver should understand that introducing change will result in significant disruption in firm’s working and employees lives 6. Change should be consistent with the current culture of the organisation for it to be largely successful.

Change management process. Stage 1: Choosing the target actions i. ii. iii. Identifying the broad areas to change. Select the best available opportunities to communicate that change is required and how it will affect them Communicate to all concerned the intended benefits and gain employees commitment to initiate the process.

Stage 2: Setting realistic goals and timeframes i. ii. iii. Test the feasibility of employees embracing change by initialising the localised area with a focused group of employees. Develop a clear understanding of the future requirements I n terms of resources and capability to adapt change. Develop specific goals and action plans with timeframe and commitment from all shareholders. To achieve change stake.

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Strategic Management Stage 3: Implementation i. ii.

Notes by Prof. Sanjayan Nair

Initiate the plan by involving all those who must change, constantly communicating the need for change and methodology being adopted. Create a clear shift in working patterns through mentoring. Counselling, teaching, and directing methods thought trai8ng and start moulding employees. From transient state towards desired state. Demonstrate the effectiveness of plane and progress towards new state with tangible benefits as proved.

iii.

Stage 4: Review process i. ii. Periodic review during implementation, encourage and support people who are making efforts to change. Define the process based on employee feedback

Stage 5: Rebalance organisation to change state. i. ii. iii. Identify the ripple effects of change on overall organisation in terms and its systems, write down to department and individual levels. Integrate these changes towards new systems and attitude of desired state at individual level Integrate these changes towards the new systems and attitudes of the desired state.

Stage 6: Consolidation i. ii. iii. Audit accomplishment against the original goals. Identify what work and create a tried & tested module out of the same. Share the entire learning process across the organization.

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Acquisition / Takeover Strategies:
Targeted Options 1. Look for company for net operating losses but have strong turnaround prospects. 2. Seek a cashless company, which has not exploited its market potential or has undervalued licensed. 3. Seek an under capitalized company where promoter’s stake low and mount a hostile takeover initiative. 4. Watch out for family run business with no proven successor.

Steps involved in Takeover Process 1. Estimate the degree of over subscription of the stock of the company that you intend to acquire in consultation with primary market brokers. 2. On the basis of this information, apply for a quantum of shares whose allotment exceeds the promoter’s stake. 3. Purchase further shares from the market to increase the holding in the company. 4. Offer shares to be bought out from financial institutions that are looking to exit. 5. Buyout foreign investors and minority NRI stakeholders with an offer of marginal premium. 6. Make an open offer to Indian stakeholders or their portfolio managers by offering suitable premium. 7. Initiate all out stock market purchase on all stock exchanges with maximum publicity.

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Identifying Competition
1) Who is a competitor?
i. A firm that competes in the same industry or Category with identical product & services. E.g. Asian Paints, ICICI. Companies supplying substitutes or duplicates in an allied area can be perceived as indirect competition. Those who Offer Product & Services to the same consumer/ Industry segment. E.g. Surf& Ariel / Nirma Wheel. Those firms which have similar cost profit structure, strategic business fit & similar scope of business strategies. Those firms which offer products & services near similar price points. In goods that are bought on “Impulse” – there is more chances of “Fatigue Factor”. So the product line becomes huge. E.g. various types of Biscuits. In order to deal with fatigue factor products have to diversify. 1. Allied Areas. 2. Original Positioning ( should not loose)

ii. iii. iv.

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LEADERS COMPETITIVE STRATEGIES
1) What makes Leader a “Leader” / Characteristics? What makes him special?
1. First Mover Advantage (Pioneer) becomes a benchmark in the category. 2. These companies are known for high level of differentiation of Innovation due to access of Technology & hence always stay a step ahead of competition. 3. Having the largest market share, they enjoy Cost Leadership due to scale consideration (economies of scale) helping them to buy Raw Materials at cheapest prices. They often Backward Integrate. 4. They have excellent distribution Infrastructure of extremely competent personnel. 5. Share of Voice (SOV) is generally highest in the Industry & Considerably monies are spent on brand building activities. Leaders Strategies 1. Position Defense- Defense of created Leader Market share. a. Innovative / Leap Frogging (think Ahead) b. Defend existing products share of Market ( Offensive strategy) Selective Price Cuts. • Extend the brand/ extend line.} • Serve Multiple benefit areas } ENCIRCLEMENT STRATEGY • Serve multiple Price points} • Serve multiple SKU’S } • Lowering Entry barriers ( makes the product Affordable) “Affordability drives Consumption” Create trials Increase SOV (Advertisement) 2. CHALLENGER STRATEGIES STRENGTH (SOM) 1. Attach the leader from all sides ( Offensive) E.g. Mc Donald’s- Leader – Standardisation of product in all outlets. Burger kings – challenger. E.g. Earlier soups were available in Cans but now in coastal areas it would rust so Maggi came up with soup powders. 2. BYPASS Strategy:E.g. Pepsi became a complete Beverage Solution company from a Carbonated Soft drinks Company. Pepsi – Juices- Snacks food –Lays. 3. Strategies of Attack. a. Replicate Market Leader Strategy. b. Lower Price c. Encircle him ↑ Product ↑ Price Notes Compiled by: Students of PTM Batch 07-10| 90

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↑ Good / Better Product – same price. ↑Product --↓ Price ↓ Product -- ↓ Price. 3. FOLLOWERS – DISCOUNTING STRATEGY

“FOLLOWERS HAVE NO STRATEGY” i. ii. iii. Followers create or sell imitation products/ “ME TOO” Products with low level of differentiation. They serve price sensitive markets & use the discounting strategy as the biggest weapon. They serve price sensitive products generally a lower segment of markets.

They should play by there strength Low Cost imitations, volumes, Pricing. E.g. Wall Mart- 7000 stores across the world. (low segment players) ↓ (He works on Cost Leader Strategy) e.g. Cambridge (uses cost leadership strategy)

4. NICHER They are known as “segment Specialist” – focused strategies. They conduct Business activities in narrow line in terms of:a. Type of Product b. Consuming Segment Chosen c. Niche should adopt focused strategies centered around areas of core competency& strength namely, 1. Quality – Differentiated Products- Armani, Porche Cars, Hummer, Harley. 2. Cost – Cambridge, Nirma, Wall mart. ( volumes) Nicher Produces only High End or Low End products. They are never in the Middle Segments.

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Vote of Thanks
Heartfelt thanks to following students who contributed in compiling these notes. These all are part of Welingkar Institute of Management, Part time masters Batch Year 07-10. Thanks a lot to you all & All the Best! Rupesh Malewadkar Swapnil Pednekar Sonal Khanolkar Sandesh Desai Tejal Rajgore Dr. Murtuza Virendra Dubey Bhushan Malshe Prasad Vinod John Bosco Santosh Kotian Amit Karnik Vaishali Jhaveri Bhaskar Soni Abhijeet Dabhade Pragati Pednekar Karen Reuben Anurag Singh Venkatesh Swaminathan Sandeep Kambli Tejas Kulkarni Richard Varghese Rajesh Panchal MMM MIM MMM MIM MHRDM MHRDM MMM MMM MMM MMM MMM MMM MMM MMM MMM MFM MMM MMM MMM MIM MIM MIM MIM

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