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Strategic management assignment

Question 1

Answer 1

Introduction

As the market becomes more complex and the FMCG sector, a very fast growing market, has
more and more players, companies turn to strategies to maintain/dig deep into others market
share. One such strategy used is “differentiation”. As an head of strategic business I have to
convince the board of director for new strategy which could be beneficial for the organization .

Defination

“Differentiation is a competitive business strategy whereby firms attempt to gain a competitive


advantage by increasing the perceived value of their products and services relative to the
perceived value of other firm's products and services”-

Charles W.L.Hill, Gareth R.Jones

Concept and application

In this strategy whereby a marketer offers a product as unique in industry by proving that it
provides a distinct advantage over other products by setting it apart from other competitors’
brands in some way or the other, besides price.

Products sold by two different firms may be exactly the same, but if customers believe the first is
more valuable than the second, then the first product has differentiation advantage. The existence
of product differentiation, in the end, is always a matter of customer perception but firms can
take a variety of actions to influence these perceptions .Differentiated strategies include
targeting, positioning and segmentation. Most of the FMCG products carry this differentiation
through advertisements to reach the customer in an effective way

The following differentiation types are commonly found

Differentiation through additional features:

 Godrej with its 300 liters and 390 liters refrigerators targeting high lifestyle people.
ABC can introduce large screen mobile which will hit rich class people

Differentiation by packaging:

 Brylcreem in handy tube.


 Hit for cockroaches with sleek nozzle for hidden areas.
ABC can have sleek packing or can give free mobile cover which make different form other
competitor

Differentiation by design:

 Kinetic Honda with electronic ignition, to avoid kick-start


ABC group can use aluminium instead of plastic for making mobiles phones

Differentiation based on Opportunities in the External Environment


Trends or Fads:

Firms can provide a differentiated product to satisfy the needs of customers who are
responding to trends or fads eg Integreated mp3 players in Sunglasses

Government Policy:

Changes in government policy provide many opportunities for firms


todevelop differentiated products.Tax incentives by the Indian government helped
Eg:Introduction of the new electric car Reva

Social Causes:

Social causes can create demand for differentiated products that help people further their
cause of choice. For eg credit cards issued n partnership with WorldWild Life Fund, retail stores
become a point of differentiation in the credit card business

Economic Conditions:

Economic condition creates opportunities for product differentiation .It can either cater to the
premium or the low end market depending on the state of economy.

Uses of differentiation strategy:

A successful differentiation strategy creates a lines of defense against Porter s five forces: rival
competitors, buyers, suppliers, potential entrants, substitutes.

Threats of potential entrants

Product differentiation helps reduce the threat of new entry by forcing potential entrants to an
industry to absorb not only the standard costs of beginning business but also the additional costs
associated with overcoming current firms' product differentiation advantages
Threat of rivalry

Each firm in an industry attempts to carve out its own unique product niche. Rivalry is not
reduced to zero, for these products still compete with one another for a common set of
customers, but it is somewhat attenuated, because the customers each firm seek sare different.

Threat of substitutes

Firms reduce the threat of substitutes by making a firm's current products appear more attractive
than substitute products

Threat of suppliers

Powerful suppliers can raise the prices of the products or services they provide .These increased
supply costs must be passed on to a firm's customers in the form of higher prices .A firm without
a highly differentiated product may find it difficult to pass its increased costs on to customers,
since these customers will have numerous other ways to purchase similar products or services
from a firm's competitors.

Threat of buyers

When a firm sells a highly differentiated product, it enjoys a near monopoly in that segment of
the market. Buyers interested in purchasing this particular product must buy it from a particular
firm. Eg. Ipod .Any potential buyer power is reduced by the ability of a firm to withhold highly
valued products or services from a buyer

Implementation

A successful differentiation strategy depends on creating customer preferences for the products
of the firm. Customer preferences are heavily influenced by customers ‘experiences in
interacting with the company. It must be able to respond quickly and accurately to customer
needs. Customers need to ‘feel’ that the company is catering to their needs. Organizational
structure, management control systems are very important in implementing a differentiation
strategy.

Management control

Managers and employees have the freedom to be flexible, they should also been courage to be
creative and adaptable. Decision making should be more decentralized in a product
differentiation strategy which allows managers to make decisions and take actions that allow the
focal firm to differentiate its products and/or services through a high degree of responsiveness to
customers.
Conclusion

ABC GROUP as a brand has been able to etch a niche for itself in the face of intense MNC
competition. It has not only emerged victorious in its core Handsets, service also successfully
moved on into newer products.

ABC has two options to go ahead first to concentrate only on bottom of pyramid and develop a
huge distribution network to reach to every corner of the country and other is to cater to needs of
growing middle class, which is a primary target customer of all the companies. I believe if the
above strategy is followed will be a strong player in the market for years to come.

Question 2

Answer 2

Introduction

Strategic management sets the general direction of the business and ensures its survival in the
face of external environmental challenges. The external environment significantly influences the
performance of small firms. Business environment is constantly changing in different ways;
hence, managers need to be aware of and react to these changes.

As consultant of to fortune 500 companies firstly I will introduce to the global scenario.
“Complexity” is today often considered the latest business buzzword – it reflects a current
common reality but not a lasting one. Many types of boundaries have faded: trade liberalization
allows for a substantially easier flow of goods, capital, people, and knowledge around the globe.
The world has clearly moved beyond the key triad markets. Internationalizing companies from
developed and developing economies try to tap the benefits of globalization to an unprecedented
degree and therefore face – as well as contribute to – the complexity of eroding boundaries.

Concept and application

A core challenge of today’s and tomorrow’s companies, complexity cannot be made simple, and
it is not going away in the near future. Managing complexity must therefore become a core
competency of top executives and management. As a first step, it is crucial to understand what
drives complexity.

Each of the complexity is created by erosion of boundaries, but they their different impact both
positive and negative.
Complexity is following

Diversity:

Inside the organization, executives must manage and respond to more diversity in the
(internationalizing) HR pool; more variety in the management systems; more variation in the
means and ends ranging from simple financial goals to a more comprehensive view; and
different business models for different types of business units. Outside the organization there is
higher diversity: heterogeneous customer needs; differing cultural values; a plethora of
stakeholders with different claims (investors, customers, employees, regulators etc.); various
political, economic and legal environments; and finally, competitors’ differing strategies. Most
firms today increasingly face each of these types of diversity. Managing the differences is not
trivial, and reducing diversity often means being less responsive.

Ambiguity:

The business world today is characterized by too much information with less and less clarity on
how to interpret and apply insights. A diversity of accounting standards renders financial figures
ambiguous. Studies, scenarios, survey results, and reports become less reliable due to an ever-
increasing uncertainty. Many businesses find it more and more difficult to discover what their
clear value drivers are.

Interdependence:

Companies must manage the effect of global interdependence to an unprecedented degree:


everything is related to everything else, and the impact is felt more rapidly and pervasively.
Value webs have replaced traditional value chains. Reputation, financial flows, value chain
flows, top management and corporate governance issues have reached advanced levels of
interdependence. The less clear-cut the boundaries of a company become, the more it is exposed
to impacts on the value chain flow through mistakes, frictions, reverse trends, or even shocks.
Interdependence creates opportunities for globalization, but taking advantage of these
opportunities raises difficult challenges.

Some of the issues which can be solved:

Identify the issue which company must simplify

Purpose and values

Every manager in the company should understand clearly and deeply what really drives the
business, the fundamentals of the business’s profitability, and why the company is in business.
This might be difficult for a diversified multi-national, but at least has to be achieved at the level
of a Division/Strategic Business Unit.
Core processes and decentralized authority

A firm’s core processes should always be standardized (not necessarily centralized) and based on
comprehensive, accessible information platforms. As this imposes cost, one has to be very clear
what is needed as core. Such processes might change over time, and more often than the business
model or the core values. It is therefore important to erase old processes when introducing new
ones. With decentralization consistent with core processes, local managers can engage
complexity in the way most effective for them.

Unpredictable situations – an early awareness system

And early awareness doesn’t need sophisticated systems and much manpower. It is – more than
anything else – a mindset, a sensitivity that allows “weak signals” that indicate emerging change
and foresight to be understood. To deal with complexity, identify the variables that create
predictable outcomes when they’re within a particular range, and unpredictable outcomes when
they are not.

Leadership

The leader of a complex organization must create and communicate understanding of the
different roles managers, teams, business units, and bosses play in the inter-dependent structure,
otherwise confusion is intensified. Leadership cannot be repetitive, but should be predictable.
Permanent communication is therefore the leadership survival tool in complex organizations, but
much more in terms of “storytelling”, interpreting context and meaning, and investing in
relationships than in transferring dry facts or ultimatums.

Conclusion

Example of management complexity several global companies highlighting various aspects of


managing complexity, or the effects of not managing it well. The decade-long difficulties of
General Motors (GM) – and to a lesser degree Ford – clearly have their roots in the long
traditional control mode, leading to GM’s vast bureaucracy and a typical outcome: mediocre
products due to risk aversion, mistrust of management, high transaction costs and slow response.
An opposite example is Toyota, with a very clear value set (which is now challenged as it
becomes a truly global company), a simpler model of core business processes and standardized
processes throughout the world.
Question 3

Answer 3

A)

In formulating business strategy, managers must consider the strategies of the firm's competitors.
While in highly fragmented commodity industries the moves of any single competitor may be
less important, in concentrated industries competitor analysis becomes a vital part of strategic
planning.
Competitor analysis has two primary activities,
1) obtaining information about important competitors, and
2) using that information to predict competitor behavior.
The goal of competitor analysis is to understand:
 with which competitors to compete,
 competitors' strategies and planned actions,
 how competitors might react to a firm's actions,
 how to influence competitor behavior to the firm's own advantage.

Casual knowledge about competitors usually is insufficient in competitor analysis.


Rather, competitors should be analyzed systematically, using organized competitor intelligence-
gathering to compile a wide array of information so that well informed strategy decisions can be
made.

B)

The assumptions that a competitor's managers hold about their firm and their industry help to
define the moves that they will consider. For example, if in the past the industry introduced a
new type of product that failed, the industry executives may assume that there is no market for
the product. Such assumptions are not always accurate and if incorrect may present
opportunities. For example, new entrants may have the opportunity to introduce a product similar
to a previously unsuccessful one without retaliation because incumbent firms may not take their
threat seriously. Honda was able to enter the U.S. motorcycle market with a small motorbike
because U.S. manufacturers had assumed that there was no market for small bikes based on their
past experience.
A competitor's assumptions may be based on a number of factors, including any of the
following:
 beliefs about its competitive position
 past experience with a product
 regional factors
 industry trends
 rules of thumb
A thorough competitor analysis also would include assumptions that a competitor makes about
its own competitors, and whether that assessment is accurate.