Professional Documents
Culture Documents
1. Competitive Position
• Any industry with 5% annual growth can be considered to have rapid growth
Quadrant 1
1. Market Development
2. Market Penetration
3. Product Development
4. Forward integration
5. Backward Integration
6. Horizontal Integration
7. Related Diversification
Quadrant 2
1. Market Development
2. Market Penetration
3. Product Development
4. Horizontal Integration
5. Divestiture
6. Liquidation
Quadrant 3
1. Retrenchment
2. Related Diversification
3. Unrelated Diversification
4. Divestiture
5. Liquidation
Quadrant 4
1. Related Diversification
2. Unrelated Diversification
3. Joint Ventures
Section 8
The real opportunity is to create blue oceans of uncontested market space (Kim and Mauborgne,
2005)
• Red oceans represent all the industries that currently exist in the known market space
where industry boundaries are defined and accepted and the rules of the game are to
outperform rivals, achieve differentiation and competitive advantage – in order to survive
• Inevitably, as the market becomes ever more crowded, opportunities for growth and
increasing profits reduce and firms need to become more innovative
• Market space gets crowded, prospects for profits and growth reduce
Studying 150 companies in 30 industries they found that only 14% of the companies created new
markets but in doing so they achieved significantly greater profits than the others
• They argue that these companies created a blue ocean – an unknown market space where
competition is irrelevant, where demand is created rather than fought over and growth is
both rapid and profitable
• Most blue oceans are created from within, not beyond, the red oceans of existing industries
Innovation can lead to market domination and this innovation is achieved by four types of
breakthroughs – either separately or simultaneously:
1. Technological breakthrough
3. Design breakthrough
4. Process breakthrough
• Undefined market space, demand creation, opportunity for high profitable growth
• Most are created from within red oceans by expanding existing industry boundaries
• Just as the Blue Ocean Strategy states that a Red Ocean Strategy (Competitive Strategy) does
not guarantee success for the firm, a Purple Ocean Strategy claims the Blue Ocean Strategy
cannot guarantee business success in the long-term since the blue ocean will ultimately turn
red
• The Purple Ocean Strategy suggests that in today’s business world firms require both
innovative ideas as well as a series of strategies to compete with rivalry and to remain
functional in the long-term
• There are no permanent Blue Oceans – ultimately the ocean will become purple due to blue
turning red, since they exist simultaneously
• Exploit current customer base to reduce attrition, drive loyalty, promote word-of-mouth
Section 7
Competitive Advantage
• A firm has a competitive advantage over its rivals when its profitability is greater than the
average profitability of all firms in its industry
• A firm has a sustainable competitive advantage when it is able to maintain above- average
profitability over a number of years
Distinctive Competencies
• Distinctive competencies are firm-specific strengths that allow a firm to differentiate its
products from those offered by rivals and/or achieve substantially lower costs than its rivals
1. Resources
2. Capabilities
Resources refer to the assets of the firm
a. Tangible
b. Intangible
Resources are particularly valuable when they enable a firm to create strong demand for its
products, and/or to lower its costs
Capabilities refer to a firm’s skills at coordinating its resources and putting them to productive use
These skills reside in an organization’s rules, routines, and procedures, i.e., the style or manner
through which it makes decisions and manages its internal processes to achieve organizational
objectives
Like resources, capabilities are particularly valuable if they enable a firm to create strong demand for
its products and/or to lower its costs
1. A firm-specific and valuable resource and the capabilities or skills necessary to take
advantage of that resource, or
4. This strength in the competence is superior when it results in synergy between firm-specific
valuable resources and firm-specific valuable capabilities
Role of Strategy
• Distinctive competencies shape the strategies that a firm pursues, which lead to competitive
advantage and superior profitability
• However, it is also very important to realize that the strategies a firm adopts can build new
resources and capabilities or strengthen the existing resources and capabilities, thereby
enhancing the distinctive competencies
• The relationship between distinctive competencies and strategies is not a linear one; rather,
it is reciprocal one in which distinctive competencies shape strategies, and strategies help
built and create distinctive competencies
• They wrote that a core competency is ‘an area of specialized expertise that is the result of
harmonizing complex streams of technology and work activity’
Strategic Competence
Threshold Competences
• Threshold competences are activities, processes, and abilities that provide an entity with the
capability to provide a product or service with features that are sufficient to meet customer
needs
Resource Analysis
(a) the resources required to support particular strategies, and those needed to gain competitive
advantage, and
• A resource-based view of the firm is based on the view that strategic capability comes from
competitive advantage, which comes in turn from the resources of the firm and the use of
those resources (capabilities and competences)
1. Superior efficiency
2. Superior quality
Strategic Outsourcing
• Strategic outsourcing is the decision to allow one or more of a firm’s value-chain activities or
functions to be performed by independent specialist firms
Benefits of Outsourcing
3. Focus on the distinctive competencies that are vital to its long-term competitive advantage
and profitability
• BPO involves firms hiring other firms to takeover various parts of their functional operations
like HR, information systems, payroll, accounting, customer service, and even marketing
a) It is less expensive
a) It allows the firm to align itself with ‘best-in-world’ suppliers who focus on performing
the special task
b) It provides the firm flexibility should customer needs shift unexpectedly, and
c) It allows the firm to concentrate on other internal value chain activities critical to
sustaining competitive advantage
• BPO is a means for achieving strategies that are similar to partnering and joint ventures
Risks of Outsourcing
2. The focus may shift to short term benefits of cost of doing business
3. The firm may become too dependent on outside suppliers
VRIO Analysis
• VRIO analysis stands for four questions that ask if a resource is:
1. Valuable?
2. Rare?
3. Costly to imitate?
Section 9
Firms that conduct business across national borders are called international (at least one foreign
country, one continent) or multinational (several foreign countries, several continents)
Strategic implementation can be more difficult because different cultures have different norms,
values, and work ethics
Difference in Culture
• Cultural Complexity
Differences in Demographics
• Unemployment rates are a good indicator of consumers’ disposable income for purchase
• The rates are also a good indicator of a country’s overall financial soundness and
attractiveness for doing business
Differences in Markets
• A growing middle class is emerging in many geographies like China, India, and Indonesia
• Markets are shifting rapidly and in many cases converging in tastes, trends, and prices
Multi-Country Competition
• Core Concept:
• Multi-country competition exists when competition in one national market is not closely
connected to competition in another national market – there is no global or world market,
just a collection of self-contained country markets
Global Competition
• Core Concept:
• Global competition exists when competitive conditions across national markets are linked
strongly enough to form a true international market and when leading competitors compete
head to head in many different countries
Strategic Issues
• Issues in competitive strategy that apply to domestic companies apply also to companies
that compete internationally
• But there are four strategic issues unique to competing across national boundaries:
1 Whether to customize the firm's offerings in each different country market to match the
tastes and preferences of local buyers or offer a mostly standardized product worldwide
2. Whether to employ essentially the same basic competitive strategy in all countries or
modify the strategy country by country to fit the specific market conditions and competitive
circumstances it encounters
3. Where to locate the company's production facilities, distribution centres, and customer
service operations so as to realize the greatest locational advantages
4. How to efficiently transfer the company's resource strengths and capabilities from one
country to another in an effort to secure competitive advantage
Strategy Options
• Once a firm has chosen to establish international operations, it has three basic options:
1) A think-local, act-local approach – is appropriate for industries where multi-country
competition dominates
2) A think-global, act-global approach – works best in markets that are globally competitive or
beginning to globalize
3) A combination think-global, act-local approach – can be used when it is feasible for a firm to
employ essentially the same basic competitive strategy in all markets but still customize its
product offering and some aspect of its operations to fit local market circumstances
• Firms can use four basic strategies as they begin to market their products and establish
production facilities in foreign markets:
3. A global standardization strategy – is oriented towards cost reduction, with all the principal
value creation functions centralized at the optimal global location, e.g., WalMart,
McDonald’s, P&G
4. A transnational strategy – is focused so that it can achieve local responsiveness and cost
reduction; some functions are centralized while others are decentralized at the global
location best suited to achieve these objectives , e.g., Nestle, Unilever
• A multinational may face competition in an emerging market from other, existing or new
entrant, multinationals; as well as, existing or new entrant, domestic players
• A domestic player, not used to foreign competition, may eventually find itself competing
with one or more foreign players due to new government economic reforms
• Most emerging market firms have assets that give them a competitive advantage mainly in
their domestic market
• Some competitive assets may also be the basis for expansion into other markets
These two parameters – the strength of globalization pressures in an industry and the degree to
which a firm’s assets are transferable internationally can guide a firm’s strategy
Assets Customized to Domestic Market
• Dodgers – focuses on a locally oriented link in the value-chain, enters a joint venture, or sells
out to a multinational
• Defenders – focuses on leveraging local assets in market segments where multinationals are
weak
• Extenders – focuses on expanding into markets similar to those of the home base, using
competencies developed at home
Section 10
• Mergers and acquisitions are a common way to pursue strategies – horizontal integration or
global entry strategy
• A merger refers to two firms of about equal size combining to form one enterprise
• A leveraged buyout occurs when a firm’s shareholders are bought (buyout) by the firm’s
management with the help of other private investors using borrowed funds (leverage)
Related mergers and acquisitions are more successful than unrelated ones
Types of Mergers
1. Horizontal mergers – two companies that are in direct competition and share the same
product lines and markets ,i.e., it results in the consolidation of firms that are direct rivals,
e.g., Tata Steel and Corus, Exxon and Mobil, Volkswagen and Rolls Royce and Lamborghini
2. Vertical merger – a firm and a customer firm or a firm and a supplier firm, i.e. merger of
firms that have actual or potential buyer-seller relationship, e.g., Ford and Bendix
3. Conglomerate mergers – generally a merger between firms that do not have any common
business areas or no common relationship of any kind
• Integration difficulties
• Strategic alliances are long-term agreements between two or more firms to jointly develop
new products or processes that benefit each firm concerned
• Unlike short-term contracts, strategic alliances between a firm and its supplier are long-term
cooperative relationships
• Both firms agree to make the necessary investments and work jointly to find ways to lower
costs or increase quality and differentiation
• A strategic alliance becomes a substitute for vertical integration and allows both firms to
benefit
• It avoids the bureaucratic costs that may arise from managerial inefficiencies that result
when a firm owns its own suppliers
• Similarly, the component suppliers benefit because their business and profitability grow as
the firms they supply grow
• A strategic alliance outsourcing arrangement does not preclude hard bargaining because
both or all parties want to maximize their profits and reduce their risks
• A strategic alliance may involve outsourcing, information sharing, joint marketing, and joint
R&D
• Strategic alliances with foreign partners have appeal from several angles:
Gaining wider access to attractive country markets, allowing capture of economies of scale
in production and/or marketing, filling gaps in technical expertise and/or knowledge of local
markets, also saving on costs by sharing distribution facilities and dealer networks, helping
gain agreement on important technical standards, and helping combat the impact of
alliances that rivals have formed
• There are several strategies a firm can adopt to promote the success of a long-term
cooperative relationship:
1. Hostage taking – the aligning partner demands a hostage investment from the firm, to
guarantee it will keep its side of the bargain
3. Maintaining Market Discipline – means holding some power over the alliance partner. A
firm has two options against this happening. One is periodical renegotiation of a long-term
contract, every three to five years. Second is parallel outsourcing policies – that is entering
into long-term contracts with at least two suppliers for the same component
Joint Ventures
• A joint venture is a popular strategy that occurs when two or more firms form a temporary
partnership or consortium for the purpose of capitalizing on a market opportunity
• Often the two or more firms form a new entity with shared equity ownership
• Shared Vision
• Mutually Beneficial
• Equity Partnership – one side has management control
• As the market situation changes, the original vision for the joint venture becomes
incompatible for the partners
• Individual partners grow and mature in the market with diverging views on sourcing,
operations, financing, and marketing strategies creating conflict in the JV
• A typical JV is one with a 50/50 stake, in which both partners own 50% stake and share
management control
• In a 51% to 49% or unequal ownership split, the firm with the higher stake holds
management control
1. A firm can benefit from a local partner’s knowledge of a host country’s competitive
conditions, culture, language, political and business systems
2. Sharing costs and risks when the development costs and risks are high
1. A firm that enters into a JV risks giving control of its technology to its partner, e.g., the JV
between Boeing and Mitsubishi for the 787 wide-bodied jet raised such fears
2. The JV may not give the firm sufficient control over JV subsidiaries in order to realize its
experience curve or location economies
Vertical Integration
• Firms that use horizontal integration to strengthen their business model and improve their
competitive position also use the corporate-level strategy of vertical integration for the
same purpose
• A firm pursuing a strategy of vertical integration expands its operations either backward into
an industry that produces inputs for the firm’s products, as in backward vertical integration,
or forward into an industry that uses, distributes, or sells the firm’s products, as in forward
vertical integration
• Backward integration means moving into component parts manufacturing and raw material
production
• Forward integration means moving into distribution and sales, i.e., retail
Defensive Strategies
1. Retrenchment
2. Divestiture, and
3. Liquidation
Retrenchment – occurs when a firm regroups its businesses through cost and asset reduction to
reverse declining sales and profits
• Retrenchment can entail selling off land and buildings to raise needed cash, pruning product
lines, closing marginal businesses, closing obsolete factories, automating processes, reducing
the number of employees, and instituting expense control systems
• Divestiture is often used to raise capital for further strategic acquisitions or investments
• Divestiture can be part of an overall retrenchment strategy to rid a firm of businesses that
are unprofitable
Liquidation – selling all of a firm’s assets, in parts, for their tangible worth is called liquidation
However, it is better to cease operations than continue to lose large sums of money
There are five basic defensive strategies that are market centric:
1. Retaliation strategies described by Porter as discipline, denying a base, and commitment are
efforts to discourage rival firms from attacking
2. Commitment strategies include those that:
Deter retaliation by communicating a commitment to unequivocally follow through on
offensive moves
3. Government intervention strategies involve the use of political and legal tactics to prevent rival
firms from changing the rules of the game
4. Strategy flexibility protects firm resources through the ability to move quickly out of declining
markets into more prosperous ones
5. Avoidance strategies dodge confrontation by focusing on market segment of little interest to rival
firms
Offensive Strategies
1. Research and Development – a firm that is managed offensively invests heavily in R&D in an
effort to stay ahead of the competition
2. Mergers and Acquisitions – a firm may acquire another firm to fuel its growth; or merge to
deliver better shareholder value
1. Direct Competition – sell a similar product at a lower price, introduce new features, launch
comparison advertising, or go after market segments that are neglected by the competition
1. Frontal attack – going against the competitor’s strengths with similar product, price,
promotion, distribution, and quality
2. Flank attack – going against the competitor’s weaknesses, is less risky; competitor may be
unable to defend
3. Bypass attack – overtaking the competitor by introducing new strategies or diversifying the
product portfolio
4. Guerrilla attack – chasing markets where competitor has little to no presence
3. Predatory pricing – forcing competition to exit by slashing prices over an extended period of
time
Section 11
• Managers particularly need to know when strategies are not working well, and strategy
evaluation is the primary means for obtaining this information
• All strategies are subject to future modification because external and internal factors are
constantly changing
1. Reviewing the external and internal factors that are the basis for current strategies –
examining the underlying bases of a firm’s strategy
3. Taking corrective actions – taking corrective action to ensure that performance conforms to
plans
Richard Rumelt offers four criteria that can be used to evaluate strategy:
3. Feasibility – a strategy must neither overtax resources not create new unsolvable problems
• Strategy evaluation activities should be performed on a continuing basis, rather than at the
end specified periods of time or just after problems occur
• Some strategies take years to implement; consequently, associated results may not become
apparent for years
Developed in 1993 by Robert Kaplan and David Norton, and refined continually trough today, the
Balanced Scorecard is a strategy evaluation and control technique
• Balanced Scorecard derives its name from the perceived need of firms to ‘balance’ financial
measures that are often used exclusively in strategy evaluation and control with nonfinancial
measures such as product quality and customer service
• The overall aim of the Balanced Scorecard is to ‘balance’ shareholder objectives with
customer and operational objectives
• Financial measures and ratios are vitally important in strategic planning, but of equal
importance are factors such as customer service, employee morale, product quality,
pollution abatement, business ethics, social responsibility, community involvement, and
other items
• A Balanced Scorecard for a firm is simply a listing of all key objectives to work towards, along
with an associated time dimension of when each objective is to be accomplished, as well as,
a primary responsibility or contact person, department, or division for each objective
1. Financial performance
2. Customer knowledge
The four building blocks of competitive advantage, i.e., superior efficiency, quality, innovation, and
customer responsiveness can be part of a Balanced Scorecard evaluation
• First, strategy evaluation activities must be economical; too much information can be just as
bad as too little, and too many controls can do more harm than good
• Second, strategy evaluation activities should be meaningful; they should specifically relate to
a firm’s objectives
• Third, strategy evaluation activities should provide timely information; on occasion but in
some instances information on a daily basis
• Fourth, strategy evaluation should be simple, not too cumbersome, and not too restrictive
• Strategic managers choose the firm’s strategies and structure they hope will allow the firm
to use its resources most effectively to pursue its business model and create value and profit
• Then they create strategic control systems, tools that allow them to monitor and evaluate
whether, in fact, their strategy and structure are working as intended, how they could be
improved, and how they should be changed if they are not working
• Strategic control is also about how to create the incentives to keep employees motivated
and focused on important problems that may confront the firm
2. It should provide accurate information, thus giving a true picture of a firm’s performance
3. It should supply managers with the information in a timely manner because making
decisions on the basis of outdated information is a recipe for failure
The Balanced Scorecard is a way to ensure that managers compliment the use of ROIC with other
kinds of strategic controls to ensure they are pursuing strategies that maximize long-term
profitability
1. Personal control – is the desire to shape and influence the behavior of a person in a face-to-
face-interaction in the pursuit of a firm’s goals
Section 12
Change management is a systematic approach to dealing with change both from the perspective of
a firm and the individual
For a firm, change management means defining and implementing procedures and/or technologies
to deal with changes in the business environment and to profit from changing opportunities
1. Sponsorship – ensuring there is active sponsorship for the change at a senior executive
level within the organization, and engaging this sponsorship to achieve the desired results
2. Buy-in – gaining buy-in for the changes from those involved and affected, directly or
indirectly
3. Involvement – involving the right people in the design and implementation of changes, to
make sure the right changes are made
4. Impact - assessing and addressing how the changes will affect people
6. Readiness – getting people ready to adapt to the changes, by ensuring they have the right
information, training, and help
John Kotter introduced his eight-step change process that firms can use to implement change – 1995
Step 1: Create Urgency – for change to happen, it helps if the whole company really wants it
• This often takes strong leadership and visible support from key people within your
organization
Step 3: Create a Vision for Change – when you first start thinking about change, there will
probably be many great ideas and solutions floating around
• Link these concepts to an overall vision that people can grasp easily and remember
Step 4: Communicate the Vision –what you do with your vision after you create it will determine
your success
• Your message will probably have strong competition from other day-to-day communications
within the company, so you need to communicate it frequently and powerfully, and embed
it within everything that you do
Step 5: Remove Obstacles – put in place the structure for change, and continually check for
barriers to it
• Removing obstacles can empower the people you need to execute your vision, and it can
help the change move forward
Step 6: Create Short-Term Wins – create short-term targets – not just one long-term goal
• You want each smaller target to be achievable, with little room for failure
Step 7: Build on the Change – many change projects fail because victory is declared too early
Step 8: Anchor the Changes in Corporate Culture – to make any change stick, it should become
part of the core of your organization
• Your corporate culture often determines what gets done, so the values behind your vision
must show in day-to-day work
• When supported through times of change, people can be adaptive and successful
2. Organizational or Initiative Change Management – while change happens at the individual level,
it is often impossible for a project team to manage change on a person-by-person basis
1. Address the ‘human side’ systematically – any significant transformation creates ‘people
issues’
2. Start at the top – because change is inherently unsettling for people at all levels of an
organization, when it is on the horizon, all eyes will turn to the CEO and the leadership
team for strength, support, and direction
3. Involve every level – as transformation programs progress from defining strategy and
setting targets for design and implementation, they affect different levels of the
organization
4. Make the formal case – individuals are inherently rational and will question to what extent
change is needed, whether the firm is headed in the right direction, and whether they want
to commit personally to making change happen
5. Create ownership – leaders of large change programs must perform during the
transformation and be the ones who create a critical mass among the work force in favour
of change
6. Communicate the message – too often, change leaders make the mistake of believing that
others understand the issues, feel the need to change, and see the new direction as clearly
as they do
7. Assess the cultural landscape – successful change programs pick up speed and intensity as
they cascade down, making it critically important that leaders understand and account for
culture and behaviours at each level of the organization
8. Address the culture explicitly – leaders should be explicit about the culture and underlying
behaviors that will best support the new way of doing business, and find opportunities to
model and reward those behaviors
9. Prepare for the unexpected – no change program goes completely according to plan
People react in unexpected ways; areas of anticipated resistance may go away; and the
external environment may shift
10. Speak to the individual – change is both institutional and about the individual
Turnaround
Turnaround Strategy is a retrenchment strategy followed by a firm when it feels that the strategic
decisions made earlier were wrong, or are turning out wrong, and they need to be undone before
they damage the profitability of the firm
Turnaround strategy is backing out or retreating from the decision wrongly made earlier and
transforming from a loss making firm to a profit making firm
• Certain internal indicators which make it mandatory for a firm to adopt this strategy for its
survival are:
1. Continuous losses
2. Poor management
• The need for a turnaround strategy may arise because of the changes in the external
environment:
A successful turnaround requires leadership that can inspire the stakeholders and manage all
aspects of the process from start to finish
The performance of a firm in terms of growth, profitability, and return on investment to the
shareholders is affected due to several internal and external factors like:
1. Corporate strategies
3. Rigors of competition
4. Changes in technology
5. Globalization
6. Deregulation
7. Privatization
8. Economic reforms
9. Labor migration
Turnaround Process
It is very important to select a CEO who can successfully lead the turnaround
This analysis should culminate in formulating a preliminary action plan stating what is wrong,
how to fix them, key strategies to turn the entity in a positive direction, and a cash flow
forecast to understand cash usage
The objective is to gain control of the situation, particularly the cash, and establish
breakeven
Turnaround Strategies
2. Reorganizational turnaround
3. Operational turnaround
1. Strategic repositioning turnaround – changes the mission and customer value proposition of the
distressed firm by changing what products are offered to what markets and in which fashion
2. Reorganizational turnaround – Reorganization deals with all the people issues in the business
3. Operational turnaround – operational turnaround strategies associated with the value chain are
revenue enhancement, cost reduction, asset reduction, and financial turnaround