Consulting

and Strategy
Dossier
 Content

Title Page No
1. Foreword 2
2. Introduction 3
3. What is Consulting? 4
4. Scope of Consulting 5
5. What is Strategy 8
6. Approach to Strategy 9
7. Porter’s Generic Competitive Strategies 11
8. Basic Frameworks
8.1. 4Ps of Marketing Mix 15
8.2. 5Cs of Marketing 16
8.3. Michael Porter’s 5 Forces 17
8.4. PESTLE Analysis 18
8.5. McKinsey 7S 19
8.6. SWOT Analysis 21
8.7. Balanced Scorecard 22
8.8. BCG Matrix 23
9. When to use which Strategy? 25
10. Caselets – Case 1 29
11. Caselets – Case 2 31
12. Advanced Frameworks
12.1. VRIN Framework 34
12.2. Ansoff Matrix 36
12.3. Porter’s 4 Corners 38
12.4. Porter’s Diamonds 39
12.5. Porter’s Value Chain 41
12.6. Peripheral Vision 42
12.7. PARTS 43
12.8. VRIO 47
13. Guesstimate 50

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 FOREWORD

This document has been prepared by Consilium – Consulting and Strategy Club of
Indian Institute of Management Kashipur.

The purpose of this document is to assist the students of IIM Kashipur in their
preparation for case interviews conducted by consulting firms during placements.

The processes listed below are not necessarily the best way in to handle case
interviews. They only serve to give students an idea as to what to expect when they
walk into a case interview.

As companies worldwide get more and more concerned about hiring the right talent
for their key positions, candidate evaluation during interviews has become all the more
sophisticated.

The case interview is unique in the sense that it presents the candidate with a problem
to be solved in the context of real-world business situations and seeks solutions that
tests both logical reasoning and creativity.

It allows the interviewer to evaluate the candidate’s skills in deconstructing a problem

and communicating their thought process, the ability to think on their feet, handle
ambiguity and assess their comfort with numbers.

Although, traditionally used by consulting firms in their recruiting processes, the case
method is now increasingly used for jobs across functions whether general
management or investment banking.

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 INTRODUCTION

Consulting industry remains one of the most pursued options to start, and forge out, a
management career across the globe. It presents a unique combination of solving
complex business problems and an opportunity to work across diverse set of
industries.

In recent years, focus has shifted from the final placements to summers. This shift
offers a dual advantage to students:

1. Helps students get a flavour of the consulting industry, thus giving an

opportunity to gauge one’s aptitude for consulting and aids informed decision‐
making during the final placements.
2. Presents an opportunity to get a PPO (Pre-Placement Offer) which effectively
does away with the need for final placements for students focused on consulting
as a career choice.

Though the summer selection processes of various firms may differ slightly in the
specifics, it has several common aspects, thus making it possible to generalize the
preparation process for the same.

Consilium – Consulting and Strategy Club of IIM Kashipur, in its constant endeavour
to provide IIM Kashipur students with valuable insights into the fascinating world of
consulting, has undertaken to develop an exhaustive preparation process specifically
aimed at selection for consulting firms.

The objective of this guide is to lay down the recommended preparation process for
consulting process and selection.

Selection process for consulting firms has several distinct features of its own, and as
such, the preparation for the same demands a differential flavour to it as well. The
selection procedure for the major consulting firms explored in this guide is almost
completely based on resume-based short‐listing and a subsequent elaborate interview
process.

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What is consulting?

Search it on google or look it up in a dictionary, the one definition you are sure to come
across is that Consulting means to be “engaged in the business of giving expert advice
to people working in a specific field”.

It’s easy, isn’t it? From this definition we can say that everyone in India is a consultant,
because most of us are keen on giving advice. So, what makes a consultant different?
How is consulting more than just giving advice.

Consulting is a fairly broad term that can have a variety of meanings depending on the
industry it refers to. The true meaning of consulting is helping people solve problems
and move from their current state to their desired state. It involves not just giving advice
but help companies prepare, lead or implement projects.

So, consulting can be summarised by these eight fundamental objectives:

• Provide requested information

• Provide solution to given problem
• Conduct diagnosis that may redefine the problem
• Provide Recommendations
• Assist Implementation
• Build Consensus and commitment
• Facilitate client learning
• Improve organisational effectiveness

Thus, apart from the traditional objectives of consulting, consultants must learn to
satisfy expanded expectations of their clients.

Talking about the types of consulting, mainly it can be categorised into three:

1. Management Consulting - It is the first thing that comes to mind when people
talk about consulting. Large firms like Mckinsey, Bain and BCG are all
management consulting firms hired to help enterprise businesses improve
strategy and operations or manage significant business events like mergers and
acquisitions.
2. Corporate Consulting - This is more of a catch-all category for those with a
"consulting" job description in the corporate world. These are services like in-
house consulting, implementation teams, B2B consulting businesses, and a
host of other things. In general, consultants in this category have a corporate
track and vast experience in their industry.
3. Independent Consulting - Thanks to the emergence of gig economy, when
consultants develop expertise in an area, they choose to run their own business
rather than continue as an employee. While different independent consultants
build their businesses in different ways, most use the internet as their primary
avenue for generating leads and landing new client.

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Scope of Consulting

Consulting offers an array of opportunities in fields that are vaster than any other
industry. If you decide to take up consulting as a profession, you can work in different
domains like marketing, finance, HR, IT and operations.

Consultants can work on diverse profiles, some categorised as:

Management Consulting

• Strategy Consulting
• Operations Consulting
• Financial Advisory consulting
• Human Resource Consulting
• Risk and Compliance Consulting
Corporate Consulting

• IT consulting
• Business Consulting
• Environmental Consulting
• Software Consulting
• Sales Consulting

Independent Consulting

• Marketing Consulting
• Financial Consulting
• Image Consulting
• Social Media Consulting
• Career coaching and consulting

Apart from these career opportunities, consulting provides plenty of scope for personal
development, expanding your skillset and enhancing your CV. Most consultancies
offer excellent training opportunities, along with the chance to build other skills like
client handling, strategic planning, business analysis, team building and delivering
under pressure.

Major Consulting firms

Consulting is now an established industry, still growing at a rapid pace. The first
management consulting firm was named Arthur D. Little, after the founding MIT
professor, in the 1890s. Initially this firm specialized in technical research, but later
became a general Management Consultancy. Booz Allen Hamilton was founded as a
Management Consultancy by Edwin G. Booz, a graduate of the Kellogg School of
Management at North-western University, in 1914, and was the first to serve both
industry and government clients. This firm later changed its name to Booz & Co.

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The first pure Management Consulting company was McKinsey & Company, founded
in Chicago during 1926 by James O. McKinsey, an accounting professor from the
University of Chicago. Marvin Bower, hired in the late 1930s as a partner, ran the
company for 30 years and crafted the firm into what it is today. He believed that
Management Consultancies should adhere to the same high professional standards
as lawyers and doctors. Thus McKinsey, under Brower, is generally credited with
developing into the first Management Consulting firm in the modern sense.

In the 1960s, a number of new management consulting firms formed, most notably
being Roland Berger and the Boston Consulting Group (BCG). These firms introduced
a rigorous analytical approach to the study of management and strategy. During the
1960s and 70s, firms such as BCG, Roland Berger, Booz Allen Hamilton, McKinsey
and the newly formed Bain & Co (1973), pioneered many of the analytical tools and
approaches that would define the new field of strategic management.

In the late 1990s, the Consulting industry blossomed, mostly driven by a broad array
of factors such as- strong global economy, increase in computing power, penetration
of emerging markets, privatization, globalization, and the new Information Technology
practice. Many established firms were growing revenue at rates of 20% annually, and
new firms were popping up all over the place. There was thus a huge demand for
Undergraduates and MBAs alike, and firms were recruiting aggressively from campus.

The beginning of 21st century (2001 and 2002), growth of consulting firms stalled for a
couple of years. This was due to the painful recession (dot-com bubble burst) which
led to many corporate clients contracting their consulting budgets. This led to downsize
or withdrawal of many young/small consulting firms and reduction in recruiting by many
big firms.

Since, 2004 consulting industry has recovered and grown substantially. Currently,
most consulting offices are working at full capacity and the outlook for the sector as a
whole is very positive. Top Consulting firms continue to compete with Investment
Banks and each other for the top candidates from universities and business school
programs across the country, offering highly attractive compensation packages and
career opportunities.

Some of the top consulting firms in the world are:-

McKinsey & Company A.T. Kearney

Boston Consulting Group Arthur D. Little
Bain and Company Oliver Wyman
Deloitte Touche Tohmatsu Limited IBM Consulting
PricewaterhouseCoopers Gartner Inc.
Booz Allen Hamilton Mercer LLC
Ernst and Young Capegemini
Accenture Oracle Consulting
KPMG SAP consulting

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Big 4
It started with Big 8, consisting of 8 largest consulting firms in 1970s and 80s. It
comprised of the following companies:
• Arthur Andersen
• Coopers and Lybrand
• Deloitte Haskins and Sells
• Ernst and Whinney
• Peat Marwick Mitchell
• Price Waterhouse
• Touche Ross
• Arthur Young
Followed by a series of mergers, Big 8 was reduced to Big 6 and then Big 5 that had
KPMG, EY, Deloitte, PwC and Arthur Anderson. In 2002, due to Enron scandal, Arthur
Anderson fell and eventually Big 8 was reduced to Big 4.

Big 3 or MBB

It refers to name given to the world's three largest strategy consulting firms by revenue.
The consulting firms are McKinsey & Company, Boston Consulting Group and Bain &
Company.

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What is Strategy?

Strategy is an action taken to attain one or more of the organization’s goals. It can be
defined as “A general direction set for the company and its various components to
achieve a desired state in the future.
A strategy is also about integrating organizational activities and utilizing and allocating
the scarce resources within the organizational environment so as to meet the present
objectives. It is the knowledge of the goals, the uncertainty of events and the need to
take into consideration the likely or actual behaviour of others.

Basically, strategy is the blueprint of decisions in an organization that shows its

objectives and goals, reduces the key policies, and plans for achieving these goals,
and defines the business the company is to carry on, the type of economic and human
organization it wants to be, and the contribution it plans to make to its shareholders,
customers and society at large.

Strategy, in short, bridges the gap between “where we are” & “where we want to be”.

Strategy can be classified into 3 components:

• Corporate Strategy
• Business Unit Strategy
• Team Strategy

Corporate Strategy: In business, corporate strategy refers to the overall strategy of

an organization that is made up of multiple business units, operating in multiple
markets. It determines how the corporation as a whole supports and enhances the
value of the business units within it; and it answers the question, "How do we structure
the overall business, so that all of its parts create more value together than they would
individually?" Corporations can do this by building strong internal competences, by
sharing technologies and resources between business units, by raising capital cost-
effectively, by developing and nurturing a strong corporate brand, and so on. So, at
this level of strategy, we're concerned with thinking about how the business units within
the corporation should fit together and understanding how resources should be
deployed to create the greatest possible value. Tools like Porter's Generic Strategies,
the Boston Matrix, the ADL Matrix and VRIO Analysis will help with this type of high-
level analysis and planning. The organization's design is another important strategic
factor that needs to be considered at this level. How you structure your business, your
people, and other resources – all of these affect competitive advantage and can
support your strategic goals.

Business Unit Strategy: Strategy at the business unit level is concerned with
competing successfully in individual markets, and it addresses the question, "How do
we win in this market?" However, this strategy needs to be linked to the objectives
identified in the corporate level strategy. Competitive analysis, including gathering
competitive intelligence, is a great starting point for developing a business unit

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strategy. As part of this, it's important to think about your core competencies, and how
you can use these to meet your customers' needs in the best possible way. From there
you can use USP Analysis to understand how to strengthen your competitive position.
You will also want to explore your options for creating and exploiting new opportunities.
Porter's Five Forces is a must-have tool for this process, while a SWOT Analysis will
help you understand and address the opportunities and threats in your market.

Team Strategy: To execute your corporate and business unit strategies successfully,
you need teams throughout your organization to work together. Each of these teams
has a different contribution to make, meaning that each team needs to have its own
team-level strategy, however simple. This team strategy must lead directly to the
achievement of business unit and corporate strategies, meaning that all levels of
strategy support and enhance each other to ensure that the organization is successful.
This is where it's useful to define the team's purpose and boundaries using, for
example, a team charter; and to manage it using techniques such as Management by
Objectives and use of key performance indicators. You need to be working efficiently
to achieve the strategic objectives that have been set at higher levels of the
organization; so, an important element of your team strategy is to implement best
practices to help your team to meet its objectives. Activities that optimize supplier
management, quality, and operational excellence are also important factors in creating
and executing an effective team strategy.

The Approach to Strategy:

5 P’s of Strategy:

In 1987, the Canadian management scientist Henry Mintzberg distinguished five

visions for strategy for organizations. He calls them the 5 P’s of Strategy. They stand
for Plan, Pattern, Position, Perspective and Ploy. These five components allow an
organization to implement a more effective strategy. A strategy is aimed at the future,
concerns the long term and involves different facets of an organization. Competition is
always a factor, but it would be a mistake to develop strategies only aimed at
competitors. The strategies should also take into account the organizational culture
and the other possibilities and developments within an organization.

With the help of the 5 P’s of Strategy, you can include as many different aspects as
possible and approach the strategy from different perspectives.

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Plan

A strategy is a plan for dealing with situations. A plan has to be made before possible
actions are taken and it’s also important that the plan is followed consciously and
effectively. Goals can only be achieved with a good plan. They enable managers to
give their teams clarity and work towards interim evaluations and final results.
However, a clear organizational strategy requires more than just a plan.

Pattern

Where making a plan is about the intended strategy, patterns are about strategies that
have been implemented before. On the one hand, there are strategies that achieved
their intended result. On the other hand, there are strategies that still have to be worked
out in more detail. For those, earlier patterns are an important part of
developing the new strategy. It’s about a regular pattern in the decision-making flow.
If certain choices have already been made in the past, an organization is likely to make
those decisions again in the future. In such cases, past behavior is a pattern that’s
included in strategy development. It’s about intentionally or unintentionally consistent
behavior displayed by employees and teams. Patterns are accepted without prejudice
by everyone. By becoming aware of such patterns within the organization, you are
able to include their strengths in developing a strategy.

Position

This is about the organization’s position in the market, the interaction between the
internal and external context. It’s important to consider carefully in advance how the
organization wants to position itself. What will its identity look like and does that match
the idea stakeholders have of the organization? This can contribute significantly to
developing a lasting competitive advantage. Considering the strategic position helps
against competitors and to give the organization a firm place in the market.

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Perspective

Strategy is about more than the chosen position; it’s also about the larger perspective.
It’s important to find out how different target audiences perceive the organization. How
do the employees regard their employer? What do customers think of the organization?
What is their image among investors? All these individual perspectives and thought
patterns are a valuable source of information for the organization, which they can use
to make targeted strategic choices.

Ploy

It’s also a strategic choice to use a ploy. For instance, one that competitor doesn’t
expect. Organizations can surprise their environment by implementing a plan that
nobody saw coming. For instance, a phone service provider can mislead others by
suddenly also offering internet service and digital television. That puts them in
competition with other potential providers of those services. It’s a ploy to outsmart the
competition.

Planning process

Of course, the Mintzberg 5 P’s of Strategy are part of an organization’s strategy, but
it’s also wise to look at the 5 P’s as separate standpoints that all need to be considered
for developing a strong and successful strategy. It’s useful to employ the 5 Ps
throughout the planning process. They provide relevant information necessary in the
initial stages of strategy development. When implementing the strategy, the 5 P’s of
Strategy can help with testing, evaluation and possibly with making adjustments.
Finally, the 5 P’s of Strategy can be used as a final check of the developed strategy at
the end of the planning process, in order to discover if there are inconsistencies or if
anything is missing. Identifying problems during the planning phase can save an
organization a lot of money in the end.

Porter’s Generic Competitive Strategies (Ways of Competing)

Michael Porter, a strategy expert and professor at Harvard Business School,

emphasizes the need for strategy to define and communicate an organization's unique
position, and says that it should determine how organizational resources, skills, and
competencies should be combined to create competitive advantage.

A firm's relative position within its industry determines whether a firm's profitability is
above or below the industry average. The fundamental basis of above average
profitability in the long run is sustainable competitive advantage. There are two basic
types of competitive advantage a firm can possess: low cost or differentiation. The two
basic types of competitive advantage combined with the scope of activities for which
a firm seeks to achieve them, lead to three generic strategies for achieving above

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average performance in an industry: cost leadership, differentiation, and focus. The
focus strategy has two variants, cost focus and differentiation focus.

Cost Leadership

In cost leadership, a firm set out to become the low-cost producer in its industry. The
sources of cost advantage are varied and depend on the structure of the industry. They
may include the pursuit of economies of scale, proprietary technology, preferential
access to raw materials and other factors. A low-cost producer must find and exploit
all sources of cost advantage. if a firm can achieve and sustain overall cost leadership,
then it will be an above average performer in its industry, provided it can command
prices at or near the industry average.

.
Differentiation

In a differentiation strategy a firm seeks to be unique in its industry along some

dimensions that are widely valued by buyers. It selects one or more attributes that
many buyers in an industry perceive as important, and uniquely positions itself to meet
those needs. It is rewarded for its uniqueness with a premium price.

Focus

The generic strategy of focus rests on the choice of a narrow competitive scope within
an industry. The focuser selects a segment or group of segments in the industry and
tailors its strategy to serving them to the exclusion of others.

The focus strategy has two variants.

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 • In cost focus a firm seeks a cost advantage in its target segment, while in

• Differentiation focus a firm seeks differentiation in its target segment. Both

variants of the focus strategy rest on differences between a focuser's target
segment and other segments in the industry. The target segments must either
have buyers with unusual needs or else the production and delivery system that
best serves the target segment must differ from that of other industry segments.
Cost focus exploits differences in cost behavior in some segments, while
differentiation focus exploits the special needs of buyers in certain segments.

Vision, Mission, Values & Strategy

Vision Statement: A mental picture of what an organization wants to accomplish or

achieve. For example, our vision may be a successful winery business or an
economically active community.

Mission Statement: A general statement of how the vision will be achieved. The
mission statement is an action statement that usually begins with the word "to".

Core Values: Core values define the organization in terms of the principles and values
the leaders will follow in carrying out the activities of the organization.

Statements of vision and mission are important so that everyone involved in the
organization, including outside stakeholders, understand what the organization will
accomplish and how it will be accomplished. In essence this means “keeping everyone
on the same page” so they are all "pulling in the same direction".

There is a close relationship between the vision and mission. As the vision statement
is a static mental picture of what we want to achieve, the mission statement is a
dynamic process of how the vision will be accomplished.

Strategies, Goals, Objectives and Action Plans

Once the core values are identified and statements of vision and mission are created,
one can then develop the strategies, goals, objectives and action plans needed to
activate the mission and achieve the vision. Defining the vision and mission are critical
before starting on strategic elements. After all, what is the strategy trying to achieve if
not the company mission? And what is the mission if not an embodiment of the vision?

As we have discussed that a strategy is a unique approach of how to use the mission
to achieve the vision. Strategies are critical to the success of an organization because
this is where a plan for doing something is outlined.

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 Goals: A goal is a milestone(s) in the process of implementing a strategy. Examples
of the business goals are:

• Increase profit margin

• Increase efficiency
• Capture a bigger market share

Objectives: An objective turns a goal’s general statement of what is to be

accomplished into a specific, quantifiable, time-sensitive statement of what is going to
be achieved and when it will be achieved. Examples of business objectives are:

• Earn at least a 20 percent after-tax rate of return on our investment during the
next fiscal year
• Increase market share by 10 percent over the next three years.
• Lower operating costs by 15 percent over the next two years through
improvement in the efficiency of the manufacturing process.

Action Plans: Action plans are statements of specific actions or activities that will be
used to achieve a goal within the constraints of the objective.

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Basic Frameworks

In this section, we would be explaining a few frameworks which come in handy while
analyzing cases. These frameworks aren’t designed to directly give you answers for
the cases but to facilitate your understanding about the underlying problems and help
you logically address them while ensuring you have taken everything into
consideration.

1. 4P’s of Marketing Mix (https://www.youtube.com/watch?v=Mco8vBAwOmA)

This model is meant to help you enhance the components of your marketing mix i.e.
the manner in which you take a new product to the market. It helps you in defining the
options in terms of the 4Ps – Price, Place, Product & Promotion so that your offering
can satisfy or meet certain specific needs of the customers.

A good way of understanding the 4Ps is through questions which you need to ask in
order to define the marketing mix. Mentioned below are some such questions which
can better help you understand the 4 elements.

• How do our prices compare to the competitions’?

• How was our price determined?
• Are we priced right?
• If we change our prices will it impact our sales volume?
• What sort of discounts can we offer to what segment of the
market?

• How do we get our product to the consumer?

• How can we increase channels of distribution?
• Do our competitors have products in places we don’t?
• Do they serve markets that we can’t reach? If so, why?
• How can we reach them?

• What is our company’s niche?

• What are our products and services?
• Which need of the customer does it satisfy?
• How and where will the customer use it?
• How is the product different from the competitors’?

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 • How can we best market our product?
• Are we reaching the right market?
• What sort of marketing campaigns has the company done
in the past?
• How effective were they?
• Can we afford to increase our spend on campaigns?

2. 5C’s of Marketing (https://www.volusion.com/blog/situation-analysis-the-5-cs/)

This framework is used to analyze five important areas which are involved in making
marketing decisions for a company. This provides a good base to ensure that while
coming up with a decision all the basics have been covered and you are able to

Mentioned below are the sample questions which can be asked to understand each
aspect:

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 Who are they?
What do they want?
Consumer Are you able to fulfil those needs?
Are you able to retain customers?
How can you get more?
Who are the biggest competitors?
What is the market share of all major players? Has it changed?
Competition
How is your product offering different from the competition?
Do you possess any strategic advantage over them?
Determine if there is an outside source or third-party help that can
Collaborator
aid the company such as distributors, suppliers etc.

What do you know about the company?

Company How big is it?
What kind of product or services is it offering to clients?
Determine how the external factors could affect your strategy.
Context PESTLE framework comes in handy in this case. It will be
explained later on.

3. Michael Porter’s 5 Forces (https://www.youtube.com/watch?v=lPHruQHAECw)

This framework wasn’t developed for use in cases, however, whenever you are dealing
with a case related to the development of a new product or starting a new business or
entering a new market, this framework fits in perfectly. Porter states that the state of
competition in any industry is dependent on the following 5 basic competitive forces
or factors:

• Competition in the Industry – This refers to the number of competitors in the

industry and their ability to undercut the company, greater the number of
competitors and equivalent products, lesser the power of the company.

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 Conversely, when the competition is low, there is greater potential for the
corporate to charge a higher price.
• Potential of new entrants into the industry – An industry with strong entry
barriers is an attractive feature for any company, this allows them to charge higher
prices for the services offered and negotiate terms in their favour. Conversely, if it
takes less time and resources for a competitor to establish itself in the company’s
market then the company’s position may be weakened significantly.
• Power of Buyers – This refers to the ability of the customers to drive the product
prices down. It depends on how many buyers does the company have, how
significant they are and how much would it cost the company to get into new
markets or customers. A smaller customer base gives them more power to
negotiate better deals and lower prices. A company with a larger customer volume
will be able to easily charge higher for increased profitability.
• Power of Suppliers – This force addresses the impact which the suppliers can
have on the company, for instance, driving up prices for the supplies or restrict
their quantity. It is usually affected by the number of suppliers of key inputs for the
services and goods, how unique these inputs are, and what is the switching cost
involved. Fewer the suppliers more dependent is the company on them, giving the
suppliers more power to drive up the costs and push for advantage.
• The threat of Substitutes – Substitute services and goods which can be used in
place of a company’s product pose a threat to the company’s position in the market
since customers can forego buying their product. Companies whose products
cannot be substituted would possess more power to increase the prices and get
favorable terms.

4. PESTLE Analysis (https://pestleanalysis.com/examples-of-pestle-analysis/)

This tool is used by corporates in order to track the external environment they are
operating in or are planning to enter into through the launch of a new product, service
or project. It provides the user with a bird’s eye view of the entire business scenario
from several different angles to check and keep a track of while coming up with a
suitable idea or plan.

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To understand the application of this tool in its entirety it is important to understand in
depth what each letter stands for.

• Political – it includes factors such as government or government body’s ability

to influence the economy or a particular industry. Political factors include tax
policies, fiscal policy, trade tariffs, levels of corruption, legal red tapes, labor
laws, land laws etc. which can have a considerable impact on the business
environment.
• Economic – these factors are direct determinants of the economic performance
of the country and can have long term effects. Factors such as economic growth
rate, exchange rate, interest rates, inflation rate, disposable income,
unemployment rate, FDI etc. are taken into consideration here.
• Social – these factors take into consideration the social environment of the
industry and gauge factors like demographics, population metrics, lifestyle
attributes, cultural barriers etc.
• Technological – these factors include technological innovation which can
impact the operations of an entire industry or the market both unfavorably or
favorably. This can also include the R&D, automation and the amount of
technological awareness possessed by the market.
• Legal – this can include both internal laws of the company and external laws of
the country. The legal analysis considers both of them and then formulates the
strategy. Factors such as discrimination laws, employment laws, antitrust laws,
copyright and patent laws, health and safety laws, consumer protection laws
are taken into consideration here.
• Environmental – these are largely the factors that are influenced by the
environment of the country. Some of the factors taken into consideration include
weather, geographical location, climate, environmental offsets, calamities,
environmental policies etc. such factors play a crucial role for industries such
as tourism, agriculture, farming etc.

5. McKinsey’s 7S (https://tallyfy.com/mckinsey-7s-framework/)

This is a tool which helps in analyzing any corporates organizational design by taking
into consideration the below 7 mentioned internal elements in order to identify whether
they are effectively aligned for the company to achieve its objectives. The key point
here is to see that all 7 areas are interconnected and a change in one asks for a change
in all others in order to function effectively. So, any element if tweaked must be done
so keeping in sync with the others.

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 • Strategy – It is basically a plan developed by the firm to achieve a competitive
advantage and compete successfully in the market. In general, any good strategy
has to be articulated well, must be long term and help the company in getting a
competitive advantage. Usually, a short-term strategy is said to be a poor choice,
however, if aligned with the remaining elements it can deliver good results.
• Structure – the structure refers to the manner in which business unit and divisions
are done, including the chain of command and who is accountable for what,
basically the organizational chart of the organization. It is the most easily
changeable elements in the framework.
• Systems – this includes the procedures and processes of the company revealing
daily business activities and the decision-making processes. This is the area which
helps determine how business is done and should usually be the main focus when
it comes to organizational change.
• Skills – these are the competency and abilities possessed by the organization’s
employees and includes the activities they perform well. During organizational
change, questions often arise of what skills are needed to enforce a new strategy
or new structure.
• Staff - this concerns the manpower aspect of the organization, as in how many
employees are needed in the organization, how would they be recruited, trained,
rewarded and motivated.
• Style – this represents the management style of the top-level managers of the
company, what actions do they take, how are they interacting and their general
symbolic value.
• Shared Values – these are at the core of this 7S model. These include the
standards and norms that guide the behavior of the employee and the actions of
the company, placing them at the very foundation of all organizations.

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6. SWOT Analysis (https://www.youtube.com/watch?v=mR9eICQJLXA)

SWOT analysis is a very simple yet powerful tool which can help in developing the
business strategy if you are building a startup or in guiding an existing company. Read
below for better understanding:

STRENGTH is the positive and internal attributes of the company and usually
are things within your control, some sample questions to ask in order to identify
your strengths:

• Which business processes are successful?

• What assets does your team possess (knowledge, network, skills, reputation
etc.)?
• What physical assets does your company have (equipment, customers, cash,
patents etc.)?
• What advantages do you possess over your competition?

WEAKNESSES are usually the negative factors that can detract you from your
strengths, usually the things that needs improvement in order to compete.
Some questions to ask:

• Are there things which your business needs to do in order to

stay competitive?
• What are the business processes needing improvement?
• Are there any gaps in your teams?
• Are you well located to ensure success?

OPPORTUNITIES include the external factors of your business environment

which can contribute to the success of your business.

• Is the market you are operating in growing, or are there any trends which can
encourage people to buy what you are selling?
• Are there any events in the foreseeable future which can help your company use
to grow the business?
• Are there any changes which might be done in the regulations which can impact
your company in a positive manner?
• What is your brand perception in the market? Do customers think highly of you?

THREATS include external factors which are out of your control. For such
factors, it's best to put in place a contingency plan in order to mitigate the risk
they pose

• Are there any potential competitors who might enter the market?
• Will the suppliers always supply the raw material to you at prices that you need?
• Can future technological developments change the manner of conducting
business?
• Is consumer behavior changing against you?
• Are there any market or industry trends which can become threats?

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7. Balanced Scorecard (https://www.youtube.com/watch?v=biyGxEix5Zs)

It is a performance metric utilized in strategic management for improving and

identifying various internal functions of the business and to estimate their external
outcomes. It is used for measuring and providing feedback to organizations. Data
collection is an important aspect when it comes to providing quantitative results, the
information gathered is used by managers for making better decisions for the
organization. This tool isolates 4 areas that need to be analyzed, and include –
Learning and Growth, Business Processes, Customers & Finance.

This tool is used for attaining the objectives, measures, Targets and Initiatives/goals
which results from the 4 primary business functions. Organizations can easily figure
out factors hindering business performance & then outline strategic changes through
future scorecards.

Balanced Scorecards help in providing information about the company as a whole

while viewing the objectives of the company. This tool can be used for implementing
strategy mapping in order to check where in the organization value is being added.
Information is usually collected and analyzed from four aspects of a business:

1. Learning & Growth – it is analyzed through evaluating the knowledge and

training resources. This leg handles how well the information is being captured
and how effectively the employees are utilizing this information to get a
competitive edge over the industry.
2. Business Processes – It is analyzed by evaluating how good is the company’s
operational management. Operational aspect is easily gauged through the
gaps, delays, shortages, bottlenecks or wastages in the organization.
3. Customer Perspective – This data is collected in order to gauge the customer’s
satisfaction level with price, quality and availability of services or products.

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 4. Financial data – this incudes data points such as sales, income, expenditures
to gauge the company’s financial performance. The metrics being considered
can include, budget variances, financial ratios, income targets etc.

These 4 legs complete the Vision & Strategy of the organization and require an
active management style to evaluate the data collected. The balanced scorecard is
therefore often referred to as a management tool rather than only a measurement
tool.

8. BCG Matrix (https://www.youtube.com/watch?v=sNAUWpk_yvs)

This tool was designed by BCG to help with long term strategic planning in order to
help a business in considering growth opportunities by reviewing their portfolio of
products and helping them decide to discontinue or develop products or where to
invest. BCG Matrix is also referred to as growth share matrix. It is divided into 4
quadrants based on the analysis of relative market share and market growth, as shown
in the diagram below:

What the matrix means:

• Dogs – these products have a low market share or low growth. Such products are
best removed from the market as they tend to drain the company’s resources.
However, this might be an over-simplification since there lies some potential to
generate revenue with little cost. Example – a car’s manufacturing might stop but
there still exists a market for its spares.
• Problem Child or Question Mark – These products have a low market share in
a high growth market. For these products it is not known whether they would
become a star or go down into the dog quadrant. Such products need a lot of
investment in order to push them to the star quadrant. For example – video game
developer develops hundreds of games before getting that one hit.

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 • Stars – Products with a high market share in a high growth market. These products
can be market leaders however require significant investments in order to retain
that lead. They help in generating more ROI in comparison to other categories of
products.
• Cash Cows – Products with a high market share in low growth market. Here there
is a simple rule to follow, milk these products as much as you can without killing
them, this category often involves well-established and mature products.
This matrix is more relevant for larger businesses operating in multiple markets
offering multiple services, however it can be used by smaller businesses too.

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When to use which strategy?

Type Approach Elements

Entering a New Market Competition Market share

Market Comparative products and services
Barriers to entry

Entry Start from scratch

Acquire an existing player
Form a joint venture or strategic alliance with
existing player
Selling your idea to market leader

Industry Analysis Current Industry Life cycle (growth, transition, maturity)

Structure Performance, margins
Client’s position within the industry
Major players and market share
Industry changes (new players, new technology)
Drivers (brand, size, technology)
Profitability, Margins

How many?
Suppliers Product availability?
What’s going on in their market?
Expanding or shrinking?
Future Mergers and acquisitions?
Barriers to entry or exit?
Substitutes
Increase market access (boost brand or increase
market share)
Mergers & Objectives Diversify holdings
Acquisitions Pre-empt the competition
Enjoy tax advantages
Incorporate synergies (cost savings, cultural
integration or distribution channel expansion)
Increase shareholder value

Price Fair? Affordable?

How to pay?
If the economy sours...?

What shape is the company in?

A market Leader
Due Diligence The industry?
How secure are its markets and customers?
What are the margins?

The below table illustrates the mechanism or the roadmap to be used based by a
firm basis the need or the market condition in which the company operates.

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 What is the best competitive response to
acquisition?
What are the legal issues?
Margins

Exit Strategies How long to keep it?

Divest parts of the organization?

Special or proprietary?
Financing?
New Product Product Patented?
Substitutions?
Advantages & disadvantages? Place in product line?
Cannibalizing our own products? Replacing existing
product?

Market Strategy Expansion of customer base

Prompts to competitive response
Barriers to entry
Major players and market share

Customers Who?
How to reach them?
Retention — how to hold them?

Financing How funded?

Best allocation of funds?
Debt viable?

Pricing Strategies Pricing Competitive pricing (Competitors’ prices

compared to ours, substitutions, consumer buying
habits)
Cost-based pricing (Cost of goods sold, breakeven
point, profit added)
Price-based costing (what customers are willing to
pay, worth compared to others, supply and
demand)
Company objective (market share and profits)

Growth Strategies Assessment Is the industry growing?

How are we growing compared to the industry?
Are our prices relative to competitors’?
What are our competitors marketing and
development strategies?
Which segments have the most potential?
Funding for higher growth

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 Strategies Increase distribution channels
Increase product line
Invest in major marketing campaign
Diversify products or services offered

New Business Market Who is the competition?

What is their market share?
Products comparison
Barriers to entry

Management
Cost Benefit Analysis Marketing and strategic plan Distribution channels
Product
Customers
Finance

CompetitiveResponse Why? New product?

Competitor’s strategy changed?
Other competitors’ increased market share

Strategy Acquire a competitor

Merge with competition
Copy competitor
Hire the competitor’s management
Increase profile with marketing campaign

Increasing Sales Assessment Growth relative to market share Changes in

(increasing sales market share Customer polls
doesn’t necessarily Prices competitive?
mean increasing Competitor’s strategies (marketing and product
profits) development)

How? Increase volume

Increase amount of each sale
Increase prices
Create seasonal balance

Reducing Costs Assessment Get cost breakdown

Investigate for irregularities Benchmark
competitors
Consider labour-saving technologies

Cost analysis — Union wages, suppliers, materials, economies of

Internal scale, increased support system

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 Cost analysis — Economy, interest rates, government regulations,
External transportation/shipping strikes

Increasing Profits Revenue Identification of revenue streams? Percentage of

(Always look for total revenue of each? Unusual balance?
external factors Have percentages changed?
first)

ID fixed costs
Costs ID variable costs
Shifts in costs
Unusual costs
Benchmark competitors
Reduce costs without damaging revenue streams

Volume Expand into new areas

Increase sales (volume and force)
Increase marketing
Reduce prices
Improve customer service

Learn about company

Review services, products, finances
Turnaround Strategy Secure funding
Review talent and culture
Determine short term / long term goals
Write a business plan
Reassure clients, suppliers, distributors
Prioritize goals and develop some small successes
for momentum

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Caselets:

A problem statement has been given. Consultant makes an attempt to solve the case
using strategies mentioned in the above table. A comment section has been provided
at the end which tries to evaluate the approach.

Case 1: Yellow Stuff Chemical Company

Our client is a manufacturer that makes industrial cleaning solvents and pesticides. Recently, sales
have been declining, mostly due to new EPA guidelines. The company has been “dumping”
its old products overseas into countries that have less stringent environmental laws as well as
re- engineering its products to fit the new EPA guidelines. Further evaluation of sales, both past
and future, indicates that the chemical industry has, and will, continue to grow slowly over the next
five to seven years, with 3% annual growth.

Management has decided to diversify. While Yellow Stuff wants to keep its chemical business intact,
it also wants to enter an industry that has long-term, high-growth potential. Yellow Stuff has hired
us to help determine what industry or industries it should enter.

While I don’t want you to come up with a list of industries, I do want you to tell me what
sort of things you should be researching to determine what industry our client should
diversify into.

So, as I understand it, our client is a chemical manufacturer who wants to diversify outside
the chemical industry into a high-growth industry.

– That’s right.

And you want me to come up with a strategy on how to find the best possible match.

– Yes.

Besides diversification and profit, are there any other objectives that I should know about?

– No.

What does the company define as high growth?

– 10% a year.

Well, the first thing I’d do is obtain a list of all the industries and eliminate the ones
that are growing less than 15% or have a potential in the next year of growing less
than 15%. How much risk is Yellow Stuff willing to take?

– Medium.

Then, I’d also eliminate any high-risk or volatile industries. Next, I’d study the list to
see if there are any synergies that we can share.

– Such as?

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One example might be to look to see if there is a sister industry where our customer
list is the same. If we sell cleaning solvents to Pepsi and then we get into
manufacturing aluminium, maybe we can sell Pepsi soda cans. We also have a
history of marketing and selling business-to-business, so we might want to stay away
from consumer products. We could look at other commonalities, such as distribution
channels and sales force. Once we narrow the list, we need to analyse the market to find
out who the major players are and what, if any, barriers to entering the market are.

– Okay, what else?

There are three ways to enter a new market: Start from scratch, acquire an existing player,
or do a joint venture. Depending on the industry and the barriers...

– What sort of barriers are you talking about?

Could be government regulations. If you try to start a business and your products have to
get approved by the FDA or the EPA, then that could take years. In a case like that, you might
want to acquire an existing player. A barrier might be a stranglehold on the market if, for
example, two companies hold an extraordinarily large market share and have a habit of
destroying new entries. If raw materials or supplies proved hard to come by, that would be
another barrier.

– Okay.

Did I mention substitutions as a barrier?

– What’s next?

I’d look very carefully at the future of the industry. It currently may be growing over 10%, but
is that going to last and for how long? Is the market growing or shrinking? Is the number of
players growing or shrinking? Have there been many mergers or acquisitions lately? And
I’d take some time to think about exit strategies as well.

– Summarize for me.

I’d identify all the relevant industries, analyse their markets and determine the best way to
enter that market. I’d also conduct an analysis to see if the company might not be better off
just investing the money into the stock market. It may make a better return and its investment
would be a lot more liquid.

Type of case: Entering a new market

Comments: Ninety percent of this question is irrelevant. It is not about the chemical industry, it’s
about entering a new market. The candidate took the time to ask for the company’s definition of high
growth. From there, it was straight logic. Now, some of you might argue that this was really a growth-
strategies question, but the question tells us that the client really wants to diversify, which narrows
the growth strategies to one: diversification. The question then becomes one of identifying the new
industry.

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Case 2: Longest-lasting Light Bulb

GE® (“We bring good things to life”), has invented a new light bulb that never burns out. It could burn
for more than 500 years, and it would never blink. The director of marketing calls you into her office
and asks, “How would you price this?” What do you tell her?

Let me make sure I understand. GE has invented a light bulb that never burns out, and the
marketing director wants us to help her decide on a price.

– That’s correct.

Is coming up with a price the only objective? Or is there something else I should be
concerned about?

– Pricing is the only objective.

Is there any competition for this product, and do we have a patent?

– We have a patent pending, and there is no other competition.

We know that the advantage is that this bulb never burns out. Are there any disadvantages
to this product? Does it use the same amount of electricity?

– There are no disadvantages, except maybe price. And that’s why you’re here. What did you
spend on R&D?

– It cost $20 million to develop this product.

What are the costs associated with a conventional light bulb?

– It costs us five cents to manufacture. We sell it to the distributor for a quarter, the distributor
sells it to the store for 50 cents and the store sells it to the consumer for 75 cents.

And what does it cost us to manufacture the new light bulb?

– Five dollars.

So, if we use the conventional bulb-pricing model, that would mean the consumer would
havetopay$75 for this light bulb. If we use another simple model and say that a light
bulb lasts one year and people will have this new bulb for 50 years, that’s an argument for a
retail price of $37.50 (50 years’ x $0.75). Then we need to ask ourselves whether a consumer
would pay $37.50 for a light bulb that never wears out. Now we’re looking at price-based
costing. What are people willing to pay? And is it enough to cover our costs and give us a nice
profit?

The other main issue is that the more successful we are, the less successful we’ll be in the
future. For every eternal light bulb, we sell, that’s 50 or 75 conventional bulbs we won’t sell
in the future. In a sense, we’re cannibalizing our future markets. So, we have to make sure
that there is enough of a margin or profit to cover us way into the future.

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– Good point.

I’ll tell you; I have reservations about selling to the consumer market. I just don’t think the
opportunity for pricing is there.

– So, what do we do, scrap the project? We have already spent over $20 million in R&D.

Not at all. We turn to the industrial market. For example, the City of Cambridge probably has
2,000 street lamps. Those bulbs cost maybe $20 and have to be changed twice a year. The
real expense there isn’t the cost of the bulb; it’s the labour. It might take two union workers.
In addition, you have to send out a truck. It probably costs the city $150 in labour costs just
to change the light bulb. Now, if we were to sell them this ever-lasting bulb for $400, they
would make that money back in less than two years and we would make a handsome profit.

– Not bad.

Type of case: Pricing

Comments: First, the candidate looked at cost-based pricing and realized that the price was too high,
and that the typical consumer would not shell out $75 for a light bulb. Then he looked at price-based
costing and concluded there wasn’t enough of a margin built in to make it profitable. Thinking outside
the outline given in the pricing case scenario, the student also realized that he would be cannibalizing
his future markets. Thus, he decided that neither pricing strategy made sense for the retail market.
So, instead of suggesting that GE just cut its losses and walk away from the project, he went looking
for alternative markets and concluded that there was great potential in the industrial market.

Because this product has yet to be released, and is without competition, the supply and demand
theory doesn’t work in this case.

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 ADVANCED FRAMEWORKS

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1. VRIN Framework (https://www.youtube.com/watch?v=V4mLR3FimKk)

The VRIN Framework is a business strategy tool to evaluate options in a structured

way to make better business and strategic decisions. VRIN framework is used to
identify a sustainable competitive advantage for a company in an industry.

VRIN framework is derived from the VRIO framework which is a part of a much larger
strategic scheme for a firm.

VRIO is an acronym for the four-question framework you ask about a resource or
capability to determine its competitive potential: the question of Value, the question of
Rarity, the question of Imitability (Ease/Difficulty to Imitate), and the question of
Organization (ability to exploit the resource or capability). In VRIN, the last letter
changes to N to signify non-substitutability.

Both frameworks are essentially applied to assess and analyse a firm’s internal
resources and its potential for applying these resources to achieve competitive
advantage. It complements the PESTLE analysis method, which is mostly used by
marketers to analyse and monitor the macro-environmental factors that have an
impact on an organization. Next, we analyse each of these elements in detail.

• VALUABLE

The basic question asked by the V in the VRIN framework for internal analysis is “Is
this resource or capability valuable to the local firm?” In this case, the definition of
value is whether or not the resource or capability works to exploit an opportunity or
mitigate a threat in the marketplace. If it does do one of those two things, it can be
considered a strength of the company. However, if it does not work to exploit an
opportunity or mitigate a threat, it is a weakness.

Six common examples of opportunities firms could attempt to exploit are technological
change, demographic change, cultural change, economic climate, specific
international events, and legal and political conditions. Furthermore, five threats that a
resource or capability could mitigate are the threat of buyers, threat of suppliers, threat
of entry, threat of rivalry, and threat of substitutes. Generally, this exploitation of

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opportunity or mitigation of threat will result in one of two more outcomes: an increase
in revenues or a decrease in costs (or both).

• RARE

Resources that are available to all competitors rarely provide any significant
competitive advantage A firm’s resources and capabilities must be both short in supply
and persist over time to be a source of sustained competitive advantage. If both
elements (short supply and persistence over time) aren’t met, then the resources and
capabilities a firm has can’t be a sustained competitive advantage. If a resource is not
rare, then perfect competition dynamics are likely to be observed.

Example of Rarity - A janitor who defines his/her job as helping the firm make and sell
better products instead of just referring to their job as simply cleaning up facilities is
quite unusual. Most individuals would agree that this firm has a source of competitive
advantage over other firms in their industry because their objectives and strategies are
transparent throughout the entire firm; unlike many other firms where only top tier
management is the only group that believes in their objectives and strategies (Barney
& Hesterly, 2011).

• INIMITABILITY

An ideal resource cannot be obtained by competing businesses. Firms with valuable

and rare resources, which are hard to imitate by other firms, can gain the first-mover
advantages in the market and can hence gain competitive advantage. If there is no
cost or little cost in obtaining this rare and valuable resource, the fellow firms can
imitate the competitive advantage in order to gain competitive parity (firms that create
the same economic value as their rival’s experience competitive parity). However,
sometimes it is hard for other firms to get access to the resources and imitate the
innovative company’s strategy. As a result, the innovative companies that implement
its strategies based on costly-to-imitate and valuable resources can gain long-term
competitive advantage, which ensures a company’s sustained success (Hill & Jones,
1998). Hence, to sustain the competitive advantage, it is not sufficient for a firm's
resources and capabilities to be valuable and rare - they should also be inimitable.

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• NON-SUBSTITUTABILITY

An ideal resource cannot be substituted by any other resource. This is another

important factor to gain an edge over competitors. Resources should not be able to be
replaced by any other strategically equivalent valuable resources. If two resources can
be utilized separately to implement the same strategy, then they are strategically
equivalent. Such resources are substitutable and so are not sources of sustained
competitive advantage.

2. ANSOFF MATRIX (https://www.youtube.com/watch?v=arzXIjgCnhE)

Ansoff Matrix traces its roots in a paper written by Igor Ansoff proposing the marketing
strategy of a product involved 4 stages- Market Penetration, Product Development,
Market Development and Diversification. Ansoff Matrix is a tool which helps to
establish the possible growth strategies for an organization.

Ansoff classified the common thread under 4 categories:

Existing Product New Product

Market Penetration Product Development

Existing Market

New Market Market Development Diversification

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• Market Penetration –

– The Company continues its focus on the same market / market segment with the
same product, thereby achieving economies of scale and benefits of learning effects.
This improves further the market share and profitability.

– However, the company gets too dependent on a particular market segment and a
particular product which is risky if the product is in the maturity / decline stage or faces
technology obsolescence or if the market / customer needs change drastically in the
rapidly changing business environment.

• Product Development -

– The Company continues its focus on the same market (Mission) but introduces new
products, which are likely to have a significant growth potential in the market. Since
the company is known in that market, there is a better chance for its new products to
be accepted by the customers. This option is considered to be riskier than market
penetration.

• Market Development –

– The Company introduces the existing product in a new unfamiliar market. Since the
company is not known in this market/industry, the product may not be easily accepted
in the market even though the product may be technologically sound and proven in
other industries.

– For example, a company’s pumps may be well established in the dairy industry.
However, they may not be easily accepted in the chemical industry. Hence the market
development is considered to have larger risk than product development.

• Diversification –

– New product and new market (Mission)

Companies diversify to leverage their resources and capabilities to attractive industries

with much higher profitability. However, since both the product and the market
(Mission) are new, this option is the riskiest of the 4 options in the Ansoff’s Matrix.

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3. PORTER’S 4 CORNERS (https://www.youtube.com/watch?v=5OX10VR3yno)

Porter’s four corners model is a predictive tool designed by Michael Porter that helps
in determining a competitor’s course of action. Unlike other predictive models which
predominantly rely on a firm’s current strategy and capabilities to determine future
strategy, Porter’s model additionally calls for an understanding of what motivates the
competitor. This added dimension of understanding a competitor's internal culture,
value system, mind-set, and assumptions helps in determining a much more accurate
and realistic reading of a competitor’s possible reactions in a given situation.

• Motivation – Drivers

This helps in determining competitor's action by understanding their goals (both

strategic and tactical) and their current position vis-à-vis their goals. A wide gap
between the two could mean the competitor is highly likely to react to any external
threat that comes in its way, whereas a narrower gap is likely to produce a defensive
strategy. Question to be answered here is: What is it that drives the competitor? These
drivers can be at various levels and dimensions and can provide insights into future
goals.

• Motivation – Management Assumptions

The perceptions and assumptions the competitor has about itself and its industry would
shape strategy. This corner includes determining the competitor's perception of its
strengths and weaknesses, organization culture and their beliefs about competitor's
goals. If the competitor thinks highly of its competition and has a fair sense of industry
forces, it is likely to be ready with plans to counter any threats to its position. On the
other hand, a competitor who has a misplaced understanding of industry forces is not
very likely to respond to a potential attack. Question to be answered here is: What are
competitor's assumption about the industry, the competition and its own capabilities?

• Actions – strategy

A competitor's strategy determines how it competes in the market. However, there

could be a difference between the company's intended strategy (as stated in the
annual report and interviews) and its realized strategy (as is evident in its acquisitions,

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new product development, etc.). It is therefore important here to determine the
competitor's realized strategy and how they are actually performing. If current strategy
is yielding satisfactory results, it is safe to assume that the competitor is likely to
continue to operate in the same way. Questions to be answered here are: What is the
competitor actually doing and how successful is it in implementing its current strategy?

• Actions – capabilities

This looks at a competitor's inherent ability to initiate or respond to external forces.

Though it might have the motivation and the drive to initiate a strategic action, its
effectiveness is dependent on its capabilities. Its strengths will also determine how the
competitor is likely to respond to an external threat. An organization with an extensive
distribution network is likely to initiate an attack through its channel, whereas a
company with strong financials is likely to counter attack through price drops. The
questions to be answered here are: What are the strengths and weaknesses of the
competitor? Which areas is the competitor strong in?

4. PORTER’S DIAMONDS (https://www.youtube.com/watch?v=T9ALTVXawNk)

Porter’s Diamond Model is a very useful framework for companies to know which
countries would be globally competitive for a specific industry/sector.

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The theme of Porter’s Diamond Model is that a country requires to meet the following
4 essential conditions for it to be globally competitive for a specific industry/sector:

1. Demand Conditions: The customers (B2B or B2C) should be demanding thereby

requiring the companies to INNOVATE and offer globally competitive products at
competitive prices.

2. Factor Conditions:

Acquirable: Technology, Skilled labour, Government orientation to FDI,

Infrastructure, Human Development Index (HDI)

Invariant: Location, Natural Resources, Population, Demographics, History

3. Related and Supporting Industries: To make a world class product, the company
needs world class components. Hence for a country to be globally competitive in any
industry, the country should have globally competitive components and related/
supporting industries.

4. Strategy, Structure and Rivalry: The industry players should have global outlook
and international presence. More importantly, the higher the degree of rivalry in the
industry, greater is the pressure on companies to innovate. The government of a
country should therefore promote competition among the industry players.

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5. PORTER'S VALUE CHAIN (https://www.youtube.com/watch?v=aeshYi6lj2Y)

The term ‘Value Chain’ was used by Michael Porter in his book "Competitive
Advantage: Creating and Sustaining Superior Performance" (1985). The value chain
analysis describes the activities the organization performs and links them to the
organizations competitive position.

Value chain analysis describes the activities within and around an organization and
relates them to an analysis of the competitive strength of the organization. Therefore,
it evaluates which value each particular activity adds to the organization’s
products or services. Porter argues that the ability to perform particular activities and
to manage the linkages between these activities is a source of competitive advantage.

There are four main areas of support activities: procurement, technology development
(including R&D), human resource management, and infrastructure (systems for
planning, finance, quality, information management etc.). The term‚ Margin implies that
organizations realize a profit margin that depends on their ability to manage the
linkages between all activities in the value chain.

Primary Activities are:

1. Inbound Logistics - involve relationships with suppliers and include all the
activities required to receive, store, and disseminate inputs.
2. Operations - are all the activities required to transform inputs into outputs
3. Outbound Logistics - all the activities required to collect, store, and distribute
the output.

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 4. Marketing and Sales - activities inform buyers about products and services,
induce buyers to purchase them, and facilitate their purchase.
5. Service - includes all the activities required to keep the product or service
working effectively for the buyer after it is sold and delivered.

Secondary activities are:

1. Procurement - is the acquisition of inputs, or resources, for the firm.

2. Human Resource management - consists of all activities involved in recruiting,
hiring, training, developing, compensating and (if necessary) dismissing or laying
off personnel.
3. Technological Development - pertains to the equipment, hardware, software,
procedures and technical knowledge brought to bear in the firm's transformation
of inputs into outputs.
4. Infrastructure - it consists of functions or departments such as accounting,
legal, finance, planning, public affairs, government relations, quality assurance
and general management.

6. PERIPHERAL VISION (https://hbr.org/2005/11/scanning-the-periphery)

For the human eye, peripheral vision is the ability to see objects and movement outside
of the direct line of vision. From business perspective, peripheral vision is an ability to
detect market trends and weak signals beyond its current boundaries. Doing business
in the face of constant change requires a shift from a ‘make-and-sell’ to a ‘sense-and-
respond’ framework. This in turn requires few new competencies which require intense
attention to what would have been considered the periphery of the traditional make-
and-sell company—the customers and environment. effective strategic thinkers follow
three key steps - they actively scan the periphery, spot the weak signals which others
may miss and respond proactively to market trends.

Scanning the periphery

- First, effective strategic thinkers are highly diligent about building their own
network inside and outside the organization.
- Secondly, strategic thinkers don’t just rely on their individual powers of observation
and networking, they develop robust market intelligence systems within their
organization to regularly capture, analyze and interpret information, and then feed
it into their company’s strategy development process.
- Thirdly, they tap the power of the internet and new technologies. We increasingly
find that leaders have become adept at using social media to stay connected and
be informed from a wide variety of sources.
- Finally, Open innovation Networks such as Innocentive and Nine Sigma are
designed to find solutions by posing problems to a global community of scientists.

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 Procter & Gamble has similarly extended networks of individuals and institutions
that they use to identify products, ideas, and solutions to technical problems.

Spotting weak signals

Need to distinguish important signals from the background noise. Take the case of
scooters in India - when the market had shifted to motorcycles, few companies thought
of bringing the scooter back into the market. However, Honda spotted the weak signals
from the increasing number of women in the workforce, the rise of small towns and the
mobility desired by the new generation. It introduced Honda Activa to tap the seemingly
peripheral demand and shifted the landscape of the two-wheeler market in India.

Responding proactively

Even where signals are picked up and their significance for the business is correctly
identified, inertia and routine thinking can be an impediment to taking timely action.
Once important threats or opportunities have been identified on the periphery, it is the
responsibility of leaders to ensure that fast action is taken.

7. PARTS

The game of business is all about value: creating it and capturing it. Who are the
participants in this enterprise? To describe them, we introduce the Value Net – a
schematic map designed to represent all the players in the game and the inter-
dependencies among them.

Substitute Firms are alternative players from whom customers may purchase
products or to whom sup- pliers may sell their resources. Complement Firms
are players from whom customers buy complementary products or to whom
suppliers sell complementary resources. The Value Net describes the various
roles of the players. It’s possible for the same player to occupy more than one
role simultaneously. Remember that American and United are both substitutes

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and complements. Gary Hamel and C.K. Prahalad make this point in
Competing for the Future (Harvard Business School Press, 1994): “On any
given day. AT&T might find Motorola to be a supplier, a buyer, a competitor,
and a partner.” Drawing the Value Net for your company was the first step. The
second step is identifying all the elements of the game. According to game
theory there are five:

P: Players, A: Added values, R: Rules, T: Tactics and S: Scope hence

PARTS.

Successful business strategies begin by assessing and then changing one or

more of these elements.

Changing the Players:

The cellular phone business was undergoing rapid consolidation in June

1989, when 39-year-old Craig Mc- Caw made a bid for Lin Broad- casting
Corporation. With 50 million POPs (lingo for the population in a coverage
area) already under his belt, McCaw saw the acquisition of Lin’s 18 million
POPs as the best, and possibly the only, way to acquire a nation- al cellular
footprint. He bid $120 per share for Lin, which resulted in an immediate jump in
Lin’s share price from $103.50 to $129.50. Clearly, the market expected more
action. But Lin’s CEO, Donald Pels, didn’t care much for McCaw or his bid.
Faced with Lin’s hostile reaction, McCaw lowered his offer to $110, and Lin
sought other suitors. BellSouth, with 28 million POPs, was the natural
alternative, al- though acquiring Lin wouldn’t quite give it a national footprint.
Nevertheless, BellSouth was willing to acquire Lin for the right price. But if it
entered the fray, it would create a bidding war and thus make it un- likely that
Lin would be sold for a reasonable price. BellSouth knew that only one bidder
could win, and it wanted something in case that bidder was Mc- Caw. Thus, as
a condition for making a bid, Bell South got Lin’s promise of a $54 million
consolation prize and an additional $15 million toward expenses in the event that
it was outbid. BellSouth made an offer generally valued at between $105
and$112 per share. As expected, BellSouth was out- bid; McCaw responded
with an offer valued at $112 to $118 per share. BellSouth then raised its bid to
roughly $120 per share. In return, Lin raised Bell- South’s expense cap to $25
million. McCaw raised his bid to $130 and then added a few dollars more to close
the deal. At the same time, he paid BellSouth $22.5 million to exit the game.4
At this point in the bidding, Lin’s CEO recognized that his stock options were
worth $186 million, and the now friendly deal with McCaw was concluded.
BellSouth clearly understood that even if you can’t make money in the
game the old-fashioned way, you can get paid to change it.

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So how did the various players make out? Lin got itself an extra billion, which
made its $79 million payment to BellSouth look like a bargain. McCaw got the
national network he wanted and subsequently sold out to AT&T, making
himself a billionaire. And BellSouth, by getting paid first to play and then to go
away, turned a weak hand into $76.5 million plus expenses.

Changing the Added Values:

Consider Trans World Airlines’ introduction of Com- fort Class in 1993. Robert
Cozzi, TWA’s senior vice president of marketing, proposed removing 5 to 40
seats per plane to give passengers in coach more legroom. The move raised
TWA’s added value; according to J.D. Power and Associates, the company
soared to first place in customer satisfaction for long-haul flights. This was a
win for TWA and a loss for other airlines. But elements of win-win were present
as well: With fuller planes, TWA was not about to start a price war.

But what if other carriers copied the strategy? Would that negate TWA’s efforts?
No, because as others copied TWA’s move, excess capacity would be retired from
an industry plagued by overcapacity. Passengers get more legroom, and carriers
stop flying empty seats around. Everyone wins. The idea of raising the own
added value is natural. Less intuitive is the approach of lowering the added
value of others. Cozzi saw a way to move the industry away from the self-
defeating price competition that goes on when air- lines try to fill up the coach
cabin. This was business strategy at its best.

Changing the Rules:

Kiwi International Air Lines understands these ideas perfectly. Named for the
flightless bird, Kiwi is a 1992 start-up founded by former Eastern Air Lines pilots
who were grounded after Eastern went bankrupt. Kiwi engineered a cost
advantage from its employee ownership and its use of leased planes. But it had
lower name recognition and a more limited flight schedule than the major carriers
– on balance, not much, if any, added value. So, what did it do? It went for low
prices and limited capacity. According to public statements from its then CEO,
Robert Iverson, “We designed our system to stay out of the way of large carriers
and to make sure they understand that we pose no threat. Kiwi intends to capture,
at most, only 10% share of any one market – or no more than four flights per day.”
Because Kiwi targets business travellers, the major airlines can’t use stay-over
and advance-purchase restrictions to lower price selectively against it. So, Kiwi
benefited from the one-price-to-all rule. If negotiation in your business take
place without rules, consider how bringing in a new rule would change
the game. But be careful. Now

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Kiwi, in turn, became the large player for any newcomer to the same market.
That didn’t leave much room to be small in relation to Kiwi, so Kiwi had to fight
if someone else tried to follow suit. According to Iverson, “[The major airlines]
are better off with us than without us.” Even though Kiwi was Delta’s rival, by
staying small and keeping out other potential entrants, it managed to bring an
element of coopetition into the game.

Tactics: Changing Perception

A fee negotiation be- tween an investment bank and its client (a composite of
sever- al confidential negotiations) offers a good example. The client is a
company whose owners are forced to sell. The investment bank has identified
a potential acquirer. So far, the investment bank has been working on good
faith, and now it’s time to sign a fee letter. The investment bank suggests a 1%
fee. The client figures that its company will fetch $500 mil- lion and argues that
a $5 million fee would be excessive. It proposes a 0.625% fee. The investment
bankers think that the price will be closer to $250 million and that accepting
the client’s proposal would cut their expected fee from $2.5 million to about
$1.5 million.

One tactic would be to lift the fog. The investment bank could try to convince
the client that a

$500 million valuation is unrealistic and that its fear of a $5 million fee is
therefore unfounded. The problem with this tactic is that the client does not
want to hear a low valuation. Faced with such a prospect, it might walk away
from the deal and even from the bank altogether – and then there would be no
fee. The client’s optimism and the investment bankers’ pessimism create an
opportunity for an agreement rather than an argument. Both sides should
agree to a 0.625% fee combined with a $2.5 million guarantee.

Changing the Scope:

A game in one place can affect games else- where, and a game today can
influence games to- morrow. You can change the scope of a game. You can
expand it by creating linkages to other games, or you can shrink it by severing
linkages. Either approach may work to your benefit.

We left Nintendo with a stock market value exceeding both Sony’s and
Nissan’s, and with Mario better known than Mickey Mouse. Sega and other
would-be rivals had failed in the 8-bit game. But while the rest fell by the
wayside, Sega didn’t give up. It introduced a new 16-bit system to the U.S.
market. It took two years before Nintendo respond- ed with its own 16-bit
machine. By then, with the help of its game hero, Sonic the Hedgehog, Sega

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had established a secure and significant market position. Today the two
companies roughly split the 16- bit market.

Was Sega lucky to get such a long, uncontested period in which to establish
itself? Sega realized that by expanding the scope, it could turn Nintendo’s 8-
bit strength into a 16-bit weakness. Put yourself in Nintendo’s shoes: Would
you jump into the 16- bit game or hold back? Had Nintendo jumped into the
game, it would have meant competition and, hence, lower 16-bit prices. Lower
prices for 16-bit games, substitutes for 8-bit games, would have reduced the
value created by the 8-bit games– a big hit to Nintendo’s bottom line. Letting
Sega have the 16-bit market all to itself meant that 16-bit prices were higher
than they otherwise would have been. Higher 16-bit prices cushioned the effect
of the new-generation technology on the old. By staying out of Sega’s way,
Nintendo made a calculated trade-off: Give up a piece of the 16-bit action in
or- der to extend the life of the 8-bit market. Nintendo’s decision to hold back
was reasonable, given the link between 8-bit and 16-bit games.

8. VRIO (https://www.youtube.com/watch?v=V4mLR3FimKk)

VRIO is an acronym for a four-question framework of value, rarity, imitability, and

organization. These four components are typically approached in the style of a
decision tree:

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• Value: Do you offer a resource that adds value for customers? Are you able to
exploit an opportunity or neutralize competition with an internal capability?
o No: You are at a competitive disadvantage and need to reassess your
resources and capabilities to uncover value.
o Yes: If value is established, move on in your VRIO analysis to rarity.

• Rarity: Do you control scarce resources or capabilities? Do you own something

that’s hard to find yet in demand?
o No: You have value but lack rarity, putting your company in a position of
competitive parity. Your resources are valuable but common, which
makes competing in the marketplace more challenging (but not impossible).
It’s recommended to go back one step and reassess.
o Yes: With value and rarity identified, your next hurdle is imitability.

• Imitability: Is it expensive to duplicate your organization’s resource or capability?

Is it difficult to find an equivalent substitute to compete with your offerings?
o No: If your resource has value and rarity, but is affordable or easy to copy,
you have a temporary competitive advantage. It will require considerable
effort to stay ahead of competitors and differentiate your services—go back
one step and reassess.
o Yes: You offer something that’s valuable, rare, and hard to imitate—now
the focus is on your organization.

• Organization: Does your company have organized management systems,

processes, structures, and culture to capitalize on resources and capabilities?
o No: Without the internal organization and support, it will be difficult to fully
realize the potential of your valuable, rare, and costly-to-imitate resources.
Your company will have an unused competitive advantage and will need
to reassess how to attain the needed organization.
o Yes: Your company has achieved the ultimate goal of sustained
competitive advantage when it has successfully identified all four
components of the VRIO framework.

VRIO analysis can be applied company-wide or to individual departments for a well-

rounded view of how each aspect of your business should position itself in the
marketplace. It’s important to continually review your framework—capabilities change
over time and competitors adapt. As we stated in the beginning of this article, the best
time to review your VRIO is at the onset of your strategic planning process.
Committing to the VRIO process and evolving your analysis over time will protect your
sustained competitive advantages.

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 Guesstimate

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Guesstimate is an important part of many interview processes. These will be asked
frequently in your summer internship interviews as well as in your final placement process.
For those wanting to enter into consulting, guesstimate is going to be a very crucial part.

There are a few things that you should always remember solving guesstimate-

1. For a guesstimate problem there is no correct approach or an answer. Don’t aim to

reach close to the correct answer rather try to approach the problem in a way where
you are considering all the possible scenarios.
2. Ask as many questions as you want. Since guesstimate questions require assumption
hence make sure that you ask all the relevant questions to the interviewer before
starting the calculation part
3. Always convey the assumptions that you have made while solving the guesstimate

Guesstimate Approach-

Data Required-

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Guesstimate I:

Estimate is the demand for Gold flake cigarettes in Mumbai?

Given that Gold flake’s market share is 20% in Delhi.

(Assume Mumbai population = 20 Mn)

(Assume- 25% people below 18)

(Assume- 50% people will smoke

Note- 50% is random assumption and
doesn’t matter till the approach is correct)

Here, 365 rounded off to 400 for quick calculation

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Guestimate II

Estimate the monthly residential electricity consumption in India

(Assume- 70% population is rural)

(Assume- 25% consumption is residential)

(Assumed % low, mid and high

income in rural and urban
areas)

(Assumed unit electricity consumption of low, mid, high income in urban and rural area)

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