Strategic Planning

What is Industry?
Industry Structure –

–Fragmented Industry
– Focus
–Consolidated Industry
–Cost/Differentiation through service
–Move toward commoditization
What should you Do ?
• Suppose, you have increased price of your product by 25%
• Estimate the overall demand position for different price elasticity of
demand in different country –
(-1.5), (-1.0), (-0.5)
• What will be impact of company’s market share after price increase (
Industry has not grown). Current revenue of the company is Rs. 1000
Crore. and company currently holds 25 % of market share.
• What is market size ?

18-10-2023 SUVODIP SEN 4

In which industry will you invest?
First Step…….common sense
• Niche –
– Need in the marketplace that is currently
unsatisfied

• Corporate Goal –
– Find profitable niche – market segment big
enough for only one company

– Strategic window – opportunity available for a

limited time
Porter 5 Force
Take an Industry……..& apply Porter’s 5 forces model
How would you reduce customer’s power?
How would you reduce supplier’s power?
How would you manage new entrant(s)?
How would you manage impact of
substitutes?
Porter 5 Forces - Disadvantage

What are the disadvantages of Porter Five Force Model?

What is Value?
• Must be defined in monetary terms
• (Net benefits – cost )the customer is paying to get
desired benefits or results
• What customer gets in exchange of price
• From customer’s perspective only
• Perceived by customer(s) only

Value(Company) – Price(Company) > Value(Competitor) – Price(Competitor)

Value Attributes Exercise……..
Each and individual

1. Select a particular product that you are using

2. Select its at least competitor(s)
3. Why do you buy and why you don’t buy
4. Rank the criteria(s)
What happens when link breaks?
Is your company superior?
Financial Performance
• ROS
• ROI
• EVA
Root cause of Superior Profitability
• Relative Cost
• Relative Price
What is Value Chain Analysis?

• Focuses on how a business creates customer value by

examining contributions of different internal activities to
that value
• Divides a business into a set of activities within the
business
• Starts with inputs a firm receives
• Finishes with firm’s products or services and after-sales service to
customers
• Allows for better identification of a firm’s strengths and
weaknesses since the business is viewed as a process
Value Chain
What do we do in VCA?
• Breaking down activities in Primary & Secondary
• Assessing potential for Value creation for each activity –
Benchmarking
• Create Fundamental strategy
Fundamental Strategy
• Low Cost
• Differentiation
• Profit = Revenue – Cost

What happens when firm has certain activities for Low Cost & other activities for
Differentiation?
 TOOLS FOR VCA
Competitive advantage types
Cost advantage Differentiation advantage
This approach is used when The firms that strive to create superior
organizations try to compete on costs products or services use differentiation
and want to understand the sources of advantage approach. (good
their cost advantage or disadvantage examples: Apple, Google, Audi, Starbucks)
and what factors drive those
costs.(good
examples: Amazon.com, Wal-
Mart, McDonald’s, Maruti)

•Step 1. Identify the firm’s primary and •Step 1. Identify the customers’ value-
support activities. creating activities.
•Step 2. Establish the relative •Step 2. Evaluate the differentiation
importance of each activity in the total strategies for improving customer value.
cost of the product. •Step 3. Identify the best sustainable
•Step 3. Identify cost drivers for each differentiation.
activity.
•Step 4. Identify links between
activities.
•Step 5. Identify opportunities for
reducing costs.
Value Chain Analysis Example
Step 1 - Firm's primary activities
Design and Purchasing Assembly Testing and Sales and Distribution
engineering materials and quality marketing and dealer
components control support

Step 2 - Total cost and importance

$164 M $410 M $524 M $10 M $384 M $230 M
less very very not important less
important important important important important
Step 3 - Cost drivers
•Number •Order size •Scale of •Level of •Size of •Number of
and •Average plants quality advertising dealers
frequency of value of •Capacity targets budget •Sales per
new models purchases utilization •Frequency •Strength of dealer
•Sales per per supplier •Location of of defects existing •Frequency
model •Location of plants reputation of defects
suppliers •Sales requiring
Volume repair recalls
Step 4 - Links between activities
1.High-quality assembling process reduces defects and costs in quality control
and dealer support activities.
2.Locating plants near the cluster of suppliers or dealers reduces purchasing and
distribution costs.
3.Fewer model designs reduce assembling costs.
4.Higher order sizes increase warehousing costs.

Step 5 - Opportunities for reducing costs

1. Create just one model design for different regions to cut costs in designing and
engineering, to increase order sizes of the same materials, to simplify assembling
and quality control processes and to lower marketing costs.
2. Manufacture components inside the company to eliminate transaction costs
of buying them in the market and to optimize plant utilization. This would also
lead to greater economies of scale.
 How Porter’s 5 Forces is
different from Porter’s Value
Chain analysis?
Company’s Performance has Two sources
INDUSTRY STRUCTURE RELATIVE POSITION
PORTER’S FIVE FORCES VALUE CHAIN
FRAMEWORK
THE ANALYSIS DRIVERS OF INDUSTRY PROFITABILITY DIFFERENCES IN ACTIVITIES
FOCUSES ON
THE ANALYSIS INDUSTRY AVERAGE PRICE & COST RELATIVE PRICE & COST
EXPLAINS
Timing AT THE ENTY DURING BLC
What is Industry Attractiveness?
• Long run growth rate
• Industry size
• Industry profitability: entry barriers, exit barriers, supplier power, buyer
power, threat of substitutes and available complements (use Porter’s Five
Forces analysis to determine this)
• Product life cycle changes
• Changes in demand
• Trend of prices
• Macro environment factors (use PEST or PESTEL for this)
• Seasonality
• Availability of labor
• Market segmentation
Competitive Strength
• Total market share
• Market share growth compared to rivals
• Brand strength (use brand value for this)
• Profitability of the company
• Customer loyalty
• VRIO resources or capabilities (use VRIO framework to determine this)
• Your business unit strength in meeting industry’s critical success factors
• Strength of a value chain (use Value Chain Analysis and Benchmarking to
determine this)
• Level of product differentiation
• Production flexibility
Industry Attractiveness

Business Unit
1
Factor Weight Industry Weighted Company Weighted
Average Score Rating Score
Rating
Industry 0.25 3 0.75 4 1
growth rate

Industry size 0.22 3 0.66 3 0.66

Industry 0.18 5 0.90 1 0.18

profitability
Industry 0.17 4 0.68 4 0.68
structure
Trend of 0.09 3 0.27 3 0.27
prices
Market 0.09 1 0.09 3 0.27
segmentatio
n
Total score 1.00 - 3.35 - 3.06
Competitive Strength (1/2)

Business
Unit 1
Factor Weight Average Weighted Company Weighted
Rating Score Rating Score
Market share 0.22 2 0.44 2 0.44

Relative growth 0.18 3 0.48 2 0.38

rate
Company’s 0.14 3 0.42 1 0.14
profitability
Brand value 0.10 1 0.10 2 0.20
VRIO resources 0.20 1 0.20 4 0.80

CVM Score 0.16 2 0.32 5 0.80

Total score 1.00 - 1.96 - 2.74
 GE Matrix - Utility
Advantages Dis-advantages
• Prioritise resources • Requires consultant
• Awareness for product and business • Costly to conduct
• More sophisticated than BCG • Do not consider synergy
• Strategic Steps for improvement
SWOT Analysis

Based on assumption an effective strategy derives from a sound

“fit” between a firm’s internal resources and its external situation

Numerous environmental
Major environmental threats
opportunities
A major unfavorable situation in a
A major favorable situation in
firm’s environment
a firm’s environment

Substantial internal strengths Critical internal weaknesses

A resource advantage relative A limitation or deficiency in one or
to competitors and the needs of more resources or competencies
markets firm serves relative to competitors
BCG - Terminology
• Relative Market Share
• Market Growth Rate
• Dogs
• Cash cow
• Stars
• Question Mark
BCG Matrix
STEPS TO BCG
• Step 1. Choose the unit
• Step 2. Define the market
• Step 3. Calculate relative market share
• Step 4. Find out market growth rate
• Step 5. Draw the circles on a matrix
Corporate ‘A’ BCG matrix
Brand Revenues % of Largest rival’s Your brand’s Relative Market
corporate market share market share market share growth rate
revenues

Brand 1 $500,000 54% 25% 25% 1 3%

Brand 2 $350,000 38% 30% 5% 0.17 12%

Brand 3 $50,000 6% 45% 30% 0.67 13%

Brand 4 $20,000 2% 10% 1% 0.1 15%

Corporate ‘B’ BCG matrix
Brand Revenues % of Largest rival’s Your brand’s Relative Market
corporate market share market share market share growth rate
revenues

Brand 1 $500,000 55% 50% 50% 1 3%

Brand 2 $350,000 31% 30% 5% 0.17 -15%
Brand 3 $50,000 10% 45% 30% 0.67 -4%
Brand 4 $20,000 4% 10% 1% 0.1 8%
 Utility of BCG Matrix
Advantages
• Easy to Perform
• Understand the strategic position
• Good Starting Point
Dis-advantages
• Confusing as confined to 4 cells only
• Definition of market is not clear
• What about external factor?
• Doesn’t consider the potential,
synergy between business units
 Internal Analysis: Making Meaningful
Comparisons

1. Comparison with past

performance

4. Comparison with
2. Stages of Perspectives success factors in
industry evolution
to use industry

3. Benchmarking –
comparison with competitors
Resource Based View
RBV Process
VRIO Framework
 Sources of Distinctive Competence at Different Stages
of Industry Evolution

Functional Introduction Growth Maturity Decline

Area
Marketing Resources/skills Ability to Skills in Cost effective
to create establish brand aggressively means of
widespread recognition, promoting efficient access
awareness and find niche, products to new to selected
find acceptance reduce price, markets and channels and
from customers ; solidify strong holding existing markets; strong
advantageous distribution markets; pricing customer loyalty
access to relations, and flexibility; skills or dependence;
distribution develop new in differentiating strong company
channels products and image
holding
customer loyalty
(contd.)

Functional Introduction Growth Maturity Decline

Area
Production Ability to Ability to add Ability to Ability to prune
operations expand product variants, improve product product line;
capacity centralize and reduce cost advantage
effectively, limit production, or costs; ability to in production,
number of otherwise lower share or reduce location or
designs, costs; ability to capacity; distribution;
develop improve product advantageous simplified
standards quality; supplier inventory
seasonal relationships; control;
subcontracting subcontracting subcontracting
capacity or long
production runs
(contd.)

Functional Introduction Growth Maturity Decline

Area

Finance Resources to Ability to finance Ability to Ability to reuse

support high net rapid expansion, generate and or liquidate
cash overflow to have net cash redistribute unneeded
and initial losses; outflows but increasing net equipment;
ability to use increasing cash inflows; advantage in
leverage profits; effective cost cost of facilities;
effectively resources to control systems control system
support product accuracy;
improvements streamlined
management
control
(contd.)

Functional Introduction Growth Maturity Decline

Area

Personnel Flexibility in Existence of an Ability to cost Capacity to

staffing and ability to add effectively, reduce and
training new skilled personnel; reduce reallocate
management; motivated and workforce, personnel
existence of loyal workforce increase
employees with efficiency
key skills in new
products or
markets
 (contd.)

Functional Introduction Growth Maturity Decline

Area

Engineering and Ability to make Skill in quality Ability to reduce Ability to support
R&D engineering and new feature costs, develop other grown
changes, have development; variants, areas or to apply
technical bugs in ability to start differentiate product to
product and developing products unique customer
process successor needs
resolved product

Key functional Engineering: Sales: consumer Production Finance:

area and market loyalty; market efficiency: maximum
strategy focus penetration share successor investment
products recovery
360 Degree Customer Analysis

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 Customer Analysis

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 Customer Analysis

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 Customer Analysis

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 Customer Analysis

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 Customer Analysis

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 OT – Internal Matter ?

Unique competency as basis of effective

strategy? (Test)

• Imitability
• Durability
• Appropriability
• Sustainability
• Competitive Superiority

18-10-2023
Strategic Drift
Unrealized & Emergent strategy
 Unrealized & Emergent strategy
Intended strategy - is strategy as conceived by the top management team. Even here, rationality is limited and the
intended strategy is the result of a process of negotiation, bargaining, and compromise, involving many individuals and
groups within the organization.

Realized strategy—the actual strategy that is implemented—is only partly related to that which was intended
(Mintzberg suggests only 10%–30% of intended strategy is realized).

Emergent strategy—the decisions that emerge from the complex processes in which individual managers interpret
the intended strategy and adapt to changing external circumstances

Thus, the realized strategy is a consequence

of deliberate and emerging factors.
Experience Curve
"The experience curve is mostly used to assess declining production
costs as a result of cumulative production”

- (Bake et al., 2009).

Experience Curve
Thank You
Question
• Think of a company and analyze its micro and macro environment
• Do the SWOT analysis based on the above questions
• Explain product, marketing and selling concept