Module 1: Entrepreneurship

Idea Incubation
Idea incubation is a process for bringing ideas into reality. It starts on a very fundamental level,
often with a single individual who comes up with a concept he or she thinks should be further
explored. This individual brings others in on the incubation process, making the idea stronger and
more viable. Ultimately, the idea may be turned into a product, assuming that funding can be
secured and that the idea is commercially viable.

Especially in the case of software companies, employees are actively encouraged to spend
work time pondering issues and ways to solve them.
Many companies foster idea incubation by clustering workers together in collaborative
environments. Especially in the case of software companies, employees are actively encouraged
to spend work time pondering issues and ways to solve them. Cooperative groups work best for
incubation because other members of the group can identify strengths and weaknesses of the
idea, resulting in a stronger finished product.

To foster idea incubation, an open environment is needed. Rigid corporate environments with set
bureaucracies tend to foster less idea development. The free exchange of information, use of
conflict as a development tool, and equality between idea incubators allow companies to come up
with innovative product concepts. Teams are encouraged to take risks and think outside the box.
Smaller companies tend to be more successful idea incubators, due to the more egalitarian and
open environment fostered within small companies.

Factors determining competitive advantages

Competitive Advantage – 5 Factors @@@

For any enterprising firm, the competitive advantage may stem from any of the host of functions it

performs. In other words, each of these functions are the sources of generating this much desired

and valued competitive advantage and edge over others in the industry.

Though it is possible to identify functional areas for competitive advantage, at least five broad

functional categories can be identified. It would be nice to call them as factors of competitive

advantage.
(A) Marketing factors,

(B) Production factors,

(C) Research and development and engineering factors,

(D) Personnel and expertise factors and

(E) Corporate resources and finance factors.

Let us know the possible competitive advantage factors from the specific angle of these
functional categories.

A. Marketing factors:
Marketing is a major corporate function. It is marketing that gives life to the very enterprise for it

has no right to survive unless it produces those goods and services, which are needed by the

market place.

Competitive advantage can be built over wide range of the marketing functional areas:

1. The corporate product-mix:

The fundamental task of marketing is to deliver the package of offer to the consumer to fulfil his

needs, in terms of his expected terms, attributes and benefits and make out organisational goals

including profit maximisation.

The total offer made warrants choice of right product, making it available at a place he wants,

promoting the product for better understanding through communication component, and at a

price that is reasonable from the angle of consumer and agreeable from his point of view.

All these four Ps – the components of a market-mix help in mining the consumers. Here we are

concerned with the product mix. Product mix as one of the elements has again components.

In-fact, product is the focus of marketing and marketing efforts. It is the sum total of physical and

psychological satisfaction that it provides to the buyer or the user.It is the sum total of parts like

material used in its construction and its ability to perform, its packaging, its brands and the other

intangibles associated with it all that speak about it image or personality.

The most significant product variables are – product line and product range – product design

the product package, product quality, product labelling, product branding after sale services and

guarantees and warrantees.

The mix chosen to meet a target consumer group has the ability to give an edge over the

competitors. Intelligence lies in its proper match.

2. Packaging:

In-fact, product packaging is one of the variables of product-mix. However, its importance makes

its treatment independent or extra-ordinary. What clothes are to the human- beings so are the

packages for the products. Packages are the container or a wrapper used to house the

product. Packaging is the general group of activities in designing the containers or the

wrappers for the products.

A good package plays a constructive role as it protects ‘the products, provides convenience to

consumers, increases economy and communicates; it keeps contents clean convenience to

consumers and dealers storage and warehouse people display value for merchandising. Attractive

packages are having meaningful communication value.

In a self-service store, it helps the consumers to identify the product, builds consumer confidence,

describes merits and limits of products and encourages impulse buying. Good package designs

has a driven of size, colour, shape, material, construction, closure, copy, illustration in terms of

creative graphics.

3. Service norms:

With every increase in the use of machinery, appliances, equipment and gadgets, there is

inherent need for after-sale services such as installation, guarantees and warrantees

against the manufacturing defects, servicing, repairs, spare-parts, maintenance and the

like.

Manufacturers of industrial products and white goods have to establish a clean, clear and sound

service policy and a plan for servicing their products after sale.

It is such a tool that keeps the consumers, increases consumers and builds image of the firm on

which it can encash. Today, good many dealers in computer hard and software’s do not care for
after-sale service; for them selling a computer is all which means that the relations come to an end

bringing a grinding halt because you can not fool the people all the time. Therefore, it is the

service norms set and practised by manufacturers or dealers that counts.

4. Pricing:

Price is a major marketing tool and helps in directing the product to a specific consumer

segment. It is the powerful instrument in which both the buyers and sellers are interested directly

and the dealers indirectly for their individual and mutual gains.

It is the price of a product or a service that ensures a decent return on investment, guarantees

stable structure, creates, maintains and extends market and market-share.

Price is equal to consumer expectations such as product, its installation, credit, after- sale services

and the like. The price variables are pricing policies and strategies, the terms of credit, in terms of

delivery, amount of margin, resale price maintenance and so on. As a big gun it can make or mar

the competitive strength over others.

5. Market share:

Market share is really a very meaningful measure of success of a firm’s marketing strategy. A

market share that company wants to enjoy depends on good many factors namely, nature of

product, price, quality, packaging, after sale service package, guarantees and warrantees.

Of these entire market share price objective can be either to maintain the market share, to

increase it or, sometimes, to decrease it. The company uses the price as an input to enjoy a target

market share. Target market share means that position of the industry sale which a company

aspires to attain.

This market share is generally expressed as a percentage of total industry sales. Price flexibility

and, very often the profits are linked to the firm’s market share position. Let us take an example of

audio-visual market in India with market shares.

Taking Audios – like transistor, sound gadgets such as two in ones, sound systems, walk-mans –

Colour Television sets and Black and White Television sets, the market share has been as under

in 1995.
From the above table, it is quite evident that taking all products together Philips has the highest

share followed by BPL, VIDEOCON and ONIDA rest by others. However in each field their shares

are quite clear. Taking audios – PHILIPS comes first BPL second.

VIDEOCON third, ONIDA fourth and others; coming to Colour Television sets, BPL has highest

share followed ONIDA, VIDEOCON and PHILIPS and others. Turning to Black and White

Television sets, the ranking is PHILIPS and ONIDA share first place, followed by VIDEOCON and

BPL and others.

6. Marketing organisation:

Any organisation is the vehicle created or structured to achieve certain goals and objectives may

be business or non-business. It is group of persons working together towards the attainment of

certain common goals.

It is one that provides network of working relationships among the different functions to be

performed and a means of co-ordination among the people who perform the functions.

In this context, the structure of marketing organisation has a direct relationship to the

marketing objectives to be attained and the marketing tasks to be performed.

As wide variety of marketing tasks are to be performed, the tasks have to be grouped logically and

allocated to different viable administrative blocks which one calls them as departments. The

markets committed in structuring a marketing organisation will cost in terms of inefficiency, high

cost and failure of the unit.

Care should be taken to avoid the common pit-falls such as haphazard grouping of activities-

unclear responsibilities-ambiguous and misleading designation-dual control-unjustifiable allocation

of functions – improper delegation-over formalization and so on.

It should be subservient to market needs and the development of core- competencies. It should be

highly adaptive, responsive and innovative.

7. Marketing research and marketing intelligence:

Marketing research is not something which is already searched. It stands for the methods

of finding and analysing facts to assist managers in making rational marketing decisions. It

is the systematic, objective and exhaustive search for and study of facts of relevance to

any problem in the field of marketing.

Thus, it is a systematic study, scientific study and a managerial tool. It helps in knowing buyers,

measuring impact of promotional efforts, knowing consumer response, knowing market costs and

profits, in mastering external forces, in designing and implementing marketing control.

Marketing research is based on marketing information intelligence. Information consists of

evaluated data; data based symbols, usually numbers, used to represent the things.

It stands for the cues, or the guidelines which have the potential of influencing decisions; it is any

perceived or recorded fact, opinion or thought. In the field of marketing, the nature of information

needed to manage the marketing functions of an enterprise is unique because of its dynamism

and diversity.

The need for marketing intelligence arises basically because of knowing consumer demand,

increasing complexity of marketing, changing economic parameters, changing competitive

conditions, strides in science and technology, fast grooming consumerism and the like. It keeps

the marketing organisation updated.

8. Brand dominance:

Any successful organisation’s biggest assets are brands because they provide customers a way of

recognising and specifying a particular product in case they want to choose it again or recommend

it to others.

A good brand helps marketers to develop specific images and inter-related marketing

strategies for a particular product or group of products. It helps in commanding a premium

price in the market and it is the only element of a product that competitors cannot copy.
The overall strength of a brand in the market place and its value to the company that own it is

known as brand equity. Of late, the companies are trying to assign financial value to brand equity.

Brand dominance is the ability of a company to develop brand loyalty. Brand loyalty stands for the

level of commitment that customers feel toward a given brand, as represented by their continuing

purchase of that brand.

According to experts, when there is a tight race for brand loyalty, three elements help in

assuring the victory namely:

a. Swift management response both to the press as well as to the market-place

b. The ability to create a perception of quality and

c. Maximised spending on marketing.

9. Marketing communications:

One of the four Ps of marketing-mix is “promotion” which speaks of communication mix.

Which deals with the personal and impersonal or direct and indirect persuasive communication

about the product or service of any manufacturer? Though companies communicate with the

present and potential customers in a wide variety of ways, the most distinguishable categories are

two namely personal and impersonal.

Personal communications relate to face and face meeting between the sales-force of the company

and the class of customers. On the other hand, impersonal communications comprise of

advertising, sales- promotion and public relations.

In a competitive market where several companies are striving and sweating to win over the

consumers, mere presence of a quality is not enough; what is important is, it is to be made known

to the people.

Marketing communication, as a phrase, is an attempt to present a set of messages to a target

market through multiple cues and media with the intent of creating favourable responses from the

market towards firm’s total product offering, at the same time providing for the market feed-back

for improving and modifying firm’s total product offering.

Thus, each firm is a sender of marketing messages and also a receiver of market responses. As a

sender of messages, the firm communicates with the market not only through promotional stimuli

but also through product price place and promotion.

As a receiver of market responses, the firm collects information through marketing research and

marketing information system. Product acts as a good carrier of certain messages.

It conveys through its size, colour, shape, material components, its package, labels and the brand

name. Price as a communicator it speaks of price as something more i.e., real value of money, it

gives quality equation, status equation, technological superiority, price reasonability from the angle

of a consumer “place” as a communicator, talks of the store image, store, level merchandising.

POP appeal and store choice “promotion” as a communicative process has three prongs namely

personal selling, advertising sales-promotion and publicity of late even public relations as noted

earlier “Personal Selling” is the oral presentation in a conversation with one or more prospective

purchasers for selling; it consists of winning the buyer’s confidence for the seller’s house and

goods thereby winning the regular and permanent customer.

Its strengths are flexibility and adaptability minimum waste – agent of feed-back – lasting

impression pulling through logical sequence. The limits are: it is expensive difficulty of getting right

kind of sales force stake in the customer loyalty more administrative problems.

“Advertising” as a macro concept stands for the entire ad industry a social and business institution;

as a micro concept it represents a managerial function sending messages to the target groups of

audiences.

Its strength lies in helping manufacturers by increasing and stabilizing sales maintaining existing

markets and exploring new ones controlling prices; middlemen by guaranteeing quick sales acting

as a salesman, sustaining resale price maintenance; the sales force by creating a beautiful stage

effect reducing job burden instilling self-confidence; the consumers by helping decision making

ensuring better quality products at reasonable prices saving good deal of time; the society by

uplifting the living standards generating gainful employment opportunities providing new horizons

of knowledge upholding the national culture.

The limitations are:

It has limited capacity, Rigidity of advertisements, Un-believability, Advertise ability. “Sales-

promotion” is a direct and indirect inducement that adds extra value to the product, thus,

prompting and propelling dealers, distributors and consumer to buy the product.

Sales- promotion involves marketing activities, other than personal selling, advertising and

publicity that stimulate consumer purchasing and dealer effectiveness.

The strength of sales- promotion lies in: By helping the manufacturers through creation of new

customer retaining them combating competition waving middlemen; by helping middlemen via

multiplying sales reducing the strain building store image bringing like in earning; by assisting the

consumers by supplying information improving the standard of living granting incentives building

loyalty giving better value for money.

The limitations are: it is a short-run device department tool it damages brand image undervalued

by experts. “Public Relations” are the relations of an organisation with the general public with

publicity.

It is a deliberate, planned and sustained effort to establish and maintain mutual understanding

between an organisation and its public.

Its strengths are image building- clearing misunderstandings – expressing great and deep concern

for the general public. Any efforts, amount and talents put in will not be a waste but a good

investment.

10. Channel strength:

In today’s marketing systems, not all manufacturers and producers sell their production to the final

users or industrial users. That is, goods do not flow directly from producers to the consumers.

Normally, they use a number of marketing intermediaries for taking their products to the users.

These intermediaries are known by variety of names such as selling agents, marketers,

wholesalers, distributors, stockiest, franchised dealers, retailers, representatives, brokers,

commission agents or even jobbers.

A marketing channel is a pipe- line that moves the products from producers to the

consumers. A channel plays a constructive role in the marketing of a product.

A channel provides distributional efficiency to manufacturers, product assortments, salesmanship,

merchandising, implementation of price mechanism, takes care of physical distribution; it acts as

agent of change and generates demand.

The success of a marketing organisation depends on this effectively, adaptively and innovatively

designed used channel or channels of distribution.

11. New product leadership:

It is rightly said that early birds get the worms. Similarly, another statement is of much relevance

here that pearls are available on sea-bed or in deep-water. A company which is adaptive rather

than passive to changes in demand will do anything to make available some new products which

have edge over that of competitors.

A new product needs not be entirely new – but new in terms of the size, shape, weight, colour,

taste, and price, functional utility, symbolic, synergic and more matching to changing expectations

of society.

It is a modification or refinement that has its role. The product that appeals to the consumer

perceptions has a competitive advantage.

B. Production factors:
It is the set of marketing factors that dictate production factors for a company cannot produce what

it cannot sell lucratively. The field of production has, therefore certain areas where the firm can

have core competency and, therefore, competitive advantage. By nature, production implies

conversion of inputs into value added output as per consumer specifications.

The production factors that can be a source of competitive advantage are:

1. Economies of scale:

Scale of business stands for the size. Whether it pays to carry on business on mass-scale

or small- scale. Much depends on the circumstances arising out of nature of product,

technology, managerial philosophy, and managerial ability among other things.

One thing is sure that when the business is carried on mass-scale, there will be definite

economies or benefits in the fields of production, managements finance and marketing which we

call as internal economies. In addition, we do enjoy external economies arising out of

concentration, information and disintegration.

External Economies are those which are enjoyed by all the firms and arise from location of

industries and are at the disposal of all the units in the same industry. As stated earlier, three

types of external economies one can think of namely “of concentration”, “of information” and “of

disintegration”.

Concentration of industrial units at a point make available cheap labour both – skilled and

unskilled, transportation, warehousing; banking and communication facilities, secondly, the firms

get information from outside agencies regarding trade, research, environmental and technological

developments. Thirdly, there are certain economies arising out of disintegration such as coming

together of subsidiary and service units might bring in certain economies with them. Coming to

Internal Economies, these are enjoyed specifically by individual units because of their unique

position in each branch of activity.

In production field these can be cost reduction, bulk buying, division of labour, use of machines

and electronics, use of by- products, research and development, optimum use of installed

capacity, acquiring patent rights; the economics in management can be – employment of experts,
reduction of over heads, use of modern techniques and appliances, economy in organisation; in

the field of finance, these can be low rate interest finance, reinvestment of profits, withstanding of

rigors of adversity, spread of risks, proper maintenance, reduction in bad-debts and better working

capital management; in the field of marketing these can be – lower sales price, lower selling costs,

prompt service, effective advertising, better sales agencies and enjoyment of monopoly position.

2. Locational advantages:

Ultimately, the objective of any industrial location is to make it able to deliver the products to the

customers at a cost equal to or less than that of the competitors within the product field. The cost

of good delivered to the customer depends upon three major factors namely, the cost of procuring

material, the cost of fabrication of material and the cost of distributing the end product to the final

user.
The locational advantages stem from the facts of:

(a) The minimum cost of transporting materials and products.

(b) Easy availability of raw-materials and other factors of production,

(c) Convenience in accessibility to markets,

(d) Availability of adequate space for the site of the enterprise,

(e) Enough scope for further expansion,

(f) The possibility of the unit started to pick-up momentum of an early start and

(g) Integration of the enterprise with economic, social and cultural traits of the community of the

regions.

3. Raw-materials:

Good many companies have competitive advantages over other because of the basic input

namely material. Competitive edge is dependent on the raw-materials cost, equality and

adequacy, in addition to regular supply.

That way getting raw-material is not a problem. However some companies are bestowed

with natural gift of abundant supply raw- materials of very high quality at pretty lower cost.

Thus, De Roger Limited of South Africa is the supplier of world’s 90 percent of rough diamonds. It

is but natural that the quality and cost of final product is dependent on these input characteristics.

It should be noted that the yield of input is of greatest significance.

4. The strength of maintenance:

Production machines and equipment wear out all the time. Greater the number of parts in the

machine, greater will be the possibility of wear, tear and therefore, breakdowns. When machine

breaks down then there is urgent need for repairs to put it back to normal working.

The costs of machine break down are:

(a) Down time of machines resulting in loss of production and sales.

(b) Idle time of labour force – both direct and indirect.

(c) Increase in scrap and rejection.

(d) Dissatisfaction and loss of loyalty of customers caused by delay in delivery commitments, and

(e) The actual cost of repairs.

Therefore, preventive maintenance policy and system should replace the fire-fighting system of

corrective maintenance. Thus, prevention is better than cure which acts a great source of

competitive advantage

5. Production and post-production facilities:

It goes without saying that high rate of productivity is the hall-mark of excellence achieved by

making best use of the available or cultivable facilities, faculties, talents and skills of the man-

power within an organisation.

Whether it relates to the selection of suitable sites, assets or inputs or their proper utilisation, it

basically calls for the perfect employment of capabilities and calibre.

The production and post-production facilities should be such that they take shorter time, least

expenditure without compromise on quality or workmanship, with a minimum of waste of inputs,

and reclaiming or recycling wastes of all physical resources in most cost effective manner.

It is the availability and use of production and post-production facilities that decides the rise in the

rates of output and inputs where the latter should be much lower. The production team must use

profusely the relevant techniques of methods study, work- measurement study, man-power

planning and development, quality control techniques, and various forms of operations research.

6. Inventory norms:

Materials account for 35 percent to 55 percent of production costs. Estimates and experiences

have proved beyond doubt thus as much as ONE THIRD of company’s TOTAL INVESTMENT is

in the form of stocks of raw-materials, work in progress and finished stock.

Of these three the largest share is that of raw-materials a big source of cost control and reduction.

Therefore, norms are to be set for inventories to be held at any moment of time. The question is

what shall be minimum and maximum quantity of stock to be held, how much should be bought at

a time?
How to treat the items for monitoring purpose?

Should the company be happy with annual stock taking or be it replaced by perpetual inventory
system?

Whether a material is moving faster or at slow pace?

There are good many techniques which have developed and used successfully such as level

settling, economic order quantity, A.B.C. analysis, material turnover ratio, concurrent stock taking

through updated daily recording of transactions. All this reduce material wastages, investment and

hence costs.

C. Research and development and engineering factors:

One cannot under-estimate the role of research and development in these days of cut-throat

competition. Research is the industry of discovery and development is the conversion of a dream

into reality.

Research and development is a must these days by almost every adaptive firm though it costs in

terms of time, treasure and talent. It is that areas which can mop up all others in the field and can

create place on the map of performance.

The important aspects are basic or fundamental research capabilities, applied research and

development capabilities, speed and advance of research and development process, development

of new products and value engineering that can be considered as a part of it.

1. Basic or fundamental research capabilities:

Basic or fundamental research signifies original investigation for the advancement of scientific

knowledge. It is one which does not have any specific commercial objective or objectives although

undertaken by a particular company. It represents primary investigation for the stake of knowledge

dealing basically with fundamental questions such as why blood is red? Grass is green? Sky is

blue? It is aimed at the discovery or the explanation of the fundamental laws and phenomena of

nature whether organic or inorganic.

Thus, it is concerned with the framing of generalizations leading to the formulation of theory.

Governmental organisations have used this in improving national health, welfare and military

strength; while business organisations aimed at discovering the relationships or the concepts that
enable them to achieve technological edge over others. As an ongoing process, it is time –

consuming, money making and brain-storming.

2. Applied research capabilities:

Applied research is one that is to find the solution for an immediate problem faced by the society.

Applied research represents an investigation focused towards the discovery of new scientific

knowledge which has definite commercial object or objectives to be achieved. It is one which is

directed towards a business problem.

It is the creative process of applying basic science to inputs and outputs or any other industrial and

trading needs. It is applied research that bolsters up the fundamental research. Countless

examples of applied research can be given. Perhaps the best is that of nylon.

As a product, it was named as “nylon” because, the research team consisted of scientists or

researchers from America and England and thus, they took two letters relating to America and

three letters relating to Great Britain namely NY (NEW YORK) and LON (London) thus making it

NYLON.

Today, it has become a basic input for manufacturing, man-made fibers, rope, stockings-, bristles

of brushes of different types; what is true of this nylon, is true of plastic, new-metals, packaging

materials and so on. It has brought about new products, processes, methods, improvisations.

3. Speed and advance of research and development:

Of late, the question is not one of going in for research or not but one of at what speed and of what

level? It is so because, the competition has grown to such an extent that the success of research

and development efforts are decided by its speed and level. Cost is not a factor, but it is pace and

quality that matters.

Though research and development expenditure by Indian economy is less than half per cent of

national income, there are companies which are capable of spending per day in the range of 15 to

30 lakhs of rupees. It is particularly so in pharmaceuticals, automobiles, computers. The reason is

obvious that early bird gets the worm.

Today laser colour printing of photos after developing costs just less than Rupee 0.50 and yet the

firms can make profit though they charge Rupees 3.75 per copy of photo. What is true of this
colour processing is equally true of xeroxing the material. Any company that comes out with a

new, improved and effective product, process, and method has the edge over its late beginners.

4. Development of new products:

“Development” signifies congruous contribution towards the improvement in the existing

knowledge through improved ideas, system, methods, techniques; it is a technical activity of

translating the research findings either into general scientific knowledge or products and

processes or both. Such a development can be technological, engineering, advanced or

innovative. When one talks of new product, really it is difficult to say what is a new product. A new

product is one which is new to the company introducing it, though it might have been made by

others.

New products are those whose degree of change for customers is sufficient to require the design

or redesign of marketing strategies. Very clearly, new products are those that create unique

problems for management, especially in terms of technical development, testing and

commercialisation.

In most industries, competition pressures warrant a constant flow of technologically new products

or improvements in the existing ones if the corporate sales and profits are to be sustained and

enhanced.

The corporate sound health depends on a continuous flow of new products and improvements in

the existing ones. The very survival rather successful and growth depend on incessant

development of an acceptable new and improved product.

5. Value engineering:

“Value analysis” or “value engineering” is a precise, disciplined, one-purpose thinking process. It is

an arrangement of techniques which makes clear precisely the functions that the customer wants;

establishes the appropriate cost for each function by comparison; and causes required knowledge,

creativity, and initiative to be used to accomplish each function for the cost. Quite often analyses

of this kind would reveal the imbalance that exists.

This helps in improving the design of the products or services and many unwanted features could

be eliminated. Finally, the consumer will be given a product of better value.

Value engineering is an essential tool not only for cost reduction but also to improve the overall

value of the product. It could turn out to be a very powerful intervention in a competitive situation.

There are countless cases where cost reduction to the tune of 30 to 40 percent has been achieved

by applying value engineering or value analysis.

The credit of devising the technique or set of techniques goes to Mr. Lorry. D. Miles of America

who was working for General Motors in 1947 and later on became the president of SAVE (Society

of American Value Engineers) Value engineering developed because of the inherent desire in

human-being to make product cheaper and to sell cheaper, of course, keeping the utility of the

products same.

It is worth emphasizing here, which “value” differs from both “price” and “cost” in the sense that it

is the cost proportionate to the function. Therefore value is equal to the function or utility divided by

cost.

Therefore, it can be said clearly that’ value of a product can be increased either by increasing its

utility with the same cost or by decreasing its cost for the same function.

D. Personnel and expertise factors:

It is indeed foregone conclusion that with the advent of more competition the number of industries

has multiplied. In actual practice, with the human resource being scarce, organisations are vying

for same set of individuals and skills. As a result, the shifts of people and skills, across the

organisations have reached new heights.

On the other end, each organisation is compelled to achieve more in terms of performance for

both sheer survival and growth – both in the short and long term perspectives. Factors like

technology finance and service will become common factors in all organisations. There will be just

a marginal difference between one organisation and another.

Therefore, with a view to produce better results, organisations will have to depend to a greater

extent on “human” or “manpower” aspect. It is this manpower difference between the

organisations that brings in competitive edge. This value system of human side is going to be a

crucial and decisive aspect of human-resource exercise.

The major components of this set of factors are: high calibre employees, motivational level,

lower labour costs, industrial peace and training and development:

1. High-calibre employees:

No one can deny the economic supremacy of new economic powers namely Japan, Germany and

economies of East Asia dominating the world economic scene today. Though these countries

differ largely in culture, languages, share a few features in common such as natural resource

deficiency, high density of population, except Germany, have risen to their present heights of

economic affluence within a relatively shorter period particularly after Second World War and have

faced acute crisis involving their very survival as a nation.

The wonderful work they have done is that these countries have focused on the development of

human resources as a matter of national priority and insulated their economic processes from

political pressures and therefore, they are featured by a relatively higher egalitarian distribution of

incomes and lower levels of socio- economic inequalities.

Today, these fast growing economies represent essentially thought put economies. Human

resources with very high levels of education and skills constitute their massive distinguishing

asset.

These economies have largely succeeded in overcoming the intricate problems of poverty,
illiteracy, hunger, unemployment, and inflation and population growth. Take the case of Japan and

Germany, the two devastated countries during world war two, but have gained astonishingly new

dizzy heights within two decades enjoying highest per capita income.

In this context we cannot forget South Korea and Taiwan. In 1960’s India and those countries

were counted as “poor” having a per capita income of 80 US dollars; today in 1990’s, South Korea

and Taiwan have per capita income of 6,000 and 8,000 US dollars leaving India far behind per

capita income of 350 US dollars.

Why India failed? and Where? In-spite of the fact that Indians are more talented and industrious in

the world. In-spite of many positive factors such as good and plenty of natural resources, fertile

land, water, year-round sunshine, and variety of minerals.

It means India has failed miserably to develop, mobilize and deploy our human capital. It is the

omega source of its productive excellence, technological strength, economic achievement and

social success.

It also speaks of nation’s most basic resource in terms of their knowledge and learning,

productivity and skills, creativity and innovation. Only through the collective energy, intelligence,

skills and abilities and vision of Indian people, Indian economy can come out of rut of stagnation

and forge ahead in global economy as a future global player.

2. Motivational level:

Employee motivation – that causes channelizes and sustains people’s behaviour has always been

important for managers to understand. By definition, the managers work with and through people,

but people are complex and sometimes, irrational in their behaviour. Their motives are not always

easy to discern. Motivation is a persuasion for a cause towards a certain conviction or belief.

It means an act of persuading someone to accept an idea and make him or her act in a particular

way. It is the apt act of pushing or pressing the right button to get desired result. The managers

must channelise people’s motivation to achieve personal and organisational goals.

The theories of motivation are three dimensional namely, content, process and reinforcement.

Content theories highlight the importance of drives or the needs within the individual as motives for

the individual’s action.

Process theories stress “how” and “why” and “by what goals” the individuals are motivated.

Reinforcement theories spotlight on how the consequences of an individual’s actions in the past

affect his or her behaviour in the future.

In this task, a manager is to know more about employees because; a message that inspires one

group might as well turn to be a flop with others. It is worth remembering here that opinions,

attitudes, and beliefs which are built on over a longer period of time, are difficult to change.

To study the employee attitude or behaviour, it is therefore, necessary to keep in constant touch

with them or to maintain regular programme of communication. A system of perceptive of

motivation would be most useful.

This warrants taking into account the entire set or system of forces operating on the employees

must be considered well before the employee motivation and behaviour is adequately understood.

Such a system has three variables namely the individual characteristics, job characteristics and

the work characteristics. These can be used to make employees to work at full-steam so that they

contribute their very best.

3. Lower costs of labour:

Labour cost is a second major chunk of total cost of making and serving a product. These days it

is most difficult, if not impossible, to reduce the labour cost as labour is no more commodity and

political support it enjoys.

If not cost reduction, at least labour cost control can be achieved. The labour costs can be broadly

classified as developmental costs, maintenance cost and mismanagement costs. Development

costs relate to employee recruitment, selection, training and placement.

The maintenance costs are those which are paid for the sweat of employees by the employees

both monetary and non- monetary out of legal obligations and corporate policies and

mismanagement costs are hidden costs in terms of labour turn-over, absenteeism, damage to

machinery, more scrap, waste, defectives, industrial accidents and man hours lost due to

abnormal idle time and so on.

However, labour costs can be both controlled and reduced indirectly by improving employee level

of efficiency through motivation. Positive steps such as scientific and impartial selection, sound

training, employee job security, job satisfaction, sound employer, employee relations are likely to

like up employee morale, a sense of belongingness and employee loyalty, of all these sound

remuneration system plays a constructive role. Again, employee empowerment, participation and

commitments go a long-way to achieve this goal.

4. Industrial peace:

Industrial peace is the hall-mark of industrial growth and prosperity. Industrial growth and

prosperity implies economic and social progress and prosperity. It is one which is opposite of

industrial unrest or a state of instability and trouble. Industrial peace is something that benefits
every segment of society, employees, employers, suppliers, customers, lenders, stock holders and

above all the government.

Industrial peace is an ideal situation characterized by sound employer and employee relations,

high employee morale, low rates of labour turnover and absenteeism, more output with high

quality at lower cost.

Industrial peace is not the product that is available and which can be bought and installed. It is to

be created, cultivated, maintained and improved.

It calls for cautions, continuous and sacrifice of individualism. Industrial peace is the outcome of

strong trade unionism featured by democratic, enlightened and constructive leadership,

progressive and positive outlook of managements, effective communication system for open-door

negotiations, faith in democratic and peaceful mean of settlement of disputes, if any, encouraging

collective bargaining, employee participation, congenial physical and psychological working

conditions, acceptable and progressive employee remuneration, supportive and protective

governmental policies in favour of working class, employee education and employment. Industrial

peace is the outcome is those who are party to it and contribute towards it.

5. Employee training and development:

One of the most disturbing aspects of majority organisations is that they perceive costs incurred

on training as burden on the financial front instead of treating it as an investment. The implications

of this relatively low level of investment are that many front-line staff is expected to deliver high

levels of quality service without the skills or the knowledge of what they are trying to achieve.

Both experienced and newly hired employees need training to help them in their new roles that

they are going to play. However, their needs are different from one another.

Experienced employees usually have more difficulty in accepting the decision-making

responsibility, because, they are used to reverse delegation which means the problems to their

bosses or perhaps to another department.

It is not the case with the new entrants. In this regard, the companies are moving away from

blanket training and turning to competency based recruitment as an alternative.

There are six competencies such as initiative – problem solving skills – customer orientation –

technical skills, work style and behaviour. Training and development is that crucial process which

brings about suitable changes in employee attitudes, skills and abilities to make them full-steamed

power packed persons to increase organisational effectiveness and make them service minded

with loyalty and productivity.

E. Corporate resources factors:

Corporate resource factors are the parameters of corporate strength and weakness. If external

forces give opportunities and threats to the corporation, these opportunities can be en-cashed or

left out based on the internal forces namely strengths and weakness.

The corporate resource factors to be considered among other things are: Corporate image

and status, the Chief Executive Officer, size of the company, corporate performance record,

financial health and corporate structure and systems.

Let us note these factors in brief:

1. The corporate image:

Corporate status or image has its own impinging effect on competitors. Company as an artificial

person has its own personality, standing and status. In this dynamic and highly competitive world

the “image” of “corporate” image has its own place. The trend is not the “biggest” but the “latest”.

A corporate image is the outcome of good many inputs for which it has to struggle over years. It is

determined by its philosophy, attitude, mission, objectives, policies and practices it is following. A

corporate image or its outstanding character from others is seen basically in capital-market,

product market, labour-market and public relations.

Generally the goodwill or the premium placed by the general public and corporate publics is

determined by its financial soundness and discipline, profitability, product image including brand

image and its relations with labour the human-side of management. The company image or

personality is built over years and it is not a sudden and accidental picture.

Again, the image once achieved in terms of turnover, investment, man-power absorption,

technology employed, research and developmental activities, its care for societal and
environmental development and maintenance, rate of return, the growth rate all are to be

maintained and refined under ever changing circumstances.

2. The Chief executive officer:

The success or failure of any organisation is founded on the head and shoulders of CEO or the

chief executive officer. He is the king maker or trouble maker. It he who makes or mars the things.

CEO is the top most officers- the crown of the organisation. Good and effective leadership

qualities of a CEO go a long way in future prosperity, progress and achievement or otherwise.

The starting point is vision, courage of conviction and judgment the most significant mental

faculties of a CEO that make him to move the organisation at full steam to Skim the cream for the

benefit of one and all.

However, very few of us realize that a positive vision about the future ignites hopes and passions

about successes and brings meanings to our lives and living and the field of work.

It is the visions, courage of conviction and the sound judgment of leaders that have made the

world to achieve successes that none could ever imagine. Leave aside business leader let us take

the great personalities like Martin Luther King, who said “I HAVE A DREAM” and he spelt it out of

world peace and he succeeded even by sacrificing his life.

Take another case of John. F. Kennedy, who said “WE SHALL SEND A MAN ON THE MOON

AND BRING HIM BACK SAFELY ON THIS EARTH” These words, came true. A CEO has a killer

instinct, ability to achieve, a strong – marketing acumen with strong financial backing.

Similarly, every CEO who runs his company has a vision in his head as to what he wants the

company to look like in the future. The next job is to spend time in articulating his vision to all the

levels of the organisation; such visions resemble to those of magnates around which all the

activities of the organisation are focused.

A visionary sees the business as a place to apply his original vision producing disposable products

for mass consumption at lowest manufacturing and distribution costs.

Though individuals have believed their leader’s visions about the future and have seen their

dreams came true, very few CEOs in the corporate jungle and used to develop vision about future

for either they are not used to thinking in this direction due to limited paradigms or are simply

fighting today without thinking about future.

However, one cannot forget that a dream, a vision about the shape of things to come will caution

one against the risks that one is taking or are on the way of which business is being conducted.

Every CEO must use three keys to predict the future namely anticipation and intuition – innovation

and excellence – all depend on his mental traits supported by physical and character qualities.

3. The size of the company:

The optimum utilisation of company resources is dependent upon the size of the organisation.

Size represents the scale of operation that is large – or small or medium. What is “large” – “small”

or “medium” size is a matter of relativity.

Taking certain parameters one can say that a corporate is of “large” or “medium” or “small” size.

This concept is best defined by the governments of the nation mostly based on investment,

employability.

However, we have certain input and output measures. The input measures are: capital investment,

number of persons employed, amount of power used, and amount of raw-materials consumed,

plant capacity, the total size of assets.

The output measures are the volume of output, value of output and the amount of income tax paid.

It is left to the individual company whether it wants to be in small sector or large for there is definite

reasons for being growing or remaining small.

4. The corporate performance record:

The corporate profile speaks of its origin, ups and down, path and rate of progress achieved or

failed to achieve, philosophies followed, policies designed, strategies employed to move up and up

to dizzy heights and retain that zenith point for longer time.

It is because; taking birth, growing, reaching the point of pinnacle and then withering away are the

common features of these natural and artificial persons.

Take the annual Economic Time Top 500 corporate units. It ranks every company based on the

accepted parameters how each company fared well. Economic Times of 9th May 1996 reports that

Reliance Industries has become India’s first private sector company to post a total income of over

Rs. 8,000 crores, with a record profit of Rs. 1,305 crores for the year 31st March 1996 which is

22.5 percent higher than previous year. The company’s sales increased by 11 percent to a figure

of Rs. 7.786 crores. The profile of growth implies a mega-league.

The following statement makes it very clear:

Growth Profile of Reliance Ind. Ltd:

What is astonishing is that the company expects to reach growth target of 20 to 30 percent as

against nominal overall growth of two percent.

5. Financial health of the company:

Company financial health speaks of asset liability position on one hand and proportion of fixed

assets to working assets, debt equity ratio or leverage ratios. It also relates to financial and

operating leverage.

More important is financial discipline that is followed. The resources both human and material are

greatly and deeply influenced by the financial resources.

Good many companies have failed not because of shortage of capital or monetary resources but

misuse of funds. Judicious allocation of financial resources and continuous monitoring of financial

results would go a long way in keeping the company’s financial health in sound position which

helps to compete with others.

6. The Structure and the systems:

A successful organisation is one which changes its strategies, operations and redefines its

organisational structure and markets as it moves from one phase of organisational life-cycle to

another. Like a product life cycle, each organisation has art organisational life cycle.

Broadly, these phases can be the phase of infancy or the high growth phase; the second phase

namely middle age or the stabilizing phase; the third phase namely maturity or the restructuring

phase and the last phase- the death or the declining phase. A successful organisation naturally

goes through only the first three phases.

The fourth phase may occur not for entire organisation but for a particular branch, division or a

product of the organisation. As far as the specific division or branch of the organisation is involved,

the organisation, in order to maintain the group’s existence will warrant the decision on

divestment.

Selling or scrapping the declining division or a branch or a product as dead wood is an ugly spot

on the mammoth green tree. The structure designed is to serve the changing organisational goals.

The organisation structure should try to gain market share in different geographical segments,

income segments through appropriate pricing, distribution and promotion strategies as it moves

from sun-rise stage to sunset stage.

While some organisations believe in maintenance of areas of core competence and diversifying in

and around them, others believe in diversifications in high growth potential sectors, which may be

totally unrelated to the core-products.

What is important is that the organisation structures and systems existing must be amended,

redefined, and refined to fit in according to the changing demands of external environmental

factors.

Today’s competitive and fast changing business world needs flat, sleek, slim and trim type of

organisational structures. Good many organisations are capable of developing systems or

arrangements that enhance company skills.

Generally such arrangements result in enhanced positions of advantages by virtue of

strengthening a company’s ties with the customers.

To mention a few of this kind can be:

(a) Long-term contractual arrangements whereby customers receive special prices or services in
exchange for buying in specified quantities.

(b) Complementary products and services that enhance the value utilization of the main product
and
(c) Customised product specifications or Customised on-line product ordering systems that
simplify customer ordering.

From the foregoing pages we could identify as many as five major functional categories providing

wide range of competitive advantage factors or sources. In the final analysis, the competitive cost

advantage is reflected in comparative cost advantage or differentiation advantage.

A cost or differential advantage might stem from unique production facilities, latest technologies,

effective inventory management, innovative and judicious use of raw-materials, highly

professionalized management, effective and efficient distribution and the unique communication

mix used to build customers.

Market Segmentation @@@

Market segmentation: Definition, types, benefits, & best practice

What is market segmentation?

At its core, market segmentation is the practice of dividing your target market into
approachable groups. Market segmentation creates subsets of a market based on
demographics, needs, priorities, common interests, and other psychographic or behavioural
criteria used to better understand the target audience.

By understanding market segments, one can leverage this targeting in product, sales, and
marketing strategies. Market segments can power your product development cycles by informing
how you create product offerings for different segments like men vs. women or high income vs.
low income.

The benefits of market segmentation @@@

Companies who properly segment their market enjoy significant advantages. According to a study
by Bain & Company, 81% of executives found that segmentation was crucial for growing profits.
Bain also found that organisations with great market segmentation strategies enjoyed a 10%
higher profit than companies whose segmentation wasn’t as effective over a 5-year period.
Other benefits include:

1. Stronger marketing messages: You no longer have to be generic and vague – you can
speak directly to a specific group of people in ways they can relate to, because you
understand their characteristics, wants, and needs.

2. Targeted digital advertising: Market segmentation helps you understand and define your
audience’s characteristics, so you can direct your marketing efforts to specific ages,
locations, buying habits, interests etc.

3. Developing effective marketing strategies: Knowing your target audience gives you a
head start about what methods, tactics and solutions they will be most responsive to.

4. Better response rates and lower acquisition costs: These will result from creating your
marketing communications both in ad messaging and advanced targeting on digital
platforms like Facebook and Google using your segmentation.

5. Attracting the right customers: Market segmentation helps you create targeted, clear and
direct messaging that attracts the people you want to buy from you.

6. Increasing brand loyalty: when customers feel understood, uniquely well served and
trusting, they are more likely to stick with your brand.

7. Differentiating your brand from the competition: More specific, personal messaging
makes your brand stand out.

8. Identifying niche markets: segmentation can uncover not only underserved markets, but
also new ways of serving existing markets – opportunities which can be used to grow your
brand.

9. Staying on message: As segmentation is so linear, it’s easy to stay on track with your
marketing strategies, and not get distracted into less effective areas.

10. Driving growth: You can encourage customers to buy from you again, or trade up from a
lower-priced product or service.

11. Enhanced profits: Different customers have different disposable incomes; prices can be
set according to how much they are willing to spend. Knowing this can ensure you don’t
over (or under) sell yourself.

12. Product development: You’ll be able to design with the needs of your customers’ top of
mind, and develop different products that cater to your different customer base areas.

Companies like American Express, Mercedes Benz, and Best Buy have all used segmentation
strategies to increase sales, build better products, and engage better with their prospects and
customers.
The basics of segmentation @@@

Understanding segmentation starts with learning about the various ways you can segment your
market.

There are four primary categories of segmentation, illustrated below.

Demographic Firmographic Psychographic Behavioural

(B2C) (B2B) (B2B/B2C) (B2B/B2C)

Classification based on Classification based on

Classification based on
Classification based on company or behaviours like product
Definition attitudes, aspirations,
individual attributes organisation usage, technology
values, and other criteria
attributes laggards, etc.

Geography Gender Industry Location Usage Rate Benefit Types

Lifestyle Personality
Examples Education Level Number of Employees Occasion Purchase
Traits Values Opinions
Income Level Revenue Decision

You are a smaller You are a smaller

You want to target You want to target
Decision business or you are business or you are
customers based on customers based on
Criteria running your first running your first
values or lifestyle purchase behaviours
project project

Difficulty Simpler Simpler More advanced More advanced

Types of market segmentation

With segmentation and targeting, you want to understand how your market will respond in a given
situation, like purchasing your products. In many cases, a predictive model may be incorporated
into the study so that you can group individuals within identified segments based on specific
answers to survey questions.

Demographic segmentation

Demographic segmentation sorts a market by elements such as age, education, income, family
size, race, gender, occupation, and nationality. Demographic is one of the simplest and most
commonly used forms of segmentation because the products and services we buy, how we use
those products, and how much we are willing to spend on them is most often based on
demographic factors.

Geographic segmentation

Geographic segmentation can be a subset of demographic segmentation, although it can also be

a type of segmentation in its own right. It creates different target customer groups based on
geographical boundaries. Because potential customers have needs, preferences, and interests
that differ according to their geographies, understanding the climates and geographic regions of
customer groups can help determine where to sell and advertise, as well as where to expand your
business.

Firmographic Segmentation

Firmographic Segmentation is similar to demographic segmentation, except that demographics

look at individuals while firmographics look at organisations. Firmographic segmentation would
consider things like company size, number of employees and would illustrate how addressing a
small business would differ from addressing an enterprise corporation.

Behavioural Segmentation

Behavioural Segmentation divides markets by behaviours and decision-making patterns such as

purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase
bottled body wash, while older consumer groups may lean towards soap bars. Segmenting
markets based on purchase behaviours enables marketers to develop a more targeted approach
because you can focus on what you know them, and are therefore more likely to buy.

Psychographic segmentation

Psychographic segmentation considers the psychological aspects of consumer behaviour by

dividing markets according to lifestyle, personality traits, values, opinions, and interests of
consumers. Large markets like the fitness market use psychographic segmentation when they sort
their customers into categories of people who care about healthy living and exercise.

How to get started with segmentation

There are five primary steps to segmentation:

 1. Define your market: Is there a need for your products and services? Is the market large or
small? Where does your brand sit in the current marketplace?

2. Segment your market: Decide which of the five criteria (demographic/firmographic,

psychographic, and geographic or behaviour) you want to use to segment your market. You
don’t need to stick to just one – in fact, most brands use a combination – so experiment
with each one and find what works best.

3. Understand your market: You do this by conducting preliminary research surveys, focus
groups, polls, etc. Ask questions that relate to the segments you have chosen, and use a
combination of quantitative (tickable /selectable boxes) and qualitative (open-ended for
open text responses) questions.

4. Create your customer segments: Analyse the responses from your research to highlight
which customer segments are most relevant to your brand.

5. Test your marketing strategy: Once you have interpreted your responses, test your
findings on your target market, using conversion tracking to see how effective it is. And
keep testing. If uptake is disappointing, relook at your segments or your research methods.

Market segmentation strategy

Why should market segmentation be considered a strategy? A Customer Experience Strategy is a

considered plan that takes you from point A to point B in an effective and useful way. Market
segmentation is similar, as there will be times you need to revisit your market segments, such as:

 In times of rapid change: A great example is how the Covid-19 pandemic forced a lot of
businesses to rethink how they sell to customers. Businesses with physical stores looked at
online ordering, while restaurant owners considered curb side pickups.

If your customers change, then your market segmentation should as well, so you can
understand clearly what your new customers need and want from you.

 On a yearly basis: Market segments can change year on year as customers are affected
by external factors that could alter their behaviour and responses.

For example, natural disasters caused by global warming may impact whether a family
chooses to stay living in an area prone to more of these events. On a larger scale, if your
target customer segment moves away from one of your sales regions, you may want to
consider re-focussing your sales activities in more populated areas.
  At periodic times during the year: If you’ve explored your market and created market
segments in the Spring, the same market segments may have different characteristics at a
different time of the year.

For example, Winter has several holidays, with Christmas being a huge influence on
families. This holiday impacts your market segments’ buying habits, how they’ll behave
(spending more than normal at this time than any other) and where they will travel too (back
home for the holidays). Knowing this information can help you predict and prepare for this
period.

When considering updating your market segmentation strategy, consider these three areas:

1. Acknowledge what has changed: Find out what has happened between one time period
to another, and what have been the driving forces for that change. By understanding the
reasons why your market is different, you can make key decisions on whether you want to
change your approach or stay the course.

2. Don’t wait to start planning: Businesses are always adapting to long-term trends, so
refreshing market segmentation research puts you in a proactive place to tackle these
changes head-on. When you have your market segments, a good idea is to consider the
long-term complications or risks associated with each segment, and forward-plan some
time to discuss problem-solving if those issues arise.

3. Go from what to why: Why did those driving forces come about? Why are there risks with
your target market? This helps you get smart market segmentation that is predictive and
actionable, making it easier for future research and long-term segment reporting.

Common segmentation errors

We’ve outlined the do’s, so here are some of the dont’s:

 Avoid making your segments too small or specialised: Small segments may not be
quantifiable or accurate, and can be distracting rather than insightful

 Don’t just focus on the segment rather than the money: Your strategy may have
identified a large segment, but unless it has the buying power and wants or needs your
product, it won’t deliver a return on investment

 Don’t be inflexible: Customers and circumstances change, so don’t let your segments
become too entrenched – be prepared to let them evolve.
Blue Ocean Strategy & Red Ocean Strategy

WHAT IS BLUE OCEAN STRATEGY? @@@

BLUE OCEAN STRATEGY is the simultaneous pursuit of differentiation and low cost to open up a
new market space and create new demand. It is about creating and capturing uncontested
market space, thereby making the competition irrelevant. It is based on the view that market
boundaries and industry structure are not a given and can be reconstructed by the actions and
beliefs of industry players.

WHAT ARE RED OCEANS AND BLUE OCEANS?

RED OCEANS are all the industries in existence today – the known market space. In red oceans,
industry boundaries are defined and accepted, and the competitive rules of the game are known.
Here, companies try to outperform their rivals to grab a greater share of existing demand. As the
market space gets crowded, profits and growth are reduced. Products become commodities,
leading to cutthroat or ‘bloody’ competition. Hence the term red oceans.

BLUE OCEANS, in contrast, denote all the industries not in existence today – the unknown
market space, untainted by competition. In blue oceans, demand is created rather than fought
over. There is ample opportunity for growth that is both profitable and rapid.

In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. A
blue ocean is an analogy to describe the wider, deeper potential to be found in unexplored market
space. A blue ocean is vast, deep, and powerful in terms of profitable growth.

BLUE OCEAN STRATEGY VS RED OCEAN STRATEGY @@@

RED OCEAN STRATEGY

 Compete in existing market space
  Beat the competition
 Exploit existing demand
 Make the value-cost trade-off
 Align the whole system of a firm's activities with its strategic choice of differentiation or
low cost

BLUE OCEAN STRATEGY

 Create uncontested market space
 Make the competition irrelevant
 Create and capture new demand
 Break the value-cost trade-off
 Align the whole system of a firm's activities in pursuit of differentiation and low cost

Industry and Competitor Analysis @@@

Key Analytics
Any good business planning project has to start with some analysis of the industry in which the
venture will operate and the competitors who already operate in that industry.
These two aspects will define the operating environment for the venture. One might say that these
create a description of the playing field for the competitive battle.
• Industry Analysis – How good is this industry for your idea?
• Competitor Analysis – What does the prospective competition look like?

Industry Analysis
The industry in which the venture operates is one of the largest factors in the statistical success or
failure of new ventures. Research tends to show that 8-30% of success is due to the industry.
For example: new ventures in the Information Technology industry have a 4 year survival rate of
38%, while new ventures in education or health care have a 55% survival rate.

We will consider two aspect of the industry analysis.

• The first is the type of industry and the position the new venture will fill in the industry.
• The second is aspect deals with the Industry Trends and the Environmental, Economic, Social,
Technological, Political, Regulatory forces and trends.

Industry Structures

We should begin by considering the types of industries. The following categories are used to
classify groups of industries that seem to be alike:
• Emerging Industries – Industries that are reasonably new. These are often due to advances in
technologies. – Example: Social media, eCommerce, On demand video, Artificial Intelligence,
Cyber Security, personalized medicine,
• Fragmented Industries – Industries that have no dominant competitors that have significant
market share. There are many companies sharing a fragmented market. – Example: Fast food,
Fast casual food, Groceries,
• Mature – Industries that have been around for a long time and in which consolidation has led to
only a few firms with significant market share. – Examples: Automotive, Airlines, Computer
manufacturing, Office productivity software.
• Declining – Declining industries are mature industries that have passed their peak and are
seeing regular declines in revenues that have been going on for a long time and which do not
appear reversible. – Examples: Newspapers, tobacco products, circuses, photographic film,
shopping centers, etc.
• Global – Industries that have a global presence and must execute a global strategy. – Examples:
Automotive, McDonalds, Steel, Oil, Shipping,

Emerging Industries
• New demands or technologies can create new industries – Since there may not have been time
for industry leaders to establish themselves, it can be easier to enter these industries –especially if
the entering firm has an advantage in their business model or their technology.
• There can be a potential First-Mover advantage – In this case there can be some advantage
(First mover advantage) to being the earliest entrant, but remember the leaders get hit first. Often
it is the fast followers who do better. Alta Vista was the first internet search engine, Yahoo quickly
followed Alta Vista and became the largest standard, and now Google dominates the industry. –
The first spreadsheet was Visicalc –invented just down the road from Lowell. But then Lotus 123,
invented in Cambridge came to dominate the market. Now Excel has the lion’s share (over 90%)
of the spreadsheet market. – A fast follower can imitate and avoid mistakes of the leader.
• Examples of Entrepreneurial Firms in emerging industries – Apple iTunes – Altaeros in wind
energy generation. – PharmaSecure –detect counterfeit pharmaceuticals – Google, Yahoo,
Altavista, Bing, and others were entrants in an emerging industry in search engines over a decade
ago. Now that industry is becoming more mature with a few dominant players. – Facebook,
MySpace, LinkedIn, Twitter, Snapchat, Instagram are all competitors in the social media space
that is still an emerging industry –even as we see signs of consolidation beginning.
Fragmented Industries
A fragmented industry has a large number of firms that each only have a small share of the
market. There is no dominant player. In many cases there are a large number of similar firms. The
opportunity in a fragmented industry is through consolidation. A “roll up strategy” is one in which a
firm acquires a number of competitors to either add their products to their product line or simply
take them out of the market.
• Examples of Entrepreneurial Firms in fragmented industries include: – Starbucks and Dunkin
Donuts in coffee shops – Panera and Chipotle in fast casual food – The digital course
management system industry has been fragmented since it began in the 1990’s, but Blackboard
has emerged as a dominant player by acquiring, Prometheus, WebCT, Wimba, and others in a
classic “roll up” strategy. – Disk drives for personal computers were once made by many different
companies: Seagate Acquired Maxtor and incorporated a little of their brand and some of their
products and took them out of the market as a competitor.
Mature Industries
Mature industries are full of a few well established firms. There is generally slow growth. They
serve many repeat customers, and there is limited product innovation.
• The automotive industry is a mature industry.
• Innovation in process and services provides one entry into the market, but it can be very difficult.
The entry of several electric and hybrid car companies like Tesla and Fisker provide an example of
an innovative approach. The jury remains out as to whether they will eventually be successful.
• Silk soymilk succeeded in entering a mature dairy industry, but it is difficult to enter and succeed
in a mature industry.
• Southwest Airlines and Jet Blue both managed to enter the mature airline market, four decades
ago and two decades ago respectively, by offering lower costs and improved customer
experience.
• Examples of Entrepreneurial Firms
– Tesla in Automobile Sales
– Fisker, a plug in hybrid, tried to make a go of it, but went bankrupt and was sold at auction to a
Chinese manufacturer –who has suggested plans to revive the brand.
– Amazon in book sales not only successfully entered a mature market, but it knocked many of the
traditionally dominant players right out of the industry. They did this with an innovative business
model (Business Model Innovation) that replaced the traditional middlemen of local bookstores or
national chains of local bookstores with a more direct connection between publisher and reader.
Now they are working directly with authors and the major publishing companies fear that they too
may be “disintermediated” by a new model
– Huffington Post in “newspapers” (although newspapers may be better classed as a declining
industry!)
– Instymeds- prescription drug sales
– Fresh Health Vending in food vending
– Daisy Rock Guitars in guitars
Declining Industries
In a declining industry there is consistently decreasing industry demand.
Warren Buffet described “Cigar-Butt” style investing as picking up discarded cigar butts and trying
to take a few last puffs! In declining industries, some buy out of favor companies at very low cost
and then milk the last value out of the company before closing or selling them again. Buffet
learned that style of investing from his mentor, Benjamin Graham, but eventually rejected it as a
viable strategy. He opted to look for higher quality opportunities.
• Opportunity: leaders, niche, cost reduction strategy, harvest, and divest.
• Examples of Entrepreneurial Firms in declining industries. – Nucor in steel –disruptive innovation
through a cost reduction strategy. – JetBlue in Airlines – finding a geographic niche and cost
reduction – Cirque du Soliel in circuses – creating a new niche which was a combination of circus,
theatre, music and dance.

Global Industries
These are industries with a significant global presence and sales.
• They require a multinational or global approach with two basic strategies:
– Global Strategy
• Selling the same products in all markets
• This is preferable but not always feasible.
• Examples: shoes-watches- jewellery-fashion
– Multi-domestic strategy
• Creating specific products for specific markets.
• This is more expensive, but is often necessary
• Examples: – food, cars – McDonalds is a good example.
• Examples of Entrepreneurial Firms
– PharmaJet in needle-less injection systems
– D.light in solar powered lanterns
– UMass Medical in Rabies monoclonal antibody
– Facebook
– AirBNB
– Uber

Analyzing the identified industry @@@

Once one has identified the characteristics of the industry in which a venture is planning to
operate, it is then necessary to analyze the potential (or actual) position of the new venture in
regard to a 360 degree view of the industry –including suppliers, customers, competitors,
substitutes, and other potential new entrants.
• Michael Porter, Harvard Business School Professor, has created a powerful tool to analyze these
five forces and then draw some conclusions about the average profitability for the firms in an
industry.
• The tool looks at these Five Forces - This is called a Porter Five Force Analysis:
1. Bargaining power of suppliers
2. Bargaining power of customers
3. Threat of new entrants
4. Threat of substitution of an alternate product or service.
5. Rivalry among the firms in an industry.

Substitutes
• Are there substitutes for the product that you are selling?
– A substitute is not another version of the same product.
– For example: if the price of an airline shuttle ticket from Boston to New York is perceived
as being too high, then the traveller may take the Amtrak train instead.
– Many companies are now substituting videoconferencing or web conferencing for actual
business travel.
 – Federal Express has lost a lot of the document delivery business to email attachments
and other digital delivery methods –including digital signatures.
– Polaroid Instant Photos -> digital photography
– Oil heat has been rapidly replaced by natural gas as the price of gas has gone down due
to increased US production of natural gas
– Brand Pharmaceuticals -> generics
• The great danger of substitution occurs when:
– Switching costs are low
• There is not a lot of cost (financial or training/learning) to the substitution.
– Substitutes are affordable
– Substitute quality or performance is better

New Entrants
• Are there barriers to entry for new firms or is it easy to enter the business?
• Barriers:
– Economy of Scale –hard to compete with the big guys
• Intel, Microsoft, Apple, General Motors, Amazon, Facebook, Google, etc
– Product differentiation-
• Brand names Coke, Apple,
– Capital requirements
• Car industry, steel mills before mini-mills!
– Cost advantages other than size
– Access to distribution channels –shelf space
– Government and legal barriers
• (IP, patents, trademarks, copyright, or licenses)

Rivalry among Existing Firms

• What is the nature and intensity of the rivalry among existing firms?
• Number and Balance among Competitors
– Less is more –usually. Fewer competitors may make it easier, but sometimes
fragmentation can be an asset to the new entrant.
– Does fierce competition drive down prices and margins. That is bad for profitability.
• Degree of Difference among Products
– Less is a commodity, more is a specialty. Being a commodity is a more difficult role.
• Growth Rate of an Industry
– More is more. Everyone likes growth.
• Level of fixed costs
 – Less is more for the entrant. Low fixed costs make it easier for smaller competitors to get
into the industry and get started at a smaller scale.

Bargaining Power of the Suppliers

Do the suppliers wield a lot of control over the supplies that you need for your venture?
• Less is better for the new entrant!
– Intel supplies chips to PC makers –high bargaining power. If you want to build computers,
you have very little ability to negotiate with Intel or Microsoft.
• Supplier concentration
– More suppliers mean less bargaining power for supplier
• Switching costs
– Intel, Microsoft products are hard to switch away from. It is costly to switch suppliers! It
requires a major redesign of hardware and it requires retraining of users. Android and AMD
have made some inroads against each and give a firm some options.
• Attractiveness of Substitutes
– Supplier power is enhanced if there are no attractive substitutes
– Microsoft vs Sun vs Google etc.
• Threat of Forward integration
– Can a supplier enter your industry?
• Microsoft entering the tablet industry was a shock to tablet makers that bought
Microsoft software.
• Past: The Browser wars
Bargaining Power of Buyers
• Less bargaining power of buyers is better for the new entrant
• Buyer Group Concentration
– Pressure sellers to reduce costs
– The Auto industry can pressure suppliers (alternators, seats, windows, tires, batteries,
etc.) to meet their terms. They have a high bargaining power of buyers.
• Buyers costs
– If your product is a big part of their final cost –expect pressure
• Degree of Standardization of Suppliers Products
– Buyer has more power when suppliers offer many choices for same stuff
• Threat of backward integration
– Can buyer threaten to enter the industry?
• Could PC companies threaten to build monitors?
Competitor Analysis
Now that you have analyzed the industry and understand the average potential profitability of your
venture, you need to analyze your competitors in the industry. There are two kinds of competitors
• Direct Competitors- identical products or services
• Indirect competitors- potential substitutes
– Pepsi viewed fluids other than coke as indirect competitors.
• There are also future competitors –either direct or indirect.
– Borders and Barnes & Noble met Amazon.com and that upended the industry.
• Competitive Intelligence
– You need to seek out any sources of competitive intelligence and may want to fill out the
grid on the next page before you commit to a new venture.

Competitive Analysis Grid

Competitors Competitor A Competitor B Competitor C Competitor D
Product Features
Brand
Utility
Price
Packaging

http://www.jackmwilson.net/Entrepreneurship/TE/TE-Chap10-Industry-Competitor-Analysis.pdf

Demand-Supply Analysis @@@

What is a Demand-Supply Analysis?

In a market economy, the level of demand and supply of all goods and services jointly determines
the price level and quantity of that good (or service) in the economy.

When is a Supply Demand Analysis Used?

The law of demand states that (with a few exceptions) as price rises, the quantity demanded of
any good or service would be lower.

The law of supply implies that higher the price received by a supplier, the quantity supplied will
rise. Thus, demand is often a downward sloping curve in the price-quantity plane, while supply is
an upward sloping curve.
What is the Equilibrium Price?

The intersection of the supply and demand curve denotes the market equilibrium, which in turn
determines the equilibrium levels of price and quantity of the particular good (or service) in the
economy.

If the present demand for a good (or service) in the economy is higher than the equilibrium
quantity, the situation is described as that of an excess demand. Excess supply is also defined in
a similar fashion.

What Causes Shifts in Supply or Demand?

Changes in Supply and demand (and thus the equilibrium price and quantity) of any good or
service could be governed by a lot of factors, such as: changes in policies, unpredictable
shocks to the economy, business cycle fluctuations like a recession or a boom, or even
simply over time (long run versus short run). It also depends on the nature of the market
(whether the market is perfectly competitive or monopolistic etc.).
The analysis of all the above could be termed as the study of the supply and demand, or simply,
'Demand Supply Analysis'.

What is the Law of Supply and Demand?

The law of supply and demand reflects the relationship between demand and supply in that a
change in one causes a change in the other. According to the law of supply and demand, when
there is higher demand for a commodity, there is a rise in the supply of such commodity and vice
versa. The law of supply and demand explains the interaction between the desire for a product
and the supply of that product. For instance, if the supply of a product is low and the demand is
high, it means such product is scarce and insufficient for the number of people that wants it,
hence, it will lead to an increase in the price of the product.

How is the Law of Supply and Demand Used?

The law of supply and demand is an economic theory that explains how demand and supply are
connected and how these two concepts strive to find market balance or equilibrium price. Usually,
when there is excess supply in the market and a low demand for the supplied products, there is a
decrease in the price of goods. There are many factors that influence demand and supply. Supply
and demand can rise for multiple reasons, so also can they decline. The law of supply and
demand is connected to almost all economic principles, although there are exceptions.

How Do Supply and Demand Create an Equilibrium Price?

The impact of equilibrium price is that it allows suppliers sell their goods at a price which buyers
are willing to pay. For instance, if a supplier is able to sell all units of products at a predetermined
price and buyers are willing to purchase all units at the price, there is equilibrium. Equilibrium price
is otherwise called a market-clearing price, supply and demand play a major role in the creation of
equilibrium price in the market. Generally, businesses or producers find means to reach an
equilibrium, they are often in search of ways to create a balance between the units of goods
produced and the desire of consumers for the goods.

Factors Affecting Supply

There are certain factors that directly affect supply and determines whether there will be high or
low supply. The capacity of a producer or company, the costs of producing specific items including
cost of materials, labour, and equipment can affect supply. Other factors include the presence of
competitors in the market. Also, if the production of an item is determined by weather, for instance,
a company that manufactures sweaters, the supply of products will the determined by weather.
The supply chain is another factor that affects supply.

Factors Affecting Demand

Demand on the other hand is also affected by many factors. The common factors that affect
demand are;

 The cost of a product, that is, the price at which the product will be purchased.
 The availability of other alternatives in the market.
 The importance of the product, whether it is an inferior good or otherwise.
 The price of complementary products.

These and few others are factors that affect demand.

Do Supply and Demand Only Affect Prices?

The law of supply and demand is an economic theory that affects diverse economic principles and
not just the concept of 'price.' For instance, supply and demand is an important gauge for
measuring economic growth and it is important when calculating the gross domestic product
(GDP) of a country for a particular time. The rate of employment and unemployed can also be
determined. The law of demand and supply is also applicable to wages for labour, business
growth, among others.