Strategic Management

Generic Competitive Strategies Value Chain Analysis Bench Marking

PRESENTED BY: SANDEEP AMIYA RANJAN(12MFC010) RAKESH KUMAR SWAIN(12MFC018)

Introduction: The rationale behind studying competition

Today, companies face their toughest competition

ever. Companies use their understanding to design market offers to deliver more value than the offers of competitors seeking to win the same customers. Companies must also understand their competitors, identify and analyze their strategies to position themselves in such a way as to gain the greatest possible competitive advantage against competitors in the marketplace.

Porters Generic Strategy Framework

Michael Porter has suggested three general types

of positioning strategies to achieve competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm.

Porters Generic Strategy Framework

The three strategies are: 1.Cost leadership, 2.Differentiation, and 3.Market Segmentation (or focus) Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in

Examples of Companies That Use Cost Leadership Strategies

Wal-Mart is famous for EDLP, achieved by

developing close relationships with its suppliers and vendors to achieve cost savings through large volume purchases and pass these savings to the consumers. Dell Computers :achieved market share by keeping low inventories and only building computers to order, procurement advantages from preferential access to raw materials, or backward integration. Low-cost budget Irish based airlines Ryanair who despite having fewer planes than the major airlines, were able to achieve market share growth by offering cheap, no-frills services at prices much cheaper than those of the larger competitors.

Cost Leadership
A firm tries to reduce its overall production and

distribution costs. It wins market share by appealing to costconscious customers. It sets the lowest prices in the target market segment, or at least the lowest price to value ratio. 3 ways to achieve this: Economies of scale low direct and indirect operating costs control over the supply chain

Examples of Companies That Use Cost Leadership Strategies

Indias largest steel company Tata Steel, the cost

leader in the steel manufacturing sector owns raw material assets such as coaland limestone mines through joint ventures or completely, with the assets spread across countries such as Australia, Oman and Mozambique. Tata Steel has largely been able to withstand raw material price uctuations due to captive iron ore mines. Reliance Industries has become a global leader in various business activities based on innovation and cost by achieving more effecient production arising from experience and economies of scale, innovation in production methods, and dierential Low-Cost Access to Productive Inputs.

Differentiation
A company concentrates on differentiating the

products in some way in order to compete successfully. appropriate where the target customer segment is not price-sensitive, the market is competitive , customers have very specific under-served needs and the firm has unique resources to satisfy these needs in ways that are difficult to copy. Includes patents or other Intellectual Property (IP), unique technical expertise, talented personnel or innovative processes. Successful brand management also results in perceived uniqueness even when the physical product is the same as competitors. Fashion brands rely heavily on this form of image

Examples of differentiation
Differentiation through Multiple sources:

L&T, the engineering firm , recruits engineers with excellent qualification and claims superiority in executing projects. Coke and Pepsi differentiated through brand power. Reva through an electric car Product Differentiation based on ingredients: HUL Close Up used glycerin instead of calcium carbonate and secured differentiation and Colgate compelled to copy the same

Examples of differentiation
Product Differentiation through Additional

features: Aristocrat suitcases with wheels , a unique convenience to user Product Differentiation by Packaging Harpic Toilet cleaner with an application friendly nozzle Hit for cockroach with sleek nozzle for hidden areas Product Differentiation by Design:Kinetic Honda with electronic ignition and do away with kick start routine , automatic gear shifting especially for women and senior citizen.

Market Segmentation / Focus

The firm focuses its marketing effort on serving a

defined, focused market segments with a narrow scope by tailoring its marketing mix to these specialized markets, it can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency. It is most suitable for relatively small firms but can be used by any company. A focused strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment.

Market Segmentation / Focus

The focus strategy has two variants:

(a) In cost focus, a firm seeks a cost advantage in its target segment, It exploits differences in cost behavior in some segments . For instance, Southwest Airlines, famous for its low cost focus follows basically a linear route structure. It only flies one type of airplane and it wants to stay in high-density markets and has been highly efficient. (b) Differentiation focus a firm seeks differentiation in its target segment. It exploits the special needs of buyers in certain segments. Ferrari , targets high performance sports car segment and due to differentiation based on design, high performance and grand prix records which allows it to charge a premium price.

Stuck in the middle

A companys failure to make a choice between

cost leadership and differentiation essentially implies that the company is stuck in the middle. There is no competitive advantage for a company that is stuck in the middle and the result is often poor financial performance . However, companies like Toyota and Benetton have adopted more than one generic strategy. Both these companies used the generic strategies of differentiation and low cost simultaneously, which led to the success of the companies.

Criticisms of Porters Generic Strategy Framework

A business can employ a hybrid strategy without

being struck in the middle. Nissan, for instance.

Cost leadership does not sell products itself. Differentiation can be used to increase sales

volume rather than charging a premium price.

Price can sometimes be used to differentiate.

Criticisms of Porters Generic Strategy Framework

The competence based strategy framework

supersede the generic strategy framework.

Despite these criticisms, porters model can constitute the basis of a useful framework for categorizing and understanding sources of competitive advantage.

Looking forward: The road ahead

The popular post-Porter model was presented by

W. Chan Kim and Rene Mauborgne in their 1999 Harvard Business Review article "Creating New Market Space, described a "value innovation" model in which companies must look outside their present paradigms to find new value propositions. Their approach fundamentally goes against Porter's concept that a firm must focus either on cost leadership or on differentiation. The concept is popularly known as Blue Ocean Strategy.

Value Chain Analysis

Porters Value Chain

Born in 1947

Harvard professor
Wrote book,

Competitive Advantage

Primary Activities
Inbound Logistics

Operations
Outbound Logistics Marketing and Sales Service

Inbound Logistics
The receiving and warehousing of raw materials

Distribution of raw materials to manufacturing and

operations

Operations
Process of transforming inputs into finished

goods and services

Outbound Logistics
Warehousing of finished goods

Distribution of those finished goods to customers

or retail stores

Marketing & Sales

Identification of customer needs

Deploying product into marketplace

Process of selling to customers

Service
Supporting customers after they buy products

and services

Support Activities
Procurement

Technology Development
Human Resource Management Firm Infrastructure

Procurement
The purchasing of raw materials and inputs

needed to create the product

Technology Development
Technology developments that support value

chain activities

Human Resource Management

Activities associated with recruiting, training,

hiring, and compensation

Firm Infrastructure
Includes general and planning management,

legal, finance, accounting, public affairs, and quality management Ex. A firms legal team consisting of lawyers to aid in lawsuits Accounting department to keep track of financial figures

Why this matters

Profits depends on how well firms execute these

activities in the value chain Firms that excel in a value chain activity is said to have a competitive advantage Competitive advantage is gained through cost advantage

Cost Advantage
Reducing cost of individual value chain activities

Reconfiguring the value chain

10 Costs Drivers of Each Value Chain Activity

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Economies of Scale Learning Capacity Utilization Linkages among activities Interrelationships among business units Degree of vertical integration Timing of market entry Firms policy of cost or differentiation Geographic location Institutional Factors (regulation, union activity, taxes etc.)

Reconfiguring Value Chain

Structural changes to an activity in a value chain

to reduce costs

The Bigger Picture

Firms value chain is part of a bigger value chain

Competitive advantage also depends on the

management of connections with other firms value chains

Bench Marking

What is Benchmarking
A method for identifying and importing best

practices in order to improve performance

The process of learning, adapting, and

measuring outstanding practices and processes from any organization to improve performance

Why Benchmark
Identify opportunities to improve

performance
Learn from others experiences Set realistic but ambitious targets Uncover strengths in ones own

organization
Better prioritize and allocate resources

Public Sector Benchmarking

Citizens demand effective and responsive

government
Voters resent waste of tax dollars

People ask for greater accountability of

government
Weak economy forces government to

provide more services with less resource

Types of Benchmarking: 1
Strategic Benchmarking

How public, private, and nonprofit organizations compare with each other. It moves across industries and cities to determine what are the best strategic outcomes.

Types of Benchmarking: 2
Performance Benchmarking

How public, private, and nonprofit organizations compare themselves with each other in terms of product and service. It focuses on elements of cost, technical quality, service features, speed, reliability, and other performance comparisons.

Types of Benchmarking: 3
Process Benchmarking

How public, private, and nonprofit organizations compare through the identification of the most effective operating practices from many organizations that perform similar work processes.

When not to Benchmark

Target is not critical to the core business

functions Customers requirement is not clear Key stakeholders are not involved Inadequate resources to carry through No plan for implementing findings Fear of sharing information with other organizations

Benchmarking Process
Planning

Improving Practices Analysis

Collecting Data

1. Planning
Determine the purpose and scope of the

project Select the process to be benchmarked Choose the team Define the scope Develop a flow chart for the process Establish process measures Identify benchmarking partners

2. Collecting Data
Conduct background research to gain

thorough understanding on the process and partnering organizations

Use questionnaires to gather information

necessary for benchmarking

Conduct site visits if additional information

is needed
Conduct interviews if more detail

information is needed

3. Analysis
Analyze quantitative data of partnering

organizations and your organization

Analyze qualitative data of partnering

organizations and your organization

Determine the performance gap

4. Improving Practices
Report findings and brief management

Develop an improvement implementation

plan
Implement process improvements Monitor performance measurements and

track progress
Recalibrate the process as needed

THANK YOU