CORPORATE

STRATEGY
By: Dr. Ayesha Farooq
Professor
FMSR ,AMU,Aligarh
Dynamics of Internal Environment
(Resource Based View )
Competitive Advantage
Strategic Competitiveness/ Advantage
Organizational Capability
Competencies
Synergistic Effects
Strengths and Weaknesses
Organizational Organizational
Resources Behavior
Key Questions for Managers
in Internal Analysis
How do we assemble bundles of
Resources, Capabilities and Core
Competencies to create VALUE for
customers?
And...
Will environmental changes make our
core competencies obsolete?

Are substitutes available for our core

competencies?
Are our core competencies easily imitated?
Discovering Core
Competencies

Resources
* Tangible
* Intangible
Resources What a firm Has...

What a firm has to work with:

its assets, including its people
and the value of its brand name
Resources What a firm Has...
What a firm has to work with:

its assets, including its people and the

Tangible Resources value of its brand name
* Financial
Physical Resources represent inputs into a
*
firm’s production process...
* Human Resources
* Organizational
such as capital equipment, skills of
employees, brand names, finances
and talented managers
Intangible Resources

* Technological “Some genius invented the Oreo. We’re just

Innovation living off the inheritance.”
*
* Reputation
 Tangible assets are the easiest to value, and often
are the only resources that appear on a firm’s balance
sheet. They include real estate, production facilities,
and raw materials, among others. Although tangible
resources may be essential to a firm’s strategy, due to
their standard nature, they rarely are a source of
competitive advantage.
 Intangible assets include such things as company
reputations, brand names, cultures, technological
knowledge, patents and trademarks, and
accumulated learning and experience. These assets
often lay an important role in competitive advantage
(or disadvantage), and firm value
Strengths
 A STRENGTH is something a company is good at
doing or a characteristic that gives it an important
capability.
 Possible Strengths:
 Name recognition
 Proprietary technology
 Cost advantages
 Skilled employees
 Loyal Customers
Weaknesses

 A WEAKNESS is something a company lacks or

does poorly (in comparison to others) or a condition
that places it at a disadvantage
 Possible Weaknesses:
 Poor market image
 Obsolete facilities
 Internal operating problems
 Poor marketing skills
Strengths and Weakness form a basis for
INTERNAL analysis

 By examining strengths, you can discover untapped

potential or identify distinct competencies that helped
you succeed in the past.
 By examining weaknesses, you can identify gaps in
performance, vulnerabilities, and erroneous
assumptions about existing strategies.
Discovering Core
Competencies

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
Capabilities What a firm Does...
Capabilities represent:
the firm’s capacity or ability to integrate individual firm
resources to achieve a desired objective.

Capabilities develop over time as a result of complex interactions

that take advantage of the interrelationships between a firm’s
tangible and intangible resources that are based on the
development, transmission and exchange or sharing of information
and knowledge as carried out by the firm's employees.

Capabilities become important when they are

combined in unique combinations which create
core competencies which have strategic value and
can lead to competitive advantage.
Capabilities
All firms have capabilities. However, a firm will usually focus on
certain capabilities consistent with its strategy.

 For example, a firm pursuing a differentiation strategy would focus

on new product development. A firm focusing on a low cost
strategy would focus on improving manufacturing process
efficiency.
Dynamic capability is the firm’s ability to integrate, build and
reconfigure internal and external competences to address rapidly
changing environments.
Adaptive capability can be defined as the ability to identify and
capitalize on the emerging market opportunities .
Absorptive capability is focused around the concept of
knowledge acquisition, knowledge assimilation, knowledge
transformation, & knowledge exploitation and apply it to
commercial ends.
Innovative capability denotes that the capability of the firm to
develop new products or markets, by the alignment of strategic
innovative orientation with behaviors and processes
Organisational Capability Factors

Strategic strengths existing in different functional areas

Functional Capability
1. Factors related to sources of funds
2. Factors related to usage of funds
3. Factors related to the management of funds
Marketing Capability
1. Product related factors
2. Price related factors
3. Place related factors
4. Promotion related factors
Operations Capability
1.Factors related to production system
2. Factors related to the operations and control system
3. Factors related to the R&D system

HR Capability
1. Factors related to the HR system
2. Factors related to organizational and employees
characteristics
3. Factors related to industrial relations
Information management capability
1. Factors related to acquisition and retention of
employees
2. Factors related to processing and synthesis of
information
3. Factors related to retrieval and usage of information
4. Factors related to transmission and dissemination

General management capability

1. Factors related to general management system
2. Factors related to general managers
3. Factors related to external relationships
4. Factors related to organisational climate
Discovering Core
Competencies
Discovering
Core
Competencies
Core
Competencies
Sources of
Competitive
Advantage

Capabilities
Teams of
Resources

Resources
* Tangible
* Intangible
Core Competencies What a firm Does...
that is Strategically
Valuable

“…are the essence of what makes an

organization unique in its ability to provide
value to customers.”

McKinsey & Co. recommends identifying three to

four competencies to use in framing strategic
actions.
 Competencies

 A competency is an internal capability that a

company performs better than other internal
capabilities.
 A core competency is a well-performed internal
capability that is central, not peripheral, to a
company’s strategy, competitiveness, and
profitability.
 A distinctive competence is a competitively
valuable capability that a company performs
better than its rivals.
Discovering Core
Competencies
Discovering
Core
Competencies
Core
Competencies
Sources of
Competitive
Advantage

Capabilities Criteria of
Teams of Sustainable
Resources Advantages
Resources
* Valuable
* Tangible
* Intangible * Rare
* Costly to Imitate
* Nonsubstitutable * Outsource
Core Competencies What a firm Does...
that is Strategically
For a strategic capability to
Valuable
be a Core Competency, it
must be( VRIO Framework
by Barney):
Valuable

Rare

Inimitable/ Costly to Imitate

Organizable
Core Competencies
Core Competencies must be:
Valuable
Resources that either help a firm to exploit opportunities to create value for
customers or to neutralize threats in the environment

Rare
resources that are possessed by few, if any, current or potential competitors

Inimitable/Costly to Imitate
Resources that other firms cannot develop easily, usually due to unique historical
conditions, causal ambiguity or social complexity

Organisable
Resources that do not have strategic equivalents, such as firm-specific
knowledge or trust-based relationships and which can be organized by the firm.
VRIO Framework- Barney
Is the R/C
difficult or Is the R/C
Is the R/C Is the costly to organisable Competitive Performance
valuable? R/C rare? imitate? ? Consequences Implications
Competitive
No No No No Disadvantage
Below AIR

Competitive
Yes No No Yes/No Parity
AIR

Temporary AIR to Above

Yes Yes No Yes/No Advantage AIR
Sustainable
Yes Yes Yes Yes Competitive Above AIR
Advantage
Resource = R Capability = C AIR = Average Industry Returns
Core Competencies--Cautions and
Reminders
Never take for granted that core competencies will
continue to provide a source of competitive
advantage
All core competencies have the potential to
become Core Rigidities
Core Rigidities are former core competencies that
sow the seeds of organizational inertia and
prevent the firm from responding appropriately to
changes in the external environment
Strategic myopia and inflexibility can strangle the
firm’s ability to grow and adapt to environmental
change or competitive threats
 Competitive
Discovering Core Advantage
Gained through
Competencies(Resource Core Competencies
Strategic
based view) Competitiveness
Discovering Above-Average
Core Returns
Competencies
Core
Competencies
Sources of
Competitive
Advantage

Capabilities Criteria of Value

Teams of Sustainable Chain
Resources Advantages Analysis
Resources
* Tangible * Valuable * Outsource
* Intangible * Rare
* Costly to Imitate
* Nonsubstitutable
Organisational Scanning

Internal Analysis
1. VRIO Framework
2. Value Chain Analysis
3. Quantitative analysis
i) Financial analysis
ii) Non-financial analysis

4. Qualitative Analysis
Comparative Analysis
 Historical analysis
 Industry norms
 Benchmarking- reference point for taking
measures against it
performance, process & strategic benchmarking(what)

internal, competitive, functional & generic benchmarking

(whom)
Comprehensive analysis

Balanced Scorecard –Kaplan and Norton

financial and non- financial indicators together in a
sheet to evaluate the performance.

 Includes performance measures for four perspectives:

 Financial
 Customer
 Internal business processes, and
 Learning and growth
 Value chain analysis- M.Porter
Industry value chain
Upstream activities
Downstream activities

Typical Value Chain for a Manufactured Product

Primary Product
Raw Materials Fabrication Distributor Retailer
Manufacturing Producer
 Firm Infrastructure
(general management, accounting, finance, strategic planning)
Human Resource Management
Support (recruiting, training, development)
Activities Technology Management
(R&D, product and process improvement)

Procurement
(purchasing of raw materials, machines, supplies) Profit
Margin

Inbound Operations Outbound Marketing Service

Logistics (machining, Logistics and Sales (installation,
(raw materials assembling, (warehousing and (advertising, repair, parts)
handling testing) distribution of promotion,
and finished pricing,
warehouses) product) channel
relations)

Primary Activities
 Airline Industry Value
Chain
FIRM
INFRASTRUCTURE
-Financial Policy - Accounting-Regulatory Compliance- Legal - Community Affairs

HUMAN Flight, route and

RESOURCE
Pilot Training Baggage Handling Agent In-flight
yield analyst
MANAGEMENT Safety Training Training Training Training
training
Product
TECHNOLOGY
Computer Reservation System, In-flight System Baggage Tracking
Development
DEVELOPMENT Flight Scheduling System, Yield Management System System
Market Research
Information Technology
PROCUREMENT Communications

•Route Selection •Ticket Counter •Baggage System •Promotion •Lost Baggage Service
•Passenger Service Operations •Flight •Advertising •Complaint Follow-up
System •Gate Operations Connections •Advantage
•Yield Management •Aircraft •Rental Car and Program
System (Pricing) Operations Hotel Reservation •Travel Agent
•Fuel •On-board Service System Programs
•Flight Scheduling •Baggage Handling •Group Sales
•Crew Scheduling •Ticket Offices
•Facilities Planning
•Aircraft Acquisition

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS AND SALES
Corporate Value Chain involves three steps:
1. Examine each product line’s value chain in terms of
the activities involved in producing that product or
service.

2. Examine the “linkages” within each product line’s

value chain.

3. Examine the potential synergies among the value

chains of different product lines or business units.
 FINANCIAL
“To succeed financially, how
should we appear to our
shareholders?”
Goals Measures Targets Initiatives

INTERNAL BUSINESS
CUSTOMER
PROCESS
“To achieve our vision, how
“To satisfy our shareholders and
should we appear to our VISION
customers, what business
customers?” AND
processes must we excel at?”
STRATEGY
Goals Measures Targets Initiatives Goals Measures Targets Initiatives

LEARNING AND GROWTH

“To achieve our vision, how will
we sustain our ability to change
and improve?”
Goals Measures Targets Initiatives
 Sustained Shareholder Value

FINANCIAL
PERSPECTIVE
Productivity Revenue Growth
Strategy Strategy

Improve Cost Increase Asset Enhance Customer Expand Revenue

Structure Utilization Value Opportunities

Customer Value Proposition

CUSTOMER
PERSPECTIVE
Price Quality Availability Selection Punctuality Service Partnership Brand

Product/ Service Attributes Relationship Image

Operations Management: Customer Innovation: Regulatory and Social:

Produce and deliver products Management: Create new products and Improve communities and
and services Enhance customer value services environment

Organization’s Change
How Intangible Assets Strategic job families Strategic IT portfolio Creating Alignment
Agenda
Fit into the Strategy Map and Readiness

LEARNING Organizational Capital

Human Capital Information Capital
AND GROWTH •Culture
•Skills •Systems
PERSPECTIVE •Leadership
•Training •Database
•Alignment
•Knowledge •Networks
•Teamwork
Internal Factor Analysis Summary (IFAS )/SAP: Asian Paints Limited (APL)
as Example (Selection of Strategic Factors)
Internal Factors Weight Rating Weighted Comments
Score

1 2 3 4 5
Strengths
S1 Experienced top management 0.05 2.5 .13 Know the paint industry
S2 Vertical Integration 0.05 2.0 .10 In- house manufacturing of key raw material
S3 Current assets management 0.15 4.0 .60 Good automated inventory control system
S4 Distribution network 0.10 3.5 .35 Strong distribution capabilities
S5 International orientation 0.15 3.5 .52 Steady international expansion

Weaknesses
W1 Global positioning .15 3.5 .53 Name of ‘Asian’ in outside Asia market
W2 Product portfolio .15 4.0 .60 Concentration on decorative segment
W3 Employee relations .05 2.5 .13 Nature of job and hygienically unsafe
industry
W4 Manufacturing facilities .10 2.0 .20 Low investment in other than decorative
segment
W5 Process oriented R&D .05 2.0 .10 Slow in new products
SWOT Analysis
Strengths
S1 Experienced top management
S2 Vertical Integration
S3 Current assets management
S4 Distribution network
S5 International orientation
Opportunities
 O1 Boom in construction industry
 O2 Demographics favor mass
customization
 O3 Economic development of Asia
and India
 O4 Growth in rural Indian market.
 O5 Promising auto and white
goods industry
Weaknesses
W1 Global positioning
W2 Product portfolio
W3 Employee relations
W4 Manufacturing facilities
W5 Process oriented R&D
Threats
 T1 Liberal Government policies
 T2 Strong Chinese competition
 T3 ICI and Berger strong globally
 T4 New product advances
 T5 Strict environmental laws world
over
 Apple SWOT analysis
Strengths
 Customer loyalty
 Apple is a leading innovator in mobile
device technology
 Strong financial performance
($10,000,000,000 cash, gross profit margin
43.9% and no debt)
 Brand reputation
 Retail stores
 Strong marketing and advertising
capabilities
 Strong and extensive distribution channels
in the U.S.
Opportunities
 Emergence of the new provider of
application processors
 Growth of tablet and smartphone markets
 Obtaining patents through acquisitions
 Damages from patent infringements
 Strong growth of mobile advertising market
 Increasing demand for cloud based
services
 Mobile payments and Wearable gadgets
Weaknesses
 High price
 Incompatibility with different OS
 Decreasing market share
 Patent infringements
 Further changes in management
 Defects of new products
 Long-term gross margin decline
 Lack of product breadth and offerings at
different price points
 Weak direct distribution channels in China
and India
Threats
 Rapid technological change
 tax increases
 Rising pay levels for workers
 Breached IP rights
 Price pressure from Samsung over key
components
 Android OS growth
 Competitors moves in online music
market
 TOWS Matrix

SWOT Analysis
Defining Corporate Strategy
Corporate Strategy is the way a company creates
value through the configuration and coordination of
its multi-market activities
The definition has three important aspects:
 Value Creation - the generation of superior financial
performance (rents) from multi-market activities that create
corporate advantages
 Configuration - the multi-market scope of the corporation
(product/market diversification, geographic focus, and
vertical boundaries)
 Coordination - the management of activities and
businesses that lie within the corporate hierarchy
Possible Business Definition of an Oral
Care Company
CUSTOMER FUNCTIONS

Form

Foam

Freshness

Flavor

Dental/ Oral Health

CUSTOMERGROUPS
Cosmetic Segment Fluoride Segment

Paste/ Powder
Different Packaging Material

Different Base Material

Different Flavoring Material

Different additives

CUSTOMER TECHNOLOGY
Corporate Strategy
Address the question: “What is the appropriate
scale and scope of the enterprise?”
Influences how large and how diversified firms
will be
Dimensions of Grand Strategies(corporate str.)
1. Internal/ External Dimension
2. Related/ Unrelated Dimension
3. Horizontal/ Vertical Dimension
4. Active/ Passive Dimension
Corporate Strategies- Grand Strategies

1. Stability Strategies

2. Expansion Strategies

3. Retrenchment Strategies
 GROWTH STABILITY
RETRENCHMENT
Concentration

Integration
•Vertical Growth •Pause/ Proceed with •Turnaround
•Horizontal Growth caution •Sell- out/ Divestment
•No Change •Bankruptcy/ Liquidation
Diversification •Profit
•Concentric
•Conglomerate

Cooperation

Internationalization
STABILITY STRATEGIES

 No- change strategy

 Profit Strategy

 Pause/ Proceed- with- caution strategy

EXPANSION STRATEGIES
Five types:
a) Expansion through concentration
i) Market penetration ii) Market development
Iii) Product development / Innovation
b) Expansion through integration
Horizontal and Vertical
i) Forward ii) Backward
c) Expansion through diversification
i) concentric diversification
ii) conglomerate diversification
d) Expansion through cooperation
Ansoff’s Matrix
 This matrix was developed by Igor Ansoff
 It is a framework for identifying corporate growth
opportunities
 Two dimensions determine the scope of
options,namely products and markets
 Four generic growth strategies are identified:
 Market penetration: more of the same to the same
customers
 Market development: new customers for existing
products
 Product development: new products for existing
customers
 Diversification: new products and new customers
 Ansoff’s Matrix
Existing product New product

Existing Market penetration Product development

market Increase sales to the New product developed for
existing market existing markets
Penetrate more deeply
into the existing market Innovation

New market Market development Diversification

Existing products sold to New products sold in new
new markets markets
Ansoff’s matrix and risk
 The greater the degree of newness the
greater the risk
 Hence:
 Market penetration - little risk involved
 Market development - moderate risk
 Product development - moderate risk
 Diversification - high risk because both
product and market are new and unknown
Market Penetration
 Aim of the strategy:
 To maintain or increase share of the current market with current
products
 To secure dominance of a growth market or restructure a mature
market by driving out competition
 Market penetration involves an increase in sales of
existing products to existing markets - selling more of the
same to the same people
 But it is difficult to achieve growth through increased
market penetration if the market is saturated
 In a stagnating market increase in sales is only possible
by grabbing market share from rivals. Hence competition
will be intense in such markets
 Risks are low but the prospects of success are low
unless there is strong growth in the market
Market penetration strategies
 How is increased market penetration
achieved?
 Increase usage by existing customers
 Attract customers away from rivals
 Gain market. share at the expense of rivals
 Encourage increase in frequency of use
 Devise and encourage new applications
 Encourage non buyers to buy
 Market penetration requires realignment of
the marketing mix
Use market penetration when...
 The market is not saturated
 There is growth in the market
 Competitors’ share of the market is falling
 Increased volumes lead to economies of
scale
 There is scope for selling more to existing
customers
Market development

 This involves
 Sellingthe same product to different people
 Entering new markets or segments with existing
products
 Gaining new customers, new segments, new markets

 Market development will require changes to

marketing strategy e.g. new distribution
channels, different pricing policy, now
promotional strategy to attract different types of
customers
Market development
 Market development is used when…
 Untapped markets are beckoning
 The firm has excess capacity
 There are attractive channels to access new
market
 Market development involves moderate
risk - there is a lack of familiarity with
customers but at least the product is
familiar
Product development

 This is the development of new products for the existing

market
 New products come in the form of:
 New products to replace current products
 New innovative products
 Product improvements
 Product line extensions
 New products to complement existing products
 Products at a different quality level to existing
products
Product development
 Product development is used when:
 The Firm has strong R&D capabilities
 The market is growing
 There is rapid change
 The firm can build on existing brands
 Competitors have better products

 But new product development is costly

and there are moderate risks associated
with this strategy
Innovation
Expansion through Integration
• Integration means combining present business activities with new
business activities
• Leads to widening of scope of business definition
Horizontal Integration:
• Expands geographically with same or modified product to new market
(business in India now expands to another country)- become bigger
and bigger and stronger competitive position
• Company expands sideways at the same location on the industry’s
value chain
• Expands geographically by buying a competitor’s business to increase
the market share or to benefit from economies of scale
• Eg. Company making cat food adds dog food to remain in animal food
industry
• HI in terms of Marketing function- increase number of subsidiaries
• HI in terms of Production function- increase number of factories
Benefits of Horizontal Integration
• Economies of scale
• Economies of scope
• Increased product differentiation
• Increased market power
• Replicating a successful business model
• Reduction in industry rivalry
 Vertical Integration (diversification): when an
organisation decides to move into its suppliers or
customer’s business to secure supply or to firm up the use
of products in end products

Industry Value Chain for a Manufactured Product

Product
Primary Fabrication Distributor Retailer
Raw Materials Producer
Manufacturing
PROPOSED OUTSOURCING MATRIX

Activity’s total Value- Added to Firm’s

Products and Services
LOW HIGH

Taper /Quasi Vertical Full Vertical

Integration: Integration:
HIGH
Produce some Produce all
Internally Internally
Activity’s Potential for
Competitive Advantage
Outsource
Outsource
Completely:
Completely
LOW
Purchase with Long-
Buy on Open Market Term contracts
Transaction Cost Economics
Transaction Cost=Search Cost+ Negotiation Cost+ Contracting Cost+
Monitoring Cost+ Enforcement Cost

If integrating vertically than Administrative Cost

Outsourcing errors

Activities that should not be outsourced

Wrong vendor selection
Writing poor contract
Overlooking personnel issues
Hidden costs of outsourcing
Failing to plan exit strategy
Diversification
 Diversification in the Ansoff Matrix means:
 New products sold to new markets
 New products for new customers
 It is a risky strategy because it involves two unknowns
 Therefore new products and new markets should be
selected which offer the prospect for growth which the
exiting product market mix does not
 Diversification can be sub-divided into related and
unrelated
Related diversification
 This is development beyond present product market but
still within the broad confines of the industry
 Markets and products share some commonality with
existing products
 Therefore it builds on assets or activities which the firm
has developed
 Related diversification can also be seen as synergistic
diversification since it involves harnessing existing
product market knowledge
 This closeness can reduce the risks associated with
diversification
 Example: banks developing insurance products
 Expansion through diversification
 Concentric diversification/ Related: when new
products closely related to current products are
introduced into new markets
Product/market related: similar type of product with
unrelated technology, eg. Sewing machine manufacturer
enters into home appliances
Technology related: new type of product with related
technology, eg. Leasing firm providing finances to
institutions, now financing to consumer durables
Product/market & technology related: plastic raincoat
manufacturer produces plastic shoes
Reasons for concentric diversification
• Realising financial synergies in terms of transaction cost
savings and tax savings
• Realising marketing synergies by increased market
power and customer
• Realising personnel synergies through utilising human
resources with common skill sets and competencies for
another business
Unrelated diversification
 Features of unrelated diversification
 Growth in products and markets that are completely
new
 Development beyond the present industry into
products and markets which bear little relation to the
present product market mix
 No commonality with existing products and markets
 It is also known as conglomerate diversification: When
completely new, technologically unrelated products are
introduced into new markets
 As it represents a departure from existing products and
markets it does represent considerable risk
Reasons for conglomerate diversification
• Spreading business risk by investing in different
industries
• Maximizing returns by investing in profitable businesses
• Leveraging competencies in corporate restructuring
• Stabilizing returns by avoiding upswings and
downswings through having stakes in different industries
• Taking advantage of emerging opportunities
Expansion through cooperation
i) Mergers
 Horizontal Mergers
 Vertical Mergers
 Concentric Mergers
 Conglomerate Mergers
 ii) Acquisitions (Takeover)
Friendly—Tata tea’s acquisition of Consolidated
Coffee(a grower of coffee beans) and Asian Coffee( a
processor)
Hostile--- NEPC bid for Modiluft
Renaissance Estates (Abhishek Dalmia)
for GESCO Corporation

Demerger
Reasons for Mergers

1. To increase the value of the organization’s stock.

2. To increase the growth rate and make a good
investment.
3. To improve the stability of earning and sales.
4. To balance, compete, or diversify product line.
5. To reduce competition.
6. To acquire needed resources quickly.
7. To avail tax concessions and benefits.
8. To take advantage of synergy.
Why the seller wishes to merge:

1. To increase the value of the owner’s stock

and investment.
2. To increase the growth rate.
3. To acquire resources to stabilize operations.
4. To benefit from tax legislation.
5. To deal with top management succession
problem.
Issues in Mergers:
 Strategic

 Financial

 Legal

 Managerial

 HR and cultural
 Expansion through cooperation
ii) Joint Ventures- to gain access to a new business
an activity is uneconomical to do
risk of the business to be shared
Types---- between two firms in the same industry
across different industries
Indian company and foreign company in India
Indian company and foreign company in foreign country
Indian company and foreign company in third country
Strategic Alliances
• Two firms agreed upon goals but remain separate and
form alliance, but remains independent
• Share the benefits of alliance and control over the
performance of assigned task
• The partner firms contribute on a continuing basis, in one
or more key strategic areas– technology, product, route
operation
• A common strategy is developed and a win-win attitude
• A pooling of resources, investment and risks occurs for
mutual gain
• Must be critical to the success of a core business goal
 e) Expansion through Internationalization

Four Types of International Strategies

Global Strategy Transnational Strategy

Pressures to reduce cost

Multi- Domestic
International Strategy Strategy

Pressure for Local Responsiveness

 Reconciling Global Integration with National
Differentiation: The Transnational Corporation

Tight complex Heavy flows of

controls and technology,
coordination and a finances, people,
shared strategic and materials
decision process. between
interdependent
units.

The Transnational: an integrated network of distributed interdependent

resources and capabilities.
 Each national unit and source of ideas, skills and capabilities that can
be harnessed to benefit whole corporation.
 National units become world sources for particular products,
components, and activities.
 Corporate center involved in orchestrating collaboration through
creating the right organizational context.
 Porter’s National Diamond Framework

FACTOR CONDITIONS

RELATING AND
DEMAND SUPPORTING
CONDITIONS INDUSTRIES

STRATEGY, STRUCTURE,
AND RIVALRY

1. FACTOR CONDITIONS—“Home grown” resources/capabilities more important

than natural endowments.
2. RELATED AND SUPPORTING INDUSTRIES—Key role of “industry clusters”
3. DEMAND CONDITIONS—Discerning domestic customers drive quality & innovation
4. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives upgrading.
Entry Modes:
1. Export Entry Modes– Direct Export/
Indirect export

2. Contractual Entry Modes- Licensing (transfer patent, knowledge,

technology for a period of time),
Franchising ( rights to use a business format usually a brand
name),
BOT arrangements,
Turn key operations

3. Investment entry Mode

Joint venture and Strategic alliances
Independent ventures or wholly owned subsidiaries
Modes of Entry Advantages
•Does not require a high resource
commitment in the targeted country.
•Inexpensive way to gain experiential
Export
knowledge in foreign markets.
•Low- cost strategy to expand sales in
Order to achieve economies of scale.
•Speedy entry to foreign market.
•Does not require a high resource
commitment in the targeted country.
Licensing •Can be used as a step towards a
more committed mode of entry.
•Low- cost strategy to expand sales
in order to achieve economies of scale.
•Speedy entry to foreign market.
•Requires a moderate resource
International commitment in the targeted country.
franchising •Moderate cost strategy to expand
sales in order to achieve economies
of scale
Disadvantages
•Hard to control operations
abroad.
•Provides very small experiential
knowledge in foreign markets.
•Hard to monitor partners in
foreign markets.
•High potential for opportunism.
•Hard to enforce agreements.
•Provides a small experiential
knowledge in the foreign market.
•High monitoring costs.
•High potential for opportunism.
•Could damage the firm’s
reputation and image.
•Does not provides experiential
knowledge in the foreign market.
Mode of Entry Advantages
•Low risks of technology appropriation •Could not rely on pre-
Wholly owned •Able to control operations abroad.
Ventures •Provides high experiential
Greenfield Strategy knowledge in foreign markets.
•Low level of conflict between the
subsidiary and the parent firm.
•Managers of foreign subsidiary
have a strong attachment to the
parent firm.
•Low risks of technology appropriation. •Problem of integrating foreign
•Able to control operations abroad.
•Provides high experiential
knowledge in foreign markets.
Mergers and •Could rely on pre-
Acquisitions existing relationships with
customers, suppliers, and
government officials.
•Does not add extra capacity to
the market.
Disadvantages
existing relationships with
customers, suppliers, and
government officials.
•Adds extra capacity to the
existing market.
•The firm is seen as a foreign
firm by local stakeholders.
subsidiaries into the parent’s
system.
•Managers of acquired foreign
subsidiaries may have a weak
attachment to the parent firm.
RETRENCHMENT STRATEGIES

Turnaround
Sellingout/Divestment
Liquidation
Turnaround Strategies:

Conditions for turnaround:

1. Persistent negative cash flow.
2. Declining market share.
3. Deterioration in physical facilities.
4. High turnover of employees, low morale.
5. Uncompetitive products or services.
6. Mismanagement
Elements in a turnaround strategy:
Humane/ surgical

1. Changes in the top management

2. Initial credibility- building actions
3. Neutralizing external pressures
4. Initial control
5. Identifying quick pay off activities
6. Quick cost reduction
7. Revenue generation
8. Asset liquidation for generating cash
9. Better internal coordination
Divestment Strategies
Reasons:
1. An acquired business proves to be a mismatch and cannot
be integrated with the company.
2. Negative cash flows leading to financial problems.
3. Severity of competition and firm’s inability to cope.
4. Technological up gradation required, lack of investment.
5. Survival is based on cash generated by selling off a part.
6. Better alternative available for investment.
7. Divestment by one firm may be a part of merger plan-
mutual strategic interest
8. Not to attract the provisions of MRTP Act or owing to
oversize and the resultant inability to manage a large
business.
Liquidation Strategies

 Closing down a firm and selling its assets.

 Last resort, most extreme and unattractive.

Why liquidation undesirable?

 Management hesitate due to fear of failure.
 Govt. does not allow liquidation due to political risk involved.
 Trade unions resist the loss of employment of workers.
 Creditors and supplies desire the fulfillment of contractual
obligations.
 Selling assets is difficult as buyers are not found easily
Legal Aspects of Liquidation:
 Under the Companies Act, 1956, liquidation is termed as
winding-up.
 Winding- up is the process whereby its life is ended and
its property administered for the benefits of its creditors
and members.

Act provides for the liquidator-

 Takes control of the company.
 Collects its assets.
 Pays its debts.
 Distributes surplus among the members according to the
rights.
Liquidation is done in three ways:

1. Compulsory winding- up under an order of

court.

2. Voluntary winding-up.

3. Voluntary winding- up under the supervision

of the court.
Business Level Strategies/ Competitive strategies

Course of an action adopted by an organisation for

each of its business separately
Factors determining competitive strategies
 Industry structure

 Positioning of the firm in the industry : overall

approach of the firm towards competing. Based on
Competitive advantage: lowest cost approach vs.
differentiated approach
Competitive scope: breadth of an organisations target
in the industry (range of products, distribution
channels, types of buyers, geographic areas serves,
related industries the firm would serve)
 Generic Competitive(Business) Strategies-
Porter
Competitive Advantage
Low Cost Product Differentiated Product

Broad Cost
Competitive scope

Range of Leadership Differentiation

Buyers Strategy Strategy

Stuck to the
middle
Narrow Focused Focused
Buyer
Segment
Low-Cost Differentiation
or Niche Strategy Strategy
 Low cost strategy- Low-cost-position relative to a firm’s
peers
 Manage relationships throughout the entire value
chain
Differentiation strategy- Create products and/or
services that are unique and valued
 Non-price attributes for which customers will pay a
premium
Focus strategy --Narrow product lines, buyer segments,
or targeted geographic markets
 Attain advantages either through differentiation or
cost leadership
Achieving low cost leadership

 Accurate demand forecasting and high capacity

utilisation
 Attaining economies of scale leads to low per unit cost
 High level of standardisation using mass production
techniques
 Aiming at average customer to offer generalised set of
utilities
 Investment in cost-saving technologies
 Withholding differentiation till it becomes absolutely
necessary
 When Does a Low-Cost
Strategy Work Best?

 Price competition is vigorous

 Product is standardized or readily available
from many suppliers
 There are few ways to achieve
differentiation that have value to buyers
 Most buyers use product in same ways
 Buyers incur low switching costs
 Buyers are large and have
significant bargaining power
 Industry newcomers use introductory low prices to attract
buyers and build customer base
Pitfalls of Low-Cost Strategies

 Being overly aggressive in cutting price

 Low cost methods are easily imitated by [bigger] rivals
 Too much focus on one or a few value-chain activities
 Becoming too fixated on reducing costs
and ignoring
 Buyer interest in additional features
 Declining buyer sensitivity to price
 Changes in how the product is used

 Technological breakthroughs open up cost reductions for

rivals
Achieving differentiation

a firm can incorporate features that

 offer utility for the customers and match their
taste and preferences
 lower the overall cost for the buyer in using the
product
 raise the performance of the product
 Increase the buyer satisfaction in tangible/ non
tangible ways
 can offer the promise of high quality
 enable the customer to claim distinctiveness
When Does a Differentiation Strategy Work
Best?

 There are many ways to differentiate a product

that have value and please customers

 Buyer needs and uses are diverse

 Few rivals are following a similar

differentiation approach

 Technological change and

product innovation are fast-paced
Importance of Perceived Value

 Buyers seldom pay for value that is not perceived

 Price premium of a differentiation strategy reflects

 Value actually delivered to the buyer (longer battery

life; warmer jackets)

and

 Value perceived by the buyer (advertising image;

market share)

 Actual and perceived value can differ when buyers are

unable to assess their experience with a product
Pitfalls of Differentiation Strategies

 Appealing product features are easily copied by rivals

 Buyers see little value in unique attributes of product
 Overspending on efforts to differentiate the product
offering, thus eroding profitability
 Over-differentiating such that product features exceed
buyers’ needs
 Charging a price premium buyers perceive is too high
 Not striving to open up meaningful gaps in quality,
service, or performance features vis-à-vis rivals’
products
Focus Strategy

Cost Focus- low-cost competitive strategy that

focuses on a particular buyer group or
geographic market and attempts to serve only
this niche to the exclusion of others

Differentiation Focus- concentrates on a particular

buyer group, product line segment, or
geographic market to serve the needs of a
narrow strategic market more effectively than
its competitors
What Makes a Niche Attractive for Focusing?

 Big enough to be profitable and offers good growth

potential
 Not crucial to success of industry leaders (no aggressive
protecting or retaliation)
 Costly or difficult for multi-segment competitors
to meet specialized needs of niche members
 Focuser has resources and capabilities
to effectively serve an attractive niche
 Few other rivals are specializing in same niche
 Focuser can defend against challengers via superior
ability to serve niche members
Risks of a Focus Strategy

 Competitors find effective ways to match a focuser’s

capabilities in serving niche

 Niche buyers’ preferences shift towards product

attributes desired by majority of buyers – niche
becomes part of overall market

 Segment becomes so attractive it becomes crowded with

rivals, causing segment profits to be splintered
Deciding Which Generic Strategy to Use

 Each positions a company differently in its market and

competitive environment
 Each establishes a central theme for how a company
will endeavor to out-compete rivals
 Each creates some boundaries for maneuvering as
market circumstances unfold
 Each entails functional differences in product line,
production emphasis, marketing emphasis, and means
to sustain the strategy

The big risk – Selecting a “stuck in the middle” strategy…

Porter asserts that this rarely produces a sustainable competitive
advantage or a distinctive competitive position
Tracey and Wiersema

 With product leadership , the continuous development of state-of-the-art

products and services is key. The focus is on stimulating innovation and
reducing development time.

 When operational excellence is about providing reliable products at

competitive prices. The organization focuses on a limited product that is
offered as efficiently and reliably as possible, at minimal cost.

 With customer intimacy finally the organization seeks to know. specific

problems of the client as well as possible Products and services are
matched as closely as possible deep into the capillaries of the
customer. The emphasis is on optimizing the "lifetime value" of the
customer and less on the sales of a single transaction.
Competitive strategies-Tactics For Business
Strategies

 Timing Tactics- When

First mover/ late mover

 Market location- Where