Strategy and Competition

Strategy and Competition
DBSC9745
VU DBA – Mantissa College
Dr Meysam Safari
29/3/2014
1 © Meysam Safari 29/3/2014

Course Outline
Course Synopsis:
This course introduces participant to the nature and aspects of strategy
and the management of uncertainty of strategy and scenario
planning. Topics covered include strategizing, economizing internal
and external drivers of strategic decisions, critical issues in strategy
and path dependencies. It introduces participants to organizational
culture and configurations, strategy processes and change,
challenges in the new economy, hyper competition and
globalization. It also covers new strategy paradigm, rule of
knowledge management and competences followed with related
issues in networks and partnerships in line with globalization.
Date: 29/3/2014 9:30 am – 1:00 pm and 2:00 pm – 5:30 pm

Course Outline – Cont.
Assessment:
Individual Research Assignment: 50%
 Students are required to write a report of 4500 words on preparation of a
strategic plan for a company of their own choice.
Final Exam: 50%
 A take-home open-book case exam. Students are required to read the assigned
case study and answer all questions. They are required to submit their answers
within the stipulated time frame.
Passing grade: students are required to obtain a minimum of B
(80/100) to pass this subject.

Vision and Mission Statements
The fundamental principle of strategic planning: hope for the
best, plan for the worst, George Friedman

Vision Statement
Vision statement is the idealized future that the company sees. It’s the
future that the company aims to reach, not necessarily in near future.
We seek to be Earth’s most customer-centric company for four

primary customer sets: consumers, sellers, enterprises, and content
creators. Amazon.com
Our vision is put into action through programs and a focus on

environmental stewardship, activities to benefit society, and a
commitment to build shareholder value by making PepsiCo a truly
5
sustainable company. PepsiCo
© Meysam Safari 29/3/2014
Sun Tzu’s The Art of War
The general who wins a battle makes
many calculations in his temple ere
{before} the battle is fought.
If you know Heaven and know Earth,
you may make your victory complete.
If you know the enemy and know
yourself, your victory will not stand in
doubt.
What enables the wise sovereign and
the good general to strike and conquer,
and achieve things beyond the reach of
ordinary men, is foreknowledge
Mission Statement
Mission statement is the fundamental aims and purposes of the company, it
defines the organization’s role and objective in the world. Mission
statement is the organization’s chosen way to reach the vision.
To bring inspiration and innovation to every athlete in the world. Nike
To inspire and nurture the human spirit – one person, one cup and one
neighborhood at a time. Starbucks
Our mission is: - To refresh the world - in mind, body and spirit - To inspire
moments of optimism - through our brands and actions - To create value
and make a difference everywhere we engage. Coca Cola

Strategy and Objectives
Objectives:
Specific, measurable targets: the things a firm needs to ‘do’ to
achieve its mission
Should influence other elements in the strategic management
process
Strategy: A firm’s theory about how to gain competitive

advantages

Strategic Planning : The Big Picture
EXTERNAL ENVIRONMENT
Economic Clients/
Social Customers REVISE AND CHANGE AS NEEDED
Political Competitive/
Technological
Collaborative forces
Develop Assess
Vision & Organization’s Set Long- Craft Implement Evaluate
Mission Current and Future Term Strategie Strategies Performance
Situation Objectives s
Resources Present strategy

Capabilities Performance
Technology Top REVISE AND CHANGE AS NEEDED
Management
INTERNAL ENVIRONMENT
Strategy-Formulation Framework
Stage 1 - Input Stage
EFE matrix
IFE matrix
Competitor analysis
Stage 2 - Matching Stage
SWOT
SPACE matrix
BCG matrix
IE matrix
Grand strategy matrix
Stage 3 - Decision Stage

Consolidation, prioritization and selection (QSPM)

Input Stage
Evaluating a Firm’s External Factors
Evaluating a Firm’s Internal Factors

Why External Analysis?
discover threats and opportunities
see if above normal profits are likely in an industry
better understand the nature of competition in an industry
make more informed strategic choices

General External Environment
Technological
Change
Specific Demographic
International Entry Trends
Events
Complementors Rivalry
Focal
Firm
Buyers Industry Substitutes
Legal/Political Suppliers Cultural

Conditions Trends
Economic
Climate
Porter’s Five Forces Model
Entry
Industry
Buyers Rivalry
Focal
Firm
Threat
Suppliers Substitutes
Higher Threat Lower Average Profits

Threat of Entry
if firms can easily enter the industry, any above normal profits will be bid
away quickly
barriers to entry lower the threat of entry
barriers to entry make an industry more attractive
 this is true whether the focal firm is already in the industry or thinking about entering
Barriers to Entry:
 economies of scale—firm that can’t produce the minimum efficient scale will be at a
disadvantage
 product differentiation—entrants are forced to overcome customer loyalties to
existing products
 cost advantages independent of scale—incumbents may have learning advantages,
etc.
 government policies—governments may impose trade restrictions and/or grant
monopolies

Threat of Rivalry
high rivalry means firms compete vigorously—and compete away above
average profits
Industry conditions that facilitate rivalry:
 large numbers of competitors
 slow or declining growth
 high fixed costs and/or high storage costs
 low product differentiation
 industry capacity added in large increments
Threat of Substitutes
substitutes fill the same need but in a different way
 Coke and Pepsi are rivals, milk is a substitute for both
substitutes create a price ceiling because consumers switch to the substitute if
prices rise
substitutes will likely come from outside the industry—be sure to look

Threat of Powerful Suppliers
powerful suppliers can ‘squeeze’ (lower profits) the focal firm
Industry conditions that facilitate supplier power:
 small number of firms in supplier’s industry
 highly differentiated product
 lack of close substitutes for suppliers’ products
 supplier could integrate forward
 focal firm is an insignificant customer of supplier
Threat of Powerful Buyers

powerful buyers can ‘squeeze’ (lower profits) the focal firm by demanding
lower prices and/or higher levels of quality and service
Industry conditions that facilitate buyer power:
 small number of buyers for focal firm’s output
 lack of a differentiated product
 the product is significant to the buyer

Generic Industry Structures
at any point in time, the structure of most industries fits into
one of four generic categories
each industry structure presents opportunities that may be
exploited
firms can choose to exploit an industry structure, continue
business as usual, or exit the industry
Four generic industry types are:
Fragmented Industry Structure
Emerging Industry Structure
Mature Industry Structure
Declining Industry Structure

Fragmented Industry Structure
Industry Characteristics
large number of small firms
no dominant firms
no dominant technology
commodity type products
low barriers to entry
few, if any, economies of scale
Opportunity: Consolidation
buy competitors
build market power
exploit economies of scale

Emerging Industry Structure
new industry based on break through technology or product
no product standard has been reached
no dominant firm has emerged
new customers come from non-consumption not from competitors
Opportunity: first mover advantages
Technology
locking-up assets
creating switching costs

Mature Industry Structure
slowing growth in demand
technology standard exists
increasing international competition
industry-wide profits declining
industry exit is beginning
Opportunities
refine current products
improve service
process innovation

Declining Industry Structure
industry sales have sustained pattern of decline
some well-established firms have exited
firms have stopped investing in maintenance
Opportunities
market leadership
Niche
Harvest
Divest

External Environmental Factors Assessment
1- identify all external factors affecting the business:
Economic Forces
Social, Cultural, and Demographic Factors
Environmental Forces
Political and Governmental Factors
Legal Factors
Technological Factors
2- identify the impact of each factor on the business of the firm. Give a score of 1-
10 to each factor. Then, based on the total sum of all impacts, calculate the weighted
impact of each factor.
3- assess the capability of the firm with respect to each factor. Give a score of 1-10
to each capability.
4- calculate the product of weighted impact X capability for each factor. Then, sort
the list based on this criteria. Choose the top 5 factors as the external opportunities
for the firm
5- calculate the impact – capability for each factor. Then, sort the list based on this
23criteria.
© Choose the top5 factors as the external threats for the firm
Meysam Safari 29/3/2014
What Does Internal Analysis Tell Us?
Internal analysis provides a comparative look at a firm’s
capabilities
what are the firm’s strengths?
what are the firm’s weaknesses?
how do these strengths & weaknesses compare to competitors?
Internal analysis helps a firm:
determine if its resources and capabilities are likely sources of
competitive advantage
establish strategies that will exploit any sources of competitive
advantage

Resources and Capabilities
Resources:
tangible and intangible assets of a firm
 tangible: factories, products
 intangible: reputation
used to conceive of and implement strategies
Capabilities:
a subset of resources that enable a firm to take full advantage of
other resources
marketing skill, cooperative relationships

The Internal Analysis Tool
Value: Does the resource enable the firm to exploit an external
opportunity or neutralize an external threat? Does the resource result
in an increase in revenues, a decrease in costs, or some
combination of the two?
Rarity: if a resource is not rare, then perfect competition dynamics
are likely to be observed (i.e., no competitive advantage, no above
normal profits)
Imitability: the temporary competitive advantage of valuable and
rare resources can be sustained only if competitors face a cost
disadvantage in imitating the resource
Organization: a firm’s structure and control mechanisms must be
aligned so as to give people ability and incentive to exploit the
firm’s resources
The VRIO Framework
Costly to Exploited by Competitive Economic
Valuable? Rare? Imitate? Organization? Implications Implications
No No Disadvantage Below
Normal
Yes No Parity Normal
Temporary Above
Yes Yes No Advantage Normal
Sustained Above
Yes Yes Yes Yes Normal
Advantage

Internal Factors Assessment
1- identify all internal factors:
Financial (Liquidity, Leverage, Activity, Profitability, Growth)
Physical (plant & equipment, geographic location)
Human (skills & abilities of individuals)
Organizational (reporting structures, relationships)
Technology and Skills
2- identify the impact of each factor on the business of the firm. Give a score of 1-
10 to each factor. Then, based on the total sum of all impacts, calculate the
weighted impact of each factor.
3- assess the capability of the firm with respect to each factor. Give a score of 1-10
to each capability.
4- calculate the product of weighted impact X capability for each factor. Then,
sort the list based on this criteria. Choose the top 5 factors as the external strength
for the firm
5- calculate the impact – capability for each factor. Then, sort the list based on
this criteria. Choose the top5 factors as the external weaknesses for the firm
Different Levels of Strategies
Corporate Level
Business Level
Functional Level

Levels of Strategies
Corporate
Level
Business
Level
Functional
Level
Corporate Level Strategies
Concerned with the selection of businesses –in which the company
should compete and with the development and coordination of that
portfolio of businesses.
The strategies include identifying the overall goals of the corporation,
the types of businesses in which the corporation should be involved,
and the way in which businesses will be integrated and managed.
Corporate strategy seeks to develop synergies by sharing and
coordinating staff and other resources across business units, investing
financial resources across business units, and using business units to
complement other corporate business activities.
Decides how business units are to be governed: through direct corporate
intervention (centralization) or through more or less autonomous
government (decentralization) that relies on persuasion and rewards.

Corporate Strategies Relationship
Grand Strategies
Secondary Level
Strategies
Tactical Level
Strategies

Grand Strategies
Growth Stable Turnaround Combinatio

• To grow Growth • To turn away n
better than • Similar to from the • Combination
previously current times previous of strategies
state

29/3/2014 © Meysam Safari 34
Diversify Integrate
• Concentric • Backward
• Conglomerate • Forward
• Geographical • Horizontal Expand
• Horizontal
• Turnaround
• Divestiture
• Liquidation
Secondary Level Strategies
Tactical Level Strategies
Organically
• Using own strengths and capabilities
Joint Venture
• Setting up equity participation with others through new companies
Merger
• Consolidate with others into a new entity
Acquisition /Takeovers
• Buying over entities
Strategic Alliances
• Cooperating with others to achieve similar objectives
Licensing/Franchising
• Using permission, rights or license to expand the business

Corporate Strategies - The Igor Ansoff Matrix

Business Unit Strategy
About developing and sustaining a competitive advantage for the
goods and services that are produced.
Positioning the business against rivals.
Anticipating changes in demand and technologies and adjusting
the strategy to accommodate them.
Influencing the nature of competition through strategic actions
such as vertical integration and through political actions such as
lobbying.

Business Level Strategies- Porter’s Generic Strategies

Functional Level Strategy
Related to business processes and the value chain.
Functional level strategies in marketing, finance, operations,
human resources, and R&D involve the development and
coordination of resources through which business unit level
strategies can be executed efficiently and effectively.

Alternative Strategies
Forward Integration: getting ownership or increased control over
distributors or retailers. E.g. PepsiCo launched a hostile takeover of
Pepsi Bottling Group after its US$ 4.2 billion offer was rejected.
Backward Integration: seeking ownership or increased control of a
firm’s supplier. E.g. Chinese carmaker Geely Automobile Holding
Ltd purchased Australian car-parts maker Drivetrain Systems
International Pty Ltd.
Horizontal Integration: seeking ownership or increased control over
competitors. E.g. Pfizer acquires Wyeth, another huge drug company
Market Penetration: seeking increased market share for present
products or services in present markets through greater marketing
efforts. E.g. Coke spending millions on its new slogan “Open
Happiness”.
Alternative Strategies Defined, cntd
Market Development: introducing present products or services into new
geographic area. E.g. Time Warner purchased 31 percent of Central
European Media Enterprise Ltd in order to expand into Romania, Czech
Republic, Ukraine, and Bulgaria.
Product Development: seeking increased sales by improving present
products or services or developing new ones. E.g. News Corp’s book
publisher HarperCollins began producing audio books for download
Related Diversification: adding new but related products or services.
E.g. Sprint Nextel Corp diversified from the cell phone business by
partnering with Garmin Ltd to deliver wireless internet service into GPS
machines.
Unrelated Diversification: adding new, unrelated products or services.
E.g. Cisco Systems Inc entered the camcorder business by acquiring Pure
Digital Technology.
Alternative Strategies Defined, cntd
Retrenchment: regrouping through cost and asset reduction to
reverse declining sales and profit. E.g. the world’s largest
steelmaker, ArcelorMittal, shut down half of its plants and laid
off thousands of employees even amid worker protests
worldwide.
Divesture: selling a division or part of an organization. E.g. the
British airport firm BAA Ltd divested three UK airports
Liquidation: selling all of a company’s assets, in parts, for their
tangible worth. E.g. Michigan newspapers such as Ann Arbor
News, Detroit Free Press, and Detroit News liquidated hard-copy
operations.

Matching Stage
SWOT
SPACE matrix
BCG matrix
Blue Ocean Strategy

SWOT Analysis
SWOT analysis is a form of structured planning methods that
incorporates external and internal factors and their inter-
relationship.
Identifies fundamental policy choices that can help decision-
makers formulate strategies.

SWOT Analysis – Principals
First, external environmental analysis. The agency must respond to
the external environment – not the other way round
External environmental analysis:
 Societal environment – PESTLE
 Industry analysis (Porter’s five forces; competitor analysis; supply chain)
Search for opportunities for growth or product development
Search for threats to its core mission, strategy and supporting activities
Second: Internal environmental analysis – agency’s products or
services, structure, resources, operational systems, processes,
procedures, culture, current strategy
Four resource groups – finances, workforce, technology and information
(see McKinsey’s 7 S Model)
Look for existing factors or emerging trends that suggest the agency is
strong or weak regarding these factors
SWOT Analysis – Steps
Round 1: Identifying opportunities and threats in the societal and task
environments
Integration with strengths and weaknesses
What strengths will exploit this opportunity?
What strengths will avert this threat?
Round 2: Identifying strengths and weaknesses

Identifying O and T
Identify links with S and W
For each item ask:
Will this particular strength help the agency to capitalize on an external O or avert a T?
Will this particular weakness constrain the agency’s efforts to capitalize on an external
O or avert a T?
Round 3: Mapping interactions
Matrix portrayal of links between S, W, O and T

SWOT Matrix
EXTERNAL FACTORS
INTERNAL Opportunities Threats
FACTORS
Strengths O and S that are significantly T and S that are significantly
related related
Comparative Advantage (How Mobilization
can the co. leverage on its (How can the co. mobilize its
strengths to capitalize on an strengths to avert a threat or
opportunity?) transform that threat into an
opportunity)
Weaknesses O and W that are significantly T and W that are significantly
related related
Investment/Divestment Damage Control
(Should the co. invest in weak (How can the co. minimize the
programs to become more damage from the threats?)
competitive given the
opportunity?)

SWOT Matrix – example Weakness
Strength
1. Slow revenue growth
1. Strong brand portfolio
2. Low profit margin
SWOT Matrix 2.
3.
Market share
Strong R&D
3.
4.
Performance in North America
Difficulty in control due to decentralized
4. High Quality
organizational structure
5. Effective distribution system
5. Low position in men's product
1. Branding more products (S1, O4)
Opportunity 2. Provide new and superior product (S3, 1. Generating more revenue by introducing new
1. Growth of Aging Population O3) products for senior Consumers (W1, O1, O5)
2. Benefits from Economies Of 3. Developing specialized products for 2. Operation reengineering (W2, O2)
Scale senior customers (S3, O1) 3. More marketing campaigns in North America (W3,
3. R&D Requirement barriers 4. New campaign on different brands in O4, O5)
4. Needs for different products different channels (S1, S5, O5) 4. Introducing new products for men (W5, O5)
5. Customer Loyalty 5. Value chain investigation to assure 5. Price increase (W1, W2, O5)
economies of scale (S2, S5, O2)
1. Expanding distribution channels to
emerging markets (S5, T2)
2. Focusing R&D on safer products (S3,
Threat T3) 1. Enhancing market presence in emerging markets
1. Counterfeiting 3. Focusing on quality of product and (W1, T2)
2. Cosmetic Market In Emerging authorized distributors in advertising 2. Performance monitoring based on industry norm
Nations campaigns (S4, S5, T1) (W4, T5)
3. Health Protection Laws 4. Focusing on quality, risk and side effects 3. Acquiring some firm in the cosmetic surgery (W1,
4. Growing Popularity Of in advertising campaigns (S1, S3, S4, T2, S3)
Cosmetic Surgery T4) 4. Horizontal integration (W1, W2, T5)
5. Competitive Rivalry 5. Using all possible strength to make a
high barrier for new entrant and
acquiring them (S1, S2, S3, S4, S5, T5)

The SPACE Model
Strategic Positioning Action Evaluation was introduced by Rowe et al. in 1982.
Focuses on strategy formulation especially as related to the competitive
position of an organization.
Uses two internal and two external strategic dimensions to determine the
organization's strategic posture in the industry.
Based on four areas of analysis:
External factors: 1) Industrial attractiveness (IA) – i.e. industry growth
potential.
2) Environmental stability (ES) – i.e. overall economic
condition, GDP growth, technology & barriers to entry.
Internal factors ; 3) Financial strength (FS) – comes from company
accounting
4) Competitive advantage (CA)- includes the speed of innovation,
market niche, customer loyalty & product life cycle.
The SPACE Model & The Proposed Strategies
FS
10 Aggressive
Conservative
• Acquisition - backward, forward
• Product development
integration
• Joint venture for product
• Expansion- horizontal integration
• Related diversification
• Market penetration
• Market development
-10 0 • Diversification – related and unrelated
C IA
A 10
Defensive Competitive
• Retrenchment • Product development

• Divestiture • Market development
• Seek partner • Market penetration
• Liquidation •Backward, forward and
horizontal integration
-10
50 © Meysam Safari ES 29/3/2014
SPACE Model
 Step 1: Identifying factors for IS, ES, FS and CA & rate using the specific ranking.
External Factors Rating Internal Rating
Factors
Industry Strength (IS) Financial Strength (FS)
 Customer loyalty 9  Return on investment 9
 Growth potential 9  Gearing ratio 1
 PE ratio 2
18
Environment Stability (ES) Competitive Advantage (CA)
 Green technology – palm oil – Sime Darby -  Highly skilled workforce -3
improved manufacturing technology –the first -3  Experienced managers -4
carbon-neutral emission in Southeast Asia.  Wide distribution system -2
 Increased of Per Capita Income -6  High quality outputs -3
 Negative perception by public when Sime Darby -4  Strategic location -2
suffered loss of RM2.1 billion.  Market share -1
 Strong response to the more pricey products. -6  Enchanced inventory control -3
 Government rules. -5  Technological know-how -5
 Malaysia’s Gross Domestic Product (GDP) -5  Reliable source of raw materials -5
expected to exceed 5% in 2011
 Strengthening of Ringgit -3 -27
 Stiff competition (Sime Darby vs IOI Corp.) -4
-36
Factor Ratings: FS and IS (1 is low; 10 is high) CA and ES (-1 is high; -10 is low)
SPACE Model
Step 2: Find the average scores for FS, ES, IS and CA.
Calculations:
FS Average: 12/3 = 4 IS Average : 18/2 = 9

ES Average: - 36/8 = - 4.5 CA Average : -27/9 = - 3.0

Step 3: Plot values from step 2 on the appropriate axis.
Direct Vector Coordinates:
X axis = IS + CA Y axis = FS + ES
= 9 + (- 3.0) = 4 + (- 4.5)
= 6.0 = - 0.5
So the coordinates are (6.0, -0.5)

SPACE Model
Step 4: Draw a line based on the X and Y points. It reveals the company’s strategy.
FS
10
Conservative Aggressive
-10 0 10
C IA
6.0
A -0.5
Suggested
strategy type
Defensive Competitive
-10
ES
Boston Consulting Group Matrix
Contrasting one major internal
(market share) and one external
factor (growth)
Question Marks – low relative
market share in a high-growth
industry
Stars – high relative market share
in a high-growth industry
Cash Cows – high relative
market share in a low-growth
industry
Dogs – Low relative market share
in a slow or no growth industry

Measurement of Market Share and Growth Rate
 Market Share
= Business Unit This Year
Leading Rival Sales This Year
Why use market share?
Carries more information than cash flows
Shows where the brand is positioned vis-à-vis the competition
Inspires the type of marketing activities that will likely be effective
 Growth Rate
= Industry Sales This Year – Sales Last Year
Sales Last Year
Why market growth rate?
Indicates investment requirements for future profits

BCG – Strategies

Strategies
Question Mark – Fast-growth industry; low market share
Promotion and marketing to become a Star
Star – High-growth rate; high relative market share
Expansion
Product development
Cash Cow – High market share; low growth rate
Consolidation
Cost-cutting through backward and forward integration
Advertising
Dog – Low market share; low growth rate
Divest

Blue Ocean Strategy
 Red oceans and blues oceans make up the market universe
Red ocean: Industries in existence/products known in the market space
Blue ocean: Industries not in existence/products unknown in the market space
Seeks to gain a dramatic, durable

competitive advantage by
Abandoning efforts to beat out
competitors in existing markets and
Inventing a new industry or distinctive
market segment to render existing
competitors largely irrelevant and
Allowing a company to create and
capture altogether new demand

What Is Different About a Blue Ocean?
Typical Market Space Blue Ocean Market Space
 Industry boundaries are  Industry does not exist yet
defined and accepted
 Industry is untainted
 Competitive rules are by competition
well understood by all  Industry offers wide-open
rivals opportunities if a firm has a
 Companies try to product and strategy allowing
outperform rivals by it to
capturing a bigger share  Create new demand and
of existing demand  Avoid fighting over existing
demand
Six principles to generate BOS strategies
1. Reconstruct market boundaries - Look across:
• alternative industries – housing, hotel
• Strategic groups – property development groups; customers – young
couples, old people
• Complementary product and service offerings – security and
recreational club in property development
• Functional-emotional orientation of the industry – green housing
• Time
2. Focus on the big picture
3. Reach beyond existing demand – e.g. new demand
4. Get the strategic sequence right – utility, price, cost, adoption
5. Overcome organizational hurdles – resistance, resources, leadership
6. Building execution into strategy – fair processes
Strategy Canvas
depicts current competitive situation:
lot competitive factors on x axis
define boundary and focus of analysis

plot offering levels on y axis
chart curve of competitors

American Wine Industry
Premium Wines Budget Wines

Polarised Strategic
Groups
Massive Choice
62
American Wine Industry: highly competitive
3rd largest in world: worth $20 billion
Californian makes 66% - the rest is from Italy, France, Spain, Chile, Argentina, Australia
Exploding number of new wines – new vineyards in Oregon, Washington, New York
Customer base stagnant
31st in the world in per capita consumption!
What people said …
 “It is too confusing and complex”
 Wine descriptions and terminology
 The shopping experience
 The lack of clear guidance on what to buy and drink
 Thus, massively intimidating for ‘noncustomers’ (the large majority of the US

population who were not wine drinkers)

64
Offering Level versus Wine Drinkers’
Expectations
Ex
an otic
Normal
Low
Very high
Non-existent
Very low
High
wi d dis term
ne t i
co incti nolo
mm on gy
u n s in
ic a
ti o
Ab n
Ma ove
rk the
e t i li
ng ne
Ag
in gq
ua
Vi l it y
ne
ya
rd
pr
es t
i ge
W
i ne
co
mp
le x
it y
W
i ne
ra
n ge
Premium and Budget Wines
Pr
ice
Yellow Tail
Only 2 types initially – Chardonnay and Shiraz
Fruity, soft on palette, sweetish – great for those who had not
drunk wine before
Same bottle for red and white – low logistics costs
Simple vibrant packaging – lower case letters/kangaroo
Unintimidating
They were selling “The essence of a great land … Australia” – ie
they were not selling the wine
Australian clothing for the retail staff – they enthusiastically
promoted a wine they could understand.

66
Us
ter e of
Normal
Low
dis min enolo
Very high
o
Non-existent
Very low
High
t g
om incti logy ical
mu ons an
ni c i n d
ati win
on e
Ab
ma ove
r k - t he
eti -l
ng ine
-
Ag
ingq
Vi ua
n
an ey a
l it y
d l rd
eg
ac pres
y t ig
e
W
i ne
co
mp
le x
it y
Yellow Tail Value Curve
W
i ne
ra
n ge
Ea
“The Essence of a Great Land”
sy
dr
in k
in g
Ea
se
of
s el
ect
i on
Fu
ad n an
ve d
nt u
rou
s
Pr
ic e
Yellow Tail Strategy
Eliminated: Fancy terminology (Oenological) terminology and
distinctions, Aging qualities, Above the line marketing
Reduced: Wine complexity, Wine range, Vineyard prestige
Raised: Price versus Budget Wines, Simplicity of retail store

environment, Enthusiasm of Sales People
Created: Easy drinking, Ease of selection, Sense of fun and

adventure

Results
No 1 imported wine (outsells France and Italy)
Fastest growing imported wine in the history of the USA industry
New consumers of wine
Jug drinkers trade up
Premium wine drinkers trade down
Industry criticizes them mercilessly at first

Now wine press blurb gives it a “best buy” for value; winning
wine awards.

Blue Ocean – SUV Cars
HIGH
SUV
STATION
WAGON
VAN
LOW
PRICE PASSENGER FUEL FUNCTIONALITY STYLING
CAPACITY ECONOMY

Strategy Canvas: Air Asia
HIGH
MAS
AIR ASIA
TRAIN
EXPRESS
BUS
LOW
PRICE SPEED SERVICE SAFETY COMFORT

Summary
Conventional Logic Blue Ocean Logic
Industry Industry conditions are given Industry condition can be shaped.
Assumptio
n
Strategic Build competitive advantages to Create a quantum leap in buyer value to
Focus beat the competition. dominate the market.
Customers Retain and expand the customer Go for the mass of buyers and willingly let
base through further some existing customers go. Think in
segmentation and terms of embracing key customer value
customization. Think in terms commonalities.
of embracing customer
differences.
Assets & Think in terms of a company’s Think free from a company’s existing
Capabilitie existing assets and capabilities. assets and capabilities.
s Build on what it has. Ask, what if we start anew?
Product/ Think in terms of Think in terms of buyers’ solution even if
Service products/services offered by the that transcends the industry. Seek to solve
offerings industry. Seek to maximize the buyers’ major bottlenecks/chief
value of these offerings. compromises in using the
products/services of the industry.
Four Actions to create a Blue Ocean
Raise
What factors
should be raised
well beyond the
industry standard?
Eliminate Create
What factors What factors should
should be be created that the
eliminated that the industry has never
industry has taken offered?
for granted and
that has low value
to customers?
Reduce
What factors
should be reduced
well below the
industry standard?
72
Decision Stage
Consolidating and Prioritizing Strategies

Group and Rank Method
1. Group similar strategies from all the sources
2. Consolidate the strategies in each group
3. Set evaluation criteria
No. Strategies Source Group Consolidated
strategy
1. Find new markets BOS A Increase market

2. Increase market share SWOT A share through
3. promotion and
4. market
5. development
99 Grow by concentric SPACE B Concentric

diversification diversification
100 Joint-venture in the same BCG B

industry

Grouping of Strategies – example
General L’Oreal SWOT Matrix index
Strategy Case
1 Related Introducing SO1: Branding more products
Diversificatio new products SO3: Developing specialized products for senior customers
n and product WO1: Generating more revenue by introducing new products for senior Consumers
development WO4: Introducing new products for men
2 Product Producing SO2: Provide new and superior product

Development products with ST2: Focusing R&D on safer products
superior ST3: Focusing on quality of product and authorized distributors in advertising campaigns
quality
3 Market More effort SO4: New campaign on different brands in different channels
Penetration and focus on ST1: Expanding distribution channels to emerging markets
marketing ST4: Focusing on quality, risk and side effects in advertising campaigns
campaigns WO3: More marketing campaigns in North America
WT1: Enhancing market presence in emerging markets
4 Retrenchmen Value chain SO5: Value chain investigation to assure economies of scale
t reengineerin WO2: Operation reengineering
g WO5: Price increase
WT2: Performance monitoring based on industry norm
5 Integration Merger and ST5: Using all possible strength to make a high barrier for new entrant and acquiring them
acquisition SO5: Value chain investigation to assure economies of scale
WT3: Acquiring some firm in the cosmetic surgery
WT4: Horizontal integration

How do we evaluate the strategies?
Organization capabilities
Workability/appropriateness/acceptability of the strategy
Return on investment
Supported by the organization's culture?
Employee compatibility
Affordable?
Payback period?

Criteria
High ROI Expected R0I if the strategy is executed Rating
( 1-10)
Low Risk The extent of risk that is involved in implementing the strategy
Short Time The amount of time taken to implement the strategy
Taken
High The reception of the customers and stakeholders towards the
Acceptability strategy. Can the strategy enhance customer experience and
sustain customer loyalty?
Low Investment How much money must be shunted to the execution of the
strategy? Is the strategy affordable?
High Feasibility Can the strategy be implemented given the organizational
resources, structure and climate?
High Employee How will the employees adapt their behavior and skills to the
Capatibility new strategy?
Captures New Does the strategy capture new markets?
Markets
Competitive Does it have first-mover advantage and allow the company to
Advantage operate better than the competitors?
Low Legal Does the strategy encounter any legal impediments?
Restriction
Prioritizing Strategies – example
Resourc
Organiza Financ
Worka Return to e Risk Cost
No. STRATEGIES tion ial Duration Total
ble Company Avalaila Involve Involve
Culture Ability
bility
Introducing new products

1 9 9 9 8 8 7 6 4 60
and product development
Producing products with
2 8 9 9 7 8 8 5 4 58
superior quality
More effort and focus on
3 10 9 9 7 8 8 5 8 64
marketing campaigns
4 Value chain reengineering 4 7 6 8 6 6 6 7 50
5 Merger and acquisition 7 9 7 8 7 5 2 8 53
6 Price increase 6 7 6 9 7 1 9 9 54

Assessing Different Strategies
Score rating (1 – 10)
Factors:
Workable: 1 – least workable, 10 – most workable
Return to company: 1 – least return to the company, 10 – most return to the company
Organization culture: 1 – least acceptable, 10 – most acceptable
Financial ability: 1 – least ability, 10 – most ability
Resource availability: 1 – least availability, 10 – most availability
Risk involve: 1 – most risk involve, 10 – least risk involve
Cost involve: 1 – most cost involve, 10 – least cost involve
Duration: 1 – longest duration, 10 – shortest duration

Quantitative Strategic Planning Matrix (QSPM)
Technique designed to determine the relative attractiveness of
feasible alternative actions
Steps to Develop a QSPM
1. Make a list of the firm’s key external opportunities/threats and
internal strengths/weaknesses in the left column
2. Assign weights to each key external and internal factor
3. Examine the Stage 2 (matching) matrices, and identify
alternative strategies that the organization should consider
implementing
4. Determine the Attractiveness Scores
5. Compute the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
QSPM
Key External Factors (EFE Weight Strategy 1 Strategy 2 Strategy 3
Matrix)
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/Envi
ronmental
Technological
Competitive
Key Internal Factors (IFE
Matrix)
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems

Key External Factors (EFE Weight Strategy 1 Strategy 2 Strategy 3
Matrix)
A TS AS TS A TS
Economy S (ASxWeight S
Political/Legal/Governmental )
Social/Cultural/Demographic/Envi
ronmental
Technological
Competitive
Key Internal Factors (IFE Matrix)
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information Systems
TOTAL 1.0 Sum of TS 6.5 Sum of TS 7.5
Sum of TS 8.5

QSPM
 Advantages
 Sets of strategies considered simultaneously or sequentially
 Integration of pertinent external & internal factors in the decision-
making process
Limitations
 Requires intuitive judgments & educated assumptions
 Only as good as the prerequisite inputs

Action Plan
Strategies Expected Strategic Unit/Person KPI Critical
and strategic Outcomes Initiatives Responsible Success
outcomes (Programs) Factors
1.Increase Market -Promotion Marketing/ % increase 1. Adequate

market share: share to -Advertising Sales (?) in market sales
expand by Division share budget
10% 2. Trained
sales
personal of
50
people(?)
2. Expand to 20% Join Export % increase Participation in

overseas increase in government Division in export two
markets export sales trade missions sales government-led
and fairs trade missions
3.

Strategic Planning Never Ends.

Assignment
Individual Research Assignment: 50%
Students are required to write a report of 4500 words on preparation of a strategic plan for a
company of their own choice.
Choose a company of your preference. Then, perform followings:
Evaluate corporate vision and mission statements
perform an external factor analysis and suggest 5 opportunities and 5 threats
Perform an internal factor analysis and suggest 5 strengths and 5 weaknesses
Perform SWOT analysis
Perform SPACE analysis
Perform BCG analysis
Perform Blue Ocean analysis and suggest a blue ocean to the firm
Group your suggested strategies and prioritize them.
It is suggested that you choose a company that you work in, or you know very well.
Your report should cover all abovementioned criteria as well as a proper executive
summary and introduction.
Put all relevant information, as well as list of all external and internal factors, in appendix

Final Exam
Final Exam: 50%
A take-home open-book case exam. Students are required to read the
“Apple Inc. in 2010” case study and answer all questions. They are
required to submit their answers within the stipulated time frame.
Answer all following questions:
1- what, historically, have been Apple's competitive advantages?
2- Analyze the Personal Computer industry. Are the dynamics
favorable or problematic for Apple?
3- How sustainable is Apple’s competitive position in PCs?
4- How sustainable is Apple’s competitive position in MP3 Players?
5- How sustainable is Apple’s competitive position in Smartphone?
6- What are the prospects for the iPad?

Dr. Meysam Safari
Meysam.Safari@gmail.com

Strategy and Competition

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Strategy and Competition

1 © Meysam Safari 29/3/2014

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We seek to be Earth’s most customer-centric company for four

Our vision is put into action through programs and a focus on

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Strategy: A firm’s theory about how to gain competitive

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Resources Present strategy

Stage 3 - Decision Stage

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Buyers Industry Substitutes

Legal/Political Suppliers Cultural

Higher Threat Lower Average Profits

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Threat of Powerful Buyers

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Yes No Parity Normal

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Growth Stable Turnaround Combinatio

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Round 2: Identifying strengths and weaknesses

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• Retrenchment • Product development

FS Average: 12/3 = 4 IS Average : 18/2 = 9

Direct Vector Coordinates:

So the coordinates are (6.0, -0.5)

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Seeks to gain a dramatic, durable

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define boundary and focus of analysis

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Premium Wines Budget Wines

 “It is too confusing and complex”