Topic Name Page No.

Porter Five Forces Model 2-14

Porter 3 generic competitive strategy 15-19
BCG Matrix 19-23
Red Ocean and Blue Ocean 23-24
Pestle Analysis 25-29
Swot analysis 29-32
Porter value creation 32-44
GE MCkinsey Matrix model 44-48
THREE LEVELS OF STRATEGY MANAGEMENT 48-51
Elements of Strategic Management 52-55
VALUE CHAIN ANALYSIS 55-60
What is the Ansoff Matrix? 60-64
What is the TOWS Matrix? 65-71
Meaning of Turnaround Strategy 71-75
Porter’s Five Forces Model

Potential
Entrants

Threat of
New Entrants
Bargaining Power of
Suppliers

Industry
Suppliers Competitors Buyers

(Rivalry Among
Existing Firms)
Bargaining Power
of Buyers

Threat of Substitute
Product and Service

Substitutes

Porter's Five Forces is a business analysis model that helps to explain

why various industries are able to sustain different levels of
profitability. Porter's Five Forces is a framework for analyzing a
company's competitive environment.The Five Forces model is widely
used to analyze the industry structure of a company as well as its
corporate strategy. Porter identified five undeniable forces that play a
part in shaping every market and industry in the world. The five
forces are frequently used to measure competition intensity,
attractiveness, and profitability of an industry or market. Five Forces
analysis can be used to guide business strategy to increase
competitive advantage.

Porter's five forces are:-

1.Industry Competitors.(Rivalry Among Existing Firms)
2.Potential Entrants.
3.Suppliers
4.Buyers.
5.Substitutes

Industry Competitors
The first of the five forces refers to the number of competitors and
their ability to undercut a company. The larger the number of
competitors, along with the number of equivalent products and
services they offer, the lesser the power of a company. Suppliers and
buyers seek out a company's competition if they are able to offer a
better deal or lower prices. Conversely, when competitive rivalry is
low, a company has greater power to charge higher prices and set the
terms of deals to achieve higher sales and profits.

Potential Entrants
A company's power is also affected by the force of new entrants into
its market. The less time and money it costs for a competitor to enter a
company's market and be an effective competitor, the more an
established company's position could be significantly weakened. An
industry with strong barriers to entry is ideal for existing companies
within that industry since the company would be able to charge higher
prices and negotiate better terms.

Suppliers
The next factor in the five forces model addresses how
easily suppliers can drive up the cost of inputs. It is affected by the
number of suppliers of key inputs of a good or service, how unique
these inputs are, and how much it would cost a company to switch to
another supplier. The fewer suppliers to an industry, the more a
company would depend on a supplier. As a result, the supplier has
more power and can drive up input costs and push for other
advantages in trade. On the other hand, when there are many suppliers
or low switching costs between rival suppliers, a company can keep
its input costs lower and enhance its profits.

Buyer
The ability that customers have to drive prices lower or their level of
power is one of the five forces. It is affected by how many buyers or
customers a company has, how significant each customer is, and how
much it would cost a company to find new customers or markets for
its output. A smaller and more powerful client base means that each
customer has more power to negotiate for lower prices and better
deals. A company that has many, smaller, independent customers will
have an easier time charging higher prices to increase profitability.

The Five Forces model can help businesses boost profits, but they
must continuously monitor any changes in the five forces and adjust
their business strategy.

Substitutes
The last of the five forces focuses on substitutes. Substitute goods or
services that can be used in place of a company's products or services
pose a threat. Companies that produce goods or services for which
there are no close substitutes will have more power to increase prices
and lock in favorable terms. When close substitutes are available,
customers will have the option to forgo buying a company's product,
and a company's power can be weakened.

Understanding Porter's Five Forces and how they apply to an industry,

can enable a company to adjust its business strategy to better use its
resources to generate higher earnings for its investors.
Example of Airline Industry:-

The Airline industry provides a very unique service to its customers.

It transports people with a high level of convenience and efficiency
that cannot not be provided by any other industry or substitute.
Airline companies pride themselves on the way they treat their
customer during the flight. They have things such as food, drinks,
entertainment, and a welcoming staff. The service of transportation is
provided in other industries but the airline surpasses all of them when
it comes to timeliness. The geographic scope of the airline industry is
at a global level. Some firms are able to fly their planes all over the
world while others focus on smaller geographic areas.

The five forces model is one way to answer the first basic question in
strategic management; “Why are some industries more attractive than
others?” This model shows the five forces that shape industry competition;
threat of new entrants, bargaining power of buyers, threat of substitutes,
bargaining power of suppliers, and competitors. In order to analyze the
airline industry we have look at each of these forces.
Bargaining power of Buyers
The airline industry is made up of two groups of buyers. First, there are
individual flyers. They buy plane tickets for a number of reasons that can
be personal or business related. This group is extremely diverse; most
people in developed countries have purchased a plane ticket. They can do
this through the specific airline or through the second group of buyers;
travel agencies and online portals. This buyer group works as a middle
man between the airlines and the flyers. They work with multiple airline
firms in order to give customers the best flight possible. Between these
two groups there is definitely a large amount of buyers compared to the
number of firms.

There are low switching costs between firms because many people
choose the flight based on where they are going and the cost at the time.
This is some loyalty to firms but not enough for high switching costs. Each
customer needs a lot of important information. They need to know the
details of what is provided during the flight. Buyers need to understand the
timing of the flight and the safety aspects of flying in general. The service
provided is unique. Each airline has a niche. Some airlines focus on cost,
while others focus on having the best amenities, etc. Overall the
bargaining power of buyers has an extremely low threat in this industry.

Bargaining Power of Suppliers

Next we look at the bargaining power of the suppliers. In this case the
major suppliers are the airplane manufacturers. The top two manufacturers
in the world currently are Boeing and Airbus(Odell,Mark). In this industry
the inputs are extremely standardized. Airline companies only seem to
differentiate with amenities. The planes are very similar. Currently some
manufacturers are trying to make their plans more ecofriendly.

Airline companies cannot easily switch suppliers. Most firms have long
term contracts with their suppliers. Planes are such high capital products
that firms probably make long term loan agreements and have more
favorable credit terms when they don’t switch companies. It is difficult to
enter into the plane manufacturing industry because of the capital needed
to enter. The amount of money and expertise needed to make even one
plane is around 200 million dollars. For this reason there are very few
suppliers in the airline industry. Airline firms are the only source of
income for these manufacturers so their business is extremely important.
Based on these things the bargaining power of suppliers has a low threat as
well.

Threat of New Entrants

Threat of new entrants is another major aspect of the five forces. This
aspect has a low threat for the airline industry. There are two aspects that
do however raise the threat level. First, there are extremely low switching
costs. Second, there are no proprietary products or services involved.

Even with these two aspects the industry still has a very low threat
overall. Existing firms have a large cost advantage. This industry requires
a large amount of capital and without a strong customer base there will be
little to no profit in the first few years. Existing firms can and will use their
high capital to retaliate against newer firms with whatever means
necessary such as lowering prices and taking a loss.

Although there are low switching costs between brands, consumers tend
to only chose well-known names. Airline tickets are expensive so people
don’t want to give that money to firms they don’t trust. There is also a
huge safety aspect involved and most consumers feel safer with firms that
have been around for a long period of time. This industry requires plane
and flying experience which also lowers the threat of entry. When firms
decide to enter the market they first have to become licensed which can
take about a year. After that they are constantly being regulated by several
organizations such as the Federal Aviation Administration and the
Department of Transportation. The time and money spend to solely open
an airline company is enough to prevent most people from entering the
industry.

Threat of Substitutes
After looking at the threat of entry it is important to also consider the
threat of substitutes. This industry has a medium substitute risk level.
There are substitutes in the airline industry. Consumers can choose other
form of transportation such as a car, bus, train, or boat to get to their
destination. There is however a cost to switch. Some means of
transportation can be more costly than a plane ticket. The main cost is
time. Planes are by far the fastest form of transportation available. Airlines
surpass all other forms of transportation when it comes to cost,
convenience, and sometimes service. Consumers do sometimes choose
other methods for various reasons such as cost if they are not traveling
very far which raises the risk.

Rivalry among Existing Players

The last area of the five forces is the rivalry among existing players. The
rivalry in the airline industry is very intense for many reasons. The
industry is currently very stagnant. It seems to be in the mature stage of the
business cycle. The number of competitors stays the same in the long run
and it doesn’t seem to be under or over capacitated. The fixed costs are
extremely high in this industry. This makes it hard to leave the industry
because they are probably in long term loan agreements in order to stay in
business. The products involved or the planes are highly complex which
also heightens the competition.

The competition is lessened by the brand identities of different firms.

For example, Jetblue is known for its amenities and Southwest is known
for its low prices. The market share seemed to be equally distributed
because each company has its own part of the market and because
switching costs are low none of the firms can really hold a large
percentage of the market.

The strongest forces in this industry are the competition of existing

firms and the power of suppliers. The rivalry of existing players is high
and will push out any firm that doesn't have enough capital. Suppliers are
strong forces because planes are so costly to make. If the suppliers
changed the credit terms by even a small amount it could mean a
significant loss for the firm. On the other hand the other forces involved
seem to have a weak threat. It is costly and time consuming to enter the
market which lowers the risk of entry. Buyers have a weak force because
of the low switching costs and substitutes are weak because they are
usually too costly.

The profit in this industry is high because for most people flying in
necessary. It is not a trend which makes this industry profitable for the
long term. Airlines that are more profitable are in a better position because
they usually have more planes and a larger variety of flights which
provides further convenience for the consumer.

Recently there have been some changes in some of the forces. Some
airplane manufacturers have been making ecofriendly planes, which is a
change in the bargaining power of suppliers. This would differentiate the
products, raising the threat of suppliers. Another recent change is the use
of web portals such as Expedia to book flights. This positive change
creates a whole new group of buyers and makes purchasing flights faster
and easier. The increase in gas prices has also been a positive change for
the industry because it lessens the power of substitutes. People are more
willing to fly to their destination if driving would be more expensive.

After looking at the Five Forces Model firms should make dealing with
the competition their main priority. The other areas in the model seem to
have an overall low threat so existing firms don’t have to focus on those
areas as much in their business strategy

Bargaining power of Buyers – Low Threat

   Yes  No  Cannot
Question  (Low (High Assess
Threat Threat
)  ) 
Are there a large number of buyers relative to  X    
the number of firms in this business?
Do you have a large number of customers, each  X    
with relatively small purchases?
Does the customer face any significant costs in    X  
switching suppliers?
Does the buyer need a lot of important  X    
information with regard to using the product?
Is the buyer aware of the need for additional      X
information?
Is there anything that prevents the customers  X    
from manufacturing the product/service in-
house?
Are customers highly sensitive to price?  X    
Are products unique to some degree? Do they  X    
have accepted branding?
Do firms provide incentives to decision-makers  X    
on the buyer side?
 
 
Bargaining Power of Suppliers- Low Threat
 Question    Yes (Low  No (High  Cannot
Threat) Threat) Assess 
Inputs (material, labor, services) in this  X    
industry are standard rather than
differentiated.
Firms can switch between suppliers quickly    X  
and easily.
Suppliers would find it difficult to enter this  X    
business.
There are many current and potential    X  
suppliers in this industry. 
This business is important to the suppliers.  X    
 
 
Threat of New Entrants- Low Threat
 Question  Yes(Lo  No  Cannot
w (High Assess
Threat) Threat
)
Do existing firms have cost and/or performance  X    
advantage in this industry?
Are there proprietary products/services on    X  
offer in this industry?
Are there established brand identities in this  X    
industry?
Do customers incur significant costs in    X  
switching suppliers?
Is a lot of capital needed to enter this industry?  X    
Does a new comer to the industry face difficulty      X
in assessing distribution channels?
Does experience in this industry help firms to  X    
continually lower costs and/or improve
performance? In other words, is there a
“learning effect” in this industry?
Are there any licenses, insurance and other  X    
qualifications required in this industry that are
difficult to obtain?
Can a new comer entering this industry expect  X    
strong retaliation from the existing players?
 
Threat of Substitutes- Medium Threat
 Question  Yes  No  Cannot
(Low (High assess
threat) threat)
Available substitutes have performance  X    
limitations and/or high prices that do not
justify their use as mainline products.
Customers will incur costs in switching to  X    
substitutes.
There truly are no real substitutes for the    X  
products available in this industry.
Customers are not likely to go for    X  
substitutes.
 
 
Rivalry among Existing Players- High Threat
 
 
 Question  Yes  No  Cannot
(Lower (Intensifi assess
 s es
rivalry rivalry)
)
The industry is growing rapidly.    X  
The industry does not have overcapacity at the  X    
moment.
The fixed costs of the business are a relatively    X  
low proportion of the total costs.
There are significant product differences and  X    
brand identities among the competitors.
It would not be hard to get out of this business    X  
because there are no long-term commitments
that bind players to the industry.
Customers would incur high costs if the    X  
switched from one player to another.
Products on offer are highly complex and    X  
require significant customer-producer
interaction.
Market shares in the industry are more-or-less  X
equally distributed among competitors.
 Porter's Competitive Strategies
Michael Porter classifies competitive strategies as cost leadership,
differentiation, or market segmentation.

LEARNING OBJECTIVE

 Discuss the value of using Porter's competitive strategies of cost

leadership, differentiation, and market segmentation

KEY POINTS

 Michael Porter defines three strategy types that can attain a

competitive advantage. These strategies are cost leadership,
differentiation, and market segmentation (or focus).
 Cost leadership is about achieving scale economies and utilizing
them to produce high volume at a low cost. Margins may be
narrower, but quantity is larger, enabling high revenue streams.
 Differentiation is creating a unique service or product offering,
either through good branding or strong internal skills. This
strategy aims at offering something difficult to copy and is
strongly associated with an organization's brand.
 Market segmentation strategy is narrower in scope. Both cost
leadership and differentiation are relatively broad in market
scope and can encompass both strategic advantages on a smaller
scale.
 Porter warns that companies who try to accomplish both cost
leadership and differentiation may fall into the "hole in the
middle"; he notes that specializing is the ideal strategic
approach.

TERMS

 Market Share

Percentage of a specific market held by a company.

  competitive advantage

Something that places a company or a person above the

competition.

Michael Porter described a category scheme consisting of three

general types of strategies commonly used by businesses to achieve
and maintain a competitive advantage. These three strategies are
defined along two dimensions: strategic scope and strategic strength.
Strategic scope is a demand-side dimension and considers the size and
composition of the market the business intends to target. Strategic
strength is a supply-side dimension and looks at the strength or core
competency of the firm.

Porter identifies two competencies as most important: product

differentiation and product cost (efficiency). He originally ranked
each of the three dimensions (level of differentiation, relative product
cost, and scope of the target market) as either low, medium, or high
and juxtaposed them in a three-dimensional matrix. That is, the
category scheme was displayed as a 3x3x3 cube; however, most of
the twenty-seven combinations were not viable.

Cost Leadership, Differentiation, and Market Segmentation

Porter simplified the scheme by reducing it to the three most effective

strategies: cost leadership, differentiation, and market segmentation
(or focus). He characterizes each as the following:

 Cost leadership pertains to a firm's ability to create economies

of scale though extremely efficient operations that produce a
large volume. Cost leaders include organizations like Procter &
Gamble, Walmart, McDonald's and other large firms generating
a high volume of goods that are distributed at a relatively low
cost (compared to the competition).
  Differentiation is less tangible and easily defined, yet still
represents an extremely effective strategy when properly
executed. Differentiation refers to a firm's ability to create a
good that is difficult to replicate, thereby fulfilling niche needs.
This strategy can include creating a powerful brand image,
which allows the organization to sell its products or services at a
premium. Coach handbags are a good example of
differentiation; the company's margins are high due to the
markup on each bag (which mostly covers marketing costs, not
production).
 Market segmentation is narrow in scope (both cost leadership
and differentiation are relatively broad in scope) and is a cross
between the two strategies. Segmentation targets finding
specific segments of the market which are not otherwise tapped
by larger firms.

Porter's competitive strategies

These three strategies are defined along two dimensions: strategic

scope and strategic strength.

Avoiding the "Hole in the Middle"

Empirical research on the profit impact of marketing strategy

indicates that firms with a high market share are often quite profitable,
but so are many firms with low market share. The least profitable
firms are those with moderate market share. This is sometimes
referred to as the "hole-in-the-middle" problem. Porter explains that
firms with high market share are successful because they pursue a
cost-leadership strategy, and firms with low market share are
successful because they employ market segmentation or
differentiation to focus on a small but profitable market niche. Firms
in the middle are less profitable because of the lack of a viable generic
strategy.

COST LEADERSHIP EXAMPLE

The central goal of Wal-Mart is to keep retail prices low -- and the
company has been very successful at this. Experts estimate that
Wal-Mart saves shoppers at least 15 percent on a typical cart of
groceries. Wal-Mart Stores Inc. is rolling out its "everyday low
prices" (EDLP) retail strategy to more international markets to replace
the more usual high-low pricing in emerging markets. EDLP means
working with suppliers to ensure their prices are constantly low, but
also means price changes are kept to a minimum. Wal-Mart also
employs a good structure that works with the systems to empower the
low price strategy. Wal-Mart has in place a set of systems that helps
it achieve its strategy of low prices everyday.

Success Mantra… Access to the capital required to make a

significant investment in production assets. Design skills for
efficient manufacturing High level of expertise in manufacturing
process engineering. Efficient distribution channels.

Risks Involved.. Other firms may be able to lower their costs as

well. As technology improves, the competition may be able to
leapfrog the production capabilities, thus eliminating the competitive
advantage. It could lead to a damaging price wars. There might be
difficulty in sustaining cost leadership in the long run. A firm
following a focus strategy might be able to achieve even lower cost
within their segment

DIFFERENTIATION STRATEGY EXAMPLE

McDonalds understood that the parent was making the purchasing

decision, most likely based solely on price. What McDonalds
marketing executives did was ingenious. They put a $.50 toy in with
the hamburger, french fries, and Coke. Then they gave it a special
name, calling it a Happy Meal. Then they marketed it to the kids.
McDonalds knows that some customers go to its stores to take a quick
break from their days activities and not because McDonalds was able
to make their food ten seconds faster than a competitor. So
McDonalds marketing executives then put together the phrase, “Have
you had your break today?” Theyve taken competing on price right
out of the picture,” says Greshes. “They bring you quality,
convenience, service, and value — and they make you feel like you
are getting a break in your hectic day.
Success Mantra… Access to leading scientific research. Highly
skilled and creative product development team. Strong sales team
with the ability to successfully communicate the perceived strengths
of the product. Corporate reputation for quality and innovation.

Risks Involved… Involves higher costs. Customers might become

price sensitive and choose on price rather than uniqueness.
Customers may no longer need the differentiation factor. Imitation
by competitors and changes in customer tastes. Rivals pursuing a
focus strategy may be able to achieve even greater differentiation in
their market segments.

FOCUS STRATEGY EXAMPLE

By successfully adopting the focus strategy since 1997, PepsiCo has

emerged as the second largest consumer packaged goods company.
The company has significantly strengthened its competitive position
in the beverages segment. By acquiring leading beverages company
like Tropicana products (July 1998), South Beach Beverage Company
(October 2000) and Quaker Oats (December 2000)

19. Success Mantra… Lower investment in resources. The firm

benefits from specialisation. Provides scope for greater knowledge
of a segment of the market. Makes entry to new markets easier and
less costly. Firms using a focus strategy often enjoy a high degree of
customer loyalty.

20. Risk Involved… Limited opportunities for growth. The firm

could outgrow the market. Danger of decline in the chosen segment
or niche. Risk of imitation. Risk of changes in the target
segment. A reputation for specialisation inhibits move into new
sector

What is the BCG Matrix?

The Boston Consulting group’s product portfolio matrix (BCG
matrix) is designed to help with long-term strategic planning, to
help a business consider growth opportunities by reviewing its
portfolio of products to decide where to invest, to discontinue or
develop products. It's also known as the Growth/Share Matrix.

 The Matrix is divided into 4 quadrants based on an analysis

of market growth and relative market share, as shown in the
diagram below 1. Dogs: These are products with low growth or
market share.
 2. Question marks or Problem Child: Products in high growth
markets with low market share.
 3. Stars: Products in high growth markets with high market
share.
 4. Cash cows: Products in low growth markets with high market
share
BCG Modelling is not a new phenomenon, but in the changing digital
landscape, its meaning for and application to your marketing strategy
will continue to develop. That's why this blog addresses not just how
to use the BCG Matrix but also the practical application of this matrix
to your strategy, as well as other essential digital marketing matrixes

How to use the BCG Matrix?

To apply the BCG Matrix you can think of it as showing a portfolio of

products or services, so it tends to be more relevant to larger
businesses with multiple services and markets. However, marketers in
smaller businesses can use similar portfolio thinking to their products
or services to boost leads and sales as we'll show at the end of this
article.

Considering each of these quadrants, here are some recommendations

on actions for each:

 Dog products: The usual marketing advice here is to aim to

remove any dogs from your product portfolio as they are a drain
on resources.
 However, this can be an over-simplification since it's possible to
generate ongoing revenue with little cost.
For example, in the automotive sector, when a car line ends,
there is still a need for spare parts. As SAAB ceased trading and
producing new cars, a whole business emerged providing SAAB
parts.

 Question mark products: As the name suggests, it’s not known

if they will become a star or drop into the dog quadrant. These
products often require significant investment to push them into
the star quadrant. The challenge is that a lot of investment may
be required to get a return. For example, Rovio, creators of the
very successful Angry Birds game has developed many other
games you may not have heard of. Computer games companies
often develop hundreds of games before gaining one successful
game. It’s not always easy to spot the future star and this can
result in potentially wasted funds.
 Star products: Can be the market leader though require
ongoing investment to sustain. They generate more ROI than
other product categories.

 Cash cow products: The simple rule here is to ‘Milk these

products as much as possible without killing the cow! Often
mature, well-established products. The company Procter &
Gamble which manufactures Pampers nappies to Lynx
deodorants has often been described as a ‘cash cow company’.

AMUL BCG MATRIX

 Over the years, Amul has diversified their offerings, entering
into different milk and milk product markets. This has not only
increased their competition, but has also allowed them to secure
revenues from otherwise niche sectors like camel milk, etc.
 A brand is defined by the need it serves, and by the attention it
garners. Amul has managed to do both. In addition to being our
go-to in the culinary sector, the brand has also snatched our
attention with the witty, satirical billboards they put up in
 accordance with the current affairs. Truly, Amul is the Taste of
India.
 You must be wondering why this piece has introduced the BCG
matrix, and Amul in the same breath since both are in absolutely
different domains. Allow me to draw a connection between the
two by saying that we are about to perform an analysis of Amul
using the BCG matrix.
 The Growth matrix of Amul
 We know that there are 4 quadrants in the BCG matrix – Cash
Cow, Star, Question Mark, and Dog. These 4 quadrants
represent the permutations of the type of growth and market
share possible. Let’s see these quadrants in more detail,
especially related to Amul..
 The Cash Cows
 Amul’s ‘Cash Cow’ is coincidentally its cow milk. Looking at it
more closely, we can also surmise that Amul Butter, and Amul
Cheese, are also its ‘Cash Cows’. These three products generate
a steady, high revenue to fuel the other products of the brand.
They hold high shares in markets that have relatively low
growth. That is saying something, considering the amount of
brands and popups in the dairy industry due to the changing
trends.
 The Stars
 This category of products is the focus of the show. On one hand
you have the ever-reliable ‘Cash Cow’ with a constant influx of
cash- as its name suggests, on the other hand you have the
‘Star’- which not only brings home the bucks, but also rings in
1st in the popularity contest. Amul yet again has more than one
product in this category- Amul Ghee, and Amul Ice Cream.
‘Star’ products have the characteristic of holding a high market
share, in markets with high growth potential- the most desired
quadrant. Companies often invest a lot of cash that comes in
from the ‘Cash Cow’ category into the ‘Star’ products’
promotions, and development. Amul Ice Creams have very
targeted advertisements, and are constantly being worked on to
become more appealing to the public by the use of words like
‘creamy’, ‘medium-fat’, etc.
  The Question Marks
 As the name suggests, ‘Question Mark’ products aren’t those
that have a questionable future. They are just products that have
potential to grow, but require a little more attention and careful
planning to go the right way. Often companies employ funds for
researching into the scope of the ‘Question Mark’ products.
These products are in high growth markets with a low market
share. They essentially can also become the rising ‘Star’
products with the correct attention, and investments. Amul Lassi
falls under this category as it already is in a highly populated
market. However, it is steadily making a name for itself against
its close competitors like Aarey and Govardhan. The
advertisements for Amul Lassi are also targeted to make it a
faster growing product.
 The Dogs
 This category kind of suggests that the company/brand does not
see much potential in these products. The ‘Dog’ products for
Amul will be Amul Cookies, and Amul Pizza. These products
have a low growth and market share- often seen as not profitable
for the company. Thus, the companies don’t invest much in
product changes or promotions. They are often either
discontinued, or kept in low production.
 Oh to be Amul in a pandemic stricken world! At a time when
companies are losing business left, right, and center, Amul is
going steady. Having a couple of products in the ‘Cash Cow’,
and the ‘Star’ category defines how credible and heavily-
preferred this brand is. Hopefully, you now know a little more
about both the BCG matrix, and Amul than you did previously!

WHAT ARE RED OCEANS?

Red oceans are all the industries in existence today –
the known market space.

WHY DO WE CALL THEM RED OCEANS?

 Cut-throat competition in existing industries turns the ocean bloody
red. Hence the term ‘red ocean‘

WHAT IS RED OCEAN STRATEGY?

Red ocean strategy is all about competition. As the market space gets
more crowded, companies compete fiercely for a greater share of
limited demand.

WHAT OUTCOMES DOES RED OCEAN STRATEGY

PRODUCE?

Competing in red oceans is a zero-sum game. A market-competing

strategy divides existing wealth between rival companies. As
competition increases, prospects for profit and growth decline.

WHAT ARE BLUE OCEANS?

Blue oceans are all the industries not in existence today – the

unknown market space.

WHY DO WE CALL THEM BLUE OCEANS?

Unexplored and untainted by competition, ‘blue oceans’ are vast,

deep and powerful in terms of opportunity and growth.

WHAT IS BLUE OCEAN STRATEGY?

Blue ocean strategy creates new demand. Companies develop

uncontested market space rather than fight over a shrinking profit
pool.

WHAT OUTCOMES DOES BLUE OCEAN STRATEGY

PRODUCE?

Creating blue oceans is non-zero-sum. There is ample opportunity for

growth that is both profitable and rapid.

Red Ocean Strategy Blue Ocean Strategy

 Compete in existing market Create uncontested market
space. space.

Beat the competition. Make the

competition irrelevant.

Exploit existing demand. Create and

capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a Align the whole system of a

firm’s activities with firm’s activities in pursuit of
its strategic choice of differentiation and low cost.
differentiation or low cost.

PESTLE Analysis: The Basics

A tool to identify critical external factors that may affect a
corporation. That is what PESTLE analysis is. The factors may be
opportunities — methods that provide a competitive advantage. Or it
could be threats, which could become so severe the firm must shut
down.
PESTLE analysis is important in strategic management. But the
analysis must be completed first before management can truly harness
the information.

A corporation using this analysis are examining how political,

economic, social, technological, legal and environmental forces affect
their business. Truthfully, not all of these categories will affect a
business equally.
IT businesses are greatly influenced by technological factors. While
firms using a word of mouth approach heavily rely on understanding
social trends and changes.

PESTLE analysis provides an overall explanation of influences and

your business. And highlight areas to pay special attention to.
Additionally, PESTLE analysis can be used to address new markets.
If it is plagued by many negativity, it’s an industry that is difficult to
succeed in. If your business is considering bridging into a new
market, PESTLE helps determine whether it’s a smart decision or not

The factors and strategic management

Political factors address various laws (education, copyright, and
employment for example). But it also includes government stability
and potential corruption. These laws can only be changed by political
parties. They exist, and everyone else must work with them or pay
legal consequences.
Example: A government may levy a new tax policy or fiscal policy or
trade tariffs in a new financial year which can affect the revenue
generation of organizations to a large extent. Recently,
the Government Of India has reduced corporate tax rates to 22% from
30%. Consequently, this move will help the top-notch companies to
revive their profitability and would be a  good catalyst for luring
investment from foreign investors. The announcement also arrives at
a perfect time because major American organizations are involved in
a trade war with China and are finding alternative global
manufacturing pedestals.
Economic factors are straightforward. They’re anything that affects
the state of the economy, profits, and revenue. Consider taxes,
inflation rates, stock market trends, labor costs and others.
eXAMPLE: In  India, in the past few weeks, vegetable prices have
skyrocketed and as a result, there is a rise in the rate of inflation.
Consequently, due to the hike in prices, the purchasing power of
people has gone down which ultimately indicates that there will be a
fall in consumer demand.
Social factors focus primarily on consumers and prospective
customers. Buying trends, lifestyle choices, population rates,
education level and social classes affect how consumers buy.
Considering all businesses need customers, heavy amounts of focus
are put in this section of the PESTLE analysis
. EXAMPLE: In today’s era, the demand for junk foods like Pizza and
Burgers has gone up extensively, especially amongst the younger
generation. Thus, companies like Dominos, Pizza Hut, Burger King
and KFC are churning out huge profits because of the consumers’
behavior. On the contrary, the same doesn’t hold true for the people in
rural areas. This is how social factors affect companies’ revenue
structure.
Technological factors are levels and advancements in technology.
Every business uses technology to sell products. It’s appropriate to
study access to modern technology, communication methods,
technological change rates and prices. Tech-based companies pay
special attention to this section.
EXAMPLE: The business space is filled with cautionary sagas of
large scale companies that became failures due to their inability to
keep up with the dynamic technological innovation. One such
prominent example is Kodak, a technology company that used to
produce camera-centric products and hegemonized the photographic
film market during most of the 20th century. The breakthrough in
digital photography contributed to the catastrophic misfortune of their
film-based business model.
Legal factors are sometimes considered similar to political factors.
But it affects how companies operate costs, facilitate business, and
handle product demands. For example, some firms require several
patents to ensure competition don’t copy their products. But this
section also includes consumer laws, health and safety laws, and
more.
EXAMPLE: Nestle had to take away the packets of Maggi from the
stores’ shelves after the Food Safety and Standards Authority of India
(FSSAAI) summoned Nestle because of their negligence to adhere
with the laws of food safety. Regulators found lead content beyond
the permissible limit in its instant noodle product.
Environmental factors include climate (change), weather, and eco-
friendliness of products. Tourism, forestry, and agriculture industries
must pay extra attention to these factors. Bad weather may mean a
severe lack of profits.
EXAMPLE: Due to the imposition of government rules as a measure
to curb global warming, regulations on fossil fuel industries have
increased considerably and as a result, this move has started
threatening the thriving coal, oil, and gas industries

SONY is a Japanese MNC and has abruptly metamorphosed into one

of the dominant entertainment organizations in the world. Its versatile
business products consist of electronics, entertainment gaming, and
financial services. The company is the owner of the largest music
entertainment business around the globe and also a chief player in the
film and television entertainment industry.

Political Factors
SONY is a world-class brand and has a prominent presence in several
countries around the world. The political scenario in different
countries largely impacts the SONY’s success. As we know, political
Stability ignites growth and political instability, on the other hand,
paralyzes the rules and regulations of an economy. In Sony’s context,
its supply chain is located in China. Thus, any kind of political
disturbance in China will have a heavy influence on Sony’s
generation of profits.

Economic Factors
SONY products fall under the category of luxury goods. Such goods
are not items of necessity but are usually purchased when people want
to splurge on themselves. In a nutshell, if you living paycheck to
paycheck, a SONY product would not be a priority in your list of
necessities. In another instance, economic instability and the high
rate of unemployment in a country will never attract buyers for the
high-end SONY products. Consequently, the profits will touch a rock
bottom. Therefore, it is crystal clear that a big giant like SONY
extensively depends on stable and emerging economies to
merchandise their entertainment products.

Social Factors
Traditions, culture, age distribution, taste, and preferences vary from
nation to nation. SONY offers entertainment products beginning with
movies to music which basically acts as an escape to reality. It is to be
kept in mind that not every nation has the same pattern of
entertainment. Therefore, it is extremely important for SONY to keep
up to date regarding the buying trends of the consumers and
consequently tailor the products and services fitting the requirements
of the customers.

Technological Factors
SONY is a true blue technology company because every other
product is correlated with the usage of technology in some way. The
company’s Video Game Consoles are nothing but computer devices
that produces video signal or, optical image to exhibit a video game
for multiple players. On the other hand, laptops help users to stay
connected to social media and other websites on the world wide web.
In today’s era, the availability of the internet has removed all the
possible obstacles of communication and SONY has bagged this
opportunity to market their products online. It has become convenient
for the company to announce any new launch of products via the
medium of the internet.

Legal Factors
Since SONY is an international company and sells its products across
many countries, it also has to abide by the diversified legal
regulations of different countries. Any failure to adhere to the
legalization like labor laws to tax policies, the company might end up
in serious legal trouble or lawsuits which can further affect their
prosperous business.
Strategic management requires the information from PESTLE
analysis to be useful. By combining the two, a company will keep a
close eye on the factors that directly affect their business. They will
monitor these factors and seek out opportunities. And will
continuously optimize business performance and objectives to work
with these influences.
Since these influences cannot be directly affected — it’s not like we
can stop a blizzard or ignore labor laws — businesses need strategic
management to ensure businesses are working with the
factors. Otherwise the company can be left behind by competitors.
The benefits of PESTLE analysis is having an idea of where
opportunities lie. And to begin a plan of action to reduce risks and
threats. Strategic management means you can take these influences
and ensure the business aligns with the factors for success.

What Is SWOT Analysis?

SWOT (strengths, weaknesses, opportunities, and threats)
analysis is a framework used to evaluate a company's competitive
position and to develop strategic planning. SWOT analysis
assesses internal and external factors, as well as current and
future potential.
A SWOT analysis is designed to facilitate a realistic, fact-based,
data-driven look at the strengths and weaknesses of an
organization, its initiatives, or an industry. The organization
needs to keep the analysis accurate by avoiding pre-conceived
beliefs or gray areas and instead focusing on real-life contexts.
Companies should use it as a guide and not necessarily as a
prescription.
KEY TAKEAWAYS
SWOT analysis is a strategic planning technique that provides
assessment tools.
Identifying core strengths, weaknesses, opportunities, and threats
lead to fact-based analysis, fresh perspectives and new ideas.
SWOT analysis works best when diverse groups or voices within
an organization are free to provide realistic data points rather
than prescribed messaging.
Understanding SWOT Analysis
SWOT analysis is a technique for assessing the performance,
competition, risk, and potential of a business, as well as part of a
business such as a product line or division, an industry, or other
entity.
Using internal and external data, a SWOT analysis can tell a
company where it needs to improve internally, as well as help
develop strategic plans.
Using internal and external data, the technique can guide
businesses toward strategies more likely to be successful, and
away from those in which they have been, or are likely to be, less
successful. An independent SWOT analysis analysts, investors or
competitors can also guide them on whether a company, product
line or industry might be strong or weak and why.
Example of SWOT Analysis
In 2015, a Value Line SWOT analysis of The Coca-Cola Company
noted strengths such as its globally famous brand name, vast
distribution network and opportunities in emerging markets.
However, it also noted weaknesses and threats such as foreign
currency fluctuations, growing public interest in "healthy"
beverages and competition from healthy beverage providers.
Its SWOT analysis prompted Value Line to pose some tough
questions about Coca-Cola's strategy, but also to note that the
company "will probably remain a top-tier beverage provider"
that offered conservative investors "a reliable source of income
and a bit of capital gains exposure."
Five years later, the Value Line SWOT analysis proved effective
as Coca-Cola remains the 6th strongest brand in the world (as it
was then). Coca-Cola's shares (traded under ticker symbol KO)
have increased in value by over 60% during the five years after
the analysis was completed.
Strengths describe what an organization excels at and what
separates it from the competition: a strong brand, loyal customer
base, a strong balance sheet, unique technology, and so on. For
example, a hedge fund may have developed a proprietary trading
strategy that returns market-beating results. It must then decide
how to use those results to attract new investors.
Weaknesses stop an organization from performing at its optimum
level. They are areas where the business needs to improve to
remain competitive: a weak brand, higher-than-average turnover,
high levels of debt, an inadequate supply chain, or lack of capital.
Opportunities refer to favorable external factors that could give
an organization a competitive advantage. For example, if a
country cuts tariffs, a car manufacturer can export its cars into a
new market, increasing sales and market share.
Threats refer to factors that have the potential to harm an
organization. For example, a drought is a threat to a wheat-
producing company, as it may destroy or reduce the crop yield.
Other common threats include things like rising costs for
materials, increasing competition, tight labor supply and so on.
 Understanding Porter’s Value Chain Model
In his 1985 book Competitive Advantage, Porter explains that
a value chain is a collection of processes that a company performs to
create value for its consumers. As a result, he asserts
that value chain analysis is directly linked to competitive advantage.
Competitive advantage occurs when a business systematically
examines its internal processes and how they interact with each other.
Each process in the value chain should create value that exceeds the
cost of creating that value. In other words, it should be profitable.
The strength of Porter’s model lies in its focus on customers
through value chain systems. This is in contrast to other value chain
models that focus on departmental and accounting expenses, for
example. 
The primary activities of Porter’s Value Chain Model
Porter breaks down his value chain model into five primary processes,
or activities.
1. Inbound logistics
This includes the warehousing and associated inventory control of
raw materials. This also includes the nature of the relationship with
suppliers.
2. Operations
Operations encompass any process that turns raw materials into a
finished product ready for sale, including labelling, branding, and
packaging.
3. Outbound logistics
Outbound logistics concern any process where the product is
distributed to a customer. This includes the storage and distribution of
products and the processes involved in fulfilling customer orders.
4. Marketing and sales
Any processes that attempt to enhance product visibility among a
target audience are included in marketing and sales. This activity is
also heavily reliant on customer relationships.
5. Services
Services include any processes that occur after a purchase has been
made, including customer service, repairs, refunds, and warranty
acknowledgement.

Secondary activities
Within Porter’s Value Chain Model there are also four secondary
activities which support the foundational primary activities common
to most businesses.

Here is a brief look at each.

1. Company infrastructure
Company infrastructure entails any process that supports
daily business operations. Administration, clerical, financial, and
line management are all value-creating infrastructure processes.
2. Human resource management
Human resource management (HRM) covers any process related to
the training, acquisition, or termination of employees. HRM
departments and their ability to hire talented and motivated staff are
crucial to a company’s competitive advantage.
3. Research and development
Technology can create a competitive advantage in
Porter’s value chain because it can streamline important processes.
These include payroll automation software, customer service
procedures, and distribution networks.
4. Procurement
Procurement is simply the acquisition of necessary goods or services.
The most typical example is the procurement of raw materials and the
negotiation of pricing and product purchase contracts. It may also
include the purchase of equipment, offices, buildings, and machinery.
Key takeaways:
 Porter’s Value Chain Model is a strategic management tool
for the analysis of a company’s value chain.
 Porter’s Value Chain Model is customer relationship centric
and is used by businesses to systematically examine each of
their many processes for profitability.
 Porter’s Value Chain Model is comprised of five
primary value chain activities, further supported by four
secondary process activities.
Porter’s Value Chain Analysis of State Bank of India
Porter's value chain model is highly popular in the business world.
However, State Bank of India must not take it as a rigid, standalone
framework by assigning the equal importance to all activities. The
effective Value Chain Analysis requires State Bank of India to realise
that all activities or functions do not require same scrutiny level.
Hence, the first step of adapting the Porter Value Chain framework is
to identify the importance of activities according to their role in
product/service delivery process.

Here is the list of primary value chain activities as proposed by

Porter:

2.1 Primary Activities

The primary value chain activities of State Bank of India are directly
involved in producing and selling the product to targeted customers.
Analysis of primary value chain activities can improve the
performance of State Bank of India as explained below.
2.1.1 Inbound Logistics
It is important to develop strong relationships with suppliers as their
support is necessary to receive, store and distribute the product.
Without analysing the in-bound logistics, State Bank of India can face
various challenges in product development phases. Analysis of in-
bound logistics requires a company to focus on every aspect of
transformation from raw material to finished product. Some examples
of inbound logistics are retrieving raw material, storing the inputs and
internally distributing the raw material and components to start
production.

2.1.2 Operations
The importance of analysing operational activities raises when raw
material arrives, and State Bank of India is ready to process the raw
material into the end product and launch it in the market. Some
examples of operational activities are machining, packing, assembling
and testing. Equipment repair and maintenance also falls into this
category.

It includes both- manufacturing and service operations. Analysis of

operational activities is important for improving productivity,
maximising the efficiency and ensuring the competitive success of
State Bank of India. The increased productivity can help State Bank
of India to achieve consistent economic growth, increase profitability
and set a powerful basis for competitive advantage.

2.1.3 Outbound Logistics

Outbound logistics include the activities that deliver the product to the
customer by passing through different intermediaries. Some outbound
logistics activities are material handling, warehousing, scheduling,
order processing, transporting and delivering to the destination. State
Bank of India can analyse and optimise the outbound logistics to
explore competitive advantage sources and achieve its business
growth objectives.
Because, when outbound activities are timely managed with optimal
costs and product delivery processes put a minimum negative effect
on the quality, it maximises the customer satisfaction and increases
growth opportunities for the firm. State Bank of India should pay
specific importance to its outbound value chain activities when its
offered products are perishable and require quick delivery to the end
customer.

2.1.4 Marketing and Sales

At this stage, State Bank of India will highlight the benefits and
differentiation points of offered products to persuade the customers
that its offering is better than competitors. Only producing a high
quality product at affordable costs and distinctive features cannot
create value until State Bank of India invests on the marketing and
sales activities. The sales agents and marketers play an important role
here.

Some examples of State Bank of India's marketing and sales activities

are- sales force, advertising, promotional activities, pricing, channel
selection, quoting and building relations with channel members. The
company can use the marketing funnel approach to structure its
marketing and sales activities. The marketing strategies can either be
push or pull in nature, depending on the State Bank of India’s
business objectives, brand image, competitive dynamics and current
standing in the market.

Effective and wisely integrated marketing activities can develop the

brand equity of State Bank of India and help it stand out from the
competition. However, State Bank of India must avoid making false
commitments about product features that cannot be fulfilled by the
production department. It indicates the need to ensure coordination
between different value chain activities.

2.1.5 Services
The pre-sale and post-sale services offered by the State Bank of India
will play an important role in developing customer loyalty. The
modern customers consider post-sale services as important as
marketing and promotional activities. The power of negative e-WOM
due to poor support service cannot be undermined in the current
technologically advanced era. The company must analyse its support
activities to avoid damaging brand reputation, and instead use it as a
tool to spread positive word of mouth due to quick, timely and
efficient support services.

2.2 Secondary Activities

The support activities play an important role in coordinating and
facilitating the primary value chain activities. State Bank of India can
also benefit from analysis of its support activities as explained below.

2.2.1 Firm infrastructure

The firm infrastructure denotes a range of activities, such as- quality
management, legal matters handling, accounting, financing, planning
and strategic management. Effective infrastructure management can
allow State Bank of India to optimise the value of the whole value
chain. State Bank of India can control the infrastructure activities (or
commonly called overhead costs) to strengthen the competitive
positioning in the market.

2.2.2 Human resource management

State Bank of India can analyse human resource management by
evaluating different HR aspects, including- recruiting, selecting,
training, rewarding, performance management and other personnel
management activities. The effective HR management can allow State
Bank of India to reduce competitive pressure based on motivation,
commitment and skills of its workforce. The company can also
achieve its cost minimisation objectives by analysing hiring and
training costs with their relative return. The heavy dependence of
State Bank of India on employees' talent will increase the importance
of this value chain support activity.

2.2.3 Technology development

In a modern, technological advanced era, almost all value chain
activities depend on technological support. The technological
integration in production, distribution, marketing and human resource
activities requires State Bank of India to realise the importance of
technology development. It can be divided into product and process
technological development activities. Some examples are- automation
software, technology-supported customer service, product design
research and data analytics. The research and development
department of State Bank of India is classified in this category.

2.2.4 Procurement
The procurement in value chain denotes the processes involved in
purchasing the inputs that may range from equipment, machinery, raw
material, supplies, raw material and other items necessary for
producing the finished product. Due to its linkage with multiple value
chain activities, State Bank of India should carefully consider its
procurement activities to optimise the inbound, operational and
outbound value chain.

As mentioned above, the application of Porter Value Chain model

depends on understanding the importance of all activities. After
understanding the relative importance of identified value chain
activities, State Bank of India should highlight areas where value can
be added, cost efficiency can be achieved, differentiation basis can be
set, or processes can be optimised.

Here is a pictorial presentation of Porter Value Chain model:

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3. Competitive Advantages through Value Chain Analysis of State
Bank of India
It is important for State Bank of India to base its competitive
advantage on activities in which it has access to the rare or scare
resources. It may include- intellectual capital, assets, skills or
distribution network. The Value Chain Analysis can help State Bank
of India identify those activities and develop those areas to get a
strong competitive edge over rivals. There are many examples (like
Toshiba and Sharp) that consider Value Chain Analysis as a tool to
get a competitive advantage and invest heavily in research and
development activities within their value chain network. Porter’s
generic strategies for achieving the competitive advantage and value
chain model can be used together to set strong competitive advantage
basis.

Following diagram shows Porter's competitive advantage model:

The analysis of the value chain activities can be done to understand

the competitive advantage sources. State Bank of India can either use
the operations, marketing and other relevant value chain activities to
avail the cost advantages or it can use the human resource,
technology, infrastructure, service or other relevant activities to set
the strong differentiation basis. Broadly, the competitive advantage
sources can be grouped into two types- cost and differentiation. State
Bank of India can obtain a competitive advantage from one or both
sources, depending on the depth and breadth of its Value Chain
Analysis. Next parts of the article present in detail how State Bank of
India can configure primary and/or secondary value chain activities to
achieve the desired cost and differentiation objectives.

4. Cost Advantage of State Bank of India

4.1 Cost advantage through Value Chain Analysis of State Bank of
India
State Bank of India can avail the cost advantages by reducing the
costs associated with the value chain activities. However, it requires
the company to firstly map the activities and then associate costs to
make necessary adjustments. The connection between the value chain
and cost leadership strategy reflects a parallel focus on the low cost
operational activities. If State Bank of India aims to obtain cost
advantage, it needs to identify each element within the value chain
can be optimised to get the whole effect

A Value Chain Analysis Example for State Bank of India is that it can
use the analysis as a tool to negotiate the best prices and maximise the
in-bound and out-bound transportation processes.
Another Value Chain Analysis Example is using the value chain
information to make modest advertising budget that can reduce
marketing costs and offer the product at an affordable cost.
If State Bank of India aims for the low-cost, the Value Chain Analysis
can optimise the profitability. If product differentiation is the aim of
State Bank of India, Value Chain Analysis will help the company in
maximising the efficiency and enhancing the product quality by
improving processes.

4.2 Cost drivers of State Bank of India Value Chain Analysis

State Bank of India can control following drivers to add value, set
differentiation basis and enhance efficiency.

Organisational policies
Integration
Timing
Economies of scale
Linkages
Interrelationships
Capacity utilisation
Learning and Spillover
However, it is important to note that costs can be reduced only to
some extent. State Bank of India Value Chain Analysis must also
consider the customers’ perceived value that may justify the higher
price charged by the company compared to competitors.

5. Company Differentiation Advantage

State Bank of India can obtain the differentiation advantage by
analysing different value chain activities. For instance, a company can
procure the unique and valuable inputs that are not easily available to
competitors. State Bank of India can either reconfigure the whole
value chain or change individual entities to set the differentiation
basis. The cost drivers (such as timing, interrelationships, linkages,
scaling and integration) can also be altered to develop uniqueness.

Some examples of differentiation through analysis of value chain are:

Forward integration or backward integration to exercise better control
over inputs
Utilisation of new channels of distribution
Implementation of innovative process technologies.
5.1 Differentiation through primary value chain activities
State Bank of India can individually analyse the primary activities
from all aspects and create differentiation basis by identifying the
following sources:

Inbound logistics: possible differentiation basis for State Bank of

India are:
Procure high quality inputs to offer high quality finished product
Effective incoming input handling to reduce damage
Operations: possible differentiation basis for State Bank of India are:
Flexible manufacturing system
Wide product range
Improved product appearance
Prevention of product pre-mature failure
Quick response to unique specifications
Improved customer satisfaction through lower defect rate
Improved product performance due to conformance to technical
specifications
Outbound logistics: possible differentiation basis for State Bank of
India are:
Effective handling and better shipping to reduce product damage
Timely product delivery
Flexible delivery capabilities
Effective order processing procedure
Marketing and sales: possible differentiation basis for State Bank of
India are:
Improved relationships with suppliers and customers
Enhanced communication with customers by offering high quality
information.
Brand awareness, reputation and image development due to extensive
and effective advertising.
Effective coordination among product, research and marketing
departments.
Wider sales force coverage.
Services: possible differentiation basis for State Bank of India are:
Superior service quality
High quality technical assistance
Reliable and quick repair/maintenance service
5.2 Differentiation through secondary value chain activities
State Bank of India can also analyse the secondary value chain
activities to set differentiation basis:

Firm Infrastructure: State Bank of India can set differentiation basis

through:
Extensive database development for effective marketing
Advanced information system to get deeper customer insights.
Human Resource Management- State Bank of India can set
differentiation basis through:
Attractive rewards to encourage creativity and maximise productivity
Personnel training for effective interaction and superior customer
service
Technological development- State Bank of India can set
differentiation basis through:
Quick new product development
Innovation integration in product designing
Innovative product features with patented technology
Procurement- State Bank of India can set differentiation basis
through:
Reliable transportation to ensure quick delivery
Procure high quality raw material and replacement parts.
6. Value Chain Analysis Example
Value Chain Analysis of the State Bank of India can be better
understood with the help of some examples.

By using Value Chain Analysis, State Bank of India can select and
source premium quality raw material and develop customer loyalty on
the basis of it. It can also use Value Chain Analysis to develop brand
identity.
Starbucks provides a good Value Chain Analysis Example. The
organisation created a strong brand identity and set a strong
competitive advantage basis through aggressive marketing and
strengthening coordination between marketing and product
development department.
State Bank of India can also achieve competitive differentiation by
speeding up the delivery of offered products to the final customers.
Pizza Hut provides another successful Value Chain Analysis Example
where organisation outpaced competitors by re-configuring value
chain activities to ensure quick delivery.
The Value Chain Analysis can also be used by State Bank of India to
improve its human resource practices.
FedEx is a good Value Chain Analysis Example to understand how
State Bank of India can achieve competitive advantage through
analysis of its human resource activities.
FedEx emphasised over its value chain support activities, invested
heavily on employee development, took excellent human resource
initiatives and made visible infrastructure improvements, resulting
into visible increase in brand loyalty and market share.
State Bank of India can analyse value chain activities to reduce the
costs, find better deals with suppliers and offer high quality products
at affordable prices.
A relevant Value Chain Analysis Example is provided by Walmart
that continuously analyses its value chain activities to remain
innovative, minimise operational costs and offer low-cost yet reliable
services.
State Bank of India can analyse the support value chain activities to
offer superior customer support. It can also analyse the operational
activities to expand the presence in geographically dispersed areas.
It can be understood with the help of another Value Chain Analysis
Example. Starbucks places high importance to analysing value chain
activities and has successfully opened direct stores in more than 50
countries.
State Bank of India can also use the Value Chain Analysis as a tool to
do backward integration. It can be done by merging or purchasing the
suppliers to ensure timely raw material availability.
Apple provides a relevant Value Chain Analysis Example in this
regard. The company is known for its efficient value chain and
successfully controls the product and parts.
The Value Chain Analysis can also be done by State Bank of India to
maximise the operational efficiency, reduce waste and integrate
sustainability in business operations.
Intel is a good Value Chain Analysis Example that has reduced the
waste and negative impact on the environment by analysing its value
chain operational activities. The company has received appreciation
for its waste reduction efforts.
State Bank of India can learn from value chain practices of Dow
AgroSciences. Dow has used Value Chain Analysis to explore the
unique marketing opportunities and extracted value from generic
commodity market. The company has also used Value Chain to
manage the risks at different product lifecycle phases.
The above-stated examples show how State Bank of India can benefit
from conducting a detailed Value Chain Analysis. However, it is also
important to note that the Porter Value Chain model application
depends on the unique contextual variables that must be considered
when assigning the weightage to primary and secondary value chain
activities.

GE McKinsey Matrix

What is the GE McKinsey Matrix?

In the 1970s, General Electric (GE) commissioned McKinsey &
Company to develop a portfolio analysis matrix for screening its
business units. This matrix or GE Matrix is a variant of the Boston
Consulting Group (BCG) portfolio analysis.

Portfolio
The GE McKinsey Matrix has also many points in common with
the MABA analysis. MABA is an acronym that stands for Market,
Attractiveness, Business position and Assessment.

The GE McKinsey Matrix also compares product groups with respect

to market attractiveness and competitive power. Another name for
this type of analysis is Portfolio analysis. The portfolios of
businesses consist of all combinations of products and/ or services
that are offered to the market/ target groups. Originally, this Matrix
made an analysis of the composition of the portfolio of GE business
units. Later, this matrix proved to be very useful in other companies
as well.

The GE McKinsey Matrix

The GE McKinsey Matrix comprises two axes. The attractiveness of
the market is represented on the y-axis and the competitiveness and
competence of the business unit are plotted on the x-axis. Both axes
are divided into three categories (high, medium, low) thus creating
nine cells. The business unit is placed within the matrix using circles.
The size of the circle represents the volume of the turnover.

The percentage of the market share is entered in the circle. An arrow

represents the future course for the business unit.
GE McKinsey Matrix factors
It is possible to determine in advance whether a market is attractive
enough to enter.

This can be done by using the following factors:

 Market size
 Historical and expected market growth rate
 Price development
 Threats and opportunities (component of SWOT Analysis)
 Technological developments
 Degree of competitive advantage

Other factors are used to determine competitiveness:

 Value of core competences

 Available assets
 Brand recognition and brand strength
 Quality and distribution
 Access to internal and external finance resources

GE McKinsey Matrix vs BCG Matrix

The GE McKinsey Matrix bears a strong resemblance to the BCG
Matrix.

However, there are some differences:

1. The GE McKinsey Matrix does not only consider growth, it

mainly considers market attractiveness.
2. In addition to market share the GE McKinsey Matrix also
considers the strength of a business unit.
3. Instead of the four cells that are created in the BCG Matrix, the
GE McKinsey Matrix creates nine cells.

Application of the GE McKinsey Matrix

Three different strategies can be distinguished and adopted using the
GE McKinsey Matrix:

Invest/ grow
Growth is facilitated by expanding the market or making investments.

Hold
By making careful investments, the current market is consolidated.

Harvest / sell
No extra investments but mainly focusing on maximizing returns. By
assigning a weight to each factor, the GE McKinsey Matrix can be
used more effectively. Based on these weights, the scores for
competitiveness and market attractiveness can be calculated more
accurately for each business unit.

How to set up a GE McKinsey Matrix

This analysis is characterized by seven steps that must be followed:

1. Define the Product Market Combinations (PMC’s). Who are

the customers of an organization and what are its products
and/or services?
2. Define the aspects that determine the attractiveness of the
market. Certain weight factors can be assigned to certain
aspects. Market attractiveness is a critical factor that has to be
considered carefully.
3. Define the aspects that determine the competitive power of the
organizations.
4. Assign scores to the different PMC’s. Have this done by several
people within and outside of the organization. This will ensure a
fair representation.
5. Calculate the final scores. By comparing the final scores for
market attractiveness and competitive power with the maximum
score, it is possible to determine their position on the matrix.
6. Draw the matrix and plot market attractiveness on the x-axis and
competitive power on the y-axis. The higher the volume in
turnover of a PMC, the larger the circle.
7. Evaluate and discuss. The matrix can serve as the basis for a
discussion about strategic decisions.

Example – Reliance Group, led by Dhirubhai Ambani, started

back in 1966 and was mainly functioning in the infrastructure,
power and communications sector. In 2006, the company took a
when they started Reliance Fresh.

Now, why is it that from selling electricity and gadgets Reliance

directly came down to selling potatoes and tomatoes?

Are these decision taken by marketers just out of the blue?

Well, a study of 33 markets across the country has analysed that

the retailers of the vegetables and dairy items are selling at a
profit of 48.8% than the wholesale prices.

India is one of the top 5 retail markets in the world and retail
trade holds about 10% of our GDP.

Reliance Fresh, which now has about 700 outlets in the 93

cities, has been tapping the potential retail market of the
country.

It even plans to invest 3.5 billion dollars in the coming years to

optimize their operations
THREE LEVELS OF STRATEGY
MANAGEMENT
In this chapter, you will:
 Understand the three levels of strategy for an organization

Strategy can be formulated at three levels, namely, the corporate

level, the business level, and the functional level. At the corporate
level, strategy is formulated for your organization as a whole.
Corporate strategy deals with decisions related to various business
areas in which the firm operates and competes. At the business unit
level, strategy is formulated to convert the corporate vision into
reality. At the functional level, strategy is formulated to realize the
business unit level goals and objectives using the strengths and
capabilities of your organization. There is a clear hierarchy in levels
of strategy, with corporate level strategy at the top, business level
strategy being derived from the corporate level, and the functional
level strategy being formulated out of the business level strategy.

In a single business scenario, the corporate and business level

responsibilities are clubbed together and undertaken by a single
group, that is, the top management, whereas in a multi business
scenario, there are three fully operative levels.

Levels of Strategy

Corporate Level

Corporate level strategy defines the business areas in which your firm
will operate. It deals with aligning the resource deployments across a
diverse set of business areas, related or unrelated. Strategy
formulation at this level involves integrating and managing the
diverse businesses and realizing synergy at the corporate level. The
top management team is responsible for formulating the corporate
strategy. The corporate strategy reflects the path toward attaining the
vision of your organization. For example, your firm may have four
distinct lines of business operations, namely, automobiles, steel, tea,
and telecom. The corporate level strategy will outline whether the
organization should compete in or withdraw from each of these lines
of businesses, and in which business unit, investments should be
increased, in line with the vision of your firm.

Business Level

Business level strategies are formulated for specific strategic business

units and relate to a distinct product-market area. It involves defining
the competitive position of a strategic business unit. The business
level strategy formulation is based upon the generic strategies of
overall cost leadership, differentiation, and focus. For example, your
firm may choose overall cost leadership as a strategy to be pursued in
its steel business, differentiation in its tea business, and focus in its
automobile business. The business level strategies are decided upon
by the heads of strategic business units and their teams in light of the
specific nature of the industry in which they operate.

Functional Level

Functional level strategies relate to the different functional areas

which a strategic business unit has, such as marketing, production and
operations, finance, and human resources. These strategies are
formulated by the functional heads along with their teams and are
aligned with the business level strategies. The strategies at the
functional level involve setting up short-term functional objectives,
the attainment of which will lead to the realization of the business
level strategy.

For example, the marketing strategy for a tea business which is

following the differentiation strategy may translate into launching and
selling a wide variety of teavariants through company-owned retail
outlets. This may result in the distribution objective of opening 25
retail outlets in a city; and producing 15 varieties of tea may be the
objective for the production department. The realization of the
functional strategies in the form of quantifiable and measurable
objectives will result in the achievement of business level strategies as
well.
Summary:
1. Corporate Level Strategy:
 Defines the business areas in which your firm will
operate.
 Involves integrating and managing the diverse
businesses and realizing synergy at the corporate
level.
 Top management team is responsible.
2. Business Level Strategy:
 Involves defining the competitive position of a
strategic business unit.
 Decided upon by the heads of strategic business
units and their teams.
3. Functional Level Strategy:
 Formulated by the functional heads along with
their teams.
 Involve setting up short-term functional objectives.

Strategic management is defined as a process of specifying the

objectives of the organization, developing policies and planning to
achieve the objectives, and then allocating resources so that plans can
be implemented. Strategic management is considered to be the highest
level of managerial activity that the top management of the
organization performs and also the executive team. Strategic
management normally provides the overall direction of the entire
organization. Strategic management is a set of actions and decisions
that result to the formulation and implementation of approaches
designed to achieve the objectives of the organization. This is a
continuous process that is normally involved with the attempt of
matching the organization with the changing environment in a manner
that is advantageous. Strategic management is extremely critical in
the survival of the organization.
Elements of
Strategic
Management
Organizations are
supposed to select the
directions in which it
will move towards.
Strategic
management has
three major elements,
which include
strategic analysis,
strategic choice, and strategy implementation.

1. Strategy Analysis
Strategy analysis is usually concerned with understanding the
organizations strategic position. This is an element that is concerned
with the changes that are going on in the environment and how the
changes are going to affect the activities of the organization. Other
factors that are considered in this element are the strength of the
resources in the organization, in the context of the changes. It also
focuses on what the associated groups in the organization aspire to
and how the changes affect the present position and the future
position of the organization. Strategic analysis usually aims at
creating a view of the factors that can have an impact on the future
and present performance of the organization. When strategic
management is performed in the right manner, it helps in selecting the
correct strategy.
There are certain factors that should be considered during strategic
analysis. The first factor includes the business environment. It is hard
for organizations to exist without interacting with a complex,
political, commercial, economic, social, cultural, and technological
environment. The environmental changes are sometimes complex for
certain organizations than others. Therefore, when organizations are
faced with the environmental changes, they should have a clear
understanding of the impacts so that to be able to formulate a strategic
plan. The central importance of strategic analysis is to understand the
environmental effects to the organization. It is necessary to consider
the environmental effects on the business and also the present and
expected changes in the environment.
The second factor is the organization resources, which are internal
influences. When thinking about the strategic capability of the
organization, it is necessary to consider the weaknesses and strengths.
The weakness and strengths of organizations  can be identified by
considering the organization resource areas like its management,
physical plant, products, and its financial structure. This aims at
forming an observation of the internal influences and restriction on
the strategic choice.
The final factor is the prospects of the different stakeholders in that
the development of the organizations depends a lot on the
expectations of the stakeholders. The assumption and beliefs of the
stakeholders greatly constitute them culture of the organization. A lot
of influence in decision making concerning the strategy is normally
influenced by the organizations stakeholders and degree of the
stakeholders impact on the strategy depend on the respective power of
every group of stakeholders. The beliefs and assumptions of the
stakeholders are usually influenced by the resource and environmental
implications. The influence that tends to prevail normally depends on
the group that has the greatest power. It is extremely necessary to
understand this as it helps in recognizing why the organization is
following a particular strategy.
Consideration of the resources, expectations, environment, and
objectives in the political and cultural framework of the organization
provide the foundation for strategic analysis in the organization. In
order to be able to understand the strategic position that the
organization is in, it is essential to examine the extent of the
implication and direction of the current strategy and the objectives the
organization is following if they are in line with and can manage with
the strategic analysis implications.
2. Strategic Choice
Strategic analysis usually creates a foundation for strategic choice.
After strategic analysis has been done, it is now ready to make a
strategic choice. Strategic choice is normally defined as the practice
of selecting the best possible course of action, and it is usually based
on the evaluation of the available strategic options. Strategic choice
has three parts that include the generation of strategic options,
evaluation of the options, and selection of the strategy. During
strategic choice, there may be many strategic options; therefore, it is
necessary to ensure that the selected option is the best.
The second part of strategic choice is the evaluation of the strategic
options. Examination of the strategic option can be done in the
strategic analysis so that to assess their relative merits. When the
organization is deciding on any of the options, it might decide to ask
several questions. The first questions that might be considered is the
option built upon strengths, one that will take advantage of
opportunities, and overcome weaknesses while it is minimizing
threats that the business is faced with. By focusing on the following
factors, it is referred to as searching for the suitability of the strategy.
There are several questions that the organizations may consider when
it is evaluating the strategic options.
The third part is the selection of the strategy which is the process of
selection the options that the organization is going to pursue.
Sometimes the selected choice is usually a matter of the management
judgment. It is extremely essential to understand that, in the selection
process, it cannot always be viewed as a purely logical, objective act.
During strategic choice, the selected strategy is normally strongly
influenced by the managers values and other groups with an interest
in the organization. This at one point reflects the power structure of
the organization.
3. Strategy Implementation
This is the third major element of strategic management that is
concerned with strategy translation into action. This is the stage where
the strategy is translated to action. The implementation of the strategy
requires proper deployment of the organization resources, effective
change management, careful handling of the possible changes in
the structure of the organization, and also careful planning. There are
several parts that are involved in strategy implementation. The first
part is in planning and allocation of resources. During
implementation, it is involved with resource planning that includes
the logistic of implementation. The second part is organization design
and structure. During strategy implementation, there are certain
changes in organization structure that should be done. It is also likely
for the need to arise for adapting the system used in managing the
organization. The third part is the management of the strategic
change.
When a strategy is being implemented, it also requires that the
strategic change to be managed. Action from the managers is required
in the way the change process will be managed and the mechanism
that they are going to use. The mechanisms that the managers use are
concerned with the redesign of the organization, changing daily
routines and organization cultural aspects, and the political barriers to
change.
To conclude. the three elements of strategic management are
interconnected in that in order for a strategic choice to be selected,
there must be an analysis of options so that to determine the strategy
that is going to be effective and efficient for the organization.
Strategic implementation normally depends on strategic choice. The
implementation of a strategy is normally done after different
strategies have been considered so that a conclusion is arrived at on
the choice that the organization will implement. This is a choice that
will accomplish the expected goal

VALUE CHAIN ANALYSIS

Value chain analysis (VCA)
 
is a process where a firm identifies its primary and support
activities that add value to its final product and then analyze
these activities to reduce costs or increase differentiation.
Value chain
 
represents the internal activities a firm engages in when
transforming inputs into outputs.

Understanding the tool

Value chain analysis is a strategy tool used to analyze internal firm

activities. Its goal is to recognize, which activities are the most
valuable (i.e. are the source of cost or differentiation advantage) to the
firm and which ones could be improved to provide competitive
advantage. In other words, by looking into internal activities, the
analysis reveals where a firm’s competitive advantages or
disadvantages are. The firm that competes through differentiation
advantage will try to perform its activities better than competitors
would do. If it competes through cost advantage, it will try to perform
internal activities at lower costs than competitors would do. When a
company is capable of producing goods at lower costs than the market
price or to provide superior products, it earns profits.

M. Porter introduced the generic value chain model in 1985. Value

chain represents all the internal activities a firm engages in to produce
goods and services. VC is formed of primary activities that add value
to the final product directly and support activities that add value
indirectly.

Although, primary activities add value directly to the production

process, they are not necessarily more important than support
activities. Nowadays, competitive advantage mainly derives from
technological improvements or innovations in business models or
processes. Therefore, such support activities as ‘information systems’,
‘R&D’ or ‘general management’ are usually the most important
source of differentiation advantage. On the other hand, primary
activities are usually the source of cost advantage, where costs can be
easily identified for each activity and properly managed.
Firm’s VC is a part of a larger industry's VC. The more activities a
company undertakes compared to industry's VC, the more vertically
integrated it is. Below you can find an industry's value chain and its
relation to a firm level VC.

Using the tool

There are two different approaches on how to perform the analysis,

which depend on what type of competitive advantage a company
wants to create (cost or differentiation advantage). The table below
lists all the steps needed to achieve cost or differentiation advantage
using VCA.
 Competitive advantage types

Cost advantage Differentiation advantage

This approach is used when The firms that strive to create

organizations try to compete on superior products or services use
costs and want to understand the differentiation advantage
sources of their cost advantage or approach. (good
disadvantage and what factors drive examples: Apple, Google, Samsun
those costs.(good g Electronics, Starbucks)
examples: Amazon.com, Wal-Mart, 
McDonald's, Ford, Toyota)

 Step 1. Identify the firm’s  Step 1. Identify the

primary and support activities. customers’ value-creating
 Step 2. Establish the relative activities.
importance of each activity in  Step 2. Evaluate the
the total cost of the product. differentiation strategies for
 Step 3. Identify cost drivers improving customer value.
for each activity.  Step 3. Identify the best
 Step 4. Identify links between sustainable differentiation.
activities.
 Step 5. Identify opportunities
for reducing costs.

Cost advantage

To gain cost advantage a firm has to go through 5 analysis steps:

Step 1. Identify the firm’s primary and support activities. All the
activities (from receiving and storing materials to marketing, selling
and after sales support) that are undertaken to produce goods or
services have to be clearly identified and separated from each other.
This requires an adequate knowledge of company’s operations
because value chain activities are not organized in the same way as
the company itself. The managers who identify value chain activities
have to look into how work is done to deliver customer value.

Step 2. Establish the relative importance of each activity in the

total cost of the product. The total costs of producing a product or
service must be broken down and assigned to each activity. Activity
based costing is used to calculate costs for each process. Activities
that are the major sources of cost or done inefficiently (when
benchmarked against competitors) must be addressed first.

Step 3. Identify cost drivers for each activity. Only by

understanding what factors drive the costs, managers can focus on
improving them. Costs for labor-intensive activities will be driven by
work hours, work speed, wage rate, etc. Different activities will have
different cost drivers.

Step 4. Identify links between activities. Reduction of costs in one

activity may lead to further cost reductions in subsequent activities.
For example, fewer components in the product design may lead to
less faulty parts and lower service costs. Therefore identifying the
links between activities will lead to better understanding how cost
improvements would affect he whole value chain. Sometimes, cost
reductions in one activity lead to higher costs for other activities.

Step 5. Identify opportunities for reducing costs. When the

company knows its inefficient activities and cost drivers, it can plan
on how to improve them. Too high wage rates can be dealt with by
increasing production speed, outsourcing jobs to low wage countries
or installing more automated processes.

Differentiation advantage
VCA is done differently when a firm competes on differentiation
rather than costs. This is because the source of differentiation
advantage comes from creating superior products, adding more
features and satisfying varying customer needs, which results in
higher cost structure.

Step 1. Identify the customers’ value-creating activities. After

identifying all value chain activities, managers have to focus on those
activities that contribute the most to creating customer value. For
example, Apple products’ success mainly comes not from great
product features (other companies have high-quality offerings too) but
from successful marketing activities.

Step 2. Evaluate the differentiation strategies for improving

customer value. Managers can use the following strategies to
increase product differentiation and customer value:

 Add more product features;

 Focus on customer service and responsiveness;
 Increase customization;
 Offer complementary products.

Step 3. Identify the best sustainable differentiation. Usually,

superior differentiation and customer value will be the result of many

What is the Ansoff Matrix?

The Ansoff Matrix, also called the Product/Market Expansion Grid, is
a tool used by firms to analyze and plan their strategies for growth.
The matrix shows four strategies that can be used to help a firm grow
and also analyzes the risk associated with each strategy. Learn more
about business strategy in CFI’s Business Strategy Course
Understanding the Ansoff Matrix
The matrix was developed by applied mathematician and business
manager, H. Igor Ansoff, and was published in the Harvard Business
Review in 1957. The Ansoff Matrix has helped many marketers and
executives better understand the risks inherent in growing their
business.
The four strategies of the Ansoff Matrix are:
Market Penetration: This focuses on increasing sales of existing
products to an existing market.
Product Development: Focuses on introducing new products to an
existing market.
Market Development: This strategy focuses on entering a new market
using existing products.
Diversification: Focuses on entering a new market with the
introduction of new products.
Of the four strategies, market penetration is the least risky, while
diversification is the riskiest.
The Ansoff Matrix: Market Penetration
In a market penetration strategy, the firm uses its products in the
existing market. In other words, a firm is aiming to increase its market
share with a market penetration strategy.
The market penetration strategy can be executed in a number of ways:

Decreasing prices to attract new customers

Increasing promotion and distribution
efforts
Acquiring a competitor in the same marketplace
For example, telecommunication companies all cater to the same
market and employ a market penetration strategy by offering
introductory prices and increasing their promotion and distribution
efforts.
Brands such as Coca-Cola and Heineken are known for spending a lot
on marketing in order to penetrate their markets. In addition, they try
to maximize the use of distribution channels by making attractive
deals with a large variety of distributors such as supermarkets,
restaurants, bars and football stadiums for example.
The Ansoff Matrix: Product Development
In a product development strategy, the firm develops a new product to
cater to the existing market. The move typically involves extensive
research and development and expansion of the company’s product
range. The product development strategy is employed when firms
have a strong understanding of their current market and are able to
provide innovative solutions to meet the needs of the existing market.
This strategy, too, may be implemented in a number of ways:
Investing in R&D to develop new products to cater to the existing
market
Acquiring a competitor’s product and merging resources to create a
new product that better meets the need of the existing market
Forming strategic partnerships with other firms to gain access to each
partner’s distribution channels or brand
For example, automotive companies are creating electric cars to meet
the changing needs of their existing market. Current market
consumers in the automobile market are becoming more
environmentally conscious. A classic example of product
development is Apple launching a brand new iPhone every few years.
Other examples can be found in the pharmaceutical industry where
companies such as Pfizer, Merck and Bayer are heavily investing in
Research and Development (R&D) in order to come up with new and
innovative drugs every now and then.
The Ansoff Matrix: Market Development
In a market development strategy, the firm enters a new market with
its existing product(s). In this context, expanding into new markets
may mean expanding into new geographic regions, customer
segments, etc. The market development strategy is most successful if
(1) the firm owns proprietary technology that it can leverage into new
markets, (2) potential consumers in the new market are profitable (i.e.,
they possess disposable income), and (3) consumer behavior in the
new markets does not deviate too far from that of consumers in the
existing markets.
The market development strategy may involve one of the following
approaches:
Catering to a different customer segment
Entering into a new domestic market (expanding regionally)
Entering into a foreign market (expanding internationally)
For example, sporting goods companies such as Nike and Adidas
recently entered the Chinese market for expansion. The two firms are
o roughly the same products to a new demographic.
 This is what for example IKEA has done over the past few decades in
order to become one of the biggest furniture retailers in the world.
IKEA started off expanding to markets relatively close in terms of
culture as to its home country (Sweden) before targeting more
challenging geographic areas such as China and the Middle-East.
The Eclectic paradigm (also known as OLI Framework) is a great tool
to determine how to enter foreign marketsffering
The Ansoff Matrix: Diversification
In a diversification strategy, the firm enters a new market with a new
product. Although such a strategy is the riskiest, as both market and
product development are required, the risk can be mitigated somewhat
through related diversification. Also, the diversification strategy may
offer the greatest potential for increased revenues, as it opens up an
entirely new revenue stream for the company – accesses consumer
spending dollars in a market that the company did not previously have
any access to.
There are two types of diversification a firm can employ:
1. Related diversification: There are potential synergies to be realized
between the existing business and the new product/market.
For example, a leather shoe producer that starts a line of leather
wallets or accessories is pursuing a related diversification strategy.
2. Unrelated diversification: There are no potential synergies to be
realized between the existing business and the new product/market.

For example, a leather shoe producer that starts manufacturing phones

is pursuing an unrelated diversification strategy
A great example of a conglomerate is Samsung, which is operating in
businesses varying from computors, phones and refrigerators to
chemicals, insurances and hotel chains. Finally. vertical
diversification (or vertical integration) means moving backward or
forward in the value chain by taking control over activities that used
to be outsourced to third parties like suppliers, OEMs or distributors.
What is the TOWS Matrix?
TOWS Matrix begins with an audit of external threats and opportunities. Such
scrutiny gives a clear insight and helps to adopt long term strategies. Thereafter,
the internal strengths and weaknesses of a company are taken into
consideration. In the next stage, the internal analysis gets intertwined with
external analysis to devise a strategy.

TOWS Analysis goes way beyond the conventional SWOT Analysis and aids
organizations to remain one step ahead in the ever-changing competitive
landscape. The TOWS Matrix can also help in the generation of amazing ideas in
relation to fruitful marketing strategies, decision-making, protection against
threats, opportunities, diminishing threats, overcoming weaknesses and
awareness regarding potential shortcomings

Although internal and external factors are incompatible features, there

still exists a balance between them. Strengths and Weaknesses fall
under internal factors and consist of HR policies, manufacturing
processes, goals and objectives, attributes of the products and services
offered to the target market, core values, work culture, staff, and
fundamentals of the company.

On the contrary, Opportunities, and Threats fall under external factors

and consists of government policies, dynamic nature of the market,
evolving tastes and preferences of the customers, competition in the
market, fluctuation rates of the raw materials required for the
production and etcetera.

Now, we will move on to the discussion where we will discuss the

four potential strategies of the TOWS Matrix. The four TOWS
strategies are :

Strength/Opportunity (SO)
Weakness/Opportunity (WO)
Strength/Threat (ST)
Weakness/Threat (WT)
Strengths and Opportunities (SO) / Maxi-Maxi Strategy
The aim of a Maxi-Maxi Strategy is to utilize internal strengths to
make optimum use of the external opportunities available to the
company. In other words, the company has to utilize the strengths by
using its resources to cash in on potential opportunities.

For example, if a company has reasonably established a brand name

in the market and has won the hearts of the consumers, there lies a
golden opportunity to explore the new market locations or introducing
a new line of products and services for the same target market. Such a
step can turn out to be the best for the upliftment of the firm.

TOWS Matrix internal external

(Image Credits: B2U)

Strengths and Threats (ST) / Maxi-Mini Strategy

The aim of a Maxi-Mini strategy is to maximize the strengths of a
company while minimizing the threats with the support of these
strengths. Thus, a company should take advantage of the internal
strengths to avoid massive external threats. This strategy indicates
that the management of the organization can employ all the internal
strengths to counter any of the possible threats that can come in the
way of the business as obstacles.

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Example: In the market, there is always a cut-throat competition

amongst peers or, between new and old entrants. In such a scenario, to
beat the competition, the lagging company needs to take advantage of
the internal strengths such as quality, manufacturing techniques,
legacy and customer service.

Weakness and Opportunities (WO) / Mini-Maxi Strategy

The Mini-Maxi strategy attempts to minimize the weaknesses and to
maximize the opportunities. The aim is to revamp internal weaknesses
by making use of external opportunities. The management of the
company will detect various alternatives to look past the weaknesses
and take control of the opportunities that come up in the course. It is
always a wise decision to decline or correct the weaknesses and untap
the opportunities.

Example: If the company doesn’t possess any expertise in any of the

business domains which is necessary for the growth and is gifted an
opportunity to ally with another company that has the needed
expertise, it works as a fairly convenient situation for both the
companies.

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Weakness and Threats (WT) / Mini-Mini Strategy
The aim of the Mini-Mini strategy is to minimize weaknesses and
minimize threats. This is definitely the most defensive spot in the
TOWS Matrix. It is mostly utilized when a company is in a
deplorable position. In such a scenario, the company operates in an
aggressive environment and has little or no development
opportunities. The mini-mini strategy is nothing but a pessimistic
style of liquidation of a company.

EXAMPLE: A company has lost its shine and glory and has lost the
faith of the stakeholders. Thus, there exists a threat of losing out on
funding and investment by investors. In this case. it might close down
poor-selling products, cut down underperforming employees and
build a hostile technique of selling. If optimistic, the company might
look for merging with another suitable company to leverage its
expertise and resources for hanging on to funding.

TOWS Matrix – Apple INC

apple steve jobs
Let us now apply these four strategies of TOWS Analysis to a famous
company called Apple.

Apple Inc. is an American multinational organization specialized in

technology and has its headquarters in Cupertino, California. Apple
fabricates, builds and sells computer software, electronic products,
and online services. The tech giant was established by Steve Jobs,
Ronald Wayne, and Steve Wozniak in April 1976. It is considered as
the world’s largest technology company by means of revenue and is
also one of the world’s most valuable companies.

According to statistics, it is the world’s third-largest mobile phone

manufacturer after Samsung and Huawei. Apple’s renowned products
consist of the iPad tablet computers, HomePod smart speaker, iPod
portable media player, iPhone smartphone, Mac personal computer,
Apple Watch smartwatch, AirPods wireless earbuds, and Apple TV
digital media player. The online services provided by Apple are
iTunes Store, Mac App Store, Apple TV+, iCloud, Apple Music, the
iOS App Store, and Apple TV+. In Fiscal YEAR 2018, the
worldwide revenue of Apple totaled to $265 billion.

The strengths, weaknesses, opportunities, and threats of Apple are

mentioned below. After glancing through them, we will begin
performing our TOWS Matrix according to the rule.

— Strengths
Apple is known as a Market leader and thus, maintains a high
standard across several products and services. It is the most trusted
brand in the entire marketplace.
It has a strong brand image and thus helps the audience to
differentiate Apple from other competitors and positively influences
the purchasing decisions.
It possesses extensive financial strength and thus has higher
profitability and liquidity.
Apple has also a highly innovative and highly sophisticated supply
chain which helps in maintaining efficiency.
It also has High-profit margins because of the consistent sales of its
popular products.
The premium quality of its products allows Apple to enjoy a large and
loyal customer base.
— Weakness
Apple Products are not priced by keeping the competition in mind and
can be afforded by a certain section or class.
There is an availability of a narrow product range compared to its
competitors.
The products and services are only compatible with Apple products
and are incompatible with the products of other brands.
— Opportunities
There is a constant rise in demand and craze for mobile devices
irrespective of the quoted price.
— Threats
In spite of being market leaders, there has been an emergence of
competitors.
The cost of manufacturing has been constantly on the rise.
There has been also a decline in the market share of Apple due to the
falling demand of Laptops and Personal Computers.
— Strengths and Opportunities (SO) of Apple:
Since there has been an increase in demand for mobile devices, the
company should increase its focus by concentrating on manufacturing
and marketing to generate profit. Apple should also leverage its brand
value and financial strength to enter into new products and
consequently increase their sales and profit. Such a step will aid
Apple benefit from its existing customer base and customer loyalty.
Further, if it partners with other brands to mass-produce compatible
products and create mutually advantageous relationships, it will
highly assist Apple in hack into the customer base of other brands.

— Strengths and Threats (ST) of Apple:

Apple should build a diversified range of products to fabricate its
customer base and diminish the pressure of competitiveness. Another
most important point is to consider the cultural variance to retain the
competitive advantage created by Steve Jobs.

— Weakness and Opportunities (WO) of Apple

Since Apple has only high-end products, it should release a cluster of
products at an affordable price to make it feasible for middle-class
consumers. Creating a larger product sets and thereby, entering into a
new product arena will also help Apple to serve new customer
segments.

— Weaknesses and Threats (WT) of Apple

Releasing a range of competitively priced products to attract middle-
class customers can change the scenario altogether to reduce the
pressure from competitors. It should also widen the product sets and
try to cash in on the capability of the existing supply chain to
decreasethe manufacturing costs.

Meaning of
Turnaround Strategy
Following diagram depicts the core
meaning of turnaround strategy.
The concept or meaning of turnaround strategy covers following
points:
1. Turnaround strategy means to convert, change or transform a
loss-making company into a profit-making company.
2. It means to make the company profitable again.
3. The main purpose of implementing a turnaround strategy is to
turn the company from a negative point to a positive one.
4. If a turnaround strategy is not applied to a sick company, it
will close down.
5. It is a remedy for curing industrial sickness.
6. Turnaround is a restructuring strategy. Here, a loss-bearing
company is transformed into a profit-earning company, by
making systematic efforts.
7. It tries to remove all weaknesses to help a sick company once
again become strong, stable and a profit-making institution.
8. It tries to reverse the position from loss to profit, from
declining sales to increasing sales, from weakness to strength,
and from an instability to stability.
9. It aids to reduce the brought forward losses of the loss-making
company.
10. It helps the sick company to stand once again in the market.
11. It is a complete U-turn of a planned strategic economic
transition.

Definition of Turnaround Strategy

The definition of turnaround strategy w.r.t different senses is depicted

below.
In general, the definition of turnaround strategy can be stated as
follows.
“Turnaround strategy is a corporate practice designed and planned to
protect (save) a loss-making company and transform it into a profit-
making one.”
In financial, commercial, corporate or from a business perspective, the
turnaround strategy can be defined as follows.
“Turnaround Strategy is a corporate action that is taken (performed)
to deal with issues of a loss-making (sick) company like increasing
losses, lower return on capital employed, and continuous decrease in
the value of its shares.”
Finally, from an academic point of view, its definition can be stated as
under.
“Turnaround strategy is an analytical approach to solve the root cause
failure of a loss-making company to decide the most crucial reasons
behind its failure. Here, a long-term strategic plan and restructuring
plans are designed and implemented to solve the issues of a sick
company.”

Examples of Turnaround Strategy

Some examples of turnaround strategy are depicted below.

Consider following examples of turnaround strategy:
1. Financial Institution, for example, some bank ‘A’ is suffering
from losses due to non-performing assets (NPA). NPA is loan
given but not yet recovered. This bank ‘A’ will follow
turnaround strategy and try to recover its loans by appointing
recovery agents.
2. Manufacturing company say ‘XYZ’ is suffering from losses
due to excess idle time taken by labour to complete their jobs.
The manufacturing company ‘XYZ’ will follow turnaround
strategy to reduce labour inactivity by installing modern
machines (automation) to carry on the same work or job.
3. Educational institution, for example, ‘C’ is suffering from
losses due to non-registration of students in their courses. This
institution ‘C’ will follow turnaround strategy to reduce losses
by providing facilities like e-Registration, conducting online
classes, etc. to attract student
Stability Strategy is a corporate strategy where a company
concentrates on maintaining its current market position. A company
that adopts such an approach focuses on its existing product and
market. A few examples of this strategy are offering the same
products to the same clients, not introducing new products,
maintaining market share, and more.
Usually, a company that is satisfied with its current market share or
position uses such a strategy. Also, a company following this strategy
does not need any additional resources and work using the existing
expertise of the workforce. But, this strategy is useful only if there is a
simple and stable environment
WHY ANY COMPANY ADOPTS STABILITY STRATEGY?
Following are the reasons why a company may adopt a stability
strategy:

 If a firm plans to consolidate its position in the industry in which

it is operating.
 In case a country in which the company operates is facing
recession or slowdown, and the company wants to save cash
rather than spend it for expansion purposes.
 If a company has significant debt or loans, then also it may
pursue such a strategy than going for expansion. Following such
an approach would ensure that a company has the cash to pay
the interest and principal amount as well.
 The industry in which the firm functions have hit maturity, and
there is no more scope for growth.
 Another scenario is when the cost of expansion is less than the
gains from it.
 If the management is happy with the current market position and
the level of profit achieved.
 Risk-averse management may also favor such a strategy.
 A company can also choose this strategy post-merger. In such a
case, this strategy allows a smooth transition of the new entity
before the company starts making significant changes.
 This strategy could help a company take rest following a fast
growth in the past few years. Such a tactic allows the company
to consolidate the results and resources and plan its next moves.
 Family-owned businesses may decide to slow down in adverse
market conditions. They do this to avoid any loss of financial
contro