Strategy Class Abstract

Re: Welcome to the Competition and
Strategy course
From: Raj, Prateek prateekraj@iimb.ac.in

To: @MGNF-Phase-II MGNF-Phase-II@iimb.ac.in
Cc: Vasanth, U vasanth.u@iimb.ac.in
Sent: Tuesday, 19 July, 3:17 pm
Dear all,
It was great to meet you all. We covered a lot of

material today, and you were introduced to three
different frameworks at once. We usually teach these
frameworks in a span of 10 sessions, and so if you feel
overwhelmed by all of it, please refer to the course
notes shared with you, and get in touch with me for any
clarifications.
We studied classic Competition and Strategy today,

with a focus on the news media industry and the firms.
Here is a super-short summary.
Industry Analysis
Some industries (like the cola industry) are more
profitable than others (like the airline industry). Such
differences in profitability can often be attributed to an
industry’s structure. When analyzing an industry,
looking at the supply/value chain of the industry helps
in understanding its industry structure and its
profitability. The profitability of an industry is
determined by multiple factors, and market actors (like
suppliers, buyers, rivals, regulators, etc.) that do not get
the usual salience in the public imagination, can play a
very important role in determining the nature of an
industry, and the level of profits the industry can
sustain. We used the Porter’s 5 forces framework today
to analyze the industry, in which we presented the
supply/value chain of the news media industry.
When there is a major change in the power of any of

the players in the industry, which changes the
profitability of the industry, then the industry is said to
have undergone an industry structure change. Often
technology is viewed as an important change agent in
an industry (e.g. in the news media industry), but it may
or may not play a role in industry structure change. The
news media industry underwent an industry structure
change in the 2010s. In the traditional industry,
newspapers were the central venues for advertising,
but in the new digital model, they have lost their central
position in advertising, losing their historical
profitability.
Firm Analysis
Industry Analysis looks at heterogeneity in performance
across industries. We then discussed the Resource-
Based View of the firm which looks at heterogeneity in
performance within industries. A useful concept to
discuss here is the VRIO framework analyzing the
resources and capabilities held by a firm. If a firm is
Organized well to exploit resources or capabilities that
are:
Valuable, then the firm has competitive parity with
competitors.
Valuable and Rare, then the firm holds a
temporary competitive advantage over
competitors.
Valuable, Rare, and Inimitable, then the firm holds
a sustained competitive advantage over
competitors.
Resources and capabilities that are Valuable, Rare,

Inimitable, and Organized for exploitation, are the
most strategically valuable. A company like Times of
India has a large journalist network penetrated across
India, offering them an inimitable advantage in
producing a variety of news for a large audience.
Strategic Positioning
Resources and capabilities of a firm and its industry’s
dynamics influence the kind of competitive positioning
firms can take. In business the aim often tends to be
the maximization of long-term profits, where long-term
profit (Π) can be represented by this central equation in
business: Π = ∑t=1 to ∞ Nt X (pt – ct) / (1+d)t where, Π:
Valuation of a business i.e. long term profit, Nt: Number
of units sold or of customers in year t, pt: Price per unit
or revenue per customer in year t, ct: Cost per unit or
cost per customer in year t, t: Year, d: Annual discount
(interest) rate. This valuation (Π) is central to the study
of strategy. In business strategy, we learn about the
different factors that influence a business’ long-term
profits (Π) and its components (N, c, p).
In the above equation profit (πt) in a year t equals Nt X
(pt – ct), two important profit levers that firms have is
the cost (ct) and price (pt). In industries such as
discount retail, prices are set by the broader market
forces. Hence, to succeed cost leaders build resources
and capabilities that can drive down their costs (ct). In
other industries, price and willingness to pay can be
altered (pt), by offering new product features (e.g.,
exclusive news content), or building an attractive brand
(e.g., luxury brands), or creating a good ecosystem
(e.g., Microsoft). Firms that attempt to raise the
willingness to pay of customers are called
differentiators. The market (Nt) also plays an important
role in strategy as well. A large Nt is not always
desirable, and focused differentiators especially focus
on catering to a niche and differentiated market. For
example, Vice media creates differentiated high-quality
media content for a select audience of customers.
Within an industry, firms can take different strategic
positions. This diversity in strategic positioning can be
viewed across two dimensions: 1) is frugal operations
(vs. differentiation) central to the firm’s strategy, and 2)
is the focus of the firm-wide or narrow? In this 2X2
matrix, we can locate many firms. In this 2X2 matrix, if
you are a firm that is stuck in the middle, or stuck
everywhere – such ambiguous strategic positions are
not a good position to be in, in the long term. Pursuing
any strategy requires a specialized set of activities,
and pursuing an ambiguous strategy may force firms to
do activities that are not compatible with each other as
resources and capabilities needed for cost leadership
(e.g. that drive down cost) are often different from
those needed for differentiation (e.g. increase value of
the product).
Looking forward to seeing you tomorrow.

--
Regards,
Prateek Raj
Assistant Professor of Strategy
Indian Institute of Management Bangalore
भारतीय प्रबंध संस्थान बेंगलूर ಭಾರತೀಯ ವ್ಯವಸ್ಥಾಪ್ರಬಂಧ ಸಂಸ್ಥೆ
ಬೆಂಗಳೂರು
w: prateekr.com t: @prateekraj_

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Re: Welcome to the Competition and

From: Raj, Prateek prateekraj@iimb.ac.in

It was great to meet you all. We covered a lot of

We studied classic Competition and Strategy today,

When there is a major change in the power of any of

Resources and capabilities that are Valuable, Rare,

Looking forward to seeing you tomorrow.

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