Strategy is a designed action taken by an individual/s to attain one or more of his immediate , or long term goals.

Strategy is the plans and actions necessary to achieve Organisational Goal Strategy is a planned, designed action initiated by manager/s to attain one or more of the functional or organisational goals in the short , medium or long term. Strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

 A company's strategy is managements game plan for growing the business,staking out a market position, attracting and pleasing customers,competing successfully,conducting operations as planned, and achieving targeted objectives .

Strategic Elements of Low cost airlines. Growing the business gradually adding more flights on existing routes and by
initiating service to new airports. Make friendly service a trade mark. Maintain an aircraft fleet of only Boeing 737s. Encourage customers to make reservations and purchase tickets at the companys web site. Avoid flying into congested airports, stressing instead routes between medium sized cities and small airports close to major metropolitan areas. Employ a point to point route system (as compared to Hub-and spoke system of rival airlines)

Economies on the amount of time it takes terminal personnel to check passengers in and on load passengers.

Economies on cost

Strategic management can be defined as an art and science of formulating, implementing,and evaluating cross-functional decisions that enable an organisation to achieve its objective in an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

S.M. Focuses on
Integrating management Marketing Finance Accounting Production/Operations Human Resource Research and development Computer information systems etc Competitor's strategies

Nature and characteristics of S.M.

It is a planned integrated management action It examines the present Vs the desired It prioritizes the involvement It carefully chooses the option It aims minimum input to maximum output It brings about a change

Importance and relevance of S.M.

Strategy focused organizations More likely to more strong bottom line performer. Strategy crafting & executing are vital management task. Increased cut throat competition. Product obsolesce. Employee awareness. Availability of quality products. Opening of Economy and FDI Awareness of share holders. Age of take-over Good strategy + good strategy execution = Good management

Benefits of Strategic Management.

It allows an organisation to be more proactive than reactive. It might improve organizational financial position.

Non Financial Benefits.

1. It allows for identification, prioritization and exploitation of Opportunities

2. It provides an objective view of management problems

3. It represents a frame work for improved coordination and control of activities

4. It minimizes the effects of adverse conditions and changes

5. It allows major decisions to better support established objective

6. It allows more effective allocation of time and resources to identified opportunities. 7. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions 8.It creates a frame work for internal communication among personnel. 9.It helps integrate the behavior of individuals into a total effort. 10.It provides a basis for clarification of individual responsibility 11.It encourages forward thinking 12.It provides a cooperative, integrated,and enthusiastic approach to tackling problems and opportunities. 13.It encourages a favorable attitude toward change. 14. It provides a degree of discipline and formality to management of business.

The formal strategic planning process has five main steps. 1. Select the corporate mission and major corporate goals. 2. Analyze the organization's external competitive environment to identify opportunities. 3. Analyze the organizations internal operating environment to identify organization's strengths and weaknesses.

4. Select strategies that build on the organization's strengths and correct its weakness in order to take advantage of external opportunities and counter external threats.
5.Implement the strategy.

A companys business model relates to whether the revenue,cost, profit Economics of its strategy demonstrate the viability of the business enterprise as a whole. The companys strategy relates broadly to its competitive initiatives and business approaches (irrespective of the financial outcomes it produces) Companys model deals with whether the revenues and costs flowing from the strategy demonstrates business viability.

What makes a strategy a winner.

1. How well the strategy fit the companys situation. 2. Is the strategy helping the company achieve a sustainable competitive advantage 3. Is the strategy resulting in better company performance (2 performance improvements tell the most about the caliber of the companys strategy (1) Gains in profitability and financial strength (2) Gains in the companys competitive strength and market standing.

Identifying companys Strategy What to look for?

Actions to gain sales and market share Via lower prices, more performance features more appealing design better quality or customer service.

The pattern of actions and business approaches that define a companys strategy

Pattern of actions and business approaches that define a companys strategy. 1. Action to gain sales and market share via lower price, more performance feature, more appealing design, better quality or customer service, wider production selection. 2. Actions to respond to changing market conditions and other external circumstances. 3. Actions to enter new geographic or product markets or exit existing ones. 4. Actions to merge with or acquire rival companies. 5. Actions to form strategic alliences and collaborative partnerships. 6. Efforts to peruse new market opportunities and defend against threats to the companys well being

7. Actions and approaches that define how the company manages research and development, production, sales and marketing,finance and other key activities. 8. Actions to strengthen competitive capabilities and correct competitive weakness. 9. Actions to diversify the companys revenues and earnings by entering new businesses

4 Most frequently used strategic approaches to set companies apart from rivals and achieving sustainable growth.
1. Being the industrys low cost provider.

2. Out competing rivals based on such differentiating features as higher quality wider product selection, added performance, better service,more attractive styling technological superiority or unusually good value for money. 3. Focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of serving the special needs and tastes of niche buyers. 4. Developing expertise and resource strengths that give the company competitive capabilities that rivals cant easily imitate or trump with capabilities of their own

Strategy Formulation

Strategic planning process

Mission and goals

External Analysis Opportunities & Threats

SWOT Strategic choice

Internal Analysis Strengths & Weakness

Functional level Strategy Business level Strategy Global Strategy Corporate level Strategy

Strategy implementation Corporate performance Governance, & ethics

implementing strategy In a single Industry

implementing strategy Across Industry & Country

A comprehensive Strategic Management Model

Perform External Audit

Develop Vision & Mission Statement

Establish Long Term objectives

Generate Evaluate & select strategies

Implement strategies, Management Issues

Implement strategies, Mketing, Finance, Accounting R&D MIS ETC

Measure & Evaluate Performance

Perform Internal Audit

Strategy Formulation

Strategy Implementation

Strategy Evaluation

Why some firms do no strategic planning.

1. Poor reward structures. 2. Fire fighting

3. Waste of time
4. Too expensive 5. Laziness 6. Fear of failure 7. Overconfidence

8. Prior bad experience

Strategic planning is a process that takes an organisation in to uncharted territory .It does not provide a ready to use prescription for success instead it takes an organisation through a journey and offers a frame work for addressing questions and solving problems. Being aware of the potential pitfall is essential.

Using strategic plan to gain control over decisions and resources.

Doing strategic planning only to seek accredition or regulatory requirement.

Moving too hastily from mission development to Strategy formulation

Failing to communicate the plan to employees who continue working in the dark. Top managers making intuitive decisions that conflict with formal plans.

Top managers not supporting the strategic planning process. Failing to use plans as a standard for measuring performance.

Delegating planning to a planner rather than involving.

Failing to involve all the employees in all phases of planning. Failing to create a collaborative climate supportive to change. Viewing planning as unnecessary or unimportant. Becoming so engrossed in current problems that insufficient or no planning is done. Being so formal in planning that flexibility and creativity are stifled.

Strategy Making & execution process.

Phase 1 Phase 3
Creating a Strategy to Achieve the Objectives & Vision

Phase 2
Setting Objectives

Phase 4
Implementing And Executing Strategy

Phase 5
Monitoring developments Evaluating Performance And making corrective adjustments

Developing a strategic vision

Revise as needed in light of actual performance, changing conditions, new opportunities and new ideas

Strategic vision is a road map showing the route a company intends to take in developing and strengthening its business.It paints a picture of a companys destination and provides a rational for going there. A strategic vision portrays a companys future business scope (Where we are going)
A companys mission typically describes its present business scope and the purpose (Who we are , what we do , and why we are her) A companys values are the beliefs , business principles and practices that guide the conduct of its business, the pursuit of its strategic vision and the behavior of the company.

Factors to consider while deciding to commit the company to one directional path versus another.

External consideration.
Is the outlook for the company promising if it simply maintains its present product/market/customer/technology focus? Does sticking with the companys present strategic course present attractive growth opportunities.

Internal consideration.
What are our ambitions for the company? What industry standing does management want the company to have? Will the companys present business generate sufficient growth and profitability in the years ahead to please shareholders. What organizational strengths ought the company be trying to leverage in terms of adding new products or services and /or getting into new business..

Are changes under way in the market and competitive landscape enhancing or weakening the outlook for the companys present business.
What if any new customer groups and/ or geographic markets should the company get in position. Which emerging market opportunities should the company pursue and which ones should it avoid. Should the company plan to abandon any of the markets, market segments or customer groups we are presently serving?

Is the companys stretching its resources too thin by trying to compete in too many markets or segments? Are some pieces of the companys business unprofitable.
Is the company's technological focus too broad or too narrow? Are any changes needed?

Vision.
Concern is Where we are going and why? It refers to the long term intentions that organizations wishes to pursue.

Mission.
Concern is What we are and how we are doing? Deals with companys present business scope and purpose Who we are what do, why we are here? Defined by the buyers needs it seeks to satisfy the customer groups and market segments it is endeavoring to serve. Some companies prefer to use the term business purpose than mission. The mission statement makes the vision more tangible and comprehensible. It tries to differentiate the organisation from others. It spells clearly the firms, obligations towards its stakeholders, the scope of the business,source of competitive advantage etc.

It broad ,all inclusive and futuristic.

It is an image of how an organization sees itself over a period of time. In most cases it is the dream of an organization. It is the aspirations an organization holds for its future. A mental image of the future state. It might seem therefore difficult at times for the organization to achieve vision even in the long run but it provides the direction and energy to work towards it.

Hierarchy of strategic intent

Most integrative Fewest in Number

Vision
Mission

Goals
Objectives

Plans
Most Specific Greatest in Number

Mission statements make vision statement more viable. Similarly Goals provide the basis for necessary action which propel an organization towards goal oriented action and moving towards mission accomplishment.Goals can be both financial as well as non financial. Goal statements specify the relative priorities between the various goals and thus indicated the specific intents that the organization wishes to pursue.
Objectives are operational definitions of the organization's goals.It provides measurable parameters for monitoring/evaluating the performance of the organization.Objectives also include time dimensions.

Plan indicated the specific actions that will be taken by organizations in order to achieve the objectives.

The strategic intent of the organization is determined by a continuous interplay of various forces. In the assessment of strategic options the organization has(1) The interest of various shareholders (2) The industry context the firm operates in. (3) Its leadership (4) History (5) Culture (6) The state of future as perceived by the organization's dominant coalition. The primary determinant of an organization's strategic indent is the way the organization sees itself in future as represented by its scope of business domains activities.

Hambrick and Fredrickson developed strategic Diamond or the model of strategic intent.(Also referred as Strategic Diamond)
Where will be active?(and with how much emphasis?) Which product categories? Which geographic segments? Which market segments? Which core technologies? Which value creation stages?

Arenas
What will be our Speed and sequence of moves? Speed of expansion ? Sequence of initiatives ? How will we get there? Internal development ? Joint ventures ? Licensing? Acquisitions?

Staging

Economic
logic

Vehicles

How will we obtain our results? Lowest cost through Scale advantages ? Scope & replication advantages ? Premium prices due to Unmatchable service? Proprietary product features? How will we Win? Image ? Customization ? Price? Styling? Product reliability?

Differentiators

Characteristics of an effectively worded Vision statement.

Graphic: A well stated vision paints a picture of the kind of company that management is
trying to create and the market position the companys striving to stake.

Directional: A well stated vision says something about the companys journey or
destination and signals the kinds of business and strategic changes that will be forth coming.

Focused: A well stated vision is specific enough to provide managers with guidance in
making decisions and allocating resources.

about a companys future path may need to change as events unfold and circumstances change.

Flexible: A well stated vision is not at once and-for-all-time pronouncement visions

Feasible:A well stated vision is within the realm of what the company can reasonably expect
to achieve in due time.

Desirable:A well stated vision appeals to the long term interests of stakeholders particularly
shareowners, employees, and customers.

Easy to communicate: A well stated vision is explainable in less than 10 minites and
ideally can be reduced to a simple , memorable slogan.

Fords Vision : A car in every garage.

Mission: To improve continually our product and services to meet our customers needs, allowing us to prosper as a business and provide a reasonable return for our stockholders, the oweners of our business. NASAs Vision: To improve life here;to extend life there;to find life beyond

N.T.P.C.; To be one of the worlds largest and best power utilities powering India's growth.

Business level strategies. Businesses level strategy is concerned with developing a firms business model that will allow the firm to gain competitive advantage over its rivals in the industry in which it operates.In formulating a business level strategies, a firm will consider how best it can compete in each of the industries it operates in.Therefore the business level strategy will require crafting the strategy and positioning of the firm in each of its business. Essential decisions that need to be made in crafting a business level strategy emerge from the definition. The following 3 elements are essential in defining business level strategies. Customer groups (Who is being satisfied) Customer needs (What is being satisfied) Distinctive competencies (How are customer needs satisfied)

To aid in understanding the strategic positioning of firms researchers have developed typologies.One such is Miles and snow developed a typology that categorizes the firms as under. Prospectors: Are those firms who prefer to innovate , take risks, and aggressively seek out new opportunities for growth. Defenders: Are those firms who prefer to focus on stability and maintain their markets.They defend their markets aggressively compete through maintaining internal efficiencies and produce reliable high quality products at low prices. Reactors: Are those firms who do not have clear strategies and respond to what ever is happening in their environment. Analyzers: Are those firms that try to balance efficiency and innovation.They maintain their core in established markets, and look for expansion into new areas.

Business level strategies. Businesses level strategy is concerned with developing a firms business model that will allow the firm to gain competitive advantage over its rivals in the industry in which it operates.

The functional level strategies will endeavor to improve the effectiveness of various functions within an organization.
The corporate level strategies that focus shifts from competing within an industry to choosing which industries to compete in.

Difference Between Military & business strategy

Internal
Special Capability

External Match
Battle Terrain

Internal
Strength
Apply, Sustain

External
Discover

Opportunity

Strategy
Overcome Avert

Weakness

Threat

Ingredients of Strategy Vision Value Creation Strategy Global Awareness Stake Holders

Planning & Administration

Leveraging Technology

Competencies required for each ingredients

Vision Competency
Vision Mission

Global Awareness Competency

Opportunities/Threats Exists Anywhere Different Business practices

Goals & Objectives

Cultural Awareness

Value creation Competency

Customer focus Competitor focus

Leveraging Technology Competency

Faster Innovation Big companies act small

Planning & Administration Competency

Activity fit Corporate Fit Alliance Fit People Fit Rewards System fit Communications Fit

Stake holders Competency

Shareholders

Customers
Employees Communities Senior managers

Abells Framework for Defining the Business

Who is being satisfies?

What is being satisfies?

Customer Groups
Business

Customer Needs

Definition How are customer needs being satisfies? Distinctive Competencies

Mintzebergs Emergent &Deliberate strategy

Deliberate Strategy

Planned Strategy

Realized Strategy

Unrealized Strategy

Emergent Strategy

Porters 5 force model helps managers identify,analyise Forces in the industry environment to identify opportunities and threats.This model focuses on the 5 forces that shape competition within an industry.

Potential Entrants
Threat of new entrants

Bargaining Power

Suppliers

Of Suppliers

Industry Competitors

Bargaining Power Of Buyers

Note:- The macroenviornment that effects this model are 1. Political & legal environment 2.Technological Environment. 3.Social Environment. 4.Demographic Environment.

Rivalry among Existing Firms

Buyers

Threat of substitute products

Substitutes

Determinants of Rivalry
Industry growth Fixed(or storage)cost/value added Intermittent overcapacity Product differences. Brand identity

Barriers to entry
Economies of scale

Switching costs
Concentration & Balance Informational complexity Diversity of competitors Exit Barriers.

Proprietary product diffrences

Brand identity Switching costs. Capital requirements Access to distribution channels Absolute cost advantages Proprietary learning curve Access to necessary inputs Government policy.

Expected retaliation

Determinants of buyer power

Bargaining leverage Buyer concentration Vs Firm concentration Buyer volume Buyer switching costs relative to firm switching costs Ability to backward integration Substitute products Pull-through Price sensitivity Price/Total purchases Product differences Brand identity Impact on quality/performance Buyer profits

Determinants of Supplier power

Differentiation of inputs. Switching costs of suppliers and firms in industry Presence of substitute inputs Supplier concentration. Importance of volume to supplier Cost relative to total purchases in the industry Impacts of inputs on cost or differentiation Threat of forward integration relative to threat of backward integration by firms in the industry

Determinants of Substitute Threat

Relative price/performance of substitutes. Switching cost Buyer propensity to substitute

Balance score card

Prof. Robert Kaplan & David Norton of Harvard Business School Developed Balance Score card concept. It is basically a evaluation review technique. Its name is derived from perceived needs of the firm to balance financial measures which is often used in strategy evaluation and control. The overall objective is to match the shareholder objectives with customer and operational objectives. It objective is to bring about Continuous improvement in management (CIM) and TQM.This Basically looks at 4 different perspectives. (1) Financial Performance.(2)Customer knowledge(3) Internal business process(4) Learning & growth.

Ultimately the BSC raises certain important questions as under:

1. How well is the firm continually improve and creating value along measures such as innovation,technology, leadership,product quality, operational process efficiency and so on

2.
3. 4.

How well is the firm sustaining and even improving upon its core competencies and competitive advantages?
How satisfied are the firms customers. What is the present level of employee motivation, commitment etc.

5. How well the company is addressing the corporate social responsibility and taking part in community development.
6. Are their business ethics acceptable 7. Do they have environmental commitment if so how much 8.are they committed to the concept of green house effects and international standards?

Alternative strategies or strategic tools

1. Forward Integration 2. Backward integration 3. Horizontal integration 4. Market penetration 5. Market development 6. Product development 7. Concentric Development 8. Conglomerate Diversification 9. Horizontal Diversification 10. Retrenchment 11. Divestiture 12. Liquidation
Fred David
1. 2. Gaining ownership or increased control over distributors or retailers Seeking ownership or increased control of a firms supplier

3.
4.

Seeking ownership or increased control over competitors

Seeking >market share for existing products/services in present market through greater marketing efforts Introducing product or services into new new geographic area Seeking increased sales by improving present products or services or developing new ones Adding new but related products or service. Adding new unrelated products or services Adding new unrelated products or services for present customers Regrouping through cost and asset reduction to reverse declining sales and profit. Selling a division or part of an organization

5. 6. 7. 8. 9. 10. 11.

12.

Selling all of a company,s assets in parts for their tangible worth.

Levels of strategies with persons most responsible

Corporate level, C.E.O.

Divisional Level, Division president or executive Vice president. Functional Level, Fin.,Mktg., R&D., Prod., Systems,H.R.M etc. Managers

Company level, Owner/President Functional Level, Fin.,Mktg., R&D., Prod., Systems,H.R.M etc. Managers Operational Level, Plant Mgrs.,Mktg. Mgrs., R&D Mgrs., Prod Mgrs.,H.R.M Mgrs etc.

Operational Level, Plant Mgrs.,Mktg. Mgrs., R&D Mgrs., Prod Mgrs.,H.R.M Mgrs etc.

Large Company

Small Company

Key Financial Ratios 1. Liquidity ratios. Current ratio = Quick ratio =

Current assets Current Liability

What it measures
( The extent to which a firm can meet its short-term obligations)

Current assets minus inventory ( The extent to which a firm can meet its short-term Current Liability

Obligations without relying upon the sale of its inventories)

Total debt Total asset

2. Leverage ratios.
Debt-to-total-Asset ratio =

( The % of total funds that are provided by creditors)

Debt-to-equity ratio = Total debt stockholders equity Long- term-Debt-to-equity ratio = Times- interest-earned- ratio =
(

Total debt

( The % of total funds that are provided

by creditors verses by owners)

(
The balance between debt and equity

Long term debt Total stockholders equity

in a firms long term capital structure)

Profits before interest and taxes Total interest charges

The extent to which earnings can decline without the firm becoming unable to meet its annual interest )

3. Activity ratios.

( Whether a firm holds excessive stocks of Sales Inventory of finished goods Sales Fixed Assets Sales Total Assets ( Whether the firm is generating sufficient volume of

inventories & whether a firm is selling such inventory slowly compared to industry average)

Inventory Turnover =

Fixed assets Turnover = Total assets Turnover =

( The sales productivity, plant & equipment utilization)

business for the size of its asset investment)

Annual credit sale Accounts receivable

( The average length of time it

Accounts receivable Turnover =

Average collection Period =

takes a firm to collect credit sales (in percentage terms))

Accounts receivable Total credit sales/365 days

( The average length of time it takes a firm to collect credit sales (in days))

4. Profitability ratios.
Sales minus cost of goods Sales Earnings before interest & taxes (EBIT) Sales ( Profitability without concern for taxes & interest) ( The total margin available to cover operating expenses & yield a profit)

Gross profit margin =

Operating profit margin = Net profit margin =

Sales

Net income

( After tax profits per rupee of sales)

5. Profitability ratios. Return on total assets =

(ROA) Net Income Total assets ( After tax profits per rupee of assets this ratio is

also called return on investment)

Return on Stockholders equity = Total Stockholders equity

(ROE)

Net Income

(After tax profits per rupee of stockholders investment in the firm)

Earnings per share =

(EPS)

Net income Number of shares of common stock outstanding

(Earnings available to the owners of common stock)

Market price per share Earnings per share

Price earning ratio =

(Attractiveness of firm on equity markets)

Sales Net income

Annual percentage growth in total sales Annual percentage of growth in Profits

Firms growth rate in sales Firms growth rate in profits Firms growth rate in EPS

Earnings per share Annual percentage growth in EPS

Dividends Per share Annual percentage growth in dividends per share Firms growth rate in dividends per share

Managers need to have a deep understanding to steer their company

In a new direction to get that cutting edge over their competitive rivals.
This needs a strategic thinking for the managers. In turn the strategic thinking needs a through understanding of the (A) Environment in which the company is operating the week and forceful forces shaping the market etc. (B) The companys market position ,its competitive position, its resource , S.W.O.T., its rivals position etc. Developing strategy Appraise external & internal environment

Forming strategic vision where the company wishes to head Moving towards evaluating most promising strategic options choose from various strategies. Focus will be on competitive arena in which the company operates together with technological, societal, regulatory,or demographic which influence and reshape the market.

7 vital elements to be addressed before using the analytical tools. 1. 2. What are the dominant economic features of the industry in which the company operates? What kinds of competitive forces are industry members facing and how strong is each?

3.
4.

What forces are driving changes in the industry, and what impact will these changes have on the competitive intensity and industry profitability?
What market positions do industry rivals occupy who is strongly positioned and who is not?

5.
6. 7.

What strategic moves are rivals likely to make?

What are the key factors for future competitive success? Does the outlook for the industry present the company with sufficently attractive prospects for profitability?

From thinking to choosing strategically

Thinking Strategically about a companys external environment

Form a Strategic Vision of where the company needs to head

Identify promising strategic options for the company.

Select the best Strategy & business model for the company

Thinking Strategically about a companys internal environment

Different industry will have different factors affecting its competitive edge resulting in difference in their strategy formulation and implementation which is drawn from the external environment or the macro environment.In order to formulate an effective strategy the strategists must answer the following questions.
1. What are the dominant economic features of the industry in which the company operates?

What to consider in identifying an industrys Dominant Economic Features

Economic features
Market size & growth rate :-

Features to focus or answer

How big the industry and how fast is it growing? What does the industrys position in the business life cycle (early development ,rapid growth & takeoff, early maturity, saturation and stagnation decline) reveal about the industrys growth prospects?
Is the geographic area over which most companies compete local regional , national, multinational? Is having a presence in foreign markets becoming more important to a companys long term competitive success? Is the industry fragmented into many small companies or dominated by a few large companies? Is the industry going through a period of consolidation to smaller number of competitors?

Scope of competitive rivalry:Number of rivals :-

Buyer needs and requirements:-

What are buyers looking for What attributes prompt buyers to choose one brand over another? Are buyer needs or requirements changing? If so what is

driving such changes?

Production capacity :Pace of technological changes:-

Is a surplus of capacity pushing prices & profit margins down? Is the industry over crowded with too many competitors? what roles does advancing technology play in industry? Are on going upgrades of facilities/equipment essentials because of rapidly advancing production process technology? Do most industry members have or need strong technological capabilities? Why? Are some competitors in this industry partially or full y integrated? Are there important cost differences among fully versus Partially versus non integrated firms? Is there any competitive advantage or disadvantage associated with being fully or partially integrated?

Vertical Integration

:-

Buyer needs and requirements :- Is the industry characterized by rapid product innovations
and short product life cycles? How important is R&D and product innovation? Are there opportunities to overtake key rivals by being first to market with next generation products?

Degree of product innovation :-

Are the products of rivals becoming more differentiated or less differentiated? Are increasingly look alike products of rivals causing heightened price competition?

Economic features
Economics of scale :-

Features to focus or answer

Is the industry characterized by economics of scale in purchasing, manufacturing, advertising, shipping or other activities?

Do companies with large-scale operations have an important cost advantage over small scale firms?

Learning and experience curve effects: -

Are certain industry activities characterized by strong learning and experience effects(learning by doing) such that unit costs decline as a companys experience in performing the activity builds? Do any companies have significant cost advantages because of their experience in performing particular activities?

2. What kind of competitive forces the company is facing?

There are composite of forces that operate in the competitive market often termed as Porters 5 force model. 1. 2. 3. 4. 5. Competitive forces and pressures associated with market maneuvering for gaining the buyer patronage that goes on among rival sellers. The pressures exerted when there is a threat of new entrants in the same market The competitive pressures which emerges from the attempts of companies in other industries to win buyers over to their own substitute products. Competitive pressures that emerges from suppliers bargaining power and supplier buyer collaboration Competitive pressers emerging from buyer bargaining power and seller-buyer collaboration

Some of the typical weapons for combating rivals and attracting buyers towards your own product/service. 1. 2. 3. Lower prices. More or different features. Better product performance.

4.
5. 6. 7. 8. 9.

Higher quality.
Stronger brand image and appeals. Giving a wider choice of models and better styling to the customers. Giving a better and bigger dealer net work for the customers. Tying up with financial institutions for providing low interest rates and better service to the customer. Increased level of advertising.

10. Building stronger product innovation capabilities through developing inhouse R&D or outsourcing R&D services. 11. Increasing the customer service capabilities. 12. Building a stronger capability to provide buyers with customized products.

This will lead to increased rivalry among the sellers

Characteristics when RIVALRY is strong or weak.

When new entrants enter the market the assessment thereof (2 point of P.MODEL)

What happens when substitute products emerge in the market assessment thereof (3 point of P.MODEL)

Concept

Substitutes matter when customers are attracted to the products of firms in other industries
Examples
Eyeglasses
Sugar

and contact lens vs. laser surgery

vs. artificial sweeteners

Newspapers

vs. TV vs. Internet

How to Tell Whether Substitute Products Are a Strong Force

Whether substitutes are readily available and attractively priced Whether buyers view substitutes as being comparable or better

How much it costs end users to switch to substitutes

Factors Affecting Competition From Substitute Products

What happens when Bargaining power of suppliers Changes in the market & assessment thereof (4 point of P.MODEL)

Competitive Pressures From Suppliers and Supplier-Seller Collaboration

Whether supplier-seller relationships represent a weak or strong

competitive force depends on

Whether suppliers can exercise sufficient bargaining leverage to

influence terms of supply in their favor

Nature and extent of supplier-seller collaboration in the industry

Factors Affecting the bargaining power of suppliers (5 Pt.)

What happens when Bargaining power of Buyers Changes in the market & assessment thereof (5 point of P.MODEL)

Competitive Pressures: Collaboration Between Sellers and Suppliers

Sellers are forging strategic partnerships with select suppliers to

Reduce Speed

inventory and logistics costs

availability of next-generation components quality of parts being supplied out cost savings for both parties

Enhance Squeeze

Competitive advantage potential may accrue to sellers doing the

best job of managing supply-chain relationships

Competitive Pressures From Buyers and Seller-Buyer Collaboration

Whether seller-buyer relationships represent a

weak or strong competitive force depends on

Whether

buyers have sufficient bargaining leverage to influence terms of sale in their favor and competitive importance of seller-buyer strategic partnerships in the industry

Extent

Factors Affecting Bargaining Power of Buyers

Strategic Implications of the Five Competitive Forces

environment is unattractive from the standpoint of earning good profits when
Competitive

Rivalry is vigorous

Entry barriers are low and entry is likely

from substitutes is strong

Competition Suppliers

and customers have considerable bargaining power

Competitive
Rivalry Entry

environment is ideal from a profit-making standpoint when

is moderate

barriers are high and no firm is likely to enter

Good

substitutes do not exist

and customers are in a weak bargaining position

Suppliers

Competitive Pressures: Collaboration Between Sellers and Buyers

Partnerships are an increasingly important competitive element in

business-to-business relationships
Collaboration may result in mutual benefits regarding

Just-in-time Order

deliveries

processing invoice payments

Electronic

Data

sharing

Competitive advantage potential may accrue to sellers doing the

best job of managing seller-buyer partnerships

Objective is to craft a strategy to

Insulate

firm from competitive pressures

Initiate

actions to produce sustainable competitive advantage

Allow

firm to be the industrys mover and shaker with the most powerful strategy that defines the business model for the industry

Q #3: What Factors Are Driving Industry Change and What Impacts Will They Have?

Industries change because forces are driving industry

participants to alter their actions

Driving forces are the major underlying causes of

changing industry and competitive conditions

Analyzing Driving Forces

1. Identify forces likely to exert greatest influence over next 1 - 3 years

Usually no more than 3 - 4 factors qualify as real drivers of change

2. Assess impact

Are the driving forces causing demand for product to increase or decrease? Are the driving forces acting to make competition more or less intense? Will the driving forces lead to higher or lower industry profitability?

Internet and e-commerce opportunities

Common Types of Driving Forces

Increasing globalization of industry

Changes in long-term industry growth rate Changes in who buys the product and how they use it

Product innovation
Technological change/process innovation Marketing innovation Entry or exit of major firms Diffusion of technical knowledge Changes in cost and efficiency

Consumer preferences shift from standardized to differentiated products (or vice versa)
Changes in degree of uncertainty and risk Regulatory policies / government legislation Changing societal concerns, attitudes, and lifestyles

What Market Positions Do Rivals Occupy?

One technique to reveal different competitive positions of

industry rivals is strategic group mapping

High

Gucci

Price/Quality

Wall Mart Low Geographic Coverage

Few Outlets in few localities Many Outlets in many localities

A strategic group is a cluster of firms in an industry with similar

competitive approaches and market positions

Strategic Group Mapping

Firms in same strategic group have two or more competitive

characteristics in common
Have Sell

comparable product line breadth

in same price/quality range same distribution channels

Emphasize

Use
Use

same product attributes to appeal to similar types of buyers

identical technological approaches buyers similar services same geographic areas

Offer

Cover

Procedure for Constructing a Strategic Group Map

STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another

STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics
STEP 3: Assign firms that fall in about the same strategy space to same strategic group STEP 4: Draw circles around each group, making circles proportional to size of groups respective share of total industry sales

Guidelines: Strategic Group Maps

Variables selected as axes should not be highly correlated Variables chosen as axes should expose big differences in how

rivals compete
Variables do not have to be either quantitative or continuous Drawing sizes of circles proportional to combined sales of firms in

each strategic group allows map to reflect relative sizes of each strategic group
If more than two good competitive variables can be used, several

maps can be drawn

Interpreting Strategic Group Maps

Driving forces and competitive pressures often favor some strategic

groups and hurt others

Profit potential of different strategic groups varies due to strengths

and weaknesses in each groups market position

The closer that strategic groups are on the map, the stronger that

competitive rivalry among the members of these groups tends to be

What Strategic Moves Are Rivals Likely to Make?

A firms best strategic moves are affected by
Current Future

strategies of competitors

actions of competitors

Profiling key rivals involves gathering competitive intelligence about

Current Most

strategies

recent actions and public announcements

Resource
Efforts

strengths and weaknesses

being made to improve their situation and leadership styles of top executives

Thinking

Competitor Analysis
Sizing up strategies and competitive strengths and weaknesses of

rivals involves assessing

Which

rival has the best strategy? Which rivals appear to have weak strategies?
Which

firms are poised to gain market share, and which ones seen destined to lose ground?
Which

rivals are likely to rank among the industry leaders five years from now? Do any up-and-coming rivals have strategies and the resources to overtake the current industry leader?

Considerations Involved in Predicting Moves of Rivals

Which rivals need to increase their unit sales and market share?

What strategies are rivals most likely to pursue?

Which rivals have a strong incentive, along with resources, to make

major strategic changes?

Which rivals are good candidates to be acquired? Which rivals have

the resources to acquire others?

Which rivals are likely to enter new geographic markets?
Which rivals are likely to expand their product offerings and enter

new product segments?

What Are the Key Factors for Competitive Success?

KSFs are those competitive factors most affecting every industry members ability

to prosper. They concern

Specific strategy

elements

Product attributes Resources Competencies Competitive

capabilities

that a company needs to have to be competitively successful

KSFs are attributes that spell the difference between
Profit and

loss
success or failure

Competitive

Identifying Industry Key Success Factors

Pinpointing KSFs involves determining
On

what basis do customers choose between competing brands of sellers?

What

resources and competitive capabilities does a seller need to have to be competitively successful?
What

does it take for sellers to achieve a sustainable competitive advantage?

KSFs consist of the 3 - 5 major determinants of financial and

competitive success

Factors to Consider in Assessing Industry Attractiveness

Industrys market size and growth potential
Whether competitive forces are conducive to rising/falling industry profitability

Whether industry profitability will be favorably or unfavorably impacted by

driving forces
Degree of risk and uncertainty in industrys future Severity of problems facing industry Firms competitive position in industry vis--vis rivals Firms potential to capitalize on vulnerabilities of weaker rivals Whether firm has sufficient resources to defend against unattractive industry

factors

RBV Approach to competitive advantage

Resource Based View was propounded by Jay Barney Organization performance will primarily determined by internal resource. Physical (Plant ,Equipment,location,technology,raw material ,machines,etc)

Human (Employees, Training, Experience ,Intelligence,Knowledge,Skills,abilities,etc)

Organizational (Org. Structure,Planning Process, information systems, patents, Copyrights
Database, Trademark, etc) This theory asserts that the (1) Internal resource is key to the firm exploiting opportunities and neutralizing the threats.

Fred R David Pg.117

10 Commandments for Crafting Successful Business Strategies 1. Always put top priority on crafting and executing strategic moves that enhance a firms competitive position for the long-term and that serve to establish it as an industry leader.
2.

Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up.

3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability. 4. Avoid strategies capable of succeeding only in the best of circumstances. 5. Dont underestimate the reactions and the commitment of rival firms

6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength.
7. 8.

Be judicious in cutting prices without an established cost advantage Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes.

9. Endeavor not to get stuck back in the pack with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders.

10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing arms race and/or price wars.

The Grand strategy normally views things in the long term and establishes its objectives in the following 7 areas. 1. Profitability :The ability of a firm and its strategic planners depends on generating an acceptable level of profitability on a consistent basis. Strategically managed firms usually have profitability as their objective and expressed in terms of earnings per share or return on capital.

2.

Productivity : Strategic managers and firms with an eye on grand strategy will constantly increase productivity i.e. increase in input output relationship which will normally increase profitability. Commonly used productivity objectives are no. of items produced or no. of services rendered per unit of input. It can also be expressed in terms of reduced cost of input, reduced rejection (Six sigma) reduced customer complaints leading to litigation.
Competitive position : Relative dominance in the market place. (using total sales as a measure or the market share) Employee Development : Strategic planners often focus employee education & development to create multi skilling M.P. thus aiming to reduced M.P. cost and eventually profitability more & better salary & perks. Employee relation : Strategically managed firms and strategic managers believe that productivity is linked to employee loyalty. (Safety programs, works committee, E.S.O.P)

3. 4.

5.

6. Technological Leadership : Firms must decide either (1) to lead or (2) follow either can be successful but requires a strategy. The typical e.g. can be that of caterpillar. The second one can be that of e-commerce development of GE AND DELTA AIRWAYS. 7. Public Responsibility : Firms and mangers realize their responsibility towards the society and they move towards fulfilling their corporate responsibilities. They engage in various activities like community development etc. Qualities of long term objectives. Acceptability :- Managers are more likely to pursue objectives that are consistent with their preferences. They may object or even obstruct the achievement of goals if they see that is harmful. Like animal tallow. Etc. Flexibility :- Objectives should be adaptable to unforeseen or extraordinary changes in the firms competitive or environmental forecast. Measurable:Motivating Suitable Understand able Achievable.

Grand strategy is also called master strategy provide basic direction for
strategic action. They are coordinated & sustained efforts directed towards achieving long term business objectives. List out the various Principals of grand Strategies. 1. Concentrated growth. Many firms do fall pray to merger or take over mania without out doing a proper scanning of the environment , analyzing the SWOTS of self and competitors etc. resulting in a faulted growth of the firm. Instead some firms fully focus on their core competences and concentrate in their present line of business. Concentrated growth is the strategy of the firm that directs its resource to the profitable growth of a single product in a single market with a single dominant technology. Concentrated growth strategies lead to enhanced performance. The ability to asses market needs ,knowledge of buyer, customer price sensitivity are some characteristics of C.G. strategy. The C.G. industrys condition that favors such growth pattern is the firms industry is resistant to major technological advancements. The second reason is such firms market rarely saturate. Third reason can be when a firms product market are sufficiently distinctive to dissuade competitors in adjustant product markets from trying to invade the firms segment. The characteristics of concentrated growth strategy can be(1)The ability to asses market needs (2) knowledge of buyer behaviour(3)customer price sensitivity(4)effectiveness of product promotion. All these characteristics makes a concentrated strategy enhance performance.

2.Market Development. It consists of marketing present products , often with cosmetic modifications to customers in related market areas by adding channels of distribution or by changing the contents of advertisement or promotion. Several specific market development strategies are as under (2.1:1) concentration :- (Increasing use of present product in present

market)

(1:1:1) Increasing present customers rate of use by (1:1:2) Increasing the size of purchase(1:1:3) Increasing the rate of product obsolescence.(1:1:4)Advertising other uses. (1:2) Attracting competitors customers :- (1:2:1) Establishing sharper brand diffrenciation(1:2:2) Increasing promotional efforts(1:2:3)Initiating price cuts

Attracting non users to buy product :- (c1)Introducing trial use through samples, price incentives, etc. (c2) Pricing up or down (c3) Advertising new uses.

(2.2) Market Development :- (Selling present products in new markets)

(2:2:1) Opening additional geographic markets: (2:2:1:1)Regional Expansion (2:1:2)National Expansion (2:1:3)International Expansion (2:2) Attracting other market segments (2:2:1) Developing product versions to appeal to other segments.(2:2:2)Entering other channels of distribution(2:2:3)Advertising in other media.

(2:3:1)Developing new product features. (2:3:1:1) Adapt (to other ideas, development)(2:3:1:2)Modify(change colour, motion, sound, odor, form, shape) hic(2:3:1:3)Magnify(stronger,longer, thicker, extra value)(2:3:1:4)Minify(Smaller, shorter, lighter) (2:3:1:5)Substitute

2:3. Product development :- (Developing new products for present markets)

(other ingredients, process, power)(3:1:6) Rearrange (other patterns, lay outs, sequence, components) (3:1:7) Reverse (inside out) (3:1:8) Combine (blend, alloy, assortment, ensemble, combine units, (3:2) Developing quality variations. (3:3) Developing additional models and sizes (product proliferation)

3. Product development :- P.D. involves the substantial modification of current products or

creation of new products but related to the present product line that can be marketed to present customer through established channels. The P.D. strategy often adopted to (1) prolong the present product life cycle of current products (2) take advantage of present brand name, loyalty etc. The idea is to attract satisfied customers to new products as a result of their positive experience with the firms initial offer. P.D strategy is based on market penetration. strategy to fully concentrate on innovation. It is the increasing periodic expectation of both consumer & industrial markets have set this innovation on a higher platform. Organization with long term view innovate both product and service to remain in the market rather than pushed out by rivels.

4. Innovation:- It has become absolutely essential for firms with their eyes on long term

Booz Allen & hamilton management research department found that 2% of innovative products of nearly 51 companies eveantually reached market place. The stages in idea generation to product coming to the market has to pass through the stage of (a) Screening (b) Business analysis (c )Development (d) testing (e) commerlisation (f) Successful product

5..Horizontal integration. When firms long term strategy is based on growth

through acquisition of one or more similar firms operating at the same stage of the production marketing chain its grand strategy is called horizontal integration. 6. Vertical integration. When firms grand strategy is is to acquire firms that supply it with inputs (such as raw material) or are customers for its outputs (such as warehouse for finished goods ) vertical integration is involved Textile producer Textile producer

Shirt Manufacturer

Shirt Manufacturer

Clothing store

Clothing stores

Acquisitions or mergers of suppliers or customers business are vertical integrations Acquisitions or mergers of competing business are horizontal integrations

7. Concentric diversification. Concentric diversification involves the acquisition of

business that are related to acquiring firm in terms of technology, markets , or products. With this grand strategy the selected new business possesses a high degree of compatibility with the firms current business. The ideal concentric diversification occurs when combined companys profits increases the strengths and opportunities & decrease the weakness. Thus the acquiring firm searches for new business whose products , markets ,distribution channels, technologies,& resources requirements are similar to but not identical with its own business whose acquisition results in synergies but not complete interdependence. The motive of acquiring firms are :(1) Increase firms stock value. In the past , mergers often leads to increase in stock price or the price earnings ratio. (2)Increase growth rate of the firm (3) Make an investment that represents better use of funds than plowing them into internal growth (4) Improve the stability of earnings and sales by acquiring firms whose earnings and sales complement the firms peaks and valleys. (5)

8.Conglomerate diversification. 9.Turnaround. 10. Divestiture. 11. Liquidation. 12. Bankruptcy. 13. Joint ventures. 14. Strategic alliances. 15. Consortia

Turnaround Situation

Turnaround response

Cause

Severity

Retrenchment phase

Recovery Phase

Internal Factors

Declining sales or margins Low

Cost Reduction

Efficiency maintenance

Stability
Entrepreneurial reconfiguration

Recovery

External Factors

High Imminent Bankruptcy

Asset Reduction