SUBMITTED BY: - DEEPANKER SHARAN

LEARNING FROM STARTEGY FORMULATION COURSE

SUBMITTED ON :-

23Rd July 2012

FACULTY: - PROF. AMIT KAPOOR

Deepanker Sharan

12EM05

CHANGE IN WAY OF THINKING AFTER STUDY OF STRATEGIC FORMULATION

SUBMITTED BY: Deepanker Sharan 12EM05

Deepanker Sharan

12EM05

Strategy is about choices: You can't be all things to all people. Michael Porter [Harvard Professor]

Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment. Strategy: Choosing What Not To Do. Introduction to Strategy We started our discussion with the definition of strategy. What different people thought strategy to be? We started with the thought that whether strategy is operational effectiveness. But if that was so then every company could attain operational effectiveness and be successful. But since this is not true it means strategy is more than just operational effectiveness. Then we read about the positioning and how different companies position themselves in the market and target its customer. After this we learnt about the trade off the dilemma a company faces to give up some of its activities in lieu of another. This led to our discussion on the various fits that drive both competitive advantage and sustainability. According to this when you have an integrated system with each activity reinforcing the other, it becomes difficult to imitate such a system. This gave us a clear understanding of strategy i.e. strategic agenda is the right place for defining a unique position, making clear trade-offs and tightening fits. We understood about strategy through the Anheuser-Busch Case on US brewing industry. The case also gave us an understanding on the concept of trying to do best and trying to be unique. The rule of three. Theory of Business This concept explains the HOW and WHAT to do for an organizations based on certain assumptions. These are the assumptions on the environment of organization, specific mission of organization and the core competencies needed to meet these missions. The 4Cs i.e. company, context, customers and competition.

Deepanker Sharan

12EM05

Through the case of Intel we see how these theories become obsolete and this make them defensive, attempt to patch and initiates them to re-think about the theory. We also learnt about the value creation, capture and its sustenance. Also we learnt about the standard creation through proprietary and open sourcing. The case discussed was Intel corporation: 1968-2003 which led us to understand how through continuous innovation and change competitive advantage could be maintained. Performance We tried to understand about performance through the case on the airline Industry. We learnt about various levels of performance starting with the individual level, moving to organizational level and finally ending at the country level. It talked about the market drivers and investor drivers, internal and external environment and finally about the financial and strategic measures. We also learnt about the principal of Generate, operate and destroy. This also let us to learn about the asset utilization, market segmentation and types of customers. Case: - Airline Industry: Whats wrong with the Airlines industry? Under this topic we analyzed various reasons behind the poor performance of the Indian Airline Industry after deregulation. Why Air Deccan is making profits whereas its competitors are losing money was the point of focus. Air Deccans strategy of low cost, no frills, less turnaround time, smaller planes was discussed which led it to gain competitive advantages over rivals. Similar parallels were drawn with the U.S. Airline industry. The Asset Utilization and Asset Flexibility are two key factors which are crucial to the Airline industry. Better flying hour per day/airborne time of the plane will lead to better asset utilization and thus increases profitability whereas less asset flexibility which create high exit barriers. Environmental Threat and Opportunities We tried to understand the various environmental threats and opportunities though various frame works. We did the industry analysis using Five forces models, PEST framework. HHI and BCG models are used to determine the market share of a company in the industry. We used the case of YAHOO! to understand about the IT industry. This case showed us the importance of stickiness i.e. how to make a user stick to a web page for a longer period of time.

Deepanker Sharan

12EM05

Figure1: Porters Five Forces

New Entrants(threat from new entrants)

Suppliers (Bargaining power of supliers)

Industry Competitors(Int ensity of Rivalry)

Buyers (bargaining power of buyers)

Substitutes (threat from substitutes)

Core competence We learnt about the short run and long run performance. We go to know about the identification, the importance and the loss of the core competence. Core competence is about the harmonizing streams of technology, also about the organization of work and delivery of value. Later on we tried to distinguish between the core competence and core products. We learnt that the core competence is more about the internal affairs of a company. The case about Starbucks gave an insight on then investor driver for growth and market driver for growth. Value chain Analysis and competitive advantage In the value chain analysis, we learnt about the primary and support activities. Primary activities include inbound logistics, operations activities and functions, outbound logistics, marketing and sales, service. Support activities include firm infrastructure, human resource management, technology development and procurement. Competitive advantage is the difference between willingness to pay- differentiation strategy and the cost it generates- low cost strategy. We learnt about the
5

Deepanker Sharan

12EM05

dual catching strategy increase in willingness while reducing the supplier cost. LIPs and HIPs We learnt about the low involvement products (LIPs) and the high involvement products (HIPs). LIPs are daily products while HIPs are products like TV, car, washing machine etc. It also talked about the transformation of LIPs to HIPs by adding features, design and emotions. Regulatory Impacts Regulation is a set of laws, decrees, rules, practices or government formalities that govern the political and social domain. The extent of the effect is increase of the efficiency to the complete distortion. Excessive control kills innovation and discourages entrepreneurship. Examples of regulations and its impact :Licenses and land regulations - Threat to Entry Labor laws - Threat to exit Environmental laws - sustainable developments Later we learnt about the type of governance being implemented in todays world as a result of increased miss-utilization of the powers which was because of the principal agent conflict. Case: - Indian Flour Mills Regulations are laid down for welfare of public, banks, companies, etc in terms of price support as well as not to harm the competitiveness of market. However regulations can change the realities of an industry such as in the case of Indian flour mills in 1997-98 where regulation in MSP & CIP was harming the flour industry of Haryana/Punjab. Collusion and cartel Cartelization is a form of collusion and it involves a concerted effort by the companies to keep production under control and the prices high by limiting the quantity available in the market. A cartel effectively tries to monopolize the market by restricting entry, production and competition in the market and fixing prices and dividing the market amongst themselves. In such a situation, the consumer, at the end of the day, is exploited. 1000 people can become a driving force for achievements considered improbable by each separately. These are unwritten agreement among companies. We learnt about the
6

Deepanker Sharan

12EM05

various reasons for the formation of cartels like fixing price, restricting production etc. We also learnt about the monitoring and the maintaining of the cartel. OPEC is a good example of a cartel formation.

Cost Leadership Porter identified three generic strategies cost leadership, product differentiation and product positioning. Cost leadership allows the firm to target a more price sensitive market segment having low product differentiation and where economies of scale can be used to reduce cost. The strategy is a high volume, low profit tactic that focuses on capturing markets for its product through price differentials. Cost leadership strategy is a function of its operational efficiency. Value chain alignment also play an important role in driving the low cost structure and can help the company save costs. Through this chapter we learnt about the importance of experience curve and its impact on various important business decisions. We learnt about the market share and profitability, its competitive implications and the product life cycle. This principal was very prominent through the case on Eli Lilly and company that talked about its manufacturing process technology strategy.