Assignment no.

Topic : analysis of articles.

Strategic management

Submitted to

Ms. Neha Shandilya

Prof. LPU

Submitted by:

Waseem Afzal

Roll no.r1904B57

Reg. no.10907837
Case no 1.

Porter’s five force model

Porter’s five force model is a frame work for the industry analysis and business strategy
development developed by Michael porter of Harvard business school in 1979. It draws upon
industrial organisation economics to derive five forces that determine competitive intensity and
therefore attractiveness of a market. Attractiveness refers to the overall industry profitability. An
attractive industry is one in which the combination of these five forces acts to drive down overall
profitability.

Three of porter’s five forces refer to competition from external sources. The
remainder are internal threats. Porter’s referred to these forces as micro environment, to contrast
it with the more general term macro environment. They consist of those forces close to a
company that affect its ability to serve its customers and make a profit.

1.The threat of the entry of new competitors:

Profitable markets that yield high returns will attract new firms. This results in many new
entrants, which eventually will decrease profitability for all firms in the industry. Particularly
when new entrants are diversifying from other markets, they can leverage existing capabilities
and cash flows to shake up competition, as Pepsi did when it entered the bottled water industry.

Threat of new entrants depends upon :

1. Economies of scale :- means produce large volumes, enjoy lower costs per unit, because
it can spread fixed costs over more units.

2. Capital/ investment requirement :- the need to invest large financial resources in order
to compete.

3. Customer switching cost. :- Switching are those costs that buyers face when the
change suppliers.

4. Access to industry distribution channels.

5. Access to technology.
 6. Brand loyalty :- are customers loyal ?

7. Govt. Regulations.:- can new entrants get subsidies.

2. Bargaining power of suppliers:

A producing industry requires raw materials, labour, components, and other suppliers. This
requirement leads to buyer - supplier relationships between the industry and the firms that
provide it the raw materials used to create products. Suppliers if powerful can exert an influence
on the producing industry, such as selling raw materials at a high price to capture some of the
industry’s profits.

Suppliers are powerful if :

1. Forward integration :- means manufacturing on their own.

2. Concentration of suppliers :- are there many buyers and few dominant suppliers?

3. Branding :- is the brand of the supplier strong?

4. Profitability of suppliers :-are suppliers forced to increase prices?

5. Switching costs :- is it easy for suppliers to find new customers

6. Role of quality and services.

7. Threat of Backward integration of buyers.

3 .Bargaining power of buyers:-

Bargaining power of buyers is also described as market of outputs; the ability of customers to put
the firm under pressure, which also affects the customers sensitivity to price changes.

Bargaining power depends upon :

1. Concentration of buyers :- are there a few dominant buyers and many sellers in the
industry?

2. Differentiation: - are products standardized?

 3. Profitability of buyers:- are buyers forced to be bought?

4. Role of quality and services.

5. Threat of backward integration.

6. Switching costs :- is it easy for buyers to switch their supplier?

4. Threat of substitutes:
The existence of products outside of the realm of the common product boundaries increase the
propensity of the customers to switch to alternatives:

Threat of substitutes depends upon:

1. Quality :- is a substitute better

2. Buyer’s willingness to substitute.

3. The relative price and performance of the substitute.

4. The costs of switching to substitutes: - is it easy to change to another product.

5. Intensity of rivalery:
For most of the industries, the intensity of competitive is the major determinant of the
competitiveness of the industry.

Intensity of rivalery depend upon :

1. The structure of the competition :- rivalry will be more if there will be small or
equally sized competitors.
2. The structure of industry costs :- industries wih high fixed costs encourage
competitors to manufacture at full capacity by cutting prices if needed.

3. Degree of product differentiation :- industries where products are commodities

typically have greater rivalery.

4. Switching costs :- rivalery is reduced when buyers have high switching costs.

5. Exit barrier :- when barriers to leaving industry are high ,competitors tend to exhibit
greater rivalery.

Porter argued that in order to examine its competitive capability in the marketplace, an
organisation must choose between three generic strategies: cost leadership - becoming the
lowest-cost producer in the market; differentiation - offering something different, extra or
special; and focus - achieving dominance in a niche market A niche market also known
as a target market is a focused, targetable portion (subset) of a market sector.

By definition, then, a business that focuses on a niche market is addressing a need for a
product or service that is not being addressed by mainstream providers. . The question is
to choose the right one at the right time. These generic strategies are driven by five
competitive forces which the organisation has to take into account:

* the power of customers to affect pricing and reduce margins

* the power of suppliers to influence the organisation's pricing

* the threat of similar products to limit market freedom and reduce prices and thus profits

* the level of existing competition which impacts on investment in marketing and

research and thus Erode (ĕrōd`), city (1991 urban agglomeration pop. 361,755), Tamil
Nadu state, S India, on the Kaveri River. The city is located in a cotton-growing region,
and its industries include cotton ginning and the manufacture of transport equipment.
profits

* the threat of new market entrants to intensify competition and further impact on pricing
 and profitability.

Case 2

What is strategy?
Identifying a strategic position, avenues of differentiation is the job of the entrepreneur mind. A
strategic position affords a wedge in the market that can be exploited by the entrepreneur mind.

Strategy being defined as: “creation of unique and valuable position, involving a different set of
activities the essence of strategic positioning is to choose activities that are different from rivals’

. Strategic position comes from:

• Cracks in the current competitors’ that can be filled by completing, slicing, substituting,
or sub setting the competitors’ positioning

• Available but overlooked positioning

• A once existing and held position but ceded due to imitation and straddling

• Draw lesson from other business to create positioning in the target business

• Responding to change such as customer groups, purchase occasions, society evolution,

new distribution channel, new technologies, new machinery or information system.

From this we can conclude that all companies are engaged, or have to be engaged in 3 kinds of
activities:

• Activities that are similar to their competitor

• Doing activities differently

• Doing different activities altogether

Although strategy is about focus, deliberately choosing a set of activities and rejecting
another set, Porter’s cautioned that strategy doesn’t always mean a niche market
 approach. The Vanguard Group serves a wide array of customers. What matters is the
conscious decision on selecting a set of activities to meet a group of customers’ common
needs.

Positioning relies on differences on the supply side, but positioning doesn’t always need
to correspond to a specific difference on the demand side (the customers), examples are
the variety and access based positioning.

Case-3

Building Your Company’s Vision

Some corporations last so long, while other competitors in the same markets either struggle to get
by, or fade away after a short period of time? Now the question arises what has made these
organizations to survive. It took a look at 18 well known, well established and healthy companies
('visionaries'), and compared them to a counterpart in their specific area of business. They have
analyzed all the information they could get their hands on, compiled it, and looked at it and have
tried to find patterns both within and between the visionary companies and their counterparts.
The result of all of this is a set of guidelines and principles that all companies, large or growing,
can use to keep themselves growing, strong, and ahead of the competition.
Successful corporations focused on building the organization and company so it would run 'as
smooth as knife on butter.' The visionary companies didn't simply follow others in their fields
but tended to lead the way.

• Develop core values' - Each of the visionary companies had established a set of core
values in its infancy that still survive today. If it ever came upon hard times, the values would
still be retained. They would only be modified in the most extreme cases.
• Preserve Your 'Core Ideology' - While the core values stay the same, the core ideology
can be modified. The ideology of a company is the stimulus that keeps the company evolving
over time. This change usually takes place slowly, one piece at a time, but is fast enough to keep
ahead of the competition. Without this constant evolution of products, the company will
eventually be left behind and disappear
• Have a 'Cult-Like" Culture - This must pervade the company, invading it like a disease.
Everyone in the company must be committed to following the path of the leader (similar to a cult
leader). They must commit to the same core ideology, must be indoctrinated into the company
culture, must develop a tight fit with others in the company, and must think of themselves as the
'elite' in their field. Without a good cohesive staff, the company will be fragmented, non-
innovative, and probably won't survive. The best example given was that of Nordstroms
department stores, who have the most fanatical, loyal sales persons. Other examples given were
Disney with their 'cast members' in the theme parks, and IBM with its early devotion to office
machinery.
• Be open to new ideas: Try New Things and Use What Works. - All companies have to
do this. As the company grows, tastes, preferences, and technology change. The visionary
companies keep abreast on upcoming changes, anticipate them, or make them themselves, or else
the company's products will become obsolete. You try different things and see how they work,
quickly getting rid of the things that don't work. Two good examples given in the test are 3M
(evolved from a mining company to a sandpaper company, to an adhesives based products
company) and Marriott (from a small chain of restaurants to an airline commissary service to a
full service hospitality corporation).

• Have a look Inside for your Top Management - It is extremely difficult to bring in
persons from the outside who can effectively manage a company. Instead, the company should
have management development processes and succession plans in place to insure smooth
transitions and direction as the company ages.
• Always be flexible and Constantly Innovate- Without this, the company's
products/services become obsolete and lead to a decline. You must constantly keep ahead of the
pack, innovating your products to try and keep ahead of the competition. And this involves an
investment in innovation that can't be eliminated. The off the examples given in the text is
Boeing. They have consistently created innovative airliners, while McDonnell Douglas had
simple tried to keep pace.
• Make the Core Ideology/Values a Reality - It is not enough to simple craft vision and
mission statements, they must be put in place so that all persons/divisions of the company known
what they are and work together toward those values and ideals. In other words, get everything
aligned on the same plain. One example of how this focus was achieved was in Hewlett-Packard.
Both Hewlett and Packard initially avoided any outside corporate debt so it's entrepreneurial
discipline would not be compromised by the need to maximize profits. In addition to the things
made the visionary company, they also found a few things that these companies did NOT
possess.
• No 'Great Idea' Needed to Start a Company. - Many of the companies' founders did
not start the company with a set idea. The best example given in the test is Hewlett-Packard.
Both of these friends did not have an idea for what their product would be before starting their
business. They tried making a few interesting products until they developed a piece of military
hardware that caused their business to start growing.
 Case- 4
“Strategy… in a World of Nations”
Three step for “How to Globalize”:
• Develop a core strategy.
• Internationalize the core strategy (international expansion).
• Globalize the international strategy (integrate across countries).
Global Strategy
Setting strategy for a worldwide business requires making choices along a number of strategic
dimensions.
Five Strategy Levers:
• Market Participation – countries selected by their potential contribution to globalization
benefits.
• Product Offering – ideal is standardized core product that requires minimal local
adaptation.
• Location of Value Added Activities – costs are reduced by breaking up the value chain
so each activity may be conducted in a different country.
• Marketing Approach – a uniform marketing approach is applied around the world,
although not all elements of the mix need be uniform.
• Competitive Moves – integrated across countries.

Benefits of a Global Strategy:

• Cost Reductions – pooling, lower factor costs, flexibility, enhanced bargaining power.
• Improved Quality of Products and Programs - focus on a smaller number of products
than under multi domestic.
• Increased Competitive Leverage – more points from which to attack and counterattack
competitors.
Changes over Time– As each industries driver changes over time, so too will the appropriate
global strategy change.
• More Than One Strategy is Viable.
• Industries Vary Across Drivers – No industry is high on every one of the many
globalization drivers.
• Global Effects are Incremental – the appropriate use of strategy levers add
competitive advantage to existing sources.
• Business and Parent Company Position are Crucial – a worldwide business many
face drivers that strongly favor a global strategy.
• Organizations have Limitations – org structure, mgmt. processes, people, and
culture affect how well a desired global strategy can be implemented.
•

Case- 5
“How to Take Your Company to the Global Market”

Why Go Global
International expansion is not necessarily the best way to grow your company. The U.S. market
is big enough for most small businesses to expand almost indefinitely. But entering the
international arena can protect you against the risk of decline in domestic markets and, most
important, significantly improve your overall growth potential.
Successfully growing globally includes:

• You can extend the sales life of existing products and services by finding new markets to
sell them in.

• You can reduce your dependence on the markets you have developed in the United
States.

• If business is plagued by destabilizing fluctuations in your markets due to seasonal

changes or demand cycles, you can even out your sales by tapping markets with different
or even countercyclical fluctuations.

• You can exploit corporate technology and know-how.

Risk of go globally:
 • Failing to plan your strategy. "Small businesses are particularly vulnerable to this
problem, but larger ones are often guilty of the same mistake, It takes far more time to
extract yourself from problems created by lack of planning than it would to do it right the
first time.

• Chasing inquiries the world over. Just because dozens of countries show interest
doesn't mean you're ready to market your product everywhere. Patience is key. "It takes
discipline to respond to an inquiry from a country about which you know very little."

Six basic steps to going global:

• Start your campaign to grow by international expansion by preparing a business plan to

evaluate your needs and set your goals. It's essential to assess your readiness and commitment
to grow internationally before you get started.

• Conduct foreign market research and identify international markets. The Department of
Commerce is an excellent source of information on foreign markets for goods and services.

• Evaluate and select methods of distributing your product abroad. You can choose from a
variety of means for distributing your product, from opening company-owned foreign
subsidiaries to working with agents, representatives and distributors and setting up joint
ventures.

• Learn how to set prices, negotiate deals and navigate the legal morass of exporting. Cultural,
social, legal and economic differences make exporting a challenge for business owners who
have only operated in the United States.

• Tap government and private sources of financing-and figure out ways to make sure you are
getting paid. Financing is always an issue, but government interest in boosting exporting and
centuries of financial innovation have made getting funding and getting paid easier than ever.

• Move your goods to their international market, making sure you package and label them in
accordance with regulations in the market you are selling to. The globalization of
transportation systems helps here, but regulations are still different everywhere you go.

Understanding another Culture

• Research. Learn at least a few pointers and facts about the country; it shows you respect your
potential partners' cultural heritage. Also, get comfortable with the basic words in their
language.

• Build a relationship before you get down to business. That entails making small talk and
getting to know one another without (immediately) getting into business discussions.

• Bring your own interpreter. If they provide the interpreter, the interpreter is going to have
the other person's (interests) at heart, not yours."