EPGDM ASSIGNMENT - MGT 411 – BUSINESS STRATEGY – TERM 3.

1. How are the four generic building blocks of competitive advantage related to each
other? ( 10 Marks)

Answer:

Competition is a rough and tumble process in which only the most efficient and effective
companies win out. A company is said to have a competitive advantage over its rivals when its
profitability is greater than the average profitability and profit growth of other companies
competing for the same set of customers.

1) Four factors help a company build and sustain a competitive advantage.

1) Superior efficiency

2) Superior quality

3) Innovation

4) Superior customer responsiveness

 Superior efficiency: efficiency of organization is measured as ratio of output to input.

Better efficiency means fewer input is required to produce a particular output. Employee
productivity helps a company attain a competitive advantage through a lower cost
structure. Employee productivity helps a company attain a competitive advantage through a
lower cost structure.
 Superior quality: Product is said to have superior quality when customers prefer product
A over product B, there preference is based on the amount of utility get from the product.
Quality is measured in terms of excellence and reliability. Products design, appeal, style
contribute to its excellence. Guarantee and warranty build trust with contributes reliability
towards product.
 Innovation: Change is the need of todays world which in return requires innovation,
Company needs to improve product and processes with time to maintain competitive
advantage. Innovation could in existing product or company could come up with new
advanced product. In order to maintain competitive advantage product should be cost
effective to maintain cutting edge over its competitors thus process improvement is also
required. Process improvement leads to quality enhancement as well as cost and time
reduction.
 Superior customer responsiveness: Customer response time does matter a lot, customer
response time is the time take taken to respond to customers complaints, concern or
queries. In order to provide superior customer responsiveness, company must identify
customers needs and satisfy them as and when needed, in a timely manner. A company
need to customize goods and services to a unique demand of individual customers or
customer group.
All above building blocks are firmly related to each other. Since it increases product quality, reduces
wastage, reduces customer response time, eliminates imperfections. Innovation improves product
which would lead to better quality, increases reliability. Superior efficiency makes company and its
employees more productive which let organization identify and fulfil customer’s needs quickly
which indirectly reduces customer response time. Superior quality is esteemed by clients builds the
company’s customer responsiveness. If we take example of automobile industry, companies need to
come up with new models or facelift of there top performing models so as to compete with other
car manufactures, they need to build high quality, stylish products and need to keep tap on car price
as well. In recent years we have seen lots of innovation in terms on fuel economy, Engine BS-3 to
BS-6 with as span of 3 years, new experiments are always risky and response low response time to
maintain customer base else company loses market share. More and more electric cars are being
launched to maintain the competitive advantage more and more advanced variants are being
launched Starting from 2-seater riva to mini SUV kona by Hyundai. Thus, we can clearly state that
all for 4 blocks are interdependent, company need to maintain a balance of all to convert their
competitive advantage to sustainable competitive advantage.

2. Discuss how companies can use (a) product differentiation and (b) capacity control to
manage rivalry and increase an industry’s profitability. ( 10 Marks)

Answer:

Product differentiation is a marketing strategy that strives to distinguish a company's products

or services from the competition. Successful product differentiation involves identifying and
communicating the unique qualities of a company's offerings while highlighting the distinct
differences between those offerings and others on the market. product-differentiation
strategies are the principal tools companies use to place their product in same product category
without any conflict and manage rivalry within their industries. Companies deploy strategic
entry deterrence that discourages potential entrants from entering into competition in that
market. Companies often launches products similar to rival but with additional features to
acquire market share. Additional features make their product superior and give price
advantage. Very similar products lead to price rivalry which lead to decrease in profit as
company need to decrease price to remain in market or is forced to provide additional benefits
at same price. Product and market segment dimensions are used to identify competitive
strategies based on product differentiation.

 Market penetration involves using advertising and marketing to create a differentiation

advantage to increase market share.
 Product development means creating new and improved products to sustain consumer
demand for products.
 A market development strategy entails expanding the potential market through new
users or new uses which helps in sales expansion.
 Product proliferation strategy is a broad product line, which is perceived to translate to
increased overall demand, organization markets almost similar products but introduces
slight variations to increase its market share
 Capacity control is a revenue management component used to modify risk factors. Capacity
control plays and important role in providing upper hand to an organization. Favorable
conditions surges build up by every company. Well managed capacity in terms of stock, man
power, etc. is required to maintain the competitive advantage excess of capacity lead to
price cut whereas short fall leads to loss of market share and competitor an advantage. With
proper inventory control, capacity control keeps price away. Few factors that contribute to
excess production are bulk production being cost effective, company expansion in new
demography, Economic recession could also to excess capacity. Thus, capacity control
strategy needs to be implemented. Capacity control helps in predicting when to increase or
decrease capacity which helps in profit making and helps in getting advantage on close
rivalry, help in taking first mover advantage by scaling production when required.

A combination of production differentiation and capacity controls helps in maintaining

healthy rivalry and competitor does not compete for price which helps in maintaining
profitability.

3. When is a company likely to choose (a) related diversification and (b) Unrelated
diversification? (10 Marks)
Answer:

When a company has a financial resource that allows free cash flow, such company will
usually choose to diversify and invest in new business venture different from its core
industry.

Effective strategy implementation can improve a company’s ability to add value and to
differentiate its products. To make products unique in the eyes of the customers

With a related diversification strategy, company have the advantage of understanding the
business and of knowing what the industry opportunities and threats are; yet a number of
related acquisitions fail to provide the benefits or returns originally predicted.

Like a popular detergent making company launches and low segment or med segment
product to increase its market share which it does successfully but leads to decrease in sales
of top end products which was more profit making thus company ends up in lesser profit
when its market share has increased.

A company is likely to choose related diversification when it wants to benefit from

transferring competences, leveraging competences, sharing resources and/or bundling
resources. Simply put, companies decide to choose related diversification when their
competences can be applied across a greater number of industries and the company has
superior strategic capabilities that allow it to keep bureaucratic cost under close control.
Unrelated diversification will be Favored when there are few, if any, functional
competencies that can be transferred and leveraged in the new industry. The company’s
strategy is to increase profitability throughout the organization and across all business
units and, therefore, only general organizational competencies are applied. Unrelated
diversification requires skilled strategic management and strong organizational design.
Companies choosing unrelated diversification are not interested in transferring
competences or sharing resource between units. Instead, they benefit from an internal
capital market. The companies with relatively expensive projects and investment prefer this
type of diversification; the benefits of unrelated divarication allow the companies to fund
their investments more cheaply than independent businesses. Unrelated diversification is
preferred when each business unit's functional competences have few useful applications
across industry, top managers are skilled at raising the profitability of poorly run
businesses and the company's managers use their superior strategic management
competences to boost the competitive advantage and keep bureaucratic costs under control.

Large groups like Tata, Reliance prefer unrelated diversification to once there one
field/domain/organization reach to saturation level and want to diversify and expand their
business.

Advantage of unrelated diversification is that its each to manage and profit and lose can be
calculated separately. Slowdown or new entry does not impact there entire business only
one is impact rest work independently.