Transcription Doc

Module Summary

Note: This transcription document is a text version of the upGrad videos present in this session. It
is not meant to be read independently, but can be used to complement your video watching
experience.

Video 1

Speaker: Kavea Chavali

In this module, you were introduced to the concept of business strategy and learnt how to analyse
the external environment within which a company operates.

In the first session, you first learnt that a company’s strategy is the coordinated set of actions that
it takes in order to achieve its objectives. These objectives could be any combination of
predetermined goals such as out-performing competitors, becoming a market leader, achieving
greater profitability or revenue, acquiring more users, increasing market capitalisation, etc.

Next, you learnt about the four elements that are present in most good strategies. First, a good
strategy should be cohesive and comprehensive. This means that all the decisions that a company
makes should reflect the core strategy of the company.

Second, a good strategy is about competing differently. At its essence, it's about doing what rival
firms won’t do or can’t do, all in pursuit of the company’s objectives.

Third, a good strategy should answer two questions for a company - ‘where to play?’ and ‘how to
win?’.

Finally, a good strategy needs to provide direction and guidance in terms of what a company
should do, and also, what it should not do. The key thing to understand here is that a good
strategy is all about making choices.

Next, you understood why firms need to come up with strategies that are both sustainable and
agile at the same time. A sustainable strategy offers an enduring edge over rivals while an agile
strategy allows firms to respond to changing market conditions, technological advancements, new
market opportunities, or changing socio-economic conditions.

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This makes the task of crafting strategy a work in progress, not a one-time event.

You also understood that a company’s strategy is a blend of two seemingly contrasting
approaches. The proactive, or deliberate, approach involves planned projects to achieve
objectives. The reactive, or emergent, approach involves responding to market changes,
unanticipated developments and competitor moves.

Next, you learnt how to develop the vision, mission and core values for your firm. A strategic
vision describes the top management’s aspirations for the company’s future and the course and
direction charted to achieve them, i.e., ‘Where are we going?’.

There are several Do’s and Don’ts when it comes to creating a strategic vision for your firm. Some
of the most significant ones are: First and foremost, be forward-looking. Second, don’t be vague
or generic. Third, make it memorable and precise. Finally, ensure that the journey is feasible.

The distinction between a strategic vision and a mission statement is fairly clear-cut. A strategic
vision portrays a firm’s aspirations for its future, i.e., ‘where are we going?’. On the other hand, a
firm’s mission describes the scope and purpose of its present business, that is, ‘who we are, what
we do, and why we are here?’.

The execution and implementation of the vision and mission statements are guided by a firm’s
core values. A firm’s core values are the beliefs, traits, and behavioral norms that the firm’s
personnel are expected to display in conducting the firm’s business and pursuing its strategic
vision and mission.

Next, you learnt how to set objectives for your firm. The purpose of setting objectives is to
transform the vision and the mission of a company into specific performance targets. While there
are many approaches to define objectives, many organisations frame objectives such that they are
S.M.A.R.T., i.e., specific, measurable, achievable, realistic and time-bound.

Finally, you learnt about the three levels of strategy: Corporate-level strategy, Business-level
strategy and Functional-level strategy. All the components of a company’s strategy should be
cohesive and mutually reinforcing. Anything less than a unified collection of strategies weakens
the overall strategy and is likely to impair company performance.

In the second session, you learnt about the PESTEL framework, which is used to analyse the
broader macro-environment that a firm operates in.

According to the PESTEL framework, a firm’s macro-environment can be defined along six factors
- political, economic, socio-cultural, technological, environmental, and legal.

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Political factors that affect the macroeconomic environment include tax and fiscal policies, tariffs,
political climate and the strength of federal institutions.

Economic factors include the general economic climate and specific factors such as unemployment
rate, interest rates, savings rates, GDP growth, trade deficits etc.

Socio-cultural factors include societal values, attitudes, cultural norms and lifestyle changes that
happen in continually evolving societies.

Technological factors include the pace of technical change and developments that can impact
existing or new industries.

Environmental factors include ecological and environmental forces such as weather, climate,
climate change, etc.

Legal factors include the regulations and laws with which companies must comply, such as
consumer laws, labour laws, antitrust laws, occupational health and safety regulations, etc.

In the third session, you learnt about the Porter’s 5 Forces framework, which is the most powerful
and widely-used tool for analysing the strength of competitive pressures operating in an industry.

The Porter’s 5 Forces framework holds that competitive pressures on companies within an industry
come from five sources. They include competition from rival sellers; competition from potential
new entrants to the industry; competition from producers of substitute products; supplier
bargaining power, and customer bargaining power.

The strongest of the five competitive forces is the level of rivalry between existing players in a
market. Factors that drive up the level of competition in an industry are: Many competitors of
similar size and capability - leading to higher levels of fragmentation within the industry; Slow
growth or stagnant industry - characterised by a zero sum game with everyone trying to take
market share from everybody else; High fixed or idle costs - resulting in lower profitability for the
firms in the market, and High exit barriers - keeping firms from leaving the industry, leading to
price wars and dwindling profitability.

Next, the different dimensions of competitions from potential new entrants are: Barriers to entry -
high entry barriers discourage new entrants to an industry, and Expected reaction of existing
players to the threat of new entry - combative incumbents threaten entry of newcomers.

Next, the threat of competition from producers of substitute products is high when: Good
substitutes are readily available and attractively priced - this automatically puts a ceiling on the
prices the company can charge without risking sales los; Buyers think substitutes are better in
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terms of quality, performance or other relevant attributes - if this happens, the threat of
substitution increases considerably, or Switching costs are low - this will encourage consumers to
switch

Moving on, supplier bargaining power is stronger when: Demand for suppliers’ product is high or it
is in short supply - this gives suppliers pricing power; Supplier switching costs are high - industry
members are stuck with the same suppliers; A few large players dominate the supplier industry -
they can dictate the terms of agreement; Threat of backward integration is low - suppliers will not
need to be at their best behaviour, or Industry members are not the major customers of suppliers
- they have very little leverage over the suppliers

Finally, customer bargaining power tends to be high when: Demand is weak in relation to the
available supply - this creates a “supply market” where bargain-hunting buyers can press industry
members for lower costs; Buyers have low switching costs - this puts a natural limit on how much
industry members can increase prices before they lose buyer’s business; Buyers are large and few
in number relative to the number of sellers - this makes every buyers’ business very important,
forcing sellers to grant concessions; Buyers can legitimately integrate backward into the business
of sellers - this lends them an immense amount of leverage in negotiations; There is no
information asymmetry amongst buyers - suppliers will find it harder to overprice their offerings,
or Buyers are price sensitive - they tend to be more forceful in bargaining with suppliers

This sums up what you learnt in this module!

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