SM Consolidated 2021-23batch

9/22/2022
Title / Author: Strategic Management/Anand Dhutraj Page No. 1
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Strategic Management
Module 1 – Business Environment
Prof. Anand Dhutraj
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Agenda
• Introduction
• Business Environment – Industry
• Competition
• Customers
• VUCA
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• Introduction to Strategic Management
• Nature of Competition
• The Competitive Landscape
• Vision and Mission
• Stakeholders
• Strategic Leaders
• The Strategic Management Process
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Strategic Management: an integrative management field that
combines analysis, formulation, and implementation in the quest for
competitive advantage
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Strategy
• Strategy: a set of goal-directed actions a firm takes to gain and sustain superior
performance relative to competitors
• To achieve superior performance, companies compete for resources:
• New ventures: for financial and human capital
• Existing companies: for profitable growth
• Charities: for donations
• Universities: for the best students and professors
• Sports teams: championships
• Celebrities: media attention
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Elements of a Good Strategy

• Analysis
• Diagnosis of the competitive challenge
• Formulation
• Guiding policy to address the competitive challenge
• Implementation
• A set of coherent actions to implement the firm’s guiding policy
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Elements of a Good Strategy: Analysis

• Analysis
• Diagnosis of the competitive challenge

• Accomplished through strategy analysis of the firm’s internal and external environments
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Elements of a Good Strategy: Formulation

• Formulation
• Guiding policy to address the competitive challenge
• Accomplished through strategy formulation, resulting in the firm’s corporate,
business, and functional strategies
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Elements of a Good Strategy: Implementation

• Implementation
• A set of coherent actions to implement the firm’s guiding policy
• Accomplished through strategy implementation
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Nature of Competition: McDonald’s

• McDonald’s creates value for customers through:
• Business-level strategies
• Product Innovation
• Upgrading existing restaurants
• Listened to customers – value menu, healthier items, more convenience
• Purchasing European property for future expansion
• Corporate-level strategies
• Disposed of its interests in other restaurants
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Nature of Competition: Basic concepts

• Strategic Competitiveness
• Achieved when a firm formulate & implements a value-creating strategy
• Strategy
• Integrated and coordinated set of commitments and actions designed to
exploit core competencies and gain a competitive advantage
• Competitive Advantage (CA)
• Implemented strategy that competitors are unable to duplicate or find too
costly to imitate
• Above Average Returns
• Returns in excess of what investor expects in comparison to other investments
with similar risk
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Nature of Competition: Basic concepts (Cont’d)

• Risk
• Investor’s uncertainty about economic gains/losses resulting from a particular
investment
• Average Returns
• Returns equal to what investor expects in comparison to other investments with
similar risk
• Strategic Management Process (SMP)
• Full set of commitments, decisions and actions required for a firm to achieve
strategic competitiveness and earn above average returns
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The Competitive Landscape

• Introduction: The Competitive Landscape (CL)
• Pace of change is rapid
• Industry boundaries are blurring
• Financial capital is more scarce and markets are increasingly volatile
• Other CL characteristics: Economies of scale, advertising budgets not as effective as before,
change in managerial mind-set from “traditional” to more flexible and innovative
• Hypercompetition – extremely intense rivalry among competing firms, characterized by
• Escalating & increasingly aggressive competitive moves
• Assumptions of market stability replaced with notion of INstability and change
• Two primary drivers of the competitive landscape:
• The global economy
• Technology
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The Competitive Landscape (Cont’d)

• The Global Economy
• Goods, services, people, skills and ideas move freely across geographic
borders
• Europe, through the European Union (EU) is the world’s largest single market
• EU vs U.S. GDP: 35% higher
• Emerging major competitive forces: China & India
• In summary: globalization increased economic interdependence among
countries as reflected in the flow of goods and services, financial capital, and
knowledge across country borders
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• Technology and Technological Changes
• 3 categories:
1. Technology diffusion & disruptive technologies
2. The information age
3. Increasing knowledge intensity
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• Technology and Technology Changes (Cont’d)
• Technology diffusion
• Perpetual innovation: describes how new information-intensive
technologies are replacing older forms
• Speed to market may be primary competitive advantage
• 12 – 18 month timeframe to gather info re: competitor R&D
• Disruptive technologies
• Technologies that
• Destroy value of existing technology
• Create new markets
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• Technology and Technology Changes (Cont’d)
• The information age
• Dramatic changes over last several years
• Major technological developments effect how information is used and
disseminated
• Internet provides infrastructure for information anytime, anywhere
• Increasing knowledge intensity
• Defined as information, intelligence & expertise and is the basis of technology
and its application
• Gained through experience, observations and inferences
• Strategic Flexibility – set of capabilities used to respond to various demands and
opportunities existing in a dynamic and uncertain competitive environment
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The Strategic Management Process
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Vision and Mission

• Vision
• Picture of what the firm wants to be and, in broad terms, what it ultimately
wants to achieve
• An effective vision statement is the responsibility of the leader who should
work with others to form it
• Foundation for the mission
• Mission
• Specifics business(es) in which firm intends to compete and customers it
intends to serve
• More concrete than the vision
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Stakeholders
• Basic Premise – a firm can effectively manage stakeholder relationships to create
a competitive advantage and outperform its competitors
• Stakeholders are both individuals and groups

• They can affect, and are affected by, the strategic outcomes/performance a
firm achieves
• Firms are not equally dependent on all stakeholders
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The Three Stakeholder Groups
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Stakeholders (Cont’d)
• Classifications of Stakeholders
• Capital Market
• Expect returns commiserate with risk accepted by investments
• Higher the dependency relationship, the more direct and significant firm’s
response
• Product Market
• Customers, suppliers, host communities, unions
• Organizational
• The employees
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Strategic Leaders
• People located in different parts of the firm using the strategic management process to help the
firm reach its vision and mission
• Decisive and committed to nurturing those around them
• Organizational culture emerges from & sustained by leaders
• Complex set of ideologies, symbols and core values shared throughout the firm
• Affects leaders/their work which in-turn shapes culture
• Influences how the firm conducts business
• Predicting Outcomes: Profit Pools (PP)
• Anticipates their decisions relative to the PP
• PP entails the total profits earned in an industry at all points along the value chain
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Strategic Leaders (Cont’d)

• The Work of Effective Strategic Leaders
• Hard work, thorough analysis, desire for accomplishment, tenacity
• Must be able to “think seriously and deeply…about the purposes of the
organizations they head or functions they perform, about strategies,
tactics,…..and people…and about the important questions … they need to ask.”
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External Environment
• Constitutes largely uncontrollable factors which influence a firm’s choice of direction &
action
• Why is it important for a firm to study and understand external environment?

• External environment is critical to a firm’s survival and success
• Firm’s understanding of the external environment results in strategic
competitiveness
• Three External Environments include:

• General
• Industry
• Competitor
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Seven Segments of General Environment
• Demographic segment
(population size, age structure)
• Economic segment
• Political/legal segment
• Socio-cultural segment
• Technological segment
• Global segment
• Physical
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The PESTEL Framework
The PESTEL Framework
• Political Factors
• Economic Factors
• Sociocultural Factors
• Technological Factors
• Ecological Factors
• Legal Factors
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External Environment Analysis

• Opportunity
• General environment condition that, if exploited, helps a company achieve strategic
competitiveness
• Threat
• General environment condition that may hinder a company's efforts to achieve
strategic competitiveness
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Four steps of external analysis process

• Scanning: Identify early signals of environmental changes
• Monitoring: Detecting through ongoing observations of environmental changes
• Forecasting: Developing projections of anticipated outcomes based on monitored changes
• Assessing: Determining the timing and importance of environmental changes and trends in firm’s strategies
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Industry Environment
• Set of factors directly influencing
• A firm’s competitive actions/responses
• Relates to Porter’s 5 Forces – see upcoming slides
• Competitor analysis: gather and interpret competitor
information
• Competitor Environment
• Gives details about
• A firm’s direct and indirect competitors
• The competitive dynamics expected to impact a
firm's efforts to generate above-average returns
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Industry Environment Analysis

• Industry
• Definition: Group of firms producing products that are close substitutes
• Industry environment, in comparison to the general environment, has
more direct effect of firm’s
• Strategic competitiveness and
• Above-average returns
• Intensity of industry competition and industry’s profit potential are a
function of 5 forces
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The Five Forces of Competition Model
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Industry Environment Analysis (Cont’d)

Porter’s 5 Forces
1/5: New entrants
• Can threaten market share of existing competitors
• May bring additional production capacity
• Function of two factors
1: Barriers to entry
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Gov’t policy
2: Expected retaliation
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Porter’s 5 Forces
2/5: Bargaining power of suppliers
• They are powerful when …
1. Few large companies and more concentrated than the industry to
which they sell
2. No substitutes
3. Industry firms not significant customer to supplier gp
4. Supplier’s goods are critical to buyer’s success
5. High switching costs due to effectiveness of supplier’s products
6. Threat of forward integration
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Porter’s 5 Forces
3/5: Bargaining power of buyers
They are powerful when …
1. Purchase large portion of industry’s total output
2. Product sales accounts for significant seller annual revenue
3. Low switching costs (to other industry product)
4. Industry products are undifferentiated or standardized and
threat of backward integration
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Porter’s 5 Forces
4/5: Threat of substitute products
• Goods or services outside of given industry perform same or similar functions at a
competitive price (i.e., plastic has replaced steel in many applications)
5/5: Intensity of Rivalry Among Competitors
• Numerous or equally balanced competitors
• Slow industry growth
• High fixed costs or high storage costs
• Lack of differentiation or low switching costs
• High strategic stakes
• High exit barriers
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Strategic Groups
• Strategic Groups
• Set of firms emphasizing similar strategic dimensions to use a similar strategy
• Implications
• Because firms within a group compete (offer similar products) rivalry can
be intense – the greater the rivalry the greater the threat to each firm’s
profitability
• Strengths of the 5 forces differs across strategic groups
• The closer the strategic groups, in terms of strategy, the greater the
likelihood of rivalry
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Competitor Analysis
• Competitor analysis and organization response:
• What drives competitors
• Shown by organization's future objectives
• What the competitor is doing and can do
• Revealed in organization's current strategy
• What the competitor believes about the industry
• Shown in organization's assumptions
• What the competitor’s capabilities are
• Shown by organization's strengths and weaknesses
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Competitor Analysis Components
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Competitor Analysis (Cont’d)

• Competitor intelligence
• Set of data and information the firm gathers to better understand and anticipate competitors'
objectives, strategies, assumptions, and capabilities
• Intelligence Collection
• Follow ethical practices when gathering competitor intelligence
• Obtain public information
• Attend trade fairs and shows and collect brochures, view exhibits, listen to their discussions
• Some practices may be legal, but unethical
• Unethical tactics can include
• Blackmail
• Trespassing
• Eavesdropping
• Stealing drawings, samples or documents
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VUCA - Concept
• VUCA is used to help leaders and organisations understand the world in which their business
operates. It is an acronym frequently used at Emerging World and is central to our programme
design.
• A framework to approach different types of challenging situations bought about due to external
factors such as politics, economics, society, advancing technology and the environment.
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VUCA - Framework
• Born in the 1990’s in the military world of
the American military, it originally
described the conditions the world faced
after the cold war.
• The term VUCA, an acronym of Volatile,
Uncertain, Complex and Ambiguous was
originated by the American military to
describe extreme conditions during
warfare.
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1. Volatile - liable to change rapidly and unpredictably, especially for the worse
• The world is more interconnected on a global scale than ever before
and with this interconnectedness comes volatility.
• For business this financial volatility can affects things like supply chain
of products and components bought from overseas priced in local
currencies and the selling of products in internationally.
• As these changes impact the global markets, leaders need be agile and
responsive, having strategies in place to manage risk.
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What Managers can do?
• Become adaptive in decision-making
• Have clarity of vision, short and medium-term
• Communicate clearly to reduce confusion
• Determine your intent and resolve
2. Uncertain - not able to be relied on; not known or definite
• An example of uncertainty in the business world would be a
competitor launching a new product and not understanding how the
markets and customer base will respond, which could impact product
sales.
• Impact of technology which has been a huge disrupter in many
industries has meant that competitors are much harder to spot.
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• Flexibility to cope with doubt
• Build commitment and consensus of approach
• Develop new perspectives
• Create risk-management ideologies
3. Complex - consisting of many different and connected parts
• Business operates internationally, it will be working within many

different cultures and unique environments with differing
regulations, this is a complex situation as there are many different
and connected parts.
• Working internationally may mean that one need to adapt how
business operates in different cultures.
• To be prepared for leading in complex environments, leaders need to
be able to see patterns in what’s happening with the bigger picture,
as well as being able to understand the details while being agile
enough to adapt to individual market needs.
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• Understand the links between cause and effect
• Simplify processes and procedures
• Recognize nothing is permanent
• Encourage development and generation of ideas
4. Ambiguous - open to more than one interpretation; not having one obvious meaning
• This element is all about facing the unknown, in a landscape where

there are no simple answers, and multiple layers to problems and
situations. There are many contributing factors to ambiguity in the
modern world, but one which stands out is the pace of change.
• An example of this is globalisation which has seen organisations
enter new markets quicker than ever before, often expanding in
regions or markets unexplored in relation to their products.
• Dealing with ambiguity in this instance requires leaders to have a
clear understanding of hypothetical outcomes, test them, ask
questions of stakeholders with different perspectives and not jump
to conclusions too quickly.
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• Communicate directly and with clarity
• Seek out and uncover alternative viewpoints
• Listen to divergent ideas and concepts
• Learn lessons that can apply in various circumstances
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Summary of VUCA
VUCA Reveals and Is Resolved, Mitigated

Experience Amplifies our and Dampened by
Volatility Vulnerability Vigilance
Uncertainty Unwillingness Understanding
Complexity Consequences Containment
Ambiguity Assumptions Agility
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Module 2 - Internal organization
Prof. Anand Dhutraj
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Agenda
• Internal Organisation- Resources, capabilities, competencies
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Internal Organization
• Importance of understanding internal organization
• Value: Definition and importance
• Tangible vs intangible resources
• Capabilities: Definition and development
• Core competencies: Criteria
• Value Chain Analysis
• Outsourcing: Definition and “why?”
• Internal organization assessment and strategic decisions
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Components of Internal Analysis Leading to Competitive

Advantage and Strategic Competitiveness
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Analyzing the Internal Organization (IO)

• Context of Internal Analysis
• ‘Global mind-set’
• Ability to study an internal environment in ways that do not depend on the assumptions
of a single country, culture, or context
• Analyze firm’s portfolio of resources and bundle heterogeneous resources and capabilities
• Understand how to leverage these bundles
• An organization's core competencies creates and sustains its competitive advantage
• Creating Value
• Develop core competencies that lead to competitive advantage
• Value: measured by a product's performance characteristics and by its attributes for which
customers are willing to pay
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Analyzing the Internal Organization (IO) (Cont’d)
• The Challenge of Analyzing the IO

• Strategic decisions are non-routine, have ethical implications and influence the organization’s
above-average returns
• Involves identifying, developing, deploying and protecting firms’ resources, capabilities and
core competencies
• Managers face uncertainty on many fronts --
• Proprietary technologies
• Changes in economic and political trends, societal values and shifts in customer demands
• Environment – increases complexity
• Intraorganizational conflict
• Due to decisions about core competencies and how to nurture them
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Conditions Affecting Managerial Decisions About
Resources, Capabilities, and Core Competencies
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Resources, Capabilities and Core Competencies

• Competitive Advantage (CA) foundation includes
• Resources
• Bundled to create organizational capabilities
• Tangible and intangible
• Capabilities
• Source of a firm’s core competencies and basis for CA
• Purposely integrated to achieve a specific task/set of tasks
• Core Competencies
• Capabilities that serve as a source of CA for a firm over its rivals
• Distinguish a company from its competitors – the personality
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Resources, Capabilities and Core Competencies

• Tangible Resources
• Assets that can be seen, touched and quantified
• Examples include equipment, facilities, distribution centers, formal reporting structures
• Four specific types
• Intangible Resources
• Assets rooted deeply in the firm’s history, accumulated over time
• In comparison to ‘tangible’ resources, usually can’t be seen or touched
• Examples include knowledge, trusts, organizational routines, capabilities, innovation, brand
name, reputation
• Three specific types
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Building Core Competencies:
Criteria and Value Chain Analysis
• Four specific criteria of sustainable competitive advantage – capabilities that are:
• Valuable
• Rare
• Costly-to-imitate
• Non-substitutable capabilities
• Competitive consequences:
• Focus on capabilities that yield competitive parity and either temporary or sustainable
• Performance implications include:
• Parity = average returns
• Temporary advantage = avg. to above avg. returns
• Sustainable advantage = above average returns
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Building Core Competencies:
Criteria and Value Chain Analysis
• Value Chain Analysis
• A perspective in which business is seen as a chain of activities that transforms inputs
into outputs that customers value.
• Primary activities
• Involved with product’s physical creation, sales and distribution to buyers, and
service after the sale
• Service, marketing/sales, outbound/inbound logistics and operations
• Support activities
• Provide assistance necessary for the primary activities to take place
• Includes firm infrastructure, HRM, technologies development and procurement
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The Basic Value Chain
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Primary Activities in a Value Chain
Title / Author: Strategic Management/Anand Dhutraj 65 Page No. 65
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Support Activities in a Value Chain
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Three Circles Analysis
An internal analysis technique wherein strategists

examine customers’ needs, company offerings, and
competitor’s offerings to more clearly articulate
what their company’s competitive advantage is and
how it differs from those of competitors.
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Three Circles Analysis
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Three Circles Analysis (contd.)
Questions to Ask About Each Circle
Circle A
How big and sustainable are our advantages?
Are they based on distinctive capabilities?
Circle B
Are we delivering effectively in the area of parity?
Circle C
How can we counter our competitors’ advantages?
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Making Meaningful Comparisons

Managers need objective standards to use when examining
internal resources and value-building activities
Strategists use the firm’s historical experience as a basis for
evaluating internal factors
Benchmarking, or comparing the way “our” company performs
a specific activity with a competitor or other company doing the
same thing, has become a central concern of managers in
quality commitment companies worldwide
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Comparison with Success Factors in the Industry
The key determinants of success in an industry may be

used to identify a firm’s internal strengths and
weaknesses
A strategist seeks to determine whether a firm’s current
internal capabilities represent strengths or weaknesses
in new competitive arenas
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Outsourcing
• Definition: Purchase of a value-creating activity from an external
supplier
• Effective execution includes an increase in flexibility, risk mitigation
and capital investment reduction
• Trend continues at a rapid pace
• Firms must outsource activities where they cannot create value or
are at a substantial disadvantage compared to competitors
• Can cause concerns
• Usually revolves around innovative ability and loss of jobs
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Internal Organization Assessment and
Strategic Decisions
• Firms must identify their strengths and weaknesses
• Appropriate resources and capabilities needed to develop desired strategy
and create value for customers/other stakeholders
• Tools (i.e., outsourcing) can help a firm focus on core competencies as the
source for CA
• Core competencies have potential to become core rigidities
• Competencies emphasized when no longer competitively relevant can
become a weakness
• External environmental conditions and events impact a firm’s core
competencies
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Module 3 – Corporate Level Strategy
Prof. Anand Dhutraj
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Agenda
• Corporate Level Strategy
• Diversification
• Integration
• Grand Strategy
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Stages of Strategic Management

• Strategy formulation, implementation, and evaluation activities occur at
three hierarchical levels in a large organization: corporate, business and
functional
• Strategic management helps a firm function as a competitive team
• Where do we compete? (corporate)
• How do we compete? (business)
• How do we execute? (functional)
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Corporate Strategy
• What businesses are we in?
• How did we get there? Single Business
Product Line Expansion
Geographic Expansion/
Vertical Integration
Diversification
Related / Unrelated
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Corporate level strategies

• Corporate level strategies specifies actions a firm takes to gain a competitive
advantage by selecting and managing a group of different businesses
competing in different product markets.
– Expected to help firm earn above-average returns
– Value ultimately determined by degree to which “the businesses in the portfolio
are worth more under the management of the company then they would be
under any other ownership
– Product diversification (PD): primary form of corporate-level strategy
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Levels of Diversification
1. Low Levels
• Single Business Strategy
• Corporate-level strategy in which the firm generates 95% or more of its
sales revenue from its core business area
• Dominant Business Diversification Strategy
• Corporate-level strategy whereby firm generates 70-95% of total sales
revenue within a single business area
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2. Moderate to High Levels
• Related Constrained Diversification Strategy

• Less than 70% of revenue comes from the dominant business
• Direct links (i.e., share products, technology and distribution linkages)
between the firm's businesses
• Related Linked Diversification Strategy (Mixed related and unrelated)
• Less than 70% of revenue comes from the dominant business
• Mixed: Linked firms sharing fewer resources and assets among their
businesses (compared with related constrained, above), concentrating on the
transfer of knowledge and competencies among the businesses
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3. Very High Levels: Unrelated
• Less than 70% of revenue comes from dominant business
• No relationships between businesses
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Reasons for Diversification

• A number of reasons exist for diversification including
• Value-creating
• Operational relatedness: sharing activities between businesses
• Corporate relatedness: transferring core competencies into business
• Value-neutral
• Value-reducing
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Value-Creating Diversification Strategies:
Operational and Corporate Relatedness
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Value-Creating Diversification (VCD):
Related Strategies
• Purpose: Gain market power relative to competitors
• Related diversification wants to develop and exploit economies of scope
between its businesses
• Economies of scope: Cost savings firm creates by successfully sharing
some of its resources and capabilities or transferring one or more
corporate-level core competencies that were developed in one of its
businesses to another of its businesses
• VCD: Composed of ‘related’ diversification strategies including
Operational and Corporate relatedness
Value-Creating Diversification (VCD): NLDIMSR
Related Strategies (Cont’d)
1. Operational Relatedness: Sharing activities

• Can gain economies of scope
• Share primary or support activities (in value chain)
• Risky as ties create links between outcomes
• Related constrained share activities in order to create value
• Not easy, often synergies not realized as planned
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2. Corporate Relatedness: Core competency transfer

• Complex sets of resources and capabilities linking different businesses
through managerial and technological knowledge, experience and expertise
• Two sources of value creation
• Expense incurred in first business and knowledge transfer reduces
resource allocation for second business
• Intangible resources difficult for competitors to understand and imitate,
so immediate competitive advantage over competition
• Use related-linked diversification strategy
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• Market Power
• Exists when a firm is able to sell its products above the existing competitive
level, to reduce costs of primary and support activities below the
competitive level, or both.
• Multimarket (or Multipoint) Competition
• Exists when 2 or more diversified firms simultaneously compete in the
same product or geographic markets.
• Related diversification strategy may include
• Vertical Integration
• Virtual integration
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Unrelated Strategies
• Creates value through two types of financial economies
• Cost savings realized through improved allocations of financial resources
based on investments inside or outside firm
• Efficient internal capital market allocation
• Restructuring of acquired assets
• Firm A buys firm B and restructures assets so it can operate more
profitably, then A sells B for a profit in the external market
Value-Neutral Diversification: NLDIMSR
Incentives and Resources

• Incentives to Diversify
• Antitrust Regulation and Tax Laws
• Low Performance
• Uncertain Future Cash Flows
• Synergy and Firm Risk Reduction
• Resources and Diversification
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The Curvilinear Relationship between
Diversification and Performance
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Value-Reducing Diversification:
Managerial Motives to Diversify
• Top-level executives may diversify in order to diversity their own employment
risk, as long as profitability does not suffer excessively
• Diversification adds benefits to top-level managers but not shareholders
• This strategy may be held in check by governance mechanisms or
concerns for one’s reputation
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Summary Model of the Relationship Between
Diversification and Firm Performance
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Vertical Integration Strategies

Vertical Integration Strategies:
Takes place when one firm acquires another that is involved with earlier stage of
production process or later stage of production process
• Forward integration
• Backward integration
• Horizontal integration
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Forward Integration
Defined Example
• Gaining ownership or • Multiple Brands opening their
increased control over own stores.
distributors or retailers
Guidelines for Forward Integration
• Present distributors are expensive, unreliable, or incapable of meeting firm’s needs
• Availability of quality distributors is limited
• When firm competes in an industry that is expected to grow markedly
• Advantages of stable production are high
• Present distributor have high profit margins
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Backward Integration
Defined Example
• Seeking ownership or • Reliance starting Oil refinery in
increased control of a Jamnagar.
firm’s suppliers
Guidelines for Backward Integration
• When present suppliers are expensive, unreliable, or incapable of meeting needs
• Number of suppliers is small and number of competitors large
• High growth in industry sector
• Firm has both capital and human resources to manage new business
• Advantages of stable prices are important
• Present suppliers have high profit margins
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Horizontal Integration
Defined
Example
• Seeking ownership or
increased control over • Disney & Pixar
competitors
Guidelines for Horizontal Integration
• Firm can gain monopolistic characteristics without being challenged by federal
government
• Competes in growing industry
• Increased economies of scale provide major competitive advantages
• Faltering/losing due to lack of managerial expertise or need for particular resources
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Grand Strategies
• Grand strategies are the decisions or choices of long term plans from available alternatives.
• Grand strategies also called as master or corporate strategy.
• It is based on analysis of internal and external environment.
• This direct the organization towards achievement of overall long term objectives (strategic
intent).
• They involve Expansion, Quality Improvement, Market Development, Innovation,
liquidation, etc.
• Usually they are selected by top level managers such as directors, executives etc.
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Classification of Grand Strategy

• It is classified into following:-
• Stability Strategy
• Growth Strategy
• Retrenchment Strategy
• Combination Strategy
Stability Growth Retrenchment
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Stability Strategy
• A strategy is stability strategy when a firm attempts to maintain its status-quo with existing
levels of efforts and it is satisfied with only incremental growth/improvement by marginally
changing the business and concentrates its resources where it has or can develop rapidly a
meaningful competitive advantages in the narrowest possible product market scope.
• Absence of significant change

• i.e. continuing to serve the same clients by offering the same product or service, maintaining
market share, and sustaining the organization's return-on investment.
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When do organizations follow

• It is common for most of the organizations to follow this strategy at some point of time in their
life cycle.
• When a firm serves defined market and its segments to fulfills its mission.
• When a firm can relate itself with the environment and environmental factors do not show any
appreciable change. This is possible for most of the firms in a short run, but for a few in long
runs.
• When organization continues to pursue the same objectives by adjusting to the same level of
achievement about the same percentage. Thus stability does not mean absence of growth but
the growth is limited within specified limits and there is no substantial addition of facilities.
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When do organizations follow

• When there is scope for incremental improvement in the same line of business to take
the fullest advantage of situation. E.g. when a company has technological or other
break through it continues to be in the same business until it has competitive
advantage. Thus when a company is pioneer in a new business, it reaps the benefit of
initiation. Then when competition increases and profitability reduces, it may go for
other strategy.
• When a firm looks for functional improvement and there by efficiency and economy
of operations so as to gain competitive advantage, it follows this strategy.
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Why do organization follow

• When management perception about performance in the present business is
satisfactory, they tend to follow stability strategy because they are not always sure of a
set of factors attributing to success. Thus they decide to continue the same business.
• This strategy involves low risk unless there is a major change in the environment. So it
provides safe business. Therefore it is preferred by risk avoiding managers.
• “Slow or resistant to change” organizations follow this strategy. As they become larger
and more successful, they develop such tendency & prefer stability.
• Organization’s past history may be full of changes, so to reap the advantages of such
past, stability is preferred for some
time, usually after growth strategy.
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Why do organization follow

• A firm having strategic advantage in the present business & market does not opt. for
other strategy and prefers stability.
• A company lacking in sufficient resources to effect major changes in business have to
opt. for stability.
• The environmental factors such as govt. norms, prohibition & restriction of certain
products & process, licensing etc. prevent other strategies & a firm has to adopt stability
strategy.
• A firm may have a product or group of products which is not prestigious to it, its market
share as well as contribution to total sales is very small and its market is declining. So
before retrenching such product, the firm wants to generate as much profit as possible,
even by scarifying its market share, and follows stability strategy
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Alternatives of stability strategy.

Incremental growth strategy
• It is one in which a firm sets its objectives/achievement levels based on past

accomplishment adjusted for inflation. It may be average achievement level of industry or
even low. It is followed when environmental factors are more or less stable.
– The organization is doing well or perceives as doing well in its present form.
– It being a less risky and the organization does not go for higher risk.
– The organization is change resistant and prefers change only in extraordinary times.
– It is easier to pursue as it does not disturb the organizational routines.
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Profit strategy / End game strategy / Harvesting strategy
• It is one in which organization or its SBU aims at generating profit/cash, sometimes at

the cost of market share also because the product is not prestigious, its market share &
also contribution to total sales are very small.
• The product is in stable or
• declining market. Here, company wants to encash as much profit as possible before
retrenchment.
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Sustainable growth strategy
• It is one in which a firm tries to maintain its existence in unfavorable critical

conditions like constraints on finance resources, raw material resources etc., govt.
policy, cheaper imports, competition21 by big and capable competitors etc.
• Stability as a pause/breathing spell/proceed with caution strategy
• It is one in which organization has followed growth strategy aggressively in recent
past and want a pause on growth to consolidate its position by allowing structured
changes to take place and the system to adopt to new strategies thereby it wants to
take full advantage of future growth opportunities and strong present factors. Thus
this strategy becomes intermediate choice between past & future, for some time.
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Growth Strategy
• Growth Strategies are means by which an organization plans to achieve the increased
level of objective that is much higher than its past achievement level.
Organizations may select a growth strategy

• to increase their profits, sales or market share.
• to reduce cost of production per unit.
• increase in performance objectives.
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Reasons for following Growth Strategy

In the long run, growth is necessary for the very survival of the organizations. The
organization that does not grow may be pushed out of the business because
• Of the new entrants in the field
• Higher wages, higher costs of other inputs, and lower level of efficiency because of
certain obsolescence in plant and machinery.
• Growth offers many economies because of large-scale operations.
• Per unit cost of production can be very low
• The economies of increasing scale enhance degrees of specialization.
• With more people available to do the different kinds of work
• Greater penetration can be made
• These eventually lead to certain competitive advantage to the organization concerned.
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Reasons for following Growth Strategy

• Growth strategy is taken up because of managerial motivation to do so. Managers with
high degree of achievement and recognition always prefer to grow. The needs on the
part of managers push them to think as to how they can achieve their need
satisfaction. The answer lies in the continuous growth of the organization or the
group of organizations as a whole.
• There are certain intangible advantages of growth. These may be in the form of
• Increased prestige of the organization
• Satisfaction to employees and
• Social benefits
• Preferred by investors
• Growing companies have high level of prestige in the corporate world.
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Alternatives of Growth Strategy

Concentric Expansion Strategy
• It means investing the resources in one or more of a firm’s business so as to expand its
present business. i.e. doing more what we are already doing and where we are best at
doing; when potential for growth, attractiveness and maturity factors are favorable in the
industry of the firm.
• It can be aimed at-
– Market penetration (capture the market share in the existing product and expand its business
at rate higher than the industry growth)
– Market development (increase sales by developing new markets, geography-wise or segment-
wise)
– Product development (achieve growth through product innovation to penetrate in new
segment)
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Vertical Integration Growth Strategy
• It represents a decision by an organization to utilize internal transactions rather
than market transactions to accomplish its objectives.
• A firm starts undertaking & contributing activities, in addition to present activities,
along the line of value addition stages from raw material stage to production and
ultimately distribution of goods to customers, so as to gain ownership or increased
control and thereby expand the business.
• Vertical integration can be achieved in two ways

– Forward Integration
– Backward Integration
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Diversification Strategy
• It is the process of entry into a business which is new to an organization.
• Diversified organizations can be classified into following

– Concentric Diversification (Related diversification)
• Market-wise
• Technology –wise
• Both
– Conglomerate Diversification (Unrelated diversification)
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External Strategy
Merger strategy
• It means that two or more organizations merge together by formally losing their
corporate identities and form another organization through combining assets & liabilities
& issuing new stock, for mutual synergetic benefits. The new co. is called holding
company and the merging companies are called subsidiary companies. According to the
nature of business of merging companies, merger may be
– Horizontal
– Vertical
– Concentric
– Conglomerate
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Acquisition or takeover
• It means that one company attempts to acquire ownership or control over management of
other co. either by mutual consent of or against the wishes of latter’s (other co.)
management or stock holders. It may be
– Friendly takeover
– Hostile takeover
Join venture
• It means that two or more companies combine to form a new company by equity
participation and sharing of resources like finance, managerial talents, technology etc.,
so as to create new entity distinct from its parents
• JV b/w Government of India and another company
• JV b/w two or more Indian private sector companies
• JV b/w Indian company and a foreign company
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Strategic Alliance
• It is one in which two (or more) firms unite by “a win-win type” agreement
mutually acceptable to both (or all),
• In strategic alliance partners join hands together for certain specified
objectives, when these objectives are achieved partners terminate their
alliance.
• Types of Strategic Alliance (Based on its focus)
– Technology Development Alliance
– Operations and Logistics Alliance
– Marketing, Sales and Service Alliance
– Single Country or Multicountry Alliance
– X and Y Alliance
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Retrenchment Strategy
• It is a defensive strategy in which a firm having declining performance decides
to improve its performance through contraction in this activities i.e. reducing
the scope of its business by total or partial withdrawal from present business.
– focusing on functional improvement with special emphasis on cost reduction
or
– reducing the number of functions it performs, by being a captive firm or
– reducing the no. of products, markets, customer functions etc. or
– liquidation of business (as a last alternative) or
– combinations of above.
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Reasons for adopting

• When the organization is not doing well and perceives that it may not do better
in future too in a particular line of business it is advisable to delete that line of
business. After deletion, the organization can concentrate in other areas, where
it has some advantages.
• If the organization is not meeting its objectives even after following other
alternative strategies it may go for retrenchment strategy. Also when the
management is under pressure to improve the performance, this strategy can be
pursued as a last resort.
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Alternatives of Retrenchment Strategy

Turnaround Strategy
• It is also known as cutback strategy “hold the present business and cut the costs”
• It is one in which a company tries to recover from its declining state by improving
internal efficiency.
• Turnaround actions may include:
– Change in the product mix
– Selling of assets which are not useful for long time or in future also to generate cash.
– Closing down plants & divisions which are not rewarding.
– Replacement of obsolete machinery
– Focus on specific products and customers and improved marketing, etc.
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Divestment Strategy
• In divestment strategy the organization decides to get out of certain
businesses and sells off units or divisions.
• Divestment is done through:-
– Outright sale of unit to another company for which the divested unit is a
strategic fit. Or
– Leveraged buyout- a company’s shareholder are bought out by company’s
management and other private investors using borrowed funds Or
– Spin off i.e. creating a new co. financially and managerially independent one
from parent company and retaining or not retaining partial ownership by
distribution of shares of new company to shareholders of parent company.
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Liquidation Strategy
• It is one in which a firm closes down & sells its entire business at a fair price on the basis of
tangible assets, management good will & also intangible assets and invests the realization
somewhere else or distributes among debtors and members when
– Business can’t be revived and its retaining value is less than its selling.
– Business is in peak form (value, but future is quite uncertain, having no direction)
– Business has accumulated losses and some other organization offers higher price to
get tax benefits,
– Liquidation value is more than discounted present value of future flow of income
etc.
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Combination Strategy
• Combination strategy is not an independent classification but it is a
combination of different strategies –
stability, growth, retrenchment – in various forms.
• Thus the possible combinations of strategies may be:
– Stability in some businesses and growth in other businesses
– Stability in some businesses and retrenchment in other businesses
– Growth in some businesses and retrenchment in other businesses
– Stability, growth and retrenchment in different businesses.
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Reasons for following

• Different products in different product life cycle
– When different products of the organization are at different product life-
cycle stages, they require different types of investment.
• Business Cycle
– Business cycle may affect the prospect of various businesses differently.
• Number of businesses
– When the number of businesses in an organization has gone beyond the
optimum number, they are required to be reduced because some business
may not be that attractive from long- term point of view.
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Boston Consulting Group (BCG) Matrix

• Developed by Bruce Henderson (in 1970’s)
• It is a chart that had been created to help corporations with analyzing

their business units or product lines.
• Helps to evaluate company’s position in terms of its range of products.
• Helps to make decision regarding which product/service to be kept, which it

should let it go and in which it should invest in further.
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BCG Matrix
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Question Marks:
• High market growth rate
• Low market share
• Low cash generation than cash consumption. Analyze carefully the
market situation Investment into high growth potential market.
• Critical decision making for managers.
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Stars
• High market growth rate

• High market share
• Huge cash generation
• Huge cash consumption
• Huge investment in growing market
• Becomes cash cows when market growth rate declines
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Cash Cows
• Low market growth rate
• High market share
• Huge cash generation than consumption
• Low prospects for future growth-so no new investment in this category.
• Investment into STARS and QUESTION MARKS.
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Dog
• Low market growth rate
• Low market share
• Neither large cash generation nor consumption. Also known
as CASH TRAPS.
• Dogs should be sold off or liquidated.
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Introduction
• A business level strategy is the integrated and co-ordinate course of actions/plans
adopted by a firm for each of its businesses separately.
• Satisfying customers is the foundation of successful business strategies

• Managing relationships with customers
• Reach, richness, affiliation
• Who will be served
• What needs will be satisfied
• How those needs will be satisfied
• Five (5) generic business level strategies
• Generic = can be used in any organization competing in any industry
• Follows the discussion of customers
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Customers: Their Relationship
with Business-Level Strategies
• Strategic competitiveness results when firm can satisfy customers by using its competitive
advantages
• Returns earned are the lifeblood of firm
• Most successful companies satisfy current customers and/or meet needs of new customers
• Five components in customer relationships

1. Effectively managing relationships w/ customers
• Deliver superior value
• Strong interactive relationships is foundation
2. Reach, richness and affiliation
• Access and connection to customers
• Depth and detail of two-way flow of information between firm and customer
• Facilitating useful interactions with customers
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Customers: Their Relationship
with Business-Level Strategies
3. Who: Determining the customers to serve
• Market segmentation
• Dividing customers into groups based on differences in needs
• Process used to cluster people with similar needs into individual and identifiable groups
• For example, consumer and industrial markets
4. What: Determining which customer needs to satisfy

• What = Needs
• Related to a product’s benefits and features
• Must anticipate and be prepared: (I.e., High-quality? Low price?)
• Translate into features and performance capabilities of products
5. How: Determining core competencies necessary to satisfy customer needs

• Core competencies: resources and capabilities that serve as source of competitive advantage for firm
over its rivals
• How = core competencies
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Purpose of Business-Level (BL) Strategies

• Purpose: To create differences between position of a firm and its competitors
• Firm must make a deliberate choice to
• Perform activities differently
• Perform different activities
• Activity map exemplifies a firm’s
• Activities
• How they are integrated
• Activities - their ‘connectedness’ or fit
• Fit is key to the sustainability of competitive advantage
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Purpose of Business-Level (BL) Strategies (con’t)
• Two types of competitive advantage firms must choose between

• Cost (Are we LOWER than others?)
• Uniqueness (Are we DIFFERENT? How?)
• Two types of ‘competitive scope’ firms must choose between
• Broad target
• Narrow target
• These combine to yield 5 different BL strategies
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Five Business-Level Strategies
Porter’s
Generic
Strategies
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Types of Business-Level Strategies

1. Cost Leadership (CL)
• Competitive advantage: THE low-cost leader and operates with margins greater
than competitors
• Competitive scope: Broad
• Integrated set of actions designed to produce or deliver goods or services with
features that are acceptable to customers at the lowest cost, relative to competitors
• No-frill, standardized goods
• Continuously reduce costs of value chain activities
• Inbound/outbound logistics account for significant cost
• Low-cost position is a valuable defense against rivals
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Types of Business-Level Strategies (Cont’d)
• 1. Cost Leadership (CL) (Cont’d)

• Cost leaders are in a position to
• Absorb supplier price increases and relationship demands
• Force suppliers to hold down their prices
• Continuously improving levels of efficiency and cost reduction
• Can be difficult to replicate and
• serve as significant entry barriers to potential competitors
• Cost leaders hold an attractive position in terms of product
substitutes, with the flexibility to lower prices to retain customers
• Examples: Greyhound Bus, Big Lots Inc., Wal-Mart
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Examples of Value-Creating Activities NLDIMSR

Associated with the Cost Leadership Strategy
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1. Cost Leadership (CL) (Cont’d)

• In relationship to the 5 Forces:
• Rivalry against existing competitors: Rivals hesitate to compete on the basis of
price
• Bargaining Power of Buyers (Customers)
• Bargaining Power of Suppliers
• Potential Entrants
• Product Substitutes
Competitive Risks of the cost leadership strategy
• Source of cost advantage becomes obsolete
• Focus on cost may cause the firm to overlook important customer preferences
• Imitation
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2. Differentiation
• Competitive advantage: Differentiation
• Competitive scope: Broad
• Integrated set of actions designed by a firm to produce or deliver goods or
services at an acceptable cost that customers perceive as being different in ways
that are important to them
• Target customers perceive product value
• Customized products – differentiating on as many features as possible
• Examples: Apple’s iPod
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Examples of Value-Creating Activities
Associated with the Differentiation Strategy
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• 2. Differentiation (Cont’d)
• In relationship to the 5 Forces:
• Rivalry against existing competitors
• Customers are loyal purchasers of differentiated products I.e., Bose
• Bargaining Power of Buyers (Customers)
• Inverse relationship between loyalty/product: As loyalty increases, price sensitivity
decreases, i.e., Callaway golf clubs
• Bargaining Power of Suppliers
• Provide high quality components, driving up firm’s costs
• Cost may be passed on to customer
• Potential Entrants
• Substantial barriers (see above) and would require significant resource investment
• Product Substitutes
• Customer loyalty effectively positions firm against product substitutes
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• Competitive Risks of the differentiation strategy

• Customers determine that the cost of differentiation is too great
• The means of differentiation may cease to provide value for which
customers are willing to pay
• Experience can narrow customers’ perceptions of the value of a
product’s differentiated features
• Counterfeiting
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• There are two “Focus” strategies

• In general, the firms’ core competencies used to serve the need of a
particular industry segment or niche to the exclusion of others.
• May lack resources to compete in the broader market
• May be able to more effectively serve a narrow market segment than
larger industry-wide competitors
• Firms may direct resources to certain value chain activities to build
• Large firms may overlook small niches
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• Focus strategy examples

• Buyer groups
• Youths/senior citizens
• Product line segments
• Professional painter groups
• Geographic markets
• West vs. East coast
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3. Focused Cost Leadership

• Competitive advantage: Low-cost
• Competitive scope: Narrow industry segment
4. Focused Differentiation
• Competitive advantage: Differentiation
• Competitive scope: Narrow industry segment
• i.e., in the outdoor recreation business a firm that caters to fly fishing is following a
focused differentiation strategy (as opposed to discount stores that carry general
fishing gear)
• High quality equipment
• Knowledgeable personnel
• Guided tours
• Fly tying classes
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• Risk of using “Focus” strategies

• A competitor may be able to focus on a more narrowly defined competitive
segment and "outfocus” the focuser
• A company competing on an industry-wide basis may decide that the market
segment served by the focus strategy firm is attractive and worthy of
competitive pursuit
• Customer needs within a narrow competitive segment may become more
similar to those of industry-wide customers as a whole
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5. Integrated CL/Differentiation
• Efficiently produce products with differentiated attributes
• Efficiency: Sources of low cost
• Differentiation: Source of unique value
• Can adapt to new technology and rapid changes in external environment
• Simultaneously concentrate on TWO sources of competitive advantage:
cost and differentiation – consequently…
• …must be competent in many of the primary and support activities
• Three sources of flexibility useful for this strategy
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• Three flexible sources include

• Flexible manufacturing systems (FMS)
• Computer controlled process used to produce a variety of products in moderate, flexible
quantities with a minimum of manual intervention
• Goal: eliminate ‘low cost vs. product variety, tradeoff inherent in traditional
manufacturing technologies
• Information networks
• Using technology to link suppliers, distributors and customers
• Total Quality Management (TQM) systems
• Emphasizes firm’s total commitment to the customer and continuous improvement of
every process through data-driven, problem-solving approaches based on empowering
employees
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• Competitive Risks of Integrated Strategies

• Although becoming more popular the RISK is getting ‘stuck in the middle’
• Cost structure is not low enough for attractive pricing of products and
products not sufficiently differentiated to create value for target
customer – therefore, fail to successfully implement either low cost or
differentiation strategy
• Result: Don’t earn above-average returns
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What Is A Blue Ocean Strategy?
• Successfully combining differentiation and cost-leadership activities
• Uses value innovation to reconcile trade-offs
• The metaphor of blue ocean means:

• Untapped market space
• The creation of additional demand
• The opportunity for highly profitable growth
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A Blue Ocean Strategy is Difficult to Implement
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Blue Ocean: How IKEA Did It

• Eliminate
• Sales people
• After sales service
• Reduce
• Warranties
• Raise
• Offers tens of thousands of home furnishing items
• Create
• New way to shop for furniture
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How JCPenney Sailed Deeper into the Red Ocean

• Results:
• Sales dropped by 25%.
• Their stock was dropped from the S&P 500 index.
• CEO Ron Johnson was fired.
• His predecessor came out of retirement to step in
• Experienced a sustained competitive disadvantage, as they
were “stuck in the middle.”
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Module 5 – Competitive Strategies
Prof. Anand Dhutraj
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Creating Strategic Fit to Leverage Internal Strengths
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Introduction
Competition in Recession – Let the Bad Times Roll
• Competitive rivalry often increases during recession

• Customers change buying behavior
• Look for ways to escape daily negative environment
• Movie ticket sales increase
• Chocolate/sweet consumption increase
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Definitions
• Competitors
• Firms operating in the same market, offering similar products and targeting similar customers
• Competitive Rivalry
• Ongoing set of competitive actions and competitive responses occurring between competitors
as they contend with each other for an advantageous market position
• Competitive Behavior
• Set of competitive actions and competitive responses the firm takes to build or defend its
competitive advantages and to improve its market position
• Multimarket Competition
• Firms competing against one another in several product or geographic markets
• Competitive Dynamics
• Total set of actions and responses of all firms competing within a market
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From Competitors to Competitive Dynamics
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Model of Competitive Rivalry

• Model of Competitive Rivalry
• Over time firms take competitive actions/reactions
• Pattern shows firms are mutually interdependent
• Firm level rivalry is usually dynamic and complex
• Foundation for successfully building and using capabilities and core
competencies to gain an advantageous market position
• Sequence of events (next slide) are the components of this chapter
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A Model of Competitive Rivalry
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Competitor Analysis
• Competitor Analysis
• 2 components to assess: Market Commonality and Resource Similarity
• The question: ‘To what extent are firms competitors’?
• Number of markets in which firms compete against each other
• Competitor: High market commonality & resource similarity
• I.e., Dell and HP are direct competitors
• Direct competition does not always imply intense rivalry
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Competitor Analysis
• Market Commonality
• Each industry composed of various markets which can be subdivided into
(segments)
• I.e., Financial industry
• Resource Similarity
• Extent to which firm’s tangible/intangible resources are comparable to
competitor’s in type and amount
• I.e., FedEx and UPS – both have efficient operations and focus on cost
reduction
• Combination of market commonality & resource similarity indicate a firm’s direct
competitors
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A Framework of Competitor Analysis
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Drivers of Competitive Actions/Responses

• Market commonality & resource similarity influence three drivers (awareness,
motivation and ability) of competitive behavior
• Awareness
• Prerequisite to any competitive action
• Extent competitors recognize degree of mutual interdependence that results
from market commonality and resource similarity
• Motivation
• Firm's incentive to take action, or to respond to a competitor's attack, as it
relates to perceived gains and losses
• Ability
• Firm's resources that allow competitive action and flexibility in responsiveness
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Drivers of Competitive Actions/Responses

• Other influences include resource dissimilarity
• The greater the resource imbalance between acting firm and competitors or
potential responders, the greater will be the delay in response
• i.e., Wal-Mart initially used cost leadership strategy to compete only in
small communities
• Created a logistics systems and extremely efficient purchasing practices
as competitive advantages
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Competitive Rivalry
• Important to understand competitor’s awareness, motivation and ability in order
to predict the likelihood of an attack – study ‘likelihood of attack’ factors
• What are the strategic and tactical actions?
• Strategic actions/responses: market-based moves that signify a significant
commitment of organizational resources to pursue a specific strategy
• Difficult to implement and reverse
• Tactical actions/responses: market-based moves that involve fewer resources
to fine-tune a strategy that is already in place
• Easy to implement and reverse
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Competitive Rivalry
• What are the strategic and tactical actions?
• Competitive Action
• Strategic or tactical action firm takes to build or defend its competitive
advantages or improve its market position
• Competitive Response
• Strategic or tactical action the firm takes to counter effects of a
competitor's action
• Tactical Action (or Response)
• Market-based move the firm takes in order to fine-tune a strategy
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Interfirm Rivalry: Likelihood of Attack (Cont’d)
Three possible ‘likelihood of response’ actions
1. First Mover Incentives

• Firm that takes an initial competitive action to build or to defend its
competitive advantages or to improve its market position
• Must have readily available resources
• Slack – buffer or cushion provided by actual or obtainable
resources not currently used by an organization, resources in
excess of the minimum needed to produce a given level of output
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Three possible ‘likelihood of response’ actions (Cont’d)
1. First Mover Incentives
• Often builds upon a strategic foundation of superior research and
development skills
• Tends to be aggressive and willing to experiment with innovation
• Tends to take higher, yet reasonable, risks
• Needs to have liquid resources (slack) that can be quickly allocated to
support actions
• Benefits can be substantial, but remember the learning curve!
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1. First Mover Incentives: Responses to
• Second Mover
• Responds to first mover, typically through imitation
• Is more cautious than first movers
• Tends to study customer reactions to product innovations
• Tends to learn from the mistakes of first movers, reducing its risks
• Takes advantage of time to develop processes and technologies that are more
efficient than first movers, reducing its costs
• Will not benefit from first mover advantages, lowering potential returns
• Late Mover
• Responds to market opportunities only after considerable time has elapsed since
first and second movers have taken action
• Has substantially reduced risks and returns
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2. Organizational Size
• Small firms
• Act as nimble and flexible competitors
• Rely on speed and surprise to defend their competitive advantage
• Have greater variety of competitive behavior options available
• Large firms
• Often have greater slack
• Have greater likelihood to initiate competitive and strategic actions over time
• Tend to rely on a limited variety of competitive actions, which can ultimately reduce
their competitive success
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3. Quality
Customer perception that the firm's goods or services perform in ways that
are important to customers, meeting or exceeding their expectations
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Interfirm Rivalry: Likelihood of Response

Additional factors affect the likelihood a firm will competitively respond to a
competitor’s actions:
1. Types and effectiveness of the competitive action
2. Actor’s Reputation
Actor: Firm taking an action or response (in the context of competitive rivalry)
Reputation: positive or negative attribute ascribed by one rival to another
based on past competitive behavior
3. Dependence on the Market
Extent to which a firm's revenues or profits are derived from a particular
market
Finally, if the action significantly strengthens or weakens the firm's competitive position
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Competitive Dynamics: 3 Market Cycles

1. Slow-Cycle Markets
• Markets in which the firm's competitive advantages are shielded from
imitation for long periods of time, and in which imitation is costly
• Build a one-of-a-kind competitive advantage which creates sustainability (I.e.,
proprietary and difficult for competitors to understand)
• Once a proprietary advantage is developed, competitive behavior should be
oriented to protecting, maintaining, and extending that advantage
• Organizational structure should be used to effectively support strategic efforts
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Gradual Erosion of a Sustained Competitive Advantage
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Competitive Dynamics: 3 Market Cycles (Cont’d)

2. Fast-Cycle Markets
• Markets in which the firm's capabilities that contribute to competitive
advantages are not shielded from imitation and where imitation is often rapid
and inexpensive
• Focus: learning how to rapidly and continuously develop new competitive
advantages that are superior to those they replace (creating innovation)
• Avoid loyalty to any one product, possibly cannibalizing their own current
products to launch new ones before competitors learn how to do so through
successful imitation
• Continually try to move on to another temporary competitive advantage before
competitors can respond to the first one
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Developing Temporary Advantages to Create
Sustained Advantage
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3. Standard-Cycle Markets
• Markets where firm’s competitive advantages are moderately shielded from
imitation and where imitation is moderately costly
• Competitive advantages partially sustained as quality is continuously upgraded
• Seek to serve many customers and gain a large market share
• Gain brand loyalty through brand names
• Careful operational control / manage a consistent experience for the customer
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3. Standard-Cycle Markets
• Markets where firm’s competitive advantages are moderately shielded from
imitation and where imitation is moderately costly
• Competitive advantages partially sustained as quality is continuously upgraded
• Seek to serve many customers and gain a large market share
• Gain brand loyalty through brand names
• Careful operational control / manage a consistent experience for the customer
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VRIO Model (Resource Based View)

• A model that sees certain types of resources (VRIO) as key to superior firm
performance
• Valuable
• Rare
• Costly to Imitate
• Organized to Capture Value
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Two Critical Assumptions of the RBV
• Resource Heterogeneity
• A firm is bundle of resources and capabilities that differ across firms
• Resource Immobility
• A firm has resources that tend to be “sticky” and that do not move easily
from firm to firm
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The VRIO Decision Tree
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A Resource is Valuable If…

• It enables the firm to exploit an opportunity.
• It enables the firm to offset a threat.
• It enables a firm to increase its economic value creation.
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A Resource is Rare If…

• Only one or a few firms possess it
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A Resource Is Costly to Imitate If…

• Firms that do not possess the resource are unable to develop or buy the
resource at a reasonable price.
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A Resource Is Organized to Capture Value If…

• It has an effective organizational structure.
• It has coordinating systems.
• Example: Xerox Palo Alto Research Center:
• Developed the first word-processing application Graphical User Interface (GUI),
Ethernet, Mouse, Personal Computer
• These innovations did not fit within the Xerox focus.
• Management was busy pursuing innovations in the photocopier business.
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Isolating Mechanisms
• Barriers to imitation
• Protect resources, capabilities, or competencies that underlie a firm’s competitive
advantage.
How:
1. Better expectations of future resource value
2. Path dependence
3. Causal ambiguity
4. Social complexity
5. Intellectual property (IP) protection
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Competitive Implications
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Competency Implications
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Module 5A – Competitive Strategies
Mergers & Acquisitions
Prof. Anand Dhutraj
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Introduction: Popularity of M&A Strategies

• Popular strategy among U.S. firms for many years
• Can be used because of uncertainty in the competitive landscape
• Increase market power because of competitive threat
• Spread risk due to uncertain environment
• Shift core business into different markets
• Due to industry or regularity changes
• Intent: increase firm’s strategic competitiveness and value – the
reality, however, is returns are close to zero
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Introduction: Merger vs. Acquisition vs. Takeover (Cont’d)
• Merger
• Two firms agree to integrate their operations on a relatively co-equal basis
• Acquisition
• One firm buys a controlling, 100 percent interest in another firm with the
intent of making the acquired firm a subsidiary business within its portfolio.
• Takeover
• Special type of acquisition strategy wherein the target firm did not solicit the
acquiring firm's bid
• Hostile Takeover: Unfriendly takeover that is unexpected and undesired by
the target firm
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Reasons for Acquisitions

1. Increased market power
• Sources of market power include
• Size of the firm, resources and capabilities to compete in the market and share of the market
• Horizontal Acquisitions
• Acquirer and acquired companies compete in the same industry
• i.e., McDonald’s acquisition of Boston Market
• Vertical Acquisitions
• Firm acquires a supplier or distributor of one or more of its goods or services; leads to
additional controls over parts of the value chain
• i.e., Walt Disney Company’s acquisition of Fox Family Worldwide.
• Related Acquisitions
• Firm acquires another company in a highly related industry
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Reasons for Acquisitions (Cont’d)
2. Overcoming entry barriers

• Cross-border acquisition: headquarters in different country
3. Cost of new product development and increased speed to market
4. Lower risk compared to developing new products
5. Increased diversification
6. Reshaping firm’s competitive advantage
7. Learning and developing new capabilities
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Reasons for Acquisitions and Problems in Achieving Success
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Problems in Achieving Acquisition Success

1. Integration difficulties
2. Inadequate evaluation of target
3. Large or extraordinary debt
Junk bonds: financing option whereby risky acquisitions are financed with money (debt)
that provides a large potential return to lenders (bondholders)
4. Inability to achieve synergy
• Synergy: Value created by units exceeds value of units working independently
• Achieved when the two firms' assets are complementary in unique ways
• Yields a difficult-to-understand or imitate competitive advantage
• Private synergy: Occurs when the combination and integration of acquiring and
acquired firms' assets yields capabilities and core competencies that could not be
developed by combining and integrating the assets with any other company
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Problems in Achieving Acquisition Success (Cont’d)
5. Too much diversification

• Diversified firms must process more information of greater diversity
• Scope created by diversification may cause managers to rely too much on financial rather than
strategic controls to evaluate performance of business units
• Acquisitions may become substitutes for innovation
6. Managers overly focused on acquisitions
• Necessary activities with an acquisition strategy
• Search for viable acquisition candidates
• Complete effective due-diligence processes
• Prepare for negotiations
• Managing the integration process after the acquisition
• Diverts attention from matters necessary for long-term competitive success (I.e., identifying
other activities, interacting with important external stakeholders, or fixing fundamental
internal problems)
• A short-term perspective and greater risk aversion can result for target firm's managers
NLDIMSR
Problems in Achieving Acquisition Success (Cont’d)
7. Too large
• Bureaucratic controls
• Formalized supervisory and behavioral rules and policies designed to ensure
consistency of decisions and actions across different units of a firm – formalized
controls decrease flexibility
• Additional costs may exceed the benefits of the economies of scale and additional market
power
• Larger size may lead to more bureaucratic controls
• Formalized controls often lead to relatively rigid and standardized managerial behavior
• Firm may produce less innovation
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Effective Acquisitions
• Complementary assets or resources
• Friendly acquisitions facilitate integration of firms
• Effective due-diligence process (assessment of target firm by acquirer, such as books, culture,
etc.)
• Financial slack
• Low debt position
• High debt can…
• Increase the likelihood of bankruptcy
• Lead to a downgrade in the firm’s credit rating
• Preclude needed investment in activities that contribute to the firm’s long-term success
• Innovation
• Flexibility and adaptability
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Restructuring
Restructuring defined: Firm changes set of businesses or financial structure
Three restructuring strategies
1. Downsizing
• Reduction in number of firms’ employees (and possibly number of operating
units) that may or may not change the composition of businesses in the
company's portfolio
2. Downscoping
• Eliminating businesses unrelated to firms’ core businesses through divesture,
spin-off, or some other means
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Restructuring (Cont’d)
Three restructuring strategies (Cont’d)

3. Leveraged buyouts (LBOs) –
• One party buys all of a firm's assets in order to take the firm private (or no longer trade the
firm's shares publicly)
• Private equity firm: Firm that facilitates or engages in taking a public firm private
• Three types of LBOs
• Management buyouts
• Employee buyouts
• Whole-firm buyouts
• Why LBOs?
• Protection against a capricious financial market
• Allows owners to focus on developing innovations/bring them to market
• A form of firm rebirth to facilitate entrepreneurial efforts
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Restructuring
• Restructuring Outcomes
• Short-term
• Reduced costs: labor and debt
• Emphasis on strategic controls
• Long-term
• Loss of human capital
• Performance: higher/lower
• Higher risk
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Restructuring and Outcomes
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Module 5B – Competitive Strategies- International Strategy
Prof. Anand Dhutraj
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Foreign Firms Entering China and
Chinese Firms Going Global
• Chinese market is large and lucrative
• Foreign firms manufacture in China for cost savings
• Auto industry manufacturing examples:
• GM venture with Shanghai Automotive Industry Corporation
• Volkswagen venture also with Shanghai Automotive
• GM venture with Liuzhous Wuling Motors Co.
• Auto industry market area examples:
• Porsche expects 2009 sales in China to exceed sales in U.S.
• Google partnership with music labels to compete with Baidu
• Chinese firms competing abroad
• Huawei Technologies Co. Ltd. (telecom)
• ZTE (wireless networks)
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Introduction
• Many firms choose direct investment in assets over indirect investment
• Provides better protection for assets
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Opportunities and Outcomes of
International Strategy
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Identifying International Opportunities:
Incentives to Use an International Strategy (IS)
• International Strategy (IS): firm sells its goods or services outside the domestic market
• Reasons for an IS
• International markets yield potential new opportunities
• International diversification: innovation occurs in home-country market, especially
in an advanced economy, and demand for product develops in other countries, so
exports provided by domestic organization
• Multinational strategy: Secure need resources
• Other motives exist (i.e., pressure for global integration, borderless demand for
globally branded products)
NLDIMSR
Identifying International Opportunities: Incentives to

Use an International Strategy (IS) (Cont’d)
Four primary reasons

1. Increased market size
• Domestic market may lack the size to support efficient scale manufacturing facilities
2. Return on Investment (ROI)
• Large investment projects may require global markets to justify the capital outlays
Weak patent protection in some countries implies that firms should expand overseas rapidly in order to
preempt imitators
3. Economies of Scale and Learning
Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as
marketing, R&D, or distribution
Costs are spread over a larger sales base
Profit per unit is increased
4. Location advantages: Low cost markets may…
… aid in developing competitive advantage
… achieve better access to critical resources:
i.e., raw materials, lower cost labor, key customers, energy
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International Strategies (IS)

• Firms choose one or both of two basic type of IS: Business level and/or corporate level
• International business-level strategy
• Follows generic strategies of cost-leadership, differentiation, focused or broad
• International corporate-level strategy (N=3)
• Home country usually most important source of competitive advantage
• Resources and capabilities frequently allow firm to pursue markets in other
countries
• The determinants of national advantage includes 4 factors
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Determinants of National Advantage
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International Corporate-Level Strategies
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International Strategies (IS) (Cont’d)
International corporate-level strategies (Cont’d)

1. Multidomestic
• Decentralized strategic & operating decisions by strategic business-unit (SBU)
in each country allows units to tailor products to local markets
• Focuses on variations of competition within each country
• Customized products to meet local customers’ specific needs and preferences
• Takes steps to isolate the firm from global competitive forces
• Establish protected market positions
• Compete in industry segments most affected by differences among local
countries
• Deals with uncertainty from differences across markets
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2. Global
• Firm offers standardized products across country markets, with the competitive strategy
being dictated by the home office
• Emphasizes economies of scale
• Facilitated by improved global reporting standards (i.e., accounting and financial)
• Strategic & operating decisions centralized at home office
• Involves interdependent SBUs operating in each country
• Home office attempts to achieve integration across SBUs, adding management complexity
• Produces lower risk
• Is less responsive to local market opportunities
• Offers less effective learning processes (pressure to conform and standardize)
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3. Transnational
• Firm seeks to achieve both global efficiency and local responsiveness – these are
competing goals!
• Requires both global coordination and local flexibility with this strategy/structure
combination
• Flexible Coordination: Building a shared vision and individual commitment through
an integrated network
• Challenging, but becoming increasingly necessary to compete in international markets
• Growing number of global competitors heightens need to keep costs down while
greater information flow and desire for specialized products pressures firms to
differentiate and even customize products – nonetheless,
• Increasingly used as a strategy
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Environmental Trends
• Transnational strategy hard to implement
• Two new trends
1. Liability of foreignness
• Increased after terrorists’ attacks and Iraq War
• Global strategies not as prevalent today, still difficult to implement even with Internet-
based strategies
• Regional focus allows firms to marshal resources to compete effectively in regional markets
2. Regionalization
• Focus to a particular region of the world
• Increases understanding of market
• Achieve some economies
• Trade agreements (i.e., EU, OAS, NAFTA) promote flow of trade across country
boundaries with their respective regions
NLDIMSR
International Entry Modes

Follows the selection of an IS
Five main entry modes
1. Exporting
2. Licensing
3. Strategic Alliances
4. Acquisitions
5. New Wholly-Owned Subsidiary
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International Entry Modes (Cont’d)
1. Exporting
• Involves low expense to establish operations in host country
• Often involves contractual agreements
• Involves high transportation costs
• May have some tariffs imposed
• Offers low control over marketing and distribution
2. Licensing
• Involves low cost to expand internationally
• Allows licensee to absorb risks
• Has low control over manufacturing and marketing
• Offers lower potential returns (shared with licensee)
• Involves risk of licensee imitating technology and product for own use
• May have inflexible ownership arrangement
NLDIMSR
3. Strategic Alliances
• Involve shared risks and resources
• Facilitate development of core competencies
• Involve fewer resources and costs required for entry
• May involve possible incompatibility, conflict, or lack of trust with partner
• Are difficult to manage
4. Acquisitions
• Allow for quick access to market
• Involve possible integration difficulties
• Are costly
• Have complex negotiations and transaction requirements
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5. New Wholly-Owned Subsidiary

• Is costly
• Involves complex processes
• Allows for maximum control
• Has the highest potential returns
• Carries high risk
• Greenfield venture: Establish entirely new subsidiary
NLDIMSR
• Dynamics of Mode of Entry: Use the best suited to the situation at hand; affected by several
factors
• Export, licensing and strategic alliance: good tactics for early market development
• Strategic alliance: used in more uncertain situations
• Wholly-owned subsidiary may be preferred if
• IP rights in emerging economy not well protected
• Number of firms in industry is growing fast
• Need for global integration is high
• Acquisitions or greenfield ventures: secure a stronger presence in international markets
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Strategic Competitive Outcomes

International diversification: firm expands sales of its goods or services across the borders of
global regions and countries into different geographic locations or markets
Implementation follows selection of international strategy and mode of entry
1. International diversification and returns
2. International diversification and innovation
3. Complexity of managing multinational firms
NLDIMSR
Strategic Competitive Outcomes (Cont’d)
1. International diversification and returns

• As international diversification increases, firms’ returns initially decrease, but then increase
quickly as the firm learns to manage international expansion
2. International diversification and innovation
• Exposure to new products and markets
• Opportunity to integrate new knowledge into operations
• Generation of resources to sustain innovation efforts
3. Complexity of managing multinational firms
• Geographic dispersion
• Costs of coordination
• Logistical costs
• Trade barriers
• Cultural diversity
• Host government
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Risks in International Environment

Two major risks
1. Political
2. Economic
Limits to international expansions: management problems
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Risk in the International Environment
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Risks in International Environment (Cont’d)
1. Political risks
• Government instability
• Conflict or war
• Government regulations
• Conflicting and diverse legal authorities
• Potential nationalization of private assets
• Government corruption
• Changes in government policies
NLDIMSR
Risks in International Environment (Cont’d)
2. Economic risks
• Differences and fluctuations in currency values
• Investment losses due to political risks
Limits to international expansions: management problems

• Geographic dispersion
• Trade barriers
• Logistical costs
• Cultural diversity
• Other differences by country
• Relationship between organization and host country
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Module 5C – Competitive Strategies
Red, Blue and Purple Ocean Strategy
Prof. Anand Dhutraj
NLDIMSR
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The Book and the Authors
© JOHN ABBOTT © JOHN ABBOTT
Prof Chan Kim Prof Renee Mauborgne
NLDIMSR
New Market Space

• Red oceans and blue oceans make up market universe
• Red oceans: all industries in existence

= known market space
• Blue oceans: all industries not in existence
= unknown market space
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Red Oceans
• Red oceans refers to
–Industry boundaries defined and accepted
–Competitive rules of game known
–Companies try to outperform rivals; cutthroat competition
–As market space gets crowded, prospects for profit and growth reduced
–Products become commodities
–Red ocean strategy is a market-competing strategy
NLDIMSR
Blue Oceans
• Blue oceans refers to
– Undefined market space, demand creation, opportunity for highly
profitable growth
– Most are created from within red oceans by expanding existing industry
boundaries
– Rules of game waiting to be set
– Competition irrelevant
– Blue ocean strategy is a market-creating strategy
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The Rising Imperative of Creating Blue Oceans

• Supply is exceeding demand in most industries
• Global competition is intensifying
• Problems:
– Accelerated commodization of products and services
– Increasing price wars
– Shrinking profit margins
• Red oceans becoming bloodier, need to be concerned with creating blue oceans
Red Ocean Compete in
crowded markets
Blue Ocean Create and

capture new market space
NLDIMSR
The Continuing Creation of Blue Oceans

• Blue oceans have been around for some time; a feature of business life
• Industries never stand still, constantly evolving
• Significant expansion of blue oceans over years
• So why the focus on red ocean strategy?
– Corporate strategy influenced by military strategy
– Need to create new market space that is uncontested
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Red Ocean Vs. Blue Ocean

• Compete in existing market space • Create uncontested market space
• Beat the competition • Make the competition irrelevant
• Exploit existing demand • Create and capture new demand
• Break the value-cost trade-off
• Make the value-cost trade-off
• Align the whole system of a firm’s
• Align the whole system of a firm’s activities activities in pursuit of differentiation and
with its strategic choice of differentiation or low cost
low cost
NLDIMSR
Formulating and Executing Blue Ocean Strategy
• Six Principles of Blue Ocean Strategy

– Reconstruct market boundaries
– Focus on the big picture, not the numbers
– Reach beyond existing demand
– Get the strategic sequence right
– Overcome key organizational hurdles
– Build execution into strategy
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Take Aways
• Red ocean strategy is a market-competing strategy,
while blue ocean strategy is a market-creating
strategy
• As red oceans are becoming bloodier, we need to
create more blue oceans
• “The only way to beat the competition is to stop trying
to beat the competition!”
NLDIMSR
Four Actions to create a Blue Ocean

Raise
What factors
should be raised
well beyond the
industry standard?
Eliminate Create
What factors What factors should
should be be created that the
eliminated that the industry has never
industry has taken offered?
for granted?
Reduce
What factors
should be reduced
well below the
industry standard?
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Purple Ocean Strategy

• Purple Ocean Strategy Just as Blue Ocean Strategy
states that a Red ocean Strategy (Competitive
Strategy) does not guarantee success for the firm
• Purple Ocean strategy also claims that Blue Ocean
Strategy cannot guarantee the business success in the long
run since the Blue Ocean strategy will finally turn Red.
NLDIMSR
Purple Ocean strategy

• The Purple Ocean strategy believes that in today’s business world
organizations require both innovative ideas as well as a series of
strategies to compete with rivalry and remain functional in the long
term.
• Consequently, the name Purple Ocean strategy was initially adopted
following the secondary colour generated by combining red and blue
colours.
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Green Ocean Strategy

• Green Ocean Strategy is not about greening or saving the
environment.
• Discipline of strategy that concentrates on how to maximize
both fixed, internal and human resources.
• Instead of copying or benchmarking against the competition, the
focus is to be more realistic in relation to what the business can
actually commit or deliver.
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Green Ocean Strategy

• Using the analogy of beach and ocean, before one reaches
the blue part of the ocean, there is the green.
• So it makes more sense that if a business can stay within
the Green Ocean, where the water is clearer and nearer the
shore, then this would be less risky, more practical, and
eminently more desirable.
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Conclusion
• While traditional competition-based strategies (red ocean
strategies) are necessary, they are not sufficient to sustain high
performance.
• Companies need to go beyond competing to
seize new profit and growth opportunities.
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Module 6 – Cooperative Strategies
Prof. Anand Dhutraj
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Cooperative Strategy
• Overview: Seven content areas
• Cooperative strategies and why firms use them
• Three types of strategic alliances
• Business-level cooperative strategies & their use
• Corporate-level strategies in diversified firms
• Cross-border strategic alliances’ importance as an international
cooperative strategy
• Competitive risks with cooperative strategies
• Two approaches to manage cooperative strategies
• Cooperative strategy
• Firms work together to achieve a shared objective
NLDIMSR
Primary Type of Cooperative Strategy:
Strategic Alliances
Introduction: Strategic Alliance
• Cooperative strategy in which firms combine resources and
capabilities to create a competitive advantage
Three types of strategic alliances
1. Joint venture
2. Equity strategic alliance
3. Nonequity strategic alliances, which include
• Licensing agreements
• Distribution agreements
• Supply contracts
• Outsourcing commitments
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Strategic Alliances (Cont’d)
1. Joint venture
Two or more firms create a legally independent company to share resources and
capabilities to develop a competitive advantage
2. Equity strategic alliance

Two or more firms own a portion of the equity in the venture they have created
3. Nonequity strategic alliance

Two or more firms develop a contractual relationship to share some of their unique
resources and capabilities to create a competitive advantage
Primary Type of Cooperative Strategy: NLDIMSR
Many reasons firms implement cooperative strategies and specifically, strategic

alliances
Competitive market conditions would include

1. Slow-cycle markets
2. Fast-cycle markets
3. Standard-cycle
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• Why firms might develop strategic alliances

• Most firms lack the full set of resources and capabilities needed to reach their objectives
• Cooperative behavior allows partners to create value that they couldn't develop by
acting independently
• Aligning stakeholder interests (both inside and outside of the organization) can reduce
environmental uncertainty
• Alliances can …
• provide a new source of revenue
• be a vehicle for firm growth
• enhance the speed of responding to market opportunities, technological changes,
and global conditions
• allow firms to gain new knowledge and experiences to increase competitiveness
Primary Type of Cooperative Strategy: NLDIMSR
In summary, strategic alliances …

…can reduce competition and enhance a firm’s competitive capabilities and
…create avenue for firm to gain access to resources
…allows firm to take advantage of opportunities, build strategic flexibility and innovate
The competitive conditions --

1. Slow-cycle markets
3. Standard-cycle markets
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1. Slow-cycle markets – becoming rare do to:

• Privatization of industries and economies
• Rapid expansion of the Internet's capabilities
• Quick dissemination of information
• Speed with which advancing technologies permit imitation of even
complex products
3. Standard-cycle
NLDIMSR
Business-Level Cooperative Strategy (Cont’d)
Introduction: Business level cooperative strategies used to grow and

improve firm performance in individual product markets. Achieved
through…
Complementary Strategic Alliances (CSA)
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• Complementary Strategic Alliances (CSA)

• Firms share some of their resources and capabilities in complementary ways
to develop competitive advantages
• Partners may have different
• Learning rates
• Capabilities to leverage complementary resources
• Marketplace reputations
• types of actions they can legitimately take
• Some firms are more effective at managing alliances and deriving benefits
from them
• Two forms include vertical and horizontal
NLDIMSR
2 Types of CSA: (1) vertical & (2) horizontal

1. Vertical CSA
• partnering firms share resources & capabilities from different stages of
the value chain to create a competitive advantage.
2. Horizontal CSA
• partnering firms share resources & capabilities from the same stage of
the value chain to create a competitive advantage
• commonly used for long-term product development and distribution
opportunities
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NLDIMSR
• Competition response strategy

• Competitors
• initiate competitive actions to attack rivals
• launch competitive responses to their competitor’s actions
• Strategic alliances (SA)
• can be used at the business level to respond to competitor’s attacks
• primarily formed to take strategic vs. tactical actions
• can be difficult to reverse
• expensive to operate
NLDIMSR
• Uncertainty-reducing strategy
• For example, entering new product markets, emerging economies and
establishing a technology standard are unknown areas so by partnering with a
firm in the respective industry, a firm’s uncertainty (risk) is reduced
• Uncertainty reduced by combining knowledge & capabilities
• Competition-reducing strategy
• Collusive strategies (CS) differ from strategic alliances in that CS are usually
illegal
• Two types of CS:
• Explicit collusion
• Tacit collusion
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NLDIMSR
• Competition-reducing strategy: Two Collusive Strategies

1. Explicit collusion
• Direct negotiation among firms to establish output levels and pricing
agreements that reduce industry competition
2. Tacit collusion
• Indirect coordination of production and pricing decisions by several
firms, which impacts the degree of competition faced in the industry
• Mutual forbearance – firms do not take competitive actions against rivals they
meet in multiple markets
NLDIMSR
• Business-level cooperative strategy – assessment

• Used to develop competitive advantages (CA) for contributing to successful positions
& performance in individual product markets
• Developing a CA using a strategic alliance, the integrated resources and capabilities
must be valuable, rare, imperfectly imitable and non-substitutable
• Vertical alliances have greatest probability of creating CA; horizontal are sometimes
difficult to maintain since they are usually between competitors
• SA’s designed to respond to competition and reduce uncertainty are more temporary
than complementary (horizontal and vertical) strategic alliances
• Competition-reducing has lowest probability of creating a sustainable CA
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NLDIMSR
Corporate-Level Cooperative Strategies (Cont’d)
Corporate-level cooperative strategies (CLCS) help firm to diversify itself in terms of products offered, markets
served or both
Common CLCS forms

1. Diversifying strategic alliance
• Firms share some of their resources & capabilities to diversify into new product or market areas
2. Synergistic strategic alliance
• Firms share some of their resources & capabilities to create economies of scope
3. Franchising
• Firm uses a franchise as a contractual relationship to describe and control the sharing of its
resources and capabilities with partners
• Franchise: contractual agreement between two legally independent companies whereby
the franchisor grants the right to the franchisee to sell the franchisor's product or do
business under its trademarks in a given location for a specified period of time
NLDIMSR
Corporate-Level Cooperative Strategies (Cont’d)
• Assessment of corporate-level cooperative strategies

• Costs incurred regardless of type selected
• Important to monitor expenditures!
• In comparison w/ business-level strategies
• Usually broader in scope
• More complex and therefore more costly
• Can develop useful knowledge … and, in order to gain maximum value
should organize and verify proper distribution with those involved in
forming and using alliances
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NLDIMSR
International Cooperative Strategy

• Cross-Border Strategic Alliance
• International cooperative strategy in which firms with headquarters in
different nations combine some of their resources and capabilities to create
a competitive advantage
• Why cross-border strategic alliances?
• Multinational corporations outperform firms that operate only domestically
• Due to limited domestic growth opportunities, firms look outside their
national borders to expand business
• Some foreign government policies require investing firms to partner with a
local firm to enter their markets
NLDIMSR
International Cooperative Strategy (Cont’d)
• Risks
• Partners may choose to act opportunistically
• Partner competencies may be misrepresented
• Partner may fail to make available the complementary resources and
capabilities that were committed
• One partner may make investments specific to the alliance while the
other partner may not
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Managing Competitive Risks in NLDIMSR
Cooperative Strategies
NLDIMSR
Managing Cooperative Strategy

Two primary approaches
1. Cost minimization
2. Opportunity maximization
141
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NLDIMSR
Managing Cooperative Strategy (Cont’d)
1. Cost minimization
• Relationship with partner is formalized with contracts
• Contracts specify how cooperative strategy is to be monitored and how partner
behavior is to be controlled
• Goal is to minimize costs and prevent opportunistic behaviors by partners
• Costs of monitoring cooperative strategy are greater
• Formalities tend to stifle partner efforts to gain maximum value from their
participation
NLDIMSR
Managing Cooperative Strategy (Cont’d)
2. Opportunity Maximization
• Focus: maximizing partnership's value-creation opportunities
• Informal relationships and fewer constraints allow partners to
• take advantage of unexpected opportunities
• learn from each other
• explore additional marketplace possibilities
• Partners need a high level of trust that each party will act in the partnership's
best interest, which is more difficult in international situations
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NLDIMSR
Module 7 – Strategy Frameworks, Implementation & Evaluation
Prof. Anand Dhutraj
NLDIMSR
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NLDIMSR
The Role of Corporate Management

How does corporate management add value to its individual business?
• Managing the overall corporate portfolio, including acquisitions,
divestments, and resource allocation
• Managing each individual business
• Managing linkages among businesses
• Managing change
NLDIMSR
The Role of General Electric in Developing
Techniques of Corporate Strategy During the 1970’s
• Late 1960’s: GE encounters problems of direction, co-ordination, control,
and profitability
• Corporate planning innovations include:
o Portfolio Planning Models – Matrix frameworks for evaluating business
unit performance, formulating business strategies, and allocating resources
o Strategic Business Units – GE organizes its strategic planning system
around SBUs. An SBU is a business that comprises a strategically-distinct
group of closely-related products
o PIMS – A database which quantifies the impact of strategy on
performance. Used to appraise SBU performance and guide business
strategy formulation
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NLDIMSR
Portfolio Planning Models:
Their Uses in Strategy Formulation
• Allocating resources – Indicating both the investment requirements of
different businesses and their likely returns
• Formulating business-unit strategy – A generic strategy
recommendations (e.g.: “build”, “hold”, or “harvest”)
• Setting performance targets – Indicating likely performance outcomes in
terms of cash flow and ROI
• Portfolio balance – Guiding business portfolio changes in order to
achieve corporate goals such as a balanced cash flow by combining
mature and growing businesses
NLDIMSR
The GE/McKinsey Matrix
Industry Attractiveness
High
Medium
Low
Low Medium High

Business Unit Position
Industry Attractiveness Criteria Business Unit Position
- Market size - Market share (domestic,
- Market growth global, and relative)
- Industry profitability - Competitive position
- Inflation recovery - Relative profitability
- Overseas sales ratio
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NLDIMSR
The BCG Growth-Share Matrix
Earnings: low, unstable, growing Earnings: high stable, growing
Annual real rate of market growth (%)
Cash flow: negative Cash flow: neutral
?
Strategy: analyze to determine Strategy: invest for growth
HIGH
likelihood of the
business becoming
a “star” or a “dog”
Earnings: low, unstable Earnings: high stable

Cash flow: neutral or negative Cash flow: high stable
LOW
Strategy: divest Strategy: milk
Title / Author: Strategic Management/Anand Dhutraj

LOW HIGH Page No. 291
Relative market share
NLDIMSR
Do Portfolio Planning Models Help or Hinder
Corporate Strategy Formulation?
ADVANTAGES DISADVANTAGES
• Simplicity: Quick and easy to prepare • Simplicity: Oversimplifies the factors
• Big picture: Permits one page determining industry attractiveness and
representation of the corporate competitive advantage
portfolio and strategic positioning of • Ambiguous: The position of a business
each business depends critically upon how a market is
• Analytically versatile: Applicable to defined
businesses, products, countries, • Ignores synergy: The analysis takes no
distribution channels account of any interdependencies
• Can be augmented: A useful point of between businesses
departure for more sophisticated
analysis
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NLDIMSR
Short-Term Objectives
Short-term objectives
• measurable outcomes achievable or intended to be achieved in one year or less.
• Short-term objectives “operationalize” long-term objectives.

• Discussion about and agreement on short-term objectives help raise issues and potential conflicts
within an organization
• Short-term objectives assist strategy implementation by identifying measurable outcomes of
action plans or functional activities, which can be used to make feedback, correction, and
evaluation more relevant and acceptable
Title / Author: Strategic Management/Anand Dhutraj Page No.293

293
NLDIMSR
Potential Conflicting Objectives and Priorities
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NLDIMSR
Short-Term Objectives
Short-Term Objectives provide:
• Specificity
• Time frame for completion
• Who is responsible—Accountability
NLDIMSR
Qualities of Effective Short-Term Objectives

• Measurable
• Measurable activity
• Measurable outcomes
• Priorities
• Simple ranking
• Relative priority / Weights
• Linked to Long-Term Objectives
• Cascading effect
148
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NLDIMSR
Creating Measurable Objectives (e.g.)
NLDIMSR
Milliken Global Environmental Objectives (e.g.)
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NLDIMSR
Functional Tactics
• Detailed statements of the “means” or activities that will be used by a company
to achieve short-term objectives and establish competitive advantage.
• In a sense, functional tactics translate thought into action
• Every value chain activity in a company executes functional tactics that support
the business’s strategy and help accomplish strategic objectives
NLDIMSR
Functional Tactics (contd.)

• Functional tactics are different from business or corporate strategies in three
fundamental ways:
• Specificity
• Time horizon
• Participants who develop them
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NLDIMSR
Specificity in Functional Tactics vs. Business Strategy
NLDIMSR
Outsourcing Functional Activities

Outsourcing is obtaining work previously done by employees inside the company from sources outside the
company
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NLDIMSR
Empowering Operating Personnel: Policies
• Empowerment is the act of allowing an individual or team the right and

flexibility to make decisions and initiate action
• Policies are broad, precedent-setting decisions that guide or substitute
for repetitive or time-sensitive managerial decision making.
NLDIMSR
Creating Policies That Empower

• Policies establish indirect control over independent action
• Policies promote uniform handling of similar activities
• Policies ensure quicker decisions by standardizing answers to recurring questions
• Policies institutionalize basic aspects of organization behavior
• Policies reduce uncertainty in repetitive and day-to-day decision making
• Policies counteract resistance
• Policies offer predetermined answers to routine problems
• Policies afford managers a mechanism for avoiding hasty decisions
152
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NLDIMSR
Innovation Time Out Policy

Refers to what is usually an official company guideline, or policy,
establishing an amount of time during each work week an employee, or
specific types of employees (e.g., engineers) can at their choice set
aside from their regular assignment to work on innovative, new ideas
they are thinking about.
NLDIMSR
Advantages of Formal, Written Policies

1. They require managers to think through the policy’s meaning, content, and
intended use
2. They reduce misunderstanding
3. They make equitable and consistent treatment of problems more likely
4. They ensure unalterable transmission of policies
5. They communicate the authorization or sanction of policies more clearly
6. They supply a convenient and authoritative reference
7. They systematically enhance indirect control and organization wide
coordination of the key purposes of policies
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NLDIMSR
Bonus Compensation Plans

• Company shareholders typically believe that the goal of a bonus compensation
plan is to motivate executives and key employees to achieve maximization of
shareholder wealth.
• However, the goal of shareholder wealth maximization is not the only goal that
executives may pursue.
• An executive compensation plan that contains a bonus component can be used
to orient management’s decision making toward the owners’ goals.
NLDIMSR
Organizational Structure
• Organizational structure refers to the formalized arrangement of
interaction between and responsibility for the tasks, people, and resources
in an organization

308
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NLDIMSR
Simple Organizational Structure
• A simple organizational structure is one where there is an owner and a few

employees and where the arrangement of tasks, responsibilities, and
communication is highly informal and accomplished through direct supervision
• This type of structure can be very demanding on the owner-manager
• Most businesses in this country and around the world are of this type

309
NLDIMSR
Functional Organizational Structure

• A functional organizational structure is one on which the tasks, people, and technologies
necessary to do the work of the business are divided into separate “functional” groups (such as
marketing, operations, and finance) with increasingly formal procedures for coordinating and
integrating their activities to provide the business’s products and services.

310
155
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NLDIMSR
Divisional Structure
• A divisional organizational structure is one in which a set of relatively
autonomous units, or divisions, are governed by a central corporate office but
where each operating division has its own functional specialists who provide
products or services different from those of other divisions
• This structure expedites decision making in response to varied competitive
environments
• The division usually is given profit responsibility

311
NLDIMSR
Divisional Organization Structure

312
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NLDIMSR
Strategic Business Unit

• The strategic business unit (SBU) is an adaptation of the divisional structure
whereby various divisions or parts of divisions are grouped together based
on some common strategic elements, usually linked to distinct
product/market differences
• The advantages and disadvantages of the SBU form are very similar to those
identified for divisional structures

313
NLDIMSR
Holding Company Structure

• A final form of the divisional organization is the holding company
structure, where the corporate entity is a broad collection of often
unrelated businesses and divisions such that it (the corporate entity)
acts as financial overseer “holding” the ownership interest in the various
parts of the company but has little direct managerial involvement

314
157
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NLDIMSR
Matrix Organizational Structure
• The matrix organizational structure is one in which functional and staff

personnel are assigned to both a basic functional area and to a project or
product manager
• The matrix form is intended to make the best use of talented people within a
firm by combining the advantages of functional specialization and product-
project specialization

315
NLDIMSR
Matrix Organizational Structure

316
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NLDIMSR
Matrix Organizational Structure (contd.)
Title / Author: Strategic Management/Anand Dhutraj Page No. 317 317
NLDIMSR
Product-Team Structure
• The product-team structure seeks to simplify and amplify the focus of
resources on a narrow but strategically important product, project,
market, customer, or innovation
• The product-team structure assigns functional managers and specialists
to a new product, project, or process team that is empowered to make
major decisions about their product

318
159
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NLDIMSR
The Product-Team Structure

319
NLDIMSR
Trends Affecting Organizations in the 21st Century
• Globalization
• The Internet
• Speed

320
160
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NLDIMSR
Efforts to Improve Traditional Structures
• Redefine the role of corporate headquarters from control to support and

coordination
• Balance the demands for control/differentiation with the need for
coordination/integration
• Restructure to emphasize and support strategically critical activities
• Reengineer strategic business processes
• Downsize and self-manage

321
NLDIMSR
Creating Agile, Virtual Organizations

• Virtual organization: a temporary network of independent companies—
suppliers, customers, subcontractors, even competitors—linked primarily by
information technology to share skills, access to markets, and costs
• An agile organization is one that identifies a set of business capabilities central
to high-profitability operations and then builds a virtual organization around
those capabilities

322
161
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NLDIMSR
McKinsey 7S Model
 The model was developed in the late 1970s by Tom Peters and Robert
Waterman, former consultants at McKinsey & Company.
 They identified seven internal elements of an organization that need to align

for it to be successful.
NLDIMSR
The Seven Elements of the McKinsey 7-S Framework

 The model categorizes the seven elements as either "hard" or "soft"
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NLDIMSR

 The three "hard" elements are strategy, structures (such as organization charts and
reporting lines), and systems (such as formal processes and IT systems.)
 These are relatively easy to identify, and management can influence them directly.
 The four "soft" elements, on the other hand, can be harder to describe, less tangible,
and more influenced by your company culture.
 But they're just as important as the hard elements if the organization is going to
be successful.
NLDIMSR
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NLDIMSR

 Strategy: this is your organization's plan for building and maintaining a
competitive advantage over its competitors.
 Structure: this how your company is organized (that is, how departments and teams are
structured, including who reports to whom).
 Systems: the daily activities and procedures that staff use to get the job done.
NLDIMSR

 Shared values: these are the core values of the organization, as shown in its
corporate culture and general work ethic.
 They were called "super-ordinate goals" when the model was first developed.
 Style: the style of leadership adopted.
 Staff: the employees and their general capabilities.
 Skills: the actual skills and competencies of the organization's employees.
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NLDIMSR
Using the McKinsey 7-S Model

 Start with your shared values: are they consistent with your structure, strategy,
and systems? If not, what needs to change?
 Then look at the hard elements. How well does each one support the others?
Identify where changes need to be made.
 Next, look at the soft elements. Do they support the desired hard elements? Do
they support one another? If not, what needs to change?
 As you adjust and align the elements, you'll need to use an iterative (and often
time-consuming) process of making adjustments, and then re-analyzing how that
impacts other elements and their alignment.
 The end result of better performance will be worth it.
NLDIMSR
Advantages
• Emphasis on a firm’s strategy implementation.
• Organizational effectiveness was not dependent on just strategy and structure.
• Comprehensive because the analyst must consider each of the seven constructs, and how they
interact.
• First model to meld the “hard” and “soft” aspects of the enterprise.
• Emphasizes coordination of key tasks.
• Model was also one of the first to help connect academic research with managerial practice.
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Disadvantages
• May miss some fine-grained areas in which gaps in strategy conception or
execution can arise.
• Little empirical support for the model or of its originator’s conclusions.
• Remains difficult to properly assess the degree of fit.
• Difficult for analysts to explain what should be done for implementation using
the model.
• The 7S is mostly a static model
NLDIMSR
Evaluation
 Strategy – Evaluation Process, Criteria, & Methods
 Examine the underlying bases of a firm’s strategy
 Compare expected results with actual results
 Take corrective actions to ensure that performance conforms to plans
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NLDIMSR
Unless Strategy Evaluation is performed seriously & systematically….
Unless Strategies are willing to act on the results, energy will be used up
defending yesterday
- Peter Drucker
NLDIMSR
Why Strategy evaluation is more difficult today?
• A dramatic increase in the environment’s complexity
• Difficulty in predicting the future with accuracy
• Rapid rate of obsolescence of even the best plans
• Increase in number of both domestic & world events affecting organizations
• Decreasing time span for which planning can be done with any degree of certainty
Dr. Nazia
Title / Author:
Ansari
Strategic Management/Anand Dhutraj Page No. 334
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NLDIMSR
Process of Evaluating Strategies
NLDIMSR
Case Study
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NLDIMSR
Reviewing Bases of Strategy

• Revised IFE must focus on changes in the organization’s management, marketing, finance &
accounting, production & operations, management information systems.
• Revised EFE must indicate how effective a firm’s strategies have been in response to key
opportunities and threats.
NLDIMSR
SWOT - Analysis
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NLDIMSR
Measuring Organizational Performance

• Includes Comparing
• expected results to actual results,
• investigating deviations from plans
• Evaluating individual performance
• Examining progress being made towards meeting stated objectives
NLDIMSR
Taking Corrective Actions

• Requires making changes to competitively reposition a firm for the future.
• Alteration can be done in firm’s:
• Organizational structure
• Selling a division
• Devising new policies
• Raise capital with stock or debt
• Install new performance incentives
• Allocate resources differently
• Outsource business function
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Title / Author: Strategic Management/Anand Dhutraj Page No.

N. 341
341
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NLDIMSR
Balanced Scorecard
• Balanced Scorecard was developed by Harvard Business School Professors Robert Kaplan &
David Nortan.
• Balanced Scorecard is a strategy evaluation & control technique.
• An effective Balanced Scorecard contains a carefully chosen combination of strategic and
financial objectives tailored to the company’s business.
NLDIMSR
Balanced Scorecard
• The basic premise of Balanced Scorecard is that firms should establish objectives & evaluate
strategies on the criteria other than financial measures.
• Balanced Scorecard of a firm is simply listing of all key objectives to work toward, along with an
associated time dimension of when each objective is to be accomplished, as well as primary
responsibility/contact person.
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NLDIMSR
Balanced Scorecard
• Balanced Scorecard requires that firms seek answers to the following questions..
• Is the firm continually improving & creating value along measures such as innovation,
technological leadership, product quality, operational process efficiencies and so on?
• Is the firm sustaining & even improving on its core competencies and competitive
advantage?
• How satisfied are the firm’s customers?
NLDIMSR
Characteristics of an Effective Strategy Evaluation System
 Strategy Evaluation activities must be economical
 Should be designed to provide a true picture of what is happening.
 Should facilitate action
 Should foster mutual understanding, trust, common sense.
 Should be simple, not too restrictive
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NLDIMSR
Contingency Planning
• Alternative plans that can be put into effect if certain key events do not occur as expected.
• Some contingencies plans commonly established by firms include:
• If a major competitor withdraws from particular markets as intelligence reports indicate, what
actions should our firm take?
• If our sales objectives are not reached, what actions should our firm take to avoid profit losses?
• If demand for our new product exceeds plans, what actions should our firm take to meet the
higher demand?
• If a new technological advancement makes our new product obsolete sooner than expected,
what actions should our firm take?
NLDIMSR
Contingency Planning - Process

1. Identify both good & bad events that could jeopardize strategies.
2. Determine when the good and bad events are likely to occur
3. Determine the expected pros & cons of each contingency event.
4. Develop contingency plans for key contingency events.
5. Determine early warning trigger points for key contingency events.
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NLDIMSR
Auditing
• American Accounting Association defines Auditing as, “a systematic process of objectively obtaining and
evaluating evidence regarding assertion about economic actions and events to ascertain the degree of
correspondence between these assertions & established criteria, communicating the result to interested users.
NLDIMSR
21st Century Challenges in Strategic Management
 Deciding whether
1. The process should be more an art or a science?
2. The strategies should be visible or hidden from stakeholders?
3. The process should be more top-down or bottom-up in a firm?
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NLDIMSR
Guidelines for Effective Strategic Management

1. Keep the process simple and easily understandable.
2. Eliminate vague planning jargon.
3. Keep the process nonroutine; vary assignments, team membership, meeting formats, settings, and even the
planning calendar.
4. Welcome bad news and encourage devil’s advocate thinking.
5. Do not allow technicians to monopolize the planning process.
6. To the extent possible, involve managers from all areas of the firm.
NLDIMSR
Thank you!
176

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9/22/2022

Title / Author: Strategic Management/Anand Dhutraj Page No. 1

Prof. Anand Dhutraj

Title / Author: Strategic Management/Anand Dhutraj Page No. 3

Title / Author: Strategic Management/Anand Dhutraj Page No. 4

Title / Author: Strategic Management/Anand Dhutraj Page No. 5

Title / Author: Strategic Management/Anand Dhutraj Page No. 6

Elements of a Good Strategy

Title / Author: Strategic Management/Anand Dhutraj Page No. 7

Elements of a Good Strategy: Analysis

• Diagnosis of the competitive challenge

Title / Author: Strategic Management/Anand Dhutraj Page No. 8

Elements of a Good Strategy: Formulation

Title / Author: Strategic Management/Anand Dhutraj Page No. 9

Elements of a Good Strategy: Implementation

Title / Author: Strategic Management/Anand Dhutraj Page No. 10

Nature of Competition: McDonald’s

Title / Author: Strategic Management/Anand Dhutraj Page No. 11

Nature of Competition: Basic concepts

Title / Author: Strategic Management/Anand Dhutraj Page No. 12

Nature of Competition: Basic concepts (Cont’d)

Title / Author: Strategic Management/Anand Dhutraj Page No. 13

The Competitive Landscape

Title / Author: Strategic Management/Anand Dhutraj Page No. 14

The Competitive Landscape (Cont’d)

Title / Author: Strategic Management/Anand Dhutraj Page No. 15

The Competitive Landscape (Cont’d)

Title / Author: Strategic Management/Anand Dhutraj Page No. 16

The Competitive Landscape (Cont’d)

Title / Author: Strategic Management/Anand Dhutraj Page No. 17

The Competitive Landscape (Cont’d)

Title / Author: Strategic Management/Anand Dhutraj Page No. 18

The Strategic Management Process

Title / Author: Strategic Management/Anand Dhutraj Page No. 19

Vision and Mission

Title / Author: Strategic Management/Anand Dhutraj Page No. 20

• Stakeholders are both individuals and groups

• Firms are not equally dependent on all stakeholders

Title / Author: Strategic Management/Anand Dhutraj Page No. 21

The Three Stakeholder Groups

Title / Author: Strategic Management/Anand Dhutraj Page No. 22

Title / Author: Strategic Management/Anand Dhutraj Page No. 23

Title / Author: Strategic Management/Anand Dhutraj Page No. 24

Strategic Leaders (Cont’d)

Title / Author: Strategic Management/Anand Dhutraj Page No. 25

• Why is it important for a firm to study and understand external environment?

• Three External Environments include:

Title / Author: Strategic Management/Anand Dhutraj Page No. 26

Seven Segments of General Environment

Title / Author: Strategic Management/Anand Dhutraj Page No. 27

The PESTEL Framework

The PESTEL Framework

Title / Author: Strategic Management/Anand Dhutraj Page No. 28

External Environment Analysis

Title / Author: Strategic Management/Anand Dhutraj Page No. 29

Four steps of external analysis process

• Monitoring: Detecting through ongoing observations of environmental changes

• Forecasting: Developing projections of anticipated outcomes based on monitored changes

Title / Author: Strategic Management/Anand Dhutraj Page No. 30

Title / Author: Strategic Management/Anand Dhutraj Page No. 31

Industry Environment Analysis

Title / Author: Strategic Management/Anand Dhutraj Page No. 32

The Five Forces of Competition Model