STRATEGIC MANAGEMENT

Strategic Positioning:
Stake out a unique position within an industry to provide value to customers,
while controlling costs.
The greater the difference between value creation and cost:
• the greater the firm’s economic contribution.
• the more likely it will gain competitive advantage.

Competitive advantage has to come from:

• performing different activities or
• performing the same activities differently than rivals

Generating Competitive Advantage:

• What provides a firm with above-normal profits?
• Unique value propositions (relative to other players)
• Lower costs (relative to other players)
• Value Drivers
• Product quality, variety and features
• Customer service
 • Bundling complements
• Cost Drivers
• Cost of input factors
• Economies of scale
• Learning-curve effects
• Experience-curve effects
• Standardization

1. Economies of scale:

2. Learning Curve and Experience Curve Effects

Experience Curve:
The most basic meaning of the experience curve is that the more experience a
business has in producing a particular product, the lower the costs.
It is important to know the difference between the learning curve effect and the
experience curve effect. The learning curves only takes into account a reduction
in costs associated with labor. The experience curve effect, however, looks at the
broader picture i.e. marketing, distribution, manufacturing, etc.

Value Cost Trade Off:

Value-Cost Trade-off is the conventional belief that companies can either create
greater value to customers at a higher cost or create reasonable value at a lower
cost. Here strategy is seen as making a choice between differentiation and low
cost.
Competitive Positioning

Competitive positioning is the ability to make your company stand out

from its competitors.

The company’s competitive position depends on how the value of products

and services you provide compares to the value of comparable products
and services in the market. A business studies current trends, audience
needs and pain points to create a competitive position.

There are numerous ways a company can differentiate itself from the
competition. Here are four:

• Operational excellence - You promote the ability to provide a large

volume of goods at a low price while upholding an excellent level of
quality.
• Product leadership - Here, you market what makes your product
unique. Does it address a specific pain point from buyers? Is there a
new feature that other brands in the market don’t have?
 • Customer relationships - Your company connects with customers
through social media and responds to their feedback, creating a loyal
customer base.
• Niche positioning - The company targets a particular market section,
allowing it to promote itself as the leading brand in that sector.
Competitive Scope:

Strategic Positioning and Competitive Scope:

Cost Leadership Strategy:

Works best when
• Most buyers use the product in the same ways.
 • Price competition is vigorous.
• Product (technology) standardized and readily available with many
suppliers.
• Buyers incur low switching costs.
• Larger buyers have significant bargaining power.
• Industry newcomers use low prices to attract buyers and build
customer base.
Risks
• Low-cost learning by newcomers and followers
• Technological change can nullify past investment and learning.
• High attention on cost leads to inability to foresee product-market
changes.
Differentiation Strategy:
Works best when
• There are many ways to differentiate the product.
• Buyer needs and uses are diverse.
• A few rivals are following a similar differentiation approach.
• Technological change and product innovation are fast paced.
Risks
• Uniqueness that is not valuable
• Too high a price premium for the differentiating factors
• Differentiating factors could be easily imitated – reducing perceived
differentiation.
• Dilution of brand identification through product-line extensions
• Fall in buyers’ need (value) for differentiating factors as buyers
become more sophisticated.
Focus Strategy:
Works best when the market niche is
• Potentially profitable, offers growth potential.
• Not crucial for the success of industry leaders
• Costly or difficult for multi-segment competitors to meet specialized
needs of the niche.
• Few other rivals specialize in the same niche.
• Focusers can defend against challengers via superior ability to serve
that niche.
Risks
• Narrowing product differences between the niche products and the
market as a whole
• Erosion of cost advantages (within the narrow segment)
• Focused products and services subject to competition from new
entrants and imitators

Elements of Strategy:
• Arenas: where will we be active?
• Vehicles: how will we get there?
• Differentiators: how will we win in the market-place?
• Staging: what will be our speed and sequence of moves?
• Economic logic: how will we obtain our returns?
Arena:
• Which product categories?
• Which market segments?
• Which geographic areas?
• Which core technologies?
• Which value-creation stages?
Vehicle:
• Internal development?
• Joint ventures?
• Licensing/franchising?
• Acquisitions?

Differentiators:
• Image?
• Customisation?
• Price?
• Styling?
• Product reliability?
Factors Driving Staging:
• Resources
Staging:
• Urgency
• Speed of expansion?
• Achievement of credibility
• Sequence of iniatives?
• The pursuit of early wins

Economic Logic:
• Lowest costs through scale advantages?
• Lowest costs through scope and replication advantages?
• Premium prices due to unmatchable service?
• Premium prices due to proprietary product features?
Analytical Approach:

Strategic Intent:

Strategic Purpose:
• Vision:
o Picture of what the firm wants to be and, in broad terms, what it
ultimately wants to achieve
o Example: “A computer on every desk and every home”
o Foundation for the mission

• Mission
o Specifics business(es) in which firm intends to compete and
customers it intends to serve
o “Organize the world’s information and make it accessible and useful”
 o More concrete than the vision
Defining Business:

Fit Approach:

Stretch Approach:
Achieving Competitive Surrender:

Deep Purpose:
Purpose is a stable and generalized intention to accomplish something that is at
the same time meaningful to the self and consequential for the world beyond
the self.

On the Y-axis is “commercial logic,” and on the X-axis is “social logic.” A “deep
purpose” organization goes deep on both logic categories to wind up in the
upper right-hand quadrant toward a “purpose with profit” scenario where win-
win solutions equate to doing well and good in society.
“What happened over time is that we shifted to solely a commercial logic under
the Milton Friedman doctrine of shareholder value,” suggested Gulati. When a
company operates with high commercial logic and low social logic, it finds itself
in a “profit first” operating mechanism, doing well but failing to do good.
“Businesses optimize on one dimension [commercial logic], and the other
dimension was ignored. That business could have a positive by-product of
whatever they were doing for their communities, the planet, customers, or even
their employees was relegated.”
Deep Purpose articulates four key benefits of purpose-driven organizations
outlined as directional, motivational, relational and reputational.
 • Directional: purpose guides the company’s growth.
• Relational: long-term purpose builds trust with all stakeholders.
• Reputational: purpose boosts the overall reputation of the company.
• Motivational: companies that take meaningful action in line with purpose
witness increases in employee engagement which fuels productivity,
retention, etc.
Measuring Purpose:
Focus vs Flexibility:

External Analysis:
1. PESTEL Analysis:

a. Political:
• How could a change of government impact policy impact or
change the trend towards re-regulation/deregulation?
• Could any pending legislation affect the company, either positively
or negatively? What is the likely timescale of proposed legislative
changes?
• How will government regulation, along with any planned changes
to it, affect the company?
• How is (de)globalisation affecting the economic environment? Are
governmental controls more difficult to enforce in a global world?
• Are there any other political factors that are likely to change?
b. Economic:
• How stable is the current economy? Is it growing, stagnating, or
declining?
• Is disposable income rising or falling and will this change?
• What is the unemployment rate? Will it be expensive or difficult to
hire skilled labour?
• How will the movement of interest rates and exchange rates
impact the company?
c. Social:
• What is the population's growth rate and age profile? How is this
likely to change?
• Are generational shifts in attitude likely to affect what the
company is currently doing?
• What are the levels of health, education, and social mobility? How
are these changing, and what impact does this have?
• What employment patterns, job market trends, and attitudes
toward work can you observe? Are these different for different age
groups? Are people more or less likely to want to work in the
public sector or in your company?
• How will you address what social attitudes could impact the
company?
• How do religious beliefs and lifestyle choices affect the
population?
• Are any other social factors likely to drive change for the agency?
d. Technology:
• Are there any new technological or digital themes, trends or
products available or on the horizon that could radically affect the
company or its market?
• Can this themes above redefine their offerings?
• Is there anything the company can do to take advantage of
research being undertaken by other agencies or jurisdictions or
tech hubs/research bodies?
• How have infrastructure changes affected work patterns (for
example, levels of remote working)?
• Are there any other technological factors that the company should
consider?
e. Legal:
• Is there enabling legislation requiring the company to carry out
specific functions? If so, what does the legislation require? Is there
scope to add value in another way?
• Is there future legislation that will affect the company?
• How do regulatory bodies or processes impact the company?
• Are there legal regulations relevant to the company? Do they limit
what the agency can offer or do they create Opportunities for the
agency?
• Does the agency need to comply with industry-specific
regulations?
f. Environment:
• Do changes in weather and climate have a direct impact on the
company or its role?
• Is the company required to assist in the achievement of
environmental outcomes for the community alongside other
social, economic or community outcomes? How will the agency do
this?
• Do laws regarding pollution and recycling have specific relevance
to the company?
• Does waste management raise Threats or Opportunities for the
company?
• Does the agency have significant policies or practices regarding use
or supply of green/eco-friendly products and services?
• Is the company in a geographical location which merits giving
special attention to environmental impacts?
• Does the company’s work need to comply with any specific
environmental regulations?
Industry:

Industry Competitive Structure:

𝐴 𝑁
𝑃 = 𝑁+1 + 𝑁+1c , 𝑃 =c + t , where t =
extent of differentiation
where A = willingness to pay
Porter’s Five Forces Model:

A. Threat of Entry:
The risk that potential competitors will enter an industry
Lowers industry profit potential:
• Incumbents lower prices
• Incumbents spend more to satisfy existing customers.
Entry barriers:
• Obstacles blocking others from entering
• A significant predictor of industry profit potential
• Types of Entry Barriers:
1. Economies of scale (e.g. Automobile industry)
2. Capital requirements (e.g. Passenger jet industry)
3. Customer switching costs (e.g. Core Banking Services)
4. Network effects (e.g. Social media)
5. Access to supply and distribution channel (e.g. Oil and gas
industry)
 6. Government policy (e.g. Banking)
. Credible threat of retaliation (e.g. Airlines industry)

B. Power of Suppliers:
Pressures that industry suppliers can exert on an industry’s profit potential
Lowers industry profit potential if:
• Suppliers demand higher prices for their inputs
• Suppliers reduce quality
Bargaining Power of Suppliers:
• Concentrated (or limited) supplier industry (e.g. Airlines industry)
• Incumbent firms face supplier switching costs (e.g. Automobile industry)
• Suppliers offer differentiated products (e.g. Fashion retailing)
• Suppliers not dependent on industry for majority of revenue (e.g. chip
manufacturers and automobile industry)
• There are few or no supplier substitutes (e.g. API suppliers)
Suppliers can forward-integrate into the industry (e.g. bottling industry for
carbonated drinks)

C. Power of Buyers:
Pressure customers put on an industry by demanding:
• A lower price or
• Higher product quality
Bargaining Power of Buyers:
• There are a few buyers & each buyer purchases large quantities (e.g.
Air bags)
• The industry’s products are standardized or undifferentiated
commodities (e.g. generic medicines)
• Buyers face low or no switching costs (e.g. Pen drive)
• Buyers can backward integrate into the industry (e.g. Iron ore)

D. Threat of Substitute:
Products or services outside an industry meeting the needs of current
customers.
• Many close substitutes are available (e.g. soft drink)
 • The substitute offers an attractive price-performance trade-off (e.g. Metro
and bus services)
• The buyer’s cost of switching to the substitute is low (e.g. CD and pen
drive)

E. Rivalry Among Competitors:

The intensity with which companies in the same industry jockey for market
share and profitability
Intensity determined by :
• Industry concentration and balance (e.g. Passenger aircrafts industry)
• Industry growth (e.g. Newspaper)
• Strategic commitments (e.g. Telecom industry)
• Exit barriers (e.g. Pharmaceutical industry )

Herfindahl-Hirschman Index:

Sixth Factor: Complement

• A product, service, or competency 23

• Adds value when used with the original product (e.g. Mobile Apps)
• Complementor:
• A company that provides a good or service that leads customers to
value your firm’s offering more when the two are combined.
Industry Life Cycle

1. Industry Consolidation
Consolidated industries are more profitable.
Mergers and acquisitions make this possible.
- Results in higher industry profitability
Example: U.S. Airline Industry mergers
a. Delta and Northwest
b. United and Continental
c. Southwest and AirTran
d. American and U.S. Airways
2. Industry Convergence
When unrelated industries satisfy the same need
Example: Media Industries
a. Progress in IT, telecommunications, digital media
b. Has united computing, communications, content
Content providers are adapting:
c. Newspapers, magazines, TV, movies, radio, music
New forms of content media:
d. Amazon’s Kindle
e. Apple’s iPad
f. Google’s Chromebook
Strategic Group:
1. Competitive rivalry:
• Strongest between firms in the same strategic group
2. External environment:
• Affects strategic groups differently
3. Five competitive forces:
• Affect strategic groups differently
4. Profitability:
• Some strategic groups are more profitable than others
Mobility Barrier:
• Industry-specific factors
• Separate one strategic group from another.

Industry Analysis:
1. Define the relevant industry:
✓ What products are in it? Which ones are part of another distinct
industry?
✓ What is the geographic scope of competition?
2. Identify participants & segment them into groups, if appropriate:
3. Assess the underlying drivers of each force to determine which are strong
or weak and why and their implications on profitability.
4. Determine overall industry structure, and test the analysis for consistency:
✓ Why is level of profitability what it is?
✓ Which are the controlling forces for profitability?
✓ Is the industry analysis consistent with actual long-run profitability?
✓ Are more-profitable players better positioned in relation to the five
forces?
 5. Analyze recent & likely future changes in each force, both positive &
negative.
6. Identify aspects of industry structure that might be influenced by
competitors, by new entrants, or by your company.

Mistakes to avoid when analysing industry:

• Defining the industry too broadly or too narrowly.
• Paying equal attention to all of the forces rather than digging deeply into
most important ones.
• Confusing effect (price sensitivity) with cause (buyer economics)
• Using static analysis that ignores industry trends.
• Confusing cyclical or transient changes with true structural changes.
• Using the framework to declare an industry attractive/unattractive rather
than using it to guide strategic choices.

Internal Analysis:
Resource Based View Perspective:
Analyzes firms from resource side rather than product side
• Resources: Inputs into a firms production process, such as capital
equipment, skills of individual employees, patents, finances and talented
managers
• Capabilities: The capacity for a set of resources to perform a task or an
activity in an integrative manner
• Competencies: Resources and capabilities that serve as a source of
competitive advantage for a firm over rivals.
 • RBV explains sustained competitive advantage in terms of heterogeneity in
resources and capabilities
• Scarce resources and capabilities that are critical for value creation can be
imperfectly mobile and cannot be acquired in the open market

Sustaining Competitive Advantage:

• Competitive advantage is sustainable if competitors can not duplicate/
neutralize it. This happens when
• Firms may differ with respect to resources & capabilities and the
differences persist
• Isolating mechanisms (analogous to barriers to entry) may work to
protect the competitive advantage of firms
Isolating Mechanism:
• Impediments to imitation
• Market size and scale economies
 • Superior access to inputs
• Distinctive organizational capabilities
• Superior access to customers
• Legal restrictions
Market Size and Scale Economies:
• Scale based barriers are likely to be effective in markets for specialized
products where the demand is large enough for only one producer
• Scale based barriers may come down if the market experiences growth
Superior Access to Inputs/Customers:
• Firms often achieve exclusive access to key resources either through
vertical integration or long term contracts
• Firms can deny rivals access to distribution channels through the use of
exclusive dealing clauses
Legal Restrictions
• Legal restrictions such as patents and copyrights as well as government
regulation through licensing and certification can impede imitation
Distinctive Organizational Capabilities
• Barriers to imitation will be intangible if the firm’s advantage lies in
distinctive organizational capabilities
• Three such barriers to imitation
• Casual ambiguity
• Historical circumstances
• Social complexity
Casual Ambiguity:
• A firm’s superior ability to create value may be obscure and imperfectly
understood, even by those in the firm
• Causal ambiguity may become a source of diseconomies of scale because
the firm may be unable to replicate its success from one plant to the next
 • Distinctive capabilities may be bound up with the history of the firm
• Dependence of the capabilities on historical circumstances may limit the
firm’s growth potential
• Historical dependence may also mean that the strategies may be viable for
only a limited time
Path Dependence:
• A process in which the option one faces in a current situation are limited
by the decisions made in the past
• Example: QWERTY key pad
• Path dependence also arises due to time compression diseconomies
• Trying to achieve same outcome in less time even with higher
investment may lead to inferior results
Social Complexity:
• Competitive advantage may be hard to replicate if the advantage is rooted
in socially complex processes
• Such processes include interpersonal interactions among managers, both
within the firm and of the suppliers and customers
• Even if the rivals understand the source of competitive advantage, they
cannot replicate the complex social interactions

s the reso rce or plications

capa ility
Valuable

Rare
Difficult to imitate

Difficult to substitute

o rce ess, p in isner,

The VRIO Decision Tree:

Does the capability

satisfy the criteria of
The source of sustainable competitive
advantage?
The Dynamic Capabilities Perspective:
• A firm’s ability to:
• Create, deploy, modify, reconfigure, upgrade, and leverage its
resources over time
• Helps prevent a core rigidity
• A former core competency that turned into a liability as the
environment changed
Value Chain Analysis:
• Internal activities a firm engages in when transforming inputs into outputs
• Each activity adds incremental value
• Primary activities directly add value
• Support activities add value indirectly