3 Strategy Lecture 4 5

Analyzing Competitive Landscape of Business
(Teaching Notes)
Dr S. K. Majumdar
Note: This Teaching Notes contains many of my own work as well as it has adapted slides from variety of sources.
The Strategy Focused Organization *

Mission: Why We Exist Core Values: What We believe In Vision: What We Want to Be Strategy: Our Game Plan (how to win) Goals For Implementing Strategy (Metrics): What We Need to Do
OUTCOMES Satisfied Shareholders
23-Jan-14 SEC
* The Strategy Focused Organization, Robert Kaplan, David Notron, Harvard Business School Press, 2001
Delighted Customers
Effective Process
Dr. S. K. Majumdar
Motivated and Prepared Workforce

2
These Slides are Assimilation of Various View Points and Issues of Strategy Formulation
23-Jan-14 SEC
Dr. S. K. Majumdar
The Definition of Value

Performance Value price
Quality Timeliness Flexibility Innovation Value price
Q T F I Value P
Question is: How to create differentiation and Lowering costs?
23-Jan-14 SEC Dr. S. K. Majumdar 4
Strategic Planning and Analysis

Planning how to get more than your fair share involves:
1. Scanning the overall environment 2. Scanning and researching the industry environment 3. Researching direct competitors 4. Researching a firms skills and resources 5. Analyzing current strategy
Determining Strategy
To determine strategy, answer the following questions:
Which of our products/services are the most distinctive? Which of our products/services are the most profitable? Which of our customers are the most satisfied? Which customers, channels, or purchase occasions are most profitable? Which of the activities in our value chain are the most different and effective. How can we make everything better? Now!
Key Questions are

1. What are those products, services and policies that would win the hearts and minds of target customers and impel them to pay? 2. How do you create and deliver those products, services and values for your customers? 3. How do you defeat your competitors in this war of creativity? 4. What are the most useful tools and techniques?
To Develop a Winning Formula, One has to Find out:

1. 2. 3. 4. 5. 6. 7. 8. 9. What is the type of Organization? (Industry/Business Sector Analysis) What are its Products & Services? (Value Propositions) Who are its Customers? (Target Customers Market Segmentation) Who are its Competitors? [Competitive Landscape 5 Force Analysis] What is Target Market (Market Segmentation & Market Positioning)? What are the Generic Macro and Micro Variable of Market? (ES) What are the Prevailing Market Forces (Industry 5 Force Analysis) What are the Drivers, Deterrents and Enablers of Business What are Cause and Effect Relationships between and among the macro and micro variables and Forces (Research Results & Fishbone Diagram) 10. What are the company specific, product specific and situation specific variables for which, one has to develop a winning strategy?
Organizational Type
Organization Type
For Profit Not for Profit
Main Focus
Make Money Save Money
Operational Status
National
Multi-National Trans National
Scale of Operation
Mostly Domestic Focus
Operates in Many Countries Operates in Many Countries
Ownership Type
Private Limited Public Limited Cooperative Public Sector
23-Jan-14 SEC
Controller
Owner Share Holders Members Government or Trustees
Dr. S. K. Majumdar 9
Operational Domain Manufacturing Mining Energy Agriculture Banking & Finance IT & Telecom Insurance Retailing Tours and Travels Logistics Pharmaceuticals Healthcare Real-estate Infrastructure Education Consulting
23-Jan-14 SEC
Holdups RM, Process Know-How Availability, Community RM, Technology, Pollution Land, labour, climate, Fertility Capital, Rules & Regulations Knowledge & Skills
CSF Efficiency Technology, R&D, Operational Efficiency Production, Preservation & Distn. Service, Security & Reliability R&D, Speed, Service, etc
Dr. S. K. Majumdar
10
Analysis of Industry Characteristics

Growth Perspective
Emerging Maturing, Stagnant Declining
Complexity Connectivity
23-Jan-14 SEC
Short and Simple Value Chain Long and Complex Value Chain
Fragmented Networked
Analysis of Product Characteristics

Physical, Digitize-able, Knowledge or Service Consumer Product, Intermediary or Industrial Product Utility Product, Aesthetic, Commodity or An Object of Desire
Product
Process
Simple, Complex, Very Complex Emerging, Matured Process
Durability
Perishable (Limited Shelf-Life) Durable, Long Lasting
23-Jan-14 SEC
Dr. S. K. Majumdar
12
Analysis of Market Characteristics

Location Growth Perspective
Domestic International (Foreign)
Emerging Maturing Saturated Declining
Competition
23-Jan-14 SEC
Virgin (No Competition) Low Competition Moderate Hyper Competitive

Analysis of Actors Market Standing
Size Market Standing Flexibility

23-Jan-14 SEC
Small Medium Large
New Entrant Leader Runner-up Laggard
Highly Flexible Moderately Flexible Low Flexibility

The Proactive and Reactive Elements of Strategy
23-Jan-14 SEC
Dr. S. K. Majumdar
15
Five Forces that Shape the Industry Competition
23-Jan-14 SEC
Dr. S. K. Majumdar
16
The Five Forces Model of Competition
23-Jan-14 SEC
Dr. S. K. Majumdar
17
Role of the Macro-Environment

Political/Legal Environment the Euro deregulation
Risk of entry by New Competitors
Technology Environment information age biotech advances
Bargaining Power of Suppliers
Rivalry among Established Firms
Bargaining Power of Customers
Threat of Substitute Products & Services
Demographic Environment Women, ethnic groups, family
Macroeconomic Environment globalization
Social Environment
23-Jan-14 SEC Dr. S. K. Majumdar 18 Source: Michael Porter, How Competitive Forces Shape Strategy, Harvard Business Review, March-April 1979
23-Jan-14 SEC
Dr. S. K. Majumdar
19
The Determinants of Competition
23-Jan-14 SEC
Dr. S. K. Majumdar
20
Neutralizing The Five Competitive Forces

Force Entry Method for Neutralizing Force
Erecting barriers (isolating mechanisms) create & exploit economies of scale,

aggressive deterrence, design in switching costs, etc.
Rivalry Substitutes Buyers Suppliers

23-Jan-14 SEC
Compete on non-price dimensions:

leadership, differentiation, cooperation, etc.
cost
Improve attractiveness compared to substitutes: better service, more features, etc.. Reduce buyer uniqueness: forward integrate,
differentiate product, new customers, etc..
Reduce supplier uniqueness: backward

integrate, obtain minority position, second source, etc..
Creating Lasting Value

Value Creation Zone
1. True value lies at the intersection of the three circles 2. Lasting value is difficult to imitate 3. Lasting value is durableit does not depreciate 4. Lasting value is captured by the resource owner 5. Lasting value requires your resource to be better than competitors
23-Jan-14
Appropriability
Scarcity
Demand
Dr. S. K. Majumdar
27
Competition and Cooperation
23-Jan-14 SEC
Dr. S. K. Majumdar
28
COMPETITIVENESS REQUIRES INNOVATION

No existing market share is safe today, no product life is indefinite. Competition will tear away market niches and technology advantages from the established business through the weapon of innovation. Companies will become merely a shadow of their glory days or will vanish if they do not find a way to re-create their market success through a steady stream of innovative products and customer-oriented solutions.
Changing Life Cycle of Industry
Emergence
Convergence
Coexistence
Dominance
Sales Volume
Established Industry
Emerging Industry Time

23-Jan-14 SEC
Dr. S. K. Majumdar
30
Preparing for the Future : The Role of Scenario Analysis in Adapting to Industry Change
Stages of Multiple Scenario Analysis:

1. Identify major forces driving industry change 2. Predict possible impacts of each force on the industry environment 3. Identify interactions between different external forces 4. Identify 2-4 most likely/ most interesting scenarios: configurations of changes and outcomes 5. Consider implications of each scenario for the company 6. Identify key signposts pointing toward the emergence of each scenario 7. Prepare contingency plan
MANAGE REQUIRED CHANGE TO ATTAIN COMPETITIVENESS

Innovation requires the planned cannibalization of established, familiar, customary or comfortable ways of
Business Assessment
working
whether in products or services, competencies or human relationships
Breakthrough Planning System
Conclusion: Innovation means that you must be organized to allow constant change.
or the organization
itself.
Strategic Decision Making
Change Management
23-Jan-14 SEC
Dr. S. K. Majumdar
32
Strategy Rests On Unique Activities

The essence of strategy is choosing to perform activities differently than rivals do. Strategic positions can be based on customers needs, customers accessibility, or the variety of a companys products or services. Change is happening too fast.
Remember, Structure follows Strategy
What Factors Are Driving Industry Change and What Impacts Will They Have?
Industries change because Market forces are driving industry participants to alter their actions Driving forces are the major underlying causes of changing industry and competitive conditions
Where do driving forces originate?

Outer ring of macro-environment Inner ring of micro-environment
CHAIN OF CAUSATION
Our Survival is dependent upon Growth of business Our business growth is largely determined by Customer Satisfaction Customer satisfaction is governed by Quality, Price and Delivery
Our process capability is greatly limited by Variation

Process variation leads to an increase in Defects, Costs and Cycle -Time To eliminate variation, we must apply the right Knowledge To apply the Right Knowledge, we must first Acquire it To acquire new knowledge, we must have the Will to Survive
Gary Hamel: New Foundations

OLD BRICK
Top management is responsible for setting strategy
NEW BRICK
Everyone is responsible for setting strategy
Getting better, getting faster is the way to win

IT creates competitive advantage Being revolutionary is high risk We can merge our way to competitiveness Innovation equals new products and new technology Strategy is the easy part, Implementation the hard part Change starts at the top Our real problem is execution Big companies cant innovate
Rule-busting innovation is the way to win

Unconventional business concepts create competitive advantage More of the same is high risk Theres no correlation between size and competitiveness Innovation equals entirely new business concepts
Strategy is the easy only if youre content to be an imitator

Change starts with activists Our real problem is innovation
Big companies can become gray-haired revolutionaries
Economic Sense of Business Model

A business model addresses How do we Make
/Save money in the business?
Is the strategy capable of delivering good bottom-line results?
Do the revenue-cost-profit economics of the strategy make good business sense?

Look at revenue streams the strategy is expected to produce Look at associated cost structure and potential profit
margins
Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money?
Four Dimensions of Strategy

Value & Vision Compliance (Core Ideology and Big, Hairy, Audacious Goals (BHAGs) Visionary Institution; e.g. Tata Nano, Infosys ) Responsiveness/ Speed (Reliability; Quickness; Flexibility; e.g., Dell, Overnight Delivery Services) Competitive Advantage through which the company market share is attracted Cost Leadership (Price; e.g., Wal-Mart, Southwest Airlines, Generic Drugs)
Differentiation (Quality; Uniqueness; e.g., Luxury cars, Fashion Industry, Brand Name Drugs)
Three Generic Strategies

There are three generic (primary) strategies:
Differentiation Focus (niche marketing) Cost leadership
These definitions characterize strategic positions at the simplest and broadest levels.
Secondary Strategies
Within the three basic strategies, there are several secondary strategies:
Defense: Block competition to avoid losing market share. Offense: Attack competition head on. Flanker Brand: Establish new position. Fighting Brand: Create a new brand to compete with competitive new brand. Guerrilla Marketing: Force competition to respond with small resources. Ambush Marketing
Generic Strategies and Industry Forces

Generic Strategies Industry Force
Entry Barriers Buyer Power Supplier Power Threat of Substitutes Rivalry
23-Jan-14 SEC
Cost Leadership
Ability to cut price in retaliation deters potential entrants. Ability to offer lower price to powerful buyers.
Differentiation
Customer loyalty can discourage potential entrants. Large buyers have less power to negotiate because of few close alternatives.
Focus
Focusing develops core competencies that can act as an entry barrier. Large buyers have less power to negotiate because of few alternatives. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Specialized products & core competency protect against substitutes. Rivals cannot meet differentiation-focused customer needs.
Better insulated from powerful suppliers.
Better able to pass on supplier price increases to customers. Customer's become attached to differentiating attributes, reducing threat of substitutes. Brand loyalty to keep customers from rivals.
Can use low price to defend against substitutes.
Better able to compete on price.
Dr. S. K. Majumdar
41
Profitable Niche
Measurable, Sizable, Reachable Niche strategy advantages:
Flexible, can adapt to new needs, small range of needs. Efficient for promotion, distribution. Reduces competitive pressure. With few competitors, can be highly profitable.
23-Jan-14 SEC
Dr. S. K. Majumdar
42
Assessing Industry Attractiveness

The degree to which an industry is attractive or unattractive is not the same for all industry participants or potential entrants. The opportunities an industry presents depend partly on a companys ability to capture them.
GE/McKinsey Nine-block Matrix

The Industry Attractiveness-Business Strength Matrix
Industry Attractiveness
High Investment and Growth Medium Low
High
Business Strength
Selective Growth
Selectivity
Medium
Selective Growth
Selectivity
Harvest/ Divest
Low
Selectivity
Harvest/ Harvest/ Divest Divest

Dr. S. K. Majumdar
Harvest/ Harvest/ Divest Divest

44
23-Jan-14 SEC
Shifting the Focus of Strategy Analysis: From the External to the Internal Environment
THE FIRM
Goals and Values Resources and Capabilities Structure and Systems
THE INDUSTRY ENVIRONMENT
STRATEGY
STRATEGY
Competitors Customers Suppliers
The Firm-Strategy Interface

23-Jan-14 SEC
The Environment-Strategy Interface

45
Dr. S. K. Majumdar
Industry Value Chain Position of Firm

Administrative Coordination & Support Services
Support Processes Primary Business Processes
Human Resource Management Technology Development Procurement of Resources

Inbound Logistics Operations Outbound Logistics Marketing and Sales Customer Service
23-Jan-14 SEC
Dr. S. K. Majumdar
46
23-Jan-14 SEC
Dr. S. K. Majumdar
48
Cost Analysis
McKinseys Business System
Technology Manufacturing Distribution Marketing Service
Design Development
Procurement Assembly
Transport Inventory
Retailing Advertising
Parts Labor
Source: Bales, et al., 1980
23-Jan-14 SEC
Dr. S. K. Majumdar
49
Value Creation Options

VP V P C C P C
= Perceived Customers Value
P = Price
C = Costs
V P = Customer Surplus P C = Profit Margin
P Controlled by Market & Completion, can not be easily increased

C Can be
decreased by efficient & innovate Production & Distribution Processes

P C = Decreased Profitability.
V P: Attracts customers
Strategy =
23-Jan-14 SEC
V,
P,
C to
Profitability
50
Dr. S. K. Majumdar
The Process of Mapping Business Landscapes Thinking Dynamically

Threat of New Entry
Decline in economies of scale + customer heterogeneity fragmentation of market into niches Escalation of sunk costs concentration Emergence of switching costs entry deterred
Bargaining Power of Suppliers

Concentration or fragmentation of suppliers Forward integration Improvement in supplier information Surge or decline in supply Emergence of substitute inputs New means for coordinating with suppliers
Bargaining Power of Customers

Concentration or fragmentation of buyers Backward integration Improvement in buyer information Surge or decline in demand Emergence of new distribution channels New means for coordinating with customers Shifts in customer tastes
Rivalry Among Existing Competitors

Shift in industry growth Change in mix between fixed and variable costs Emergence of dominant design or product Consolidation Fragmentation / new entry
Threat of Substitutes
Emergence of new substitute Improvement or decline in relative price performance of substitute Increase in buyer comfort with substitute Change in barriers to entry in substitute market
Availability of Complements
Emergence of new complements Change in barriers to entry in complement market
Source: Jan W. Rivkin
23-Jan-14 SEC
Dr. S. K. Majumdar
51
Strategic Options in Operations

Products Services Process and Technology
Capacity
Human Resources
Quality
Facilities
Sourcing
Operating Systems
23-Jan-14 SEC
Dr. S. K. Majumdar
52
Which Strategy to Use?

Depends on your answer to the following: Is it worth fighting? Are you strong enough to fight? How strong is your defense? Do you have any choice but to fight?
Whom To Attack?
Weak management Weak financial resources Weak execution Weak corporate commitment Weak/old technology, design, and/or functionality Weak innovation
Matching Strategy to Companys Situation

Nature of industry Most important drivers shaping a
and competitive
conditions Firms Competitive Capabilities, Market Position, Opportunity Attractiveness
firms strategic
options fall into two categories
23-Jan-14 SEC
Strategy-Making in Nine Commonly Encountered Situations

(1) companies competing in emerging industries, (2) companies competing in turbulent, high-velocity markets, (3) companies competing in mature, slow-growth industries, (4) companies competing in stagnant or declining industries, (5) companies competing in fragmented industries, (6) companies pursuing rapid growth, (7) companies in industry leadership positions, (8) companies in runner-up positions, and
(9) companies in crisis conditions.

Features of an Emerging Industry

New and unproven market Proprietary technology Lack of consensus regarding which of several competing technologies will win out Low entry barriers Experience curve effects may permit cost reductions as volume builds Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures Possible difficulties in securing raw materials Firms struggle to fund R&D, operations and build resource capabilities for rapid growth
Strategy Options for Competing in Emerging Industries

Win early race for industry leadership by employing a bold, creative strategy Push hard to perfect technology, improve product quality, and develop attractive performance features Consider merging with or acquiring another firm to
Gain added expertise Pool resource strengths
When technological uncertainty clears and a dominant technology emerges, try to capture any first-mover advantages by moving quickly Form strategic alliances with
Companies having related technological expertise or Key suppliers
Strategy Options for Competing in Emerging Industries (continued)

Pursue new customers and user applications Enter new geographical areas Make it easy and cheap for first-time buyers to try product Focus advertising emphasis on
Increasing frequency of use Creating brand loyalty
Use price cuts to attract price-sensitive buyers

Strategic Hurdles for Companies in Emerging Industries

Raising capital to finance initial operations until
Sales and revenues take off Profits appear
Cash flows turn positive
Developing a strategy to ride the wave of industry growth

What market segments to pursue What competitive advantages to go after
Managing the rapid expansion of facilities and sales to position a company to contend for industry leadership Defending against competitors trying to horn in on the companys success
What Is the Key to Success for Competing in Rapidly Growing Markets?

A company needs a Strategy for growing faster
than the market average so that it

Can boost its market share and Improve its competitive standing vis--vis rivals
23-Jan-14 SEC
Dr. S. K. Majumdar
62
Industry Maturity: The Standout Features

Slowing demand breeds stiffer competition More sophisticated buyers demand bargains
Greater emphasis on cost and service

Topping out problem in adding production capacity Product innovation and new end uses harder to come by International competition increases Industry profitability falls Mergers and acquisitions reduce number of rivals
Strategy Options for Competing in a Mature Industry

Prune marginal products and models Emphasize innovation in the value chain
Strong focus on cost reduction

Increase sales to present customers Purchase rivals at bargain prices Expand internationally Build new, more flexible competitive capabilities
Strategic Pitfalls in a Maturing Industry

Employing a ho-hum strategy with no distinctive features thus leaving firm stuck in the middle Being slow to mount a defense against stiffening competitive pressures Concentrating on short-term profits rather than strengthening long-term competitiveness Being slow to respond to price-cutting Having too much excess capacity Overspending on marketing Failing to aggressively pursue cost reductions
Stagnant or Declining Industries: The Standout Features

Demand grows more slowly than economy as whole (or even declines)
Advancing technology gives rise to better-performing substitute products

Customer group shrinks
Changing lifestyles and buyer tastes

Rising costs of complementary products Competitive battle ensues among industry members for the available business
Strategy Options for Competing in a Stagnant or Declining Industry

Pursue focus strategy aimed at fastest growing market segments
Stress differentiation based on quality improvement or product innovation

Work diligently to drive costs down
Cut marginal activities from value chain Use outsourcing Redesign internal processes to exploit e-commerce Consolidate under-utilized production facilities
Add more distribution channels

Close low-volume, high-cost distribution outlets Prune marginal products
End-Game Strategies for Declining Industries

An end-game strategy can take either of two paths
Slow-exit strategy involving Gradual phasing down of operations
Getting the most cash flow from the business

Fast-exit strategy involving Disengaging from an industry during early stages of decline Quick recovery of as much of a companys investment as possible
23-Jan-14 SEC
Dr. S. K. Majumdar
69
Features of High-Velocity Markets
Rapid-fire technological change

Short product life-cycles Entry of important new rivals Frequent launches of new competitive moves Rapidly evolving customer expectations
23-Jan-14 SEC
Dr. S. K. Majumdar
70
Meeting the Challenge of High-Velocity Change
23-Jan-14 SEC
Dr. S. K. Majumdar
71
Strategy Options for Competing in High-Velocity Markets

Invest aggressively in R&D Initiate fresh actions every few months Develop quick response capabilities
Shift resources Adapt competencies
Create new competitive capabilities

Speed new products to market
Use strategic partnerships to develop specialized expertise and capabilities Keep products/services fresh and exciting
Keys to Success in Competing in High Velocity Markets

Cutting-edge expertise Speed in responding to new developments Collaboration with others Agility Innovativeness
Opportunism
Resource flexibility First-to-market capabilities
Competitive Features of a Fragmented Industry

Absence of market leaders with large market shares or widespread buyer recognition Product/service is delivered to neighborhood locations to be convenient to local residents Buyer demand is so diverse that many firms are required to satisfy buyer needs Low entry barriers Absence of scale economies Market for industrys product/service may be globalizing, thus putting many companies across the world in same market arena Exploding technologies force firms to specialize just to keep up in their area of expertise Industry is young and crowded with aspiring contenders, with no firm having yet developed recognition to command a large market share
Examples of Fragmented Industries

Book publishing Landscaping and plant nurseries Auto repair Restaurant industry Public accounting Womens dresses Meat packing Paperboard boxes Hotels and motels Furniture
Competing in a Fragmented Industry: The Strategy Options

Construct and operate formula facilities Become a low-cost operator Specialize by product type Specialize by customer type Focus on limited geographic area
23-Jan-14 SEC
Dr. S. K. Majumdar
76
Three Strategy Horizons for Sustaining Rapid Growth
23-Jan-14 SEC
Dr. S. K. Majumdar
77
Strategies Based on a Companys Market Position
Industry leaders
Runner-up firms
Weak or crisis-ridden firms
Industry Leaders: The Defining Characteristics

Strong to powerful market position Well-known reputation Proven strategy Key strategic concern How to sustain dominant leadership position
23-Jan-14 SEC
Dr. S. K. Majumdar
79
Strategy Options: Industry Leaders

Stay-on-the-Offensive Strategy Fortify-and-Defend Strategy
Muscle-Flexing Strategy
Stay-on-the-Offensive Strategies
Be a first-mover, leading industry change Best defense is a good offense Concentrate on achieving a competitive advantage and then widening the advantage over time Relentlessly pursue continuous improvement and innovation, being first to market with
Technological improvements New or better products More attractive performance features Customer service improvements
23-Jan-14 SEC
Stay-on-the-Offensive Strategies (continued)

Aggressively seek out ways to
Cut operating costs Establish competitive capabilities rivals cannot match Make it easier for potential customers to switch their purchases from other firms to the leaders own products
Aggressively attack profit sanctuaries of important rivals Launch fresh initiatives to expand overall industry demand
Spur creation of new families of products
Make product more suitable for consumers in emerging-country markets Discover new uses for product Attract new users of product Promote more frequent use
Grow faster than industry, taking market share from rivals

Fortify-and-Defend Strategy
Objectives
Make it harder for new firms to enter and for challengers to gain ground Hold onto present market share
Strengthen current market position

Protect competitive advantage
23-Jan-14 SEC
Dr. S. K. Majumdar
83
Fortify-and-Defend Strategy: Strategic Options

Increase advertising and R&D Provide higher levels of customer service Introduce more brands to match attributes of rivals
Add personalized services to boost buyer loyalty Keep prices reasonable and quality attractive Build new capacity ahead of market demand Invest enough to remain cost competitive Patent feasible alternative technologies Sign exclusive contracts with best suppliers and distributors
23-Jan-14 SEC
Objectives
Play competitive hardball with smaller rivals that threaten leaders position
Signal smaller rivals that moves to cut into leaders business will be hard fought Convince rivals they are better off playing follow-the-leader or else attacking each other rather the industry leader
Muscle-Flexing Strategy: Strategic Options

Be quick to meet price cuts of rivals
Counter with large-scale promotional campaigns if rivals boost advertising

Offer better deals to rivals major customers
Dissuade distributors from carrying rivals products

Provide salespersons with documentation about weaknesses of competing products Make attractive offers to key executives of rivals Use arm-twisting tactics to pressure present customers not to use rivals products
Risks
Running afoul of antitrust laws
Alienating customers with bullying tactics

Arousing adverse public opinion
23-Jan-14 SEC
Dr. S. K. Majumdar
87
Types of Runner-up Firms

Market challengers
Use offensive strategies to gain market share
Focusers
Concentrate on serving a limited portion of market
Perennial runners-up
Lack competitive strength to do more than continue in trailing position
Obstacles Runner-Up Firms Must Overcome

When big size is a competitive asset, firms with small market share face obstacles in trying to strengthen their positions
Less access to economies of scale Difficulty in gaining customer recognition Inability to afford mass media advertising Difficulty in funding capital requirements
Strategic Options for Runner-Up Firms
When big size provides larger rivals with a cost advantage, runner-up firms have two options
Build market share
Lower costs and prices to grow sales or Out-differentiate rivals in ways to grow sales
Withdraw from market

Offensive Strategies for Runner-Up Firms: Building Market Share

Acquire smaller rivals to expand companys market reach and presence Find innovative ways to drive down costs to win customers from higher-priced rivals Craft an attractive differentiation strategy
Pioneer a leapfrog technological breakthrough

Be first-to-market with new or better products and build reputation for product leadership
Outmaneuver slow-to-change market leaders in adapting to evolving market conditions and customer needs
Forge strategic alliances with key distributors, dealers, or marketers of complementary products
Rule of Offensive Strategy
Runner-up firms should avoid

attacking a leader head-on with an imitative strategy, regardless of the resources and staying power an underdog may have!
Strategic Approaches for Runner-Up Firms
1. Vacant niche strategy 2. Specialist strategy 3. Superior product strategy 4. Distinctive image strategy
5. Content follower strategy
23-Jan-14 SEC
Dr. S. K. Majumdar
93
Vacant Niche Strategy for Runner-Up Firms

Focus strategy concentrated on end-use applications market leaders have neglected Characteristics of an ideal vacant niche
Sufficient size to be profitable
Growth potential
Well-suited to a firms capabilities Hard for leaders to serve
Specialist Strategy for Runner-Up Firms

Strategy concentrated on being a leader based on
Specific technology
Product uniqueness Expertise in
Special-purpose products Specialized know-how
Delivering distinctive customer services

Superior Product Strategy for Runner-Up Firms

Differentiation-based focused strategy based on
Superior product quality or Unique product attributes
Approaches
Fine craftsmanship
Prestige quality
Frequent product innovations Close contact with customers to gain input for better quality product
Distinctive Image Strategy for Runner-Up Firms

Strategy concentrated on ways to stand out from rivals Approaches
Reputation for charging lowest price Prestige quality at a good price Superior customer service Unique product attributes New product introductions Unusually creative advertising
23-Jan-14 SEC
Content Follower Strategy for Runner-Up Firms

Strategy involves avoiding
Trend-setting moves and Aggressive moves to steal customers from leaders
Approaches
Do not provoke competitive retaliation React and respond Defense rather than offense Keep same price as leaders Attempt to maintain market position
23-Jan-14 SEC
Weak Businesses: Strategic Options

Launch an offensive turnaround strategy (if resources permit)
Employ a fortify-and-defend strategy (to the extent resources permit)

Pursue a fast-exit strategy Adopt a harvest strategy (a slow-exit type of end-game strategy)
Achieving a Turnaround: The Strategic Options

Sell off assets to generate cash and/or reduce debt Revise existing strategy Launch efforts to boost revenues
Cut costs
Combination of efforts
What Is a Harvest Strategy?

Steers middle course between status quo and exiting quickly Involves gradually sacrificing market position in return for bigger near-term cash flow/profit Objectives
Short-term - Generate largest feasible cash flow Long-term - Exit market
Types of Harvest Options

Reduce operating expenses to rock-bottom
Hold reinvestment to minimum

Place little priority on new capital investments Emphasize stringent internal cost controls Trim advertising and promotion expenses Do not replace employees who leave
Shave equipment maintenance
23-Jan-14 SEC
Dr. S. K. Majumdar
102
When Should a Harvest Strategy Be Considered?

Industrys long-term prospects are unattractive Building up business would be too costly Market share is increasingly costly to maintain Reduced levels of competitive effort will not trigger immediate fall-off in sales
Firm can re-deploy freed-up resources in higher opportunity areas

Business is not a major component of diversified firms portfolio of businesses
Liquidation Strategy
Wisest strategic option in certain situations
Lack of resources Dim profit prospects
May serve stockholder interests better than bankruptcy
Unpleasant strategic option

Hardship of job eliminations Effects of closing on local community
10 Commandments for Crafting Successful Business Strategies

1. Always put top priority on crafting and executing strategic moves that enhance a firms competitive position for the long-term and that serve to establish it as an industry leader. 2. Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up.

3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to aboveaverage profitability. 4. Avoid strategies capable of succeeding only in the best of circumstances. 5. Dont underestimate the reactions and the commitment of rival firms. 6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength. 7. Be judicious in cutting prices without an established cost advantage.

8. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes. 9. Endeavor not to get stuck back in the pack with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders. 10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing arms race and/or price wars.
23-Jan-14 SEC
Dr. S. K. Majumdar
107
The Bottom Line

We are in business to make or save money We make money by serving customers wants and needs better than our competition We save money by reducing waste and, or increasing productivity We compete in dynamic market place To shine in the competition, we need to understand customers wants and preferences and produce those goods and services, which have significant value to the users and has the ability to pay for them.
Organizations
Must have a visionary, meaningful mission statement.
Must have a clear and simple strategy. Must define how to get more than a fair share. Must be committed to strategic moves and signal commitment to competitors.
Must follow through on commitments continually and retaliate quickly and aggressively to counter moves.
Must continually innovate.
The Role of Top Management

Role of top management is:
Defining an organizations position and strategy Making trade-offs
Forging fit among activities

Building an innovation machine
And strategy may have to change along with major structural changes in an industry -flexibility is vitally important.
Exercise
Prepare the Mission and Vision statement for the Organization
Identify the Competitive Landscape of the Organization

Conduct TOWS Analysis Draw the Value-Chain Diagram, Assess Present Market Standing and
Develop a Strategic Vision and Action Plan for the Organization

Contact Details
Swapan Kumar Majumdar
Professor of Information Systems , Operations Management and Strategy
BTech, PGDM (IIM-B), MSc (London School of Economics) MPhil (Imperial College, London), PhD (IIT-D)
Indian Institute of Management - Shillong Mayurbhanj Complex, Nangthymmai; Shillong - 793014 Tel: +91 (0364) 230 8016 (0); +91 (0364) 230 8072 (R); Mob: +91 (0) 9436701138 eMail: smz@iimshillong.in; skmajum2000@yahoo.co.in; www.iimshillong.in
23-Jan-14
Dr. S. K. Majumdar
112

3 Strategy Lecture 4 5

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

3 Strategy Lecture 4 5

Uploaded by

Copyright:

Available Formats

Analyzing Competitive Landscape of Business

The Strategy Focused Organization *

Motivated and Prepared Workforce

The Definition of Value

Strategic Planning and Analysis

Key Questions are

To Develop a Winning Formula, One has to Find out:

Analysis of Industry Characteristics

Analysis of Product Characteristics

Simple, Complex, Very Complex Emerging, Matured Process

Perishable (Limited Shelf-Life) Durable, Long Lasting

Analysis of Market Characteristics

Emerging Maturing Saturated Declining

Virgin (No Competition) Low Competition Moderate Hyper Competitive

Analysis of Actors Market Standing

Size Market Standing Flexibility

Small Medium Large

New Entrant Leader Runner-up Laggard

Highly Flexible Moderately Flexible Low Flexibility

The Proactive and Reactive Elements of Strategy

Five Forces that Shape the Industry Competition

The Five Forces Model of Competition

Role of the Macro-Environment

Risk of entry by New Competitors

Technology Environment information age biotech advances

Bargaining Power of Suppliers

Rivalry among Established Firms

Bargaining Power of Customers

Threat of Substitute Products & Services

Demographic Environment Women, ethnic groups, family

Macroeconomic Environment globalization

The Determinants of Competition

Neutralizing The Five Competitive Forces

Erecting barriers (isolating mechanisms) create & exploit economies of scale,

Rivalry Substitutes Buyers Suppliers

Compete on non-price dimensions:

Reduce supplier uniqueness: backward

Creating Lasting Value

Competition and Cooperation

COMPETITIVENESS REQUIRES INNOVATION

Changing Life Cycle of Industry

Emerging Industry Time

Stages of Multiple Scenario Analysis:

MANAGE REQUIRED CHANGE TO ATTAIN COMPETITIVENESS

Breakthrough Planning System

Strategic Decision Making

Strategy Rests On Unique Activities

Where do driving forces originate?

Our process capability is greatly limited by Variation

Gary Hamel: New Foundations

Getting better, getting faster is the way to win

Rule-busting innovation is the way to win

Strategy is the easy only if youre content to be an imitator

Big companies can become gray-haired revolutionaries

Economic Sense of Business Model

/Save money in the business?

Is the strategy capable of delivering good bottom-line results?

Do the revenue-cost-profit economics of the strategy make good business sense?

Four Dimensions of Strategy

Three Generic Strategies

Generic Strategies and Industry Forces

Better insulated from powerful suppliers.

Can use low price to defend against substitutes.