Introduction

to Strategic
Management
What is Strategy..???
Why Strategy..???
 Difference between Planning & Strategy

What is Planning: Action Steps, as answers to…

What, How, Who, When, Where ….
While Strategy is…
An answer to Why…
Strategy is bigger than planning Strategy Comes
before Planning Strategy decides and shapes up
Planning
 Difference between Planning & Strategy

Examples:
Vision: Winning of Battle / War and takeover enemy
Strategy: Winning a battle, in less than a week,
without much loss to human life by December end.
Planning: Planning where to send the crowd to win
the war.
 Why Strategy…??
• The ultimate goal of the organizations is
to be successful – SUCCESS is:
• Survival (long-term success)
• Achievement of Goals
 Need of Strategy..!!
• Market has become Global
• Market has become Dynamic
• Ever Changing Technology
• Growing Competition in domestic as well as in global
market
• Information based Market
• Customer dominated markets
What is Strategy..???

Strategy: The unifying theme that

gives coherence (reason) and direction
to the decisions of any organization
Strategic Management: Consisting of
the analysis, decisions, and actions an
organization undertakes in order to
create and sustain competitive
advantages.
 Origin of Strategy..!!!
• Strategy comes from the Greek word STRATEGOS, which is
formed from stratos, meaning army, and –ag, meaning to
lead
Strategy Définition
Strategies- ‘‘ Systematically planned course of actions
for achievement of organizational Objectives or Goals’’

Dr. Prashant Kalaskar

 More Recent Historical Development of
Business Strategy
• Not until very large companies with the ability to
influence the competitive environment within their
industries did strategic thinking in the business world
begin to be spoken.
• Alfred Sloan, CEO of GM, 1923 – 1946 - One of the
first to analyze competition- ‘Ford’, and devise a
strategic plan based on its strengths and
weaknesses.
 The Three Big
Strategic “Analysis”
Questions
• 1. Where are we now? What is our situation?
• 2. Where do we want to go?
• Business(es) we want to be in and market positions we
want to obtain.
• Buyer needs and groups we want to serve
• Outcomes we want to achieve
• 3. How will we get there?

Dr. Prashant Kalaskar

 Strategic Management Process
• The Term Strategic Management refers to the set
of managerial process of forming-
• -a strategic vision,
• -setting objectives,
• -crafting strategy (Strategy Formulation),
• -implementing & executing the strategy,
• & then overtimes initiating whatever corrective
adjustments in the vision, objectives, strategies, &
executions are deemed to be appropriate
 Let us understand some terms…
• Visions- What Company wants to achieve in future
• Mission- The reason for company’s existence
• Goals- What Company wanted to achieve in general in
constraint to VISION
• Objectives- are specific goals to be achieved in future
• Vision - big picture idea of what you want to achieve.
• Mission - general statement of how you will achieve
your vision
 Components of Mission Statement
• Customers: Who are the firm’s customers
• Product/Services: What are firm’s major pdts./Services.
• Markets: Geographically, where does firm competes
• Technology: Which technology firm is using
• Concern for Growth/Survival: Is the firm committed to
growth & Financial soundness
• Self Concept: Firm’s major competitive advantage
• Concern for Public Image: Is the firm responsive to Env.,
Society etc.
• Concern for Employees : We value our Customers
 Characteristics of Good Mission Statement
1. It should be feasible: It should be realistic & achievable on
the basis of available resources
2. It should be clear: It should be clear enough to lead &
understand
3. It should be motivating: Motivating to its employees
4. It should indicate major components of strategy: A growth
or combination strategy adopted by company.
5. It should indicate how objectives are to be
accomplished: provide clues regarding the manner in which the
objectives are to be accomplished
 Strategic Management Process

The process of Strategic Management

involves 4 steps:
• Strategic Intent
• Environmental Analysis & Strategy Formulation
• Strategy Implementation
• Strategy Evaluation and Control
 Strategic Management Process

Strategic Intent Strategy Formulation Strategy

Vision, Mission, Internal & External Implem-
Business Appraisal entation
Definition, SWOT Analysis Corporate Project &
Objectives & Business Level Procedural
Strategies Implemen
Strategic Analysis & choice tation

Control
 The strategic management process

The strategic management process means defining the

organization’s strategy. It is also defined as the process
by which managers make a choice of a set of strategies
for the organization that will enable it to achieve better
performance.
 Strategic management process has
following four steps:
• Environmental Scanning– Environmental scanning refers
to a process of collecting, scrutinizing and providing
information for strategic purposes. It helps in analyzing
the internal and external factors influencing an
organization. After executing the environmental analysis
process, management should evaluate it on a continuous
basis and strive to improve it.
• 2. Strategy Formulation– Strategy formulation is the
process of deciding best course of action for
accomplishing organizational objectives and hence
achieving organizational purpose. After conducting
environment scanning, managers formulate corporate,
business and functional strategies.
• 3. Strategy Implementation- Strategy implementation
implies making the strategy work as intended or putting
the organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s
structure, distributing resources, developing decision
making process, and managing human resources.
 Importance of Strategic Management
 Strategic Management is must for all those
organizations, who dreams to grow.
 “Survival of Fittest”, does not mean a Strong or Large
company will survive.
 Business has to follow war rule- “Win or Lose”
 Companies need to have Competitive Advantage
 These all characteristics of a successful business
organizations is possible to have if it follows-
Strategic Management- Strategic Analysis, Strategy
Formulation & Strategy Implementation.
 Importance of Strategic Management
• Strategic Management has following benefits-
a) It helps organization to be proactive than being reactive
b)Strategic Management provides a framework for all
different decisions of business like- Product, Markets,
Manufacturing, resources & investment
c) Strategic Management performs a role of Path Finder by
making organizations able to identify opportunities in
the market & process how to reach them.
d)Strategic Management helps to develop core
competency & competitive advantage for survival &
Growth
 The Strategy Concept
Levels of Analysis

Corporate
• Where to Compete? Strategy

• How to Compete? Business

Strategy

Functional
• How to Contribute? Strategy • Functional Strategies
• (Mktg. Mix,
Choice of Products Choice Operational, Financial
of Markets Choice of etc.)
Competitors
 Characteristics of Strategic
Management ..!!

Greater risk,cost, and

profit potential

Corporate-level Greater need for

decisions flexibility

Longer time horizons

 Characteristics of Strategic
Management ..!!
Bridge decisions at
corporate and functional
levels

Are less costly, risky, and

Business-level potentially profitable than
decisions corporate-level decisions

Are more costly, risky, and

potentially profitable than
functional-level decisions
 Characteristics of Strategic
Management ..!!

Implement overall strategy

Involve action-oriented
Functional- operational issues
level
decisions Are relatively short range
and low risk

Incur only modest costs

 Stakeholders in Business
What are Stakeholders?
“ Stakeholders are those individuals or group of
people, who can affect & are affected by the
Strategic Outcomes achieved & who have
enforceable claims on Company’s Performance”
-These people have stakes in Strategic Outcome of the
Company
-These people can be positively or negatively affected by
these outcomes
-These Strategic Outcomes is dependent upon the
support or active participation of certain Stakeholders
 Stakeholders in Business
Capital market Stakeholders:-
Stock Market Investors, Banks
Product Market Stakeholders:-
Customers, Retailers, Suppliers
Organizational Stakeholders:- Owner,
Employees, Managers, Staff
Secondary Stakeholders:-
, Competitors, Government
 Stakeholders in Business
Different Type of Stakeholders have different
expectations or demands from the company
If company is making above average profitability, then
the company can satisfy its stakeholders
Ex: Reducing invest in R & D & giving bonus to investors as
short term objectives
 Business Definition
Business Definition-
•A Business definition is a clear statement of the business,
the firm is engaged in or is planning to enter.
•It answers the question: What is our business in a exact
way.
•Examples:
“We are in the beauty-enriching business” – Helen and Curtis
“We are in the business of computer technology” – Intel
“ We are in the transportation business” – TELCO
 Business definition orientation
1. Product definition / orientation
2. Market definition / orientation
Company Product definition Market definition

Railways We run railways We are a people and

goods mover

Film producing We make movies We market

company entertainment

Copying Machine We make copying We help improve office

company equipment productivity
 Peter Drucker’s Business Definition View
Products may come and go but basic needs and
customer groups continue forever.

According to him business definition should cover three

vital aspects.
1. Product/ Service concept
2. Customer segment
3. Value creation
 Critical Success Factors (CSF)
• The concept of "success factors" was developed by
D. Ronald Daniel of McKinsey & Company in 1961
• What gets measured, gets done..
• A quality improvement tool that many organizations use
is Critical Success Factors (CSF) which are indicators that
measure how well an organization is accomplishing its
strategic plan and objectives i.e.
 Critical Success Factors (CSF)
Lets Understand CSF for a Shoe Manufacturer….
1)High Quality Manufacturing of Shoes
2)Cost Efficiency
3)Proper RetailinA Good Brand Image
Lets Understand CSF for a Courier Service Company….
1) Speed of Delivery
2) Reliability
3) Price of Service
 Key Result Area’s (KRA’s)
• KRA’s are those functions or functional divisions/ Area’s
of Performance in which Organization must continually
improve to be successful
• Definition: "In simple terms it may be defined as the
primary responsibility of an individual, the core area in
which each person is accountable”
 Example of KRA’s for Human Resource
1) Staffing
2) Employee Relations
3) Employee Development
4) Compensation Planning & Administration
5) Policy Designing
6) Career Development
•MODULE 2: COMPETITIVE
ADVANTAGE
 External Environmental Analysis
• Environment outside the company in which it is
operating
• This environment may contain various factors, which
may affect the strategic decision making & strategic
outcome of the company.
• These factors can be classified as:
1) Macro Environmental factors (larger impact) &
2) Micro Environmental factors (lesser impact)
It is depending upon the overall impact of these factors
on any company.
 Need of External Env. Analysis.
• It provides an idea for the company to understand:
1) Current & future trends in the market
2) Opportunities & Threats for the organization
3) Also suggests corrective measures to overcome its
impact.
 Opportunities
“Opportunities are the chances or favorable conditions
for the organization’s growth or performance”
• Viz:
1)Emerging or Growing needs of customers
2)Quality & Technology improvements options
3)Expansion in global market
4)Entry or Exit of competitors..
 Threats
“An External factor that poses Danger or Risk to its
Wellbeing or Performance”
• Viz:
1)Change in Demography / Demand in market
2)Emergence of Cheaper Technology
3)Regulatory Changes
4)Entry or Exit of Competitors
 External Environmental Analysis
External Environmental Analysis can be done in three
perspectives:
1) Analysis of General Environment (PESTLE Analysis)
2) Analysis of Industry Environment (Porter’s 5 Force)
3) Analysis of Competitors Environment
 External Environmental Factors
• Macro Factors • Micro Factors
1) Political Factors
2) Economical Factors 1) Suppliers Environment
3) Socio-Cultural Factors 2) Market Environment
4)Technological Factors 3) Intermediates
5) Legal/Regulatory 4)Customer
6)Physical Environmental 5) competitors
 PESTLE Analysis
Market Factors
Technological
Factors

Industry
Environment Political Factors
Supplier’s
Firms
Environment

Economical
Factors
Socio-Cultural
Factors Regulatory
Factors
 PESTLE Analysis
Definitions:

“PESTLE analysis – an analysis of the political, economic,

social and technological factors in the external
environment of an organization, which can affect its
activities and strategic performance.”
 Political Factors
• Factors related to the Politics or Government of that
Nation.
• Different Political Factors will have differential impacts
Political factors like:
- Political Structure & its Goals & Stability
- Government’s Role in Business Development & Policies
 Socio-Cultural factors
• Factors related to Human Relationships, human
behaviors etc.
• Socio-Cultural factors like:
- Demographic: Population, density & its distribution, age
composition, inter-state migration, income distribution
- Values like expectations of society from business, ritual
beliefs, changing lifestyle patterns
- Family Structure, role of family members in purchasing
decision, education level etc.
 Technological Factors
• Factors related to Knowledge applied & materials &
machines used for production purpose, which can
affect the business.
• Factors like;
- Sources of Technology: Internal or External, Cost of
acquisition of technology.
- Technology development stage, Man-Machine System
- Communication & Infrastructural Technology in
Management
 Porter's 5 Force Model
 Porter's 5 Force Model (suggested by Michael E. Porter
of Harvard Business School in 1979) is a framework to
analyze level of competition within an industry
and business strategy development.
Five forces
which determine the competitive intensity and
therefore attractiveness of a market.
• This theoretical framework, based on 5 forces, describes
the attributes of an attractive industry and thus suggests
when opportunities will be greater, and threats less, in
these of industries.
• The model determines the intensity of competition in
any industry is a mix of five competition factors.
 Porter's 5 Forces of Competition
Customer
Bargaining
Power

Threat of New Threat from Threat of

Entrants Competition Substitutes

Supplier
Bargaining
Power
Porter's 5 Forces of Competition
Potential
entrants

Threat of new
entrants

Bargaining power Industry competitors

of suppliers
Suppliers Buyers
Rivalry among Bargain
existing firms ing
power
of
Threat of buyers
substitutes

Substitute
products
 Threat of New Entrant
• An Growing Industry, having a profitable trends,
attracts many new competitors to enter the
industry
• Depending upon the Attractiveness of the industry,
new companies are ready to invest in the industry.
• All those new companies, tries to influence the
customers of available competitor, so as to earn a
respectable market share.
 Threat of New Entrant
• To do so, New Entrants do try to differentiate over
existing company’s products by-
• Adding new production capacity
• Brings in substantial resources in R & D’s
• Technological advancement over competitors
 Threat of New Entrant
• Entry Barrier:
• In this method, the available companies can create a
barrier for a new company to enter in the industry.
• Either the entry procedure is difficult- so that new
company can’t enter in the industry .
• The entry in the industry is costly, & require huge
investment, which the new company just can’t afford
• So that existing companies will enjoy their sales &
Market share
 Threat of New Entrant
Industries with high barriers of entry:
•Car making:
-high upfront capital investment in manufacturing
equipment;
-fulfillment with safety and emission rules and regulation,
-Access to parts suppliers, development of a network of
car dealerships, big marketing campaign to establish a
new car brand with consumers.
 Bargaining Power of Supplier
• It is the situation, which indicates that the market is
consisting of few & potential suppliers & large
customer base (Purchasing Companies).
• Hence the terms & conditions of the suppliers are very
high to be handled by the company.
• The suppliers may bargain individually or collectively
(through associations) or company direct selling is
restricted.
 Bargaining Power of Supplier
• The bargaining may be for purchasing the products by
the suppliers at lower price with high margins
• Selling the products/services at higher prices to the
customers.
• Selling the products of inferior quality to the
customers
 Bargaining Power of Supplier
Following are the conditions , where suppliers
bargaining power can be high:
•When suppliers are few & buyers are in large
number
•When the products are unique & not commonly
available
•When the substitutes of the products are not easily
available to the customers
 Bargaining Power of Supplier
Following are the conditions , where suppliers
bargaining power can be high:
•When the buyers buys in limited quantity, which is
not important to the suppliers.
•Where the association of the suppliers is strong &
company is dependent on suppliers to supply their
products & services
 Bargaining Power of Supplier
Examples:
•Industries using diamonds, such as jewelry and
electronics, face the huge power , that takes
advantage of the supply concentration to achieve
dominant market share
•Less Bargaining Power: Suppliers of Food
Processing industries has less BP from farmers.
 Bargaining Power of Buyers
• Bargaining power of buyer means, the buyers
individually or collectively can put conditions/ demands
of purchasing products /services.
• Bargaining power is the ability to influence the setting
of prices.
The bargaining may be for:
• Quality in products / services (Hotel Industry)
• Prices of the products/ Services lower as they desire
• Expecting more value against what they pay
 Bargaining Power of Buyers
The bargaining power of the buyer is more when:
•When the buyers are in limited in number
•Switching cost is low, but can affect the suppliers to a
great extent
 Threat of Substitute Products
• Substitutes are those products which can be
substituted with each others.
• When the products has a large number of substitutes,
the prices of the products doesn’t move high
• Availability of close substitutes produces, negative
competitive impact.
• Any industry, where close substitutes are not available,
the company sales their products at higher prices
 Threat of Substitute Products
Threats of Substitute products is high when:
•When the switching cost is low
•Prices of substitute products are lower
•Quality & performance of the substituted products are either
equal or little or greater than major industry products
•In such cases, companies can offset the effect of substitute
products, by differentiation over competitors i.e. by providing
–
•Higher Quality, Lower Prices,
•Better After Sales Services,
•Location Advantage etc.
 Threat of Substitute Products
• Full substitute products are products from
different manufacturers that fulfill the exact same
purpose.
Ex.-Kellog's corn flakes and generic brand corn
flakes.
• Partial substitutes are products that only partially
substitute each other.
 Protecting against substitution
• Producers may try to protect their products with
strong branding, trade marks.
 Intensity of Rivalry among competitors
• In every industry, a good number of companies are
present, who competes with each other for creating a
competitive position in the industry
• Depending upon the nature of the industry & stage of
industry, the number of competitors in the industry
& intensity of competition is dependent.
STRATEGIC GROUPS
• Strategic groups are sets of firms within an industry that
share the same or highly similar competitive attributes.
These attributes include pricing practices, level of
technology investment and leadership, product scope
and scale capabilities, and product quality. By identifying
strategic groups, analysts and managers are better able
to understand the different types of strategies that
multiple firms are adopting within the same industry.
Strategic Group Maps
• A useful way to analyze strategic groups is through the
creation of strategic group maps. Strategic group maps
present the various competitive positions that similar
firms occupy within an industry.
• a) Identify Key Competitive Attributes. As mentioned
previously, many firms share similar competitive
attributes such as pricing practices and product scope.
The first step in developing a strategic group map is to
identify key competitive attributes that logically
differentiate firms in a competitive set.
• b) Create Map Based Upon Two Key Attribute Variables.
For the variables selected, assign each variable to the X
and Y axis, respectively.
• c) Identify Strategic Groups. Once all of the firms have
been plotted, enclose each group of firms that emerges
in a shape that reflects the positioning on the strategic
group. At this point, assess whether or not the
differences between each group are meaningful or
whether other variables must be selected from which
another set of strategic groups can be drawn.
 COMPETITIVE CHANGES DURING
INDUSTRY EVOLUTION
• Industry lifecycle comprises four stages including
fragmentation, growth, maturity and decline. An
understanding of the industry lifecycle can help
competing companies survive during periods of change.
• a) Fragmentation Stage
• Fragmentation is the first stage of the new industry. This
is the stage when the new industry develops the
business.
• Shake-out is the second stage of the industry lifecycle. It
is the stage at which a new industry emerges. During the
shake-out stage, competitors start to realise business
opportunities in the emerging industry. The value of the
industry also quickly rises.
• c) Maturity
• Maturity is the third stage in the industry lifecycle.
Maturity is a stage at which the efficiencies of the
dominant business model give these organisations
competitive advantage over competition. The
competition in the industry is rather aggressive because
there are many competitors and product substitutes.
Price, competition, and cooperation take on a complex
form. Some companies may shift some of the production
overseas in order to gain competitive advantage.
• Application of industry life cycle
• It is important for companies to understand the use of
the industry lifecycle because it is a survival tool for
businesses to compete in the industry effectively and
successfully. The main aspects in terms of strategic
issues of the industry lifecycle are described below:
• Competing over emerging industries
• Competing during the change to industry maturity
• Competing in declining industries
 GLOBALIZATION AND INDUSTRY
STRUCTURE
• In conventional economic system, national markets are
separate entities separated by trade barriers and barriers
of distance, time and culture. With globalization, markets
are moving towards a huge global market place. The
tastes and preferences of customers of different countries
are converging common global norm.
• Individual companies have dispersed parts of their
production process to various parts of the world to take
advantage of national advantage with respect to cost and
factors of production such as land, labour, capital and
energy. The end result is low cost and enhanced profits.
 NATIONAL CONTEXT AND COMPETITIVE
ADVANTAGE
In spite of globalization of markets and production
successful companies in certain industries are found in
specific countries:
• Japan has most successful consumer electronics
companies in the world
• Germany has many successful chemical and engineering
companies in the world
• United States has many of the world’s successful
companies in computer and biotechnology
It shows that national context has an important bearing on
the competitive position of the companies in the global
market
• According to Michael porter the nation’s competitive
position in an industry depends on factor conditions,
Industry rivalry, demand conditions, and related and
supporting industries.
 RESOURCES, CAPABILITIES AND
• Resources
COMPETENCIES
• Resource Based View (RBV) defines capability as the
ability of a bundle of resources to perform an activity. It
is a way of combining assets, people and processes to
transform inputs into output.
Capabilities
• Capabilities thus, reflect a firm’s capacity to deploy
resources that have been purposefully integrated to
achieve a desired end state.
• Competency
• The term competency refers to the ability of an
organization to achieve its purpose. It is the ability to
perform exceptionally well and increase the stock of
targeted resources of an organization.
VALUE :

Value is the total amount that

buyers are willing to pay for a firms
product. Value chain tool is
developed by Mr. Michael Porter ,
Harvard Business School.
 VALUE CHAIN :

• Value chain is most crucial element in SM.

• It is what, what is the value that created of
Org. towards its product and services.
• Porter’s Value chain focuses on all
activities
- to design
- to produce
- to market
- to deliver
- and support product & services
 VALUE CHAIN : continue...

•Value chain is concentrating on the activities

started with the raw materials till the
conversion into final goods & services.

Activities are categorized into :

1. PRIMARY ACTIVITIES
2. SECONDARY ACTIVITIES
 VALUE CHAIN : continue...

1. PRIMARY ACTIVITIES
Primary activities includes ( Operations,
Distributions, Sales etc. )

2. SECONDARY ACTIVITIES
Secondary activities includes ( R&D, Human
Resource etc. )
 VALUE CHAIN ANALYSIS

• It is a chain of activities that a firm is

operating in order to deliver a valuable
product or services to the market.
• Value chain analysis look at every step a
business goes through. (from raw material to
eventual end- user.
• Goal of VCA is to deliver maximum value for
least possible total cost.
Value Chain Model : Fishbone diagram
 FIRMS ACTIVITIES

PRIMARY ACTIVITIES : SUPPORT

ACTIVITIES :
1. INBOUND 1. FIRMS
LOGISTICS INFRASTRUCTURE
2. OPERATIONS 2. HRM
3. OUTBOUND 3. TECH.
LOGISTICS DEVLOPMENT
4. SALES & 4. PROCUREMENT
MARKETING
5. SERVICE
SUPPORT
 If you think your business could be doing better, why not try a SWOT
analysis?
 SWOT stands for Strengths, Weakness, Opportunities and Threats
 By putting your firm under the magnifying glass in such a fashion you may
find the
way to grow your company
or increase your earnings.
 Introduction To Swot
SWOT
analysis
analysis is a strategic planning method used
to evaluate the Strengths, Weaknesses, Opportunities,
and Threats involved in a business.

 It involves specifying the objective of the business

and identifying the internal and external factors
that are favorable and unfavorable to achieve that
objective.

Technique is credited to Albert Humphrey,

 SWOT
Defined
Positiv Negativ
e e

Internal Strength Weaknesse

s s

External
Opportunitie Threat
s s
>SWOT Analysis is a powerful
technique for understanding
your Strengths and
Weaknesses, and for looking
at the Opportunities and
Threats you face.

>For a business to Expand,

Diversify and Sustain in the
market SWOT analysis is must.
 IFE
Matrix
 What is the IFE
Matrix?
• Internal Factor Evaluation Matrix

• A summary step in conducting

internal strategic management
audit.

• Summarizes and evaluates the major

strengths and weaknesses in the
functional areas of a business.
 Componen
ts
• Internal Factors – list of all strengths
and weaknesses
• Weights – Scale of 0 to 1
• Rating – Scale of 1 to 4
– Strengths – 4-major strength; 3- minor
strength
– Weaknesses – 1-major weakness; 2-minor
weakness
• Total Weighted Score
 Construction of IFE
Matrix
• Make a table. In the first column, list
down all the strengths and
weaknesses.
• In the second column, assign weights
to each factor ranging from 0.0 (not
important) to 1 (most important).
• The sum of all weights must be equal
to 1.
 Construction of IFE
Matrix
• In the third column, rate each factor
ranging from 1 to 4 (where: 1 = major
weakness, 2 = minor weakness, 3 =
minor strength, 4 = major strength.)
 Construction of IFE
Matrix
• In the fourth column, calculate
weighted score by multiplying each
factor’s score by its rating.

• Find the total weighted score by adding

the weighted scores for each variable.
Generic Building Blocks of
Competitive Advantage

1
1
7
 Generic Building Blocks of
Competitive Advantage

Superior
Quality

Competitive
Advantage Superior
Superior Customer
- Low Cost
Efficiency Responsiveness
-
Differentiation

Superior
Innovatio
n 1
1
8
 Efficiency
Business - device for transforming inputs into outputs

Inputs- basic factors of production such

as labor, land, capital, management, etc.

Outputs - goods and services that the business produces

Efficiency - the quantity of inputs that it takes to produce a

given output

1
1
9
 Quality
Quality products are goods and services that are reliable in
the sense that they do the job they were designed for and
do it well.

High product quality on competitive advantage is twofold:

First, high-quality products increases the value

of those products in the eyes of consumers.

The company can charge a higher price for its products.

For example, Toyota Vs. General Motors

1
2
0
 Quality (Cont.)
Second, high quality comes from the greater efficiency
and the lower unit costs it brings.

The company charge higher prices for its

product, but also has lowers costs.

1
2
1
 Innovation

Innovation - anything new or novel about the way a

company operates or the products it produces

Innovation includes products, production processes,

management systems, organizational structures and
strategies developed by a company. (E.g. - Toyota’s
lean production system - pioneer company).

Innovations give a company something unique -

something its competitors lack.
1
2
2
 Innovation (Cont.)

When competitors succeed in imitating the innovator,

the innovating company had build up such strong
brand loyalty and supporting management processes
that its position proved difficult for imitators to attack.

1
2
3
 Customer
Responsiveness
Customer responsiveness - a better job than
competitors of identifying and satisfying the needs of
its customers

1
2
4
 Customer Responsiveness (Cont.)

Sources of Enhanced Customer

Responsiveness
Quality Innovation Customization

Shorter customer response time Superior design

Service

After-sale service and support

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 Customer Responsiveness (Cont.)

All these factors allow a company to differentiate itself.

Differentiation enables a company to build brand loyalty

and to charge a premium price for its products.

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WHY DO COMPANIES FAIL?

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 Why do Companies Fail?

• A company can lose its competitive advantage but

still not fail because it can earn average profits.

• related reasons for failure:

• Inertia

• Prior Strategic

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 Inertia

inactivity: In changed market conditions, companies find it

difficult to change their strategies and structure
accordingly. The changed competitive conditions put
pressure on the decision makers to introduce suitable
changes in developing capabilities.

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 Prior Strategic Commitments

Prior Strategic Commitments: The

commitments which are already made in terms of
huge investments, direction and facilities prove
to be a setback and result in competitive
disadvantage. IBM’s massive investments were
locked in a shrinking business.

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Avoiding Failure & Sustaining
Competitive Advantage

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 Avoiding Failure & Sustaining
Competitive Advantage
Focus on the Building Blocks of Competitive
Advantage

Institute Continuous Improvement and Learning

Track Best Industrial Practice and Use Benchmarking

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