UNIT -3

Generic Competitive Strategies?

Michael Porter developed the phrase “generic competitive strategies (GCS)”.

Porter’s generic competitive strategy is a framework for planning the strategic
direction of the business that assists with gaining an advantage in the marketplace
over the competitors. He also claimed that a company must focus on one of the
three strategies for the growth of business.

3 types of generic strategies -

1. Cost leadership -
A business that wants to gain a market advantage by controlling costs. There are
two types of cost leadership: low-cost strategy and best-value strategy. One aims to
increase profits by reducing costs while maintaining industry-average prices. The
other aims to increase market share by charging lower prices and reducing costs.

Cost leadership means being a leader in providing lowest cost products. A

company must acquire the market share by cost-cutting of the products or best-cost
strategy. Through economies of scale, efficient operations, and effective cost
management, a company can offer its products or services at lower prices than
competitors. While this approach is particularly effective in price-sensitive markets
and can attract a substantial customer base, it presents challenges such as
maintaining quality standards, cost control, and adapting to shifts in the competitive
landscape. Companies that successfully implement cost leadership include
Walmart, renowned for its operational efficiency and low prices.

2. Differentiation -
Adapting to a differentiation strategy means that the company must find something
about its products that is special or different from the competitor’s. Differentiation
strategy focuses on being different or unique against the competitors.

To determine the differentiation, company needs to create—or revisit—or mission

and values statements. How is your product different from the competitors? They
may be similar, but it is up to you to distinguish how yours is different and better.
To differentiate the product to target audience, company must understand how they
customers perceive your brand. Company can gain insight by analyzing user-
generated content on the social media channels. What are people really saying
about the company—positively and negatively? All feedback is helpful and can
help the company to modify strategies & make it unique.

Apple company is known for its uniqueness in terms of

products, technology etc.

Nike’s emphasis on brand image and high-performance athletic

products, exemplify successful differentiation strategies.

3. Focus -
The focus strategy provides the option to use either cost leadership or
differentiation within a niche market. This doesn’t mean that the market will be
smaller because the company might be small, but rather that the company wants to
build product value and generate a loyal, yet specific client base for future profits
and sales.

Focus strategy emphasizes on the focus group or target audience on whom the cost
leadership & Differentiation strategy can be applied. This strategy involves
targeting a specific market segment or niche and tailoring products, services, or
marketing efforts to meet that segment’s unique needs. It can be achieved through
either cost focus or differentiation focus, allowing companies to serve a narrow
customer base more effectively than broader competitors.
 GENERIC COMPETITIVE STRATEGY

Organizational Capability Profile -

Organizational Capability Profile (OCP) – This profile indicates the different
capabilities that an organization must have to survive in the competitive scenario.

1. Financial Capability Profile –

(a) Sources of funds

(b) Usage of funds

(c) Management of funds

2. Marketing Capability Profile –

(a) Product related

(b) Price related

(c) Promotion related

(d) Integrative & Systematic

 3.Operations Capability Profile -

(a) Production system

(b) Operation & Control system

(c) R&D system

4. Personnel Capability Profile –

(a) Personnel system

(b) Organization & employee characteristics

(c) Industrial Relations

5. General Management Capability –

(a) General Management Systems

(b) External Relations

(c) Organization climate

Strategic Advantage Profile – (SAP)

The strategic advantage profile is a tool for making a systematic evaluation of the
enterprises internal factors which are significant for the company in its
environment. The SAP shows the strengths and weakness of an organization in
different functional areas.

Every firm has strategic advantages and disadvantages. For example, large firms
have financial strength but they tend to move slowly, compared to smaller
firms, and often cannot react to changes quickly. No firm is equally strong
in all its functions. In other words, every firm has strengths as well as
weaknesses Strategists must be aware of the strategic advantages of the firm to be
able to choose the best opportunity for the firm.
On the other hand they must regularly analyze their strategic disadvantages or
weaknesses in order to face environmental threats effectively.

Strategic Advantage Factors: Marketing and Distribution

1. Competitive structure and market share: To what extent has the firm established
a strong market share in the total market or its key sub markets
2. Efficient and effective market research system.
3. The product-servicemix: quality of products and services.
4. Product-service line: completeness of product-service line and product-
service mix; phase of life-cycle the main products and services are in.
5. Strong new-product and new service leadership
.6. Patent protection (or equivalent legal protection for services).
7. Positive feelings about the firm and its products and services on the part of the
ultimate consumer.
8. Efficient and effective packaging of products (or the equivalent for services)
9. Effective pricing strategy for products and services.
10. Efficient and effective sales force: close ties with key customers.
11. Effective advertising: Has it established the company's product or brand image
todevelop loyal customers?

Strategic Advantage Factors: R&D and Engineering

1. Basic research capabilities within the firm
2. Development capability for product engineering
3. Excellence in product design
4. Excellence in process design and improvements
5. Superior packaging developments being created
6. Improvements in the use of old or new materials
7. Ability to meet design goals and customer requirements
8. Well- equipped laboratories and testing facilities
9. Trained and experienced technicians and scientists
10. Work environment suited to creativity and innovation
11. Managers who can explain goals to researchers and research results to higher manager
s
12. Ability of unit to perform effective technological forecasting.
BCG Matrix -
The Boston Consulting group's product portfolio matrix (BCG matrix) is designed
to help with long-term strategic planning, to help a business consider growth
opportunities by reviewing its portfolio of products to decide where to invest, to
discontinue, or develop products. It's also known as the Growth/Share Matrix.

1. Cash Cows -
Products that are in low-growth areas but for which the company has a relatively
large market share are considered cash cows, and the company should thus milk
the cash cow for as long as it can. Cash cows, seen in the lower left quadrant, are
typically leading products in markets that are mature.
These products generally generate returns that are higher than the market's growth
rate and sustain itself from a cash flow perspective. These products should be
taken advantage of for as long as possible. The value of cash cows can be easily
calculated since their cash flow patterns are highly predictable. In effect, low-
growth, high-share cash cows should be milked for cash to reinvest in high-
growth, high-share stars with high future potential.

2. Stars -
Products that are in high-growth markets and high market share are considered as
stars and should be invested in more. In the upper left quadrant are stars, which
generate high income but also consume large amounts of company cash. If a star
can remain a market leader, it eventually becomes a cash cow when the market's
overall growth rate declines.

Star products of a company build brand value & help the company to become a
leader in competition.

3. Question Mark -
Questionable opportunities are those in high growth rate markets but in which the
company has low market share. Question marks are in the upper right portion of
the grid. They typically grow fast but consume large amounts of company
resources. Products in this quadrant should be analyzed frequently and closely to
see if they are worth maintaining.

4. Dogs -
If a company’s product has a low market share and is at a low rate of growth, it
is considered as dog and should be sold, liquidated, or repositioned. Dogs, found
in the lower right quadrant of the grid, don't generate much cash for the company
since they have a low market share and little to no growth. Because of this, dogs
can turn out to be cash traps, tying up company funds for long periods of time. For
this reason, they are prime candidates for divestment.

Dog products future is in threat & can be shut down anytime.

Some Wxamples of companies -

Here is the strategic analysis of Nestlé products:

 Stars – Nescafé: These products have the potential to generate a better return
on investment later on. Although it may require heavy investments to make
the Nescafé brand more visible in this market, they could soon become cash
cow products.
 Cash cows – KitKat: These products have high customer loyalty (especially
in Asia). They require very little investment. In fact, they are already
available in every nook and cranny. And are loved by most of us.
 Question marks – Nesquik: Some of Nestlé’s milk products
are Dilemma products. Since this area requires more investment, because it
is in the strategy development process. And it’s also a high-risk decision to
invest in it.
 Dogs – Nestea, others: Products in this category do not provide significant
benefits. Thus, future investments are considered wasteful by the company,
they may instead become products in the “Dilemma” or “Star” categories in
the future.

2. BCG Matrix of COCA –COLA

Question Mark

Cash Cows Dogs

Coca-Cola BCG matrix -
Minute Maid and Diet Coke fall into the dogs category due to the sales decline, which
is the result of the growing popularity of healthier beverages. At the same time, Coca-
Cola is a cash cow and an industry leader that produces significant revenue.
Strong brand awareness and global presence made Coke the first brand that comes to
mind when consumers think of a carbonated drink.

Fanta and Sprite are placed in the question marks quadrant of the BCG matrix. These
brands have not experienced the same success as Coke. However, the products achieved
sizeable sales volumes in various regions. Finally, Kinley offered in European markets,
Maaza and Thums Up, particularly popular in India, are considered the stars in Coca-
Cola’s BCG matrix. As the mineral water industry is expanding fast, these products are
expected to grow the market share and provide excellent opportunities for investment.

Grand strategies- a
1. Diversification Strategy - Diversification is a growth strategy that involves
entering into a new market or industry. It is a growth strategy. When a
company is doing well in to a business, it starts investing in some other areas
of business.

Different types of diversification strategies -

1. Horizontal diversification -
Horizontal diversification is when you acquire or develop new products or services
that are complementary to your core business and appeal to your current
customers. For example, an ice cream business adds a new type of confectionary
into its product line. You may require new technology, skills or marketing
approach to diversify in this way.
2. Concentric diversification
Concentric diversification involves adding new products that have technological or
marketing synergies with existing product lines or industries, but appeal to new
customers. For example, a PC manufacturer starts producing laptops. You may be
able to leverage your existing technologies, equipment and marketing to diversify
in this way.
3. Conglomerate diversification
Conglomerate diversification occurs when you add new products or services that
are entirely different from and unrelated to your core business. For example, a film
studio opening up an entertainment park. The risks are high, as this approach
requires you not only to enter a new market, but also to sell to a new consumer
base.
4. Vertical diversification
Vertical diversification or integration is when you expand in a backward or
forward direction along the production chain of your product. In this approach, you
may control more than one stage of the supply chain. For example, a film
distributor produces its own content, or a technology manufacturer opens its own
retail store.
.
Advantages and disadvantages of diversification -

 increase sales and revenue

 grow market share
 find new revenue streams
 achieve higher margins compared to existing products
 limit the impact of changes in the market

2. Vertical Integration Strategy - Vertical integration is a strategy that

allows a company to streamline its operations by taking direct ownership
of various stages of its production process rather than relying on external
contractors or suppliers. Companies can achieve vertical integration by
acquiring or establishing their own suppliers, manufacturers, distributors,
or retail locations rather than outsourcing them. Vertical integration can be
risky due to the significant initial capital investment required.
 Vertical integration requires a company's direct ownership of suppliers,
distributors, or retail locations to obtain greater control of its supply chain.

 The advantages can include greater efficiencies, reduced costs, and more
control along the manufacturing or distribution process.

How Vertical Integration Works -

Vertical integration occurs when a company attempts to broaden its footprint

across the supply chain or manufacturing process. Instead of sticking to a single
point along the process, a company engages in vertical integration to become more
self-reliant on other aspects of the process. For example, a manufacturer may want
to directly source its own raw materials or sell directly to consumers.

The supply chain or sales process typically begins with the purchase of raw
materials from a supplier and ends with the sale of the final product to the
customer. Vertical integration requires a company to take control of two or more
of the steps involved in the creation and sale of a product or service. The company
must buy or recreate a part of the production, distribution, or retail sales process
that was previously outsourced.

Companies can vertically integrate by purchasing their suppliers to reduce

manufacturing costs. They can invest in the retail end of the process by opening
websites and physical stores. They can invest in warehouses and fleets of vans to
control the distribution process.

3. Outsourcing Strategy -

Outsourcing is a strategy that involves the allocation of business tasks to third-

party providers. It is the process of hiring resources from any third party.
Implementing this approach can help an organization to increase its productivity
and profit margins and improve its products' quality.
An outsourcing strategy is a plan that describes how a company hires third-party
companies or individuals to perform tasks. As an alternative to relying solely on
internal employees, this approach can reduce expenses, increase productivity
and improve the overall quality of the final product.

Outsourcing strategies consist of the standards, procedures and regulations that

dictate factors like who an organization hires and how much it pays them. A
company may outsource to a single individual, a small business or a large
corporation, depending on its needs.

Examples of outsourcing -

A business may outsource a single project, such as setting up a network, or an

entire component of your business, like production. Here are some common
examples of work that companies can outsource:

 Content and blog writing

 Graphic design
 Branding services
 Reputation management
 Customer service
 Marketing
 Supply chain management
 Human resource management
 Accounting, financial consulting and tax compliance
 Engineering
 Computer programming and other IT services
 Research and design
 Onboarding and training new employees

4. Divestment Strategy -
Divestment involves a company selling off a portion of its assets, often to improve
company value and obtain higher efficiency. Many companies will use divestment
to sell off peripheral assets that enable their management teams to regain sharper
focus on the core business.

This strategy is adopted when a business is not earning the profits then the
company decide to take all the investments back to shut down the business.

Mergers & Acquisitions -

A Merger occurs when two separate entities combine forces to create a new, joint
organization. It describes two firms, of approximately the same size, that join
forces to move forward as a single new entity, rather than remain separately
owned and operated.

In a merger, the boards of directors for two companies approve the combination
and seek shareholders' approval. For example, in 1998, a merger deal occurred
between the Digital Equipment Corporation and Compaq, whereby Compaq
absorbed the Digital Equipment Corporation. Compaq later merged with Hewlett-
Packard in 2002.

An Acquisition refers to the takeover of one entity by another. When one

company takes over another and establishes itself as the new owner, the purchase
is called an acquisition.

In a simple acquisition, the acquiring company obtains the majority stake in the
acquired firm, which does not change its name or alter its organizational structure.
An example of this type of transaction is Manulife Financial Corporation's 2004
acquisition of John Hancock Financial Services, wherein both companies
preserved their names and organizational structures .
 Examples of Merger –
 Verizon and Vodafone. Verizon Communications and Vodafone jointly brought Verizon
Wireless to the market. ...
 Heinz and Kraft
 Pfizer and Warner-Lambert. In 2000, Pfizer acquired Warner-Lambert for $90 billion.
 AT&T and Time Warner
 Exxon and Mobil.
 Google and Android. ...
 Disney and Pixar/Marvel.

Examples of Acquisition –

S.No. Acquiring Company Acquired Company

1 Infosys Kaleidoscope Innovation

2 Reliance Retail Future Group’s Retail Business

3 Ola Etergo

4 ITC Sunrise Foods

5 Zomato Uber Eats

6 HUL GSK Consumer

……………..
 UNIT – 4

Core components of a strategic plan – There are few important

components that are essential to be analyzed for a strategic plan.

1. Mission, vision, and aspirations -

A mission & vision statement is the overall, lasting formulation of why
the company exists and what it hopes to be. It includes the aspirations
that a company wants to accomplish . A strategic plan needs a clear
statement of the company’s purpose, its reason for existing in the first
place. It is very important to set mission, vision & expectations to
accomplish the strategic plan effectively.

2. Core values -
The values with which the company runs its business. Ethical conduct,
product quality, company goodwill, better services are some core
values that helps a business to lead in the market.
 3. Strengths/Weaknesses/Opportunities/Threats - A SWOT
analysis of strengths, weaknesses, opportunities, and threats is a
rundown of the company’s current situation, from these four key
perspectives. It represents a snapshot of the pathways open to the
company and the pitfalls or flaws the company may encounter.

4.Objectives, strategies, and operational

tactics
Operational tactics refers to the methods, process that is used in the
day-to-day operations. Effective operations can lead to higher
productivity. Your long-range objectives represent what you need to
concentrate on in order to make your vision a reality.

5.Tracking the performance and funding

streams
It is essential to track the performance of the company to modify the
strategic plans. The company needs to incorporate a means of tracking
the company’s output and performance against regularly scheduled
targets.

The company also needs financial analysis that takes into account past
and projected performance. The funding sources tracking are equally
important to check whether they are providing good subsidies.
Through this, the company can get an overview of its financial
resources.
6. PESTLE Analysis - Political/Economical/Social/Technolog
ical/Legal/Environmental analysis (External Analysis) is crucial
to implement an effective Strategic Plan.

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