BUSINESS

STRATEGIES
Strategic management Module 2 Session
1
Recap of module1
Competitive advantage vs. strategies
Cost advantage
Differentiation
Focus
Combination
Industry Life cycle vs. Strategy


Agenda
Recap of module I
Vision &
Mission
Goals and
Objectives
Strateg
y
Implementatio
n levers
External analysis
& Internal analysis
Competitive advantage &
Strategy
Competitive Advantage something which gives the
organisation some advantage over its rivals
The strategies must be devised keeping in mind the
organizations Capability, Environment, Goals &
Objectives and Vision & Mission
Porters generic strategies
Target
Scope
Advantage
Low Cost
Product
Uniqueness

Broad
(Industry
Wide)


Cost Leadership
Strategy
Differentiation
Strategy

Narrow
(Market
Segment)


Focus
Strategy
(low cost)
Focus
Strategy
(differentiation)
Impact on value chain
To be used when
Benefits associated
Risk faced
Cost Leadership
Impact on value chain
Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E.
Porter. Copyright 1985 by Michael E. Porter.
Shared purchasing operations with other
business units
Effective policy guidelines to
ensure low cost raw materials
(with acceptable quality levels)
Expertise in process engineering to
reduce manufacturing costs
Effective use of automated
technology to reduce scrappage
rates
Effective orientation and training
programs to maximize employee
productivity
Minimize costs associated with
employee turnover through
effective policies
Standardized accounting
practices to minimize personnel
required
Few management layers to
reduce overhead costs
Effective
layout of
receiving
dock
operation
Effective use
of quality
control
inspectors to
minimize
rework on the
final product
Effective
utilization of
delivery
fleets
Purchase of
media in large
blocks

Sales force
utilization is
maximized by
territory
management
Thorough service
repair guidelines to
minimize repeat
maintenance calls

Use of single type
of repair vehicle
to minimize
costs
Firm infrastructure
Human resource
management
Technology
development
Procurement
Inbound logistics Operations Outbound
logistics
Marketing and
sales
Service
To be used when
Price based competition is
vigorous
Superfluous differentiation
Buyers have significant bargaining
power
Lesser customer loyalty
Standardized products
Benefits associated
Protects a firm against rivalry from
competitors
Protects a firm against powerful buyers
Provides more flexibility to cope with
demands from powerful suppliers for input
cost increases
Provides substantial entry barriers from
economies of scale and cost advantages
Puts the firm in a favorable position with
respect to substitute products

Risk faced
Too much focus on one or a few value-
chain activities
All rivals share a common input or raw
material
The strategy is initiated too easily
A lack of parity on differentiation
Erosion of cost advantages when the
pricing information available to
customers increases
Technology shifts
Impact on value chain
To be used when
Benefits associated
Risk faced
Differentiation
Impact on value chain

Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E.
Porter. Copyright 1985 by Michael E. Porter.
Facilities that
promote firm
image
Superior MISTo integrate value-
creating activities to improve quality
Widely respected CEO
enhances firm reputation
Provide training and incentives to
ensure a strong customer service
orientation
Programs to attract talented engineers
and scientists
Excellent applications engineering
support
Superior material handling and sorting
technology
Use of most prestigious outlets Purchase of high-quality components
to enhance product image
Superior material
handling
operations to
minimize damage

Quick transfer of
inputs to
manufacturing
process
Flexibility and
speed in
responding to
changes in
manufacturing
specs

Low defect rates
to improve
quality
Accurate and
responsive order
processing

Effective product
replenishment to
reduce
customers
inventory
Creative and
innovative
advertising
programs

Fostering of
personal
relation-ship
with key
customers
Rapid response to
customer service
requests

Complete
inventory of
replacement parts
and supplies
Firm infrastructure
Human resource
management
Technology
development
Procurement
Inbound logistics Operations Outbound
logistics
Marketing and
sales
Service
To be used when
Market is large and is catered by
few organizations
Needs and preferences are diverse
Possible to charge a premium
Brand loyalty is possible

Benefits associated
Creates higher entry barriers due to customer
loyalty
Provides higher margins that enable the firm
to deal with supplier power
Reduces buyer power because buyers lack
suitable alternative
Reduces supplier power due to prestige
associated with supplying to highly
differentiated products
Establishes customer loyalty and hence less
threat from substitutes

Risk faced
Uniqueness that is not valuable
Too much differentiation
Too high a price premium
Differentiation that is easily imitated
Dilution of brand identification through
product-line extensions
Perceptions of differentiation may vary
between buyers and sellers
How to achieve it
To be used when
Benefits associated
Risk faced
Focus
How to achieve it
Focus is based on the choice of a narrow competitive
scope within an industry
Firm selects a segment or group of segments (niche)
and tailors its strategy to serve them
Firm achieves competitive advantages by dedicating
itself to these segments exclusively
Two variants
Cost focus
Differentiation focus

To be used when
Uniqueness in the segment
Specialized requirements
Niche market is profitable and
growing
Major players are not interested


Benefits associated
Creates barriers of either cost
leadership or differentiation, or both
Also focus is used to select niches
that are least vulnerable to
substitutes or where competitors
are weakest

Risk faced
Erosion of cost advantages within the
narrow segment
Focused products and services still
subject to competition from new
entrants and from imitation
Focusers can become too focused to
satisfy buyer needs
Combination
Combination Strategies
Primary benefit of successful integration of low-cost and
differentiation strategies is difficulty it poses for
competitors to duplicate or imitate strategy
Goal of combination strategy is to provide unique value
in an efficient manner
Automated and flexible manufacturing systems (e.g.,
mass customization)
Exploiting the profit pool concept for competitive
advantage
Coordinating the extended value chain by way of
information technology
Best-cost provider strategies incorporating attractive
attributes at a lower cost than rivals
Benefits
Firms that successfully integrate differentiation and cost
strategies obtain advantages of competition from both
approaches
High entry barriers
Bargaining power over suppliers
Reduces power of buyers (fewer competitors)
Value position reduces threat from substitute products
Reduces the possibility of head-to-head rivalry

Risk faced
Firms that fail to attain both strategies may end up with
neither and become stuck in the middle
Underestimating the challenges and expenses
associated with coordinating value-creating activities in
the extended value chain
Miscalculating sources of revenue and profit pools in
the firms industry
Industry Life Cycle vs.
Strategy
Industry Life Cycle vs. Strategy
Life cycle of an industry
Introduction
Growth
Maturity
Decline
Emphasis on strategies, functional areas, value-creating
activities, and overall objectives varies over the course of
an industry life cycle
Stages of the Industry Life
Cycle
Generic
strategies
Differentiation Differentiation Differentiation Overall cost
Overall cost leadership
leadership Focus
Market
growth rate
Low Very large Low to Negative
moderate
Number of
segments
Very few Some Many Few
Intensity of
competition
Low Increasing Very intense Changing
Emphasis
on product
design
Very high High Low to Low
moderate
Stage
Introduction Growth Maturity Decline
Factor
Stages of the Industry Life
Cycle Contd.
Stage
Introduction Growth Maturity Decline
Factor
Emphasis
on process
design
Low Low to High Low
moderate
Major
functional
area(s) of
concern
Research and Sales and Production General
Development marketing management
and finance
Overall
objective
Increase Create Defend Consolidate,
market share consumer market share maintain,
awareness demand and extend harvest, or
product life exit
cycles
Strategies in the Introduction
Stage
Products are unfamiliar to consumers
Market segments not well defined
Product features not clearly specified
Competition tends to be limited
Strategies
Develop product and get users to try it
Generate exposure so product becomes
standard
Strategies in the Growth Stage
Characterized by strong increases in sales
Attractive to potential competitors
Primary key to success is to build consumer
preferences for specific brands
Strategies
Brand recognition
Differentiated products
Financial resources to support value-chain
activities
Strategies in the Maturity Stage
Aggregate industry demand slows
Market becomes saturated, few new adopters
Direct competition becomes predominant
Marginal competitors begin to exit
Strategies
Efficient manufacturing operations and process
engineering
Low costs (customers become price sensitive)
Strategies in the Maturity Stage
Industry sales and profits begin to fall
Strategic options become dependent on the actions of
rivals
Strategies
Maintaining
Exiting the market
Harvesting
Consolidation
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