The smart competitor

Must design and deliver offerings for well defined markets. This belief is at the core of the new view of business processes and places Marketing at the beginning of planning.

Thus the modern emphasis of firms has changed from making and selling to being part of the value delivery process.

Value Creation and delivery sequence

A 3 part process :

Choosing the value-Segment the market, select the target market, develop the products value positioning. STP is the essence of Strategic Marketing.

The firms taskTo examine its cost and performance in each value- creating activities and look for ways to improve it.

The firm should estimate its competitors costs and performances as benchmarks for evaluating its own performance. To achieve excellence it should study the best of class practices of the worlds best companies.

A firms success

Will depend not only on how well each department performs its own duties but also how well various inter- departmental activities are coordinated to conduct core business processes.

Capabilities and Core competenciesCapability-based strategies are based on the notion that internal resources and core competencies derived from distinctive capabilities provide the strategy platform that underlies a firm's long-term profitability.

Evaluation of these capabilities begins with a company capability profile, which examines a company's strengths and weaknesses in four key areas:

ManagerialMarketingFinancialTechnical

Then a SWOT analysis is carried out to determine whether the company has the strengths necessary to deal with the specific forces in the external environment.

This analysis enables managers to identify:

External threats and opportunities, and

Distinct competencies that can ward off the threats and compensate for weaknesses.

The picture identified by the SWOT analysis helps to suggest which type of strategy, or strategic thrust the firm should use to gain competitive advantage.

Stalk, Evans and Schulman (1992) have identified four principles that serve as guidelines to achieving capability-based competition:

Corporate strategy does not depend on products or markets but on business processes.

Key strategic processes are needed to consistently provide superior value to the customer.

Investment is made in capability, not functions or SBUs.

The CEO must champion the capability-based strategy.

Capability-based strategies, sometimes referred to as the resource-based view of the firm, are determined by (a) those internal resources and capabilities that provide the platform for the firm's strategy and (b) those resources and capabilities that are the primary source of profit for the firm.

A key management function is to identify what resource gaps need to be filled in order to maintain a competitive edge where these capabilities are required.

Several levels can be established in defining the firm's overall strategy platform

At the bottom of the pyramid are the basic resources a firm has compiled over time. They can be categorised as technical factors, competitive factors, managerial factors, and financial factors.Core competencies can be defined as the unique combination of the resources and experiences of a particular firm. It takes time to build these core competencies and they are difficult to imitate.

Critical to sustaining these core competencies are their:

Durability - their life span is longer than individual product or technology life-cycles, as are the life spans of resources used to generate them, including people.

Intransparency - it is difficult for competitors to imitate these competencies quickly.

Immobility these capabilities and resources are difficult to transfer.

Core competencies

In todays world the key to efficiency for a company is to own and nurture critical competencies that make up the essence of the business and outsource less critical resources if they can be obtained at better quality or lower cost.

Many companies outsource landscaping, cleaning, transport management, data processing.

Core CompetenciesA core competency is a specific factor that a business sees as being central to the way it, or its employees work. It fulfils three key criteria:It provides consumer benefits It is not easy for competitors to imitate It can be leveraged widely to many products and markets.

A core competency can take various forms, including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers. It may also include product development or culture, such as employee dedication.

Core competencies are particular strengths relative to other organizations in the industry which provide the fundamental basis for the provision of added value e.g Nike : Shoe designing and shoe merchandising.

Core competencies are the collective learning in organizations, and involve how to coordinate diverse production skills and integrate multiple streams of technologies.

Core competence is something a company does especially well relative to its competitors.

Honda, for example, has a core competence in small engine design and manufacturing

Sony has a core competence in miniaturization Federal Express has a core competence in logistics and customer service. Typically, a core competence refers to a set of skills or experience in some activity, rather than physical or financial assets.

Microsoft has the core competence of designing office software products that are user-friendly.

PepsiCo has a core competence of mass production and distribution of bottled drinks.

Polaroid has a core competence in manufacturing immediately self-developing film.

Ernst & Young has the core competence of performing audit functions for Fortune 500 corporations.

One of Wal-Marts core competencies is their massive real-time information system.

Utilization of core competenciesA company's core competencies can be applied to the development of new and creative products or services and markets. Microsoft could use its core competence to develop user-friendly video games.

PepsiCo could use its core competence of bottling and distribution to bottle and distribute medicines or hair care products

Few companies are likely to build world leadership in more than five or six fundamental competencies.

Core business processes

Market sensing ( gathering market intelligence)

New offering realization ( R&D and launching new , high quality offerings quickly and within budget)

Customer acquisition ( defining target markets and prospecting for new customers)

CRM ( building deeper understanding, relationships and offering to individual customers)

Fulfillment management( receiving orders, shipping goods, receiving payment)

Strong Companies

Develop superior capabilities in managing and linking their Core Business Processes.

Re- engineer the work flow and build cross functional teams responsible for each process.

To be successful a firm needs to look for competitive advantages beyond its own operations into the value chain of suppliers, distributors and customers.

Market driven organizations Excel at :

Market sensingCustomer linkingChannel bonding

Competitive advantage derives from how well the company has fitted its core competencies and distinctive capabilities into tightly locking activity systems.

Defining the Business

What business are we in ?

Theodore Levitt encouraged market definitions of a business rather than product definitions, since products are transient but basic needs and customer groups endure.

His view was that a business must be viewed as a customer satisfying process rather than a goods producing process.

Thus transportation is a need : a car, a bike or an airplane are products that meet the need.

IBM redefined itself from a hardware and software manufacturer to a builder of networks.

Encyclopedia Brittanica : from we sell encyclopedias to we market information.

Pepsi : We sell cold drinks to quench thirst.

Gati : from deliverers of small cargo to - We service your need for time bound deliveries of your package.

Concept of SBUs

An SBU three characteristics :

It is a single business or related businesses that can be planned apart from the rest of the company.

It has its own set of competitors

It has a manager who is responsible for planning and profit.

The whole idea behind this concept is to give focus to each to develop separate strategies and assign funding.

Strategic alliances

Even giant companies like AT &T,IBM, Siemens, need strategic partnerships for effective market coverage to complement or leverage their capabilities and resources.

Strategic alliancesProduct or service alliances eg. Hindustan lever with Pepsico to bottle and market Lipton Iced tea in glass bottles.

Promotional alliances eg, P&G using endorsements of Bombay Dyeing to promote Ariel detergent.

Logistics alliances Gati and Indian Airlines

Pricing collaborations : Airlines, hotels, car rental companies combine to give an attractive package to customers.