s1 -2 business strategies

8/11/2019 S1 -2 Business Strategies

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BUSINESSSTRATEGIESStrategic managementModule 2 Session

1


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Recap of module1

Competitive advantage vs. strategies

Cost advantage

Differentiation

Focus

Combination

Industry Life cycle vs. Strategy

Agenda


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Recap of module I

Vision &

Mission

Goals and

Objectives

Strateg

y

Implementatio

n levers

External analysis& Internal analysis


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Competitive advantage &

Strategy

Competitive Advantagesomething 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


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Porters generic strategies

Target

Scope

Advantage

Low CostProduct

Uniqueness

Broad

(Industry

Wide)

Cost Leadership

Strategy

Differentiation

Strategy

Narrow

(Market

Segment)

Focus

Strategy

(low cost)

Focus

Strategy

(differentiation)


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Impact on value chain

To be used whenBenefits associated

Risk faced

Cost Leadership


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Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performanceby Michael E.

Porter. Copyright 1985 by Michael E. Porter.

Shared purchasing operations with otherbusiness units

Effective policy guidelines toensure low cost raw materials(with acceptable quality levels)

Expertise in process engineering toreduce manufacturing costs

Effective use of automatedtechnology to reduce scrappage

rates

Effective orientation and trainingprograms to maximize employeeproductivity

Minimize costs associated withemployee turnover througheffective policies

Standardized accountingpractices to minimize personnelrequired

Few management layers toreduce overhead costs

Effectivelayout ofreceivingdockoperation

Effective useof qualitycontrolinspectors tominimize

rework on thefinal product

Effectiveutilization ofdeliveryfleets

Purchase ofmedia in largeblocks

Sales force

utilization ismaximized byterritorymanagement

Thorough servicerepair guidelines tominimize repeatmaintenance calls

Use of single typeof repair vehicleto minimizecosts

Firm infrastructure

Human resourcemanagement

Technologydevelopment

Procurement

Inbound logistics Operations Outboundlogistics

Marketing andsales

Service


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To be used when

Price based competition is

vigorous

Superfluous differentiation

Buyers have significant bargainingpower

Lesser customer loyalty

Standardized products


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Benefits associated

Protects a firm against rivalry from

competitors

Protects a firm against powerful buyers

Provides more flexibility to cope withdemands 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


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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 tocustomers increases

Technology shifts


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Risk faced

Differentiation


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Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performanceby Michael E.Porter. Copyright 1985 by Michael E. Porter.

Facilities thatpromote firmimage

Superior MISTo integrate value-creating activities to improve quality

Widely respected CEOenhances firm reputation

Provide training and incentives toensure a strong customer serviceorientation

Programs to attract talented engineersand scientists

Excellent applications engineeringsupport

Superior material handling and sortingtechnology

Use of most prestigious outletsPurchase of high-quality componentsto enhance product image

Superior materialhandlingoperations tominimize damage

Quick transfer of

inputs tomanufacturingprocess

Flexibility andspeed inresponding tochanges inmanufacturingspecs

Low defect ratesto improvequality

Accurate andresponsive orderprocessing

Effective productreplenishment to

reducecustomers

inventory

Creative andinnovativeadvertisingprograms

Fostering of

personalrelation-shipwith keycustomers

Rapid response tocustomer servicerequests

Completeinventory of

replacement partsand supplies

Firm infrastructure

Human resourcemanagement

Technologydevelopment

Procurement

Inbound logistics Operations Outboundlogistics

Marketing andsales

Service


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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


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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


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Risk faced

Uniqueness that is not valuable

Too much differentiation

Too high a price premium

Differentiation that is easily imitated

Dilution of brand identification throughproduct-line extensions

Perceptions of differentiation may varybetween buyers and sellers


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How to achieve it


Risk faced

Focus


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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


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To be used when

Uniqueness in the segment

Specialized requirements

Niche market is profitable and

growing Major players are not interested


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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


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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


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Combination


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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 strategiesincorporating attractiveattributes at a lower cost than rivals


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Risk faced

Firms that fail to attain both strategies may end up withneither and become stuck in the middle

Underestimating the challenges and expensesassociated with coordinating value-creating activities in

the extended value chain Miscalculating sources of revenue and profit pools in

the firms industry


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Industry Life Cycle vs.Strategy


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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

St f th I d t Lif


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Stages of the Industry Life

Cycle

Genericstrategies

Differentiation Differentiation Differentiation Overall costOverall cost leadership

leadership Focus

Marketgrowth rate

Low Very large Low to Negativemoderate

Number ofsegments

Very few Some Many Few

Intensity ofcompetition

Low Increasing Very intense Changing

Emphasison productdesign

Very high High Low to Lowmoderate

StageIntroduction Growth Maturity Decline

Factor

St f th I d t Lif


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Stages of the Industry Life

Cycle Contd.

StageIntroduction Growth Maturity Decline

Factor

Emphasison process

design

Low Low to High Lowmoderate

Majorfunctionalarea(s) ofconcern

Research and Sales and Production GeneralDevelopment marketing management

and finance

Overallobjective

Increase Create Defend Consolidate,market share consumer market share maintain,awareness demand and extend harvest, or product life exit

cycles

Strategies in the Introduction


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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


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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


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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)


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Strategies in the Maturity Stage

Industry sales and profits begin to fall

Strategic options become dependent on the actions ofrivals

Strategies

Maintaining

Exiting the market

Harvesting

Consolidation


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THANK YOU

s1 -2 business strategies

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