STRATEGIC MANAGEMENT

DEFINITION OF STRATEGY
y STRATEGY IS A SET OF PLANS INTENDED TO ACHIEVE A GOAL y STRATEGY COULD BE LONG TERM , MID TERM , OR SHORT TERM DEPENDING ON THE TIME SPAN OF THE PLANNING PERIOD y LONG TERM STRATEGY IS CLOSELY LINKED TO THE ACHIEVEMENT OF ITS VISION INTENT y STRATEGIC PLANNING IS A SYSTEMATIC PROCESS OF ENVISIONING A DESIRED FUTURE AND TRANSLATING THIS VISION INTO BROADLY DEFINED GOALS ALONG WITH ACTION PLANS TO ACHIEVE THE DESIRED GOALS.

WHAT IS MEANT BY STRATEGY

STRATEGY IS MANAGEMENT BLUE PRINT FOR RUNNING OF BUSINESS AND CONDUCTING OPERATIONS.THIS BLUE PRINT NEEDS TO BE CONVERTED TO ACTION PLANS WHICH ARE EXECUTED IT CONSISTS OF THE COMPETITIVE MOVES AND BUSINESS APPROACHES DEPLOYED TO GROW THE BUSINESS , ATTRACT AND RETAIN CUSTOMERS , CONDUCT OPERATIONS AND ACHIEVE THE TARGETED LEVELS OF ORGANIZATIONAL PERFORMANCE DESIGN OF STRATEGY REPRESENTS A COMMITMENT TO PURSUE A PARTICULAR SET OF ACTIONS IN GROWING THE BUSINESS IT IS ALSO A DEFINED METHOD BY WHICH THE MGT STATES HOW EACH FUNCTIONAL PIECE OF THE BUSINESS (SUPPLYCHAIN,PRODUCTION,SALES,FINANCE, DISTRIBUTION,HR) WILL BE OPERATED , HOW PERFORMANCE WILL BE MONITORED AND IMPROVED IN CHOOSING A STRATEGY A COMPANY INDICATES ITS PREFERENCE FOR A PARTICULAR COMBINATION OF COMPETITIVE AND OPERATING APPROACHES IN MOVING THE COMPANY IN THE INTENDED DIRECTION

WHAT IS MEANT BY STRATEGY

COMPANIES HAVE FREEDOM IN CHOOSING STRATEGIES SOME CHOOSE TO IMPROVE THEIR PERFORMANCE AND MARKET STANDING BY ACHIEVING LOWER COSTS THAN RIVALS WHILE OTHERS PURSUE PRODUCT SUPERIORITY OR INTIMATE CUSTOMER SERVICE OR DEVELOPMENT OF COMPETENCES AND CAPABILITIES THAT RIVALS CANNOT MATCH TARGETTING OF MARKET SEGMENT IS ALSO A STRATEGY eg SOME TARGET THE HIGH END MARKET WHILE OTHERS ADDRESS NICHE MARKETS eg DESIGNER WEAR;SOME POSITION IN ONLY ONE PART OF SUPPLY CHAIN WHILE OTHERS HAVE INTEGRATED VALUE STREAMS (FULL OR PART). SOME CONFINE OPERATIONS TO LOCAL OR REGIONAL MARKETS WHILE OTHERS PREFER TO GO NATIONAL/GLOBAL. SOME COMPANIES PREFER TO OPERATE ONLY IN ONE INDUSTRY(RIL) WHILE OTHERS PREFER TO DIVERSIFY(BIRLA , TATA) INTO RELATED/UNRELATED(VERTICAL/HORIZONTAL) INTEGRATION VIA EXPANSIONS,JV,STRATEGIC ALLIANCES

WHAT IS STRATEGIC MGT

STRATEGIC MGT ISA PROCESS OF LONG TERM PLANNING FOR A COMPANY BASED ON ITS LONG TERM OBJECTIVES IT IS DEFINED AS A SET OF DECISIONS AND ACTIONS RESULTING IN FORMULATION AND IMPLEMENTATION OF STRATEGIES DESIGNED TO ACHIEVE DESIRED OBJECTIVES STRATEGIC MGT INVOLVES DESIGN IMPLEMENTATION OF VISION AND MISSION STATEMENTS WHICH SHOULD BE MONITORED AT THE ACTIVITY LEVEL TO ENSURE THE ACHIEVEMENT OF SHORT AND LONG TERM GOALS IT ALSO INVOLVES PLANNING, PROGRAMMING ,BUDGETING TRANSLATION OF STRATEGIES TO ACHIEVE OUTCOMES IS CALLED ACTIONS THERE CAN BE SEVERAL STRATEGIC APPROACHES TO ACHIEVE COMPETITIVE ADVANTAGE

Industry Leadership Dominance in Market Share

Product/Service Brand value

Process Capability/Process Excellence

Differentiating Human Capital

FOUR LEVELS OF STRATEGY

DECISION MAKING HIERARCHY OF COMPANY TYPICALLY CONTAINS 4 LEVELS
LEVEL 1 IS THE CORPORATE LEVEL COMPRISING OF THE BOARD OF DIRECTORS AND THE RESPECTIVE CHIEF OFFICERS. THEY ARE RESPONSIBLE FOR THE FINANCIAL PERFORMANCE OF THE COMPANY AS A WHOLE AND ALSO FOR ACHIEVING THE NON FINANCIAL GOALS eg CUSTOMER AND EMPLOYEE RETENTION;CORPORATE IMAGE, SOCIAL RESPONSIBILITY etc. THEY ARE ALSO INVOLVED IN DECIDING THE BUSINESSES IN WHICH THE COMPANY AUGHT TO BE IN. THEY ARE ALSO RESPONSIBLE FOR FULFILING THE VARIOUS STAKEHOLDER EXPECTATIONS.. THEY ALSO SET OBJECTIVES FOR THE COMPANY AND FORMULATE STRATEGIES TO ACHIEVE THESE OBJECTIVES. LEVEL 1 CONSISTS OF INITIATIVES USED TO ESTABLISH BUSINESS POSITIONS IN INDUSTRIES AND TO ESTABLISH PERFORMANCES IN ALL THE DIVERSIFIED BUSINESSES TO GET A TOTAL CORPORATE ACHIEVEMENT

FOUR LEVELS OF STRATEGY

LEVEL 2 IS THE BUSINESS LEVEL COMPOSED OF BUSINESS AND CORPORATE MGRS. THESE MGRS TRANSLATE GENERAL STATEMENTS OF INTENT GENERATED AT CORPORATE LEVEL TO FUNCTIONAL OBJECTIVES AND STRATEGIES FOR INDIVIDUAL BUSINESS UNITS.. BUSINESS LEVEL MGRS SHOULD DETERMINE THE BASIS ON WHICH A COMPANY CAN COMPETE IN THE RELATED MARKET.MOST IMPORTANT IN DECIDING STRATEGY IS TO SELECT THE MARKET SEGMENT AND PLACE THE PRODUCT ACCORDINGLY. Eg GODREJ LOW COST FRIDGE 2000/- SOLD ONLY IN RURAL AREAS WITH BATTERY BACKUP. NEED TO CREATE COMPETITIVE ADVANTAGE TO BE ABLE TO SUCCEED IN CONVERTING STRATEGY INTO SUCCESSFUL OUTCOMES. BUSINESS STRATEGY CONCERNS STRATEGIES CRAFTED TO PRODUCE SUCCESSFUL PERFORMANCE AT ONE SPECIFIC LINE OF BUSINESS HOWEVER IN DIVERSIFIED BUSINESSES BUSINESS HEADSNEED TO MAKE SURE BUSINESS OBJECTIVES AND STRATEGY CONFORM TO CORPORATE LEVEL OBJECTIVES AND STRATEGIES eg IF CORPORATE STRATEGY IS TO CONCENTRATE ON THE RURAL MARKET THEN A BUSINESS UNIT CANNOT HAVE A STRATEGY WHICH IS FOCUSSED TOWARDS THE URBAN MARKET

FOUR LEVELS OF STRATEGY

LEVEL 3 IS THE FUNCTIONAL LEVEL COMPOSED OF FUNCTIONAL MGRS. IT IS THEIR RESPONSIBILITY TO DEVELOP ANNUAL OBJECTIVES AND SHORT TERM STRATEGIES IN VARIOUS FUNCTIONAL AREAS. HOWEVER THEIR GREATEST RESPONSIBILITY IS TO CONVERT STRATEGIC PLANS INTO ACTIONABLE OUTCOMES WHICH MEET THE SHORT TERM GOALS.THEY ADDRESS ISSUES RELATED TO THE EFFICIENCY AND EFFECTIVENESS OF DEPLOYMENT OF RESOURCES AND TO ENSURE INCREASED CUSTOMER SATISFACTION WHICH RESULTS IN GREATER SALES. FUNCTIONAL LEVEL STRATEGY CONCERNS THE ACTIONS TO BE EMPLOYED IN MANAGING KEY FUNCTIONS AND ACTIVITIES . FUNCTIONAL STRATEGIES ADD SPECIFICS TO THE BUSINESS LEVEL STRATEGY. THEY ALSO AIM AT STRENGTHENING BUSINESS UNIT COMPETENCES AND CAPABILITIESIN PERFORMING STRATEGY CRITICAL ACTIVITIES SO TO ENHANCE MKT POSITION

FOUR LEVELS OF STRATEGY

LEVEL 4 IS OPERATING STRATEGIES WHICH CONCERN THE NARROW STRATEGIC INITIATIVES AND APPROACHES FOR MANAGING KEY OPERATING UNITS(PLANTS , DC,LOCATIONS) AND SPECIFIC OPERATING ACTIVITIES SUCH AS SUPPLY CHAIN , ADVERTISING CAMPAIGNS , MANAGEMENT OF BRANDS etc PLANT MGR NEEDS STRATEGY(MIN MFG COSTS,MAX EQUIP UTILIZATION AND UPTIME,MIN COST OF POOR QLTY,MIN ENERGY CONSUMPTION) TO ACCOMPLISH PLANT OBJECTIVES(30% MFG CONTR) OPERATING UNITS NEED TO HAVE STRATEGY CRITICAL PERFORMANCE TARGETS AND NEED TO HAVE ACTION PLANS TO ACHIEVE THE SAME. IN SOME CASES FACTORY TARGETS ARE SPECIFIED IN TERMS OF RUPEES. HOWEVER IN AN INFLATIONARY ECONOMY IF THE COSTS GOES UP BY 50% A REDUCTION IN UNITS PRODUCED COULD STILL RESULT IN GETTING THE RUPEE TARGET. HENCE IT IS SUGGESTED THAT A FACTORY THRUPUT BE VALUED IN TETRMS OF ACTUAL THRUPUT WRT INSTALLED CAPACITY.

VIEWING STRATEGIC MGT AS A PROCESS

A PROCESS IS AN IDENTIFIABLE FLOW OF INFO THRU INTER RELATED STAGES OF ANALYSIS , DIRECTED TOWARDS THE ACHIEVEMENT OF AN OBJECTIVE
AIM OF THE PROCESS IS THE FORMULATION AND IMPLEMENTATION OF STRATEGIES THAT RESULT IN LONG TERM ACHIEVEMENT OF THE COMPANY MISSION AND SHORT TERM ACHIEVEMENT OF OBJECTIVES VIEWING STRATEGIC MGT AS A PROCESS HAS SEVERAL IMPLICATIONS. CHANGE IN ANY COMPONENT WILL AFFECT ALL OTHER COMPONENTS. STRATEGIC FORMULATION AND IMPLEMENTATION ARE SEQUENTIAL. PROCESSES WHICH BEGIN BY DEVELOPMENT OR REEXAMINATION OF MISSION AND FOLLOWED BY DEVELOPMENT AND ASSESSMENT OF EXTERNAL ENVIRONMENT CRAFTING STRATEGY FOR A COMPANY DEPENDS UPON THE EXTERNAL ENVIRONMENTAL REQUIREMENTS AND CHANGES COMPANY NEEDS TO HAVE A LOOK AT THE CHANGING EXPECTATIONS OF THE CUSTOMER IN THE SHORT TERM AND LONG TERM , LOOK AT THE CHANGING TRENDS INCL TECHNOLOGY AND BUILD RESOURCES AND COMPETENCE TO BE ABLE TO SERVE THAT MARKET

VIEWING STRATEGIC MGT AS A PROCESS

STRATEGIC MANAGEMENT IS DEEPLY INTER RELATED TO THE SUCCESS OF ACHIEVEMENT OF A COMPANY VISION AND LONG TERM GOALS LONG TERM GOALS ARE INTEGRALLY LINKED TO THE CHANGING CUSTOMER EXPECTATIONS AND THE EVOLUTIONSIN INDUSTRIAL TECHNOLOGY AND PRODUCTS/SERVICES STRATEGIC PLANNING IS DRILLED DOWN TO TACTICAL PLANNING(BUDGETIING FOR NEXT FISCAL YR) WHICH IN TURN IS DRILLED DOWN TO OPERATIONAL PLANNING

DISSEMINATION OF STRATEGIC PLANNING EXERCISE START 3-5 YRS

STRATEGIC PLANNING EXERCISE -VISION,MISSION,LONG TERM GOALS -STRATEGIC EXERCISES

REVISED AS NETEDED

1 YR

TACTICAL PLANNING PRODUCTS,MARKET,CAPA CITIES,BUDGETS,TARGETS ,OUTSOURCING,SOURCING

IMPROVE/ CHANGE AS NEEDED

1-3 MNTH S 1 WEE K

OPERATIONAL PLANNING CAPACITIES,CAPABILI TIES, SKILLS,OUTCOMES

EXECUTION & CONTROL

IMPROVE/ CHANGE AS NEEDED

STRATEGY CRAFTING FOR INDUSTRY SITUATION

EVERY INDUSTRY IS FACED WITH 2 DYNAMIC EXTERNAL ENVIRONMENTS FIRST THE CHANGING EXPECTATIONS OF THE CUSTOMER SECONDLY THE CHANGING SCENARIO IN THE INDUSTRY AND ECONOMY.STRATEGY NEEDS TO BE CRAFTED FOR EACH SITUATION AS DESCRIBED LATER

VOICE OF CUSTOMER PROCESS

GLOBAL CHANGES AND INDUSTRY CHANGES
INFLUENCE

CUSTOMER DEMOGRAPHIC S& PSYCHOGRAPH Y DICTATES CHANGING CUSTOMER EXPECTATIONS

NEEDS & WANTS

INCRUST LIFETIME VALUE REPEAT BUY & INCR WALLET SHARE CUST DELIGHT & RETENTION

GAP
DELIVERY

OUTOUND LOGISTICS
TIME TO RE-ORDER

TIME TO DELIVER

TIME TO STOCK

OPERATIONS & SALES

TIME TO ORDER TIME TO DELIVER

INBOUND LOGISTICS

CRAFTING STRATEGY FOR COMPANIES COMPETING IN VARIOUS SITUATIONS

EMERGING INDUSTRIES RAPIDLY GROWING MARKETS MATURING INDUSTRIES STAGNANT OR DECLINING INDUSTRIES HIGH VELOCITY TURBULENT MARKETS FRAGMENTED INDUSTRIES STRIVING TO SUSTAIN RAPID GROWTH INDUSTRY LEADERSHIP POSITION RUNNER UP POSITION COMPETITIVELY WEAK POSITIONS OR IN CRISIS

EMERGING INDUSTRY
LACK OF ESTABLISHED RULES OF THE GAME IN THE INDUSTRY GIVES PLAYERS FREEDOM TO EXPERIMENT WITH DIFFERENT STRATEGIC APPROACHES eg TELECOM SERVICES IN THE RURAL AREA. COMPETITIVE STRATEGIES LINKED TO LOW COST (GODREJ 2K FRIDGE IN RURAL AREAS) OR DIFFERENTIATION (HIGH CLASS MEDICAL SERVICES) . RECOMMENDED STRATEGIES SHOULD BE CRAFTED AROUND THESE AREAS -IMPROVE PRODUCT QUALITY AND DEVELOP ADDITIONAL PERFORMANCE FEATURES eg LONGER MTBF;MORE MILEAGE PER KM FOR 2 AND 4 WHEELERS -ACQUIRING ANOTHER COMPANY TO POOL RESOURCE STRENGTHS eg ACQUISITION BY IBM GLOBAL SERVICES OF PWC IT CONSULTING WING

RAPIDLY GROWING MARKETS

TO BE ABLE TO GROW AT A PACE EXCEEDING INDUSTRY AVERAGE THE FOLLOWING STRATEGIES SHOULD BE IN PLACE -MINIMIZE COST PER UNIT TO ATTRACT NEW CUSTOMERS. SO IS THE CASE IN DECORATIVE SEGMENTS AND ASSEMBLED PC WHERE PRODUCTS FROM GREY MARKET TEND TO CAPTURE THE MARKET. CHARGING A LOWER PRICE CAN HELP PUSH UP BUYERS DEMAND BY DRAWING NEW CUSTOMERS . HOWEVER COMPANY SHOULD BE ABLE TO REDUCE COST FASTER THAN COMPETITION TO ACHIEVE COMPETITIVE ADVANTAGE -PRODUCT DIFFERENTIATION THRU RAPID PRODUCT INNOVATION eg MARUTI,AIRTEL -ACCESS TO ADDITIONAL DISTRIBUTION CHANNELS TO ENHANCE COVERAGE AND RETAIL OUTLETS AND EXPANDING COMPANYS GEOGRAPHICAL COVERAGE -EXPANDING PRODUCT LINE TO ADD MODELS THAT APPEAL TO WIDER RANGE OF BUYERS

MATURING INDUSTRIES
PRUNING MARGINAL PRODUCTS AND MODELS BY REDUCING VARIETY , REPACKAGING CERTAIN PRODUCTS BY VALUE ANALYSIS.THIS IS DONE TO MAINTAIN PROFIT MARGINS DESPITE INCREASED COMPETITION IMPROVING VALUE CHAIN EFFICIENCY BY ACHIEVING LEANNESS HENCE LOWER COSTS (XEROX VS CANON WHERE CANON SALES PRICE WAS 60% OF XEROX COST), BETTER QUALITY , AGILITY, AND FLEXIBILITY INCREASING WALLET SHARE OF EXISTING CUSTOMERS THRU GOOD CRM PRACTICES (HOW FAR DO LOYALTY PROGRAMS TAKE YOU?

STRAGNANT/DECLINING INDUSTRIES
STRATEGIC DECISION TO REMAIN OR WITHDRAW eg WITHDRAWAL FROM TEXTILE MFG BY SEVERAL MUMBAI MILLS AND SELLING REAL ESTATE AT BOOMING PRICES FOCUS ON FASTEST GROWING OR SLOWEST DECAYING MARKET SEGMENTS eg DIVERSIFICATION AND CONCENTRATION ON RETAILING OF READY MADE GARMENTS FROM BEING ONLY A COMPOSITE TEXTILE MILL WITH PROCESS HOUSE eg PANTALOON STRESS DIFFERENTIATION BASED ON QUALITY IMPROVEMENT AND PRODUCT INNOVATION BECOME QUALITY CONSCIOUS LOW COST PROVIDER PROVIDE FOR AN EXIT STRATEGY

TURBULENT HIGH VELOCITY MARKETS

MANY COMPANIES OPERATE IN INDUSTRIES HIGHLIGHTED BY RAPID TECHNOLOGICAL CHANGE (SOFTWARE,MOBILE TECHNOLOGY),SHORT PRODUCT LIFE CYCLES(MOBILE MODELS),ENTRY OF NEW RIVALS ,FAST EVOLVING CUSTOMER REQUIREMENTS HIGH VELOCITY CHANGE IS THE PREVAILING CONDITION IN MOST TECHNOLOGY ORIENTED BUSINESSES STRATEGIES IN DEALING WITH TURBULENT MARKET CHANGE INCLUDE -RAPID REACTION TO CHANGE . NEED TO HAVE A VERY PROACTIVE VOICE OF THE CUSTOMER AND VOICE OF THE INDUSTRY TO UNDERSTAND EMERGING REQUIREMENTS AND IMPLEMENT THEM TO ACHIEVE COMPETITIVE EDGE .NEED TO COUNTER UNEXPECTED SHIFT IN BUYER TASTES AND DEMAND BY REDESIGNING OR REPACKAGING(OLD WINE IN NEW BOTTLES) RELEASE OF OLD FILMS DIGITALLY MASTERED OR IN COLOUR.REACTION IS A DEFENSIVE STRATEGY AND THEREFORE HAS RISKS.IT IS ALSO REQUIRED TO INTRODUCE BETTER PRODUCTS IN RESPONSE TO NEW OFFERINGS OF RIVALS

FRAGMENTED INDUSTRIES
INDUSTRIES POPULATED BY SEVERAL SME AND SUCH INDUSTRIES WITH LARGE SME POPULATION TENDS TO BE FRAGMENTED eg DECORATIVE PAINT SEGMENT IN WHICH THE GREY/SME MARKET IS AROUND 30%. THIS IS DUE TO ECONOMICS OF MFG BY SMES OR PRICE CONSCIOUS BUYERS.LARGE COMPANIES MAY NOT BE ABLE TO MATCH THE PRICE PROFERRED BY SME THOUGH THEIR QUALITY MAY BE SUSPECT COMPARED TO THE BRANDED PLAYERS.REASONS FOR FRAGMENTATION MAY BE DUE TO -1. BUYER REQUIREMENTS ARE SO DIVERSE AND IN HUGE NUMBERS THAT LARGE NUMBER OF FIRMS CAN COEXIST TRYING TO ACCOMMODATE DIFFERENT BUYER TASTES .eg RETAILING OF READY MADE GARMENTS(BRAND,STYLES ,FABRIC,PRICE) -2.LOW ENTRY BARRIERS ALLOW SMALL FIRMS TO ENTER QUICKLY AND CHEAPLY. SALE OF UNBRANDED WEAR IN DEPT STORES

FRAGMENTED INDUSTRIES
-3.SMALLER MARKET DEMAND PERMITS SMALLER COMPANIES TO COMPETE ON BETTER COST FOOTING WITHMLARGER FIRMS. INFACT THIS PHENOMENON IS SO WELL UNDERSTOOD BY LARGE COMPANIES THAT THEY OUTSOURCE THEIR MFG TO SMALLER COMPANIES AT LESSER RATES; STAMP THEIR NAME ON THE PRODUCT AND SELL IT AT SEVERAL TIMES HIGHER PRICE eg A LEADING AUTO ANCILLARY UNIT OUTSOURCES SEVERAL OF ITS PRODUCTS TO SMALLER MFG AND THESE ARE SOLD AS SPARE PARTS FOR CARS AT SEVERAL TIMES THE PRICE THEY RECEIVE THEM STRATEGY OPTIONS INCLUDE -BEING A LOW COST PROVIDER eg ASHOK YATRI NIWAS -SPECIALISING BY PRODUCT TYPE eg SPARES FOR MARUTI VARIANTS ONLY -SPECIALIZING BY CUSTOMER TYPE MARKET NICHE eg BUDGET TOURISTS

SUSTAIN RAPID GROWTH

COMPANIES THAT GROW THEIR REVENUES EVERY YEAR OR AT A RATE EXCEEDING MARKET AVERAGE (TWO WHEELER MARKET GREW BY NEGATIVE MARGIN OF 6% IN 2008-2009 BUT HERO HONDA INCREASED ITS MARKET SHARE FROM 45% TO 54% DURING THE PERIOD) THESE COMPANIES GROW FASTER THAN OTHERS BECAUSE OF POSITIVE INITIATIVES EXERCISED BY COMPANY WHICH RESULT IN REDUCED COSTS OF OPERATIONS WHICH ARE PASSED ON TO THE CUSTOMER;INCREASED QUALITY AND FUNCTIONALITIES etc SUCH COMPANIES HAVE THREE STRATEGIES TO ENSURE SUSTAINED GROWTH

INDUSTRY LEADERSHIP
1.STAY ON THE OFFENSIVE STRATEGY -WHO CONTINUOUSLY STRIVE TO RETAIN LEADERSHIP THRU ACHIEVING COMPETITIVE ADVANTAGE OVER RIVALS eg HERO HONDA AND THEN WIDENING THIS ADVANTAGE(INCREASE MARKET SHARE FROM 45% IN 2008 TO 53% IN 2009) . THIS IS ACHIEVED THRU CONTINUOUS IMPROVEMENT EXERCISES AND INNOVATION(REDUCE PRODUCT COST THOUGH INCREASE IN RAW MATERIAL COST).COULD ALSO MEAN THE FIRST TO MARKET WITH TECHNOLOGICAL IMPROVEMENTS (BETTER CAR ENGINE GIVING MORE MILEAGE THAN OTHERS);NEW BETTER PRODUCTS OR BETTER SERVICE LEVELS.IT MEANS SEEKING WAYS TO MAKE IT POSSIBLE FOR NEW CUSTOMERS TO JOIN IN AND EASY FOR COMPETITION CUSTOMERS TO SWITCH

INDUSTRY LEADERSHIP
2. FORTIFY AND DEFEND STRATEGY -RAISE THE COMPETITIVE BAR FOR COMPETITION AND NEW ENTRANTS THRU HIGHER LEVEL OF SERVICE AND PRODUCT DIFFERENTIATION eg SONY ELECTRONICS ie QUALITY -INTRODUCING MORE PRODUCT BRANDS TO MATCH CHALLENGERS BRANDS HAVE OR FILL VACANT NICHES NOT ADDRESSED TODAY -ADD PERSONALIZED SERVICES AND OTHER INCREMENTAL ITEMS TO BOOST CUSTOMER LOYALTY AND MAKE IT HARDER OR MORE COSTLY TO SWITCH TO RIVAL PRODUCTS(LOCK IN) -KEEPING PRICES REASONABLE AND QUALITY ATTRACTIVE -INVESTING AS PART OF STRATEGIC GROWTH TO REMAIN COST COMPETITIVE AND TECHNOLOGICALLY PROGRESSIVE AND NOT LIKE MANY TEXTILE MILLS IN INDIA WITH VINTAGE 1913 EQUIPMENT

INDUSTRY LEADERSHIP
2. FORTIFY AND DEFEND STRATEGY -BUILDING NEW CAPACITY AND ENHANCING HUMAN CAPITAL AND PROCESS CAPABILITIES TO MEET THE FUTURE REQUIREMENTS -STAYING COST COMPETITIVE AND ADOPTING ALTERNATE TECHNOLOGIES WHEREVER POSSIBLE 3. ETHICAL MUSCLE FLEXING -DOMINANT PLAYER PLAYS BULLY BY RESORTING TO AGGRESSIVE PRICE CUTS , PROMOTIONAL PROGAMS AND AGGRESSIVE ADVERTISING IN RESPONSE TO MARKET OFFENIVES THAT THREATEN ITS POSITION; IN ORDERTO PREVENT SMALLER RIVALS FROM ENTERING THE MARKET eg STRATEGY DEPLOYED BY JET AIRWAYS IN MATCHING LOW COST AIRLINES WITH BETTER INFLIGHT SERVICE

RUNNER UP POSITION
OFFENSIVE STRATEGY TO BUILD MARKET SHARE A RUNNER UP COMPANY(KNP) IN DECORATIVE PAINTS WRT ASIAN PAINTS ,DESIROUS OF CLOSING IN ON THE LEADER HAS TO MAKE SOME POSITIVE MARKET VISIBILITY MOVES(KNP VISION IS TO RETAIN ITS LEADERSHIP IN THE INDUSTRIAL SEGMENT AND CONSOLIDATE ITS NUMBER 2 POSITION IN THE DECORATIVE PAINTS SEGMENT) IF IT WANTS TO INCREASE MARKET SHARE. IT MEANS COMING OUT WITH A DISTINCTIVE STRATEGY THAT SETS IT APART FROM RIVALS AND DRAWA BUYER ATTENTION(eg KNP OFFERS UNIQUE SERVICES THRU A NEWLY STARTED INITIATIVE WITHIN THE DECORATIVE SBU THAT OFFERS HOME PAINTING SERVICES WITH ITS SHADES AT REASONABLE PRICES

RUNNER UP POSITION
1 MARKET DIVERSIFICATION AND GROWTH THRU ACQUISITION OR FRANCHISING. KNP HAS APPOINTED AUTHORIZED SERVICE PROVIDERS WITH KNP CONTROL OF RESPONSIBILITY , TO OFFER HOME PAINTING SERVICES. GROWTH VIA ACQUISITION IS THE MOST FREQUENTLY USED STRATEGY EMPLOYED BY RUNNERS UP TO FORM AN ENTERPRISE THAT HAS HIGHER COMPETITIVE STRENGTH AND GAIN A LARGER MARKET SHARE. FOR COMPANY TO SUCCEED WITH THIS STRATEGY MGT MUST ALIGN THE STRENGTHS OF THE ACQUIRED COMPANY WITH ITS OWN AND POSITION THE TWO WITHOUT CLASH OF INTERESTS. SOMETHING WHICH HAS NOT HAPPENED AFTER IBM CONSULTING ACQUIRED THE IT CONSULTING ARM OF PWC.

RUNNER UP POSITION
2 FINDING INNOVATIVE WAYS TO DRIVE DOWN COSTS AND THEN USING ATTRACTION OF LOWER PRICES TO WIN CUSTOMERS FROM HIGHER COST HIGHER PRICED RIVALS eg HIGH ONTIME SERVICES AND BETTER GROUND AND INFLIGHT SERVICES OFFERED BY LOW COST JET AIRWAYS HAS WEANED AWAY SEVERAL CLIENTS FROM AIR INDIA AND OTHER LOW COST AIRLINES 3 CRAFTING AN ATTRACTIVE DIFFERENTIATION STRATEGY BASED ON PREMIUM QUALITY , TECHNOLOGICAL SUPERIORITY ,OUTSTANDING CUSTOMER SERVICE ,RAPID PRODUCT INNOVATION eg KING FISHER AIRLINES THOUGH IN SOME AREAS OF LATE ESPECIALLY IN CUSOMER SERVICE IT IS PERCEIVED TO HAVE AN AREA OF IMPROVEMENT

RUNNER UP POSITION
4 BEING THE FIRST TO INTRODUCE NEW AND BETTER PRODUCTS AND BUILD REPUTATION FOR PRODUCT DIFFERENTIATION LEADING TO INDUSTRY LEADERSHIP. A STRATEGY FOR PRODUCT INNOVATION HAS APPEAL IF THE RUNNER UP COMPANY POSSESSES RESOURCES CUTTING EDGE PROCESSCAPABILITY (eg HERO HONDA CUTTING ITS 2 WHEELER PRICE BY 500 RS IN A INFLATIONARY ECONOMY OF RAW MATERIAL DURING THE YEAR.DONE BY VALUE ENGINEERING AND VALUE STREAM MAPPING OF ITS MFG PROCESSES) AND ORGANIZATIONAL AGILITY IN SPEEDING NEW PRODUCTS (IN 2008-2009 22% OF ITS SALE WERE NEW PRODUCTS /MODELS ANNOUNCED DURING THE YEAR) OR KNP DECREASING TIME TO MARKET FROM PLACEMENT OF DEMAND FROM RO TO FACTORY FROM 38 DAYS TO 25 DAYS

RUNNER UP POSITION
5 OUTMANEUVERING SLOW TO CHANGE MARKET LEADERS IN ADAPTING TO EVOLVING MARKET CONDITIONS AND CUSTOMER EXPECTATIONS eg CASE OF NIRMA OUTBEATING HLL SURF 6 FORGING STRATEGIC ALLIANCES WITH KEY DISTRIBUTORS ,DEALERS OF SIMILAR PRODUCTS 7 VACANT NICHE STRATEGY -A VERSION OF FOCUSED STRATEGY THE VACANT NICHE STRATEGY INVOLVES CONCENTRATING ON SPECIFIC CUSTOMER GROUPS THAT MARKET LEADERS HAVE BYPASSED OR NEGLECTED. EG MFG OF 10K LAPTOPS FOR SCHOOLS AND COLLEGES . AN IDEAL VACANT NICHE IS OF SUFFICIENT SIZE AND SCOPE TO BE PROFITABLE;HAS GROWTH POTENTIAL eg MGT COURSES IN SPECIALIZED SEGMENTS SUCH AS TELECOM , RETAILING, HEALTHCARE ,ENTERTAINMENT etc

RUNNER UP POSITION
8 SPECIALIST STRATEGY -A SPECIALIST FIRM TRAINS ITS COMPETITIVE EFFORT ON ONE TECHNOLOGY PRODUCT OR PRODUCT FAMILY OR SERVICES TO CONSOLIDATE ITS MARKET POSITION eg LEADING CA COMPANIES NOT IN THE PREMIER LEAGUE OFFER ONLY AUDIT SERVICES AND DO NOT FORAY INTO TAX CONSULTANCY -AIM IS TO TRAIN THE COMPANY RESOURCE STRENGTHS AND CAPABILITIES ON BUILDING COMPETITIVE ADVANTAGE THRU DOMAIN EXPERTISE IN A SPECIFIC AREA. 9 SUPERIOR OFFERING STRATEGY -APPROACH IS TO USE DIFFERENTIATING BASED FOCUSED STRATEGY LINKED TO SUPERIOR PRODUCTS AND SERVICES .SEVERAL FOUR STAR AND THREE STAR HOTELS OFFER MUCH BETTER SERVICES THAN THE FAMED FIVE STAR

WEAK POSITION
A FIRM IN A DECLINING COMPETITIVE POSITION HAS FOLLOWING STRATEGIC OPTIONS -REDUCING COSTS THRU DOWNSIZING OF OPERATIONS ,RETRENCHMENT -LAUNCH TURNAROUND STRATEGY LINKED TO LOW COST OR NEW DIFFERENTIATION THEMES IF THEY CAN FINANCE THE TURNAROUND eg THE CASE OF INDIAN RAILWAYS -OPT FOR EXIT STRATEGY AND GET OUT OF THE BUSINESS eg L&T CEMENT(BIRLA ULTRATECH);TOMCO,LAKME(HLL) -LEASING BUSINESS TO OTHER PROFITABLE COMPANIES eg EARLIER WEST END (BLR) ,SAVOY (OOTY) AND CONNEMARA HOTELS WERE OWNED BY SPENCER GROUP OF COMPANIES.AS THE CHAIN WAS OPERATING AT A LOSS THE HOTELS WERE LEASED TO TAJ GROUP FOR RUNNING.EVENTUALLY THEY WERE SOLD TO THE TAJ GROUP. -CLOSING DOWN OPERATIONS IF A BUYER CANNOT BE FOUND eg SEVERAL TEXTILE MILLS IN MUMBAI AND SELLING OFF ASSETS

GUIDELINES FOR CRAFTING SUCCESSFUL STRATEGIES

PLACE TOP PRIORITY ON STRATEGIC MOVES THAT ENHANCE COMPANY COMPETITIVE POSTION IN THE LONG RUN . DO NOT GO FOR ONLY SHORT TERM GAINS eg FLY BY NIGHT OPERATORS. NEED TO HAVE SHORT TERM GOALS FIRMLY LINKED TO THE ACHIEVEMENT OF LONG TERM GOALS BE PROMPT IN ADAPTING TO CHANGING MKT CONDITIONS AND UNMET CUSTOMER NEEDS AND WANTS CREATE A SUSTAINABLE COMPETITIVE ADVANTAGE AVOID STRATEGIES WHICH WILL SUCCEED IN ONLY THE MOST OPTIMISTIC SITUATIONS BY DOING A STRATEGY RISK ANALYSIS AND ALTERNATIVE STRATEGY FORMULATION DISCOVER AND ATTACK COMPETITIVE WEAKNESS

PROCESS OF CRAFTING AND EXECUTING STRATEGY

MANAGERIAL PROCESS OF CRAFTING AND EXECUTING A COMPANY STRATEGY CONSISTS OF SIX INTEGRATED PHASES 1.DEVELOPING A STRATEGIC VISION OF WHERE THE COMPANY NEEDS TO HEAD AND WHAT ITS FUTURE OFFERINGS, MARKETS,TECHNOLOGY FOCUS SHOULD BE 2.SETTING OBJECTIVES AND USING THEM AS YARDSTICKS FOR MEASURING COMPANY PERFORMANCE AND PROGRESS 3.CRAFTING A STRATEGY TO ACHIEVE OBJECTIVES AND MOVE THE COMPANY ALONG THE STRATEGIC COURSE WHICH IS LAID BY MGT 4.IMPLEMENTING AND EXECUTING THE CHOSEN STRATEGY EFFICIENTLY AND EFFECTIVELY 5 MONITORING DEVELOPMENTS , EVALUATING PERFORMANCE AND MAKING CORRECTIVE ADJUSTMENTS 6. REVIEW AS NEEDED ACTUAL PERFORMANCE , CHANGING CONDITIONS , NEW OPPORTUNITIES

STARTEGIC MANAGEMENT DIAGRAM VISION

MISSION

EXPANSION/DIVERSIFIC ATIONS/M&A/SELL OFF

EXTERNAL ENVIRONMENT RISKS & COMPANY PROFILE

STRATEGIC CHOICE

STRATEGIC ANALYSIS

LONG TERM OBJECTIVES

LONG TERM STRATEGIES

SHORT TERM OBJECTIVES

SHORT TERM STRATEGIES

POLICIES

DRILL DOWN
STRATEGIES TO ACTION

PLANS WITH OUTCOMES

ESTIMATE RESOURCES

ALLOCATE RESOURCES

EXECUTE ACTIVTIES

CONTROL& EVALUATION

COMPONENTS IN STRATEGIC MGT MODEL

VISION MISSION EXTERNAL ENVIRONMENT AND RISKS STRATEGIC ANALYSIS STRATEGIC CHOICE LONG TERM OBJECTIVES SHORT TERM OBJECTIVES ACTION PLANS EXECUTION CONTROL AND EVALUATION

EXTERNAL ANALYSIS
CONSISTS OF ALL CONDITIONS AND FORCES THAT AFFECT STRATEGIC OPTIONS BUT ARE TYPICALLY BEYOND FIRMS CONTROL (RM PRICE INFLATION(STEEL PRICES IN CONTRACT MFG), RESOURCE SHORTAGES INCL POWER AND CASH,etc. IT ALSO INCLUDES UNFORESEEN EVENTS LIKE POLITICAL SHIFTS (ADAG POWER PLANTS IN UP DUE TO CHANGE IN GOVT) OR UNFORESEEN POLITICAL OPPOSITION (SINGUR) EXTERNAL ENVIRONMENTAL RISKS IDENTIFICATION AND ANALYSIS PLAY AN IMPORTANT PART IN FORMULATION OF STRATEGY

INTERNAL ANALYSIS OF FIRM

INTERNAL ANALYSIS IS DIFFICULT AN INTERNAL ANALYSIS LEADS TO REALISTIC COMPANY PROFILE . THIS INVOLVES VALUE JUDGEMENTS AND STANDARDISED ANALYSIS. SYSTEMATIC INTERNAL ANALYSIS LEADS TO AN OBJECTIVE COMPANY PROFILE WHICH ULTIMATELY RESULTS IN AN EFFECTIVE STRATEGY INTERNAL ANALYSIS MUST IDENTIFY STRATEGICALLY IMPORTANT STRENGTHS AND WEAKNESSES ON WHICH A FIRM SHOULD BASE ITS STRATEGY. THIS CAN BE ACHIEVED BY IDENTIFYING KEY INTERNAL FACTORS eg DISTRIBUTION CHANNELS , CASH FLOW, LOCATIONS , TECHNOLOGY etc PROCESS OF INTERNAL ANALYSIS IS A CRITICAL INGREDIENT IN STRATEGY DEVELOPMENT

COMPETITIVE POSITION
BUSINESS IMPROVES ITS CHANCES OF DESIGNING STRATEGIES THAT OPTIMIZE ENVIRONMENTAL OPPORTUNITIES CONSTRUCTING COMPETITOR PROFILE IS DONE THRU DETERMINATION OF -MARKET SHARE -BREADTH OF PRODUCT LINE -EFFECTIVENESS OF SALES DISTRIBUTION -STRATEGIC ACCOUNT MAPPING -EXPERIENCE -PRICE COMPETITIVENESS RAW MATERIAL COSTS -ADVERTISING AND SALES PROMOTION EFFECTIVENESS -FINANCIAL HEALTH -PRODUCT QUALITY BRAND -R AND D ADVANTAGES -HUMAN CAPITAL ADVANTAGES -MARKET IMAGE

KEY SUCCESS FACTORS

A USEFUL WAY TO EFFECT OPERATIONAL CONTROL IS TO FOCUS ON KEY SUCCESS FACTORS KEY SUCCESS FACTORS IDENTIFY PERFORMANCE AREAS THAT MUST RECEIVE CONTINUOUS MGT ATTENTION. THESE ARE FACTORS OF GREATEST IMPORTANCE IN IMPLEMENTING STRATEGIES. EXAMPLES OF KEY SUCCESS FACTORS INCLUDE ENHANCED PRODUCTIVITY,HIGH EMPLOYEE MORALE, THESE KSF ARE LINKED TO METRICS WHICH ARE CONTROLLED SUCH AS DELIVERY CYCLE IN DAYS,NO OF CUSTOMER COMPLAINTS,% PRODUCT RETURNS,WARRANTY COST%SALES TARGETS ARE ALSO ASSOCIATED WITH KSF AND THE ACTUAL PERFORMANCE IS COMPARED TO THE TARGET AND AREAS OF IMPROVEMENT ARE DERIVED

INITIATIVES IN STRATEGIC PLANNING

EXPANSION AND GROWTH IN CURRENT AREAS MARKET SEGMENTATION AND CONSOLIDATION OF CURRENT MARKETS WITHDRAWAL FROM MARKETS eg TOMCO R&D FOR NEW PRODUCT PLANNING DIVERSIFICATION VERTICAL AND HORIZONTAL; VERTICAL BACKWARD (UPSTREAM) AND FORWARD(DOWNSTREAM);HORIZONTAL(UNRELATED) MERGERS (TATA INFOTECH AND TCS ) AND ACQUISITIONS(PWC IT ARM BY IBM CONSULTING,CORES BY TATA STEEL) COLLABORATIONS ( NEROLAC AND KANSAI)(CO-OPETITION -L&T AND BHEL WITH NTPC(EPC) EXECUTED POWER PROJECT IN ALGERIA JOINT VENTURES (MGL-GAIL,BRITISH GAS , MAH GOVT),BRITISH GAS (BRITISH GAS,RELIANCE INDUSTRIES,ONGC)

STRATEGIC DIVERSIFICATI ON AT RIL

CAPACITY EXPANSION
CAPACITY EXPANSION IS ONE OF THE MOST SIGNIFICANT STRATEGIC DECISIONS MEASURED BOTH IN TERMS OF AMOUNT OF CAPITAL INVOLVED AND THE COMPLEXITY OF DECISION MAKING PROBLEM ESPECIALLY IF TECHNOLOGY IS INVOLVED. Eg IF COAL FIRED THERMAL POWER PLANT WANTS TO EXPAND CAPACITY DOES IT EXPAND USING RATHER OBSOLETED COAL TECHNOLOGY BASED OR DOES IT USE MULTPLE FUEL FIRED PROCESS LINE eg NAPTHA AND GOBAR GAS. ECONOMICS OF OPERATIONS WITH EXPANDED CAPACITY OF IDENTICAL TECHNOLOGY NEEDS TO BE STUDIED RISK ASSESSMENT OF TECHNOLOGY AND EFFECTIVENESS OF TECHNOLOGY AND INPUTS NEED TO BE DONE PRIOR TO DECIDING IN FAVOUR OF EXPANSION WITH IDENTICAL TECHNOLOGY

WHEN TO DIVERSIFY
WHEN A COMPANY SPOTS OPPORTUNITIES FOR EXPANDING INTO INDUSTRIES WHOSE TECHNOLOGIES AND PRODUCTS COMPLEMENT ITS PRESENT BUSINESS eg A TEXTILE WEAVING MILL ACQUIRES A SPINNING UNIT AND LATER ON IT ALSO ACQUIRES A PROCESS HOUSE TO COMPLETE THE VALUE CHAIN. FURTHER MORE COMPANIES LIKE RAYMONDS , MAFATLAL,VIMAL,GRASIM, PANTALOONS, ALSO HAVE DIVERSIFIED INTO RETAILING OF THEIR PRODUCTS BY OPENING RETAIL OUTLETS WHEN IT CAN LEVERAGE EXISTING COMPETENCES AND CAPABILITIES BY EXPANDING INTO BUSINESSES WHERE THESE SAME RESOURCES ARE KEY SUCCESS FACTORS AND VALUABLE COMPETITIVE ASSETS eg TATA MOTORS FLOATED THEIR FULLY OWNED SUBSIDIARY TATA TECHNOLOGIES TO PROVIDE ENGINEERING AND ERP SOLUTIONS TO TATA MOTORS. NOW IT PROVIDES THE SERVICES TO THE MARKET WHEN DIVERSIFYING INTO CLOSELY RELATED BUSINESSES OPENS NEW AVENUES FOR REDUCING COSTS eg ACQUIRING RAW MATERIAL SUPPLIER IN INDUSTRY WHERE RAW MATERIAL COST IS VERY HIGH WHEN THE BRAND NAME OF THE COMPANY CAN BE TRANSFERRED TO THE PRODUCTS/SERVICES OF THE NEW BUSINESS eg TATA MOTORS

DIVERSIFICATION INTO RELATED BUSINESS

RELATED DIVERSIFICATION STRATEGY INVOLVES BUILDING THE COMPANY AROUND BUSINESSES WHOSE VALUE CHAINS POSSESS COMPETITIVELY VALUABLE STRATEGIC FITS. STRATEGIC FIT EXISTS WHENEVER ONE OR MORE ACTIVITIES COMPRISING THE VALUE CHAINS OF DIFFERENT BUSINESSES ARE SUFFICIENTLY SIMILAR AS TO PRESENT OPPORTUNITES FOR -TRANFERRING COMPETITIVELY VALUABLE EXPERTISE , TECHNOLOGICAL KNOW HOW OR OTHER CAPABILITIES FROM ONE BUSINESS TO ANOTHER eg IN TATA TECHNOLOGIES THERE ARE DESIGN ENGINEERS FROM TATA MOTORS WHO HAVE WRITTEN AN EXCELLENT SOFTWARE FOR DESIGN OF AUTO COMPONENTS USING CAD FACILITIES

DIVERSIFICATION INTO UNRELATED BUSINESS

AN UNRELATED DIVERSIFICATION STRATEGY PURSUES CROSS BUSINESS STRATEGIC FITS COMPANIES INTO UNRELATED DIVERSIFICATION SEE BUSINESS POTENTIAL IN THE PROPOSED AREA AND ENTER INTO THE GAME.THEY MAY OR MAY NOT HAVE THE CORE COMPETENCE AT THE POINT OF STRATEGIC INTENT PLANNING BUT CERTAINLY THEY NEED TO BUILD DIFFERENTIATION STRATEGY OR NICHE STRATEGY IN THE PROPOSED AREAS OF OPERATIONS. CRITERIA TO DECIDE UNRELATED DIVERSIFICATION ARE -WHETHER NEW BUSINESS CAN MEET CORPORATE TARGETS FOR PROFITABILITY AND RETURN ON INVESTMENT -WHETHER THE BUSINESS IS AN INDUSTRY WITH ATTRACTIVE GROWTH POTENTIAL eg ADAG WHOSE PRIMARY FUNCTION WAS TELECOM , GOING INTO FILM AND TV BY ACQUIRING ADLABS

COLLABORATIVE STRATEGIES
STRATEGIC ALLIANCES ARE FORMING AN IMPORTANT
STRATEGY IN SEVERAL LONG TERM PLANS OF COMPANIES WHO WISH TO CONSOLIDATE AND GROW THEIR POSITION IN THE MARKET. THE COLLABORATIVE EFFORT COMPLEMENTS THE STRATEGIC INITIATIVES OF THE COMPANY A STRATEGIC ALLIANCE IS A FORMAL AGRREMENT BETWEEN TWO COMPANIES IN WHICH THE TWO JOINTLY WORK TO ACHIEVE MUTUALLY BENEFICIAL STRATEGIC OUTCOMES (MARUTI-SUZUKI ALLIANCE) ,JOINT CONTRIBUTION OF RESOURCES(SUZUKI TECHNOLOGY) ALLIANCES INVOLVE JOINT MKTNG,JOINT PRODN,DESIGN COLLABORATION (KIRLOSKAR CUMMINS),JOINT RESEARCH (RANBAXY-ELLY LILLY) RELATION MAYBE CONTRACTUAL OR MERELY COLLABORATIVE

STATEGIES INVOLVED IN MERGERS AND ACQUISITIONS

COMBINING THE OPERATIONS OF TWO COMPANIES VIA MERGER OR ACQUISITION IS AN ATTRACTIVE STRATEGIC OPTION FOR ACHIEVING OPERATING ECONOMICS ,STRENGTHENING THE RESULTANT COMPANY COMPETENCES AND COMPETITIVENESS (ACQUISITION OF CMC BY TCS)(MERGER OF TIL WITH TCS0 AND OPENING UP AVENUES OF NEW MARKET OPPORTUNITY OWNERSHIP TIES ARE MORE PERMANENT THAN IN PARTNERSHIPS OPERATIONS OF ACQUIRED/MERGED COMPANY TIGHTLY INTEGRATED WITH THE PRINCIPAL

STATEGIES INVOLVED IN MERGERS AND ACQUISITIONS

AN ACQUISITION IS A COMBINATION IN WHICH ONE COMPANY , THE ACQUIRER PURCHASES AND ABSORBES THE OPERATIONS OF THE ACQUIRED ACQUISITIONS ARE DONE WHEN A COMPANY WANTS TO DIVERSIFY AND THUS FINDS IT EASIER TO ACQUIRE A COMPANY WITH RELEVANT CORE COMPETENCE AND IN THE PROCESS ENHANCES ITS VALUE CHAIN IN SOME CASES A COMPANY MAY BE ACQUIRED TO FACILITATE OPERATIONS IN A COUNTRY eg ACQUISITION OF COMPANIES BY TCS IN US

VERTICAL INTEGRATION
VERTICAL INTEGRATION IS THE COMBINATION OF TECHNOLOGICALLY DISTINCT PRODUCTION , DISTRIBUTION , SELLING, AND/OR OTHER ECONOMIC PROCESSES WITHIN A COMPANY IT REPRESENTS A STRATEGIC DECISION BY COMPANY TO UTILIZE INTERNAL TRANSACTIONS RATHER THAN MARKET TRANSACTIONS eg ACQUISITION OF LIMESTONE QUARRIES BY CEMENT MFG MANY VERTICAL INTEGRATION DECISIONS ARE MADE WITHIN THE TACTICAL STRATEGY IMPLEMENTATION TO MAKE OR BUY ;FOCUS IS ON COST SAVINGS DUE TO INTEGRATION AND ALSO THE ASSURANCE THAT THE CAPACITY & CAPABILITY OF THE UPSTREAM /DOWNSTREAM ACQUISITION IS COMMENSURATE WITH THE CAPACITIES AND CAPABILITIES REQUIRED BY THE CENTRAL COMPANY TO MEET ITS LONG TERM GOALS

VERTICAL INTEGRATION STRATEGIES

VERTICAL INTEGRATION EXTENDS FIRMS COMPETITIVE
AND OPERATIVE SCOPE WITHIN THE SAME INDUSTRY INVOLVES EXPANDING THE FIRMS RANGE OF ACTIVITIES BACKWARDS(UPSTREAM) INTO SOURCES OF SUPPLY eg OIL EXPLORATION AND PRODUCTION IN THE CASE OF A REFINERY OR FORWARD (DOWNSTREAM) TOWARDS THE END USER eg FUEL AND LUBRICANT RETAIL OUTLETS VERTICAL INTEGRATION STRATEGIES CAN AIM AT FULL INTEGRATION (PARTICIPATING IN ALL STAGES OF THE INDUSTRY VALUE CHAIN BIRLA CEMENT FROM OWNING OF LIME STONE QUARIES TO CEMENT MANUFACTURE TO DISTRIBUTION TO RETAIL OUTLETS) OR PARTIAL INTEGRATION IN THE CASE OF PUBLIC SECTOR OIL COMPANIES WHO ARE INTO REFINING , PARTLY INTO RETAILING BUT NOT INTO EXPLORATION AND PRODUCTION OF CRUDE WHICH THEY BUY.

BACKWARD INTEGRATION
BACKWARD INTEGRATION IS DONE TO GENERATE COST SAVINGS AND TO STRENGTHEN BRAND VALUE OF PRODUCT/SERVICE BY ASSURING ENHANCED QUALITY OF UPSTREAM PRODUCT/SERVICE FOR BACKWARD INTEGRATION TO BE A VIABLE AND PROFITABLE STRATEGY COMPANY SHOULD 1. ACHIEVE SAME SCALE ECONOMIES AS OUTSIDE SUPPLIERS AND MATCH OR BEAT THEIR CAPABILITY INCLUDING PRICE AND QUALITY AMONG OTHER CRITICAL FACTORS POTENTIAL FOR REDUCING COSTS VIA BACKWARD INTEGRATION EXISTS IN SITUATIONS WHERE SUPPLIERS MAKE SIZEABLE PROFITS WHERE THE ITEM SUPPLIED IS A MAJOR COST COMPONENT eg CAUSTIC SODA IN SOAP HENCE HLL ACQUIRED TWO SUPPLIERS MFG CAUSTIC SODA.ALSO SUPPLIER BEING ACQUIRED HAS TECHNOLOGICAL SKILLS ,ESPECIALLY IN TERMS OF PROPRIETARY TECHNOLOGY eg COCA COLA FORMULA IT IS ADVANTAGEOUS TO HAVE BACKWARD INTEGRATION

BACKWARD INTEGRATION
BACKWARD INTEGRATION CAN PRODUCE A DIFFERENTIATION BASED COMPETITIVE ADVANTAGE WHEN A COMPANY ENDS UP WITH A BETTER PRODUCT/SERVICE OFFERING THEREBY IMPROVING CUSTOMER SERVICE IT ALSO ENABLES THE ENHANCEMENT OF CORE COMPETENCE FINALLY IT SPARES THE COMPANY OF THE RISK OF BEING DEPENDENT ON THE VAGARIES OF THE SUPPLIER AND ELIMINATES THE THREAT POSED IF THE SUPPLIER(SOLE SUPPLIER) CLOSES DOWN OR HAS A STRIKE OR ANY OTHER LABOR RELATED ISSUE.

FORWARD INTEGRATION
FORWARD INTEGRATION IS TO GAIN BETTER ACCESS TO END USERS ESPECIALLY IN A MARKET WHICH IS NOT VERY LOYAL;IS VERY AGILE AND FLEXIBLE DOWNSTREAM 3RD PARTY PLAYERS DONT TEND TO BE VERY LOYAL AND MAY BE RESPONSIBLE FOR DENUDATION OF SALES IN A PARTICULAR AREA,THEY DO SO BECAUSE THEY ARE WEDDED TO THE3 CONCEPT OF DEALING WITH THE PRODUCT WHICH GIVES THEM MAXIMUM PROFITS

OUTSOURCING
OUTSOURCING INVOLVES A CONSCIOUS DECISION TO FOREGO CERTAIN ACTIVITIES IN A VALUE CHAIN AND INSTEAD GET THEM TO BE PERFORMED BY 3RD PARTIES WHO ARE SPECIALISTS DEFINITIVE DIFFERENCE BETWEEN SUB CONTRACTING AND OUTSPOURCING OUTSOURCING ENABLES A COMPANY TO CONCENTRATE ON ITS CORE COMPETENCES THAT ARE CRITICAL TO ITS COMPETITIVE AND FINANCIAL SUCCESS eg CORE PROCESSES (FACE CUSTOMER , REVENUE EARNING)AND SUPPORTIVE PROCESSES(NOT DIRECTLY REVENUE EARNING) CASE OF HUL MARKETING IS THEIR CORE COMPETENCE. MFG IS OUTSOURCED.HR IS OUTSOURCED TO ACCENTURE

OUTSOURCING
COLLABORATIVE PARTNERSHIPS ARE REPLACING PRICE RELATED RELATIONSHIPS WITH SUPPLIERS eg MARUTI OR TATA MOTORS RELATIONSHIP WITH THEIR ANCILLARIES SWITCHING SUPPLIERS WAS A COMMON PRACTICE IN THE PAST HOWEVER TODAY COMPANIES ARE ENTERING INTO LONG TERM RELATIONSHIPS WITH SUPPLIERS AND DEVELOPING THEIR CAPABILITIES TO MATCH THEIR LONG TERM OBJECTIVES

CRAFTING STRATEGY
TASK OF CRAFTING STRATEGY REQUIRES ANSWERING HOW TO GROW BUSINESS;HOW TO DELIGHT CUSTOMERS(DIFFERENCE BETWEEN SATISFY AND DELIGHT?);HOW TO COUNTER COMPETITION;HOW TO RESPOND TO CHANGING MARKET CONDITIONS; HOW TO MANAGE CONTRADICTIONS IN FUNCTIONAL OBJECTIVES (FINANCE WANTS MINIMUM 15% CONTRIBUTION PER ORDER;SALES WANTS TOP LINE AT ANY COST BOTTOM LINE COMES LATER);HOW TO DEVELOP VARIOUS COMPETENCES AND CAPABILITIES TO SUCCEED IN THE MKTPLACE;HOW TO ACHIEVE STRATEGIC AND FINANCIAL OBJECTIVES; IT MEANS LOOKING AT VARIOUS STRATEGIC ALTERNATIVES AND CHOOSING ONE OF THEM BASED ON THE LEAST RISKY ONE.

CRAFTING STRATEGY
FASTER BUSINESS ENVIRONMENT CHANGES MORE CRITICA IS NEED TO CHOOSE THE RIGHT STRATEGY AND ADAPT EXISTING ONE TO BE FLEXIBLE TO ENABLE THE DYNAMIC CORRECTION OF STRATEGIES WITHOUT FINANCIAL IMPACT TO THE COMPANY (eg CAN A COMPANY PREDICT CHANGES IN CUSTOMER PREFERENCES AND BE THE MARKET LEADER IN OFFERING SUCH PRODUCTS/SERVICES eg AIRTEL BEING INNOVATIVE AND INTRODUCING SEVERAL NEW SCHEMES, FEATURES FOR THE BENEFIT OF THEIR CUSTOMERS STRATEGY MAKERS HAVE TO PAY ATTENION TO EARLY WARNINGS AND HENCE NEED TO BE VERY GOOD AT PREDICTING TRENDS AND ALSO KNOWING WHAT COMPETITION IS CURRENTLY UPTO AND NEEDS TO BE AT LEAST ONE STEP AHEAD. BE THE LEADER NOT THE FOLLOWER

3 LEVELS OF COMPANY GOALS

SURVIVAL THIS IS THE PRIMARY OBJECTIVE OF A COMPANY TO SURVIVE DESPITE INTERNAL AND EXTERNAL TURBULENCES. FOR THIS THE MGT NEEDS TO HAVE VERY STRONG CONTROL SYSTEMS IN PLACE WHICH WILL ENSURE THAT THE COMPANY REMAINS AFLOAT. IT INVOLVES REMAINING MARGINALLY PROFITABLE DESPITE MKT DECLINE PROFITABILITY- MAIN GOAL OF ORG. PROFIT IS THE PRINCIPAL INDICATOR OF FIRMS ABILITY TO SATISFY CLAIMS AND DESIRES OF STAKEHOLDERS. IN THE LONG TERM

3 LEVELS OF COMPANY GOALS

GROWTH-TIED TO SURVIVAL AND PROFITABILITY. GROWTH IS MEASURED IN TERMS OF INCREASED WALLET SHARE , INCREASED MARKET SHARE . ISSUE OF GROWTH IS LINKED TO THE MISSION. WHEREIN THE COMPANY ARTICULATES THE METHOD OF GROWTH eg CONSOLIDATION OF EXISTING MARKETS ,DIVERSIFYING INTO NEW AREAS , MERGERS/ACQUISITIONS etc

IMPLEMENTING AND EXECUTING STRATEGY

MANAGING THE IMPLEMENTATION AND EXECUTION OF STRATEGY IS OPERATIONS ORIENTED ACTIVITY AIMED AT PERFORMING CORE BUSINESS ACTIVITIES CONVERTING STRATEGIC PLANS TO ACTION AND RESULTS NEEDS DIRECTION AND CONTROL AS WELL AS BUILDING OF COMPANY COMPETENCES AND COMPETITIVE CAPABILITIES(AGILITY ,FLEXIBILITY,PRICE SENSITIVITY) INITIATIVES O FORMULATE STRATEGIES AND EXECUTE THEM EFFICIENTLY NEED TO BE INITIATED CHOOSING AND EXECUTING A STRATEGY ARISES FROM WHAT COMPANY NEEDS TO DO DIFFERENTLY OR BETTER TO EXECUTE STRATEGIES COMPETENTLY AND ACHIEVE FINANCIAL AND STRATEGIC TARGETS

IDENTIFYING COMPANY RESOURCE STRENGHTS

SPECIALIZED EXPERTISE -SKILLS IN LOW COST OPERATIONS(NANO) -TECHNOLOGICAL EXPERTISE(SUPER SPECIALTY HEALTHCARE CENTRES),WORLDCLASS QLTY OPERATIONS (DABBAWALLA-SIX SIGMA),INTRODUCING INNOVATIVE PRODUCTS(AIRTEL-VIEW TELEVISION ON MOBILE),CUTTING EDGE SUPPLY CHAIN FACILITIES,EXPERTISE IN INTRODUCING NEW PRODUCTS INTO THE MKT (AIRTEL) ,EXPERTISE IN PROVIDING GOOD CUSTOMER SERVICE (GENERALLY NOT PERCEIVED TO BE A STRENGTH IN INDIA eg EVEN JET AIRWAYS IS NOW A DAYS KNOWN TO FLOUNDER) VALUABLE PHYSICAL ASSETS - STATE OF THE ART PLANTS VALUABLE HUMAN ASSETS AND CAPITAL BARC,MCKINSEYS VALUABLE ORG ASSETS PROVEN QLTY CONTROL SYSTEMS eg INFOSYS VALUABLE INTANGIBLE ASSETS eg R&D PATENTS OR BRAND INFOSYS VALUABLE ALLIANCES OR COLLABORATIVE VENTURES GIVING LEADING EDGE

ASSESSING COMPETENCE
ONE OF THE MOST IMPORTANT ASPECTS OF APPRAISING A COMPANYS RESOURCE STRENGTHS HAS TO DO WITH ITS COMPETENCE LEVEL IN PERFORMING KEY PIECES OF ITS BUSINESS SUCH AS SUPPLY CHAIN,MFG,DISTRIBUTION, SALES AND MKTNG AND CUSTOMER SERVICE. WHICH ACTIVITIES DOES IT PERFORM WELL. ARE THERE ANY ACTIVITIES IT PERFORMS BETTER THAN RIVALS THREE FLAVOURS OF COMPANY PROFICIENCY -COMPETENCE -CORE COMPETENCE -DISTINCTIVE COMPETENCE

COMPETENCE
A COMPETENCE IS SOMETHING AN ORGANIZATION IS GOOD AT DOING. IT IS NEARLY ALWAYS THE PRODUCT OF THE INTELLECTUAL ASSETS OF ITS PEOPLE ESPECIALLY IN TERMS OF THEIR EXPERIENCE AND DOMAIN KNOWLEDGE COMPANY COMPETENCE BEGINS WITH EFFORTS TO DEVELOP ABILITY TO DO SOMETHING BETTER THAN OTHERS OR TO MEET THE INDUSTRY REQUIREMENTS IN EXECUTING PROCESSES WHICH WILL DELIVER VALUE AS PER CHANGING EXPECTATIONS OF THE CUSTOMER . IT CONTINUES BY WAY OF STAFFING RESOURCES BY WAY OF EQPT , MONEY,MATERIAL AND MOST IMPORTANTLY HUMAN CAPITAL(SKILLS) SOME COMPETENCES ARE COMPANY PROCESS EFFECTIVENESS RELATED SUCH AS JIT INVENTORY CONTROL,AGILE SUPPLY

CHAIN etc

CORE COMPETENCE
IS A COMPETITIVELY IMPORTANT ACTIVITY THAT A COMPANY PERFORMS BETTER THAN OTHER INTERNAL ACTIVITIES AND IS KNOWN IN THE MARKET FOR THESE SKILLS. eg AMONG OTHER SKILLS MCKINSEY CONSULTING IS DEEMED TO HAVE CORE COMPETENCE BY THE MARKET IN AREAS RELATED TO STRATEGIC MANAGEMENT CORE COMPETENCE IS CENTRAL TO COMPANY STRATEGY AND INDICATES THE SKILL AREAS IN WHICH THE COMPANY PERCEIVES IT HAS COMPETITIVE EDGE OVER COMPETITION BY VIRTUE OF POSSESSION OF THIS COMPETENCE. CORE COMPETENCE COULD BE PEOPLE , TECHNOLOGY, PROCESSES , etc CORE COMPETENCE COULD RELATE TO ANY OF THE SEVERAL ASPECTS OF COMPANY BUSINESS SUCH AS QUALITY , NEW PRODUCT DEVELOPMENT,COST EFFICIENT SUPPLY CHAIN MGT,GOOD SERVICES CORE COMPETENCE MAKES THE COMPANY SUCCESS IN THE MARKETPLACE eg THE DOMINANCE ENJOYED BY MARUTI UDYOG LTD COULD BE ATTRIBUTED TO THE IMMENSE R&D COMPETENCE IT HAS WHICH HAS ENABLED THE CONTINUOUS INNOVATION AND IMPROVEMENT IN IN ITS CURRENT MODELS AND HAS ALSO BEEN ABLE TO PERIODICALLY RELEASE NEW MODELS.

CORE COMPETENCE
A COMPANY MAY HAVE MORE THAN ONE CORE COMPETENCE.eg MARUTI MANUFACTURES QUALITATIVE FUEL EFFICIENT COST EFFECTIVE CARS RESULTING IN ITS MARKET DOMINANCE OF THE MARKET SHARE BUT IT ALSO HAS A VERY GOOD AFTER SALES SERVICE DISTRIBUTION NETWORK ALL OVER INDIA OTHER CORE COMPETENCES INCLUDE PRODUCT FLEXIBILITY eg MAGIC EYE IN KNP; SERVICE CAPABILITIES eg ASIAN HEART FOUNDATION; LOW COST CARS-TATA MOTORS NANO;TIMELY DELIVERY ASSURANCEDOMINO PIZZA; ACCURACY AND TIMELINESS OF DELIVERY-MUMBAI DABBAWALLAS;UNCONVENTIONAL COURIERS LIKE ANGADIAS WHO CARRY DIAMOND CONSIGNMENTS FROM MUMBAI TO SURAT AND VICE VERSA FOR THEIR INTEGRITY AND HONESTY CORE COMPETENCE IS KNOWLEDGE BASED RESIDING IN PEOPLE AND SHOWN IN COMPANYS INTELLECTUAL CAPITAL

DISTINCTIVE COMPETENCE
COMPETITIVE ACTIVITY THAT A COMPANY PERFORMS BETTER THAN ITS RIVALS DISTINCTIVE COMPETENCE SIGNIFIES GREATER PROFICIENCY THAN CORE COMPETENCE. CORE COMPETENCE IS THE DOMAIN KNOWLEDGE REQUIRED TO PERFORM AN ACTIVITY OR PROCESS. ALL LAWYERS NEED TO HAVE DEEP UNDERSTANDING OF THE SUBJECT IN WHICH THEY WISH TO SPECIALIZE. FOR EXAMPLE THERE ARE SEVERAL CRIMINAL LAWYERS BUT PEOPLE LIKE RAM JETHMALANI AND MAJEED MEMON HAVE DISTINGUISHED THEMSELVES IN THIS AREA. THE LATE NEETU MANDKE HAD DISTINCTIVE COMPETENCE IN CARDIAC SURGERY. THEY POSSESS /POSSESSED DISTINCTIVE COMPETENCE

DISTINCTIVE COMPETENCE
DISTINCTIVE COMPETENCE REPRESENTS UNIQUELY STRONG CAPABILITY RELATIVE TO COMPETITION AND IS HENCE A SUPERIOR RESOURCE WITH COMPETITIVE ADVANTAGE POTENTIAL TATA MOTORS HAS DEVELOPED A DISTINCTIVE COMPETENCE IN DELIVERING AN INDIGENOUSLY DEVELOPED LOW COST CAR. THOUGH THEY MAY LIKE TO ADD QUALITY TO THE LIST OF COMPETITIVE ADVANTAGE AREAS. PROCESS DEPLOYMENT MEASURES MAY ALSO BE A DISTINCTIVE COMPETENCE AS IN THE CASE OF KNP AND ASIAN PAINTS WHO HAVE A MAGIC EYE TO DELIVER DECORATIVE PAINTS IN THE COLOUR OF THE CHOICE OF THE CUSTOMER. THEY NEED TO ADD AUTOMATED AGILITY IN THEIR PROCESS THRUPUT.

ASSESSING HUMAN COMPETENCE

AN IMPORTANT WAY OF APPRAISING A COMPANY IS THE VALUE OF ITS HUMAN CAPITAL. FOR EXAMPLE AT INFOSYS ITS EMPLOYEE STRENGTH WENT UP FROM 98821 (2008) TO 104850(2009).BUT ITS VALUE OF HUMAN RESOURCES PER EMPLOYEE FELL FROM 1.08 IN 2008 TO 0.97 IN 2009. SINCE HUMAN CAPITAL DRIVES PROCESSES IT IS IMPORTANT TO HAVE A HIGH HUMAN CAPITAL VALUE. HUMAN ASSET WORTH CAN BE PROGRAMMED TO ASSESS THE WORTHINESS OF ALL CAPABILITIES AND CORE COMPETETENCES REQUIRED TO SUCCEED IN THE MARKETPLACE

STRATEGY EXECUTION PROCESS

THE NEXT PHASE OF STRATEGY MGT PROCESS IS MONITORING NEW EXTERNAL DEVELOPMENTS , EVALUATING PROGRESS , AND MAKING CORRECTIVE ADJUSTMENTS THIS IS TRIGGER POINT TO DECIDE WHETHER TO CONTINUE OR CHANGE VISION(AFTER JIM AKER IBM CEO WAS SACKED IN 1996 AND LOU GESTNER JR WAS APPOINTED HE SAID THAT THE LAST THING HE WANTED TO DO WAS TO CHANGE THE VISION BUT CERTAINLY HE WISHED TO REDESIGN WORK WAS DONE IN IBM AND HE WAS THE PIONEER OF THE DISTRIBUTOR(CHANNEL PARTNER) CONCEPT. IF MISSION IS TO BE CHANGED THERE NEEDS TO BE A PROCESS OF STRATEGIC DIVERSIFICATION eg RELIANCE FRESH. A RETHINKING NEEDED ON WHAT BUSINESSES THE COMPANY OUGHT TO BE IN AND WHAT COMPETENCES WOULD BE REQUIRED AND WHAT MARKES IT WILL CHOOSE TO ADDRESS AND WHAT WOULD BE THE METHOD-DIRECT,DISTRIBUTOR

ACTION PLANS
UNDER GUIDANCE OF POLICIES STRATEGIES NEED TO BE CONVERTED TO ACTION PLANS . ACTION PLANS SPECIFY HOW A PARTICULAR ACTIVITY IS TO BE PERFORMED AND WHAT IS THE RESOURCE STAFFING FOR THE SAME. ONCE ADEQUATE RESOURCE ALLOCATION IS DONE THE ACTIVITY IS READY TO COMMENCE. ACTIVITIES SHOULD BE EXECUTED AS PER BUSINESS RULES AND THESE RULES SHOULD BE VERY CLEARLY KNOWN TO ALL MEMBERS OF THE ACTIVITY PRIOR TO CONVERSION OF ACTION PLAN TO ACTIVITY EXECUTION , THE OUTCOME SHOULD BE DECIDED ALSO NEED TO DO A RISK ASSESSMENT OF WHAT WOULD BE THE IMPACT IF THE ACTIVITY DID NOT ACHIEVE ITS DESIRED OUTCOME

EXECUTION CONTROL AND EVALUATION

AN IMPLEMENTED STRATEGY MUST BE MONITORED TO DETERMINE THE EXTENT TO WHICH THE OBJECTIVES ARE ACHIEVED FOR THIS THE OUTCOME OF EACH ACTIVITY HAS TO BE MEASURED AND A TARGETTED OUTCOME HAS TO BE ASSOCIATED WITH EACH ACTIVITY. IT MAY BE RELEVANT TO DRAW A CAUSE EFFECT ACTIVITY DIAGRAM TO UNDERSTAND THE IMPLICATION OF UNDERPERFORMANCE OR FAILURE IN A PRECEDING ACTIVITY ACTIVITY HAS TO BE MEASURED AT REGULAR INTERVALS TO UNDERTAND THE TRENDS AND ANY NEGATIVE TRENDS SHOULD BE OBSERVED IN ADVANCE AND PRECAUTIONARY / REPAIR ACTION TAKEN IN ADVANCE TO ELIMINATE / MINIMIZE THE EFFECTS OF THIS RISK

PROCESS OF STRATEGIC CONTROL

MEASURE ORGANIZATIONAL PERFORMANCE COMPARE ORGANIZATIONAL PERFORMANCE TO GOALS AND STANDARDS eg CONTRIBUTION , PRODUCTIVITY , PROCESS EFFECTIVENESS, VOLUNTARY SEPARATION , QUALITY TAKE NECCESARY CORRECTIVE ACTIONS

MICHEAL PORTERS COMPETITIVE ADVANTAGE

CONCEPT OF COMPETITIVE ADVANTAGE

COMPETITIVE ADVANTAGE DESCRIBES THE WAY IN WHICH FIRM CAN CHOOSE AND IMPLEMENT A GENERIC STRATEGY TO ACHIEVE AND SUSTAIN COMPETITIVE ADVANTAGE COMPETITIVE ADVANTAGE GROWS FUNDAMENTALLY OUT OF VALUE A FIRM IS ABLE TO CREATE FOR ITS BUYERS THAT EXCEEDS THE COST OF CREATING VALUE VALUE IS WHAT BUYERS ARE WILLING TO PAY AND SUPERIOR VALUE COMES FROM OFFERING LOWER PRICES THAN COMPETITION FOR EQUIVALENT BENEFITS OR PROVIDING UNIQUE BENEFITS THAT MORE THAN OFFSETS A HIGHER PRICE THREE BASIC TYPES OF COMPETITIVE ADVANTAGE -COST LEADERSHIP -DIFFERENTIATION -FOCUS

GENERIC STRATEGIES
IN COPING WITH THE FIVE COMPETITIVE FORCES THERE ARE THREE POTENTIALLY SUCCESSFUL STRATEGIC APPROACHES TO OUTPERFORMING OTHER FIRMS THRU -1 COST LEADERSHIP -DIFFERENTIATION -FOCUS SOMETIMES FIRM CAN PURSUE MORE THAN ONE APPROACH AS ITS PRIMARY TARGET THESE STRATEGIES ARE APPROACHES TO OUTPERFORM COMPETITORS

COST LEADERSHIP
VERY POWERFUL COMPETITIVE APPROACH IN MARKET WITH PRICE SENSITIVE BUYERS. eg DECCAN AIR STARTED A NEW REVOLUTION IN INDIA WHEN THEY INTRODUCED THE NO FRILLS LOW COST AIRLINES THEREBY ADDRESSING A HITHERTO RAILTRAVELLING SEGMENT. COMPANY ACHIEVES LOW COST LEADERSHIP WHEN IT BECOMES INDUSTRY LOWEST COST PROVIDER RATHER THAN JUST BEING ONE OF THE FEW WITH LOWER COSTS.

COST LEADERSHIP
IN PROVIDING LOW COST SERVICES/PRODUCTS HOWEVER THE PROVIDER MUST PROVIDE ESSENTIAL SERVICES WHICH FORM A PART OF THE PRODUCT/SERVICE. Eg PRODUCTS IN SALE MAY NOT HAVE A FULL WARRANTY OF 1 YEAR(3 MONTHS MEDIA WARRANTY AS IN THE CASE OF S/W) OR WARRANTY OF ONLY CERTAIN PARTS (EXCLUDE COMPRESSOR etc OF REFRIGERATORS) OR IN FLYING WITH DISCOUNTED FARES THE AIRLINES WILL NOT OFFER INFLIGHT SERVICES WHICH NEED TO BE PURCHASED OR NOT OFFERED AT ALL INCLUDING WATER ON GO AIR AT 15RS.HOWEVER THERE IS A MAJOR ISSUE WITH LOW COST AIRLINES WHEN A FLIGHT IS CANCELLED ;THEY DO NOT OFFER ALTERNATIVES INCL HOTEL ACCOMODATION .IN SOME CASES EVEN REFUNDS ARE NOT OFFERED EASILY.

ADVANTAGES OF COST LEADERSHIP

PRICE COMPETITION AMONG RIVALS IS VIGOUROUS. eg DECCAN AIR WAS FOLLOWED BY SPICE JET. JET AIRWAYS WAS A LATE ENTRANT BUT LATER TOOK OVER AN AILING SAHARA AIRLINES, CALLED IT JETLITE AND CONVERTED IT INTO A LOW COST NO FRILLS AIRLINES. LATER SOME OF ITS REGULAR JET AIR FLIGHTS WERE RECHRISTENED AS JET CONNECT AND OPERATE AS NO FRILLS AIRLINES AT LOW COST. AIR INDIA ALSO OFFERS DISCOUNTED FLIGHTS IN ITS INDIA OPERATIONS AND HAS A SEPARATE AIR INDIA EXPRESS WHICH OPERATES PROMINENTLY FROM GULF TO SOUTH DESTINATIONS

ADVANTAGES OF COST LEADERSHIP

DIFFERENTIATIONTHAT HAVE VALUE TO BUYERS THE CASE OF LOW COST AIRLINES THERE IS A DEARTH OF CRM ACTIVITIES .IF A LOW COST AIRLINES SHARPENED THIS ASPECT OF ITS OPERATIONS IT COULD BE A MAJOR DIFFERENTIATOR. IN THE EARLY 90 UB FLOATED UB AIR.FLEW FROM BLR TO MAA AND MUM IN THE MORNINGS AND EVENINGS. THE CONDITION THEY IMPOSED ON THEMSELVES WAS THAT IF THE FLIGHT LANDED MORE THAN 15MIN LATE FOR WHATEVER REASONS ANY FARE REFUNDS ASKED FOR WERE GIVEN WITH NO QUESTIONS ASKED. IN WINTERS OWING TO FOG AT BLR THEY HAD A MAJOR OPERATIONAL PROBLEM AND ULTIMATELY HAD TO WIND UP.

DISADVANTAGES OF COST LEADERSHIP

PRODUCTS SERVICES COME WITH A LOT OF LOCK IN CLAUSES EG IN CASE OF LOW COST AIRLINES TICKET CANNOT BE CANCELLED OR PREPONED/POSTPONED. IT IS ALSO NON TRANSFERABLE AND NON REROUTABLE. MOREOVER IN CASE OF CANCELLATIONS SUCH FLIGHTS BRING IN UNTOLD HARDSHIPS TO FLYERS. SEVERAL COMPETITORS IN THE MARKET WITH LOW COST STRATEGIES AND THERE IS NO DIFFERENTIATOR. ARE THERE DIFFERENTIATORS IN MUNICIPAL /GOVT HOSPITALS LOW SWITCHING COSTS FROM ONE SELLER TO ANOTHER (SUBSTITUTE PRODUCTS)eg MOBILE SUBSCRIBERS. CHURN ANALYSIS DONE TO MINIMIZE AND FORECAST CHURNS. IN THE CASE OF PERSONAL CARE PRODUCTS BRAND LOYALTY IS PROVEN TO BE VERY LOW AND ALSO BECAUSE OF THE LOW SWITCHING COSTS , PEOPLE CHANGE BRANDS. THERE IS VERY LESS BRAND LOYALTY ADVENT OF NEWCOMERS WHO USE INTRODUCTORY LOW PRICES TO BREAK INTO THE MARKET

RISKS IN COST LEADERSHIP

TECHNOLOGICAL CHANGES THAT NULLIFIES PAST INVESTMENT OR LEARNING eg MAINFRAME CULTURE TO UNIX/NT AND WINDOWS INABILITY TO SEE MARKETING AND CHANGES IN CUSTOMER WANTS DUE TO ATTENTION PLACED ON COST

DIFFERENTIATION
CREATE SOMETHING THAT IS PERCEIVED TO BE UNIQUE APPROACHES TO DIFFERENTIATION CAN BE BY WAY OF DESIGN , FEATURES , QUALITY , SERVICE, TECHNOLOGY, DEALER NETWORK , RETAIL AVAILABILITY, RELIABILITY etc. DIFFERENTIATION IS A VIABLE STRATEGY FOR EARNING ABOVE AVERAGE RETURNS AND ENABLES THE COPING WITH THE FIVE COMPETITIVE FORCES DIFFERENTIATION CAN CREATE BRAND LOYALTY AND CAN ENHANCE PRODUCT AND SERVICE MARGINS. IT ALSO LEADS TO INCREASED MARKET SHARE AND ULTIMATELY BRAND LEADERSHIP IT CREATES LOWER SENSITIVITY TO PRICE

DIFFERENTIATION
DIFFERENTIATION STRATEGIES WORK WELL WHEN BUYER NEEDS ARE DIVERSE AND KEEP CHANGING.REMEMBER HOW SAVINGS BANK ACCOUNT MANAGEMENT CHANGED FROM STANDARDIZED PROCEDURES TO PERSONAL BANKING SYSTEMS? COMPANY WANTING TO SUCCEED THRU DIFFERENTIATION SHOULD UNDERSTAND THE CHANGING EXPECTATIONS OF THE CUSTOMERS AND ADDRESS THESE WANTS EFFECTIVELY AND DYNAMICALLY.THEY MUST STUDY CHANGING BUYER NEEDS FROM DEMOGRAPHIC TO PSYCHOGRAPHIC AND PROVIDE VALUE FOR MONEY. COMPANY NEEDS TO TAKE THESE FACTORS INTO ACCOUNT WHILE FORMULATING THEIR DIFFERENTIATING STRATEGY eg MAGIC EYE OF KANSAI NEROLAC AND ASIAN PAINTS RAPID PRODUCT INNOVATION AND FREQUENTLY INTRODUCED NEW PRODUCTS/SERVICES eg AIRTEL PROVIDES PURSUIT OF DIFFERENTIATION PATHS AND KEEP USER INTEREST ALIVE

DIFFERENTIATION
RAPID PRODUCT INNOVATION AND FREQUENTLY INTRODUCED NEW PRODUCTS/SERVICES eg AIRTEL PROVIDES PURSUIT OF DIFFERENTIATION PATHS AND KEEP USER INTEREST ALIVE AN IMPORTANT STRATEGIC DIFFERENTIATOR THAT COMPANIES ARE BUILING AND HARNESSING TODAY IS THE WORTH AND DIFFERENTIATION OF ITS HUMAN CAPITAL;THE SKILLS AND THE CAPABILITIES OF ITS PEOPLE. MCKINSEY CONSULTING FOR EXAMPLE COMMANDS A PREMIUM FOR ITS CONSULTING SERVICES BECAUSE OF THE DOMAIN EXPERTISE OF ITS PEOPLE AS WELL AS THEIR HUMAN CAPITAL WHICH IS MORE THAN THE EMPLOYEES OF COMPETITION HUMAN CAPITAL DRIVES ALL OTHER FACTORS. HUMAN CAPITAL DRIVES CAPABLE PROCESSES WHICH PRODUCE BRANDED DIFFERENTIATED PRODUCTS/SERVICES (BRANDED HOSPITALS) WHICH ENABLE THE COMPANY ACHIEVE MARKET LEADERSHIP OR CUSTOMER PATRONAGE

FOCUS
FOCUS ON A PARTICULAR BUYER GROUP , SEGMENT OF PRODUCT LINE,OR GEOGRAPHICMARKET FOCUS STRATEGY IS BUILT AROUND SERVING A PARTICULAR SEGMENT WELL AND A FUNCTIONAL ACTION PLAN IS DEVELOPED TO WARDS ACHIEVEMENT OF THIS OBJECTIVE BY THIS FIRM ACHIEVES DIFFERENTIATION BY SERVING A SPECIFIC SEGMENT BETTER THAN OTHERS eg LUXURY HOTELS WITH CUSTOMIZED FACILITIES FOCUS STRATEGY COULD ALSO ACHIEVE LOW COST DIFFERENTIATION eg NANO FOCUSED STRATEGY IS AIMED AT SERVING A NICHE MARKET AND ENHANCING PROFITABILITY BY REDUCING THE BANDWIDTH OF THE TYPE OF CUSTOMERS IT DEALS WITH