Strategy is concerned with giving long term direction to organization by searching for resources/ capabilities/ competencies and their

fit with external environment in such a way that business can get competitive edge over competitors and decide on the scope of organization in terms of product line/ industry line/ geographical coverage so that ultimately stakeholders especially shareholders value can be maximized

What is strategy
-Direction and scope -long term (corporate strategy, business strategy comparatively shorter term) -changing environment -resources and competencies (please move above Strengths and weakness of SWOT!) -stakeholder expectation (mainly shareholder value then other stakeholders)

Levels of strategy
Corporate level: Overall scope of organization with focus on how to add value to different business units Business level strategy: How to compete in particular market or product. It is meant for strategic business unit Parent Child relationship

Example-Bharti Airtel
Mobile service division Telemedia services: High speed broadband internet Digital TV services Enterprise services

Strategic management model

Strategic planning cycle

The Honda Effect

Honda executives arrived in Los Angeles from Japan in 1959 to establish a U.S. subsidiary, with aim (intended strategy) of focusing on 250-cc and 350-cc machines to confirmed motorcycle enthusiasts, rather than 50-cc Honda Cubs, which were a big hit in Japan They used 50 Cc bikes themselves to ride around Los Angeles. This catched attention of sporting goods stores and bikes were hit

Intel Microprocessor
Production capacity across DRAMs to EPROMs to microprocessors allocated for based on past performance Slowly as competition for DRAM increased and sales fell, more production facility was allocated to microprocessors

 This occurred without any explicit management decision to change strategy -Two thirds of R&D was still going for DRAM as company believed it to be technology driver Finally in 1984, when DRAMs had contracted to only 3% of Intels volume, senior management recognized that Intel had become a microprocessor company

 Intels remarkable strategy shift was not the result of an intended strategy articulated within the executive ranks, but rather it emerged through the daily decisions made by middle managers as they allocated resources

The Five Competitive Forces That Shape Strategy, Michael Porter, Harvard Business Review, January 2008.

Defination
Intensity of rivalry refers to the extent to which firms within an industry put pressure on one another and limit each others profit potential Threat of Entry: threat new competitors pose to existing competitors in an industry Supplier Power refers to: pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products

Buyer Power refers to the pressure consumers can exert on businesses to get them to provide higher quality products, better customer service, and lower prices

In general, a firm is likely to be more profitable

(1) the less intense is the rivalry in its industry; (2) the less danger of potential entrants & the higher the barriers to entry; (3) the less numerous and less aggressive the firms that sell substitute products, and the more numerous and more aggressive the firms that sell complementary products; (4) the weaker the bargaining power of clients/customers; and (5) the weaker the bargaining power of suppliers. In industry and competitive analysis, firms examine their positions along these lines and seek ways to change conditions to be more favorable to the firm.

Intensity of Rivalry is High if

Competitors are numerous Competitors have equal size Competitors have equal market share Industry growth is slow Fixed costs are high Products are undifferentiated Brand loyalty is insignificant Consumer switching costs are low There is excess production capacity Exit barriers are high

Supplier power is more when

Buyer switching costs are high

Threat of forward integration is high

Buyer is not price sensitive Buyer is uneducated regarding the product Buyer purchases product in low volume Buyer purchases comprise small portion of supplier sales Product is highly differentiated Substitutes are unavailable

customer lock-in (raising switching costs):

Raising switching costs for customer. Case of HP printers HP color inkjet printers are currently offered at $50 100. This is below operation cost Cartridge costs $ 60-80. Production cost of cartridge is $4-5

Buyer Power is High/Strong if:

Buyers are more concentrated than sellers
Buyer switching costs are low Threat of backward integration is high Buyer is price sensitive Buyer is well-educated regarding the product Buyer purchases product in high volume Buyer purchases comprise large portion of seller sales Product is undifferentiated Substitutes are available

Threat of entry is low when

Profitability does not require economies of scale

Products are undifferentiated

Brand names are not well-known Initial capital investment is low Consumer switching costs are low Accessing distribution channels is easy Location is not an issue Proprietary technology is not an issue Proprietary materials is not an issue Government policy is not an issue

Substitutes
If there are many good substitutes for a product, the elasticity of demand for that product will be high. This will limit the ability of the firm to raise prices and will consequently lower potential profits. Product to product substitution: email and courier services substitute to postal service Generic substitution: Products and services competes for disposable income