STRATEGY AND CONSULTING DOMAIN

GD-PI PREPARATION COMPENDIUM

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TABLE OF CONTENTS

What is Strategy? .................................................................................................................... 3

Strategy also requires creating a “fit” among company activities. ......................................... 3

Porter’s Five Forces: ............................................................................................................. 4

Value Chain Analysis ............................................................................................................... 6

Steps in Value Chain Analysis ........................................................................................................... 6

Competitive Strategy - Porter's Generic Strategies ................................................................. 8

BCG Matrix .............................................................................................................................. 9

BCG Matrix............................................................................................................................ 9

PESTEL Analysis ..................................................................................................................... 10

SWOT Analysis....................................................................................................................... 12

Consultancy as a Career Option............................................................................................. 14

Is Consultancy for Me? ....................................................................................................................14

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WHAT IS STRATEGY?

Strategy is the creation of a unique and valuable position, including a different set of activities.

Strategic position emerges from three distinct sources:

 Serving few needs of many customers

 Serving broad needs of few customers

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 Serving broad needs of many customers in a narrow market (e.g. you choose to
run movie theatres only in cities with population less than 500000)

Strategy requires you to make trade-offs in competing - to choose what not to do.

e.g. Neutrogena soap is positioned more as a medicinal product rather than as a toilet soap.

Company does not sell its product based on fragrance and also gives up large volume sales.

Strategy also requires creating a “fit” among company activities.

Fit has to do with the ways a company’s activities interact and reinforce one another. The
activities of the company should not seem to contradict with one another.

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PORTER’S FIVE FORCES:

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In an existing industry, market entry and survival is determined by various forces that
prevail in the industry. The main five factors or forces that drive competition:

1. Competitors: Existing rivalry between firms can take a firm’s profits to zero and may
lead to shut down. In a competitive environment, firm’s decision is highly
influenced by what the competitors do.

2. Barriers to Entry: The threat of new entrants to the market determines the
sustainability of estimated market share. It is evaluated in terms of market entry
barriers which may be in the form of high fixed cost, product differentiation etc.

3. Substitutes: There is always a threat of substitute products replacing the existing

product(s) of a firm.

4. Suppliers: A competitive market with limited suppliers brings with it high level of
bargaining power of suppliers.

5. Buyers: Multiple products of same category gives the buyers an advantage in

bargaining, thus high bargaining power of buyers exists in multi-brand
products.

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VALUE CHAIN ANALYSIS

Value Chain Analysis describes the activities that take place in a business and relates them to an
analysis of the competitive strength of the business. The activities of a business could be
grouped under two headings:

(1) Primary Activities- activities that are directly concerned with creating and delivering a
product or service (e.g. component assembly). Primary activities are broken down further
into inbound logistics, operations, outbound logistics, marketing and sales, and after-sales
service

(2) Support Activities – activities that make primary activities possible or easier i.e. these
activities are not directly involved in production, but may increase effectiveness or
efficiency. Support activities include procurement of inputs, development of technology and
human resources management, and general firm infrastructure. It is rare for a business to
undertake all primary and support activities.

STEPS IN VALUE CHAIN ANALYSIS

Value chain analysis can be broken down into the following sequential steps:

(1) Internal Cost Analysis – First Catalogue activities - Break down a market/organization
into its key activities under each of the major headings – Primary or Secondary. A firm or
an industry needs to understand its own value chain in order to compare to its competitors

 Identify the processes to create the product

 Determine the portion of the total cost of the product to each

process o Identify the cost drivers for each process

 Identify the links between the processes

 Evaluate opportunities for achieving relative cost advantage

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(2) Internal Differentiation Analysis: Identify the processes that distinguish its products or
services from that of its competitors. Use activities to analyze relative costs and relative
willingness to pay, i.e. assess the potential of activities for adding value via cost advantage
or differentiation. The competitive advantage can be:

 Superior product features

 Improved marketing channels

 Enhanced support/service

 Brand or image positioning

 Price

(3) Explore Options and make Choices: Identify current activities where a business appears
to be at a competitive disadvantage. Determine strategies built around focusing on activities
where competitive advantage can be sustained.

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COMPETITIVE STRATEGY - PORTER'S GENERIC STRATEGIES

Competitive strategy of a company is given by the firm’s source of competitive advantage and
the scope of the business. A firm can choose to come up with a low-cost product or a
differentiating product in the market. On the other hand, the scope of business can be narrow
and focused on one market or can be wide and encompass diverse product lines and
geographies.

Cost Leadership: Strategy used by businesses to create a low cost of operation within their
niche. The use of this strategy is primarily to gain an advantage over competitors by reducing
operation costs below that of others in the same industry.

Differentiation: Approach under which a firm aims to develop and market unique products for
different customer segments. Usually employed where a firm has clear competitive advantages,
and can sustain an expensive advertising campaign.

Focus strategy: The scope over which the company should compete in the market- either on
cost leadership or differentiation.

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BCG MATRIX

The matrix, developed by Boston Consulting Group in the early 1960s is used to plan market
strategies. Growth rate is determined by reference to market research, or it can be estimated.

“Competitive position” includes an assessment of the firm’s overall market penetration

and profitability compared to the other players in that market. Products are then
positioned in the four “cells as shown in the figure.

BCG Matrix

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PESTEL ANALYSIS

PESTEL is used as a tool by companies to track the environment they’re operating in or are
planning to launch a new project/product/service etc.

PESTEL is a mnemonic which in its expanded form denotes P for Political, E for Economic, S
for Social, T for Technological, E for Environmental and L for Legal. It gives a bird’s eye
view of the whole environment from many different angles that one wants to check and keep a
track of while contemplating on a certain idea/plan.

All the aspects of this technique are crucial for any industry a business might be in. More than
just understanding the market, this framework represents one of the vertebras of the backbone of
strategic management that not only defines what a company should do, but also accounts for an
organization’s goals and the strategies stringed to them.

The components of PESTEL are:

1. Political: These factors determine the extent to which a government may influence the
economy or a certain industry. [For example] a government may impose a new tax or
duty due to which entire revenue generating structures of organizations might change.
Political factors include tax policies, Fiscal policy, trade tariffs etc. that a government
may levy around the fiscal year and it may affect the business environment (economic
environment) to a great extent.
2. Economic: These factors are determinants of an economy’s performance that directly
impacts a company and have resonating long term effects. [For example] a rise in the
inflation rate of any economy would affect the way companies’ price their products and
services. Adding to that, it would affect the purchasing power of a consumer and change
demand/supply models for that economy. Economic factors include inflation rate, interest
rates, foreign exchange rates, economic growth patterns etc. It also accounts for the FDI
(foreign direct investment) depending on certain specific industries who’re undergoing
this analysis.

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3. Social: These factors scrutinize the social environment of the market, and gauge
determinants like cultural trends, demographics, population analytics etc. An example for
this can be buying trends for Western countries like the US where there is high demand
during the Holiday season.

4. Technological: These factors pertain to innovations in technology that may affect the
operations of the industry and the market favourably or unfavourably. This refers to
automation, research and development and the amount of technological awareness that a
market possesses.
5. Environmental: These factors include all those that influence or are determined by the
surrounding environment. This aspect of the PESTEL is crucial for certain industries
particularly tourism, farming, agriculture etc. Factors of a business environmental
analysis include but are not limited to climate, weather, geographical location, global
changes in climate, environmental offsets etc.
6. Legal: These factors have both external and internal sides. There are certain laws that
affect the business environment in a certain country while there are certain policies that
companies maintain for themselves. Legal analysis takes into account both of these
angles and then charts out the strategies in light of these legislations. For example,
consumer laws, safety standards, labor laws etc.

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SWOT ANALYSIS

SWOT, which stands for strengths, weaknesses, opportunities and threats, is an analytical
framework that can help your company face its greatest challenges and find its most promising
new markets.

SWOT analyses are often used during strategic planning. They can serve as a precursor to any
sort of company action, such as exploring new initiatives, making decisions about new policies,
identifying possible areas for change, or refining and redirecting efforts mid-plan. The
components of SWOT analysis are:

1. Strength: This details the strengths that an organisation possess that give s it an advantage
over others

2. Weakness: The shortcomings that an organisation possess that the other players in the
industry might exploit

3. Opportunities: Events or changes in the external environment that an organisation could use
to its advantage.
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4. Threat: Events or changes in the external environment that can cause the organisation to lose
its competitive advantage

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CONSULTANCY AS A CAREER OPTION

IS CONSULTANCY FOR ME?

Team Work

Consultants rarely if ever work alone. You work with consultants from your firm, you work with
employees in the client company, and you work with consultants from the other firm that the
client may have hired. In short, if you prefer working in your own comfort zone, in your own
nook and corner, consulting is not for you

Great Academics

It has been observed that there exists a high co-relation between academic curiosity and
performance in consulting industry. People who have done well academically tend to do well in
this industry as well.

Multitask

Consulting assignments vary greatly in duration, location and function. It may require context
switching from one deliverable to another. If you are one who prefers working with the horse’s
blinkers on, consulting is not for you.

Willing to work long hours

Consultants must strive to meet and beat client expectations. That takes time and loads of it.
Top consultants are known to put 70+ hours per week to prepare that deliverable that will
crack the problem at hand and satisfy the client.

If you have multiple engagements outside work and cannot dedicate such volume of time,
consultancy is not for you.

Travel Enthusiast

Consultants are on the road most of the time. Consultants from established names are known
to spend at-least four days out of 7 in a week on client site. Client sites are themselves located
in obscure corners of the world and you may end up lot of time in travelling.

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If you have obligations back home and cannot stay away from long durations or cannot adjust with
the erratic travel schedule, consultancy is not for you.

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