Annexure -iv

Homework Title / No. : Home work –III Course Code: MGT 612

Course Instructor: Mr. Syed Tabraz Hassan Course Tutor (if applicable) : ____________

Date of Allotment: _____________________ Date of submission : __01/4/11__________

Student’s Roll No._______A11, ______ Section No. : _______S1905__________________

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I declare that this assignment is my individual work. I have not copied from any other student’s work or
from any other source except where due acknowledgment is made explicitly in the text, nor has any part
been written for me by another person.

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Content of Homework should start from this page only:

1.What is strategy? (Analysis)

Strategy is about getting customers and keeping them. Durker: “The purpose of a business is to
create a customer.”“Build it and they will come.” Strategy is planning that allows you to get
more than your fair share.

“Strategic thinking is the art of outdoing an adversary, knowing that the adversary is trying to
do the same to you.”.“It is also the art of finding ways to cooperate, even when others are
motivated by self-interest, not benevolence. It is the art of convincing others, and even yourself,
to do what you say. It is the art of interpreting and revealing information. It is the art of putting
yourself in others shoes so as to predict and influence what they will do.”

Planning how to get more than your fair share involves:

– Scanning the overall environment

– Scanning and researching the industry environment

– Researching direct competitors

– Researching a firm’s skills and resources

– Analyzing current strategy

And the five forces that shape up the industry environment according to kotler are:

1. Bargaining power of buyer.

2. Barging power of supplier

3. Threat of new entrant

4. Threat of substitute products and services.

5. Rivalry among existing competitors.

Five tests of good strategy:

 A unique value proposition compared to competitors

 A different, tailored value chain

 Clear tradeoffs, and choosing what not to do

 Activities that fit together and reinforce each other

 Continuity of strategy with continual improvement in realization

2. Building Your Company’s Vision

Truly great companies understand the difference between what should never change and what
should be open to change, between what is genuinely sacred and what is not. This rare ability to
manage continuity and change is closely linked to the ability to develop a vision.

A well-conceived vision consists of two major components: core ideology and envisioned future.
The core ideology is unchanging while the envisioned future is what we aspire to become, to
achieve, to create.

The core ideology consists of the core values and core purpose. Core values are the essential and
enduring tenants of an organization, a small set of timeless guiding principles that require no
external justification. To identify the core values of your own organization, push with relentless
honesty to define what values are truly central. If you articulate more than five or six, chances
are you are confusing core values (which do not change) with operating practice, business
strategies, or cultural norms (which should be open to change). Upon evaluation, if
circumstances changed and penalized us for holding a core value, would we still keep it? If we
can’t honestly answer yes, then the value is not core and should be dropped from consideration.

The core purpose is the organization’s reason for being -- not to be confused with a goal or
strategy. It is the idealistic motivation for doing the company’s work. (This can only be reached
by asking “why”.)

Core ideology needs to be meaningful and inspirational only to people inside the organization; it
need not be exciting to others. It is the people within the corporation who need to commit to the
organizational ideology over the long term. Core ideology can also play a role in determining
who is inside the organization and who is not. You cannot impose new core values or purposes
on people; they have to be predisposed to share your core values and purpose, or let them go
elsewhere.
Core competencies should be well-aligned with a company’s core ideology and are often rooted
it in; but they are not the same thing. Core competence is a strategic concept that defines your
organization’s capabilities -- what you are particularly good at-- whereas core ideology captures
what you stand for and why you exist.

The envisioned future consists of two parts: a 10 to 30 year audacious goal plus vivid
descriptions of what it will be like to achieve the goal.

3. The five forces that shape strategy:

The strongest competitive force or forces determine the profitability of an industry and so are of
greatest importance in strategy formulation. For example, even a company with a strong position
in an industry unthreatened by potential entrants will earn low re-turns if it faces a superior or
lower-cost substitute product – as the leading manufacturers of vacuum tubes and coffee
percolators have learned to their sorrow. In such a situation, coping with the substitute product
becomes the number one strategic priority.

Different forces take on prominence, of course, in shaping competition in each industry. In the
oceangoing tanker industry the key force is probably the buyers (the major oil companies), while
in tires it is powerful OEM buyers coupled with tough competitors. In the steel industry the key
forces are foreign competitors and substitute materials.

Every industry has an underlying structure, or a set of fundamental economic and technical
characteristics, that gives rise to these competitive forces. The strategist, want-ing to position his
company to cope best with its industry environment or to influence that environment in the
company’s favor, must learn what makes the environment tick.

This view of competition pertains equally to industries dealing in service and to those selling
products. To avoid monotony in this article, I refer to both products and services as “products.”
The same general principles apply to all types of business.
A few characteristics are critical to the strength of each competitive force. I shall discuss them in
the section.

Threat of new entrant:

New entrants to an industry bring new capacity, the desire to gain market share, and often
substantial resources. Companies diversifying through acquisition into the indus-try from other
markets often leverage their resources to cause a shakeup, as Phillip Morris did with Miller beer.

The seriousness of the threat of entry depends on the barriers present and on the reaction from
existing competitors that the entrant can expect. If barrier to entry are high and a newcomer can
expect sharp retaliation from the entrenched competitors, ob-viously he will not pose a serious
threat of entering.

There are six major factors which are barriers to entry:

Economies of scale, Product differentiation, Capital requirements, Cost disadvantages

independent of size, Access to distribution channels, Government policy

Bargaing power of buyers or suppliers:-

Suppliers can exert bargaining power on participants in an industry by raising prices or reducing
the quality of purchased goods and services. Powerful suppliers can thereby squeeze profitability
out of an industry unable to recover cost increases in its own prices. By raising their prices, soft
drink concentrate producers have contributed to the erosion of profitability of bottling companies
because the bottlers, facing intense competition from powdered mixes, fruit drinks, and other
beverages, have limited freedom to raise their prices accordingly. Customers likewise can force
down prices, demand higher quality or more service, and play competitors off against each
other–all at the expense of industry profits.

The power of each important supplier or buyer group depends on a number of characteristics of
its market situation and on the relative importance of its sales or pur-chases to the industry
compared with its overall business.

Substitute products and services:

By placing a ceiling on prices it can charge, substitute products or services limit the potential of
an industry. Unless it can upgrade the quality of the product or differentiate it somehow (as via
marketing), the industry will suffer in earnings and possibly in growth.

Manifestly, the more attractive the price-performance trade-off offered by substitute products,
the firmer the lid placed on the industry’s profit potential. Sugar producers confronted with the
large-scale commercialization of high-fructose corn syrup, a sugar substitute, are learning this
lesson today.

Substitutes not only limit profits in normal times; they also reduce the bonanza an industry can
reap in boom times. In 1978 the producers of fiberglass insulation enjoyed unprecedented
demand as a result of high energy costs and severe winter weather. But the industry’s ability to
raise prices was tempered by the plethora of insulation substitutes, including cellulose, rock
wool, and styrofoam. These substitutes are bound to become an even stronger force once the
current round of plant additions by fiberglass insulation producers has boosted capacity enough
to meet demand (and then some).

Substitute products that deserve the most attention strategically are those that (1) are subject to
trends improving their price-performance trade-off with the industry’s product or (2) are
produced by industries earning high profits. Substitutes often come rapidly into play if some
development increases competition in their industries and cause price reduction or performance
improvement.

4. Global strategy in worldwide nations:

The study analyses approaches that small and medium-sized R&D-intensive companies use in
order to face up to global competition. Most literature on internationalization and international
strategies is directed at large companies. But how are small- and medium-sized R&D-oriented
firms coping with global competition? Do small companies behave like large corporations, when
they venture abroad? Are there differencies in the strategic behaviour of US and Scandinavian
small- and medium-sized companies?
 Whether, and how, to globalize have become two of the most burning strategy issues for
managers around the world.  Globalization is a more integrated international approach than the
now-familiar multinational (also called multidomestic) strategy.
Three steps are necessary for developing a world-wide strategy:
1.    Developing the core strategy, usually for the home country first.
2.    Internationalizing the core strategy through international expansion of activities and
througadaptation.
3.    Globalizing the international strategy by integrating the strategy across countries.
Multinational companies know the first two steps well, but the third step less well since
globalisation runs counter to the accepted wisdom of tailoring for the national market.  Strategic
managers must understand and cope with industry globalisation drivers, and must manage
global strategy levers.

The steps for developing a world wide strategy are:

1. Developing the core strategy for the home country.

2. Internationalizing the core strategy through international expansion of activities and
adaptation.
3. Globalizing the international staregy by integrating the strategy across countries.

Global strategy levers:

1. Global market participation

2. Standardized universal global product offering.
3. Global location of value added activities
4. Uniform global market approach
5. Globally integrated competitive moves.

Benefits of a global strategy:

Cost reductions

Improved quality of products and programmes

Enhanced customer preference

 Drawbacks of global strategy:

Overcommitment in particular markets

Product stanadraidaztion not satisfying any customers

Lower responsiveness and inflexibility

There are certain other drivers like govt, industry, etc

5. Turning great strategy into great performance

Eliminate defects and breakdowns in planning and execution; thus not be limited to realizing
60% of potential of your strategy: revealing and troubling findings across 197 giant firms across
various product markets and varied geographies.

The strategic plan looked wonderful on paper. However at a mid-term review, results weren’t as
rosy. What should be done, redo the strategy or plug gaps in execution of original strategy? In
absence of knowing the actual reasons for strategy-to-performance gap, leaders end up barking
wrong corrective solutions.

Only 15% companies compare actual performance with forecasts made over previous years; the
remaining companies have results-and-forecasts performance disconnect.

In case of multiyear strategies, the growth may be there, but it may be an underperformance on
projected growth; this becomes a case of wishful thinking fueling the strategy further on. Thus
‘diagonal Venetian blinds’ effect is seen: all plans are prepared to show uninspiring projected
growth for first year and better subsequently; so after 1st year when actual performance is better
than subdued projection, all feel happy; thus drawing up new plans which again show moderated
beginning projections, which again are excelled; …thus a sort of vicious cycle entraps
management, where it is beating the cosmetically subdued 1st year plans but never touching
actual growth of later years as in initial plans.

Overall gap in true potential of a current strategy and its realization is a gap explained by a
hybridization of poorly formulated plans, misapplied resources, breakdown in communications,
and limited accountability for results. And this gap gets compounded with time.

A culture of explaining away diminished performance vis-à-vis initial unrealistic expectations

shifts commitment away from trying to fulfill the expectations whole-heartedly to one of
distrusting the projections.

The strategy-to-performance gap can thus be closed by working simultaneously on better

planning standards, superior execution levels and enhancing employees’ capabilities as per these
simple yet powerful rules:

1. Do not confuse strategy with vision and aspirations. Keep it simple so that it is not abstract
and thus can be easily translated into action.

2. Debate the assumptions, not the forecasts; forecasts are usually faulted with on emotional
grounds, instead hitting at assumptions behind the forecasts is analytic.

3. Have all people on same wavelength, adopting a rigorous framework for compiling aggregates
from smaller units, each unit carefully benchmarked, thus let all speak the same language and
concepts.

4. Work out resource mobilization and application early in planning, involving the decision
makers/ CEO.

5. Have well-defined priorities, all tactics though important, can’t be equally important.

6. Continuously monitor performance, not in bursts unevenly scheduled.

7. Reward execution capabilities, but as measured against forecasts in planning.

Eventually a culture of overperformance shall emerge. To re-emphasize, getting 100% of a

strategy’s potential is itself a great reward.