STRATEGIC MANAGEMENT I KEY LEARNING

Section D, PGPM 2012-14 Aditi Pandey 12P183 Aneesha Chandra 12P186 V. Sameera 12P236

What is Strategy ?

Prior to Attending The Course

Vision Roadma p

Actions

What is Strategy ?
Helps you to be Number 1

Goals

What we do the Best

Lesson 1

Vision Roadma p

Actions

What is Strategy ?
Helps you to be Number 1

Goals

What we do the Best

Lesson 1

Vision Roadma p

Actions

What is Strategy ?
Helps you to be Number 1

Goals

What we do the Best

What Is Strategy?
Strategy is the creation of a unique and valuable position, involving a different set of activities

Getting the Basics Right

Operational Effectiveness
Performing

similar activities better than rival Necessary for superior performance But not sufficient!

Strategic Positioning Achieving a sustainable quantitative advantage by preserving what is distinctive about a company
Strategy is not equivalent to Competitive Advantage

Sources of Strategic Positioning

Variety-Based Positioning Serving few needs of many customers

Needs-Based Positioning Serving broad needs of few customers

Access-Based Positioning Serving broad needs of many customers in a narrow market

Three Key Principles of Strategy

Creation of a unique and valuable position, involving a different set of activities Sustainable strategic position requires trade-offs Choosing what not to do is essential There should be a fit among a companys activities Strategy is about combining activities

Three Key Principles of Strategy

Creation of a unique and valuable position, involving a different set of activities Sustainable strategic position requires trade-offs Choosing what not to do is essential There should be a fit among a companys activities Strategy is about combining activities
Performing different activities Performing similar activities in different ways

Three Key Principles of Strategy

Creation of a unique and valuable position, involving a different set of activities Sustainable strategic position requires trade-offs Choosing what not to do is essential There should be a fit among a companys activities Strategy is about combining activities
Trade-offs arise because of: Inconsistencies with image and reputation The activities themselves Limits on internal coordination and control

Three Key Principles of Strategy

Creation of a unique and valuable position, involving a different set of activities Sustainable strategic position requires trade-offs Choosing what not to do is essential There should be a fit among a companys activities Strategy is about combining activities

Fit and Sustainability Go Hand-inHand

Types of fit: First-order fit Simple consistency Second-order fit Activities are Reinforcing Third-order fit Optimization of Effort

Rule of Three
Top three companies in any industry control 60-80% of the market Three big companies will evolve/adapt to dominate any industry

Case Anheuser-Busch and the U.S. Brewing Industry

Rule of Three

Top three companies in any industry control 60-80% of the market Three big companies will evolve/adapt to dominate any industry

U.S. Brewing Industry Anheuser-Busch (50.6%) Miller (19.9%) Coors (11.7%

Case Anheuser-Busch and the U.S. Brewing Industry

Insights from Demographics

Analyzing demographics can give important information about the needs of the different segments of customers This information is essential for a firm deciding whether to go for variety-based or needs-based positioning

Insights from Characteristics of Customers of U.S. Brewing Industry: Females prefer light beer Young people (18-34 years) consume more beer People in different income ranges consume different categories of beer

Case Anheuser-Busch and the U.S. Brewing Industry

Theory of the Business

Assumptions about the Assumptions Environment about the Specific Society and its Mission of the Structure, Market, Organization Customer, Technology Assumptions about the Core Competencies Required to Accomplish the Mission

Specifications of Valid Theory of Business

Assumptions about environment, mission and core competencies must fit reality Assumptions in all three areas have to fit one another Theory of business must be known and understood throughout the organization Theory of business has to be tested continuously

Specifications of Valid Theory of Business

Assumptions about environment, mission and core competencies must fit reality Assumptions in all three areas have to fit one another Theory of business must be known and understood throughout the organization

Theory of business has to be tested continuously

Reality Faced by Organization changes

Assumptions no longer Fit with the Realty

Existing Theory of Business becomes obsolete

New Assumptions need to be made

New Theory of Business Required

How Do You Keep Track?

Preventive Measures
Abandonment Study Noncustomers

Early Diagnosis
Rapid Growth Unexpected Success and Failure

Customer

Competition

Four Cs of Marketing

Context

Company

These are continuously changing... Strategy is as good as the assumptions taken about these!
Case Intel Corporation

Products

Services

Informatio n

Peripher al

Soaps, Shampoos

Hotels, Airlines

Core

Encyclopaedia , Newspapers

Helplines, Career Counselling

Case Intel Corporation

Why Is This Important?

Products Services

Informatio n

Peripher al

Soaps, Shampoos

Hotels, Airlines

Core

Encyclopaedia , Newspapers

Helplines, Career Counselling

Case Intel Corporation

Supply Driven Distribution Intensive Business Push-Oriented

Demand Driven Accessible Pull-Oriented

Products

Services

Informatio n

Peripher al

Soaps, Shampoos

Hotels, Airlines

Core

Encyclopaedia , Newspapers

Helplines, Career Counselling

Case Intel Corporation

How to be Successful?

Value Creation

Value Capturing

Value Sustaining

Case Intel Corporation

Performance Two Views

ResourceBased View

Industrial Orientation View

Resource-Based View
Firms performance depends on itself Firms competitive advantage depends on the bundle of tangible and intangible resources at its disposal

The competitive advantage will be sustainable when the resources are Valuable, Rare, In-imitable and Non-substitutable (VRIN)
Strategy of a firm would deal with choosing such unique resources and managing them to maintain the competitive advantage

Industrial Organization View

Firms performance depends on the external environment in which it operates Porters 5 Analysis is helps to gives 5 parameters to evaluate the environment
Threat of New Entrants Rivalry among Competing Firms Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products

Produce same goods at lower cost (Cost Leadership Strategy) or differentiated goods (Differentiation Strategy)

Building your Companys Vision

Companies that enjoy enduring success have core values and a core purpose that remain fixed while their business strategies and practices endlessly adapt to a changing world Vision provides guidance about what core to preserve and what future to stimulate progress toward. A well-conceived vision consists of two major components: 1. Core Ideology 2. Envisioned Future Core ideology, the yin in our scheme, defines what we stand for and why we exist. Yin is unchanging and complements yang, the envisioned future. The envisioned future is what we aspire to become, to achieve, to create something that will require significant change and progress to attain.

Articulating a vision

Core Ideology

Core ideology defines the enduring character of an organization . Core ideology consists of two distinct parts:
Core Values: Core values are a system of guiding principles and tenets. Core Purpose: Core purpose is the organizations fundamental reason for existence. Purpose is like a guiding star on the horizon forever pursued but never reached.

Core competence is a strategic concept that defines your organizations capabilities what you are particularly good at whereas core ideology captures what you stand for and why you exist.

Envisioned Future

It consists of two parts:

Vision-level BHAG: Visionary companies used bold missions- Big, Hairy, Audacious Goals- as a powerful way to stimulate progress.A true BHAG is clear and compelling, serves as a unifying focal point of effort, and acts as a catalyst for team spirit. Companies create a vision-level BHAG by advising them to think in terms of four broad categories: target BHAGs, common-enemy BHAGs, rolemodel BHAGs, and internal-transformation BHAGs. Vivid Description: Vivid description is a vibrant, engaging, and specific description of what it will be like to achieve the BHAG. Beware of the Weve Arrived Syndrome a complacent lethargy that arises once an organization has achieved one BHAG and fails to replace it with another.Building a visionary company requires 1% vision and 99% alignment.

Discussion: The Book Publishing Business

Mr. Sachin Garg,Co-founder,Grapevine India Publishers discussed the challenges faced by the new entrants in the book publishing business Industry analysis of Book Publishing How Grapevine India grew at a fast pace Determining the vision of the company

Case : The US Airline Industry in 1995

Hours in air Asset Utilization Number of Passengers

Choosing not to Eg: Southwest Overdeliver Airlines Customer

6th

Porter force

Policies and Regulations

Notes on Structural Analysis of Industries

The goal of competitive strategy for a business unit in an industry is to find a position in the industry where the company can best defined itself against these forces or can influence them in its favour. The principles of structural analysis apply equally to product and service business.

Structural Determinants of the Intensity of Competition

Structural Determinants of the Intensity of Competition

Threat of Entry Intensity of Rivalry among Existing Competitors Pressure from Substitute Products: Substitutes limit the potential of an industry by placing a ceiling on the prices firms can charge. Substitute products that deserve most attention are those that are subject to trends improving their priceperformance trade-off with the industrys product, or are produced by industries earning high profits. Bargaining Power of Buyers Bargaining Power of Suppliers

Structural Analysis and Competitive Strategy

Competitive strategy is talking offensive or defensive action in order to create a defendable position against the five competitive forces. Broadly, this involves a number of possible approaches:
Positioning the firm so that its capabilities provide the best defence against the existing array of competitive forces; Influencing the balance of forces through strategic moves, thereby improving the firms relative position; or Anticipating shifts in the factors underlying the forces and responding to them, hopefully exploiting change by choosing a strategy appropriate to the new

Case: Yahoo! Business on Internet time

High Barriers to entry

Supplier : Medium

Intense Industry Rivalry

High Buyer Power

Threat of Substitutes: Medium

Case: Yahoo! Business on Internet time

Balance buyer power by:

Creating

a strong brand User Oriented Strategy Unique Content

Balance supplier power by:

Alliances

and partnerships with email clients/ PC makers etc Bring more unique content and use brand power to get this done easily Keep hiring the best minds in the industry

Case: Yahoo! Business on Internet time

Engaging the Consumers in a mature industry

Improving Stickiness to the pages with the help of additional features such as chat, games, etc.

Eg: Airtel trying to create 3 level of customer interaction to retain customers

Core Competence
Busine ss Units

End Product s

Core Produc ts

Core Competence

Core Competence

Core competencies are the collective learnings in the organization It is not just technology or a process; It is a communication, involvement across the organization and involves people across functions

Identifying Core Competencies

Core competence provides access to wide array of markets It should make significant contribution to the perceived benefit of end product It should be difficult for competitors to imitate

Core Competence Vs. SBU

SBU Todays Competetiveness Portfolio of businesses in productmarket terms Autonomy Capital allocation by business Optimizing returns through trade-offs among businesses Core Competence Interfirm Competetion to build competencies Portfolio of competencies, core products Group of core competencies Competencies are units of analysis Building Competencies for future

Ansoff Matrix How to Expand?

Existing Product New Product Penetratio n New Product Development

Existin g Market New Market

Market Expansion

Diversification

Case Starbucks

Ansoff Matrix For Starbucks

Existing Product New Product

Existin g Market New Market

New Stores
Own Stores vs. Franchise? Tie up with McD?

Ice Cream, Frappuccino

International markets, Supermarkets

Merchandise

Case Starbucks

What To Choose?

Evaluate strengths and weaknesses What are the core competencies? What are the offerings to the customers?

Case Starbucks

What Did Starbucks Do Right?

LIPS
HOW?? ?

HIPS

Add Value Connect At An Emotional Level Improve Design, Packaging etc.

Case Starbucks

What is Competitive Advantage?

A firm is said to have competitive advantage if it has driven wide gap between willingness to pay and the supplier opportunity cost It results from the full range of firms activities acting in a harmony

The Key to Competitive Advantage

The added value of the firm determines the potential for profit through its competitive advantage
Competetive Advantage

Supplier Opportunity Cost

Customer Willingness to Pay

Low Cost Strategy

Differenatiation Strategy

How to Create Competitive Advantage?

Catalog Activities

Step 2
Analyze Relative Costs

Analyze Relative Willingnes s to Pay

Step 4
Explore & Make Choices

Step 1

Step 3

Break down activities to Primary and Support Activities Analyze them in terms of cost and willingness to pay relative to the competetion

How to Create Competitive Advantage?

Catalog Activities

Step 2
Analyze Relative Costs

Analyze Relative Willingnes s to Pay

Step 4
Explore & Make Choices

Step 1

Step 3

Determine the set of cost Drivers associated with each activity Estimate competitors cost position

How to Create Competitive Advantage?

Catalog Activities

Step 2
Analyze Relative Costs

Analyze Relative Willingnes s to Pay

Step 4
Explore & Make Choices

Step 1

Step 3

Analyze the impact of each activity on willingness to pay Decide on the activities [ Segmentation Vs Customization]

How to Create Competitive Advantage?

Catalog Activities

Step 2
Analyze Relative Costs

Analyze Relative Willingnes s to Pay

Step 4
Explore & Make Choices

Step 1

Step 3

Conclusion: Integrate the choice of activities. Make a consistent activity set

Competitive Advantage of Dell

Stems from the changes they brought about in the primary activities of the value chain which cannot be replicated easily
Primary Activity Inbound Logistics Operations Outbound Logistics Marketing and Sales After-Sales Services What did Dell do? Just-in-time delivery of parts, Collaboration with suppliers Use of IT, Emphasis on Quality, Short Lead Time Use of IT, Shipping contracts Mass customization, Direct Model 1300 Technical Support Staff, 90% of problems solved on phone, Problems requiring on-sight visit solved in 24-48 hours Case Matching Dell

Where To Locate?

Government regulations can play an important role in determining the location decisions It can create distortions in the industry:
Making

viable locations unviable Making unviable locations viable

Example, freight subsidy in case of Indian Flour Mills

Case Indian Flour Mills

Guest Session Chhaya Bhanti

Generally, long-term future impact of current actions is not considered by companies A new and refreshing view of strategy Examples using media, design and creativity for sustainability

Eli Lilly and Company: Manufacturing Process Technology Strategy

Plan 1
Increase the Investment to improve the manufacturing products that are already on the market

Plan 2
Commit to process improvement for a product that is not yet on the market, but which appears overwhelmingly to succeed

Plan 3
Commit substantial resources to a selected basket of products, very early in their development lifecycles

Eli Lilly and Company: Manufacturing Process Technology Strategy

Industry Analysis
8-12

years from discovery to launch Stringent regulation by FDA larger trials Becoming difficult to identify new drugs Intense competition from generic drugs

Eli Lilly and Company: Manufacturing Process Technology Strategy

Increasing government intervention

Price

controls Margin reduction Environment safety norms

Time between issue of patent to market launch lost Speed to market and manufacturing ramp up required

Blue Ocean Strategy

Blue oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth Blue ocean strategy focuses on the ability to create new market space where there is no competition and where the demand for the services becomes uncontested. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

Video Case(US Wine Industry)

Complexity defined the wine industry USA 4th largest wine producer. But ranks 34th in consumption Open to foreign markets Market categorized into premium and budget Stagnant demand and rising production

Video Case(US Wine Industry)

Casella wines introduced yellow tail wine Made process of selection and consumption easy Converted the non customers to customers It did not steal customers from either of the exixting segments. It created new customers Bypassed competition by not entering either of the existing segments

RedBus
Vertical Integration

Focus on Core

Annual revenue of INR 5 billion by FY2015

Global Penetratio n

Diversific ation

RedBus case

Vertical integration: Against the very strength of the business The bus operators network Diversification: Implies entry into a saturated market Globalization: Varying nature of the markets, business an processes. Also would be difficult to practice the same business model in an entirely different environment Focus on core: Large section of market untapped.

Choose that option which leads to maximum benefits while creating the least challenges Preferable to go for the option which creates less changes in structure, content and governance and which is aligned to the core competency

Collusion

Collusion leads to underperformance It can be implicit or explicit Two features are essential:
Payoffs Significant

negative consequences on exiting

However, it is not always bad!

Networking is also a form of collusion and there are major advantages associated with it not only in business, but also in society

Colluding to deliver higher value to consumer

Collusion can create trust

How Strategy Really Works

Finite Choices : Deciding what not to do. Assumptions : The question is not What is true; It is What would have to be true. Evolution : Have an eye on the market. Always. Create your own event. Simplify

Thank You!