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Business strategy

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Business strategy

Business strategy

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  • Strategy comprises thinking about action in two different ways: vertical (rational) thinking and lateral (intuitive) thinking. It deals with convergent problems, that is with one solution, and divergent problems, that is, those with a number of possible solutions. Strategy demands from strategists both creativity ( lateral thinking), often applied to divergent problems, and rationality (vertical thinking) often applied to convergent problems. This means that, in the area of business, strategy combines a vision and managerial effectiveness in realising that vision, referred to as operational effectiveness, and therefore both the harnessing of intuition and the application of reason. In the business world, strategy is about successful entrepreneurship and good management. There is therefore an inherent contradiction in strategic thinking, which makes its full meaning hard to grasp {Strategic Management -- Colin White – ISBN 1-4039-0400-6 (pbk) -- ICFAI ACCN no 13008
  • Page 231 – 232; STRATEGIC MANAGEMENT – formulation, implementation and control; Pearce and Robinson; 8th Edn 2003
  • Transcript

    • 1. BUSINESS STRATEGY
    • 2. INTRODUCTION <ul><li>Definition of Strategic Management </li></ul><ul><ul><li>Definition of Strategy </li></ul></ul><ul><ul><li>Evolution of strategic thinking </li></ul></ul><ul><ul><li>Views of some eminent thinkers on Strategy </li></ul></ul><ul><ul><ul><li>Peter Drucker </li></ul></ul></ul><ul><ul><ul><li>Henry Mintzberg </li></ul></ul></ul><ul><ul><ul><li>Igor Ansoff </li></ul></ul></ul><ul><ul><ul><li>Kenechi Ohmae </li></ul></ul></ul><ul><ul><ul><li>Sumantra Goshal </li></ul></ul></ul><ul><ul><li>Process of Strategic Management </li></ul></ul><ul><ul><ul><li>Corporate Strategy </li></ul></ul></ul><ul><ul><ul><li>Business Strategy </li></ul></ul></ul><ul><ul><ul><li>Functional Level Strategy </li></ul></ul></ul><ul><ul><li>Approaches to Strategy </li></ul></ul>
    • 3. Top Management Perspective <ul><li>Vision </li></ul><ul><li>Mission </li></ul><ul><li>Objectives </li></ul><ul><li>Annual Operating Plan (AOP) </li></ul><ul><li>Monthly Operating Plan (MOP) </li></ul><ul><li>Core Ideology & Values </li></ul><ul><li>Formal Planning Vs Emergent Strategy </li></ul><ul><li>Understanding Competitive Edge </li></ul><ul><li>Identification of Strategic Gaps </li></ul>
    • 4. Two Approaches to Strategic Thinking WAYS OF THINKING Application or creativity, intuition or imagination (lateral thinking) Application of reason (vertical thinking) NATURE OF THE PROBLEM Divergent with many solutions Convergent with one solution AREA OF RELEVANCE Creating the vision: establishing strategic objectives Realizing the vision:achieving operational effectiveness
    • 5. Analysing Business Environment <ul><li>Analysis of Business Environment at 3 Levels </li></ul><ul><ul><li>Macro External Environment Analysis </li></ul></ul><ul><ul><li>External Environment Analysis </li></ul></ul><ul><ul><li>Firm level Internal Analysis using </li></ul></ul>
    • 6. LONG TERM OBJECTIVES AND GRAND STRATEGIES <ul><li>Concept of Long Term Objective </li></ul><ul><li>{ As opposed to Short Term Profit Maximisation} </li></ul><ul><li>Concept of Grand Strategy </li></ul><ul><li>{ As opposed to Generic Strategies } </li></ul>
    • 7. LONG TERM OBJECTIVES <ul><li>Profitability </li></ul><ul><li>Productivity </li></ul><ul><li>Competitive Position </li></ul><ul><li>Employee Development </li></ul><ul><li>Employee Relations </li></ul><ul><li>Technological Leadership </li></ul><ul><li>Public Responsibility </li></ul>
    • 8. QUALITIES OF LONG TERM OBJECTIVES <ul><li>Acceptable </li></ul><ul><li>Flexible </li></ul><ul><li>Measurable </li></ul><ul><li>Motivating </li></ul><ul><li>Suitable </li></ul><ul><li>Understandable </li></ul><ul><li>Achievable </li></ul>
    • 9. GENERIC STRATEGIES <ul><li>Overall Cost Leadership </li></ul><ul><li>Differentiation </li></ul><ul><li>Focussed Growth </li></ul><ul><li>Generic Strategy conveys the core idea about how the firm can best compete in the market place on which a long term or grand strategy </li></ul>
    • 10. GRAND STRATEGIES <ul><li>Concentrated Growth </li></ul><ul><li>Market Development </li></ul><ul><li>Product Development </li></ul><ul><li>Innovation </li></ul><ul><li>Horizontal Integration </li></ul><ul><li>Vertical Integration </li></ul><ul><li>Concentric Diversification </li></ul><ul><li>Conglomerate Diversification </li></ul><ul><li>Turnaround </li></ul><ul><li>Divestiture </li></ul><ul><li>Liquidation </li></ul><ul><li>Bankruptcy </li></ul><ul><li>Joint Ventures </li></ul><ul><li>Strategic Alliances </li></ul><ul><li>Consortia, Keiretsus and Chaebols </li></ul>STABILITY GROWTH RETRENCHMENT COMBINATION
    • 11. Grand Strategy Selection Matrix Overcome weakness Maximise Strength Internal Redirected Sources Within the firm External (Acquisition or Merger for Resource capability Turnaround Divestiture Liquidation Vertical integration Conglomerate Diversification Concentrated Growth Market Development Product Development Innovation Horizontal integration Concentric Diversification Joint Venture
    • 12. Model Grand Strategy Clusters Rapid Market Growth Slow Market Growth Strong Competitive Position Concentrated Growth Vertical integration Concentric Diversification Reformulation of concentrated growth Horizontal integration Divestiture Liquidation Concentric Diversification Conglomerate Diversification Joint Venture Turn around or Retrenchment Concentric Diversification Conglomerate Diversification Divestiture Liquidation Weak Competitive Position
    • 13. PORTFOLIO ANALYSIS for Strategy choice <ul><li>Greatest applicability for corporate level planning </li></ul><ul><li>Three potential advantages </li></ul><ul><ul><li>Encourages framing of good strategies at business level </li></ul></ul><ul><ul><li>Provides a neutral basis for resource allocation </li></ul></ul><ul><ul><li>Leads to better implementation of strategy because of intensified focus and objectivity </li></ul></ul><ul><li>BCG </li></ul><ul><li>GE-McKINSEY-SHELL </li></ul><ul><li>ARTHUR D LITTLE </li></ul><ul><li>BCG’s Strategic Environment Matrix </li></ul>
    • 14. Advantages of Portfolio Matrix Approaches <ul><li>Conveyed large amounts of info about diverse business units and corporate plans in a greatly simplified format </li></ul><ul><li>Illuminated similarities and differences between business units and helped convey the logic behind corporae strategies for each business with a common vocabulary </li></ul><ul><li>Simplified priorities for sharing corporate resources across diverse business units that generated and used those resources </li></ul><ul><li>Simple prescription which gave a sense of what to accomplish and a way to allocate resources among businesses </li></ul>
    • 15. Limitations of Portfolio Matrix Approach <ul><li>Did not address how value was being created across business units – the only relationship between them was cash. Because of this, its valued simplicity encouraged a tendency to trivialize strategic thinking among users that did not take proper time for thorough underlying analysis </li></ul><ul><li>Truly accurate measurement for matrix classification was not as easy as the matrices portrayed </li></ul><ul><li>The underlying assumption about the relationship between market share and profitability varied across different industries and market segments </li></ul><ul><li>Limited strategic options came to be seen more as basic strategic missions. Created a false sense of what strategies were when none really existed </li></ul><ul><li>This approach neglected capital markets and portrayed the notion that firms needed to be self-sufficient in capital </li></ul><ul><li>Failed to compared compare the competitive advantage of business received from being owned by a particular company with the costs of owning it </li></ul>
    • 16. Limitations of Portfolio Matrix Approach <ul><li>! ! ! CAUTION </li></ul><ul><li>All methods of Portfolio Analysis involves Subjective Factors </li></ul>
    • 17. Competitive Strategy <ul><li>Motivation </li></ul><ul><ul><li>to cope successfully with the five competitive forces </li></ul></ul><ul><ul><ul><li>thereby, yield a superior ROI for the firm </li></ul></ul></ul><ul><li>Approaches </li></ul><ul><ul><li>Many different approaches </li></ul></ul><ul><ul><li>But, best strategy for a given firm is unique construction reflecting its particular circumstances </li></ul></ul>
    • 18. Competitive Strategy (contd) <ul><li>Three potentially successful Generic Competitive Strategies to outperform other firms in the industry. </li></ul><ul><ul><li>Cost leadership </li></ul></ul><ul><ul><li>Differentiation </li></ul></ul><ul><ul><li>Focus </li></ul></ul><ul><li>These may be pursued in combination, though possibility is rare in practice. </li></ul><ul><li>A fourth strategy – No Strategy and Stuck in the middle </li></ul>
    • 19. Stuck in the Middle Market Share  Return on Investment  This graph may not hold good in every industry
    • 20. Generic Strategies – Common Risks <ul><li>Failure to attain or sustain the strategy </li></ul><ul><li>Erosion of strategic value being eroded with industry evolution </li></ul>
    • 21. Generic Strategies – Risks – Low-Cost Strategy <ul><li>Technological change nullifies past investments or learning </li></ul><ul><li>Low-cost learning by industry newcomers or followers, through imitation or through their ability to invest in state-of-the-art facilities </li></ul><ul><li>Inability to see required product or markeing change because of the attention placed on cost </li></ul><ul><li>Inflation in costs that narrow the firm’s ability to maintain enough of a price differential to offset competitors’ brand images or other approaches to differentiation </li></ul><ul><li>Eg., Ford neglecting model change and the requirement for a second car among the American customers </li></ul>
    • 22. Generic Strategy – Risks -- Differentiation <ul><li>The cost differential between low-cost competitor and the differentiated firm becomes to great to hold brand loyalty. Thus buyer ready to sacrifice some of the features, services or image for cost savings </li></ul><ul><li>Fall in buyer’s need for differentiation. This can occur as buyers become more sophisticated </li></ul><ul><li>Imitation narrows perceived differentiation, a common occurrence as industries mature </li></ul>
    • 23. Generic Strategies – Risks -- Focus <ul><li>The cost differential between broad-range competitors and the focussed firm widens to eliminate the cost advantages of serving a narrow target or to offset the differentiation achieved by focus </li></ul><ul><li>The differences in desired products or services between the strategic target and the market as a whole narrows </li></ul><ul><li>Competitors find sub-markets within the strategic target and out-focus the focuser </li></ul>
    • 24. Industry Evolution <ul><li>Structural Analysis provides a frame work for Industry structure analysis </li></ul><ul><li>Industry structure itself, however, undergoes change </li></ul><ul><li>Such changes which affect the five forces are strategically vital </li></ul>
    • 25. Industry Evolution Introduction Growth Maturity Decline Time Industry Sales
    • 26. Industry Evolution <ul><li>Duration of stages vary widely from Industry to Industry </li></ul><ul><li>Difficult to identify, which stage of evolution the industry is in and hence it reduces the usefulness of the concept </li></ul><ul><li>Industry growth does not always go through the S-shaped pattern at all </li></ul><ul><li>Some industries revitalise after a decline </li></ul><ul><li>Some industries skip some stages altogether </li></ul>
    • 27. Industry Evolution (contd..) <ul><li>Industry evolves from Initial Structure to Potential Structure </li></ul><ul><li>Evolutionary processes push the industry towards its Potential Structure { eg., Automobile Industry started as a labour intensive industry and ended up as high volume mass production} </li></ul><ul><li>Based on underlying technology, nature of present and potential buyers and various other factors, Industry evolution can take a wide range of paths </li></ul><ul><li>Investment decisions of industry players do affect the industry evolution </li></ul><ul><li>Role of the Luck and Chance in evolution !! </li></ul>
    • 28. Industry Evolution (contd..) <ul><li>Criticisms of Product Life Cycle </li></ul><ul><li>Duration of stages vary widely from Industry to Industry </li></ul><ul><li>Difficult to identify, which stage of evolution the industry is in and hence it reduces the usefulness of the concept </li></ul><ul><li>Industry growth does not always go through the S-shaped pattern at all </li></ul><ul><li>Some industries revitalise after a decline </li></ul><ul><li>Some industries skip some stages altogether </li></ul>
    • 29. Industry Evolution (contd..) <ul><li>A few Industry Specific Change Factors </li></ul><ul><li>Initial Structure </li></ul><ul><li>Structural Potential </li></ul><ul><li>Particular firms’ investment Decisions </li></ul>
    • 30. Industry Evolution (contd..) <ul><li>A few Generally applicable Change Factors </li></ul><ul><li>Long-run changes in growth </li></ul><ul><ul><li>Demographics </li></ul></ul><ul><ul><li>Trends in needs </li></ul></ul><ul><ul><li>Change in relative position of substitutes </li></ul></ul><ul><ul><li>Changes in the position of complementary products </li></ul></ul><ul><ul><li>Penetration of customer group </li></ul></ul><ul><ul><li>Product change </li></ul></ul><ul><li>Changes in Buyer segments served </li></ul><ul><li>Buyer’s learning </li></ul><ul><li>Reduction of uncertainty </li></ul><ul><li>Diffusion or proprietary knowledge </li></ul><ul><li>Accumulation of knowledge </li></ul>
    • 31. Industry Evolution (contd..) <ul><li>A few Generally applicable Change Factors </li></ul><ul><li>Expansion (or Contraction) in scale </li></ul><ul><li>Changes in input and currency costs </li></ul><ul><li>Product innovation </li></ul><ul><li>Marketing innovation </li></ul><ul><li>Process innovation </li></ul><ul><li>Structural change in adjacent industries </li></ul><ul><li>Government policy change </li></ul><ul><li>Entries and exits </li></ul>
    • 32. Industry Evolution (contd..) <ul><li>KEY RELATIONSHIPS IN THE INDUSTRY EVOLUTION </li></ul><ul><li>Industries do not change in a piecemeal fashion. Change in each industry tend to trigger off changes in other areas </li></ul><ul><li>Will the industry consolidate </li></ul><ul><ul><li>Industry Concentration and Mobility Barrier Move Together </li></ul></ul><ul><ul><li>No concentration takes place if Mobility Barriers are Low or Falling </li></ul></ul><ul><ul><li>Exit Barriers Deter Consolidation </li></ul></ul><ul><ul><li>Long-run Profit Potential Depends on Future Structure </li></ul></ul><ul><li>Changes in Industry Boundaries </li></ul><ul><li>Firms can influence Industry Structure </li></ul>
    • 33. Types of Industries <ul><li>Emerging Industries </li></ul><ul><li>Mature Industries </li></ul><ul><li>Declining Industries </li></ul><ul><li>Fragmented Industries </li></ul>
    • 34. Overall Cost Leadership <ul><li>Experience Curve Concept </li></ul><ul><li>Efficient Scale facilities </li></ul><ul><li>Vigorous pursuit of cost reduction from experience </li></ul><ul><li>Tight cost and overhead control </li></ul><ul><li>Avoidance of marginal customer accounts </li></ul><ul><li>Cost minimisation in areas like </li></ul><ul><li>R&D </li></ul><ul><li>Service </li></ul><ul><li>Sales Force </li></ul><ul><li>Advertising </li></ul>
    • 35. Overall Cost Leadership – Defence Against the 5 Forces <ul><li>Rivals – Low costs can still earn returns after competitors have competed away their profits through rivalry </li></ul><ul><li>Powerful Buyers – Exert power only to drive down prices to next most efficient competitor </li></ul><ul><li>Powerful Suppliers – Provides more flexibility to cope with input cost increases </li></ul><ul><li>New Entrants – Low-cost position  entry barriers in terms of scale economies/ cost adv </li></ul><ul><li>Substitutes – low cost position usually places the firm in a favourable position vis-à-vis substitutes </li></ul>
    • 36. Overall Cost Leadership – Characteristics <ul><li>High relative market share </li></ul><ul><li>Products designed for easy manufacture </li></ul><ul><li>A wide product line of related products </li></ul><ul><li>Heavy up-front capital investment for state-of-the-art equipment </li></ul><ul><li>Aggressive pricing and willingness to absorb start-up losses to build market share </li></ul><ul><li>Resultant profit from high market share may have to be re-invested in new equipment and facilities to maintain an efficient manufacturing facility </li></ul>
    • 37. Generic Strategy – Cost Leadership -- Requirements Generic Strategy Commonly Required Skills and Resources Common Organisational Requirements Overall Cost Leader ship Sustained capital investment and access to capital Tight cost control   Process Engineering Skills Frequent, detailed control reports   Intense supervision of labour Structured organisation and responsibilities   Products designed for ease in manufacture Incentives based on meeting stict quantitative targets   Low-cost distribution system  
    • 38. Generic Strategy -- Differentiation <ul><li>Differentiate the product or service offering of the firm </li></ul><ul><li>Create industry wide perception of uniqueness </li></ul><ul><li>Differentiation strategy does not ignore costs, but it is not the primary target </li></ul>
    • 39. Differentiation – Defence Against 5 Forces <ul><li>Rivals – Brand loyalty of customers and resulting insensitivity to price </li></ul><ul><li>Powerful Buyers – Lack comparable alternatives mitigates buyer power </li></ul><ul><li>Suppliers – Differentiation yields higher margins to deal with supplier power </li></ul><ul><li>New Entrants – Customer loyalty and need to overcome uniqueness create entry barriers </li></ul><ul><li>Substitutes – Differentiation and Customer loyalty enables better positioning against substitutes </li></ul>
    • 40. Generic Strategies – Differentiation -- Requirements   Generic Strategy Commonly Required Skills and Resources Common Organisational Requirements DIFFEENTIATION   Strong Maketing abilities Strong co-ordination among function in R&D, product development, and marketing   Product Engineering Subjective measurement and incentives instead of quantitative measures   Creative flair Amenities to attract highly skilled labour, scientists, or creative people   Strong capability in basic research     Corporate reputation for quality or technological leadership     Long tradition in the industry or unique combination of skills drawn from other business     Strong co-operation from channels  
    • 41. Differentiation -- Characteristics <ul><li>Perception of exclusivity, sometimes incompatible with high market share </li></ul><ul><li>Achieving differentiation  extensive research, product design, high quality materials or intensive customer support, etc  trade-off with cost  </li></ul><ul><li>Industry wide perception of exclusiveness. But not industry wide usage  </li></ul><ul><li>Some industries sustain differentiation. Some do not. </li></ul>
    • 42. Generic Strategy -- Focus <ul><li>Objective  serve a particular target very well, either through differentiation or low cost </li></ul><ul><li>Focus on a particular </li></ul><ul><ul><li>Buyer group/ product line Segment/ </li></ul></ul><ul><ul><li>Geographic market </li></ul></ul><ul><li>Focus can take different forms, as above </li></ul><ul><li>Also Least vulnerable to substitutes/ Weakest Competitors </li></ul><ul><li>May earn above average returns in its industry </li></ul>
    • 43. Generic Strategy -- Focus Strategic Target
    • 44. Generic Strategy – Focus -- Requirements Generic Strategy Commonly Required Skills and Resources Common Organisational Requirements Focus Combination of the policies for the other two generic strategies, directed at the particular strategic target Combination of the policies for the other two generic strategies, directed at the particular strategic target
    • 45. BCG <ul><li>Based on use of industry growth and relative market share as proxies for </li></ul><ul><ul><li>the competitive position of a firm’s business unit in its industry </li></ul></ul><ul><ul><li>the resulting net cash flow required to operate the business unit </li></ul></ul><ul><li>Underlying assumption </li></ul><ul><ul><li>Experience curve is operating  </li></ul></ul><ul><ul><ul><li>firm with largest relative share = lowest cost producer </li></ul></ul></ul>
    • 46. BCG Stars Question marks Cash cows Dogs A select few (net users of resources) (net suppliers of resources) Remainder divested Market Growth Rate Low Low High High Relative Market Share ( Cash Generation) Cash use
    • 47. BCG -- Disadvantages <ul><ul><li>Markets defined properly to account for important shared experience and other interdependencies with other markets. This is often a subtle problem and requires a great deal of analysis </li></ul></ul><ul><ul><li>The structure of the industry and within industry are such that relative market share is a good proxy for competitive position and relative costs. This is often not true </li></ul></ul><ul><ul><li>Market growth is a good proxy for required cash investment. Yet profits (and cash flow) depend on a lot of other things. </li></ul></ul>
    • 48. GE-McKINSEY-SHELL High Medium Low High Medium Low Divest Invest Selectively Invest Business Unit Position Industry Attractiveness Size Growth Share Position Profitability Margins Tech Pos Stren/Weak Image Pollution People Size Market Growth Pricing Market Diversity Competitive Structure Industry Profitability Technical Role Social Environmental Legal Human 1.Identify Industry attractiveness factors 2.Assign weight to each factor 3.Obtain weighted composite score 4.Classify the score into ratings H/M/L 5.Classify business units into different categories
    • 49. Arthur D Little – Life Cycle Approach Out Natural Development Strategies are appropriate when the SBU is in a mature industry and is competitive. The SBU deserves strong support Selective Development refers to strategies that concentrate on industries that are attractive or on SBUs that have competitive competencies Prove Viability is transitional strategy that cannot be sustained. The situation has to be changed Out is a strategy for withdrawal Life Cycle Stage Competitive Position Natural Development Selective Development Prove Viability
    • 50. Arthur D Little – Life Cycle Approach <ul><li>Identify each line of business – finding commonalities among products and business lines ( use criteria of common rivals, customers, sustainability, prices, quality/style and divestment of liquidation). </li></ul><ul><li>Assess Life Cycle stage of each business </li></ul><ul><li>Identify the competitive position of the firm </li></ul><ul><li>Identify the strategy for the SBU based on life cycle stage and competitive position </li></ul><ul><li>Assign strategic thrust to natural strategy </li></ul><ul><li>Select one of the 24 generic strategies ( refer to table) </li></ul>
    • 51. BCG’s Strategic Environment Matrix Sources of Advantage Size of Advatage Small Small Big Big Fragmented Apparel, house-building, jewelry retailing, sawmills Specialisation Pharmaceuticals, luxury cars, chocolate confectionary Stalemate Basic chemicals, volume-grade paper, ship owning (VLCCs), Volume Jet engines, supermarkets, motorcycles, standard microprocessors
    • 52. Analysing Business Environment -- Macro External Environment Analysis <ul><li>Political Economic Social Technologies (PEST) framework </li></ul>
    • 53. Some Possible Trends in the environment <ul><li>Political Trends </li></ul><ul><li>Relations with Pakistan, China, US, Europe, ASEAN, Russia </li></ul><ul><li>Emergence of Coalition Politics </li></ul><ul><li>Future of trade unions </li></ul><ul><li>Economic Trends </li></ul><ul><li>Economic Liberalisation </li></ul><ul><li>FE Controls </li></ul><ul><li>Monetary Policies </li></ul><ul><li>Inflationary Trends </li></ul><ul><li>Social Trends </li></ul><ul><li>Emergence of middle class with purchasing power </li></ul><ul><li>Nuclear families </li></ul><ul><li>Emergence of ‘anti-globalisation’ moves </li></ul><ul><li>Boom in leisure industries </li></ul><ul><li>Technological Trends </li></ul><ul><li>Communication, Internet </li></ul><ul><li>Public Transport and Infrastructure </li></ul><ul><li>Use of new synthetic materials </li></ul><ul><li>Emergence of medicines </li></ul><ul><li>Automation </li></ul>
    • 54. Analysing Business Environment— External Environment Analysis <ul><ul><li>External Environment Analysis </li></ul></ul><ul><ul><ul><li>Industry Analysis </li></ul></ul></ul><ul><ul><ul><li>Competitor Analysis </li></ul></ul></ul><ul><ul><ul><li>Using Porter’s </li></ul></ul></ul><ul><ul><ul><ul><li>Five Forces Model </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Competitor Analysis Framework </li></ul></ul></ul></ul><ul><ul><ul><li>Concept of compelementarity as expressed by Ghemwat </li></ul></ul></ul>
    • 55. Analysing Business Environment – Firm Level Internal Analysis <ul><li>Firm level Internal Analysis using </li></ul><ul><ul><li>Historical data </li></ul></ul><ul><ul><li>SW analysis  Key Success Factor of the Industry to arrive at a Strategic Advantage Profile (SAP) </li></ul></ul><ul><ul><li>OT analysis  Environment Threat & Opportunities Profile ( ETOP) </li></ul></ul><ul><ul><li>Concepts of </li></ul></ul><ul><ul><ul><li>Learning Curve and Experience Curve </li></ul></ul></ul><ul><ul><li>Profit Impact of Marketing Strategy – PIMS – a Quantitave approach to portfolio planning </li></ul></ul><ul><ul><li>Vulnerability Analysis </li></ul></ul>
    • 56. Political Environment <ul><li>Political influence the legislations and government rules and rules under which the firm operates </li></ul><ul><ul><li>Anti trust laws </li></ul></ul><ul><ul><li>Fair trade decisions </li></ul></ul><ul><ul><li>Tax programs </li></ul></ul><ul><ul><li>Minimum usage legislation </li></ul></ul><ul><ul><li>Pollution policies </li></ul></ul><ul><ul><li>Pricing policies </li></ul></ul><ul><ul><li>Administrative activities </li></ul></ul><ul><ul><ul><ul><li>Patent laws </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Government subsidies </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Product research grants </li></ul></ul></ul></ul>Supplier Function Customer Function Competitor Function <ul><li>Influences which could be both positive and negative </li></ul><ul><li>Other functions influenced by political activity </li></ul>
    • 57. Economic Environment <ul><li>Consumption patterns and wealth of consumers </li></ul><ul><li>Prime interest rates </li></ul><ul><li>Inflation rates </li></ul><ul><li>Trends in growth of GNP </li></ul><ul><li>General availability of credits </li></ul><ul><li>Level of disposable income  </li></ul><ul><li>Propensity to spend at national and international levels </li></ul>
    • 58. Social Envionment <ul><li>Cultural </li></ul><ul><li>Demographic </li></ul><ul><li>Religious </li></ul><ul><li>Educational </li></ul><ul><li>Ethnic conditioning </li></ul>Examples -- Books and periodicals Consumer Durables Fashion Garments Restaurants Fast Food Joints Entertainment – TV serials
    • 59. Technological Environment <ul><li>Cost of Technology </li></ul><ul><li>Rate of change of technology </li></ul><ul><li>Receptivity to new technology and its adoption </li></ul>Computer Hardware Steel Industry Automobile Industry
    • 60. Political Environment <ul><li>Chinese environment </li></ul><ul><li>EEPZs in India </li></ul><ul><li>Tax holidays in backward areas – eg. Goa till 1996 </li></ul><ul><li>Growth of IT in AP during late 1990s </li></ul><ul><li>Investment companies registered in Cayman Islands, Mauritius </li></ul><ul><li>Shipping companies registered in Liberia </li></ul><ul><li>Pharmaceutical companies favoured by Indian patent laws    </li></ul>
    • 61. <ul><li>Supplier function – </li></ul><ul><ul><li>when private business is dependent on government-owned resources and stockpiles of agricultural products </li></ul></ul><ul><ul><ul><li>Example – telecom companies in India ( till recently ) </li></ul></ul></ul><ul><li>Customer function – </li></ul><ul><ul><li>government demand for products and services </li></ul></ul><ul><ul><ul><li>  Example – defence, PWD, telephones, Railways </li></ul></ul></ul><ul><li>Competitor function – </li></ul><ul><ul><li>protection of consumers and local industries from imports. </li></ul></ul><ul><ul><li>Govt’s plans to help industries to exploit opportunities  </li></ul></ul><ul><ul><ul><li>Example – Aviation industry ( Boeing Vs Air Bus) </li></ul></ul></ul>
    • 62. Examples of effect of Economic Environment <ul><li>Emergence of an automobile industry in India </li></ul><ul><li>Investment in emerging economies by FII </li></ul><ul><li>Decision by makers of luxury goods to invest in a country </li></ul>
    • 63. External Environment Analysis <ul><li>Porter’s Five Forces Model </li></ul><ul><li>Concept of Complementarity </li></ul>
    • 64. Firm Level Internal Analysis <ul><li>Analysing Departments and Functions </li></ul><ul><ul><li>Production/Operations/Technical </li></ul></ul><ul><ul><ul><li>Strategies for small businesses </li></ul></ul></ul><ul><ul><ul><li>Strategies for large business units </li></ul></ul></ul><ul><ul><li>Finance and accounting </li></ul></ul><ul><ul><li>Marketing </li></ul></ul><ul><ul><li>R & D </li></ul></ul>
    • 65. Production/operation/technical <ul><li>Output produce </li></ul><ul><ul><li>> sum of </li></ul></ul><ul><ul><ul><li>Costs of the inputs </li></ul></ul></ul><ul><ul><ul><li>Transformation process </li></ul></ul></ul>
    • 66. Strategies for small businesses <ul><li>Essentially low investments in </li></ul><ul><ul><li>Plant </li></ul></ul><ul><ul><li>Equipment </li></ul></ul><ul><ul><li>Long-term advertising </li></ul></ul><ul><li>Niche market – competes on the basis of quality and customised preferences </li></ul>
    • 67. Strategies for large businesses <ul><li>Capital – Labour Substituion </li></ul><ul><li>Economies of Scale – Reduction in average cost per unit </li></ul><ul><li>Learning – Accumulation of a useful body of knowledge as a result of experience </li></ul>
    • 68. Finance Accounting <ul><li>Study of Financial situation  Understanding the operation of a company </li></ul><ul><ul><li>Working Capital Requirement  Operations </li></ul></ul><ul><ul><li>Financial Parameters  Efficiency and Leveraging capanility </li></ul></ul><ul><li>Critical areas of functioning </li></ul><ul><ul><li>Scanning the business investments and allotment of funds </li></ul></ul><ul><ul><li>Planning for securing and using funds </li></ul></ul><ul><ul><li>Controlling expenditure </li></ul></ul><ul><ul><li>Reporting all transactions and resuls to appropriate parties </li></ul></ul><ul><li>Use of ratios </li></ul><ul><li>Financial Analysis  strengths and Weaknesses </li></ul><ul><li>Analysis must be directed towards the needs of a specific situation. ( It is not a standardised process) </li></ul>
    • 69. Use of Ratios <ul><li>Liquidity Ratios </li></ul><ul><ul><li>Current Ratio </li></ul></ul><ul><ul><li>Quick Ratio </li></ul></ul><ul><li>Leverage Ratios </li></ul><ul><ul><li>Debt Ratio </li></ul></ul><ul><ul><li>Debt to Equity Ratio </li></ul></ul><ul><ul><li>Times interest earned Ratio </li></ul></ul><ul><li>Activity Ratios </li></ul><ul><ul><li>Inventory Turnover </li></ul></ul><ul><ul><li>Average Collection Period </li></ul></ul><ul><ul><li>Total Asset Turnover </li></ul></ul><ul><ul><li>Fixed Turnover </li></ul></ul><ul><li>Profitability Ratios </li></ul><ul><ul><li>Profit Margin </li></ul></ul><ul><ul><li>Return on Assets </li></ul></ul><ul><ul><li>Return on equity </li></ul></ul>
    • 70. Marketing <ul><li>Study of the product market </li></ul><ul><li>Links up the organisation with external environment </li></ul><ul><ul><li>Market Research </li></ul></ul><ul><ul><li>Market Analysis </li></ul></ul><ul><ul><li>Market Forecasting </li></ul></ul><ul><ul><li>Sales Forecasting </li></ul></ul><ul><ul><li>Advertising </li></ul></ul><ul><ul><li>Direct Selling </li></ul></ul>
    • 71. R & D <ul><li>Product R & D </li></ul><ul><ul><li>Innovations in products </li></ul></ul><ul><ul><li>High product Differentiation Strategies </li></ul></ul><ul><li>Process R & D </li></ul><ul><ul><li>Attempts to reduce costs of operations </li></ul></ul><ul><ul><li>Seeks constant improvement through more efficient processes </li></ul></ul><ul><ul><li>Low cost strategies </li></ul></ul>
    • 72. Vulnerability Analysis <ul><li>Every business is based on some “pillars” </li></ul><ul><ul><li>Needs or use functions </li></ul></ul><ul><ul><li>Uses, habits, values </li></ul></ul><ul><ul><li>Technology stability </li></ul></ul><ul><ul><li>Inputs and resources </li></ul></ul><ul><ul><li>Niche or market segment </li></ul></ul><ul><ul><li>Existent constraints, sanctions, incentives, complementary products, alternative products cost stability </li></ul></ul><ul><li>Aim of Vulnerability analysis is to identify those pillars and possible actions to be taken in response to possible damage to those pillars </li></ul>
    • 73. Steps involved in Vulnerability Analysis <ul><li>Identification of elements on which the survival of business depends (“pillars”) </li></ul><ul><li>Identification of events which might destroy the “pillars” </li></ul><ul><li>Analysing the probability of occurrence of those events </li></ul><ul><li>Analyse the impact of those events </li></ul><ul><li>Identify the actions to be taken, should the event occur </li></ul><ul><li>Either take immediate action or wait for the probability to increase </li></ul>
    • 74. Vulnerability Matrix Defenceless Endangered Vulnerable Prepared Company’s ability to react Low High Impact Of threat Low High
    • 75. Porter’s Five Forces Model <ul><li>Threat of New Entrants </li></ul><ul><li>Intensity of Rivalry among existing competitors </li></ul><ul><li>Bargaining Power of Buyers </li></ul><ul><li>Bargaining Power of Suppliers </li></ul><ul><li>Threat of Substitutes </li></ul>
    • 76. 5 forces model Rivalry among Industry competitors Suppliers Substitutes New Entrants Buyers
    • 77. Concept of Complementarity <ul><li>Additional Variables incorporated into the intensity of the Five Forces </li></ul><ul><li>Complementors </li></ul><ul><ul><li>Other firms from which customers buy complementary products </li></ul></ul><ul><ul><li>Other firms to which suppliers sell complementary resources </li></ul></ul>
    • 78. The value Net company competitors complementors customers suppliers
    • 79. Game Theory <ul><li>Competitive Activity </li></ul><ul><ul><li>Involving </li></ul></ul><ul><ul><ul><li>Players </li></ul></ul></ul><ul><ul><ul><li>Strategies </li></ul></ul></ul><ul><ul><ul><li>Outcomes </li></ul></ul></ul><ul><ul><ul><li>Payoffs </li></ul></ul></ul><ul><ul><ul><li>Equilibria </li></ul></ul></ul><ul><li>Two strategists concerned with game theory </li></ul><ul><ul><li>Adam M Brandenburger </li></ul></ul><ul><ul><li>Barry J Balebuff </li></ul></ul>
    • 80. Threat of New Entrants – Six Barriers <ul><li>Economies of Scale </li></ul><ul><li>Product Differentiation </li></ul><ul><li>Capital Requirement </li></ul><ul><li>Cost disadvantages of independent size </li></ul><ul><li>Access to distribution channels </li></ul><ul><li>Government policy </li></ul>
    • 81. Economies of Scale <ul><li>Higher the volume of production lower the average cost </li></ul><ul><li>But the total cost will be higher </li></ul><ul><li>Similar entry barriers due to economies of scale in </li></ul><ul><ul><li>Distribution </li></ul></ul><ul><ul><li>Utilisation of sales forces </li></ul></ul><ul><ul><li>Financing for business </li></ul></ul>
    • 82. Product Differentiation <ul><li>Brand Identification </li></ul><ul><li>Customer Loyalty </li></ul><ul><ul><li>Advertising </li></ul></ul><ul><ul><li>Customer Service </li></ul></ul><ul><ul><li>Product Differences </li></ul></ul><ul><ul><li>First Mover </li></ul></ul><ul><ul><ul><li>involves considerable cost </li></ul></ul></ul><ul><li>Example </li></ul><ul><ul><li>Soft drink </li></ul></ul><ul><ul><li>OTC drugs </li></ul></ul><ul><ul><li>Cosmetics </li></ul></ul><ul><ul><li>Investment Banking </li></ul></ul><ul><ul><li>Domino case ?? </li></ul></ul><ul><ul><li>Jet airways ?? </li></ul></ul><ul><ul><li>NIIT ?? </li></ul></ul>
    • 83. Capital Requirement <ul><li>Capital is required for </li></ul><ul><ul><li>Infrastructure expenditure </li></ul></ul><ul><ul><li>Customer credit </li></ul></ul><ul><ul><li>Inventories </li></ul></ul><ul><ul><li>Start up losses </li></ul></ul><ul><ul><li>R&D </li></ul></ul><ul><ul><li>Advertising </li></ul></ul><ul><ul><li>Marketing </li></ul></ul>
    • 84. Cost disadvantage of independent size <ul><li>Learning curve & Experience curve </li></ul><ul><li>Proprietary technology </li></ul><ul><li>Access to sources of raw material </li></ul><ul><li>Assets bought at low prices </li></ul><ul><li>Govt Subsidies </li></ul><ul><li>Favourable locations </li></ul>
    • 85. Access to distribution channels <ul><li>Fight for the shelf space </li></ul><ul><ul><li>Price breaks </li></ul></ul><ul><ul><li>Promotions </li></ul></ul><ul><ul><li>Salesmanship </li></ul></ul><ul><li>Compounded in case of limited no of channels </li></ul><ul><li>Creation of new independent channels </li></ul>
    • 86. Govt Policies <ul><li>Imposition of Controls </li></ul><ul><li>Mandatory Licence Requirements </li></ul><ul><li>Limited Access to Raw materials </li></ul><ul><li>Indirect controls such as Environment, Labour or Social Laws </li></ul><ul><ul><li>Eg </li></ul></ul><ul><ul><ul><li>Chinese market </li></ul></ul></ul><ul><ul><ul><li>Trucking, Railways, Liquour industries </li></ul></ul></ul>
    • 87. Rivalry among existing firms <ul><li>One firm tries to increase market share </li></ul><ul><ul><li>Price wars, Advertising battles, New product launches, Enhanced customer services, Additional Warranties </li></ul></ul><ul><li>Causes for intense rivalry </li></ul><ul><ul><li>Too many competitors </li></ul></ul><ul><ul><li>Industrial growth slowdown </li></ul></ul><ul><ul><li>Lack of differentiation </li></ul></ul><ul><ul><li>Absence of switching costs </li></ul></ul><ul><ul><li>Variety of reasons ranging from exit barrier to loyalty of old players </li></ul></ul>
    • 88. Bargaining power of Buyers <ul><li>Buyers are powerful under the following circumstances </li></ul><ul><ul><li>Too many suppliers and a Few and Large Buyers </li></ul></ul><ul><ul><li>Large Quantity purchasers </li></ul></ul><ul><ul><li>Dependency on buyers for a large percentage of its total orders </li></ul></ul><ul><ul><li>Low switching costs enables buyers to play the suppliers against each other </li></ul></ul><ul><ul><li>Feasibility of purchasing from several companies at a time </li></ul></ul><ul><ul><li>Threat of vertical integration </li></ul></ul>
    • 89. Bargaining power of Suppliers <ul><li>Suppliers are powerful under the following circumstances </li></ul><ul><ul><li>An important product with few substitutes </li></ul></ul><ul><ul><li>No single industry is a major customer for the supplier </li></ul></ul><ul><ul><li>Highly differentiated, not substitutable and high switching costs </li></ul></ul><ul><ul><li>Threat of vertical integration </li></ul></ul><ul><ul><li>Unable to reciprocate with threat of vertical integration </li></ul></ul>
    • 90. Threat of substitutes <ul><li>Closer the substitute higher the threat </li></ul><ul><li>Substitutes limit the scope of price rice </li></ul>
    • 91. GRAND STRATEGIES -- Concentrated Growth <ul><li>Directs the resources to the profitable growth of a single product, in a single market, with a single dominant technology </li></ul><ul><li>Increase present customer’s rate of use </li></ul><ul><ul><li>Increasing size of purchase </li></ul></ul><ul><ul><li>Increasing the rate of product obsolescence </li></ul></ul><ul><ul><li>Advertising other uses </li></ul></ul><ul><ul><li>Giving price incentive for increased use </li></ul></ul><ul><li>Attracting competitor’s customers </li></ul><ul><ul><li>Establishing sharper brand differentiation </li></ul></ul><ul><ul><li>Increasing promotional effort </li></ul></ul><ul><ul><li>Initiating price cuts </li></ul></ul><ul><li>Attracting non-users to buy the product </li></ul><ul><ul><li>Inducing trial use through sampling, price incentives, etc </li></ul></ul><ul><ul><li>Pricing up or down </li></ul></ul><ul><ul><li>Advertising new uses </li></ul></ul>
    • 92. GRAND STRATEGIES -- Concentrated Growth <ul><li>Rationale for Superior Performance </li></ul><ul><li>Concentrated Growth Vs Unrelated Diversification </li></ul><ul><li>Main Characteristics </li></ul><ul><ul><li>Ability to assess market needs </li></ul></ul><ul><ul><li>Knowledge of </li></ul></ul><ul><ul><ul><li>buyer behaviour </li></ul></ul></ul><ul><ul><ul><li>Customer price sensitivity </li></ul></ul></ul><ul><ul><ul><li>Effectiveness of promotion </li></ul></ul></ul><ul><li>Avoid situations that require undeveloped skills </li></ul><ul><li>A major misconception </li></ul><ul><ul><li>Concentrated growth strategy  settle for little or no growth </li></ul></ul><ul><li>Achieves growth by concentrating on the product-market segment it knows best </li></ul><ul><li>Some ways to achieve concentrated growth </li></ul><ul><ul><li>Increased productivity </li></ul></ul><ul><ul><li>Better coverage of product-market segment </li></ul></ul><ul><ul><li>More efficient use of technology </li></ul></ul>
    • 93. GRAND STRATEGIES -- Concentrated Growth <ul><li>Conditions that favour Concentrated Growth </li></ul><ul><li>Industry resistant to major technological advancements </li></ul><ul><ul><li>Late growth or mature stages of prduct life cycle </li></ul></ul><ul><ul><li>Stable product demand </li></ul></ul><ul><ul><li>High industry barriers ( such as capitalisation) </li></ul></ul><ul><li>Firm’s target markets are not product saturated. Gaps provide scope for growth </li></ul><ul><li>Sufficiently distinctive product market dissuading adjacent product makers from making an entry </li></ul><ul><li>Inputs are stable in price and quantity and available in right quantities at right time </li></ul><ul><li>Stable market without seasonal or cyclical swings </li></ul><ul><li>Gaps left by the successful market generalists </li></ul>
    • 94. GRAND STRATEGIES -- Concentrated Growth <ul><li>Risks and Rewards of Concentrated Growth </li></ul><ul><li>Lower risk than other strategies during stable growth </li></ul><ul><li>Higher risks during changing environment </li></ul><ul><li>Vulnerable to </li></ul><ul><ul><li>Changes in demand if dependent on a single product </li></ul></ul><ul><ul><li>Changes in economic environment if dependent on a single industry </li></ul></ul><ul><li>Concentrating on single market makes firms adept at observing future trends. Failure to do so results in disastrous outcomes. </li></ul><ul><li>Vulnerable to high opportunity costs resulting from ignoring other options which could use firm’s resources </li></ul>
    • 95. GRAND STRATEGIES -- Market Development <ul><li>Lowest risk and lowest cost after Concentrated Growth Strategy </li></ul><ul><li>Firm practices a “form of concentrated growth” by identifying new uses for same products and new markets </li></ul><ul><li>Changes in media selection, promotional appeals and distribution can initiate this approach </li></ul><ul><li>Opening branches in new cities, states or countries </li></ul><ul><li>Define new psychographic, demographic or geographic markets </li></ul><ul><li>Eg </li></ul><ul><ul><li>Du Pont -- Kevlar -- bullet proofing to boat building </li></ul></ul><ul><ul><li>Aspirin to lower the incidence of heart attack </li></ul></ul>
    • 96. GRAND STRATEGIES -- Market Development <ul><li>Opening additional geographic markets </li></ul><ul><ul><li>Regional expansion </li></ul></ul><ul><ul><li>National expansion </li></ul></ul><ul><ul><li>International expansion </li></ul></ul><ul><li>Attracting other market segments </li></ul><ul><ul><li>Developing product versions to appeal to other market segments </li></ul></ul><ul><ul><li>Entering other channels of distribution </li></ul></ul><ul><ul><li>Advertising in other media </li></ul></ul>
    • 97. GRAND STRATEGIES -- Product Development <ul><li>Substantial modification of an existing product </li></ul><ul><li>Creation of a new but related product </li></ul><ul><li>Adopted to </li></ul><ul><ul><li>Prolong the life-cycle of an existing product </li></ul></ul><ul><ul><li>Take advantage of an existing brand or customer base </li></ul></ul><ul><li>Penetration of existing market with the new or modified products related to an existing product </li></ul>
    • 98. GRAND STRATEGIES -- Product Development <ul><li>Developing a new product </li></ul><ul><ul><li>Adapt ( to other ideas, developments) </li></ul></ul><ul><ul><li>Modify ( change colour, motion, sound, odour, form, shape) </li></ul></ul><ul><ul><li>Magnify ( stronger, longer, thicker, extra value) </li></ul></ul><ul><ul><li>Minify (smaller, shorter, lighter) </li></ul></ul><ul><ul><li>Substitute (other ingredients, process, power) </li></ul></ul><ul><ul><li>Rearrange (other patterns, layout, seuence, components) </li></ul></ul><ul><ul><li>Reverse ( inside out) </li></ul></ul><ul><ul><li>Combine ( blend, alloy, assortment, ensemble, combine units, purposes, appeals, ideas) </li></ul></ul><ul><li>Developing quality variations </li></ul><ul><li>Developing additional models and sizes ( product proliferation). </li></ul>
    • 99. GRAND STRATEGIES -- Innovation <ul><li>In many industries it is risky not to innovate </li></ul><ul><li>Customer expectation in both consumer and industrial markets </li></ul><ul><li>High initial profits </li></ul><ul><li>As profitability shifts from innovation to marketing or production, etc introduce another novel idea </li></ul>NOTE THE DIFFERENCE BETWEEN THIS STRATEGIC APPROACH AND THE APPROACH OF EXTENDING AN EXISTING PRODUCT’S LIFE CYCLE BY PRODUCT EXTENSION
    • 100. GRAND STRATEGIES -- Innovation <ul><li>Most growth firms appreciate the need to innovate </li></ul><ul><li>Few firms use innovation as their fundamental way of relating to markets </li></ul><ul><li>Examples ??? </li></ul>
    • 101. GRAND STRATEGIES -- Innovation <ul><li>Risk – few innovative ideas prove ultimately profitable </li></ul><ul><ul><li>58 initial ideas </li></ul></ul><ul><ul><li>12 pass initial screening </li></ul></ul><ul><ul><li>7 withstand evaluation of potntial </li></ul></ul><ul><ul><li>3 survive development attempts </li></ul></ul><ul><ul><li>2 appear to have profit potential after test marketing </li></ul></ul><ul><ul><li>1 commercially successful </li></ul></ul><ul><ul><li>{A study by Booz Allen & Hamilton Management Research Department} </li></ul></ul>
    • 102. GRAND STRATEGIES -- Horizontal Integration <ul><li>Acquisition of one or more “similar” firms operating at the “same stage of the production-marketing chain” </li></ul><ul><li>Eliminates competition </li></ul><ul><li>Provides access to new markets </li></ul><ul><li>Examples ?? </li></ul>
    • 103. GRAND STRATEGIES -- Vertical Integration <ul><li>Acquisition firms that supply own firm’s inputs or are customers for own firm’s output </li></ul><ul><li>Backward vertical integration </li></ul><ul><li>Forward vertical integration </li></ul><ul><li>Acquisition could be purchase of common stocks, purchase of assets, or exchanging ownership interests </li></ul><ul><li>Examples ?? </li></ul>
    • 104. GRAND STRATEGIES -- Vertical Integration <ul><li>Textile producer </li></ul>Textile producer Shirt manufacturer Shirt manufacturer Clothing Store Clothing Store Vertical Integration Horizontal Integration
    • 105. GRAND STRATEGIES -- Comparison of Horizontal & Vertical Integration <ul><li>Horizontal Integration </li></ul><ul><ul><li>Expands the operation </li></ul></ul><ul><ul><li>Greater market share </li></ul></ul><ul><ul><li>Improved economies of scale </li></ul></ul><ul><ul><li>Increased efficiency of capital use </li></ul></ul><ul><ul><li>Low to moderate risk since the success of expansion is dependent on proven abilities </li></ul></ul><ul><li>Risks </li></ul><ul><ul><li>Increased commitment to one type of business </li></ul></ul>
    • 106. GRAND STRATEGIES -- Comparison of Horizontal & Vertical Integration <ul><li>Vertical Integration </li></ul><ul><ul><li>Backward integration increases </li></ul></ul><ul><ul><ul><li>dependability of supply </li></ul></ul></ul><ul><ul><ul><li>quality of raw material </li></ul></ul></ul><ul><ul><ul><ul><li>{ small no of suppliers and large no of competitors  controls cost and increases predictability } </li></ul></ul></ul></ul><ul><ul><li>Forward integration increases </li></ul></ul><ul><ul><ul><li>Predictability of demands </li></ul></ul></ul><ul><ul><li>Risk </li></ul></ul><ul><ul><ul><li>Resulting from expansion into areas requiring strategic managers to broaden the base of their competencies and to assume additional responsibilities </li></ul></ul></ul>
    • 107. Tapered Integration <ul><li>Partial Vertical Integration ( backward or forward) </li></ul><ul><li>Firm’s requirement over and above the fairly large and efficient in-house production </li></ul><ul><li>If the firm is not large, disadvantages of a small scale in-house operation </li></ul><ul><li>Full Vertical Integration Vs Tapered Integration – Choice varies from industry to industry and firm to firm </li></ul>
    • 108. Tapered Integration -- Examples <ul><li>Co-Cola and Pepsi own some bottlers and have contracts with outside bottlers </li></ul><ul><li>Oil companies owning some tankers and using other shipping companies </li></ul><ul><li>Automobile companies making own spare parts and buying some from outside </li></ul>
    • 109. Tapered Integration -- Advantages <ul><li>Expands input and output channels without significant capital outlay </li></ul><ul><li>Use internal costs and profits to favourably influence external negotiations </li></ul><ul><li>Use outside suppliers as a yardstick to control internal manufacturing </li></ul><ul><li>Access to external R & D </li></ul><ul><li>Degree of taper can be made to suit expected market fluctuations </li></ul><ul><li>Full knowledge of cost of operation in the adjacent industry – effective bargaining power </li></ul><ul><li>Can discipline the suppliers/customers with the threat of full integration </li></ul>
    • 110. Tapered Integration -- Disadvantages <ul><li>Sacrifices economies of scale </li></ul><ul><li>Makes co-ordination and monitoring more difficult </li></ul><ul><li>By necessity requires the firm to buy from or sell to competitors </li></ul>
    • 111. Quasi Integration <ul><li>A Relationship somewhere in between long term contracts and full ownership, between vertically related business </li></ul><ul><li>Different forms of Quasi Integration </li></ul><ul><ul><li>Minority equity investments </li></ul></ul><ul><ul><li>Loans or loan guarantees </li></ul></ul><ul><ul><li>Repurchase credits </li></ul></ul><ul><ul><li>Exclusive dealing agreements </li></ul></ul><ul><ul><li>Specialised logistical facilities </li></ul></ul><ul><ul><li>Co-operative R & D </li></ul></ul>
    • 112. Quasi Integration -- Advantages <ul><li>Achieves vertical integration without all the costs </li></ul><ul><li>Creates greater interests between buyer and seller </li></ul><ul><li>Facilitates specialised arrangements ( logistical facilities) </li></ul><ul><li>Lowering unit costs </li></ul><ul><li>Reduces the risk of demand and supply interruption </li></ul><ul><li>Does not need full capital investment for achieving integration </li></ul>
    • 113. GRAND STRATEGIES -- Concentric Diversification <ul><li>Diversification involves distinctive departure from a firm’s base of operations </li></ul><ul><li>{ typically acquisition or internal generation (spin-off) of a separate business with synergistic possibilities counterbalancing the strengths and weaknesses of the two businesses.} </li></ul><ul><li>Concentric Diversification -- acquisition of business that are related to the acquiring firm in terms of </li></ul><ul><ul><ul><li>Technology </li></ul></ul></ul><ul><ul><ul><li>Markets </li></ul></ul></ul><ul><ul><ul><li>Products </li></ul></ul></ul>
    • 114. GRAND STRATEGIES -- Concentric Diversification <ul><li>Acquires new businesses whose products, markets, distribution channels, technologies and resource requirements are similar but not identical </li></ul><ul><li>Increased profits, strengths and opportunities </li></ul><ul><li>Decreased weaknesses and exposure to threats </li></ul><ul><li>Acquisition results in synergies and not interdependence </li></ul>
    • 115. GRAND STRATEGIES -- Conglomerate Diversification <ul><li>Acquires a business which offers the most promising investment opportunity </li></ul><ul><li>Principal concern (and often the sole concern) is the profit pattern of the new venture </li></ul><ul><li>Little concern for any kind of market/product/distribution channel synergy with the existing business </li></ul><ul><li>Focus on financial synergy – </li></ul><ul><ul><li>Counter cyclical sales </li></ul></ul><ul><ul><li>High cash/low opportunity and low cash/high opportunity business </li></ul></ul><ul><ul><li>Debt free and highly leveraged business </li></ul></ul>
    • 116. Motivations for Acquisition <ul><li>Increase in the firm’s stock value </li></ul><ul><li>Increase the growth rate of the firm </li></ul><ul><li>Make investment that represents better use of funds than plowing them into internal growth </li></ul><ul><li>Improve stability of earnings and sales by acquiring firms whose earnings and sales complement the firm’s peaks and valleys </li></ul><ul><li>Balance or fill out the product line </li></ul><ul><li>Diversify the product line when life cycle of current product has peaked </li></ul><ul><li>Acquire a needed resource quickly (eg., high quality technology or high quality management) </li></ul><ul><li>Achieve tax savings ( offset against other firm’s losses) </li></ul><ul><li>Increase efficiency and profitability, especially if there is synergy between the acquiring firm and the acquired firm </li></ul>
    • 117. GRAND STRATEGIES -- Conglomerate Diversification – seven sins of strategy acquisition <ul><li>Wrong target </li></ul><ul><li>Wrong price </li></ul><ul><li>Wrong structure – </li></ul><ul><ul><li>Legal structure for entities </li></ul></ul><ul><ul><li>Geographic jurisdiction </li></ul></ul><ul><ul><li>Capitalisation structure </li></ul></ul><ul><li>Lost deal ( often due to poor communication) </li></ul><ul><li>Management difficulties ( lack of attention to management details) </li></ul><ul><li>Closing crisis ( unavoidable changed conditions) </li></ul><ul><li>Operating transition crisis </li></ul>
    • 118. GRAND STRATEGIES -- Turnaround <ul><li>Firm finds itself with declining profits due to </li></ul><ul><ul><li>Economic recession </li></ul></ul><ul><ul><li>Production inefficiency </li></ul></ul><ul><ul><li>Innovative breakthrough by competitors </li></ul></ul><ul><li>Survival and eventual recovery through turnaround </li></ul><ul><li>Two forms of retrenchment employed singly or in combination </li></ul><ul><ul><li>Cost reduction </li></ul></ul><ul><ul><ul><li>Decreasing workforce / Lay off </li></ul></ul></ul><ul><ul><ul><li>Leasing instead of purchasing equipment </li></ul></ul></ul><ul><ul><ul><li>Extending life of machinery </li></ul></ul></ul><ul><ul><ul><li>Eliminate elaborate promotionals </li></ul></ul></ul><ul><ul><ul><li>Drop items from production line </li></ul></ul></ul><ul><ul><ul><li>Discontinue low margin customers </li></ul></ul></ul><ul><ul><li>Asset reduction </li></ul></ul><ul><ul><ul><li>Sale of land, buildings and equipment considered non-essential </li></ul></ul></ul><ul><ul><ul><li>Elimination of perks ( co a/c or executive cars ) </li></ul></ul></ul>
    • 119. GRAND STRATEGIES -- Turnaround <ul><li>Internal </li></ul><ul><li>factors </li></ul>External factors Stability Turnaround situation Turnaround Response Cause Severity Retrenchment phase Recovery phase (operating) (strategic) Declining sales or margins Low High Imminent bankruptcy Cost Reduction Asset Reduction Efficiency Maintenance Entreprenuerial Reconfiguration
    • 120. GRAND STRATEGIES -- Divestiture <ul><li>Sale of a firm or a major component of the firm </li></ul><ul><li>Occasions for divestiture </li></ul><ul><ul><li>When retrenchment fails to achieve the desired turnaround </li></ul></ul><ul><ul><li>When a non-integrated business activity achieves an unusually high market value </li></ul></ul><ul><li>Intent is to find a buyer willing to pay premium above the value of a going concern’s fixed assets </li></ul><ul><li>Reasons for divestiture </li></ul><ul><ul><li>Partial mismatch between acquired and parent firm </li></ul></ul><ul><ul><li>Corporate financial needs </li></ul></ul><ul><ul><li>Government antitrust action </li></ul></ul>
    • 121. GRAND STRATEGIES -- Liquidation <ul><li>Typically sold in parts (only occasionally as a whole – but for its tangible asset value and not as a going concern) </li></ul><ul><li>An admission of failure by strategic managers </li></ul><ul><li>Least attractive strategy </li></ul><ul><li>As a long term strategy, it minimises losses </li></ul><ul><li>Plan to get greatest possible return </li></ul><ul><li>Planned liquidation can be worthwhile </li></ul>
    • 122. GRAND STRATEGIES -- Bankruptcy <ul><li>In a week, on an aveage more than 300 companies fail in USA. Out of this 75% file for liquidation bankruptcy </li></ul><ul><li>Bankruptcy Situation </li></ul><ul><li>Harshest Solution – Liquidation bankruptcy </li></ul><ul><ul><li>Court appointed trustee converts the properties into cash and distributes the proceeds to creditors on a pro-rata basis ( US chapter 7) </li></ul></ul><ul><li>A conditional second chance – Reorganisation bankruptcy </li></ul><ul><ul><li>Under court approval ( Chapter 11 US ) </li></ul></ul><ul><ul><li>In case of realistic possibility of long-term survival </li></ul></ul><ul><ul><li>Restructuring of debts </li></ul></ul><ul><ul><li>Close unprofitable activities & Reorganise businesss </li></ul></ul><ul><li>Emergence from Bankruptcy </li></ul><ul><ul><li>Analysis of the causes of bankruptcy and severity of the problem </li></ul></ul><ul><ul><li>Recovery strategy </li></ul></ul><ul><ul><li>Creditors’ faith in the company and its competencies </li></ul></ul>
    • 123. GRAND STRATEGIES -- Bankruptcy in US <ul><li>In a week, on an aveage more than 300 companies fail in USA. </li></ul><ul><li>75% file for Liquidation Bankruptcy </li></ul><ul><li>25% file for Reorganisation Bankruptcy </li></ul><ul><li>{ Source Strategic Management – John Pearce and Richard Robinson; Eighth Edition 2003 } </li></ul>
    • 124. GRAND STRATEGIES -- Joint Ventures <ul><li>Two or more firms – Each having a some but not all capabilites for success in a particular environment – joint together. Eg., Petroleum industry </li></ul><ul><li>Joint ownership </li></ul><ul><li>Strategic advantages for all participants </li></ul><ul><li>Extends supplier-consumer relationship </li></ul><ul><li>Presents new opportunities with shareable risks </li></ul><ul><li>But often limits discretion, control and profit potential of partners </li></ul><ul><li>Demands great managerial attention </li></ul>
    • 125. GRAND STRATEGIES -- Strategic Alliances <ul><li>Partnerships that exist for a defined period during which the partners contribute their skills and expertise to a co-operative project </li></ul><ul><li>Partners may learn from each other </li></ul><ul><li>One may “steal” knowledge/technology from the other </li></ul><ul><li>Many licensing agreements – eg., patents,trademarks or technical know-how, etc., are granted to a licensee for a specified period of time </li></ul><ul><li>Contract manufacturing </li></ul><ul><li>Franchisee Licensing </li></ul><ul><li>Outsourcing is a rudimentary example </li></ul>
    • 126. GRAND STRATEGIES -- Consortia, Keiretsus, Chaebols <ul><li>European Consortia </li></ul><ul><ul><li>joint programs involving different companies </li></ul></ul><ul><li>Keiretesu </li></ul><ul><ul><li>Japanese undertaking involving up to 50 different firms that are joined around a large trading company or bank </li></ul></ul><ul><ul><li>Co-ordinated through interlocking directories and stock exhanges </li></ul></ul><ul><ul><li>Designed to minimise the risk of competition in part through </li></ul></ul><ul><ul><ul><li>Cost sharing </li></ul></ul></ul><ul><ul><ul><li>Increased economies of scale </li></ul></ul></ul><ul><li>Chaebol </li></ul><ul><ul><li>South Korean Consortium or Keiretsu </li></ul></ul><ul><ul><li>Typically financed through government banking groups </li></ul></ul><ul><ul><li>Largely run by professional managers </li></ul></ul>
    • 127. Fragmented Industries – Reasons for Fragmentation <ul><li>Low overall entry barriers </li></ul><ul><li>Absence of Economies of Scale or Experience Curve </li></ul><ul><li>High Transportation Costs </li></ul><ul><li>High Inventory Costs or Erratic Sales Fluctuation </li></ul><ul><li>No Advantages of Size in Dealing with Buyers or Suppliers </li></ul><ul><li>Diseconomies of scale in Some Important Aspect </li></ul><ul><li>Requirement of heavy Creative Content </li></ul><ul><li>Need for Close Local Control </li></ul><ul><li>Importance of Personal service as a key element of success </li></ul><ul><li>… ..Contd/- </li></ul>
    • 128. Fragmented Industries – Reasons for Fragmentation ( Contd) <ul><li>Importance of local image and local contacts </li></ul><ul><li>Diverse Market Needs </li></ul><ul><li>High Product Differentiation (particularly if based image) </li></ul><ul><li>Exit Barriers </li></ul><ul><li>Local Regulation </li></ul><ul><li>Government Prohibition of Concentration </li></ul><ul><li>Newness </li></ul>
    • 129. Fragmented Industries – Common Approaches to Consolidation <ul><li>Create Economies of Scale or Experience Curve </li></ul><ul><li>Standardise Diverse Market Needs </li></ul><ul><li>Neutralise or Split Off Aspects Most Responsible for Fragmentation </li></ul><ul><li>Make Acquisition for a Critical Mass </li></ul><ul><li>Recognise Industry Trends Early </li></ul>
    • 130. Fragmented Industries – Industries that are STUCK <ul><li>Existing Firms Lack Resources or Skills </li></ul><ul><li>Existing Firms are Myopic or Complacent </li></ul><ul><li>Lack of Attention by Outside Firms </li></ul>
    • 131. Fragmented Industries – Coping with Fragmentation <ul><li>Tightly managed Decentralisation </li></ul><ul><li>“ Formula” Facilities </li></ul><ul><li>Increased Value added </li></ul><ul><li>Specialisation by product type of product segment </li></ul><ul><li>Specialisation by customer type </li></ul><ul><li>Specialisation by type of order </li></ul><ul><li>A Focused Geographic Area </li></ul><ul><li>Bare Bones/No Frills </li></ul><ul><li>Backward Integration </li></ul>
    • 132. Fragmented Industries – Potential Strategic Traps <ul><li>Seeking Dominance </li></ul><ul><li>Lack of Strategic Discipline </li></ul><ul><li>Over centralisation </li></ul><ul><li>Assumption that Competitors have the same overhead and objectives </li></ul><ul><li>Over-reaction to new products </li></ul>
    • 133. Fragmented Industries- Formulating Strategies <ul><li>What is the structure of the industry and the position of the competitors </li></ul><ul><li>Why is the industry fragmented </li></ul><ul><li>Can the fragmentation be overcome? How? </li></ul><ul><li>Is overcoming fragmentation profitable ? Where should the firm be positioned to do so? </li></ul><ul><li>If the fragmentation is inevitable, what is best alternative for coping with it? </li></ul>
    • 134. Emerging Industries – Structural Environment Common Structural Characteristics <ul><li>Technological Uncertainty </li></ul><ul><li>Strategic Uncertainty </li></ul><ul><li>High Initial Costs but Steep Cost Reduction </li></ul><ul><li>Embryonic companies and spin-offs </li></ul><ul><li>First Time Buyers </li></ul><ul><li>Short Time Horizon </li></ul><ul><li>Subsidy </li></ul>
    • 135. Emerging Industries – Structural Environment Early Mobility Barriers <ul><li>Proprietary Technology </li></ul><ul><li>Access to Distribution Channels </li></ul><ul><li>Access to Raw Materials and Other Inputs ( Skilled Labour) of appropriate cost and quality </li></ul><ul><li>Cost advantage due to experience, made more significant by the technological and competitive uncertainities </li></ul><ul><li>Risk, which raises the effective opportunity cost of capital and thereby effective capital barriers </li></ul><ul><li>FACTORS WHICH ARE GENERALLY NOT MOBILITY BARRIERS IN AN EMERGING INDUSTRY </li></ul><ul><li>Brand identification, Economies of Scale, Capital </li></ul>
    • 136. Emerging Industries – Structural Environment Problems Constraining Industry Development <ul><li>Inability to obtain Raw Materials and Components </li></ul><ul><li>Period of Rapid Escalation of Raw Material Price </li></ul><ul><li>Absence of Infrastructure </li></ul><ul><li>Absence of Technology or Product Standardisation </li></ul><ul><li>Perceived likelihood of Obsolescence </li></ul><ul><li>Customer’s confusion </li></ul><ul><li>Erratic Product Quality </li></ul><ul><li>Image and Credibility with the Financial Community </li></ul><ul><li>Regulatory Approval </li></ul><ul><li>High Costs </li></ul><ul><li>Response of Threatened Entities </li></ul>
    • 137. Emerging Industries – Structural Environment Early and Late Markets <ul><li>Receptivity of market/market segments </li></ul><ul><ul><li>Early market or Late market </li></ul></ul><ul><li>Early Market </li></ul><ul><ul><li>Performance is preferred over cost advantage </li></ul></ul><ul><ul><ul><li>Cost advantage is viewed with suspicion </li></ul></ul></ul><ul><ul><ul><li>Newness, uncertainty and erratic performance add to the suspicion of cost advantage </li></ul></ul></ul>
    • 138. Emerging Industries – Strategic Choices <ul><li>Strategy must cope with </li></ul><ul><ul><li>Uncertainty </li></ul></ul><ul><ul><li>Risk </li></ul></ul><ul><ul><ul><li>Due to </li></ul></ul></ul><ul><ul><ul><ul><li>Undefined rules </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Unsettled or changing structure of the industry </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Undefined competition </li></ul></ul></ul></ul><ul><li>The same factors offer </li></ul><ul><ul><li>Strategic freedom </li></ul></ul><ul><ul><li>Leverage from good strategic choices is the highest in determining performance </li></ul></ul>
    • 139. Emerging Industries – Structural Environment Early or Late Markets <ul><li>Nature of the benefit </li></ul><ul><li>State of the Art Required to Yield Significant Benefits </li></ul><ul><li>Cost of Product Failure </li></ul><ul><li>Introduction or Switching Costs </li></ul><ul><li>Support Services </li></ul><ul><li>Cost of Obsolescence </li></ul><ul><li>Asymmetric Government, Regulatory or Labour Barriers </li></ul><ul><li>Resources to Change </li></ul><ul><li>Perception of Technological Change </li></ul><ul><li>Personal Risk to the Decision Maker </li></ul>
    • 140. Emerging Industries – Structural Environment Nature of the benefit <ul><li>Performance Advantage </li></ul><ul><ul><li>How large is the performance advantage for the particular buyers? Buyers in different situation differ in this aspect </li></ul></ul><ul><ul><li>How obvious is the advantage? </li></ul></ul><ul><ul><li>How pressing is the need for the buyer to improve along the dimension offered by the new product? </li></ul></ul><ul><ul><li>Does the performance advantage improve the competitive position of the buyer? </li></ul></ul><ul><ul><li>How strong is competitive pressure to compel changeover? Eg.,Performance advantage helps defensive / offensive action </li></ul></ul><ul><ul><li>How price and/or cost sensitive is the buyer if the added performance entails higher cost? </li></ul></ul>
    • 141. Emerging Industries – Structural Environment Nature of the benefit <ul><li>Cost Advantage </li></ul><ul><ul><li>How large is the cost advantage for the particular buyer? </li></ul></ul><ul><ul><li>How obvious is the advantage? </li></ul></ul><ul><ul><li>Can a lasting competitive advantage be gained from lowering costs? </li></ul></ul><ul><ul><li>How much competitive pressure compels changeover? </li></ul></ul><ul><ul><li>How cost-oriented is the prospective buyer’s business strategy? </li></ul></ul>
    • 142. Emerging Industries – Strategic Choices <ul><li>Shaping the Industry </li></ul><ul><li>Externalities in Industry Development (narrow self interest vs broad industry interest) </li></ul><ul><li>Changing Role of Suppliers and Channels </li></ul><ul><li>Shifting Mobility Barriers </li></ul>
    • 143. Emerging Industries – Strategic Choices (Contd) <ul><li>Timing the Entry </li></ul><ul><ul><li>Early Entry </li></ul></ul><ul><ul><li>Late Entry </li></ul></ul>
    • 144. Emerging Industries – Strategic Choices Timing the Entry (Contd) <ul><li>Situations where Early Entry is Recommended </li></ul><ul><ul><li>Image and Reputation of a Pioneer is important </li></ul></ul><ul><ul><li>Importance of Learning Curve </li></ul></ul><ul><ul><li>High Customer Loyalty </li></ul></ul><ul><ul><li>Early Commitment of suppliers, distribution channels, etc </li></ul></ul><ul><li>Situations where Early Entry is Risky </li></ul><ul><ul><li>If Nature of competition and Market Segmentation is likely to change as Industry matures </li></ul></ul><ul><ul><li>High cost of opening the market, which cannot be made propreitory </li></ul></ul><ul><ul><li>Costly competition with small firms during early part and competition from established players later </li></ul></ul><ul><ul><li>Likely technological changes due to obsolescence </li></ul></ul>
    • 145. Emerging Industries – Strategic Choices Techniques for forecasting <ul><li>Begin the scenario with Technology and Product Development </li></ul><ul><li>Scenario Based Forecast of Markets </li></ul><ul><li>Scenario Based Forecast of Competition </li></ul>Product/ Technology Markets Competition Scenario A Scenario B
    • 146. Emerging Industries – Strategic Choices Which Emerging Industry to Enter <ul><li>Attractive Initial Structure </li></ul><ul><li>Attractive Ultimate Structure </li></ul><ul><li>An Emerging Industry is attractive if its ultimate structure ( not its initial structure) is one that is consistent with above-average returns and if the firm can create a defendable position in the industry in the long run </li></ul>
    • 147. Industries in Transition to Maturity – Industry Changes During Transition <ul><li>Slowing Growth for more competition for market share </li></ul><ul><li>Firms in the industry increasingly are selling to experienced repeat buyers </li></ul><ul><li>Competition often shifts toward greater emphasis on cost and service </li></ul><ul><li>There is topping-out problem in adding industry capacity and personnel </li></ul><ul><li>Manufacturing, marketing, distributing, selling, and research methods are often undergoing change </li></ul><ul><li>New products and applications are harder to come by </li></ul><ul><li>International competition increases </li></ul><ul><li>Industry profits often fall during the transition period, sometimes temporarily and sometimes permanently </li></ul><ul><li>Dealer’s margins fall, but their power increases </li></ul>
    • 148. Industries in Transition to Maturity – Strategic Implications <ul><li>Overall Cost Leadership Vs Differentiation Vs Focus – Maturity makes the choice difficult </li></ul><ul><li>Need for Sophisticated Cost Analysis </li></ul><ul><ul><ul><li>Rationalising Product Mix; Correct Pricing </li></ul></ul></ul><ul><li>Process Innovation and Design for Manufacture </li></ul><ul><li>Increasing Scope of Purchases </li></ul><ul><li>Buy Cheap Assets </li></ul><ul><li>Buyer Selection </li></ul><ul><li>Different Cost Curves </li></ul><ul><li>Competing Internationally </li></ul><ul><li>Should transition be attempted at all </li></ul>
    • 149. Industries in Transition to Maturity – Strategic Pitfalls <ul><li>A company’s self perception and its perception of the industry </li></ul><ul><li>Caught in the middle </li></ul><ul><li>The cash trap – investment to build share in a mature market ( revenue or profit ) </li></ul><ul><li>Giving up market share too easily in favour of short-run profits </li></ul><ul><li>Resentment and irrational reaction to price competition </li></ul><ul><li>Resentment and irrational reaction to changes in industry practices </li></ul><ul><li>Overemphasis on “creative”, “new” products rater than improving and aggressively selling existing ones </li></ul><ul><li>Clinging to higher quality as an excuse for not meeting aggressive pricing and marketing moves of competitors </li></ul><ul><li>Overhanging excess capacity </li></ul>
    • 150. Industries in Transition to Maturity – Organisational Implications <ul><li>More attention to costs, customer service and true marketing </li></ul><ul><li>Reduced attention to introducing new products </li></ul><ul><li>Less “creativity” and more pragmatism </li></ul><ul><li>Normally, organisational changes are imposed by major shifts in strategy, evolution in the size and diversification of a company </li></ul><ul><li>Transition to a Mature industry can be a critical phase when attention has to be paid to change in organisational structure and systems </li></ul><ul><li> Tighter Budgeting, Increased Cross-co ordination </li></ul>
    • 151. Industries in Transition to Maturity – Organisational Implications (contd) <ul><li>Scaled down expectation for financial growth </li></ul><ul><li>More discipline from the organisation </li></ul><ul><li>Scaled down expectation for advancement </li></ul><ul><li>More attention to human dimension </li></ul><ul><li>Recentralisation </li></ul>
    • 152. Industries in Transition to Maturity – Transition and the General Manager <ul><li>Change from rapid growth to slow growth </li></ul><ul><ul><li>Need to control cost </li></ul></ul><ul><ul><li>Need to compete on price </li></ul></ul><ul><ul><li>Cross functional co-ordination </li></ul></ul><ul><li>Change in the atmosphere </li></ul><ul><li>Change in the skills requirement </li></ul><ul><ul><li>More of administrative and organisational skills </li></ul></ul><ul><li>Reaction of General Management </li></ul><ul><ul><li>Denial and dogged adherence to earlier strategy </li></ul></ul><ul><ul><li>Complete withdrawal </li></ul></ul>
    • 153. Declining Industries – Structural Determinants of Competition in Decline <ul><li>Conditions of Demand </li></ul><ul><ul><li>Uncertainty – permanent ?? Temporary ?? </li></ul></ul><ul><ul><li>Rate and pattern of decline – cyclical change and decline – faster the change, easier to identify </li></ul></ul><ul><ul><li>Structure of remaining demand pockets –endgame may be profitable for survivors !! </li></ul></ul><ul><ul><li>Causes of decline – Technological substitution, Demographics, Shifts in needs </li></ul></ul><ul><li>Exit Barriers </li></ul><ul><ul><li>Durable and Specialised Assets </li></ul></ul><ul><ul><li>Fixed Cost of Exit </li></ul></ul><ul><ul><li>Strategic Exit Barriers – Inter relatedness;Access to Financial Markets; Vertical Integration </li></ul></ul><ul><ul><li>Information Barriers </li></ul></ul><ul><ul><li>Managerial or Emotional Barriers </li></ul></ul><ul><ul><li>Government and Social Barriers </li></ul></ul><ul><ul><li>Mechanism for Asset Disposition </li></ul></ul><ul><li>Volatility of Rivalry </li></ul>
    • 154. Declining Industries – Strategic Alternatives <ul><li>Leadership </li></ul><ul><li>Niche </li></ul><ul><li>Harvest </li></ul><ul><li>Divest quickly </li></ul>
    • 155. Declining Industries – Choosing a Strategy <ul><li>Is the structure of the industry conducive to a hospitable (potentially profitable) decline phase based on the conditions </li></ul><ul><li>What are the exit barriers facing each and every significant competitor? Who will exit ? Who will stay on? </li></ul><ul><li>Of the firms that stay, what are their relative strengths for competing in the pockets of demand that will remain in the industry? How seriously must their position be eroded before exit is likely ? </li></ul><ul><li>What are the exit barriers facing the firm? </li></ul><ul><li>What are the firm’s relative strengths vis-à-vis the pockets of demand that remain? </li></ul>
    • 156. Declining Industries – Strategies for Decline Leadership Or Niche Harvest Or Divest Quickly Niche Or Harvest Divest Quickly Relative Strength in Remaining Pockets of demand High Low  Unfavourable Favourable  For decline
    • 157. Declining Industries – Pitfalls <ul><li>Failure to Recognise Decline </li></ul><ul><li>A War of Attrition </li></ul><ul><li>Harvesting without Clear Strength </li></ul>
    • 158. Declining Industries – Preparations for Decline <ul><li>Minimise Investments or other actions that will raise exit barriers from any of the sources discussed </li></ul><ul><li>Place strategic emphasis on market segments that will be favourable under decline conditions </li></ul><ul><li>Create switching costs in these segments </li></ul>
    • 159. How Did We Get Here? <ul><li>Any relevant historical information </li></ul><ul><li>Original assumptions that are no longer valid </li></ul>
    • 160. Fragmented Industries – Reasons for Fragmentation ( Contd) <ul><li>Importance of local image and local contacts </li></ul><ul><li>Diverse Market Needs </li></ul><ul><li>High Product Differentiation (particularly if based image) </li></ul><ul><li>Exit Barriers </li></ul><ul><li>Local Regulation </li></ul><ul><li>Government Prohibition of Concentration </li></ul><ul><li>Newness </li></ul>
    • 161. Available Options <ul><li>State the alternative strategies </li></ul><ul><li>List advantages & disadvantages of each </li></ul><ul><li>State cost of each option </li></ul>
    • 162. Recommendation <ul><li>Recommend one or more of the strategies </li></ul><ul><li>Summarize the results if things go as proposed </li></ul><ul><li>What to do next </li></ul><ul><li>Identify action items </li></ul>
    • 163. Emerging Industries – Strategic Choices Timing the Entry (Contd) <ul><li>Situations where Early Entry is Recommended </li></ul><ul><ul><li>Image and Reputation of a Pioneer is important </li></ul></ul><ul><ul><li>Importance of Learning Curve </li></ul></ul><ul><ul><li>High Customer Loyalty </li></ul></ul><ul><ul><li>Early Commitment of suppliers, distribution channels, etc </li></ul></ul><ul><li>Situations where Early Entry is Risky </li></ul><ul><ul><li>If Nature of competition and Market Segmentation is likely to change as Industry matures </li></ul></ul><ul><ul><li>High cost of opening the market, which cannot be made propreitory </li></ul></ul><ul><ul><li>Costly competition with small firms during early part and competition from established players later </li></ul></ul><ul><ul><li>Likely technological changes due to obsolescence </li></ul></ul>

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