Porters Diamond - Four Determinants ofPorters Diamond - Four Determinants of
National Competitive Advantage theoryNational...
The Diamond - Four Determinants ofThe Diamond - Four Determinants of
National Competitive AdvantageNational Competitive Ad...
a.a. Factor ConditionsFactor Conditions
Factor conditions refers to inputs used as factorsFactor conditions refers to inp...
a.a. Factor ConditionsFactor Conditions
"Non-key" factors or general use factors, such as"Non-key" factors or general use ...
a.a. Factor ConditionsFactor Conditions
Porter argues that a lack of resources often actuallyPorter argues that a lack of ...
a.a. Factor ConditionsFactor Conditions
Switzerland was the first country to experienceSwitzerland was the first country t...
Sweden has a short building season and highSweden has a short building season and high
construction costs. These two thing...
b. Demand Conditionsb. Demand Conditions
Porter argues that a sophisticated domestic marketPorter argues that a sophistica...
b. Demand Conditionsb. Demand Conditions
If the nation’s discriminating values spread to otherIf the nation’s discriminati...
c. Related and Supporting Industriesc. Related and Supporting Industries
Porter also argues that a set of strong related a...
d. Firm Strategy, Structure and Rivalryd. Firm Strategy, Structure and Rivalry
11..StrategyStrategy
((a) Capital Marketa...
(b) Individuals’ Career Choices(b) Individuals’ Career Choices
Individuals base their career decisions onIndividuals bas...
Porter argues that the best management stylesPorter argues that the best management styles
vary among industries. Some co...
33..RivalryRivalry
Porter argues that intense competition spursPorter argues that intense competition spurs
innovation. Co...
International Business StrategyInternational Business Strategy
Corporate- Level StrategiesCorporate- Level Strategies
 Are basically about decisions related to allocatingAre basically ...
Corporate- Level StrategiesCorporate- Level Strategies
 There are Grand StrategiesThere are Grand Strategies
1) Stability...
Grand StrategiesGrand Strategies
 1)1) Stability StrategiesStability Strategies
a) No- change Strategya) No- change Strat...
Stability StrategiesStability Strategies
 Refer to attempts made by a company at incrementalRefer to attempts made by a c...
Stability StrategyStability Strategy
Reasons for stability strategy :Reasons for stability strategy :
 The company is doi...
Stability StrategyStability Strategy
 No-change Strategy :No-change Strategy :
When faced with a predictable and certain ...
Stability StrategyStability Strategy
 Profit Strategy:Profit Strategy:
In situations when profits are dipping, firms unde...
Stability StrategyStability Strategy
 Pause /proceed with caution strategy:Pause /proceed with caution strategy:
is emplo...
Growth/Expansion StrategyGrowth/Expansion Strategy
 Growth strategy amounts to redefining the business byGrowth strategy ...
Expansion StrategyExpansion Strategy
Reasons for growthReasons for growth
 Natural urgeNatural urge
 SurvivalSurvival
 ...
Expansion StrategyExpansion Strategy
 Expansion through Concentration/Intensive strategy:Expansion through Concentration/...
IGOR ANSOFF’S PRODUCT/MARKETIGOR ANSOFF’S PRODUCT/MARKET
EXPANSION GRIDEXPANSION GRID
Current Product New Product
Current
...
IGOR ANSOFF’S PRODUCT/MARKETIGOR ANSOFF’S PRODUCT/MARKET
EXPANSION GRIDEXPANSION GRID
 Current Market –Current ProductCur...
 Market DevelopmentMarket Development
Geographical expansion: Opening retail outlets inGeographical expansion: Opening re...
IGOR ANSOFF’S PRODUCT/MARKETIGOR ANSOFF’S PRODUCT/MARKET
EXPANSION GRIDEXPANSION GRID
 Product development Strategy :Prod...
Expansion Through IntegrationExpansion Through Integration
 Vertical IntegrationVertical Integration (V I) : When an orga...
Expansion Through IntegrationExpansion Through Integration
 Backward Integration: --Backward Integration: -- BenefitsBene...
Expansion Through IntegrationExpansion Through Integration
 Forward Integration : Benefits:Forward Integration : Benefits...
Expansion Through IntegrationExpansion Through Integration
 Horizontal Integration : Integration at theHorizontal Integra...
Expansion Though DiversificationExpansion Though Diversification
 Diversification :Diversification :
Companies diversify ...
Expansion Though DiversificationExpansion Though Diversification
 Three types of diversification:--Three types of diversi...
Expansion Though DiversificationExpansion Though Diversification
 Horizontal Diversification strategy : Company searchesH...
Expansion Though DiversificationExpansion Though Diversification
 Conglomerate DiversificationConglomerate Diversificatio...
Mergers & AcquisitionsMergers & Acquisitions
 Reasons for MergersReasons for Mergers
 Why Buyer wishes to mergeWhy Buyer...
 Brooke Bond and Lipton merged because theirBrooke Bond and Lipton merged because their
businesses overlapped and hence t...
Important criteria before acquisitionImportant criteria before acquisition
 Earning PotentialEarning Potential
 Value of...
Joint Venture StrategiesJoint Venture Strategies
Two or more companies form a partnership for a specified purpose.Two or m...
Turnaround Management & RestructuringTurnaround Management & Restructuring
Danger SignalsDanger Signals
 Deteriorating pe...
Danger SignalsDanger Signals
 Investment Policies:Investment Policies:
1) Inadequate Reinvestment in Business: Adequate r...
TURNAROUND MANAGEMENTTURNAROUND MANAGEMENT
 Turnaround Management refers to the managementTurnaround Management refers to...
Turnaround ManagementTurnaround Management
The important factors employed in turnaround management are asThe important fac...
Elements in Turnaround ManagementElements in Turnaround Management
 Change in top managementChange in top management
 In...
RestructuringRestructuring
Restructuring may be resorted in the following cases:Restructuring may be resorted in the follo...
Forms of Corporate RestructuringForms of Corporate Restructuring
 Expansion :Expansion :
1) M & A:1) M & A:
2)Tender offe...
RestructuringRestructuring
 Changes in ownership structureChanges in ownership structure::
Private companies become publi...
Management of ChangeManagement of Change
““The only thing permanent in this world is change”The only thing permanent in th...
Barriers to changeBarriers to change
1) Lag in recognizing the problem1) Lag in recognizing the problem
2) Behavioral Resi...
BCG matrix- Growth/share matrixBCG matrix- Growth/share matrix
STARS Question
Marks
Dogs
Cash
cow
Relative Market share
x
...
Protect Position
Invest to grow
Concentrate effort
on maintaining
strength
Invest to build
Challenge for
leadership
Build ...
GE ModelGE Model
 Market Attractiveness:Market Attractiveness:
Overall Market sizeOverall Market size
Annual Market growt...
G E MODELG E MODEL
Business StrengthBusiness Strength
 Market shareMarket share
 Share growthShare growth
 Product qual...
Porter’s 5 Forces- Determining SegmentPorter’s 5 Forces- Determining Segment
Structural AttractivenessStructural Attractiv...
Threat of EntryThreat of Entry
 Barriers To Entry :Barriers To Entry :
 )Economies of scale)Economies of scale
 )Produc...
Bargaining Power of BuyersBargaining Power of Buyers
 Buyers compete with the industry by forcing down prices ,Buyers com...
Bargaining Power of BuyersBargaining Power of Buyers
)Faces few switching costs: switching costs, lock)Faces few switchin...
Bargaining power of suppliersBargaining power of suppliers
 A supplier group is powerful if the following applyA supplier...
Three Generic StrategiesThree Generic Strategies
Differentiatio
n
Overall cost
leadership
Focus
Strategic Advantage
Low co...
 To cope with the 5 competitive forces---To cope with the 5 competitive forces---
there are 3 generic strategiesthere are...
Overall Cost Leadership
•Requires construction of efficient – scale facilities
•Cost minimization in areas like R&D, ADVER...
 How does low cost help fight the 5 forcesHow does low cost help fight the 5 forces
 )gives the firm a defense against r...
 To achieve cost leadership --- upfront capital investmentTo achieve cost leadership --- upfront capital investment
in st...
 Differentiation ---- creating something that is perceivedDifferentiation ---- creating something that is perceived
indus...
 How does differentiation help fight the 5 forcesHow does differentiation help fight the 5 forces
• Provides insulation a...
 Focus---Focus---
 Focusing on a particular buyer group , segment of theFocusing on a particular buyer group , segment o...
 Focus Differentiation --- Longines makes high jeweledFocus Differentiation --- Longines makes high jeweled
watches to we...
Risks of Generic StrategiesRisks of Generic Strategies
 Overall Cost Leadership:Overall Cost Leadership:
• Technological ...
 e.g--- Ford Motor company—1920s --- achievede.g--- Ford Motor company—1920s --- achieved
unchallenged cost leadership th...
 Risks of DifferentiationRisks of Differentiation
• Cost differential between low-cost competitors andCost differential b...
 Risks of FocusRisks of Focus
• The cost differential between broad range competitors andThe cost differential between br...
Comp adv & strategy
Upcoming SlideShare
Loading in …5
×

Comp adv & strategy

670 views

Published on

Published in: Education
0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
670
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
15
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide

Comp adv & strategy

  1. 1. Porters Diamond - Four Determinants ofPorters Diamond - Four Determinants of National Competitive Advantage theoryNational Competitive Advantage theory
  2. 2. The Diamond - Four Determinants ofThe Diamond - Four Determinants of National Competitive AdvantageNational Competitive Advantage  Four attributes of a nation comprise Porter’sFour attributes of a nation comprise Porter’s Diamond of national advantage. They are:Diamond of national advantage. They are: a.a. factor conditions (i.e. the nation's position infactor conditions (i.e. the nation's position in factors of production, such as skilled labour andfactors of production, such as skilled labour and infrastructure),infrastructure), b.b. demand conditions (i.e. sophisticateddemand conditions (i.e. sophisticated customers in home market),customers in home market), c.c. related and supporting industries, andrelated and supporting industries, and d. Firm strategy structure and rivalry (i.e.d. Firm strategy structure and rivalry (i.e. conditions for organization of companies, andconditions for organization of companies, and the nature of domestic rivalry).the nature of domestic rivalry).
  3. 3. a.a. Factor ConditionsFactor Conditions Factor conditions refers to inputs used as factorsFactor conditions refers to inputs used as factors of production - such as labour, land, naturalof production - such as labour, land, natural resources, capital and infrastructure.resources, capital and infrastructure. This sounds similar to standard economic theory,This sounds similar to standard economic theory, but Porter argues that the "key" factors ofbut Porter argues that the "key" factors of production (or specialized factors) areproduction (or specialized factors) are createdcreated, not, not inherited.inherited. Specialized factors of production are skilled labour,Specialized factors of production are skilled labour, capital and infrastructure.capital and infrastructure.
  4. 4. a.a. Factor ConditionsFactor Conditions "Non-key" factors or general use factors, such as"Non-key" factors or general use factors, such as unskilled labour and raw materials, can be obtainedunskilled labour and raw materials, can be obtained by any company and, hence, do not generateby any company and, hence, do not generate sustained competitive advantage.sustained competitive advantage. However, specialized factors involve heavy,However, specialized factors involve heavy, sustained investment.sustained investment. They are more difficult to duplicate.They are more difficult to duplicate. This leads to a competitive advantage, because ifThis leads to a competitive advantage, because if other firms cannot easily duplicate these factors,other firms cannot easily duplicate these factors, they are valuable.they are valuable.
  5. 5. a.a. Factor ConditionsFactor Conditions Porter argues that a lack of resources often actuallyPorter argues that a lack of resources often actually helps countries to become competitive (call ithelps countries to become competitive (call it selected factor disadvantage).selected factor disadvantage). Abundance generates waste and scarcity generatesAbundance generates waste and scarcity generates an innovative mindset.an innovative mindset. Such countries are forced to innovate to overcomeSuch countries are forced to innovate to overcome their problem of scarce resources.their problem of scarce resources.
  6. 6. a.a. Factor ConditionsFactor Conditions Switzerland was the first country to experienceSwitzerland was the first country to experience labour shortages. They abandoned labour-intensivelabour shortages. They abandoned labour-intensive watches and concentrated on innovative/high-endwatches and concentrated on innovative/high-end watcheswatches.. •Japan has high priced land and so its factoryJapan has high priced land and so its factory spaces at a premiumspaces at a premium.. This lead to just-in-time inventory techniquesThis lead to just-in-time inventory techniques (Japanese firms can’t have a lot of stock taking up(Japanese firms can’t have a lot of stock taking up space, so to cope with the potential of not havespace, so to cope with the potential of not have goods around when they need it, they innovatedgoods around when they need it, they innovated traditional inventory techniquestraditional inventory techniques).).
  7. 7. Sweden has a short building season and highSweden has a short building season and high construction costs. These two things combinedconstruction costs. These two things combined created a need for pre-fabricated housescreated a need for pre-fabricated houses
  8. 8. b. Demand Conditionsb. Demand Conditions Porter argues that a sophisticated domestic marketPorter argues that a sophisticated domestic market is an important element to producingis an important element to producing competitiveness.competitiveness. Firms that face a sophisticated domestic marketFirms that face a sophisticated domestic market are likely to sell superior products because theare likely to sell superior products because the market demands high quality and a close proximitymarket demands high quality and a close proximity to such consumers enables the firm to betterto such consumers enables the firm to better understand the needs and desires of theunderstand the needs and desires of the customerscustomers
  9. 9. b. Demand Conditionsb. Demand Conditions If the nation’s discriminating values spread to otherIf the nation’s discriminating values spread to other countries, then the local firms will be competitive incountries, then the local firms will be competitive in the global market.the global market. One example is the French wine industry.One example is the French wine industry. The French are sophisticated wine consumers.The French are sophisticated wine consumers. These consumers force and help French wineriesThese consumers force and help French wineries to produce high quality wines.to produce high quality wines. Another example-- obsession of superior qualityAnother example-- obsession of superior quality amongst Japanese consumers--- ensured highamongst Japanese consumers--- ensured high quality for Consumer electronics and cars industryquality for Consumer electronics and cars industry
  10. 10. c. Related and Supporting Industriesc. Related and Supporting Industries Porter also argues that a set of strong related andPorter also argues that a set of strong related and supporting industries is important to thesupporting industries is important to the competitiveness of firms.competitiveness of firms. This includes suppliers and related industries.This includes suppliers and related industries. This usually occurs at a regional level as opposedThis usually occurs at a regional level as opposed to a national level.to a national level. Examples include Silicon valley in the U.S., DetroitExamples include Silicon valley in the U.S., Detroit (for the auto industry) and Italy (leather-shoes-(for the auto industry) and Italy (leather-shoes- other leather goods industry).other leather goods industry).
  11. 11. d. Firm Strategy, Structure and Rivalryd. Firm Strategy, Structure and Rivalry 11..StrategyStrategy ((a) Capital Marketa) Capital Market Domestic capital markets affect the strategy ofDomestic capital markets affect the strategy of firms. Some countries’ capital markets have afirms. Some countries’ capital markets have a long-run outlook, while others have a short-runlong-run outlook, while others have a short-run outlook. Industries vary in how long the long-outlook. Industries vary in how long the long- run is. Countries with a short-run outlook (likerun is. Countries with a short-run outlook (like the U.S.) will tend to be more competitive inthe U.S.) will tend to be more competitive in industries where investment is short-term (likeindustries where investment is short-term (like the computer industry). Countries with a longthe computer industry). Countries with a long run outlook (like Switzerland) will tend to berun outlook (like Switzerland) will tend to be more competitive in industries wheremore competitive in industries where investment is long term (like the pharmaceuticalinvestment is long term (like the pharmaceutical industryindustry).).
  12. 12. (b) Individuals’ Career Choices(b) Individuals’ Career Choices Individuals base their career decisions onIndividuals base their career decisions on opportunities and prestige. A country will beopportunities and prestige. A country will be competitive in an industry whose key personnelcompetitive in an industry whose key personnel hold positions that are considered prestigious.hold positions that are considered prestigious.
  13. 13. Porter argues that the best management stylesPorter argues that the best management styles vary among industries. Some countries may bevary among industries. Some countries may be oriented toward a particular style of management.oriented toward a particular style of management. Those countries will tend to be more competitive inThose countries will tend to be more competitive in industries for which that style of management isindustries for which that style of management is suited.suited. For example, Germany tends to have hierarchicalFor example, Germany tends to have hierarchical management structures composed of managersmanagement structures composed of managers with strong technical backgrounds and Italy haswith strong technical backgrounds and Italy has smaller, family-run firmssmaller, family-run firms
  14. 14. 33..RivalryRivalry Porter argues that intense competition spursPorter argues that intense competition spurs innovation. Competition is particularly fierce ininnovation. Competition is particularly fierce in Japan, where many companies competeJapan, where many companies compete vigorously in most industriesvigorously in most industries.. International competition is not as intense andInternational competition is not as intense and motivating. With international competition, there aremotivating. With international competition, there are enough differences between companies and theirenough differences between companies and their environments to provide handy excuses to managersenvironments to provide handy excuses to managers who were outperformed by their competitorswho were outperformed by their competitors..
  15. 15. International Business StrategyInternational Business Strategy
  16. 16. Corporate- Level StrategiesCorporate- Level Strategies  Are basically about decisions related to allocatingAre basically about decisions related to allocating resources among the different businesses of a firm ,resources among the different businesses of a firm , transferring resources from one set of businesses totransferring resources from one set of businesses to others and managing and nurturing a portfolio ofothers and managing and nurturing a portfolio of businesses in such a way that the overall corporatebusinesses in such a way that the overall corporate objectives are achieved.objectives are achieved.
  17. 17. Corporate- Level StrategiesCorporate- Level Strategies  There are Grand StrategiesThere are Grand Strategies 1) Stability Strategies1) Stability Strategies 2) Expansion Strategies2) Expansion Strategies 3) Retrenchment Strategies3) Retrenchment Strategies
  18. 18. Grand StrategiesGrand Strategies  1)1) Stability StrategiesStability Strategies a) No- change Strategya) No- change Strategy b)b) Pause/proceed with cautionPause/proceed with caution c)c) Profit StrategiesProfit Strategies  2)2) Expansion StrategiesExpansion Strategies a) Intensivea) Intensive b) Integrativeb) Integrative c) Diversificationc) Diversification d)d) Cooperation (M&A, JV/Foreign Collaboration)Cooperation (M&A, JV/Foreign Collaboration) e) Internationalizatione) Internationalization  3)3) Retrenchment StrategiesRetrenchment Strategies a) Turnarounda) Turnaround b) Restructuringb) Restructuring
  19. 19. Stability StrategiesStability Strategies  Refer to attempts made by a company at incrementalRefer to attempts made by a company at incremental improvement of functional performance.improvement of functional performance.  Strategy relevant for a firm operating in a reasonablyStrategy relevant for a firm operating in a reasonably certain and predictable environment.certain and predictable environment.  Followed by small and medium –sized firms .Followed by small and medium –sized firms .
  20. 20. Stability StrategyStability Strategy Reasons for stability strategy :Reasons for stability strategy :  The company is doing fairly well and will continue to doThe company is doing fairly well and will continue to do so.so.  The feeling that sticking to the known business is betterThe feeling that sticking to the known business is better and safe.and safe.  Expansion may lead to dilution in stake or non effectiveExpansion may lead to dilution in stake or non effective supervision by family members.supervision by family members.  The company may not have the resources /capabilitiesThe company may not have the resources /capabilities  May be risk averseMay be risk averse  Stick to core competencies.Stick to core competencies.
  21. 21. Stability StrategyStability Strategy  No-change Strategy :No-change Strategy : When faced with a predictable and certain externalWhen faced with a predictable and certain external environment , a firm decides to continue with its presentenvironment , a firm decides to continue with its present strategystrategy.. e.g --- Monopoly sectors like railways, Power etc.e.g --- Monopoly sectors like railways, Power etc. Also small and medium companies operating in familiarAlso small and medium companies operating in familiar markets --- e.g Nirula in delhi , Natural Icecreams inmarkets --- e.g Nirula in delhi , Natural Icecreams in Mumbai,Mumbai,
  22. 22. Stability StrategyStability Strategy  Profit Strategy:Profit Strategy: In situations when profits are dipping, firms undertake measures likeIn situations when profits are dipping, firms undertake measures like 1)1) Reduce investmentsReduce investments 2)2) Cut costsCut costs 3)3) Raise pricesRaise prices 4)4) Increase productivity etc--- to tide over what are supposed to beIncrease productivity etc--- to tide over what are supposed to be temporary difficulties.temporary difficulties. e.g – companies sell assets like land in commercial location ande.g – companies sell assets like land in commercial location and move out to the suburbs.. Or companies sell non-core businessmove out to the suburbs.. Or companies sell non-core business to stay afloat.to stay afloat.
  23. 23. Stability StrategyStability Strategy  Pause /proceed with caution strategy:Pause /proceed with caution strategy: is employed by firms that wish to test the ground beforeis employed by firms that wish to test the ground before moving ahead with a full – fledged grand strategy or bymoving ahead with a full – fledged grand strategy or by firms that have had a blistering pace of expansion andfirms that have had a blistering pace of expansion and wish to rest a while before moving ahead.wish to rest a while before moving ahead.
  24. 24. Growth/Expansion StrategyGrowth/Expansion Strategy  Growth strategy amounts to redefining the business byGrowth strategy amounts to redefining the business by adding new products/services or new markets oradding new products/services or new markets or expanding current businessexpanding current business  A company can pursue internal or external growthA company can pursue internal or external growth strategies or both.strategies or both. The different expansion strategies are :The different expansion strategies are :  Expansion StrategiesExpansion Strategies a) Intensivea) Intensive b) Integrativeb) Integrative c) Diversificationc) Diversification d) Cooperation (M&A, JV/Foreignd) Cooperation (M&A, JV/Foreign Collaboration)Collaboration) e) Internationalizatione) Internationalization
  25. 25. Expansion StrategyExpansion Strategy Reasons for growthReasons for growth  Natural urgeNatural urge  SurvivalSurvival  Market shareMarket share  CompetitionCompetition  Diversification of riskDiversification of risk  OpportunitiesOpportunities  Better utilization of resourcesBetter utilization of resources  MotivationMotivation  profitsprofits
  26. 26. Expansion StrategyExpansion Strategy  Expansion through Concentration/Intensive strategy:Expansion through Concentration/Intensive strategy:  Concentration is a simple , first –level type of expansion strategy.Concentration is a simple , first –level type of expansion strategy. I t involves converging resources in one or more of a firm’sI t involves converging resources in one or more of a firm’s businesses.businesses.  Concentration strategies are also known as intensification, focusConcentration strategies are also known as intensification, focus or specialization strategies.or specialization strategies. e.g – Bajaj Auto , Nokia , Infosys, Bose speakerse.g – Bajaj Auto , Nokia , Infosys, Bose speakers Concentration strategies can be of the following types—Concentration strategies can be of the following types— 1)1) Product developmentProduct development 2)2) Market developmentMarket development 3)3) Market penetration.Market penetration. Igor Ansoff has presented the matrix for intensive growth.Igor Ansoff has presented the matrix for intensive growth.
  27. 27. IGOR ANSOFF’S PRODUCT/MARKETIGOR ANSOFF’S PRODUCT/MARKET EXPANSION GRIDEXPANSION GRID Current Product New Product Current Market New Market Market Penetration Market Development Product Development Diversification
  28. 28. IGOR ANSOFF’S PRODUCT/MARKETIGOR ANSOFF’S PRODUCT/MARKET EXPANSION GRIDEXPANSION GRID  Current Market –Current ProductCurrent Market –Current Product  Market Penetration:Market Penetration: Encourage current customers to buy more.Encourage current customers to buy more. Attract competitors customers to switch to itsAttract competitors customers to switch to its brandbrand Convince non users who resemble currentConvince non users who resemble current users to start using the company’s product.users to start using the company’s product. e.g --- Pepsodent, Colgatee.g --- Pepsodent, Colgate
  29. 29.  Market DevelopmentMarket Development Geographical expansion: Opening retail outlets inGeographical expansion: Opening retail outlets in other areas.other areas. e.g --- Mc-Donalds, Shoppers’ Stope.g --- Mc-Donalds, Shoppers’ Stop Channel expansion : If only present in consumerChannel expansion : If only present in consumer market, then look at institutional sales also.market, then look at institutional sales also.
  30. 30. IGOR ANSOFF’S PRODUCT/MARKETIGOR ANSOFF’S PRODUCT/MARKET EXPANSION GRIDEXPANSION GRID  Product development Strategy :Product development Strategy : Introduce products with new featuresIntroduce products with new features Introduce different quality versionsIntroduce different quality versions Alternative product formsAlternative product forms e.g – LG in colour TVs– Flat TVs, Plasma TVs,e.g – LG in colour TVs– Flat TVs, Plasma TVs, LCD TVs, Projection TVs.LCD TVs, Projection TVs.  Diversification StrategyDiversification Strategy
  31. 31. Expansion Through IntegrationExpansion Through Integration  Vertical IntegrationVertical Integration (V I) : When an organization starts making new(V I) : When an organization starts making new products that serve its own needs , vertical integration takes place.products that serve its own needs , vertical integration takes place.  V I are of two types--- Forward and Backward integrationV I are of two types--- Forward and Backward integration  Backward integration : When a company starts making some or allBackward integration : When a company starts making some or all of its material requirements (Inputs ) it is backward integration.of its material requirements (Inputs ) it is backward integration.  Forward Integration : moves the company nearer to the ultimateForward Integration : moves the company nearer to the ultimate consumer.consumer.  E.g If Tata Indica starts making tyres --- backward integrationE.g If Tata Indica starts making tyres --- backward integration  If Sona Steering starts making cars--- its forward integrationIf Sona Steering starts making cars--- its forward integration
  32. 32. Expansion Through IntegrationExpansion Through Integration  Backward Integration: --Backward Integration: -- BenefitsBenefits 1)1) It ensures smooth supply of materialsIt ensures smooth supply of materials 2)2) Better control on quantity and quantity.Better control on quantity and quantity. 3)3) Results in economies of scaleResults in economies of scale DisadvantagesDisadvantages 1)1) The cost of making may be higher then the cost ofThe cost of making may be higher then the cost of buyingbuying 2)2) Exiting the business in future may be more difficultExiting the business in future may be more difficult
  33. 33. Expansion Through IntegrationExpansion Through Integration  Forward Integration : Benefits:Forward Integration : Benefits: 1)1) It creates a captive demand for the productIt creates a captive demand for the product 2)2) It generates additional profits .It generates additional profits . e.g Raymond’s getting into ready made shirts –(Parke.g Raymond’s getting into ready made shirts –(Park Avenue, Parx)Avenue, Parx) Disadvantages of FI :Disadvantages of FI : 1)1) The new business may not succeedThe new business may not succeed
  34. 34. Expansion Through IntegrationExpansion Through Integration  Horizontal Integration : Integration at theHorizontal Integration : Integration at the same level of business –same level of business – e.g HLL buying TOMCOe.g HLL buying TOMCO Or sister concerns of the same companyOr sister concerns of the same company can be combined into one entity.can be combined into one entity.
  35. 35. Expansion Though DiversificationExpansion Though Diversification  Diversification :Diversification : Companies diversify for the following reasonsCompanies diversify for the following reasons 1)1) Saturation or decline of current businessSaturation or decline of current business 2)2) Additional/Better opportunitiesAdditional/Better opportunities 3)3) Risk MinimizationRisk Minimization 4)4) Better utilization of Resources and strengthBetter utilization of Resources and strength 5)5) ConsolidationConsolidation 6)6) Inspiration and motivation to employeesInspiration and motivation to employees Risks of DiversificationRisks of Diversification 1)1) No guarantee of successNo guarantee of success 2)2) Competition may retaliate in old businessCompetition may retaliate in old business 3)3) May lead to neglect of old business.May lead to neglect of old business.
  36. 36. Expansion Though DiversificationExpansion Though Diversification  Three types of diversification:--Three types of diversification:-- 1)1) Concentric Diversification StrategyConcentric Diversification Strategy : company: company makes products that have technological and / ormakes products that have technological and / or marketing synergies with existing product lines , evenmarketing synergies with existing product lines , even though the product may appeal to a new class ofthough the product may appeal to a new class of customerscustomers e.g--- A audio cassette/CD company may start makinge.g--- A audio cassette/CD company may start making computer CD ---computer CD --- A washing machine company starts makingA washing machine company starts making dishwasher.dishwasher.
  37. 37. Expansion Though DiversificationExpansion Though Diversification  Horizontal Diversification strategy : Company searchesHorizontal Diversification strategy : Company searches for new products that serve the same customer thoughfor new products that serve the same customer though technologically unrelated to its current product .technologically unrelated to its current product . e.g – A cassette manufacturing company starts making traye.g – A cassette manufacturing company starts making tray to hold the cassette.to hold the cassette. A CD company starts making CD boxesA CD company starts making CD boxes
  38. 38. Expansion Though DiversificationExpansion Though Diversification  Conglomerate DiversificationConglomerate Diversification : When an: When an organization seeks new businesses that have noorganization seeks new businesses that have no relationship to the company’s current technology,relationship to the company’s current technology, products or markets its known as Conglomerateproducts or markets its known as Conglomerate diversification.diversification.  e..g : ITC ( Cigarettes, Hotels, Paper )e..g : ITC ( Cigarettes, Hotels, Paper ) TATA ( Steel, salt, cement, power, tea, retail,TATA ( Steel, salt, cement, power, tea, retail, hotels,coffee chain, software)hotels,coffee chain, software) TTK ( Pressure cookers, chemicals,TTK ( Pressure cookers, chemicals, contraceptives, pharmaceuticals)contraceptives, pharmaceuticals) Anchor (consumer electronics, Toothpaste, talcumAnchor (consumer electronics, Toothpaste, talcum powder, electrical switches)powder, electrical switches)
  39. 39. Mergers & AcquisitionsMergers & Acquisitions  Reasons for MergersReasons for Mergers  Why Buyer wishes to mergeWhy Buyer wishes to merge  To increase value of the organization's stockTo increase value of the organization's stock  To increase growth rate and make a good investmentTo increase growth rate and make a good investment  To improve stability of earning and salesTo improve stability of earning and sales  To balance , complete or diversify product lineTo balance , complete or diversify product line  To reduce competitionTo reduce competition  To avail tax concessions /tax benefits.To avail tax concessions /tax benefits.  To take advantage of synergy.To take advantage of synergy.
  40. 40.  Brooke Bond and Lipton merged because theirBrooke Bond and Lipton merged because their businesses overlapped and hence they could benefitbusinesses overlapped and hence they could benefit from operational economics and synergies.from operational economics and synergies.  BBLIL took over Kwality , Milkfoods and DollopsBBLIL took over Kwality , Milkfoods and Dollops icecreamsicecreams  BBLIL took over Kissan .BBLIL took over Kissan .  BBLIL merged with HLL.BBLIL merged with HLL.
  41. 41. Important criteria before acquisitionImportant criteria before acquisition  Earning PotentialEarning Potential  Value of company: The commonly used methods of evaluation areValue of company: The commonly used methods of evaluation are  1) Valuations based primarily on assets and liabilities1) Valuations based primarily on assets and liabilities  2) valuation based on the projected earnings of the company2) valuation based on the projected earnings of the company Thumb rule to buy an consumer product company is to offer 1.5 times theThumb rule to buy an consumer product company is to offer 1.5 times the turnoverturnover COKE PAID 170 crores to Parle to acquire ThumsupCOKE PAID 170 crores to Parle to acquire Thumsup Whirlpool paid 300 crores for 51 % stake in KelvinatorWhirlpool paid 300 crores for 51 % stake in Kelvinator Williamson Magor paid 290 crores to Get Eveready brand name fromWilliamson Magor paid 290 crores to Get Eveready brand name from UCILUCIL  Condition of Plant and MachineryCondition of Plant and Machinery  Quality of Management team and other staff.Quality of Management team and other staff.  Market position.Market position.
  42. 42. Joint Venture StrategiesJoint Venture Strategies Two or more companies form a partnership for a specified purpose.Two or more companies form a partnership for a specified purpose. Conditions for JVConditions for JV  When an activity is uneconomical for a company to do alone.When an activity is uneconomical for a company to do alone.  When the distinctive competence of two or more organizations canWhen the distinctive competence of two or more organizations can be brought together.be brought together.  When the risk of business has to be shared.When the risk of business has to be shared. Types of JVTypes of JV  Between two firms in one industryBetween two firms in one industry  Between two firms across different industriesBetween two firms across different industries  Between an Indian firm and a foreign firm in IndiaBetween an Indian firm and a foreign firm in India  Between an Indian firm and a foreign firm in that foreign countryBetween an Indian firm and a foreign firm in that foreign country  Between an Indian firm and a foreign firm in a third country.Between an Indian firm and a foreign firm in a third country.
  43. 43. Turnaround Management & RestructuringTurnaround Management & Restructuring Danger SignalsDanger Signals  Deteriorating performance Indicators:Deteriorating performance Indicators: 1) Decreasing Market share1) Decreasing Market share 2) Decreasing constant rupee sales:2) Decreasing constant rupee sales: 3) Decreasing Profitability3) Decreasing Profitability  Deteriorating Financing Problems:Deteriorating Financing Problems: 1) Increasing reliance on debt: A substantial rise in the amount of1) Increasing reliance on debt: A substantial rise in the amount of debt , a lopsided debt-to-equity ratio and a lowered credit ratingdebt , a lopsided debt-to-equity ratio and a lowered credit rating may cause banks and other lenders to apply restrictions whichmay cause banks and other lenders to apply restrictions which would further compound the financial problems.would further compound the financial problems. 2) restrictive dividend policy: to conserve cash is a danger signal.2) restrictive dividend policy: to conserve cash is a danger signal.
  44. 44. Danger SignalsDanger Signals  Investment Policies:Investment Policies: 1) Inadequate Reinvestment in Business: Adequate reinvestment in1) Inadequate Reinvestment in Business: Adequate reinvestment in plants, machinery and maintenance is necessary for a company toplants, machinery and maintenance is necessary for a company to stay competitive.stay competitive. 2) Proliferation of New ventures at the expense of the priority2) Proliferation of New ventures at the expense of the priority business:business: A common policy in troubled companies is to ignore the basicA common policy in troubled companies is to ignore the basic business and rely on new ventures.business and rely on new ventures.  Lack of PlanningLack of Planning ::  Problems at Top Management LevelsProblems at Top Management Levels:: 1) Lack of receptiveness of CEO1) Lack of receptiveness of CEO 2) Management succession problem2) Management succession problem 3) Ineffective directors/management team3) Ineffective directors/management team
  45. 45. TURNAROUND MANAGEMENTTURNAROUND MANAGEMENT  Turnaround Management refers to the managementTurnaround Management refers to the management measures that reverse the negative trends in themeasures that reverse the negative trends in the performance indicators of the company.performance indicators of the company.  In other words TM refers to the management measuresIn other words TM refers to the management measures which turn a sick company back to a healthy one orwhich turn a sick company back to a healthy one or those measures which reverse the deteriorating trends ofthose measures which reverse the deteriorating trends of the performance indicators such as falling market share ,the performance indicators such as falling market share , sales or worsening debt-equity ratio.sales or worsening debt-equity ratio.
  46. 46. Turnaround ManagementTurnaround Management The important factors employed in turnaround management are asThe important factors employed in turnaround management are as follows:follows:  Management factor: appoint a new CEO (Motorola)Management factor: appoint a new CEO (Motorola)  Human Resource factor: shed surplus manpower, recruitHuman Resource factor: shed surplus manpower, recruit competent peoplecompetent people  Production Facilities: Modernize the plants which improvesProduction Facilities: Modernize the plants which improves efficiencies at the shop floor.efficiencies at the shop floor.  Financial Management:Arranging cheaper finance, cost cuttingFinancial Management:Arranging cheaper finance, cost cutting etc.etc.  Product Mix modification : Unprofitable products needs to beProduct Mix modification : Unprofitable products needs to be dropped, some current products need quality improvements,dropped, some current products need quality improvements, new models need to be introduced.new models need to be introduced.  Marketing Strategy: enter new markets/segments etc.Marketing Strategy: enter new markets/segments etc.  Miscellaneous : liquidation in assets, close down someMiscellaneous : liquidation in assets, close down some divisions, restraints on emoluments of employees, better rawdivisions, restraints on emoluments of employees, better raw material procurement etc.material procurement etc.
  47. 47. Elements in Turnaround ManagementElements in Turnaround Management  Change in top managementChange in top management  Initial credibility building actions.Initial credibility building actions.  Neutralizing external pressures.Neutralizing external pressures.  Initial controlInitial control  Identifying quick payoff activities.Identifying quick payoff activities.  Quick cost reductionsQuick cost reductions  Revenue generation.Revenue generation.  Asset Liquidation for generating cashAsset Liquidation for generating cash  Mobilization of the organizationMobilization of the organization  Better internal co-ordination.Better internal co-ordination. Khandwalla’s ten elements of a successful turnaround strategy.
  48. 48. RestructuringRestructuring Restructuring may be resorted in the following cases:Restructuring may be resorted in the following cases:  To turnaround a sick unit.To turnaround a sick unit.  To prevent a unit from becoming sick.To prevent a unit from becoming sick.  To further improve the vitality and performance of units which areTo further improve the vitality and performance of units which are doing well.doing well.  To facilitate growth and expansion.To facilitate growth and expansion.  To improve the organizational efficiency.To improve the organizational efficiency.  To influence management control.To influence management control.
  49. 49. Forms of Corporate RestructuringForms of Corporate Restructuring  Expansion :Expansion : 1) M & A:1) M & A: 2)Tender offers: public offer to acquire the shares in the market.2)Tender offers: public offer to acquire the shares in the market. 3) JV3) JV  Sell-offsSell-offs 1)Spin-offs : refers to creation of new legal entity by the parent1)Spin-offs : refers to creation of new legal entity by the parent company.company. The existing share holders are given shares of new company. TheyThe existing share holders are given shares of new company. They are done for better focus on different businesses.(e.g Sterlite ,are done for better focus on different businesses.(e.g Sterlite , Sterlite optical)Sterlite optical) 2)Divestitures : involves sale of a division unit or part of the asset of2)Divestitures : involves sale of a division unit or part of the asset of a company to anothera company to another
  50. 50. RestructuringRestructuring  Changes in ownership structureChanges in ownership structure:: Private companies become public for several reasonsPrivate companies become public for several reasons 1) Increase in capital base: This helps in raising loans1) Increase in capital base: This helps in raising loans 2) Foreign collaboration : Foreign firms normally prefer to have2) Foreign collaboration : Foreign firms normally prefer to have collaborations with public companies..collaborations with public companies.. 3) Respectability3) Respectability Exchange offers: Exchange debt for equity . The govt.. loan to aExchange offers: Exchange debt for equity . The govt.. loan to a PSU may be converted to Equity.PSU may be converted to Equity. Share repurchase : Buy back of shares from the market to increaseShare repurchase : Buy back of shares from the market to increase management control and keep predators at bay.management control and keep predators at bay. Types of corporate Restructuring in IndiaTypes of corporate Restructuring in India 1) Portfolio Restructuring1) Portfolio Restructuring 2) Organizational Restructuring2) Organizational Restructuring 3) Functional Restructuring3) Functional Restructuring
  51. 51. Management of ChangeManagement of Change ““The only thing permanent in this world is change”The only thing permanent in this world is change” Types of changesTypes of changes 1) Incremental : gradual changes ---> expansion to a new market.1) Incremental : gradual changes ---> expansion to a new market. 2) Piecemeal :some strategies change and others remain unchanged2) Piecemeal :some strategies change and others remain unchanged 3) Flux: Strategic change without any clear direction3) Flux: Strategic change without any clear direction 4) Transformational : Major discontinuous change.: adoption of an4) Transformational : Major discontinuous change.: adoption of an entirely new technology or conglomerate diversification . This is dueentirely new technology or conglomerate diversification . This is due to some major environment change like liberalization.to some major environment change like liberalization.
  52. 52. Barriers to changeBarriers to change 1) Lag in recognizing the problem1) Lag in recognizing the problem 2) Behavioral Resistance2) Behavioral Resistance Change RequirementsChange Requirements 1) Urgency1) Urgency 2) Crisis Change2) Crisis Change 3) Reactive change3) Reactive change 4) Anticipation change4) Anticipation change 5) resources5) resources 6) Leadership6) Leadership 7) Internal factors7) Internal factors
  53. 53. BCG matrix- Growth/share matrixBCG matrix- Growth/share matrix STARS Question Marks Dogs Cash cow Relative Market share x 0.1 x10x Market Growth Rate (%) 0 10 20
  54. 54. Protect Position Invest to grow Concentrate effort on maintaining strength Invest to build Challenge for leadership Build selectively Reinforce vulnerable areas Build Selectively Specialize around limited strengths Seeks ways to overcome weakness Withdraw if indications of sustain growth is lacking Build Selectively Invest heavily in most attractive segments Build up ability to counter competition Emphasize profitability by raising productivity Selectivity/Manage for earnings Protect existing program Concentrate investments in segments where profitability is good and risks are relatively low Limited Expansion or Harvest Look for ways to expand without high risk ,Otherwise minimize investment and rationalize operations Protect and Refocus Manage for current earnings Concentrate on attractive segments Defend strengths Manage for earnings Protect position in most profitable segments Upgrade product line Minimize investment Divest Sell at time that will maximize value Cut fixed costs and avoid investment meanwhile Strong Medium Weak High Medium Low Business Strength M A R K E T A T T R A C T I V E N E S S GE MODEL
  55. 55. GE ModelGE Model  Market Attractiveness:Market Attractiveness: Overall Market sizeOverall Market size Annual Market growth rateAnnual Market growth rate Historical profit marginHistorical profit margin Competitive intensityCompetitive intensity Technological requirementsTechnological requirements Energy requirementsEnergy requirements Inflationary vulnerabilityInflationary vulnerability Social/ political / legalSocial/ political / legal
  56. 56. G E MODELG E MODEL Business StrengthBusiness Strength  Market shareMarket share  Share growthShare growth  Product qualityProduct quality  Brand reputationBrand reputation  Distribution networkDistribution network  Promotional effectivenessPromotional effectiveness  Productive capacityProductive capacity  Productive efficiencyProductive efficiency  Unit costsUnit costs  R & D performanceR & D performance  Managerial personnelManagerial personnel
  57. 57. Porter’s 5 Forces- Determining SegmentPorter’s 5 Forces- Determining Segment Structural AttractivenessStructural Attractiveness Industry Competitors Buyers (Buyer Power) Suppliers (Supplier Power) Substitutes (Threat of substitutes) Potential Entrants
  58. 58. Threat of EntryThreat of Entry  Barriers To Entry :Barriers To Entry :  )Economies of scale)Economies of scale  )Product Differentiation of existing firms)Product Differentiation of existing firms  )Huge capital requirements)Huge capital requirements  )Switching costs)Switching costs  )Access to distribution channels)Access to distribution channels  )Govt. Policy)Govt. Policy
  59. 59. Bargaining Power of BuyersBargaining Power of Buyers  Buyers compete with the industry by forcing down prices ,Buyers compete with the industry by forcing down prices , bargaining for higher quality or more services and playingbargaining for higher quality or more services and playing competition against each othercompetition against each other  Buyer group is powerful under the following conditionsBuyer group is powerful under the following conditions  )It is concentrated or purchases large volumes relative to)It is concentrated or purchases large volumes relative to seller salesseller sales  )The product it purchases from the industry represent a)The product it purchases from the industry represent a significant fraction of the buyer’s costssignificant fraction of the buyer’s costs  )The product it purchases from the industry are standard)The product it purchases from the industry are standard or undifferentiated: Buyers, sure that they can findor undifferentiated: Buyers, sure that they can find alternate suppliers , may play one company against otheralternate suppliers , may play one company against other to extract maximum mileage.to extract maximum mileage.
  60. 60. Bargaining Power of BuyersBargaining Power of Buyers )Faces few switching costs: switching costs, lock)Faces few switching costs: switching costs, lock the buyer to particular sellers. Lower the costthe buyer to particular sellers. Lower the cost better for buyer to bargainbetter for buyer to bargain )Buyers pose a credible threat of backward)Buyers pose a credible threat of backward integration---- if buyers are partially integrated orintegration---- if buyers are partially integrated or pose a credible threat of backward integration,pose a credible threat of backward integration, they are in a position to demand bargainingthey are in a position to demand bargaining concessions.concessions. )The industry’s product is unimportant to the)The industry’s product is unimportant to the quality of the buyer’s productquality of the buyer’s product The buyer has full informationThe buyer has full information
  61. 61. Bargaining power of suppliersBargaining power of suppliers  A supplier group is powerful if the following applyA supplier group is powerful if the following apply  )The supplier’s product is an important input to the)The supplier’s product is an important input to the buyer’s businessbuyer’s business  )The supplier’s products are differentiated or it has built)The supplier’s products are differentiated or it has built in switching costsin switching costs  )Supplier poses a serious threat of forward integration)Supplier poses a serious threat of forward integration  )The industry is not an important customer of the supplier)The industry is not an important customer of the supplier group.:== When a supplier sells to a number ofgroup.:== When a supplier sells to a number of industries and a particular industry doesn't represent aindustries and a particular industry doesn't represent a significant fraction of sales , suppliers are much moresignificant fraction of sales , suppliers are much more prone to exert power.prone to exert power.
  62. 62. Three Generic StrategiesThree Generic Strategies Differentiatio n Overall cost leadership Focus Strategic Advantage Low cost positionUniqueness perceived by customer Industry wide Particular segment
  63. 63.  To cope with the 5 competitive forces---To cope with the 5 competitive forces--- there are 3 generic strategiesthere are 3 generic strategies • 1. Overall cost leadership1. Overall cost leadership • 2. Differentiation2. Differentiation • 3. Focus3. Focus
  64. 64. Overall Cost Leadership •Requires construction of efficient – scale facilities •Cost minimization in areas like R&D, ADVERTISING, SERVICE, SALES FORCE ETC.
  65. 65.  How does low cost help fight the 5 forcesHow does low cost help fight the 5 forces  )gives the firm a defense against rivalry from competitors ,)gives the firm a defense against rivalry from competitors , because its lower costs gives the company certain returns.because its lower costs gives the company certain returns.  )Defends against powerful buyers because buyers can exert)Defends against powerful buyers because buyers can exert power only to drive down prices to the level of next mostpower only to drive down prices to the level of next most efficient competitor.efficient competitor.  )Defends against powerful suppliers by providing more)Defends against powerful suppliers by providing more flexibility to cope with input cost increases.flexibility to cope with input cost increases.  )Defends against new entrants --- entry barriers in terms of)Defends against new entrants --- entry barriers in terms of scale or cost advantages.scale or cost advantages.
  66. 66.  To achieve cost leadership --- upfront capital investmentTo achieve cost leadership --- upfront capital investment in state-of-the –art equipment/plant is required.in state-of-the –art equipment/plant is required.  e.g --- Texas instruments, DU PONT, Black & Decker,e.g --- Texas instruments, DU PONT, Black & Decker, Bic, Kodak etc.Bic, Kodak etc.  Timex has specialised in manufacturing simple low costTimex has specialised in manufacturing simple low cost watches for the mass market.watches for the mass market.
  67. 67.  Differentiation ---- creating something that is perceivedDifferentiation ---- creating something that is perceived industrywide as unique.industrywide as unique.  Differentiation can take many forms ----Differentiation can take many forms ---- • Design / brand image--- MercedesDesign / brand image--- Mercedes • Technology--- Bose -- speakers and sound systemTechnology--- Bose -- speakers and sound system • Service--- MarutiService--- Maruti • Dealer Network – caterpilar, VideoconDealer Network – caterpilar, Videocon • Quality-- MaytagQuality-- Maytag • Rolex watches are handmade of gold and stainless steelRolex watches are handmade of gold and stainless steel and are subjected to strenuous tests of quality andand are subjected to strenuous tests of quality and reliabilityreliability • Nikon , HP, CrossNikon , HP, Cross
  68. 68.  How does differentiation help fight the 5 forcesHow does differentiation help fight the 5 forces • Provides insulation against competitive rivalry because ofProvides insulation against competitive rivalry because of brand loyalty and resulting lower sensitivity to pricebrand loyalty and resulting lower sensitivity to price • Customer loyalty and need for the competitor toCustomer loyalty and need for the competitor to overcome uniqueness provides entry barrier –for newovercome uniqueness provides entry barrier –for new entrantsentrants • Yields higher margins with which to deal with supplierYields higher margins with which to deal with supplier powerpower • Mitigates buyer power , since buyers lack comparableMitigates buyer power , since buyers lack comparable alternatives and are therefore less price sensitive.alternatives and are therefore less price sensitive.
  69. 69.  Focus---Focus---  Focusing on a particular buyer group , segment of theFocusing on a particular buyer group , segment of the product line,, or geographic marketproduct line,, or geographic market  The strategy rests on the premise that the firm is able toThe strategy rests on the premise that the firm is able to serve the narrow strategic target very well, moreserve the narrow strategic target very well, more effectively and efficiently then competitors who areeffectively and efficiently then competitors who are competing more broadly.competing more broadly.
  70. 70.  Focus Differentiation --- Longines makes high jeweledFocus Differentiation --- Longines makes high jeweled watches to wealthy female consumerswatches to wealthy female consumers  Focus Cost – Fiat sells its automobiles only in Italy andFocus Cost – Fiat sells its automobiles only in Italy and selected regions of Europeselected regions of Europe  Focus differentiation- Alpha Romeo sells high –Focus differentiation- Alpha Romeo sells high – performance cars in the same market (as above)performance cars in the same market (as above)
  71. 71. Risks of Generic StrategiesRisks of Generic Strategies  Overall Cost Leadership:Overall Cost Leadership: • Technological change that nullifies pastTechnological change that nullifies past investments or learning--- e.g – cassettes- CD-investments or learning--- e.g – cassettes- CD- VCD-DVDVCD-DVD • Low cost learning by industry newcomers throughLow cost learning by industry newcomers through imitation or through their ability to invest in state-ofimitation or through their ability to invest in state-of –the art facilities–the art facilities • Inability to see required product or marketingInability to see required product or marketing change because of attention placed on cost.change because of attention placed on cost.
  72. 72.  e.g--- Ford Motor company—1920s --- achievede.g--- Ford Motor company—1920s --- achieved unchallenged cost leadership through limitation ofunchallenged cost leadership through limitation of models and varieties (only black colour) , backwardmodels and varieties (only black colour) , backward integration and highly automated facilitiesintegration and highly automated facilities  As incomes rose, Americans wanted more style, colours,As incomes rose, Americans wanted more style, colours, --- GM (Sloan) gave them what they required.--- GM (Sloan) gave them what they required.  Ford faced enormous costs of strategic readjustmentFord faced enormous costs of strategic readjustment given the rigidities created by heavy investments in costgiven the rigidities created by heavy investments in cost minimization of an obsolete model.minimization of an obsolete model.
  73. 73.  Risks of DifferentiationRisks of Differentiation • Cost differential between low-cost competitors andCost differential between low-cost competitors and the differentiated firm becomes too great forthe differentiated firm becomes too great for differentiation to hold brand loyalty. Buyers thusdifferentiation to hold brand loyalty. Buyers thus sacrifice some of the features, services or imagesacrifice some of the features, services or image possessed by the differentiated firm for large costpossessed by the differentiated firm for large cost savings.savings. • Imitation narrows perceived differentiation, aImitation narrows perceived differentiation, a common occurrence as industries mature.common occurrence as industries mature.
  74. 74.  Risks of FocusRisks of Focus • The cost differential between broad range competitors andThe cost differential between broad range competitors and the focused firm widens to eliminate the cost advantages ofthe focused firm widens to eliminate the cost advantages of serving a narrow target or to offset the differentiationserving a narrow target or to offset the differentiation achieved by focus.achieved by focus. • Differences in desired products or services between theDifferences in desired products or services between the strategic target and the market as a whole narrows.strategic target and the market as a whole narrows. • Competitors find submarkets within strategic target andCompetitors find submarkets within strategic target and outfocus the focuser.outfocus the focuser.

×