Strategic Management Guidebook

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Sajin John | Strategic Management & Business Policy
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TABLE OF CONTENTS
1 – INTRODUCTION TO STRATEGY & STRATEGIC MANAGEMENT............................................................................4
WHAT IS STRATEGY?............................................................................................................................................................................................4
ELEMENTS OF STRATEGIC MANAGEMENT PROCESS......................................................................................................................................8
2 – SCANNING THE ENVIRONMENT .....................................................................................................................................12
ENVIRONMENTAL SCANNING & INDUSTRY ANALYSIS ................................................................................................................................12
INTERNAL ENVIRONMENTAL SCANNING .......................................................................................................................................................17
3 – STRATEGY FORMULATION ..............................................................................................................................................22
BUSINESS STRATEGY .........................................................................................................................................................................................22
CORPORATE STRATEGY.....................................................................................................................................................................................27
FUNCTIONAL STRATEGY & STRATEGIC CHOICE...........................................................................................................................................32
4 – STRATEGY IMPLEMENTATION.......................................................................................................................................38
ORGANIZING FOR ACTION.................................................................................................................................................................................38
STAFFING AND DIRECTING ...............................................................................................................................................................................42
5 – STRATEGIC EVALUATION & CONTROL........................................................................................................................47
MEASURING PERFORMANCE ............................................................................................................................................................................47
6 – STRATEGY MAKING IN TIMES OF CHANGE................................................................................................................50
STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS...................................................................................................................50
STRATEGIC ISSUES IN MANAGING TECHNOLOGY & INNOVATION..............................................................................................................51
BLUE OCEAN STRATEGY ...................................................................................................................................................................................54
DESIGN THINKING..............................................................................................................................................................................................57
7 – CORPORATE GOVERNANCE.............................................................................................................................................61
CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY .............................................................................................................................61

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1 – INTRODUCTION TO STRATEGY & STRATEGIC MANAGEMENT
WHAT IS STRATEGY?
STRATEGY
Strategy is about understanding what you do, looking
out over the long-term future to determine what you
want to become, and – most importantly – focusing on
how you plan to get there.
• Strategy is a plan, method, or a series of
maneuvers or stratagems for obtaining a specific
goal or result.
• (Military - On war by Clausewitz) Strategy is
concerned with “drafting the plan of war”,
shaping the individual campaigns, and within
these, deciding on the individual engagements.
• (Management) Strategy is a plan and a pattern
that integrates an organization’s major goals,
policies, and action sequences into a cohesive
whole.
• Peter Drucker: “Strategy is a purposeful action”.
• Strategy is the creation of a unique and valuable
position, involving a different set of activities.
• Differentiation arises from both the choices of
activities and how they are performed.
• Strategic positioning means performing similar
activities in different ways or performing
different activities from rivals.
• Strategy is all about How:
o How to attract and please customers?
o How to compete against rivals?
o How to position the firm in the marketplace?
o How best to respond to changing economic
and market conditions?
o How to capitalize on attractive opportunities
to grow the business?
o How to achieve the firm’s performance
targets?
WHAT IS NOT STRATEGY
OPERATIONAL EXCELLENCE
• Strategy is not Operational Excellence (OE).
• OE is necessary but not sufficient.
• Operational effectiveness (OE) means performing
similar activities (productivity, speed, quality)
better than rivals, the quest for productivity,
quality & speed.
• The productivity frontier (PF) is constantly
shifting outward as new technologies, tools, and
techniques are developed
• Strategic Positioning – performing different
activities from rivals or performing similar
activities in different ways.
• A company can outperform rivals only if it can
establish a difference that it can preserve.
• The worst error in strategy is to compete with
rivals on the same dimensions. So, always
compete to be unique than to be the best.
• Entailing: Amazon, Flipkart, Snap kart all
competing on similar activities. It all started with
providing wider choices to customers and the
convenience of quick delivery. Speed started with
5 days now 1 day, quality: guaranteed
return/exchange: some give 1 week, 30 days even
up to 365 days. Price wars, daily damakas, billion-
day sale offers, etc. all going from 30 to 50%
discounts, where will it end, we are already seeing
the cracks, is it sustainable?
• OE shifts the PF outward raising the bar for
everyone, but it leads to relative improvement for
no one. The more benchmarking companies do
the more they look alike. It leads to series of races
down identical paths that no one can win.
• Competition based on OE is mutually destructive,
the result is zero-sum competition, static or
declining prices, and pressure on costs.
• Examples: Flip Kart Vs Snapdeal, Star Bazar Vs
Reliance Vs Big Bazar, Nokia Vs Samsung, Japan:
Automobiles, Sony TV & Audio, MS Office.
PLANNING
• Strategy is not Planning.
• Strategy is not about Planning & Budgeting.
• Planning represents the calculating style of
management, not a committing style that engages
people.

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• Thinking and Acting are more obviously
separated in the dichotomy between formulation
and implementation.
• The fallacy of prediction: Planning stresses the
importance of accurate forecasting, ex: by
extrapolating past performance.
• The fallacy of detachment: Detachment of strategy
from operations.
• The fallacy of formalization: Formalization is
achieved through decomposition, which is
essentially analytical.
PITFALLS OF STRATEGIC PLANNING
FALLACY OF FORECASTING
Extrapolation: Projecting past performance patterns
into future works in conditions of stability.
• Hockey stick forecasts:
• Downward trends were extrapolated for s short
time, followed by sharp upward predictions.
• Changes rarely occur abruptly or without
supporting context.
FALLACY OF DETACHMENT
• The belief that strategic managers and their
planning systems can be detached from
operations is predicated on one fundamental
assumption: that they can be informed formally.
• The messy world of random noise, gossip,
inference, impression, and fact must thus be
reduced to firm data, hardened and aggregated so
that they can be supplied regularly in a formal
way.
• Hard data is limited in scope, aggregated, and
sometimes unreliable.
FALLACY OF FORMALIZATION
• Formalization is achieved through
decomposition, -the process is reduced to a
procedure, a series of steps i.e. essentially
analytical.
• Planning by its very nature defines & preserves
categories. Creativity, by its very nature, creates
categories and re-arranges established ones.
• Strategy formation needs both
o Creativity to function beyond boxes, i.e., to
create new perspectives & new
combinations, AND
o Analysis for planning & decision making.
THE MIND OF THE STRATEGIST
Phenomena or events in the real world do not always
fit a linear model. Hence the most reliable means of
dissecting a situation into its constituent parts and
reassembling them in the desired pattern is not a step-
by-step methodology. Rather, it is that ultimate
nonlinear thinking tool, the human brain – Kenichi
Ohmae in Mind of the Strategist
A breakthrough to the best possible solution can come
only from a combination of rational analysis, based
on the real nature of things, and imaginative
reintegration of all the different items into a new
pattern, using nonlinear brainpower
STRATEGIC VISION & LEARNING
• If Managers have to see the BIG PICTURE and
create STRATEGIC VISION – It is SYNTHESIS that
moulds various perceptions of the reality – i.e.
images as well as discrete facts into an integrated
Strategic Vision.
• Strategic Vision also needs to be translated to
Implementable Plan & measurable Goals.
• Strategic Learning is an inductive process, that
feeds back to the Vision/Plan based on the
intimate knowledge of the situation.
• Analysis may precede & support Synthesis, by
defining parts that can be combined into wholes.
Analysis may follow & elaborate Synthesis, by
decomposing and formalizing its consequences.

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STRATEGIC THINKING
• Strategic thinking is about analyzing
opportunities and problems from a broad
perspective and understanding the potential
impact of your actions.
• Strategic thinkers visualize what might or could
be, and take a holistic approach to day-to-day
issues and challenges.
• Seven Strategic Thinking skills
1. Seeing the big picture
2. Clarifying strategic objectives
3. Identifying relationships, patterns, and
trends
4. Thinking creatively
5. Analyzing information
6. Prioritizing your actions
7. Making trade-offs.
• Seeing the big picture
o Understanding the Broader business
environment in which you operate.
• Clarifying strategic objectives
o Determining Smart Goals & Metrics
o Questioning the assumptions
• Once you've set the stage, you put your Strategic
thinking skills to use to generate results. This
phase includes:
o Identifying patterns & relationships —
Spotting patterns across seemingly unrelated
events, and categorizing related information.
o Thinking creatively —Generating
alternatives, visualizing new possibilities,
challenging your assumptions, and opening
yourself to new information
o Analyzing information —Listing critical
information while making a decision, use of
tools like Pareto chart, fishbone diagram for
RCA…
o Prioritizing your actions —Staying focused on
your objectives while handling multiple
demands and competing priorities
o Making trade-offs —Recognizing the
potential advantages and disadvantages,
making choices, balancing short- and long-
term.
CRAFTING STRATEGY
• Strategy is one of those words that people define
in one way and often use in another way (patterns
in action) without realizing the difference.
• One of the main reasons why strategies fail is
“because of the assumption that thought must be
independent of action”.
• The key for Crafting Strategies is establishing an
intimate connection between Thought & Action.
PATTERNS IN ACTION
• All Strategy making walks on two feet, one
deliberate, the other emergent.
• Organizations adopt two distinct modes of
behavior at different times -
o Patterns of stability
o Patterns of change
• A long period of evolutionary change is
sometimes punctuated by a brief bout of
revolutionary turmoil.
• Organizations can turn their own emerging
patterns to find their new strategic orientation.
CYCLES OF CHANGE
• Many strategic failures can be attributed to either
mixing of change & stability or being obsessed
with one of these forces.
• Managing stability is about pursuing Strategies
for Growth. example –perfecting a retail formula.
• The real challenge in crafting strategy lies in
detecting subtle discontinuities.
• Discontinuities are irregular, they can be detected
if one is attuned to existing patterns and able to
sense any breaks in them.
• It requires intimate knowledge of one’s business
similar to a craftsman’s feel of the clay.
INDUSTRY/PRODUCT CYCLES
• Creation-Growth-Maturity-Decline.
• Corporations are built on the assumption of
continuity.

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BEHAVIORAL STRATEGY
STABILITY BIASES
Create a tendency toward inertia in the presence of
uncertainty.
• Anchoring and insufficient adjustment – Rooting
oneself to an initial value, leading to insufficient
adjustments of subsequent estimates.
• Sunk-cost fallacy – Paying attention to historical
costs that are not recoverable when considering
future courses of action.
• Loss aversion – The tendency to feel losses more
acutely than gains of the same amount, making us
more risk-averse than a rational calculation
would suggest.
• Status quo bias – Preference for the status quo in
the absence of pressure to change it.
PATTERN – RECOGNITION BIASES
Lead us to recognize patterns even where there are
none.
• Confirmation Bias – The overweighting of
evidence consistent with a favored belief,
underweighting of evidence against a favored
belief, or failure to search impartially for
evidence.
• Power of storytelling – The tendency to remember
and to believe more easily a set of facts when they
are presented as part of a coherent story.
• The availability bias – is when we tend to place too
much emphasis on the information and evidence
that is most readily available to us when we are
deciding.
ACTION-ORIENTED BIASES
Drive us to act less thoughtfully than we should.
• Excessive optimism – The tendency for people to
be overoptimistic about the outcome of planned
actions, to overestimate the likelihood of positive
events, and to underestimate the likelihood of
negative ones.
• Overconfidence – Overestimating our skill level
relative to others, leading us to overestimate our
ability to affect future outcomes, take credit for
past outcomes, and neglect the role of chance.
SOCIAL BIASES
Arise from the preference for harmony over conflict.
• Groupthink – Striving for consensus at the cost of
a realistic appraisal of alternative courses of
action.
• Sunflower management – Tendency for groups to
align with the views of their leaders, whether
expressed or assumed.
PORTER’S STRATEGY MODEL
• Strategy is the creation of a unique and valuable
positioning, involving a different set of activities.
• Strategic positioning means performing different
activities from rivals or performing similar
activities in different ways.
• Strategic Position emerges from three specific
needs-
o Serving few needs of many customers
Variety-based positioning
i.e., the business is specialist in one
particular product or service
E.g.: Jiffy Lube – oil that can be used in
variety of cars/vehicles
o Serving broad needs of few customers
• Needs-based positioning
• i.e., develop a strong relationship of trust
with a valuable customer and then focus
on serving that customer in whatever
way they need
• E.g.: Volvo, Apple
o Serving broad needs of many customers in a
narrow market
Access-based positioning
i.e., serve customers through a channel
than is difficult for competitors to access
E.g.: Carmike Cinemas – focussed on
small towns and cities with low cost for
great movies
• Differentiation:
o Deliver greater value at a high cost
o Comparable Value at a low cost or do Both
MINTZBERG’S 4P STRATEGY MODEL
• Perspective describes the Vision & direction.
o The choices an organization makes about its
strategy rely heavily on its culture – just as
patterns of behavior can emerge as strategy,
patterns of thinking will shape an
organization's perspective, and the things
that it is able to do well.
• Plan is often referred to as an Intended Strategy,
it is the deliberate course of action charting path
towards strategic objectives.
o Planning is something that many managers
are happy with, and it's something that comes
naturally to us. As such, this is the default,
automatic approach that we adopt –

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brainstorming options and planning how to
deliver them.
• Positioning becomes the mediating force between
the Organization and the environment i.e.
between internal & external context.
o “Position” is another way to define strategy –
that is, how you decide to position yourself in
the marketplace.
o In this way, strategy helps you explore the fit
between your organization and your
environment, and it helps you develop a
sustainable competitive advantage.
• Patterns describe a series of consistent decisions
and actions over time. They are the basis for
Emergent Strategies.
o Sometimes, strategy emerges from past
organizational behaviour.
o Rather than being an intentional choice, a
consistent and successful way of doing
business can develop into a strategy.
• The key for Crafting Strategies is establishing an
intimate connection between Thought & Action.
• 4P Strategy merges formulation and
implementation into a fluid process of Learning
through which creative strategies evolve.
• The manager is the Craftsman and Strategies are
the clay.
• To manage strategy is to craft thought and action,
control and learning, stability, and change.
ELEMENTS OF STRATEGIC MANAGEMENT PROCESS
STRATEGIC PLAN
• While strategic plans vary, they generally contain
the following components:
o Strategy statement
o Strategic objectives
o Priority actions
o Action plans
STRATEGY STATEMENT (STRATEGIC
FORMULATION)
Strategy Statement of an Organization typically
comprises of :
• Mission: The organization's purpose
o Purpose or reason for organization’s
existence.
o The mission statement defines the
fundamental, unique purpose that sets a
company apart from other firms and
identifies the scope or domain of the
company’s operations.
• Vision: the organization's deeply desired future
o What core to preserve and what future to
stimulate progress towards; Core ideology is
what we preserve and envisioned future is
what we inspire to become.
o IKEA: To create a better everyday life for
many people.
• Values: the driving beliefs that define a company's
culture and that support the organization's future
competitive advantage
• Business definition: the firm's existing &
envisioned products, services, geographic
distribution, technology, customers, and markets
• Competitive advantages: the customer needs that
the organization plans to meet better than
competitors do
• Core competencies: the tangible and intangible
assets the company will leverage to gain a
competitive advantage
• Objectives: Results of planned activity; specifies
what is to be accomplished by when and
quantified, if possible.
• Strategies: form a comprehensive master plan
that states how the corporation will achieve its
mission and objectives.
• Policies: Broad guidelines for decision-making
that link the formulation of a strategy with its
implementation.
• E.g.: 3M says researchers should spend 15% of
their time working on something other than their
primary project.
A Hierarchy of Company Statements:
Organizational direction comes in several forms, The
mission statement is the loftiest guiding light – and

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your least specific. As you work your way down the
hierarchy, the statements become more concentrated,
practical, and ultimately unique. No other company
will have the same strategy statement, which defines
your competitive advantage, or balanced scorecard,
which tracks how you implement your particular
strategy.
Example: McDonald’s strategy
• McDonald’s strategy in Quick-service Restaurant
Industry
• Plan-to-Win strategy focus -” Being better, not
just bigger” (2011)
• Key initiatives of the Plan-to-Win strategy:
• Improved restaurant operations (employee
training program, leadership institute, close
monitoring food and utility costs)
• Affordable pricing (Scrutinizing operating costs)
• Wide menu variety and beverage choices
(McCafé, Mcbreakfast)
• Convenience and expansion of dining
opportunities (Dining outlets, drive-thru)
• Ongoing restaurant reinvestment and
international expansion (emerging markets)
STRATEGIC OBJECTIVE
• Strategic objectives allow a company to measure
how it is performing in key result areas —areas
where the company must achieve superior results
to achieve its long-term strategy.
• Key result areas often come directly from a
company's direction statement.
• For example, if a company's vision is global
expansion, then it will want to measure success in
that area. Areas for which a company might set
strategic objectives are market position,
customer loyalty, quality, service, innovation, &
human capital.
PRIORITY ACTIONS
• Priority actions are a company's primary
instruments of action. These are the key issues
that surface during the strategic planning process
—for example, a weakness to be addressed or an
opportunity to be seized.
• Priority actions typically relate to competitive
concerns:
• Products & services to create and add value for its
customers
• Internal process changes are needed to support a
company's strategy, and the skills & resources
needed to accomplish value creation and process
change.
• Common priority actions RELATE TO products,
services, costs, new markets, geographic
expansion, acquisitions, organizational structure,
core competencies, processes, new technologies,
training & IS.
VISION, VALUES & CULTURE
• Vision represents desire, dreams, hopes, and the
Big Picture.
• Vision is seeing a future state with the mind’s eye,
it is applied imagination. They are not fantasies
but reality not yet brought into the physical
sphere.
• Valuesare our beliefsand rules by which we make
decisions about right and wrong, should &
shouldn't, good & bad.
• Values are the True North reference points and
act like a moral compass guiding our life journey.
• Vision & Values, Connect People to both the long-
term goals of the organization and the daily
Routine.
• What is Culture: The way of life, especially the
general customs and beliefs, of a particular group
of people at a particular time. (Cambridge
dictionary)
o Expression of our Values.
o Reflected in our Behaviors
o Routines, Rituals, Stories, Symbols…
Example: Southwest Airlines (SWA)1993-Southwest
airlines the seventh-largest airline has strong
financial performance
• Focused, point-to-point airlines model, low cost-
high frequency, quick turnaround, high
productivity, equipment usage, clear target
market, customer services
• Southwest Model-Southwest Service-Family fun

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• Operations-No booking through agents, point-
to-point route system, flying into uncongested
airports of small cities, only drinks and snacks,
84% unionized workforce, using only Boeing 737
jets, turned in time was 15 min as compared to
industry average was 55 min
• Cost control- Great services at low cost-buying
fuel from a variety of vendors depending on the
best price; gate cost and landing fees lower at
small airports; optimizing the number of
departures from each airport
• Marketing- ‘we have a lot of ambassadors out
there-our customers’
• People- hiring process-customers part of the
selection process, peer hiring, turnover averaged
7%, training at Southwest’s People University,
profit-sharing plans
• Corporate Culture- unwritten rules: You must be
compassionate to internal and external
customers; You must have a positive attitude; You
must want to work and use common sense; You
must have a great sense of humor
Our Purpose: Connect people to what’s important in
their lives through friendly, reliable, low-cost air
travel.
Our Vision: To become the World's Most Loved, Most
Flown, and Most Profitable Airline.
Our Values: Work the Southwest Way, Warrior Spirit,
Servant’s Heart, Fun-LUVing Attitude.
THREE TYPES OF STRATEGY
• Corporate Strategy- Company's overall direction
in terms of its general attitude toward growth and
the management of its various business and
product lines. Three main categories-Growth,
Stability, Retrenchment
• Business Strategy-Occurs at the business unit or
product level, it emphasizes improvement of the
competitive position of a corporation’s products
or services in a specific industry or market
segment
• Functional Strategy- Approach took by functional
area to achieve corporate and business unit
objectives and strategies by maximizing resource
productivity
COMPETITIVE ADVANTAGE
A product or a service should be perceivable and
Purchasable; this makes it favorable from its
competitors.
VALUE CREATION
• Value Creation is at the heart of any successful
strategy. The firm must also be able to capture the
value it creates, an increase in Value must
translate into an increase in profit.
• A firm can capture the Value other firms create,
like in the case of the CT scanner, which was
invented by EMI, GE was able to capture the Value
and take lead.
• Two main routes to competitive advantage are a
firm’s Position and firm’s Capability.
POSITIONING
The Positioning of the firm relates to the
opportunities & challenges posed by the external
context.
• Brand name: A strong brand lets the firm
command premium shelf space, wider customer
attention, and profitable growth.
• Customer relationship: Reputation for fair dealing
and product quality has a positional advantage
over the competition.
• Distribution & Geographic advantages: Well-
established distribution channels & locations
provide a dominant position.
• Installed base & de-facto standards: Markets
where product compatibility is important, firms
with a large installed base have a positional
advantage.
CAPABILITY
The Capability relates to the internal context on how
a firm can acquire and organize tangible and
intangible assets to outperform the competition.
• Capability is an attribute of the organization; it is
not possible to separate it from the firm.
• Expertise is dispersed through many parts of the
firm, and the organization has routines that
access and coordinates this information.
• A major threat to sustainable competitive
advantage is the possibility that a rival can
diagnose and duplicate the firm’s capability.

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IDENTIFYING A COMPANY’S STRATEGY
What do we look for? The pattern of actions and
business approaches that define a company’s
strategy:
• Actions to strengthen the firm’s bargaining
position with suppliers, distributors, and others.
• Actions to gain sales and market share via more
performance features, more appealing design,
better quality or customer service, wider product
selection, or other such actions.
• Actions to gain sales and market share with lower
prices based on lower costs.
• Actions to enter new product or geographic
markets or to exist existing ones.
• Actions to capture emerging market
opportunities and defend against external threats
to the company’s business prospects.
• Actions to strengthen market standing and
competitiveness by acquiring or merging with
other companies.
• Actions to strengthen competitiveness via
strategic alliancesand collaborative partnerships.
• Actions and approaches used in managing R&D,
production, sales and marketing, finance, and
other key activities.
• Actions to upgrade, build, or acquire
competitively important resources and
capabilities.
TESTING THE QUALITY OF YOUR STRATEGY
1. Does your strategy fit with what’s going on in the
environment?
Is there healthy profit potential where you're
headed? Does your strategy align with the key
success factors of your chosen environment?
2. Does your strategy exploit your key resources?
With your particular mix of resources, does this
strategy give you a good head start on
competitors? Can you pursue this strategy more
economically than competitors?
3. Will your envisioned differentiators be
sustainable?
Will competitors have difficulty matching you? If
not, does your strategy explicitly include a
ceaseless regimen of innovation and opportunity
creation?
4. Are the elements of your strategy internally
consistent?
Have you made choices of arenas, vehicles,
differentiators, and staging, and economic logic?
Do they all fit and mutually reinforce each other?
5. Do you have enough resources to pursue this
strategy?
Do you have the money, managerial time and
talent, and other capabilities to do all you
envision? Are you sure you’re not spreading your
resources too thinly, only to be left with a
collection of feeble positions?
6. Is your strategy implementable?
Will your key constituencies allow you to pursue
this strategy? Can your organization make it
through the transition? Are you and your
management team able and willing to lead the
required changes?’

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2 – SCANNING THE ENVIRONMENT
ENVIRONMENTAL SCANNING & INDUSTRY ANALYSIS
STRATEGIC MANAGEMENT (ELEMENTS)
Strategic Management is a set of managerial decisions
and actions that determines the long-term
performance of the corporation. The Goal of Strategic
Management is to provide the conceptual framework
that will help a manager understand the key
relationships among actions, context, and
performance.
ENVIRONMENTAL SCANNING: Gathering
Information
• External: Opportunities and Threats
o Natural Environment: Resources and climate
o Societal Environment: General forces
o Task Environment: Industry analysis
• Internal: Strengths and Weaknesses
o Structure: Chain of command
o Culture: Beliefs, expectations values
o Resources: Assets, skills, competencies,
knowledge
STRATEGIC FORMULATION: Developing Long-
range Plans
• Mission: Reason to existence
• Objectives: What results to accomplish by when
• Strategies: Plan to achieve the mission &
objectives
• Policies: Broad guidelines for decision making
STRATEGIC IMPLEMENTATION: Putting strategy
into Action
• Programs: Activities needed to accomplish a plan
• Budgets: Cost of the program
• Procedures: Sequence of steps needed to do the
job
EVALUATION AND CONTROL: Monitoring
Performance
• Performance: Actual results
ENVIRONMENTAL SCANNING
• Environmental scanning: The monitoring,
evaluation, and dissemination of information
from the external and internal environments to
key people within the corporation.
• Its purpose is to identify strategic factors—those
external and internal elements that will
determine the future of the corporation, using
SWOT analysis.
• The external environment comprises
Opportunities and Threats and these strategic
factors form the context within which the
corporation exists.
• Positive correlation between Environmental
Scanning and Profit
• 75 % of executives state-Global, social,
environmental, business trends are increasingly
important to corporate strategy (McKinsey &
Company, 2008)
• The internal environment of a corporation
consists of factors relating to Strengths and
Weaknesses within the organization.
• These variables form the context in which work is
done. They include the corporation’s structure,
culture, and resources.

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STRATEGIC FORMULATION
• Strategy formulation is the development of long-
range plans for the effective management of
environmental opportunities and threats, in light
of corporate strengths and weaknesses (SWOT).
• It includes defining the corporate mission,
specifying achievable objectives, developing
strategies, and setting policy guidelines.
SOCIETAL ENVIRONMENT SCANNING
The societal environment is mankind’s social system
that includes general forces that influence an
organization’s long-run decisions-
• Economic forces regulate the exchange of
materials, money, energy, and information.
• Technological forces that generate problem-
solving inventions.
• Political–legal forces that allocate power and
provide constraining and protection laws and
regulations.
• Ecological forces
• Socio-cultural forces regulate the values and
customs of society.
Eight current socio-cultural trends are transforming
North America and the rest of the world:
• Increasing environmental awareness:
• Growing health consciousness:
• Expanding seniors market:
• Declining mass market:
• Changing pace and location of life:
• Changing household composition:
• The increasing diversity of workforce and
markets:
STEEP Analysis: Scanning of Socio-cultural,
Technological, Economic, Ecological, and Political-
legal environmental forces.
Also known as PESTEL analysis (Political, Economic,
Sociocultural, Technological, Ecological, Legal
Factors)
INDUSTRY ENVIRONMENT SCANNING
• The Industry environment includes those
elements or groups that directly affect a
corporation and, in turn, are affected by it. These
are-
o Competitors
o Customers
o Buyers & Suppliers
o Employees/labor unions, special-interest
groups, and trade associations, local
communities, creditors…
SCANNING THE TASK ENVIRONMENT
PORTERS APPROACH INDUSTRY ANALYSIS
• Michael Porter, an authority on competitive
strategy, contends that a corporation is most
concerned with the intensity of competition
within its industry.
• The level of this intensity is determined by the 6
competitive forces: rivalry among existing firms,
the threat of new entrants & substitute products
or services, bargaining power of buyers &
suppliers, & relative power of stakeholders.
• The stronger each of these forces, the more
limited are the companies in their ability to raise
prices & earn profits.

14
• High force can be regarded as a threat because it
is likely to reduce profits. A low force, in contrast,
can be viewed as an opportunity because it may
allow the company to earn greater profits from its
industry.
• A strategist can analyze any industry by rating
each competitive force as high, medium, or low in
strength.
THE THREAT OF NEW ENTRANTS
• Entry barrier-obstruction that makes it difficult
for a company to enter an industry.
o Economies of scale (Ex: Microprocessors)
o Product differentiation
o Capital requirements
o Switching costs (Ex: ERP Systems; Bloomberg
Terminal)
o Access to distribution channels
o Cost disadvantages independent of size
o Government policy (IPR rules; Subsidies)
RIVALRY AMONG EXISTING FIRMS
• Number of competitors
• Rate of industry growth
• Product or service characteristics
• Amount of fixed costs
• Capacity
• Height of exit barriers
• Diversity of rivals
THE THREAT OF SUBSTITUTE PRODUCTS OR
SERVICES
• Substitute Product- Products that appear
different but can satisfy the same need as another
product
• Tea & coffee
• Any other example? (Video conferencing to
Travel)
• Many substitutes’ products
o Are a threat and limit the price that
companies in one industry can charge for
their product, and thus industry profitability
• Few or weak close substitutes
o Allows the industry to raise prices and earn
additional profits
BARGAINING POWER OF BUYERS
Bargaining power of buyers: Ability of buyers to
force prices down, bargain for higher quality, play
competitors against each other.
• Large purchases
• Backward integration
• Alternative suppliers
• Low cost to change suppliers
• The product represents a high percentage of the
buyer’s cost
• Buyer earns low profits
• Product is unimportant to buyer
BARGAINING POWER OF SUPPLIERS
Bargaining power of suppliers: Ability of suppliers
to raise prices or reduce quality.
• The industry is dominated by a few companies
(Microsoft’s near-monopoly in the operating
system)
• Unique product or service
• Substitutes are not readily available
• Ability to forward integrate
• The unimportance of product or service to the
industry
SIXTH FORCE (RELATIVE POWER OF
COMPLEMENTORS)
• Complementors-companies that produce closely
related products or services
• When complementors are important and their
number is increasing
• Demand and profits in the industry are boosted
• When complementors are weak
• Industry growth can slow, and profits can be
limited
Example: Indian Retail Industry Analysis
• Fourth most attractive nation for retail
investment among 30 emerging markets
• The transition from the traditional retail sector to
organized retail
• Political Environment- FDI in multi-brand
retailing, make-in India
• Technological Environment- Relatively stable
• Social and Demographic Environment- Fast-
growing middle class, changing consumption
pattern
• Economic Environment- Increasing growth
rate, high consumers’ capacity to shop
PORTER’S FIVE FORCE MODEL FOR MOVIE
THEATRE INDUSTRY
THE THREAT OF NEW ENTRANTS - Moderate
• The threat of a new entrant in the cinema theatre
industry is moderate.
• The cost involved in purchasing and operating
capital equipment such as digital projection

15
systems, screens, and speakers are high but are
available in the market.
• Other significant fixed costs include obtaining
property on lease or purchase and maintaining
the décor.
• Since the customer-switching rate is high, the new
entrants will have sufficient customer share.
RIVALRY AMONGST EXISTING PLAYERS - High
• The industry is faced with a large number of
competitors.
• Each theatre has gone the extra mile to provide
facilities like comfortable seating, sumptuous
food.
• Intra Industry Rivalry is High
THE THREAT OF SUBSTITUTES - High
• This industry faces competition from all different
ways like accessing movies, including DVD
players, home theatre systems, and downloading
or streaming content from the internet.
• The rapid penetration of in-home entertainment
and DTH services has affected the industry
revenue by competing with movie theatres.
• The threat of substitutes is high.
BARGAINING POWER OF BUYERS – Moderate
• Buyers in this context are the movie viewers,
which are very large in number.
• Many still prefer to watch movies in theatres
instead of in-home options.
• They are price sensitive and choose cinema halls
based on location.
• The threat of backward integration of viewers
into the movie screening business is almost
negligible.
• So, the buyer's power is moderate
BARGAINING POWER OF SUPPLIERS - high
• The suppliers are movie distributors, producers,
and infrastructure providers.
• Overall, the suppliers possess a considerable
amount of power and the Threat of suppliers can
be considered to be high making the industry less
attractive.
COMPETITIVE FORCES THAT SHAPE THE
STRATEGY
By analyzing the competitive forces, the firm gains a
complete picture of what is influencing profitability in
your industry. Reshape the forces in your favor
Use tactics designed specifically to reduce the share of
profits leaking to other players. For example:
• To neutralize supplier power, standardize
specifications for parts so your company can
switch more easily among vendors.
• To counter customer power, expand your
services so it’s harder for customers to leave you
for a rival.
• To temper price wars initiated by established
rivals, invest more heavily in products that differ
significantly from competitors’ offerings.
• To scare off new entrants, elevate the fixed costs
of competing; for instance, by escalating your
R&D expenditures.
• To limit the threat of substitutes, offer better
value through wider product accessibility. Soft-
drink producers did this by introducing vending
machines and convenience store channels, which
dramatically improved the availability of soft
drinks relative to other beverages.
LOW-COST CARRIERS (LCC) IN INDIA
• Pre-liberalization: Air Corporation Act 1953; 2
nationalized entities: IA (Domestic services), AI
(International services), restricted private
players from operating across India
• Post-liberalization: six private airlines
• 2003-Two Survived-Jet Airways and Sahara
Airlines
• 2003-Entry of Air Deccan
• 2003-04 to 2007-08-CAGR 19.14% air passenger
traffic; entry of new players
• 2011-passenger demand grew only by 5.9 %
• Growth of the industry was threatened by
mounting losses, rising aviation fuel prices, high
taxation and airport charges, shortage of qualified
pilots and technical manpower, congestion at
airports, upgrading of airport security.
WHAT FACTORS ENCOURAGED THE GROWTH OF
LCC IN INDIA?
• Growing corporate demand for official trips
coupled with severe cost-cutting
• Rising income and growing propensity to spend
on leisure among the vast middle class, especially
from Tier-II and III cities.
• Comparable fares with higher class ticket
categories of Railways.
• Corporate tie-up, bundling of travel tickets, bulk
booking
• Connectivity to Tier-II and III cities

16
PORTER’S FIVE FORCES ANALYSIS
o The threat of New Entrants- High
o Rivalry amongst existing players-High
o The threat of Substitutes: Moderate
o Bargaining power of Buyers: Moderate
o Bargaining power of Suppliers: High
LCC IN INDIA (2016)
HOW DO INDUSTRIES CHANGE?
Trajectories of Industry Change
• When determining which type of change your
industry is going through – and, no doubt, it is
going through some type of transformation.
• You need to consider whether there are threats to
your industry’s core activities and your industry’s
core assets.
• Core Activities: The recurring actions your
company performs that attract and retain
suppliers and buyers.
• Core Assets: The durable resources, including
intangibles, that make your company more
efficient at performing core activities.
Core Activities
Core
Assets
Threatened Not Threatened
Threatened
RADICAL CHANGE
Everything is up in the
air.
Ex: makers of landline
telephone handsets,
overnight letter-
delivery carriers, and
travel agencies
CREATIVE CHANGE
The industry is
constantly
redeveloping assets
and resources.
Ex: the motion picture
industry, sports team
ownership, and
investment banking
Non-Threatened
INTERMEDIATING
CHANGE
Relationships are
fragile
Ex: automobile
dealerships, investment
brokerages, and
auction houses
PROGRESSIVE
CHANGE
Companies implement
incremental testing
and adapt to feedback
Ex: online auctions,
commercial airlines,
and long-haul trucking
STRATEGIC GROUPS
Strategic group: A set of business units or firms that
pursue similar strategies with similar resources
Some strategic groups in the same industry are more
profitable than others.
Mapping of strategic groups:
• Select two broad categories that differentiate
companies in an industry
• Plot the firms on these two dimensions.
• Draw a circle around those companies that are
closest to one another.
STRATEGIC TYPES
Definition: A category of firms based on a common
strategic orientation and a combination of structure,
culture, and processes consistent with strategy.
General types (Miles and Snow):
• Defenders: Focus on improving the efficiency of
their existing operations
• Prospectors: Focus on product innovation and
market opportunities

17
• Analyzers: Operate in at least two different
product-market areas, stable and variable.
• Reactors: Lack of a consistent strategy-structure-
culture relationship.
EXTERNAL FACTORS ANALYSIS SUMMARY
(EFAS)
The steps are as follows:
1. List Opportunities and Threats in Column 1
2. Weight each factor from 1.0 (most important) to
0 (not important). The total weight must sum to
1.0 (Column 2)
3. Rate each factor from 5.0 (outstanding) to 1.0
(Poor) based on the company’s response to that
factor (Column 3).
4. Multiply each factor’s weight with its rating to
obtain each factor’s weighted score (column 4).
5. S-5: Use column 5 for the rationale used for each
factor.
6. Add individual weighted scores (in column 4) to
obtain a total weighted score for the company.
This tells how well the company is responding to
factors in its external environment.
INTERNAL ENVIRONMENTAL SCANNING
A RESOURCE-BASED ORGANIZATIONAL
ANALYSIS
• Resources are an organization’s assets (tangible &
intangible) and are thus the basic building blocks
of the organization.
o Tangible Assets: Plant, Equipment, Finances,
Human Assets
o Intangible Assets: Technology, Culture,
Reputation
• Capabilities refer to a corporation’s ability to
integrate its resources to achieve the Goals.
o Consist of business processes & routines that
manage the interaction among resources to
turn inputs into outputs.
o Marketing capabilities, HRM capabilities
o Dynamic Capabilities- Capabilities that are
constantly being changed and reconfigured
to make them more adaptive to an uncertain
environment.
• Competency is a cross-functional integration &
coordination of capabilities.
• Core competency is "an area of specialized
expertise that is the result of harmonizing
complex streams of technology and work
activity.” Prahalad and Hamel (1990) HBR article.
o A collection of competencies that cross
divisional boundaries, is widespread
throughout the corporation and is something
the corporation does exceedingly well.
• An organization’s resources which are critical in
imparting it with competitive advantage are
called distinctive capabilities.
o The core competencies that are superior to
those of the competition
WAYS TO GAIN ACCESS TO A DISTINCTIVE
COMPETENCY
• Asset endowment: such as key patent, coming
from the founding of the company (Xerox).
• Acquired from someone else: through the
acquisition of another firm
• Shared with another business unit or strategic
partner
• Built and accumulated over time within the
company (E.g.: Honda)
CORE COMPETENCE
Prahalad and Hamel- Core competencies are the
collective learning in the organization, especially how
to coordinate diverse production skills, and integrate
multiple streams of technologies.
E.g.: Sony-Miniaturization
Philips- Optical-media
Honda-Engines
Unlike physical assets, competencies do not
deteriorate as theyare applied and shared, they grow
Three tests can be applied to identify core
competence:

18
1. It provides potential access to a wide variety of
markets
2. It makes a significant contribution to the
perceived customer benefits of the product
3. Core competence should be difficult for
competitors to imitate
VRIO FRAMEWORK
VRIO framework (Barney)- To evaluate the firm’s
competencies:
• Value: Does it provide customer value and
competitive advantage?
• Rareness: Do no other competitors possess it?
• Imitability: Is it costly for others to imitate?
• Organization: Is the firm organized to exploit the
resources?
SUSTAINABLE CORE COMPETENCY
Two characteristics determine the sustainability of a
firm’s distinctive competencies: durability and
imitability.
• Durability is the rate at which a firm’s underlying
capabilities or core competencies depreciate or
become obsolete.
• Imitability is the rate at which a firm’s underlying
capabilities or core competencies can be
duplicated by others.
• A core competency can be easily imitated to the
extent that it is transparent, transferable, and
replicable.
• Transparency- the speed at which other firms can
understand the relationship of resources and
capabilities supporting a successful firm’s
strategy.
• Transferability- the ability of competitors to
gather the resources and capabilities necessary to
support a competitive challenge.
• Replicability- the ability of competitors to use
duplicate resources and capabilities to imitate the
other firm’s success.
• CONTINUUM OF RESOURCE SUSTAINABILITY:
• THE PARADOX OF CORE COMPETENCY:
It is relatively easy to learn and imitate another
company’s core competency or capability if it
comes from explicit knowledge than tacit
knowledge.
o Explicit Knowledge: It can be easily
articulated & communicated. Easy to learn
and imitate another company’s core
competency.
o Tacit knowledge: Not easily communicated
because it is complex, deeply rooted in
employee experience or a corporation’s
culture.
ORGANIZATIONAL ANALYSIS
Organizational analysis is concerned with
identifying and developing an organization’s
resources and competencies
• To identify internal strategic factors-critical
strengths and weaknesses.
• Different Approaches:
o Resource-Based Approach
o Value-chain analysis
o Scanning Functional resources and
capabilities
• Resources are an organization’s assets and the
basic building blocks of the organization.
• Achieving the Competitive advantage hinges on
how the organization is designed to deploy&
leverage the resources.
• Organizations have both structures & processes;
they are made up of ways of doing things and the

19
rewards for doing them. They have formal rules
and informal routines.
• Organizations face two main classes of problems:
the coordination problem and the incentive
problem.
• Three levers that help in addressing the
challenges of coordination & incentive:
Architecture, Routines & Culture.
ARCHITECTURE: STRUCTURE
• The Organization chart depicts the
architectural structure that groups people
into different teams and organizes them into
governing hierarchy through reporting
relationships.
• The architecture also includes compensation
& information systems a firm uses to evaluate
individuals and groups.
• Functional structure, Divisional structure,
Matrix structure + Cross-functional links.
ROUTINES
• Much of the day-to-day activity and decision-
making within a firm are accomplished through
the exercise of routines.
• Routine for designing, repairing, shipping
products, formal & informal meetings/huddles,
rewards & recognitions…
• Routines embody established interfaces among
the teams that must interact in the performance of
a process.
o What routines exist for resource allocation?
o What routines exist for sharing of
information?
o What routinesexist for coordinating between
subunits?
o What routines help senior management get
visibility into the frontline?
o What routines exist for rewards &
recognition?
VALUES & CULTURE
What is Culture: Culture is a shared system of
meaning, ideas, and thought that guides a group’s
perception and understanding of the world and that
shapes group member’s behavior.
• Culture is the Expression of our Values.
• Culture is Reflected in our Behaviors
• Symbols, Stories, Routines, Rituals, …
VALUE-CHAIN ANALYSIS
Value chain: A linked set of value-creating activities
that begin with basic raw materials coming from
suppliers, moving on to a series of value-added
activities involved in producing and marking a
product or service, and ending with distributors
getting the final goods into the hands of the ultimate
consumer
Typical Value Chain for a Manufactured Product:
PORTER VALUE-CHAIN ANALYSIS
Three Steps for Value-Chain Analysis
1. Examine each product line’s value chain in terms
of the various activities involved in producing the
product or service
2. Examine the linkages within each product line’s
value chain
3. Examine the potential synergies among the value
chains of different product lines or business units
SCANNING FUNCTIONAL RESOURCES AND
CAPABILITIES
• Basic Organizational Structures
• Corporate Culture
• Strategic Marketing issues
• Strategic Financial issues
• Strategic R&D issues
• Strategic Operations issues
• Strategic HRM issues
Raw
Materials
Primart
Manufact
uring
Fabricati
on
Distribut
or
Retailer

20
• Strategic Technology issues
BASIC ORGANIZATIONAL STRUCTURES
• Simple
o Has no functional or product categories and
is appropriate for a small, entrepreneur-
dominated company with one or two product
lines
o Employees tend to be generalists and jacks-
of-all-trades.
• Functional
o This structure is appropriate for a medium-
sized firm with several product lines in one
industry.
o Employees tend to be specialists in the
business functions that are important to that
industry, such as manufacturing, marketing,
finance, and human resources.
• Divisional
o This structure is appropriate for a large
corporation with many product lines in
several related industries.
o Employees tend to be functional specialists
organized according to product/market
distinctions.
• Strategic Business Units (SBUs)
o SBUs are a modification of the divisional
structure.
o An SBU may be of any size or level, but it must
have
A unique mission
Identifiable competitors
An external market focuses
Control of its business functions
• Conglomerate
o This structure is appropriate for a large
corporation with many product lines in
several unrelated industries.
Tata Motors is shrinking the structure of its white-
collar workforce to five layers from the existing 14, in
what is seen as the biggest organizational restructuring
in the company’s history. Under the new structure, the
top two levels of managers will be responsible for the
execution of strategies formulated by an executive
committee, comprising the managing director and
function and business heads. Tata Motors has already
picked more than 100 high-performers for the L1and L2
positions. (Source: Economic Times)
CORPORATE CULTURE
Corporate culture- the collection of beliefs,
expectations, and values learned and shared by a
corporation’s members and transmitted from one
generation of employees to another.
Functions of Corporate Culture
• Conveys a sense of identity for employees
• Generates employee commitment
• Adds to the stability of the organization as a social
system
• Serves as a frame of reference for employees to
understand organizational activities and as a
guide for behavior
Ex: 3M’s Innovation Culture
• Employing the Thirty Percent Rule, 30% of each
division’s revenues must come from products
introduced in the last four years. This is tracked
rigorously, and employee bonuses are based on
the achievement of this goal.
• 3M has a rich set of structures and systems to
encourage resourcefulness:
o Seed Capital
o New Venture Formation
o Dual-career ladder
STRATEGIC R&D ISSUES
Impact of technological discontinuity on strategy
What the S-Curves Reveal:
In the corporate planning process, it is generally
assumed that incremental progress in technology will

21
occur. But past developments in a given technology
cannot be extrapolated into the future because every
technology has its limits. The key to competitiveness
is to determine when to shift resources to a
technology that has more potential.
Innovator’s Dilemma- The established market leaders
are typically reluctant to move promptly to new
technology (Christensen)
E.g.: Computer Disk Drive Manufacturer-Moser bear
STRATEGIC OPERATIONS ISSUES
• Experience Curve (Learning curve)-Unit
production costs decline by some fixed
percentage each time the total accumulated
volume of production units’ doubles
• (The more experience a firm has in producing a
particular product, the lower its costs)
• "Building Strategy on the Experience Curve,"
by Pankaj Ghemawat (March-April 1985),
Harvard business review.
• The Experience Curve
INTERNAL FACTOR ANALYSIS SUMMARY
(IFAS)
1. List 8 to 10 most important strengths and
weaknesses of the company
2. Assign a weight to each factor from 1.0 (Most
important) to 0.0 (Not Important) based on that
factor’s probable impact on the company’s
current strategic position. All weights must sum
to 1.0 regardless of the number of factors.
3. Assign a rating to each factor from 5
(outstanding) to 1 (poor) based on
management’s specific response to that factor.
4. Multiply the weight in column 2 for each factor
times it's rating in Column 3 to obtain that
factor’s weighted score
5. Add the weighted score of all items in column 4 to
determine the total weighted score for that
company. The total weighted score indicates how
well a particular company is responding to
current and expected factors in its internal
environment. The total weighted score for an
average firm in an industry is always 3.0

22
3 – STRATEGY FORMULATION
BUSINESS STRATEGY
SITUATION ANALYSIS
Strategy formulation concerns developing a
corporation’s mission, objectives, strategies, &
policies.
Situation analysis: The process of finding a strategic
fit between external opportunities & internal
strengths while working around external threats &
internal weaknesses.
• SWOT analysis
• SFAS matrix
SWOT ANALYSIS
Survey says- 82.7% firms used
Criticisms of SWOT analysis
• Generates lengthy lists
• Uses no weights to reflect priorities
• Uses ambiguous words and phrases
• Same factor can be in two categories
• No obligation to verify opinion with data or
analysis
• Requires only a single level of analysis
• No logical link to strategy implementation
STRATEGIC FACTORS ANALYSIS SUMMARY
(SFAS) MATRIX
Steps:
1. List the most important EFAS (external), IFAS
(internal).
2. Assign weights as per importance, total weight
1.00
3. Rating 5 (outstanding) 1(poor)
4. Weighted score-multiply weight and rating
5. Duration-Short-term (<1 yr.), intermediate-term
(1-3 yrs.), long-term (3 and beyond)
6. Comments
TOWS MATRIX – ALTERNATIVE
STRATEGIES
• TOWS matrix illustrates how the external
opportunities and threats can be matched with
internal strengths and weaknesses to result in
four possible strategic alternatives: (SO
strategies, ST strategies, WO strategies, WT
strategies)

23
• Provides a means to brainstorm alternative
strategies
• Forces managers to create various kinds of
growth and retrenchment strategies
• Used to generate corporate as well as business
strategies
STRATEGY TYPES
The typical business firm usually considers three
types of strategy: corporate, business, and functional.
• Corporate strategy describes a company’s overall
direction in terms of its general attitude toward
growth and the management of its various
businesses and product lines.
• Business strategy usually occurs at the business
unit or product level, and it emphasizes the
improvement of the competitive position of a
corporation’s products or services.
o Business strategy focuses on improving the
competitive position of a company’s or
business unit’s products or services within
the specific industry or market segment it
serves.
o Business strategy is comprised of:
Competitive strategy
Cooperative strategy
• Functional strategy is the approach taken by a
functional area to achieve corporate and business
unit objectives and strategies by maximizing
resource productivity.
RESOURCE-BASED STRATEGY
Grant proposes a five-step, resource-based approach
to strategy analysis-
1. Identify and classify the firm’s resources in terms
of strengths and weaknesses.
2. Combine the firm’s strengths into specific
capabilities and core competencies.
3. Appraise the profit potential of these capabilities
and competencies in terms of their potential for
sustainable competitive advantage.
4. Select the strategy that best exploits the firm’s
capabilities and competencies relative to external
opportunities.
5. Identify resource gaps and invest in upgrading
weaknesses
COMPETITIVE STRATEGIES
Porter’s Competitive Strategies
Competitive Strategy raises the following questions:
• Should we compete based on lower cost, or
should we differentiate our products or services
on some basis other than cost, such as quality, or
service?
• Should we compete head-to-head with our major
competitors for the biggest but most sought-after
share of the market, or should we focus on a niche
in which we can satisfy a less sought-after but also
profitable segment of the market?
Lower cost strategy: The ability of a company or a
business unit to design, produce and market a
comparable product more efficiently than its
competitors.
Differentiation strategy: The ability of a company or
a business unit to provide a unique or superior value
to the buyer in terms of product quality, special
features, or after sale service.
• Cost leadership: A lower-cost competitive
strategy that aims at the broad mass market and
requires efficient scale facilities, cost reductions,
cost, and overhead control; avoids marginal
customers, cost minimization in R&D, service,
sales force, and advertising
o Provides a defense against competitors
o Provides a barrier to entry
o Generates increased market share
• Differentiation involves the creation of a
product or service that is perceived throughout
the industry as unique. Can be associated with
design, brand image, technology, features, dealer
network, or customer service
o Lowers customers sensitivity to price
o Increases buyer loyalty
o Barrier to entry
o Can generate higher profits
• Cost focus: Low-cost competitive strategy that
focuses on a particular buyer group or geographic
market and attempts to serve only this niche to
the exclusion of others

24
• Differentiation focus: It concentrates on a
particular buyer group, product line segment, or
geographic market to serve the needs of a narrow
strategic market more effectively than its
competitors
Example: Walmart, First cry, Patanjali, Haldiram’s
Apple
RISK IN COMPETITIVE STRATEGIES
Risks of Cost Leadership
• Cost leadership is not sustained
o Competitors imitate.
o Technology changes.
o Other vases of cost leadership erode.
• Proximity in differentiation is lost
• Cost focusers active even lower cost in segments
Risks of Differentiation
• Differentiation is not sustained
o Competitors imitate.
o Bases for differentiation become less
important to buyers.
• Cost proximity is lost.
• Differentiation focusers achieve even greater
differentiation in segments.
Risks of Focus
• The focus strategy is imitated.
• The target segment becomes structurally
unattractive:
o Structure erodes.
o Demand disappears
• Broadly targeted competitors overwhelm the
segment:
o The segment’s differences from other
segments narrow.
o The advantages of a broad line increase.
• New focusers subsegment the industry.
ISSUES IN COMPETITIVE STRATEGIES
• Stuck in the middle: When a company has no
competitive advantage and is doomed to below-
average performance.
• K-Mart- Imitating both Wal-Mart’s low-cost
strategy and Target’s quality differentiation
strategy
• Toyota and Honda Auto companies (High quality
products at lower costs thus achieving higher
market share)
• Entrepreneurial firms follow focus strategies
where they focus their product or service on
customer needs in a market segment and
differentiate based on quality and service
HBR: THERE ARE STILL ONLY TWO WAYS
TO COMPETE?
• Martin (2015) https://hbr.org/2015/04/there-
are-still-only-two-ways-to-compete
• Cost-leadership: customers see the value to
them of the firm’s offering as indistinguishable
from those of other competitors and hence the
firm is simply a price taker, at whatever level the
market sets. In such a market there was, is, and
always will be only one generic way to gain
competitive advantage andthat is to have the low-
cost position among those making offers to
customers in that market.
• Differentiation: Customers think to varying
degrees that there is something about the firm’s
offering that is distinct from other offerings; to
them, it is not “the same” as those of competitors.
In making a purchase decision, therefore, they
make a trade-off between the perceived value of
the distinctiveness and the price. Those who
value the distinctiveness more are prepared to
pay a higher price.
• But has anything changed since 1980 to
fundamentally alter the implication of those
economics?
• Let’s look at the main features that distinguish
competition today from previous decades:
o Increased Ferocity
o New Business Models
o The Rise of the Ecosystem
INDUSTRY STRUCTURE AND COMPETITIVE
STRATEGY
Fragmented industry: Many small- and medium-
sized companies compete for relatively small shares
of the total market
• Products are typically in early stages of product
life cycle
• Focus strategies are used
Consolidated industry: Domination by a few large
companies
• Emphasis on cost and service
• Economies of scale
• Regional and national brands
• Slower growth over capacity
• Knowledgeable buyers

25
MEDIA CAMPAIGN
• Media Campaign: Educating customers on
difference between ice-creams and frozen
desserts
• HUL filed case against Amul. How do you see
HUL’s concern to Amul’s media campaign?
• It is to create awareness regarding the
fundamental difference between the two
• The campaign does not say that other companies
are making a false representation on their
product labelling
• The ice-cream and frozen dessert industry have
been growing in India at an average of 15-17 per
cent.
TACTIC
• Tactic: A specific operating plan that details how
a strategy is going to be implemented in terms of
when and where it is to be put into action
• Narrower in scope and shorter in time horizon
than strategies
• Timing tactics: When a company implements a
strategy
o First movers
o Late movers
• Example (First mover): Netscape V/S Microsoft
• Example (Late mover): Puma
o Puma-2006
o 2014- sales of Rs. 766.75 Cr inching closer to
Adidas and Nike
o This allowed Puma to fill the gap in the
market created by Reebok's absence. It also
won the trust of Reebok's vendors by
utilizing their capacity.
o The Puma management sensed an
opportunity when Reebok was embroiled in
an alleged fraud in 2012
o Puma then stepped up engagement with
Reebok vendors.
o Around 300 Reebok stores were shut then
which helped Puma to fill in the vacuum in
the market.
o "In terms of franchisee management, we
focused on long-term sustenance of our stores
and never opened multiple stores in the same
location. We have always believed in quality
distribution and not in over distribution. In
some ways, we had the late-mover's
advantage and we learnt what not to do. So,
while others focused on just opening stores, we
put our energies in improving our customers'
experience in our stores."
HALF-TRUTH OF FIRST-MOVER
ADVANTAGE
• Two factors that powerfully influence a first
mover’s fate:
o The pace at which the technology of the
product in question is evolving
o The pace at which the market for the product
is expanding.
• The pace of change in a technology and a market
can have a profound effect on a company’s
chances of achieving a first-mover advantage.
• Four possible scenarios face a would-be first
mover.
Pace of Market Evolution
Pace
of
Technological
Evolution
Slow Fast
Slow
CALM WATERS
Scotch Tape
THE MARKET
LEADS
Sewing machines
Fast
THE TECHNOLOGY
LEADS
Digital cameras
ROUGH
WATERS
Personal computer
Example:
IS A FIRST-MOVER ADVANTAGE LIKELY?
Your company’s odds of succeeding with the
resources it possesses depend on how well you
understand the market and the technology. Use this
chart to match your company’s skills and resources
with the environment you face in a particular
situation.

26
MARKEY LOCATION: WHERE TO COMPETE
Market location tactics where a company
implements a strategy:
Offensive tactics
• Frontal assault
• Flanking maneuver
• Bypass attack
• Encirclement
• Guerrilla warfare
Defensive tactics
• Raise structural barriers
• Increase expected retaliation
• Lower the inducement for attack
COOPERATIVE STRATEGIES
Cooperative strategies are used to gain a
competitive advantage within an industry by working
with other firms
Collusion: The active cooperation of firms within an
industry to reduce output and raise prices to avoid
economic law of supply and demand
• Explicit: Firms cooperate through direct
communication and negotiation
• Tacit: Firms cooperate indirectly through an
informal system of signals
• CCI (Competition Commission of India)
• Section 3 anti-competitive agreements
Strategic Alliances: A long-term cooperative
arrangement between two or more independent firms
or business units that engage in business activities for
mutual economic gain.
• Strategic alliance is used to
o Obtain or learn new capabilities
o Obtain access to specific markets
o Reduce financial risk
o Reduce political risk
• Example:
o ICICI Bank and Vodafone India “m-pesa”
o Ashok Leyland forms strategic alliance with
SUN mobility for electric vehicles
Types of Cooperative Agreements
• Mutual service consortia
• Joint venture
• Licensing arrangements
• Value-chain partnerships
Example: Growth of Mahindra & Mahindra
• To explore cooperation in the sphere of products,
technologies and distribution including future
mobility program, connected vehicle projects,
electrification of cars amongst other areas.
• The scope of the agreement will allow Ford and
Mahindra to look beyond mobility programs,
connected vehicle projects, electrification to
product development, sourcing and commercial
efficiencies, distribution within India, improving
Ford’s reach within India and global emerging
markets and thereby helping Mahindra’s reach
outside of India.

27
CORPORATE STRATEGY
The choice of direction of the firm as a whole and the
management of its business or product portfolio and
concerns.
Corporate strategy deals with three key issues -
• Directional strategy: The firm’s overall
orientation toward growth, stability, or
retrenchment
• Portfolio analysis: The industries or markets in
which the firm competes through its products &
business units
• Parenting strategy: The manner in which
management coordinates activities, transfers
resources and cultivates capabilities among
product lines & business units
DIRECTIONAL STRATEGY
Growth Orientation:
• Should we expand, continue our operations
unchanged or cut back?
• Should we concentrate our activities within our
current industry, or should we diversify into
other industries?
• If we want to grow and expand nationally and/or
globally, should we do so through internal
development or through external acquisitions,
mergers, or strategic alliances?
GROWTH: CONCENTRATION STRATEGY
• Companies that do business in expanding
industries must grow to survive.
• Continuing growth means increasing sales and
take advantage of the experience curve to reduce
the per-unit cost of products sold, thereby
increasing profits.
• If a company’s current product lines have real
growth potential, concentration of resources on
those product lines makes sense as a strategy for
growth.
The two basic concentration strategies are vertical
growth and horizontal growth.
• Vertical growth results in vertical integration:
o The degree to which a firm operates
vertically in multiple locations on an
industry’s value chain from extracting raw
materials to manufacturing to retailing.
o Taking over the function previously provided
by a supplier or by a distributor.
o previously provided by a supplier is called
backward integration
o previously provided by a distributor is
labelled forward integration.
o Example: Reliance Textiles – Integration
Reliance Textiles: 1966
Manufacturer of Polyester Textile
Backward integration - Petrochemical
and plastic business
Forward integration - Only Vimal Brand
Retailing
o Example: ABCTL – Forward Integration as
Café Coffee Day
Amalgamated Bean Coffee Trading
(ABCTL)
Largest exporters of green coffee from
India since 1999
Entered Retailing as CCD
ABCTL is an arm of Coffee Day Group that
runs the flagship coffee retailing chain,
Café Coffee Day.
Different businesses in the coffee value
chain-
Coffee exports, production,
procurement, and exports
CCD, CCD square, CCD lounge
Coffee Day Express
Vending Division
Packaging Division
•Concentration
•Veritical Growth
•Horizontal Growth
•Diversification
•Concentric
•Conglomerate
Growth
•Pause/Proceedwith
Caution
•No Change
•Profit
Stability
•Turnaround
•Captive Company
•Sell-Out/Divestment
•Bankruptcy/Liquidat
ion
Retrenchme
nt

28
o VERTICAL INTEGRATION CONTINUUM
consists of – Full Integration, Taper
Integration, Quasi-Integration, Long-Term
Contract.
o Full integration: A firm internally makes
100 per cent of its key suppliers and
completely controls its distributors
o Taper integration: A firm internally
produces less than half of its own
requirements and buys the rest from outside
suppliers (Concurrent Sourcing)
o Quasi-integration: A company does not
make any of its key supplies but purchases
most of its requirements from outside
suppliers that are under its partial control.
o Long-term contracts: Agreements between
two firms to provide agreed-upon goods and
services to each other for a specific period
(Captive Company)
• Horizontal growth
o Expansion of operations into other
geographic locations and/or increasing the
range of products and services offered to
current markets.
o A firm can achieve horizontal growth by
expanding its operations into other
geographic locations and/or by increasing
the range of products and services offered to
current markets.
o Research indicates that firms that grow
horizontally by broadening their product
lines have high survival rates.
o Horizontal growth can be achieved through
internal development or externally through
acquisitions and strategic alliances with
other firms in the same industry.
o Horizontal integration: The degree to
which a firm operates in multiple geographic
locations at the same point on an industry’s
value chain
o International Entry options for Horizontal
growth:
Exporting
Licensing
Franchising
Joint venture
Acquisitions
Greenfield development
Production sharing
Turn-key operations
BOT concept (Build-Operate-Transfer)
Management contracts
MOTIVATION OF THE JOINT VENTURE (EXAMPLE:
SONY ERICSSON)
• Formed in 2001, as a result of a 50:50 joint
venture between Sony Corporation Japan and
the Swedish telecommunications company
Ericsson.
• The alliance aimed at combining Sony’s
consumer electronics expertise with Ericsson's
technical wireless expertise and large market
share in mobile communications.
What’s in for Sony What’s in for Ericsson
Ericsson's mobile platform and
state of the art mobile
technology.
Sony's design and production
processes, forte in
multimedia devices.
Eriksson’s strong presence in
European markets
Sony’s access to closed
Japanese markets
Eriksson’s ability to cater to
networking customers with
high end products.
Sony’s capability of
targeting mass markets with
low-tech handsets.
• Problems with the venture
o SE’s model line-up mostly consisted of high-
end models and with
few products in the discount segment.
o Uneven product line-up, violent competition,
and the difficulty of unifying two product
lines.
o Reliance on too many different technology
partners caused delay in release of new
products.
o Cultural deviation, saturated markets, brand
portfolio, product delays, logistic issues,
supply chain management problems and
rational
model difficulty finally lead to their
separation in 2011.
Example: AIRTEL IN SOUTH AFRICA
• Bharti Airtel had bought Kuwait-based Zain
Telecom's African assets for $10.7 billion in 2010,
after which the carrier had operations in 17
African countries.
• Airtel had big plans for Africa—a target of 100
million subscribers, up from 42 million at the time
of acquisition, $5 billion in revenue, up from $3.6
billion, and $2 billion of Ebitda, by March 2013,
less than three years after the acquisition.
• Their strategy at the time of entering was wrong.
The understanding of the market was lacking.
Costs were high and they were experimenting
with tariff cuts. The minute factory model works
when the volumes (of calls) are already there,
which they did not have. Then there was the fact

29
that India, the core market, was still drawing too
many management resources of the company.
They got a very poor asset. Zain had not invested
much in key things such as brand and network,
which made integration more difficult. They seem
to be doing some of the right things now, but it’s a
case of whether it’s too little too late.
GROWTH: DIVERSIFICATION STRATEGY
• According to strategist Richard Rumelt,
companies begin thinking about diversification
when their growth has plateaued and
opportunities for growth depleted.
• Unless the companies are able to expand
internationally into less mature markets, they
may have no choice but to diversify into different
industries, for continued growth.
• Diversification strategies are concentric &
conglomerate.
CONCENTRIC STRATEGY
• Concentric (Related) Diversification: Growth
through concentric diversification into a related
industry may be a very appropriate corporate
strategy when a firm has a strong competitive
position but attractiveness is low.
• The search is for synergy, the concept that two
businesses will generate more profits together
than they could separately. The point of
commonality may be similar technology, customer
usage, distribution, managerial skills, or product
similarity.
CONGLOMERATE STRATEGY
• Conglomerate (Unrelated) Diversification: When
the current industry is unattractive and that the
firm lacks outstanding abilities or skills that it
could easily transfer to related products or
services in other industries.
• Strategic managers who adopt this strategy are
primarily concerned with financial
considerations of cash flow or risk reduction.
• Management realizes that the current industry is
unattractive.
• Firm lacks outstanding abilities or skills that it
could easily transfer to related products or
services in other industries.
• This is also a good strategy for a firm that is able
to transfer its own excellent management system
into less-well-managed acquired firms.
TO DIVERSIFY OR NOT TO DIVERSIFY
1. What can our company do better than any of its
competitors in its current market?
2. What strategic assetsdo we need to succeedin the
new market? (Coca-Cola in wine business)
3. Can we catch up to or leapfrog competitors at
their own game? (Walt Disney; Canon in
photocopier)
4. Will diversification break up strategic assets that
need to be kept together?
5. Will we be simply a player in the new market, or
will we emerge a winner? (3M, DELL)
6. What can our company learn by diversifying, and
are we sufficiently organized to learn it?
Example: McDonald’s
• The executives were asked to decide which new
business McDonald’s should enter frozen foods,
theme parks, or photo processing.
• Forty percent of the executives suggested that
because the company’s main competencies were
finding good real-estate locations and offering
family entertainment, it should enter the theme
park business
• Thirty percent singled McDonald’s out for its
management of distribution outlets and its skill in
making products of consistent quality and
suggested that the photo-processing business
would be an appropriate diversification move.
• The remaining 30% pointed to competencies in
distribution, food retailing, andrelationships with
suppliers, and concluded that the frozen-food
business made the most sense.
CONTROVERSIES IN DIRECTIONAL STRATEGIES
• Is vertical growth better than horizontal growth?
• Is concentration better than diversification?
• Is concentric diversification better than
conglomerate diversification?
STABILITY STRATEGY
A corporation may choose stability over growth by
continuing its current activities without any
significant change in direction.
Stability strategies can be very useful in the short run,
but they can be dangerous if followed for too long.
• A pause/proceed-with-caution strategy is, in
effect, a timeout—an opportunity to rest before
continuing a growth or retrenchment.
• A no-change strategy is a decision to do nothing
new—a choice to continue current operations
and policies for the foreseeable future.

30
• A profit strategy is an attempt to artificially
support profits when a company’s sales are
declining by reducing investment and short term
discretionary expenditures. To do nothing new in
a worsening situation but instead to act as though
the company’s problems are only temporary
RETRENCHMENT STRATEGY
Used when the firm has a weak competitive position
in some or all its product lines from poor
performance.
• Turnaround Strategy
• Captive Company Strategy
o Company gives up independence in exchange
for security
• Sell-out/Divestment Strategy
o Sell-out strategy: Management can still obtain
a good price for its shareholders and the
employees can keep their jobs by selling the
company to another firm.
o Divestment: Sale of a division with low
growth potential.
• Liquidation Strategy
o Bankruptcy: Company gives up management
of the firm to the courts in return for some
settlement of the corporation’s obligations.
o Liquidation: Management terminatesthe firm
TURNAROUND STRATEGY
• Turnaround strategy emphasizes the
improvement of operational efficiency and most
appropriate when a corporation’s problems are
pervasive but not yet critical.
• Contraction is the initial effort to quickly “stop the
bleeding” with cutback in size and costs.
• The second phase, consolidation, implements a
program to stabilize the now leaner corporation.
Example: Indian Railways Turnaround
• Indian Railways (IR), which was declared to be
heading towards bankruptcy as per the Expert
Group on Indian Railways in 2001.
o Freight business, there was focus on higher
volumes
& lowering the unit costs, resulting in the record
surplus.
o Strategy of higher volumes was also carried
through in the passenger business. The concept of
revenue management, where in differential prices
could be charged for differential services like tatkal
and superfast were leveraged.
o Other business areas of parcel, catering and
advertising, the strategy of outsourcing through
public private partnership and wholesaling rather
than retailing was adopted.
o Strategy of increasing asset utilization.
• The second largest profit-making Public Sector
Undertaking after ONGC. The fund balance
crossed Rs.12,000 crores in 2005-06, which had
reached a low of just Rs.149 crores in 1990-2000.
Example: Jet Airways Turnaround (2016)
How Cramer Ball and teamturnedaround Jet Airways.
• Brought Jet and Jet Lite under one brand, went
back to earlier premium image of Jet.
• Increased Direct Sales through website.
• Increased aircraft utilisation which lead to higher
capacity without adding planes.
• Renegotiated engineering Ground handling, Fuel
contracts.
Example: Havells Turnaround (Darkness to Light)
• 18 months restructuring plan Phoenix & Prakram
• Havells worked closely with logistics companies
and shut down some warehouses, reducing
logistics costs from 14 to six percent of total cost.
• Since 2007, outsourcing from India and China has
jumped from 38 to 60%
• Operations at a UK factory were suspended and
shifted to India, where labour accounts for four to
five percent of the total cost (in Europe, it
accounts for 22%).
DIVESTMENT STRATEGY
• If the corporation has multiple business lines and
it chooses to sell off a division with low growth
potential, this is called divestment.
• If no one is interested in buying a weak company
in an unattractive industry, the firm must pursue
a bankruptcy or liquidation strategy.
PORTFOLIO ANALYSIS
• Management views its product lines and business
units as a series of investments from which it
expects a profitable return.
• Popular portfolio analysis techniques include
o BCG Matrix
o GE Business Screen

31
BCG GROWTH-SHARE MATRIX
The growth-share matrix is a portfolio management
framework that helps companies decide how to
prioritize their different businesses by their degree of
profitability.
• Question marks: New products with the
potential for success but require a lot of cash for
development
• Stars: Market leaders at the peak of their product
cycle and can generate enough cash to maintain
their high market share and usually contribute to
the company’s profits
• Cash cows: Products that bring in far more
money than is needed to maintain their market
share.
• Dogs: Products with low market share and do not
have the potential to bring in much cash.
Which means…
1. Low Growth, High Share. Companies should
milk these “cash cows” for cash to reinvest.
2. High Growth, High Share. Companies should
significantly invest in these “stars” as they have
high future potential.
3. High Growth, Low Share. Companies should
invest in or discard these “question marks,”
depending on their chances of becoming stars.
4. Low Share, Low Growth. Companies should
liquidate, divest, or reposition these “pets.”
BCG MATRIX – LIMITATIONS
• Use of highs and lows to form categories is too
simplistic
• Link between market share and profitability is
questionable
• Growth rate is only one aspect of industry
attractiveness
• Product lines or business units are considered
only in relation to one competitor
• Market share is only one aspect of overall
competitive position
Example: BCG Matrix of FMCG Companies
Compa
nies
Cash-Cow Star Questi
on
Dog
Hindu
stan
Unilev
er
Limite
d
AXE,
Vaseline,
Petroleum
Jelly
Lux,
Sun-
Silk,
Glow &
Lovely,
Ponds,
Kissan
Ketchup
, Surf-
Excel,
Annapu
rna Atta
Rin,
Pepsod
ent,
Domex
Whee
l
ITC
Enduri
ng
Value
Cigarettes Paperbo
ards,
Packagi
ng, Agri-
Busines
s
Autom
otive,
Furnitu
re,
Financi
al,
Tobacc
o, Food
ITC
InfoT
ech
Nestle Cerelac Nescafe,
Maggie
noodles
Milo,
Kit-kat,
Munch,
Maggie
soup,
Nestle
Butter,
Nesvita
, Nestle
Maggi
Ketchu
p
Neste
a,
Milky
bar
Dabur Chayawan
prash,
Vatika
Amla,
Hajmola
Real
Fruit
Juice,
Active
Fruit
Juice,
Dabur
Red
toothpa
ste
Odomo
s,
Sanifre
sh,
Oxylife
Facial
Dabu
r
Gulab
ari,
Burst
Fruit
Juice
P & G Ariel,
Vicks, Tide
Gillette,
Pantene
, head &
Shoulde
rs,
Pamper,
Whisper
Olay

32
GE BUSINESS SCREEN
Nine cells-Industry attractiveness (Market growth
rate, industry profitability, size, pricing practices) &
Business strength (market share, technological
position, profitability, size)
Four steps:
• Assess industry attractiveness for each product
line on a scale from 1(very unattractive) to 5
(very attractive)
• Assess business strength for each product line on
a scale of 1 (very weak) to 5 (very strong)
• Plot each product line’s current position on a
matrix
• Plot firm’s future portfolio and examine whether
there is a gap between projected or desired
portfolio?
GE BUSINESS SCREEN – LIMITATIONS
• Complex and cumbersome
• Numerical estimates of industry attractiveness
and business strength/competitive position give
the appearance of objective but are subjective
judgments that can vary from person to person.
• Cannot effectively depict the positions of new
products and business units in developing
industries.
CORPORATE PARENTING
Corporate parenting views a corporation in terms of
resources and capabilities that can be used to build
business unit value as well as generate synergies
across business units
Corporate parenting generates corporate strategy by
focusing on the core competencies of the parent
corporation and the value created from the
relationship between the parent and its businesses
Developing a Corporate Parenting Strategy:
• Examine each business unit in terms of its
strategic factors
• Examine each business unit in terms of areas in
which performance can be improved
• Analyze how well the parent corporation fits with
the business unit
FUNCTIONAL STRATEGY & STRATEGIC CHOICE
FUNCTIONAL STRATEGY
Functional strategy is the approach a functional area
takes to achieve corporate and business unit objectives
& strategies by maximizing resource productivity.
• It is concerned with developing and nurturing a
distinctive competence to provide a company or
business unit with a competitive advantage.
• The orientation of a functional strategy is dictated
by its parent business unit’s strategy.
• Functional Strategy contains –
o Marketing Strategy
o Financial Strategy
o R&D Strategy
o Operations Strategy
o Purchasing Strategy
o Logistics Strategy
o HRM Strategy
o Information Technology strategy
MARKETING STRATEGY
• Market segmentation: Subdividing of a market
into distinct subsets of customers according to
needs and buying habits.
• Product positioning: Communicating the
products' attributes to target customers based on
customer needs, competitive pressures, available
communication channels and carefully crafted
key messages.
• Marketing mix refers to the particular
combination of key variables product, place,
promotion and price that can be used to affect
demand and to gain competitive advantage.
Marketing strategy deals with Product, Promotion,
Distribution & Pricing.

33
• 4Ps of Marketing- Product, Price, Place, and
Promotion
• Product development strategy: new products
for existing markets or new products for new
markets
o Developing new products for existing
markets
o Developing new products for new markets.
o Lakme India Fashion Week introduced latest
season looks, makeup and fashion trends
o ITC extended other product category as
cosmetics, staples, hotels
o DETTOL – selling shaving creams, soaps etc.
o Push Marketing – Discounts, in-store special
offers
o Pull Marketing – Advertising to build brand
awareness so that shoppers will ask for the
products
o Ansoff Matrix
• Market development strategy: existing market
for current products through market saturation &
market penetration or develop new uses and/or
markets. This provides the ability to:
o Capture a larger market share for current
products (Market Saturation & Market
Penetration)
o Develop new uses and/or markets for
current products
o Nestle – Market development strategy-
Milkmaid
• Promotion & Advertising: push/pull marketing
strategies
• Distribution: Use distributors & dealers or direct
marketing model…
• Price Strategy: Skim pricing with a high price for
new products or Penetration pricing to gain
market share with a low price.
o Skim Pricing offers the opportunity to “skim
the cream” from the top of the demand curve
with a high price while the product is novel,
and competitors are few
o Penetration Pricing attempts to hasten
market development and offers pioneer the
opportunity to use the experience curve to
gain market share with a low price and then
dominant the industry.
Example: PayTM
o Paytm allocated Rs.600 crore for branding
and marketing in 2016-17, to milk the
demonetization opportunity.
o Released full-page print ad on 8th November
congratulating the Prime Minister, with a
word play on its tagline ‘Ab ATM nahin,
#Paytm karo.’
o Within 12 days, Paytm had witnessed over 7
million transactions worth Rs 120 crore a
day.
o Paytm has over 150 million mobile wallet
users currently.
FINANCIAL STRATEGY
Financial strategy examines the financial
implications of corporate and business-level strategic
options and identifies the best financial course of
action
• Financial strategy usually attempts to maximize
the financial value of a firm.
• Trade-off between achieving the desired debt-to-
equity ratio and relying on internal long-term
financing via cash flow
• Small-and medium sized family-owned
companies try to avoid all external sources of
funds
• Financial strategy is influenced by its corporate
diversification strategy
o Equity financing is preferred for related
diversification
o Debt financing is preferred for un-related
diversification
• The management of dividends and stock price is
an important part of corporation’s financial
strategy
• Decision of buy back of shares

34
HRM STRATEGY
Human Resource Management strategy involves-
• Hiring combination of low-skilled & high skilled
employees, ensure match between individuals,
jobs & compensation.
• Diversity: Research reveals that firms with
Diversity in terms of race, age and national origin
etc benefits organizations.
o High degree of diversity among employees
leads to better productivity that in turn can
act as a competitive advantage for the
respective companies.
• Virtual teams are groups of geographically
and/or organizationally dispersed co-workers
assembled virtually to accomplish an
organizational task.
o Employees work together from different
geographic locations and rely on
communication technology such asemail, fax,
videoconferencing.
o This saves cost, leverages global talent,
reduces time to market and thus boosts
productivity.
• 360-degree appraisal: More than 90% of the
Fortune 500 companies are using this technique
for transparent and fair evaluation.
• Self-managing work teams: MNCs are
increasingly using these in foreignaffiliates and in
home country operations. Results are improved
productivity, quality, and higher employee
satisfaction.
• Quality of work life:
o Participative problem solving
o Restructuring work
o Innovative reward systems
o Work environment
Examples of HRM Strategy
• 3M, Federal Express, Valve Corporation,
Zappos have implemented the concept of self-
managing work teams.
• Maruti, Pepsico, HCL Technologies have been
using 360 degree appraisal method.
• DuPont, McDonald, Avon have benefited from
the practice of diverse workforce.
• IT giants like IBM, Dell; Balsamiq, Zapier,
Groove and many more have reaped the
advantages of virtual teams.
R & D STRATEGY
• R&D strategy deals with product and process
innovation and improvement.
• It also deals with the question of how new
technology should be accessed—through internal
development, external acquisition, or strategic
alliances.
• One of the R&D choices is to be either a
o technological leader, pioneering an
innovation, or
o a technological follower, imitating the
products of competitors, or
o open innovation, use of alliances and
connections with corporate, government,
academic labs and consumers to develop new
products and processes
• R&D strategy deals with product and process
innovation and improvement.
• It also deals with the question of how new
technology should be accessed—through internal
development, external acquisition, or strategic
alliances.
• One of the R&D choices is to be either a
technological leader, pioneering an innovation, or
a technological follower, imitating the products of
competitors.
Technological
Leadership
Technological
Followership
Cost
Advantage
- Pioneer the
lower-cost
production
design.
- Be the first
down the
learning curve.
- Create low cost
ways of
performing value
activities.
- Lower the cost
of the product
or value
activities by
learning from
leader’s
experience.
- Avoid R & D
costs through
imitation.
Differentia
tion
- Pioneer a
unique product
that increases
buyer value.
- Innovate in
other activities to
increase buyer
value.
- Adapt the
product or
delivery system
more closely to
buyer needs by
learning from
the leader’s
experience.
Indian Pharmaceutical Industry – Recent Trends
• Third largest in terms of volume and thirteenth
largest in terms of value*.
• Indian generics accounts for 20 per cent of global
exports in terms of volume. (largest)
• The UN-backedMedicines Patent Pool has signed
six sub-licences with Aurobindo, Cipla, Desano,
Emcure, Hetero Labs and Laurus Labs, allowing
them to make generic anti-AIDS medicine
TenofovirAlafenamide (TAF) for 112 developing
countries.

35
THE SOURCING DECISION
• Outsourcing: Purchasing from someone else a
product or service that had been previously
provided internally. Avoid outsourcing distinctive
competencies.
• Offshoring: The outsourcing of an activity or a
function to a wholly owned company or an
independent provider in another country
• Disadvantages of Outsourcing & Offshoring:
o Customer complaints
o Long-term contracts
o Ability to learn new skills and develop new
core competencies
o Lack of cost savings
o Poor product quality
o Increased transportation costs
• Errors in Outsourcing Efforts:
o Outsourcing the wrong activities
o Selecting the wrong vendor
o Poor contracts
o Personnel issues
o Lack of control
o Hidden costs
o Lack of an exit strategy
OUTSOURCING STRATEGY
• The key is to purchase from outside only those
activities that are not key to company’s distinctive
competencies.
• In determining functional strategy, the strategist
must:
o Identify the company’s or business units core
competencies;
o Ensure that the competencies are continually
being strengthened.
o Manage the competencies in such a way that
best preserves the competitive advantage
they create
Activity’s Total Value-Added to
Firm’s Products and Services
Low High
Activity’
s
Potential
for
Competitive
Advantage
High
Taper Vertical
Integration:
Produce Some
Internally
Full Vertical
Integration:
Produce All
Internally
Low
Outsource
Completely: Buy
on Open Market
Outsource
Completely:
Purchase with
Long-Term
Contracts
IT COST-ARBITRAGE SOURCING
• IT outsourcing is the use of external service
providers to effectively deliver IT-enabled
business process, application service and
infrastructure solutions for business outcomes.
• Cisco is one of US companies that has outsourced
its operations to India. It has invested over $150
million in structuring and expanding its
technology development enterprise in India. It
has set up its 2nd largest research and
development facility in Bangalore, India, which
houses more than 1500 Indian technical
professional.
• Other examples are Microsoft, AMEX, ATT
Wireless, HP.
• Philippines: Choice for New Sourcing Decisions
• Reasons for fast growth:
o Cultural proximity to the US.
o Talented and cheap manpower.
o Better English accent & knowledge.
8 Benefits of Outsourcing to the Philippines:
• Globally competitive professionals
• High educational attainment
• Positive work ethics
• Cultural compatibility
• Government support
• Economic growth and stability
• Cost competitive advantage
• Highly skilled and available workforce.
IT STRATEGY
• Corporations are increasingly using information
technology strategy to provide business units
with competitive advantage.
• Design and manage the flow of information in an
organization in ways that improve productivity
and decision making.

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