Assignment of Strategic Management

Submitted by:
Name:- Reetu kumari
(Enroll. No: 50212303917)
MBA IV B
Question 1. Discuss with the real life example the implementation of generic strategies?

Answer 1. Porter called the generic strategies “Cost Leadership” (no frills), “Differentiation”
(creating uniquely desirable products and services) and “Focus” (offering a specialized service in
a niche market). He then subdivided the Focus strategy into two parts: “Cost Focus” and
“Differentiation Focus.”

The Cost Leadership Strategy

Porter’s generic strategies are ways of gaining competitive advantage – in other words,
developing the “edge” that gets you the sale and takes it away from your competitors. There are
two main ways of achieving this within a Cost Leadership strategy: Increasing profits by
reducing costs, while charging industry-average prices. Increasing market share through charging
lower prices, while still making a reasonable profit on each sale because you’ve reduced costs.

Tip: Remember that Cost Leadership is about minimizing the cost to the organization of
delivering products and services. The cost or price paid by the customer is a separate issue!

The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your
industry or market. Simply being amongst the lowest-cost producers is not good enough, as you
leave yourself wide open to attack by other low-cost producers who may undercut your prices
and therefore block your attempts to increase market share.

The Differentiation Strategy

Differentiation involves making your products or services different from and more attractive than
those of your competitors. How you do this depends on the exact nature of your industry and of
the products and services themselves, but will typically involve features, functionality, durability,
support, and also brand image that your customers value. To make a success of a Differentiation
strategy, organizations need: Good research, development and innovation.

The ability to deliver high-quality products or services. Effective sales and marketing, so that the
market understands the benefits offered by the differentiated offerings. Large organizations
pursuing a differentiation strategy need to stay agile with their new product development
processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus
Differentiation strategies in different market segments.

The Focus Strategy

Companies that use Focus strategies concentrate on particular niche markets and, by
understanding the dynamics of that market and the unique needs of customers within it, develop
uniquely low-cost or well-specified products for the market. Because they serve customers in
their market uniquely well, they tend to build strong brand loyalty amongst their customers. This
makes their particular market segment less attractive to competitors.

As with broad market strategies, it is still essential to decide whether you will pursue Cost
Leadership or Differentiation once you have selected a Focus strategy as your main approach:
Focus is not normally enough on its own.

But whether you use Cost Focus or Differentiation Focus, the key to making a success of a
generic Focus strategy is to ensure that you are adding something extra as a result of serving only
that market niche. It’s simply not enough to focus on only one market segment because your
organization is too small to serve a broader market (if you do, you risk competing against better-
resourced broad market companies’ offerings). The “something extra” that you add can
contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to
increasing differentiation (though your deep understanding of customers’ needs).

Question 2. Define the competitive advantage?

Answer 2. A competitive advantage is what makes an entity's goods or services superior to all of
a customer's other choices. The term is commonly used for businesses. The strategies work for
any organization, country, or individual in a competitive environment. To create a competitive
advantage, you've got to be clear about these three determinants.

Benefit.
What is the real benefit your product provides? It must be something that your customers truly
need and that offers real value. You must know not only your product's features, but also its
advantages how they benefit your customers. That means being constantly aware of new trends
that affect your product, especially new technology. For example, newspapers were slow to
respond to the availability of free news on the internet. They thought people were willing to pay
for news delivered on a piece of paper once a day.

Target market.

Who are your customers? What are their needs? You've got to know exactly who buys from you,
and how you can make their life better. That’s how you create demand, the driver of all economic
growth. Newspapers' target market drifted to older people who weren't comfortable getting their
news online.

Competition.

Have you identified your real competitors? That's more than just similar companies or products.
It includes anything else your customer could do to meet the need you can fulfill. Newspapers
thought their competition was other newspapers until they realized it was the internet. They
didn't know how to compete with a news provider that was instant and free.

Porter outlined the three primary ways companies achieve a sustainable advantage. They are cost
leadership, differentiation, and focus. Porter identified these strategies by researching companies.

Cost leadership means companies provide reasonable value at a lower price. Firms do this by
continuously improving operational efficiency. That usually means paying their workers less.
Some compensate by offering intangible benefits such as stock options, benefits or promotional
opportunities. Others take advantage of unskilled labor surpluses. As these businesses grow, they
can use economies of scale and buy in bulk. Walmart and Costco are good examples of cost
leadership. But sometimes they pay their workers less than the cost of living. Higher minimum
wage laws threaten their advantage.

Differentiation means companies deliver better benefits than anyone else. A firm can achieve
differentiation by providing a unique or high-quality product. Another method is to deliver it
faster. A third is to market in a way that reaches customers better. A company with a
differentiation strategy can charge a premium price. That means it usually has a higher profit
margin.

Companies typically achieve differentiation with innovation, quality, or customer service.

Innovation means they meet the same needs in a new way. An excellent example of this is Apple.
The iPod was innovative because it allowed users to play whatever music they wanted, in any
order. Quality means the firm provides the best product or service. Tiffany's can charge more
because patrons see it as the best. Customer service means going out of the way to delight
shoppers. Nordstrom's was the first to allow returns with no questions asked.

Focus means the company's leaders understand and service their target market better than
anyone else. Their either use cost leadership or differentiation to do that. The key to focusing is
to choose one specific target market. Often it's a tiny niche that larger companies don't serve. For
example, community banks use a focus strategy to gain sustainable competitive advantage. They
target local small businesses or high net worth individuals. Their target audience enjoys the
personal touch that big banks may not be able to give.

Question 3. Take example of any company & explain the concept of G E 9 cell matrix.

Answer 3.The GE-McKinsey nine-box matrix is a strategy tool that offers a systematic approach
for the multi-business corporation to prioritize its investments among its business units. In the
1970s, General Electric asked its consultants, McKinsey, to develop a portfolio management
model that would suit it needs.

GE, which had about 150 business units under it at that time, had been using the BCG Matrix,
but it had eventually felt the need for a more sophisticated framework to help it decide which of
the units deserved development funds.

The result was what the business world would come to know as the GE/McKinsey Matrix, a
strategy tool that helps a corporation decide whether or not to invest in one of its business units
or products.
Like the BCG Matrix, the GE/McKinsey Matrix (“GE Matrix,” henceforth) today helps
corporations make investment and disinvestment decisions related to their business units. But
unlike the four-grid BCG Matrix, it has nine grids.

Moreover, while the BCG Matrix uses market growth and market share as its dimensions, the GE
Matrix uses industry attractiveness and business unit strength as the criteria for its measurements.

GE-McKinsey Matrix explained with an example

The McKinsey Matrix, because of its higher sophistication, is a little more difficult than the BCG
Matrix to put into practice. But one can learn to use it by following the five steps given below.
Based on the template format introduced earlier, here’s how you can make & use it.

Imagine that we are plotting just two business units, Business Unit A and B, on the GE Matrix.

Step 1. Determine the industry attractiveness of each business unit

List the factors: To determine industry attractiveness, the following are among factors taken into
consideration: the industry growth rate, market size, industry profitability, low competition, and
PEST factors.

Decide weights: To keep it simple, let us take just three of the factors that make an industry
attractive for investments: High profit, industry growth, and low competition.

Now, we need to decide the weight of each factor—that is, how important each factor is—by
giving it points from 1 (not important) to 10 (very important).

The total of all the weights should be 10. Let us assume that high profit is the most important of
the factors; if so, give it a weight of, say, 5 out of 10.

Give industry growth 3 out of 10, and low competition 2 out of 10 (these are just random
weights, given only for example).

So, this means that the possibility of making a high profit is the most important consideration in
entering the market, followed by market growth and low competition.
Rate the factors: Now, rate each factor for each business unit on a scale of 1 (not attractive) to 10
(very attractive). Let us say that for Unit A, low competition is the most attractive factor.

If so, it is put at 6 (for example) on the scale. Industry growth and high profit get scores of 4 and
1, respectively, for Unit A. For Unit B, industry growth scores 3, high profit 6, and low
competition 1 (the ratings need not add up to 10).

Weighted score: To get the weighted score for each factor of industry attractiveness, we multiply
the weight of the factor by the rate for the unit. Here are the weighted scores for Unit A and Unit
B.

Unit A: Low competition: 2 (weight) x 6 (rate) = 12. Industry growth: 3 x 4 = 12. High profit: 5 x
1 = 5. Total weighted score for Unit A = 12 + 12 + 5 = 29.

Unit B: Low competition: 2 x 1 = 2. Industry growth: 3 x 3 = 9. High profit: 5 x 6 = 30. Total

weighted score for Unit B = 2+ 9 + 30 = 41.

Step 2. Determine the competitive strength of each business unit

Step 2 is similar to Step 1, but instead of industry attractiveness, we try to find out the
competitive strengths of Units A and B.

List the factors: To determine the competitive strengths of Units A and B, the following are
among the factors that can be taken into consideration: market share, growth rate, profitability,
brand reputation, and customer service.

Decide weights: For simplicity’s sake, let us take into account only three factors here: market
share, profitability of the unit, and brand reputation.

As in the case of industry attractiveness above, we need to decide the weight of each factor—that
is, how important each factor is—on a scale from 1 (not important) to 10 (very important).

Say, market share is the most important factor, so give it 5 out of 10. Give profitability 3 out of
10, and brand reputation 2 out of 10 (the weights must add up to 10).

So, this means that, in this example, market share is being considered as the most important
factor in evaluating the relative strengths of the two units.
Rate the factors: Now, as above, rate each factor for each business unit on a scale of 1 (not
important) to 10 (very important factor).

Let us imagine that for Unit A, brand reputation is the strongest factor, and gets 5 out of 10.
Market share and profitability score 1 each for Unit A.

For Unit B, market share gets a score of 3, profitability 6, and brand reputation 1 (the ratings
need not add up to 10).

Weighted score: To get the weighted score for each factor of competitive strength for each unit,
we multiply the weight for the factor by the rate for the unit. Here are the weighted scores for
Unit A and Unit B.

Unit A: 1. Brand reputation: 2 (weight) x 5 (rate) = 10. Market share: 5 x 1 = 5. Profitability: 3 x

1 = 3. Total weighted score = 10+ 5+ 3 = 18.

Unit B: Brand reputation: 2 x 1 = 2. Market share: 5 x 3 = 15. Profitability: 3 x 6 = 18. Total

weighted score: 2 + 15 + 18 = 35.

Step 3. Determine the position of the units on the matrix

Once we have the weighted scores of the units, we can plot the units on the matrix. Here, in the
example, Unit A and Unit B score 29 and 41 in industry attractiveness, and 18 and 35 in unit
strength, respectively.

Each unit is represented by a circle with its size showing the unit’s market size. A pie chart can
also be shown on the circle showing its market share.

Generally, unit that are above the diagonal of the matrix would be candidates for additional
investments and those below candidates for divestment.

Units that fall on or about the diagonal are usually put in the “hold” category. A dimension
showing the outlook for the units can also be included, and it is explained in Step 5.

Step 4. Determine the strategy option for the units

Depending on the position of the unit on the matrix and the box on the matrix in which it has
been placed, three categories of investment or divestment decisions can be made: (1) invest; (2)
hold; (3) harvest or divest.

Corporations are advised to make resources available to units in the “invest” category, as they
promise high returns in the future. As for the “hold” category of units, corporations may invest in
them only if they appear to have a future and if resources are available to the corporation after
investments have been made in the units in the “invest” category.

Corporations are advised to harvest or divest units in the “harvest/divest” category” if they are
not showing any promise. If these units are still generating cash, this revenue can be used to fund
the promising units.

Units that are making losses and those for which a turnaround plan is not feasible should be
divested.

In the example of the two units above, Unit A is in the “hold” category, and Unit B is in the
“invest” category.

Step 5. Forecast the future of the units

The wisdom of business analysts is necessary to predict the outlook for any industry. For
example, the matrix shows that Unit B is in the invest category.

However, if the outlook for its industry shows that the market is likely to shrink and it might lose
strength, Unit B would become much less attractive for investment.

On the other hand, if the future scenario for Unit A shows that its industry is poised for growth,
the unit, now placed in the “hold” category by the matrix, will become attractive for investment.

GE-McKinsey Matrix vs. BCG Matrix

The main advantage of the GE Matrix as a strategy tool is, of course, that it tries to answer the
question of where scarce resources should be invested.

It is more refined than the BCG Matrix as it replaces a single factor, “market growth,” with many
factors under “market attractiveness.”
Similarly, competitive strength of a business unit in the GE Matrix includes many more factors
than just market share, as seen above.

But, like the BCG Matrix, the GE Matrix also fails to consider interdependencies between
business units under one corporation and their core competencies.

Another disadvantage of the GE Matrix is that preparing it is a complicated exercise that

probably demands the expertise of a consultant.