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INTRODUCTION TO

BUSINESS
STRATEGY
[Discover New Opportunities.
Manage and Eliminate
Threats.]
The aim of this paper is to provide a summary of those models
from Management literature most often used in student
assignments, management activities & business consultancy.
Table of Contents
INTRODUCTION TO BUSINESS STRATEGY....................................................................1

[Discover New Opportunities......................................................................................1

Manage and Eliminate Threats.].................................................................................1

The aim of this paper is to provide a summary of those models from Management
literature most often used in student assignments, management activities &
business consultancy. ................................................................................................1

Table of Contents......................................................................................... ...............2

MAIN REFERENCES.....................................................................................................3

FEW WORDS ON MODEL.............................................................................................4

INTRODUCTION TO STRATEGY....................................................................................6

Five Ps for strategy................................................................................. ....................8

INTRODUCTION TO BUSINESS STARTEGY..................................................................11

INTRODUCTION TO ENVIRONMENT ANALYSIS...........................................................13

PESTLIED.................................................................................... ..............................14

GEO BUSINESS MODEL.............................................................................................17

PORTER’S DIAMOND.................................................................................................20

STRATEGIC MODELS USED IN INDUSTRY ANALYSIS...................................................24

Barriers & Profitability............................................................................................ ...24

Porter's Five Forces...................................................................................... .............26

SWOT ANALYSIS.......................................................................................... ..............30

STRATEGIC TRIANGLE...............................................................................................33

PRODUCT PORTFOLIO STRATEGY..............................................................................36

The Boston Matrix................................................................................................. ....37

(Also called the BCG Matrix, the Growth-Share Matrix and Portfolio Analysis)......37

Focusing effort to give the greatest returns..........................................................37


RELATED DIVERSIFICATION GRID..............................................................................40

GENERIC STRATEGIES...............................................................................................42

FOUR ROUTES TO STRATEGIC ADVANTAGE...............................................................46

MAIN REFERENCES
• THE MIND OF THE STRATEGIST (1982) K.OHMAE
• COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE INDUSTRIES &
COMPETITIORS BY MICHAEL PORTER
• SIMON & SCHUSTER FROM DIVERSIFICATION THROUGH ACQUISTION (1979)
• COMPETITVE ADVANTAGE: CREATING & SUSTAINING SUPERIOR
PERFORMANCE BY PORTER (1985)
• THE COMPETITIVE ADVANTAGE OF NATIONS BY MICHEAL PORTER (1990)
• INTERNATIONAL BUSINESS & MULTINATIONAL ENTERPRISE, ROBOCK &
SIMMONDS, RICHARD D.IRWIN INC. 1989.
• PROVEN BUSINESS MODEL BY GROWER.
FEW WORDS ON MODEL
The term “model” is often used to describe a pictorial summary of principal
Challenges within a particular domain.

A model is a representation of reality. It seeks to encompass all the essential


elements of a particular domain but, in so doing, it simplifies & generalizes. A
model is a framework, identifying the broadest Challenges & considerations.

Models aim to clarify the relationship between different elements, indicating


causal & effective interaction. They often try to show how a change in one
part of a system or process may impact other parts. As such, a model is a
dynamic representation of reality, demonstrating how different forces from
inside or outside the system may change the whole.

Since models simplify reality they exclude specific


consideration of particular Challenges, they cannot contain all the
detailed elements required for a particular analysis. Therefore
models should not me used as a complete analysis in them but to
help stimulate broader thinking about an area of interest in an
analytical process.

The representation of models

The models in this paper are presented in a way that most effectively
summarizes the interaction of main elements & usually follow the form
produced by the original author. Each model is accompanied by explanatory
text which is in following sections:

• Principle: the basis or purpose of the model.


• Assumption: underpinning the ideas without which the model would
not hold true.
• Elements: a description or definition of the identifiable parts of the
model.
• Challenges: a summary of significant topics or points intended to give
further explanation & ideas concerning the context & analysis of the
model.
• Application: how the model may be used.

Selection of models

I have not included all the possible models. Criteria of selecting models are:

• Those models which most often help, & are expected to used, in
written student assignments, projects, case studies or dissertation

• Those generic models which provide the most useful conceptual


framework on which to build more specific & detailed understanding

• Those models which are most useful to relation to the normal activities
of today’s organization

• Models which are included in most high-level management courses.


INTRODUCTION TO STRATEGY
Definition: Strategy is the means by which objectives are consciously
pursued and obtained over time.
The word “strategy” derives from the Greek word stratçgos; which derives
from two words: -
* "stratos" – meaning army.
* "ago" – which is the ancient Greek for leading/guiding/moving.

Strategy can also be defined as “the determination of the basic long-term


goals & objectives of an enterprise & the adoption of courses of action & the
allocation of resources necessary for carrying out those goals”.

Strategy at Different Levels of a Business

Strategies exist at several levels in any organization - ranging from the


overall business (or group of businesses) through to individuals working in it.

Corporate Strategy - is concerned with the overall purpose and scope of


the business to meet stakeholder expectations. This is a crucial level since it
is heavily influenced by investors in the business and acts to guide strategic
decision-making throughout the business. Corporate strategy is often stated
explicitly in a "mission statement".

Business Unit Strategy - is concerned more with how a business competes


successfully in a particular market. It concerns strategic decisions about
choice of products, meeting needs of customers, gaining advantage over
competitors, exploiting or creating new opportunities etc.
Operational Strategy - is concerned with how each part of the business is
organized to deliver the corporate and business-unit level strategic direction.
Operational strategy therefore focuses on Challenges of resources,
processes, people etc.

Strategic decisions
What are strategic decisions?

Johnson & Scholes (2002) suggest that strategic decisions are all about some
of the following:
• Long-term direction of an organization- strategic decision is likely
to be concerned with the long-term survival of an organization.
• Securing advantage – strategic decisions also concern effective
positioning in relation to competitors to achieve advantage in the
market.
• Scope of an organization’s activities – strategies decisions are
likely to be concerned with the scope of an organization’s activities.
• Using the links between the organization & the environment –
strategy can be seen as matching the activities of an organization to
the environment in which it operates.
• Major resource change- strategies may require major resource
changes for an organization.
• Values & expectations – the strategy of an organization is affected
not only by environmental forces & resource availability, but also by
the values & expectations of those who have power in & around the
organization.
• Strategic decision affects operational decisions.

Strategic thinking
In thinking about strategy, three themes can be picked out:
• The long-term plan – thinking strategically mean’s raising one’s eyes
from day-to-day problems to consider how the relationship between
the organization & its environment is shaping up for the long term.
• Big Challenges – strategic thinking means converting an awareness
of trends into an overall picture of the environment & how the
organization should relate to it.
• Interdependency – understanding the way that each of the big
Challenges links to the others enables the strategist to see the map as
it changes.

Tests of good strategy


Tests of good strategy in application include the following:
• Value added: A good strategy will deliver increased value in the
market place. This might show itself in increased profitability, but
might also be visible in gains in longer-term measures of business
performance such as market share, innovative ability & satisfaction for
employees.
• Consistency: A good strategy will be consistent with the
circumstances that surround a business at any point in time. It will take
into account its ability to use its resources efficiently, its environment,
which may be changing fast or slowly, & its organizational ability to
cope with the circumstances of that time.
• Competitive advantage: For most organizations, a good strategy will
increase the sustainable competitive advantage of the organization.
After going through the above discussion, one of the standard models for
defining strategy is Five’s P for Strategy.

Five Ps for strategy


Mintzberg (1991) makes it clear that strategic
thinking involves more than just following an
‘industry recipe’, a copying a competitor’s strategy
or carrying on the same as before, unless these
have been deliberately decided upon. He
suggested that there are fives ways in which the
term ‘strategy’ used.
Pattern

Position Ploy

Perspective Plan
Principle

There is no single definition of strategy; it is possible to consider & define


strategy in different ways.

Assumption

Strategy is implemented in many different ways, often depending on the


specific requirements at that time.

Elements

Plan

Some sort of consciously intended course of action, a guideline (or set of


guidelines) to deal with a situation.

Ploy

The ploy is a specific man oeuvre intended to directly outwit a competitor.

Pattern

A pattern is a consistent, intentional or unintentional pattern of behavior


within a stream of actions.

Position

The Position is a means of defining an organization in relation to its


competitive environment.

Perspective

The Perspective is the concept or character of an organization- its collective


mind, intention or behavior.
Challenges

Understanding

The five Ps are simply labels to help develop appropriate strategic thinking.
They should not define or restrict our thinking but should act as an aid to
unravel the complexity implicit in strategy.

Compatibility

The 5P approaches are not mutually exclusive.

Flexibility

Plans, Position & ploys may be easily changed whereas Perspectives &
Patterns are longer term & more fundamental.

Programme

A sixth “P” programme- an iterative process that aids progress towards


achievement of a vision- might be added.

Applications

As a definition & as an aid to strategy formulation

The term ‘strategy’ is sometimes ill-used. Use of the five definitions helps to
prevent confusion & aids strategy formulation.

As a stimulus to lateral thinking

Consciously considering strategy in different ways can help people to think


laterally & creatively about range of Challenges.

Assessment of strategy

The definitions can be used to analyze the breadth of strategic Challenges


faced by an organization & to help assess strategy from different viewpoints.

Appreciation of strategy Challenges

The model can help to define both the formal & informal Challenges
impacting on strategy & its development.
INTRODUCTION TO BUSINESS STARTEGY
Any business has to deal with three things ENVIRONMENT which it operates,
INDUSTRY which it competes & PRODUCT which it produces.

Business level strategy is the firm specific strategy that facilitates in gaining
competitive advantage in the market. The business level strategy of the
organization outlines the methodologies of the organization regarding
competing with rival firms in the market.

Basic idea is used behind the formulation of ENVIRONMENT STRATEGY is to


exploit opportunities in the environment by drawing its competitive
strengths. The models discussed in this topic are:
• Geo business model

• PESTILED

• Porter’s Diamond.
INTRODUCTION TO ENVIRONMENT ANALYSIS
In the very broadest sense ‘the environment means that which is external to
& within which some entity exists’.

If in discussing the environment we take the individual organization or firm


as our reference point, the boundaries of the firm conveniently define on the
one side an internal environment within which its members work & the firm’s
resources are organized & the other the external environment outside those
firm boundaries.

The external environment we are concerned with comprises the whole set of
relevant strategic conditions surrounding the firm. This can be termed as the
strategic environment.

BUSINESS UNIT

COMPETITIVE THE
INDUSTRY ENVIRONMENT
ENVIRONMENT FIRM

ENVIRONMENT
PESTLIED

ECONOMICAL

TECHNICAL

POLITICAL SOCIAL

LEGAL ORGANISA

DEMOGRAPHIC

INTERNATIONAL

ENVIRONMENTAL

Principle

PESTLIED is a mnemonic which represents various environmental factors that


can be addressed when analyzing an organization.

Assumption

Various factors in the environment can have significant impact on the


performance of organization operating within their sphere of influence.

Elements

Political

Political factors include government regulations and legal issues and define
both formal and informal rules under which the firm must operate.

• Government type and stability


• Freedom of press, rule of law and levels of bureaucracy and corruption
• Regulation and de-regulation trends
• Social and employment legislation
• Tax policy, and trade and tariff controls
• Environmental and consumer-protection legislation
• Likely changes in the political environment

Economic:

• Stage of business cycle


• Current and project economic growth, inflation and interest rates
• Unemployment and labor supply
• Labor costs
• Levels of disposable income and income distribution
• Impact of globalization
• Likely impact of technological or other change on the economy
• Likely changes in the economic environment

Social:

• Population growth rate and age profile


• Population health, education and social mobility, and attitudes to these
• Population employment patterns, job market freedom and attitudes to
work
• Press attitudes, public opinion, social attitudes and social taboos
• Lifestyle choices and attitudes to these
• Socio-Cultural changes
These factors comprise social trends & tolerance towards the organization &
its product.

Technological:

• Impact of emerging technologies


• Impact of Internet, reduction in communications costs and increased
remote working
• Research and Development activity
• Impact of technology transfer
These factors include emergence of new technologies, access to technical
know-how, foreign as well as indigenous.

Legal matters

Legislation may affect the organization & can inhibit or enhance its
performance.

Environmental
These factors are environmental constraints on factory operation such as
‘green Challenges’

Demographic

Demographic factors comprise the availability of workforce, & age difference,


which impinge upon organizational performance.

Challenges

Negative & positive factors

Several PESTLIED factors may interact negatively or positively.

Relative importance of factors

The importance of the various PESTLIED factors varies according to the


nature of the organization.

Other factors

Besides PESTLIED factors, there are other factors or environments that affect
the organization.-for example, the competitive environment.

Applications

Analysis & audit

PESTLIED may be used in the analysis & audit of organization.

Planning

The model may be used as a checklist in the planning process to ensure that
the forecast effects of PESTLIED factors are taken into account.

Management development

The use of the list of PESTLIED factors encourages managers to become less
insular & to consider the impact of external influences upon their
organizations.
GEO BUSINESS MODEL

CONDTIONING
MOTIVATIONAL VARIABLES
VARIABLES

CONTROL VARIABLES

SOURCE: INTERNATIONAL BUSINESS & MULTINATIONAL ENTERPRISE, ROBOCK


& SIMMONDS, RICHARD D.IRWIN INC. 1989.

Principle

There is a comprehensive framework for explaining & predicting international


business.

Assumptions
There are three main interacting forces that affect firm’s international
business action.

Elements

Conditioning variables

Product-specific variables: conferring competitive advantages for the foreign


investor for example, R&D, product differentiation, product processing,
management skills, know- how, economics of scale.

Country-specific characteristics: helping to sustain competitive advantages


of firms. For example, economics size of home market, nature of domestic
competition, resource scarcity or surplus.

Inter-nation variables: for example, tariffs, strategic alliances,


international finance.

Motivational variables

This category of variable is concerned with competitive strategy.

Market-seeking measures: horizontal/forward integration.

Resource-seeking measures: vertical/backward integration.

Production efficiency-seeking measures: for example, lower resource cost.

Technology-seeking measures: securing access to foreign technology or


skilled labour.

Risk avoidance measures: for example, minimizing possibilities of production


interruption, improving market control.

Exchange-of-threat measures: waging a counter-offensive strategy to disarm


a competitor, especially in their home market.

Control variables
These comprise administrative actions-i.e. laws & policies of home & host
governments that directly or indirectly influence international business
through positive incentives & or negative controls.

Challenges

International relevance

The model applies to the international business action of all firms, not just
those classified as multinationals.

Interdependence

The variables are interlinked- for example, wage controlled, low labour costs
in a particular country may be classified as a country-specific variable
(conditioning) & a production-efficiency seeking measures (motivation).
Wage control would also be a control variable.

Effect on organizations

The variables will impact in different ways, depending on the organization’s


specific activities.

Influence of variables

The organization perceives the conditioning variables (opportunities for


competitive advantage), responds appropriately (motivational variables-
competitive strategy) but has no influence over control variables.

Applications

Growth strategies

The model may be used in the assessment & development of international


business growth strategies.

Growth potential assessment

Another application lies in the assessment of the potential for growth given a
change in international conditions.

Evaluation

The model can help in the evaluation of international competitors & markets.
Decision-making

The model is an aid in deciding whether or not to embark upon international


business activities.

Assessment

The model may be used to assess the relative importance & interaction of
the different variables to the organization.

PORTER’S DIAMOND
Porter introduced this model in his book: the Competitive
Advantage of Nations, after having done research in ten leading
trading nations. The book was the first theory of competitiveness based
on the causes of the productivity with which companies compete
instead of traditional comparative advantages such as natural
resources and pools of labor. This book is considered required reading
for government economic strategists and is also highly recommended
for corporate strategist taking an interest in the macro-economic
environment of corporations.

FIRM STRATEGY,
STRUCTURING &
RIVALRY

DEMAND
FACTOR
CONDITIONS
CONDITIONS

RELATED & SUPPORTING


INDUSTRIES
SOURCE: THE COMPETITIVE ADVANTAGE OF NATIONS BY MICHEAL
PORTER (1990)

Principle

The model shows how a nation’s international success within a specified


industry depends upon four specific attributes which promote or impede
competitive advantage.

Traditionally, economic theory mentions the following factors for comparative


advantage for regions or countries:

A. Land

B. Location

C. Natural resources (minerals, energy)

D. Labor, and

E. Local population size.

Assumption

The individual points on the diamond and the diamond as a whole affect four
ingredients that lead to a national comparative advantage. These ingredients
are:

1. the availability of resources and skills,


2. information that firms use to decide which opportunities to pursue with
those resources and skills,
3. the goals of individuals in companies,
4. The pressure on companies to innovate and invest.

Elements

Factor conditions

Factor’s conditions are the state of the nation’s factors of production, such as
labour, land, capital, natural resources & infrastructure.

Demand conditions
• When the market for a particular product is larger locally than in
foreign markets, the local firms devote more attention to that product
than do foreign firms, leading to a competitive advantage when the
local firms begin exporting the product.

• A more demanding local market leads to national advantage.

• When the market for a particular product is larger locally than in


foreign markets, the local firms devote more attention to that product
than do foreign firms, leading to a competitive advantage when the
local firms begin exporting the product.

• A more demanding local market leads to national advantage.

• A strong, trend-setting local market helps local firms anticipate global


trends. A strong, trend-setting local market helps local firms anticipate
global trends.

Related & supporting industries

• When local supporting industries are competitive, firms enjoy more


cost effective and innovative inputs.

• This effect is strengthened when the suppliers themselves are strong


global competitors.

Strategy, structure, rivalry

Firm’s strategy, structure & rivalry describes how organizations are created,
managed & compete within the industry.

Challenges

Competitive environment

The four attributes interact to create the competitive environment in which


the organizations operate.

Relationships between attributes

Increase in one attribute can stimulate other attributes.

Prosperity
Organizations prosper particularly with access to specialized assets & skills,
best information, effective management, Investment & innovation.

Reasons for failure

Even when the four attributes are strong some organizations fail because
they either do not take advantage of opportunities or they possess relatively
low levels of skills & resources.

Further attributes

Two further attributes can influence national competitive advantage; chance


events an organization’s control (such as technological innovations), &
government actions (such as investment & taxation).

Industry clusters

Nations succeed not in individual industries but in clusters of industries


whose performance reflects the state of the national economy.

Applications

Audit

The model may be applied to individual industries, organizations or business


units in order to audit strength of the four attributes & so assess competitive
advantage.

Strategy review

Strategy may be reviewed to improve utilization of factors of production & so


contribute towards improving competitive advantage of the organization or
business unit.

Strategic alliances

Understanding the model can encourage the formation of strategic alliance


between the industries to improve the state of related & supporting
industries.
STRATEGIC MODELS USED IN INDUSTRY ANALYSIS

Barriers & Profitability

EXIT BARRIERS

LOW =LOW
PROFITS HIGH
PROFITS
=LOW

RETURNS = STABLE RETURNS


LOW
RISKY
ENTRY BARRIERS

HIGH
PROFITS = HIGH PROFITS =
HIGH
SOURCE: COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE
INDUSTRIES & COMPETITIORS BY MICHAEL PORTER

Principle

The model shows how organizations’ returns vary with the strength of market
exit & entry barriers.

Assumption

The magnitude of organizations’ returns depends significantly upon the


strength of the market exit & entry barriers.

Elements

Exit barriers

• Specialized assets such as low liquidation values


• Fixed costs of exit
• Strategic interrelationships & alliances
• Emotional barriers
• Government & social restrictions

Entry barriers
• Economies of scale
• Product differentiation
• Capital requirement
• Supplier switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Government policy

Challenges
Best position
High entry barriers with low exit barriers can be the best position for the
established organization. In this way high, stable returns can be achieved &
unsuccessful firms may readily exit market.

Worst position
The worst position for organization can be in a market exhibiting low entry
barriers & high exit barriers. New entrants are attracted into the market by
upturns in the economy but cannot leave when conditions deteriorate. This
leads to poor profits caused by surplus capacity.

Applications
Lateral thinking

Understand the model promotes outward thinking & an understanding of the


environment in which the organization operates & competes.

Predicting behavior

The model may be used to predict competitor behavior with regard to a new
or existing market, giving entry & exit barriers.

Selecting markets

The model may be used to help the organization select markets that will give
better returns with the desired order of risk.

Choice of markets

The audit & improved control of entry & exit barrier features impinging upon
the organization gives it a wider choice of markets.

Porter's Five Forces

THREAT
OF NEW
ENTRA
NT

INDUSTRY
COMPETITIOR
S
BUYER POWER
SUPPLIER POWER
RIVALRY
AMONG
THREAT
OF
SUBSITU
TION

SOURCE: COMPETITVE ADVANTAGE: CREATING & SUSTAINING SUPERIOR PERFORMANCE


BY PORTER (1985)

Principle

Porter's 5 forces analysis is a framework for the industry analysis and business
strategy development developed by Michael E. Porter of Harvard Business School in
1979. It uses concepts developed in Industrial Organization (IO) economics1 to
derive 5 forces that determine the competitive intensity and therefore
attractiveness of a market. Attractiveness in this context refers to the overall
industry profitability

It is possible to classify forces acting against a firm into five main categories.

Assumption

The five forces can act continuously & adversely against the firm unless it depends
itself or influences them in its favor.

Elements

Potential entrants

These are new players which threaten the livelihood of firms already in the market.

Buyers

Buyers are the customers of firm products.

Substitutes

These are competitor’s products (services) which may be alternatives to those


supplied by the firm.

Suppliers

1
Industrial organization is a field of economics that studies the strategic behavior of firms,
the structure of markets and their interactions.
Suppliers provide raw materials & other resources.

Industry competitors

These are firms which compete in the same market & act as rivals to the
organization.

Challenges

Effect of the forces

The effect of the five forces upon organizations may vary depending on the
strengths of the firm, the nature of the sector & the product.

Potential entrants

• Potential entrants may be deterred by:

• Economies of scale achieved by existing firms

• Entrenched customer loyalty

• Capital costs of entry

• Poor access to distribution channels

• Cost disadvantages such as licenses & adverse government policy.

Buyers

Buyers may try to force down prices whilst requiring better quality or service & may
play off competitors against one another. The influence of buyer’s groups is greater
if:

• They are large customers

• Many substitute products exists

• Profit margin is low

• Buyers decide to manufacture their own supplies & thereby replace the
supplier.

Substitutes

The number of perceived substitutes deters existing firms from increasing prices &
profits.
Suppliers

Supplier groups are powerful if:

• They are well integrated

• They supply small customers

• Their group’s products are differentiated

• They integrate forward

Competition

Competitive rivalry may increase where one or more of the competitors are under
threat.

Applications

Strategy development

This model could be used to develop a strategy to counter competitive forces.

Positioning

Ideally a firm would aim for a position in which it could counter potential
competitive forces. It might also attempt to influence those forces in order to
strengthen its position.

Enhancing competitive advantage

The model could be applied in anticipating & exploiting changes in the forces ahead
of competitors.
SWOT ANALYSIS

Principle

SWOT is a frame work that can be used to evaluate a company.

Assumption

The internal positive & negative attributes of an organization in relation to its


external environment are central to its success.

Elements

Strengths

These comprise any positive internal attributes of an organization.

Weakness

These comprise any negative internal attribute of the organization.

Opportunities

Opportunities are the scope for taking advantage of external possibilities for
growth.
Threats

Threats are those external influences which can negatively impact on the
organization’s growth.

Challenges

Context

SWOT analysis requires an understanding both of the organization’s


environment & of its resources capabilities.

Strengths

An organization can take advantage of strengths for future growth & can use
them to better withstand adverse environmental forces.

Weakness

An organization may move away from activities that involve areas of


weakness or may adopt a strategy to improve in weak areas.

Threats

What may be a threat for one organization would be seen as an opportunity


for another.

Analysis

The model tends to be sued for qualitative analysis. Quantitative evaluation


enhances its values.

Other techniques

SWOT would normally be used as part of a process involving other analytical


techniques.

Applications

Analysis

• Of an existing organization or part of an organization

• Of processes
• Of organizational problems as they arise.

Strategy formulation

SWOT analysis can be used in the development of organizational strategy.

Self-assessment

The model may also be used for individual’s self-assessment.


STRATEGIC TRIANGLE
MULTIPLE MARKET SEGMENTS

TARGET SEGMENTS

CUSTOMER
S

UE L
V LU
VA A
E

COST COMPETITIOR
CORPORATIO S
N

PRODUCT/SERVICE

DIFFERENTIATION

SOURCE: THE MIND OF THE STRATEGIST K. OHMAE 1982.

Principle

There are three main interest groups in the development of any business
strategy. The 3C’s model points out that a strategist should focus on three
key factors for success. In the construction of a business strategy, three main
players must be taken into account:

A. The Corporation

B. The Customer
C. The Competitors

Only by integrating these three C’s (Corporation, Customer, Competitors) in


a strategic triangle, a sustained competitive advantage can exist. Ohmae
refers to these key factors as the three C’s or strategic triangle.

Elements

Customers

Clients are the base of any strategy according to Ohmae. Therefore, the
primary goal supposed to be the interest of the customer

Corporation

The Corporation needs strategies aiming to maximize the corporation’s


strengths relative to the competition in the functional areas that are critical
to achieve success in the industry. This can be achieved by:

• Selectivity and sequencing

• Make or buy

• Cost-effectiveness

Competitors

Competitor based strategies can be constructed by looking at possible


sources of differentiation in functions

Value

This is the benefit added to customers from the corporation & competitors in
terms of quality, service & price.

Cost

The relative costs of production between a corporation & its competitors


which may differentiate the product/service.

Challenges

Performance
Superior performance can be achieved by an organization differentiating
itself from its competitors using its relative corporate strengths to better
satisfy customers needs.

Choice of strategists

Strategists are best placed where they are able to deal with all of the
organization’s key customer segments, all key functions of the corporation &
all the key aspect of competitors.

Choice of strategists

Different strategist may result from focusing on different points of the


strategic triangle: customer, corporation & competitors.

Applications

Developing customer based strategies

The market is segmented & changes to product applications, customer mix &
other product attributes may be engineered using this model to satisfy
customer trends.

Developing corporate based strategies

The model may be used to identify, select & sequence key functions in order
to optimize.

Developing competitor based strategies

Differences between the company & its competitors are linked to one or
more of the elements which determine: price, volume or cost. Thus a
strategy for achieving a higher price through a differentiated product may
lead to better performance. A powerful image may be reflected in a price
premium.

Functional analysis

The model may be used to analyze the interaction of different functional


units within an organization.

Assessment of strengths & weakness

The model may be applied to assess the organization’s activities.


PRODUCT PORTFOLIO STRATEGY
Introduction

The business portfolio is the collection of businesses and products that make
up the company. The best business portfolio is one that fits the company's
strengths and helps exploit the most attractive opportunities.

The company must:

(1) Analyze its current business portfolio and decide which businesses should
receive more or less investment, and

(2) Develop growth strategies for adding new products and businesses to the
portfolio, whilst at the same time deciding when products and businesses
should no longer be retained.

Methods of Portfolio Planning

In each method, the first step is to identify the various Strategic Business
Units ("SBU's") in a company portfolio. An SBU is a unit of the company that
has a separate mission and objectives and that can be planned
independently from the other businesses. An SBU can be a company division,
a product line or even individual brands - it all depends on how the company
is organized.

The models included are:

• Boston Consulting Group Matrix

• Related Diversification Grid


• Generic strategies

• Four routes to strategic advantage

The Boston Matrix


(Also called the BCG Matrix, the Growth-Share Matrix and Portfolio
Analysis)
Focusing effort to give the greatest returns

The origin of the Boston Matrix lies with the Boston Consulting Group in
the early 1970s. It was devised as a clear and simple method for helping
corporations decide which parts of their business they should allocate
cash to. Since the 1970s, it’s become much easier to borrow money
cheaply (in many parts of the world) making this less of an issue.

MARKET SHARE

LOW HIGH

HIGH
QUESTION MARKS STARS
MARKET

GROWTH

LOW
DOGS CASH COWS
.

PRINCIPLE

The BCG matrix method is based on the product life cycle theory that can be used to
determine what priorities should be given in the product portfolio of a
business unit. To ensure long-term value creation, a company should have a portfolio
of products that contains both high-growth products in need of cash inputs and low-
growth products that generate a lot of cash. It has 2 dimensions: market share and
market growth. The basic idea behind it is that the bigger the market share a product
has or the faster the product's market grows the better it is for the company.

Elements

Market Share

Market share is the percentage of the total market that is being serviced by
your company, measured either in revenue terms or unit volume terms. The
higher your market share, the higher proportion of the market you control.
Market Growth

Market growth is used as a measure of a market's attractiveness. Markets


experiencing high growth are ones where the total market share available is
expanding, and there's plenty of opportunity for everyone to make money.

Dogs: Low Market Share / Low Market Growth

In these areas, your market presence is weak, so it's going to take a lot of
hard work to get noticed. Also, you won't enjoy the scale economies of the
larger players, so it's going to be difficult to make a profit.

Cash Cows: High Market Share / Low Market Growth

Here, you're well-established, so it's easy to get attention and exploit new
opportunities. However it's only worth expending a certain amount of effort,
because the market isn't growing and your opportunities are limited.

Stars: High Market Share / High Market Growth


Here you're well-established, and growth is exciting! These are fantastic
opportunities, and you should work hard to realize them.

Question Marks (Problem Child): Low Market Share / High Market


Growth

These are the opportunities no one knows what to do with. They aren't
generating much revenue right now because you don't have a large market
share. But, they are in high growth markets so the potential to make money
is there.

Challenges

Product position

A company can increase market share & exploit market growth rate in order
to move into a more attractive product position.

Investment

Higher marketing investing would normally be required for question marks


(low market share) than for cash cows or stars.

Experience

The model relates to the ‘experience curve’. As experience increases, the


model required amount of investment for product development decreases.

Competition

The importance of competitive forces must be assessed when seeking to


reposition products using this model.

Applications

Strategy evaluation

• Resource allocation

• Resources should be allocated appropriately to the type of products.

• Encouraging growth
• Market share & growth rate opportunities may be exploited through
product portfolio planning to aim for stars (high profit), cash cows
(cash generation) & question marks (future cash cows/stars).

As an analysis tool

The model may be used to analyze resources & other organizational factors
in addition to products.

RELATED DIVERSIFICATION GRID


BUSINESS POSITION
HIGH MEDIUM LOW

HIGH NO R-CD R-CD


INDUSTRY ATTRACTIVENESS

DIVERSIFICATI
ON

MEDIUM R-SD NO R-CD


DIVERSIFICATI
ON

LOW R-SD R-SD NO


DIVERSIFICATI
ON

KEY R-CD = RELATIVE-COMPLEMENTARY DIVERSIFICATION


R-SD = RELATIVE-SUPPLEMENTARY DIVERSIFICATION

SOURCE: SIMON & SCHUSTER FROM DIVERSIFICATION THROUGH


ACQUISTION (1979)

Principle

An organization considering ‘related’ diversification through acquisition


should appraise the target company’s strengths within its particular industry
sector.

Assumption

The degree of compatibility of critical success factors between an


organization & a target acquisition will significantly affect the success of the
acquisition.

Elements

Related- supplementary diversification(R-SD)

This occurs when a company expands by entering product markets that call
for functional skills identical to those it already possesses.

Related-complementary diversification(R-CD)

This occurs when a company adds key functional activities & skills to those it
already has, but does not substantially change its final product market.

Challenges

Purpose of acquisition

The purpose of the acquisition should be evaluated & Cleary defined before
going ahead.

Related acquisitions

Related acquisitions are normally less problematic than unrelated


acquisitions, but the degree & area of relationship are critical.

Compatibility
A good fit with respect to culture, management style & cash flow between
the company & the target acquisition is essential if the acquisition is to
succeed.

Related diversification & synergy

Related diversification can result in lower unit costs & improved margins
through synergy.

Applications

Strategy development

The model may assist with the development of strategic actions designed to
overcome weakness & or capitalize on strengths the parent company
through acquisitions.

Targeting acquisition

The model may help with the identification of candidate acquisitions with
high potential through an analysis of acquiring company strengths.

Portfolio analysis

Analysis of the portfolio of business units of a diversified company is


facilitated by the model.

DIFFERENTAITION COST
LEADERSHIP

GENERIC STRATEGIES

FOCUS
SOURCE: COMPETITIVE STRATEGY: TECHNIQUE FOR ANALYZING THE
INDUSTRIES & COMPETITIORS BY MICHAEL PORTER

Principle

An organization should identify a strategic direction which is fundamental to


establishing & maintaining a strong competitive position.

If the primary determinant of a firm's profitability is the attractiveness of the


industry in which it operates, an important secondary determinant is its
position within that industry.

Assumption

The organization has sufficient control to be able to make fundamental


choices about its strategic direction. The organization also wishes to grow
continuously in a changing & uncertain environment.

A firm positions itself by leveraging its strengths. Michael Porter has argued
that a firm's strengths ultimately fall into one of two headings: cost
advantage and differentiation. By applying these strengths in either a broad
or narrow scope, three generic strategies result: cost leadership,
differentiation, and focus. These strategies are applied at the business unit
level. They are called generic strategies because they are not firm or
industry dependent.

Elements

Cost leadership
The firm’s strategy is to minimize costs, giving greater flexibility over pricing
decisions.

Differentiation

The firms offer a product or service which is different in some way that is
valued by customers.

Focus

The organization targets products or services in a particular market sector or


market segment.

Challenges

Prices

Cost leadership firms may offer average or just below average prices in the
industry or market thereby remaining competitive & gaining high margins.

Flexibility

Cost leadership firms can better cope with cost increases from suppliers &
are well placed to combat entry barriers because of economies of scale.

Development

Cost leadership may be gained as organizations become more experienced


than competitors in technical process & marketing activities.

Cost leadership risks

These include obsolescence & new entrants to the market copying in the
leading organization’s processes.

Margins

Differentiation can yield higher margins with which to offset the power of
suppliers, & also reduces the threat posed by substitutes once the customer
loyalty is achieved.

Differentiation risks
The cost of remaining differentiated may push prices too high even for loyal
customers. As industries mature, imitations which reduce the perceived
differentiation may come on to market.

Focus niche strategy

This strategy has the elements of cost leadership or of differentiation but


relates to a particular market segment.

Focus risks

The organization may become short-sighted & fail to perceive a broader


market opportunity or equally, concentrate too heavily on a volatile market.

Applications

Cost leadership

Achieving cost leadership includes setting up & implementing an effective


cost structure, competitive pricing & achieving economies of scale.

Differentiation

Differentiation involves the development of unique product characteristics


improved branding & increased customer loyalty.

Focus

A focus strategy helps to determine the specific competitive advantage that


may be gained within a particular market segment.
FOUR ROUTES TO STRATEGIC ADVANTAGE
BUSINESS / PRODUCT OFFERED

OLD/EXISTING NEW/CREATIVE
KFS AGGRESSIVE
INTIATIVES

COMPETITVE

WISELY
INTENSIFY
FUNCTIONAL
DIFFERENTIATION
ASK ‘WHY-WHY’

RELATIVE STRATEGIC DEGREES


SUPERIORITY OF FREEDOM
AVOID HEAD-ON

COMPETITION

EXPLOIT MAXIMIZE USER


COMPETITIORS BENEFIT

SOURCE: THE MIND OF THE STRATEGIST (1982) K.OHMAE

Principle

Improved strategic advantage is a function of the nature of the business or


product offered & the way in which the organization seeks to compete.

Assumptions

A firm would often perform better if it focused its efforts on improving


technological & organizational strengths & satisfying customers rather than
on beating its customers.
Elements

Route1: key factors for success (KFS)

Resources are allocated where they will be most effective in relation to the
identified key success factors.

Route 2: relative superiority

Competitors’ weaknesses are exploited using new technology or other


strengths, such as an effective sales force.

Route 3: aggressive initiatives

These include direct competition with the new business or new products.

Route 4: strategic degrees of freedom

These embrace innovations in products or markets where no competition


exists.

Challenges

Route 1: KFS

An effective short-cut to success is to concentrate principal resources early


within a single strategically significant organizational function.

Route 2: relative superiority

A company may exploit any difference in competitive conditions by analyzing


competitor’s products in detail to determine where it might gain price or cost
advantage.

Route 3: aggressive initiatives

This is unconventional strategy that analyses in detail the established


assumptions of an industry or an organization in order to change the
direction of strategic thinking.

Route 4: strategic degrees of freedom

Innovation in products or markets where advantage may be gained can be


achieved by first determining the extent & scope of potential changes that
might maximize customer satisfaction.
Applications

Strategy formulation

• Assessment of KFS & organizational functions assists strategy


formulation.

• Product portfolio planning

• The model aids product portfolio planning where customer’s


expectations are paramount.

Analysis of strengths & weakness

Organization may use this model to dissect the market imaginatively in order
to identify key segments, discover the particular strengths of winning
companies & analyses differences from losing companies.

**THE END **