BUSINESS STRATEGY I

Introduction To Business Strategy

Strategic Management
The set of decisions and actions resulting in
formulation and implementation of strategies to
achieve the goals and objectives of the
organization. The decisions could be about
products, prices, customers, markets,
processes, technologies, materials, location, or
the organization’s structure- or about anything
that affects the organization’s achievement of
objectives and goals.
What is Strategy?
It is the means used to achieve the objectives
and goals.
Defined as “a unified, comprehensive and
integrated plan to assure that the objectives
and goals of the enterprise are achieved”.
Unified- because it ties all the parts of the
enterprise together
Comprehensive-because it covers all major
parts of the enterprise
Integrated-because all parts of the plan are
compatible with each other and fit together well
Why needed?
1.The conditions of businesses change so fast that
they are forced to perform SP to anticipate future
threats & opportunities. It allows anticipation of change
& hence provide directions and control for the
enterprise.
2.It provides employees with clear goals and
directions. They are aware of the enterprise’s
destinations and hence know their roles in the plan.
This helps to reduce conflicts.
3.Businesses which perform SP have been found
more effective compared with those which do not. This
is because SP have helped them to systematize the
decision making and refrain from making gambling
decisions
Aphorisms on SM
“One must either anticipate change or be its victim”
J.K.Galbraith

“Tomorrow always arrives. It is always different and

then even the mightiest company is in trouble if it has
not worked on the future”
P.F.Drucker

“Strategy is not about continuing the past.It’s

about creating the future”
Jim Underwood in
What Is Your Corporate IQ?
The Indian scene
Became a formal discipline: Early 1980
Some had formal, full-fledged depts: Tatas,
ITC,HLL,L&T etc. Examples.
RIL was an exception but the process was well
established.
Prof. S.K.Bhattacharya had written in
1984:”The distinction between RIL & others is
that it creates the future for itself rather than
waste time on sobbing over governmental
controls and insensitivity of govt. policies. It
identifies the opportunities offered by the
market place and the environment…….”
Evolution of Strategic Management
-Current form after lot of transformations
Stage#1-Financial planning-limited to capital
investment decisions
Stage#2-Long range planning-trying to forecast &
mastermind the future-attempt was to eliminate risk-
Drucker’s views
Stage#3Corporate planning-function seen from the
overall view of the corporation and not necessarily LT-
objective to identify new areas of investment, new
courses of action and evaluating against set targets.
Stage#4Strategic planning/Strategic management-
process of formulation of an effective strategy to
achieve the set goals-goals normally lies outside the
firm-planning involves formulation & management is
the effective management of the chosen strategy
 Strategy Stalwarts/Gurus
• Igor Ansoff
• Peter Drucker
• Henry Mintzberg
• Michael Porter
• Gary Hamel & C.K.Prahalad
• Kenichi Ohmae
• Sumantra Ghoshal
The Nature of Strategic Decisions
Strategic decisions are different from other types
of decisions because they
1.Require top management decisions
2.Involve allocation of large amounts of company
resources
3.Are likely to have a significant impact on the LT
prosperity of the firm.
4.Are future oriented.
5.Have major multifunctional or multibusiness
consequences.
6.Necessitate considering factors in the firm’s
external environment.
Diversification-Concentric & Conglomerate
Concentric are related ones-while the products
and markets may be different, the new
products /services may have relationships to
the existing through technology or basic
product framework or even markets. The
diversification of RIL can be said to be said to
be concentric whereas the diversification of
Grasim can be said to be conglomerate.
Integration
Horizontal Integration -firm acquires similar businesses
operating at the same stage of the production-
marketing chain-firm may get access to new markets
and lessen or eliminate competition
Eg: ICICI Bank acquisition o Bank of Madura
HLL acquisition of TOMCO
Vertical Integration -Forward & Backward
Forward-enter into areas which will use the current
products as inputs
Backward- enter into areas which will produce inputs for
the current products
Tapered Integration-combination of vertical integration &
exchanges (buying from others) in the market
Characteristics of Strategic Management
Decisions: These vary with the level of strategic
activity considered. (Ref: Handout)
Levels of Strategy Planning
Three levels
-Corporate Level- attempt to exploit the firm’s
distinctive competencies and reflect the concerns of
the stakeholders and the society at large, concerned
with overall goal or purpose
-Business level- doing what is best for the business
unit to achieve its goals, more concerned about the
competitive advantages of the business from a
product-market point of view and contribution to the
corporate level plan
-Functional level- strategies w r t the functional areas
like marketing, finance, HR, R&D,
production/operations; mostly concerned about
improving efficiency and effectiveness in the areas
• (like market share, quality of service etc); usually for a
period of one year
Levels of Strategy

Corporate
Strategy L1

Business 1 Business 2 Business 3 L3

Financial/
Marketing
Operations Accounting
Strategies
Strategies
HR Strategies
L3
Top Management Perspective & Strategy
formulation( Major vocabularies relating to
strategy)
Strategic planning-is the set of decisions and actions
which result in the development of an effective
strategy to achieve goal or purpose
Goal/Purpose- is what the orgn. wants to achieve in
the long run; it is the definition of org. purpose- the
fundamental reason for the organization to exist.
The goal could be ‘to sustain and develop the wealth
of the family owners’ or to ‘create health for this
region’ or ‘to create shareholder value’.
A statement can be as short as MS’s ‘a PC on every
desk in every house’ to as long as IBM’s ‘We shall
increase the pace of change. Market driven quality is
our aim. It means listening and responding more
sensitively to our customers. It means eliminating
defects and errors, speeding up all our processes,
measuring everything we do against a common
standard, and involving employees totally in our aims’.
A statement of purpose is the bedrock of the
organization.
Vision- is a picture of how the organization could be
far into the future, if the organization is to achieve its
purpose. It is a picture to inspire people inside and
outside the organization to strive for their purpose. It
energizes people long-term. Vision tells one how they
will achieve the purpose-by doing what , our specific
roles and results in what benefits to us.
Mission is a more easily achievable target or
objective, usually achievable within short to
medium-term time-frames. A mission has
measurable outcomes, like increase in market
share, growth in volumes or profitability given a
limited amount of resources; Mission tells about
what the organization wants to achieve through
its business activities.
Mission statements vary from orgn. to orgn.
Can be explicitly defined or vaguely defined.
But it tells you how or by doing what the
organization plans to achieve its goal.
A mission statement should contain enough details to
provide answers to the following questions:
1.What is the basic purpose?
2.What is unique about?
3.What is likely to be different in say 5/10 years down
the road?
4.What is it that will make the orgn. stand out in a
crowd?
5.Who are, and who should be the principal
customers?
6.What are and what should be the principal economic
concerns?
7.What are the basic beliefs, values and philosophical
priorities ?
Characteristics of a Mission Statement- It should
1. be feasible-should aim high but realistic and
achievable
2. be precise-not too narrow to be restrictive and not too
broad to be meaningless
3. be clear enough to lead to action (Eg. “Leadership
through excellence”-Asian Paints)
4. be distinctive-able to create distinction in public mind
5. be motivating-members of the orgn & society at large
must feel proud working/associating with the orgn.
6. indicate major components of strategy
7. indicate how objectives are to be accomplished
Eg: of a mission statement:
“Generations stand well with us”-Dalmia Cement
Bharat Ltd
Through which DCB defines its role in the society
by producing good quality cement at reasonable
cost, satisfying the customer ie the society and
hence attract people for generation.
The Medtronic Mission
• To contribute to human welfare by application of
biomedical engineering in the research, design,
manufacture and sale of instruments or appliances
that alleviate pain, restore health, and extend life.
• To direct our growth in the areas of bio-medical
engineering where we display maximum strength and
ability; to gather people and facilities that tend to
augment these areas; to continuously build on these
areas through education and knowledge assimilation;
to avoid participation in areas where we cannot make
unique and worthy contributions.
• To strive without reserve for the greatest possible
reliability and quality in our products; to be the
unsurpassed
• standard of comparison and to be recognized as a
 a company of dedication, honesty, integrity and
service.
• To make a fair profit on current operations to meet our
obligations, sustain our growth, and reach our goals.
• To recognize the personal worth of employees by
providing an employment framework that allows
personal satisfaction in work accomplished, security,
advancement opportunity and means to share in the
company’s success.
• To maintain good citizenship as a company

According to Bill George, former Chair & CEO of

Medtronic & currently professor with HBS, in mission-
driven companies, employee motivation comes from
believing in the purpose of the work and being a part
of creating something worthwhile.
Objectives
are the basic economic & social purpose for which
an organization exists.
Eg: Market Leadership
Maximizing shareholders’ wealth
Serving the public by offering excellent service
Organizational Direction
Top management to provide necessary direction
to the organization –for the achievement of the
goals and objectives-the entire organization
should be aware of the purpose for which the
orgn exists.
Drucker’s 8 Key Areas in which objectives have
to be set
# Market Standing #Innovation
#Productivity #Phys & Fin Resources
#Profitability #Mgr Performance & Dvpt
#Worker Perf & Attitude #Pub. Resp
First 5-Tangible
Last 3-Less Tangible
Contrary to business school doctrine, ”maximizing
shareholder wealth “ or “profit maximization” has not
been the dominant driving force or primary objective
through the history of visionary companies. Visionary
companies pursue a cluster of objectives, of which
making money is only one- and not necessarily the
primary one. Yes, they seek profits, but they are
guided by a core ideology, values and a sense of
purpose beyond just making money. Yet,
paradoxically, the visionary companies make more
money than the more purely profit – driving
comparison companies
Jim Collins & Jerry Porras in
Built To Last, Random House, 1995
Objectives
Two categories:1. External Institutional objectives or
primary objectives
2.Internal or secondary objectives
External are those which define the impact of the
organization in its environment
Internal are those which define how much is expected
to be achieved with resources that is available within
the organization
Some objectives are classified as strategic objectives-
are those which rationalizes what the organization
does; they define the organization in its environment.
Objectives of DCBL-External-Customer satisfaction
Internal-Market leadership, low cost energy efficient
operation, consistent quality & conformance to
specifications, maintaining ecological balance
The choice of objectives affected by:
1.The realities of ext. envt. and ext. power
relationships (Govt., Taxes, Competition laws,
environmental laws etc)
2.The realities of the firm’s resources and internal
power relationships
3.The value system of the top management
(based on education, experience, information
received etc)
Other important aspects of strategy related to
mission, goal & objectives:
The Philosophy -the wisdom that every company
tries to seek to deal with the ultimate reality of
existence
The Ethos-values that will be adhered to (usually
given in the form of a value list)
The Creed- set of beliefs that the organization
has-usually a reflection of the beliefs of the
promoters or the current top management
Understanding Strategy Development
The Strategy Development Process
Environmental analysis
Why?
1.To determine what factors in the environment present
threats to the company’s present strategy and
objectives accomplishment and
2.To determine what factors in the environment present
opportunities for greater accomplishment of
objectives.
Env. Factors- 3 Categories
1.General- changes in govt., changes in eco. Policies &
regulatory framework, political or community
pressures affecting co. or industry, consumer groups
exerting pressures on the co. or industry, changes in
distribution of wealth in the society, changes in
demographic aspects, changes in ethical values or
social environment
2.Supplier factors: Major changes in the availability of
RM & sub-assemblies, changes in the prices of RM,
entry of addl. Suppliers, or potential suppliers of RM &
Sub-assemblies, exit of major suppliers of RM and
sub-assemblies, technological breakthrough in the RM
or sub-assemblies affecting the equipments or
process used by the co.
3.Market factors: Competitive structure-how many firms
& respective market shares, major new
products/services or substitutes introduced, shifts in
the pricing structure of products (due to tech. changes
etc), shifts in demand for products/services, shifts in
consumer preferences, entry of new competitors,
changes in the PLC for the industry
Categorization of Environment by Prof. John W.
Sutherland (Ref: Reading Material)
Types of Env. Analysis
@Macro
@Micro &
@Internal
Two Steps:1.Appraisal-monitoring to determine threats&
opportunities
2.Analysis-decisions made to react to
anticipate or ignore the env. cues.
Techniques of Env. Search
#Information gathering-verbal or written and sources
#Spying-ethical issues involved
#Forecasting- qualitative techniques, historical
comparison & projection
#Causal models
E-TOP (Env. Threats & Opportunities Profile)- analyses
the O&T in the Ext.Envt.( 3 categories of factors)
Internal Environment Analysis
SAP (Strategic Advantage Profile)- an internal
resource audit in areas like(1) Marketing
(market share, strength in submarkets, quality
of products, channels of distributors, pricing
etc) (2)Operations (RM, production facilities,
MIS, inv. Control, cost of production)(3)
Finance & Accounting (COC, cap. structure)
barriers to entry, fin. plg & mgt. etc),
(4)Personnel & management (employee and
manager quality, lab. cost, ind. relations,
personnel policies, str. Planning system, track
record of achieving objectives, commitment of
top management etc)
Value Chain Analysis (VCA) by M.E.
Porter
Helps to analyze str. relevant internal activities in the
comp. advantage
A systematic way to examine all activities a company
performs and how they interact among themselves to
identify sources of competitive advantage
Every co’s value chain is composed of nine categories
of activities (value addition steps) which can be
classified under two major headings:
Primary activities: connected with the physical creation
of the firm’s product or services, its marketing ,
delivery & after sales service
Support activities: which provide inputs for
infrastructure for primary activities
Primary activities:
#Inbound logistics
#Operations
#Outbound logistics
#Marketing & sales
#Service
Support activities
#Firm infrastructure
#HRM
#Technology Development
#Procurement
Importance
Provides two pieces of competitive intelligence:
1.where in the chain is (which activities) the greatest
value added
2.in which segments of the chain do the competitors
have a competitive edge?
Management concerns of such analysis:
To take advantage of the distinctive competencies of the
firm by way of
@following a course of action that is different from rivals
@developing a strategy which will provide different &
better outcomes than those of competitors
@adopt a strategy that is distinct and difficult to
duplicate and exploit the opportunity by suitably
adapting the chosen strategy.
Strategy formulation steps
Step 1: Analysis of ext. envt. (threats&
opportunities) and internal resources (str.
advantages of the firm viz competitors) provide
the necessary information to the strategists.
Resp: Specialists who gather information
Step 2:Evolve possible alternative strategies or
str. options, evaluation of merits & demerits of
various alternatives and the final selection of
the most appropriate alternative
Resp: BOD /Top management
The Choice phase:
Step 1:generation of alternate strategies to fill the
gap or take advantage of opportunities.
Step 2: the choice of the best alternative to fill the
gap or exploit the opportunity
Choice influenced by:@ whether to pursue active
or offensive or passive or defensive strategies
@ whether to pursue
flexible or programmed str. Alternatives
@business definitions
No firm rule regarding adoption of active or
passive. Can have active strategy w.r.t some
parts of the envt. & passive w.r.t other parts
Programmed is one planned in such a detailed
manner as to make it difficult to change once
begun to be implemented-suitable for stable
environments with people preferring well-
defined roles.
Flexible allows shifts in the thrust when
conditions warrant it.
Contingency approach requires the planner to
choose the preferred strategy when
unexpected happenings occur-preferred for
unstable envts with people preferring variety &
stimulation
Business Definition
“We don’t sell flowers, we sell beauty”
says Edward Goeppner of Podesta Baldocchi
chain of flower shops. According to him
“customers of a florist do exchange money for a
dozen roses, but what they’re really buying is
something more than that: they want to beautify
their homes, or express their love for others, or
brighten the day. It doesn’t take a vision to sell
flower on a street corner, but it takes a vision to
sell beauty”
Grand Strategies
Questions strategists have to answer while adopting a
strategy
1.Should we stay in the same business?
2.Should we get out of this business entirely or some
parts of it by merging, liquidating or selling off?
3.Should we do a more efficient or effective job in the
business we are in in a slimmed down way?
4.Should we try to grow in this business by
a. increasing our present business?
b. acquiring similar businesses?
5.Should we try to grow in other businesses?
6.Should we do alternatives 2 & 4a?
If question 1 is answered “YES”, the choice is
STABILITY strategy
If 1 is answered “NO” and alternatives 2 or 3
accepted, the choice is RETRENCHMENT.
“YES” to 4 & 5 result in GROWTH strategy.
“YES” to alternative 6 is a COMBINATION
strategy
These are called “Grand Strategies”
Stability strategy: ”Maintain the present course:
steady as it goes”
Why?
1.The firm is doing well or perceives itself as doing well
& management may not be very sure of the reasons
for this.
2.It is less risky. A lot of changes result in failures.
3.Managers prefer action to thought. Executives never
get around to consider any other alternatives
4.It is easier and more comfortable to do something
which they are familiar with.
5.The firm is growing so fast that it should stabilize for
some time
 Retrenchment :”Slow down and catch your breath:
we have got to do better”
Used when enterprises decide to improve the
performance in achieving the objectives by :
1.Focusing on functional improvement especially
reduction of costs.
2.Reducing the number of functions it performs by
becoming a captive company
3.Reducing the number of products/ markets it serves
upto and including liquidation of the business.
Why?
1.The firm is not doing well or perceives itself as doing
poorly
2.The firm has not met its objectives by following one
of the other three grand strategies and hence there is
pressure from the lenders, stockholders, customers &
others to improve performance
Four sub strategies:
1.Cutback & turn-around
2.Divestment
3.Captive company
4.Liquidation
Cutback & Turnaround: trying to make more efficient
in everything the co. does; reduce admin. costs,
increase production & sales efficiency, make better
use of cash & other fin. resources, improving R&D;
reduction of personnel in certain areas, more
emphasis on high margin products, trim consumer list
to save transportation & sales costs, close control of
inventory etc.
Divestment: Firm tries to get out certain lines of
business & sell off units, division etc Eg: BHL
sold cement to Century, Coromandel fertilizers selling
Cement division to India cements, McDowell selling
Kissan to BBLIL (Group divestment)
Reasons for divestment:
# Inadequate market share or sales growth
# Low profits than other divisions
# Tech. changes requiring more resources than the
company is willing to commit
# Regulations like Competition Laws
# To concentrate on core competence; the co feels that
it should concentrate on areas where its competences
are better (Glaxo selling food division to Heinz)
Captive Co. Strategy: To become captive co. of your
present or potentially largest customer. When
becomes captive, many of the decisions for the
company is made by the captor-like product design,
production control, quality control etc, Captor will be
able to negotiate the prices to their advantage while a
ready market is available for the captive company and
small cos can eliminate high costs in advertising &
marketing.
A co. may become captive intentionally or unintentionally
but captive’s performance will be linked to the
performance of the captor and hence may become
less risky
Liquidation or Sell-out:
The ultimate in retrenchment. But reasons for liquidating
may be different from that of normal retrenchment.
Reasons
@Someone is ready to buy the business at a price
which managers think as more than real worth
@Managers feel that business is at its peak and the only
direction it can move now is down
@Managers are not able to run the show because they
are old or they are inefficient and has wisdom to
acknowledge the same
@The firm is not able to wither the changes due to
changes in the economy, technology, market etc due
to paucity of resources
Eg:TOMCO, Sumitra Pharma, Boriinger Manheim
 Growth: when the firm increases its level of
objectives upward in a significant increment, much
higher than an extrapolation of its past achievement
levels; usually indicated by raising market share/
sales objectives upward significantly
Why?
1. In volatile industries, stability strategy can mean only
short run success, and may lead to long term death.
2.A belief that society benefits from growth strategies
3.Managerial motivation since growth results in financial
& other rewards to managers; managers would like
to be remembered for their deeds& contributions; a
growth company also becomes better known and
may attract better management talent
Characteristics: Used in highly competitive &
volatile industries where firms which do not
plan for growth will not survive
Growth Can be thru (1)Internal growth
(2)External growth
Internal (a) increase in sales, profits and market
share of the current products/services than in
the past.
(b) expansion by adding new products or
product lines which are different from present
ones
The first achieved by(1) increasing primary
demand, encouraging new uses for the present
products, (with the same customers, price, and
org. arrangement-Kotler calls this intensive or
integrative growth strategy & feels more suited
for small firms with limited resources)
(2) Expanding sales of products into additional
geographical areas
(3) Expanding sales into additional sectors of the
economy
(4)Expanding sales by introducing new pricing
strategies- Like Akai & exchange schemes from
TV mfrers.
Contd….
(5)Expanding sales by introducing minor
modification s in the product to new segments
of the market- may be in new sizes, brand
labeling & other methods (Eg.)

The second is achieved by diversification

strategy
Three ways to diversify:
@joint development with a company already in
the line
@internal development of a product or product
line
@merger or acquisition
Why do firms diversify?
According to Drucker, two reasons:
Internal Pressures
-psychologically people get tired of doing the
same thing again & again. Also, they believe
that diversification will help them avoid danger
of overspecialization
-it is seen as a way to balance vulnerabilities due
to one’s own wrong size
-it is seen as a way to convert present internal
cost centres into revenue producers
External Pressures
-the economy (or the market) the firm is operating in
appears too small and confined to allow growth
-the firm’s technology( R&D( turn out products which
appear to have promise
-tax laws encourage investments in R&D instead of
distribution of dividends and this leads to new
products often as a base for diversification
Diversification generally divided into two
@Horizontal
@Vertical

“Grow-to-sell-out Strategy”
Key/Critical Success Factors
Factors identifying performance areas that must
receive continuous management attention, like
@high employee morale
@improvements in productivity
@improved product/service quality
@improvements in ITR/ATR etc
@growth in market share
@growth in gross/net margins
@growth in EPS/ROE/ROI
@growth in EVA
Demands establishment of performance standards.
Ansoff ’s Product-Market Matrix (Growth Vector)

Product

Present New

Market

Market Product
Present
penetration development

Market
New Diversification
Development
Diversification-Concentric & Conglomerate
Concentric are related ones-while the products
and markets may be different, the new
products /services may have relationships to
the existing through technology or basic
product framework or even markets. The
diversification of RIL can be said to be said to
be concentric whereas the diversification of
Grasim can be said to be conglomerate.
Integration
Horizontal Integration -firm acquires similar businesses
operating at the same stage of the production-
marketing chain-firm may get access to new markets
and lessen or eliminate competition
Eg: ICICI Bank acquisition o Bank of Madura
HLL acquisition of TOMCO
Vertical Integration -Forward & Backward
Forward-enter into areas which will use the current
products as inputs
Backward- enter into areas which will produce inputs for
the current products
Tapered Integration-combination of vertical integration &
exchanges (buying from others) in the market
Quasi Integration-establishing relationships
between vertically related businesses-the
relations can vary from long term contracts to
full ownership. May be in the form of minority
equity investment, loans or loan guarantees,
exclusive deal agreements, co-operative R&D
etc.
Institutionalizing Strategy
Three organizational elements provide the means for
this:
1.Sructure
2.Leadership and
3.Culture
The structure ties key activities and resources and
hence it must be aligned with the needs/demands of
the firm’s strategy or structure is a function of
strategy.
While structure provides the framework for strategy
implementation, it does not ensure successful
execution. For this , individuals, groups and units
have to be aligned properly towards the common
goal, which is facilitated by leadership & culture.
Under leadership, two issues are important:
1.The role of the CEO and
2.The assignment of key managers.
The CEO is ultimately accountable for a firm’s
and hence the strategy’s success. Hence the
CEO needs to spend a large amount of time in
developing and guiding strategy. Since CEO
can’t handle every aspect of strategy, he needs
the assistance of right managers in right
positions.
Organizational culture is the set of important
assumptions (often unstated) that members of
an organization share in common.
It can be likened to the personality of the
individual-intangible but provides meaning,
direction and the basis for action. These shared
assumptions (beliefs and values) among
members of an organization set a pattern for
activities, opinions and actions within it. The
culture may be imbibed from three sources: the
environment in general, the values and beliefs
of the founders or leaders, and the actual
experience of the people in finding solutions to
the problems the organization encounters.
Organizational Politics: It has been
observed that power/political factors influence
strategic choice more than analytical
maximization procedures. The use of power or
politics to further individual or group interests
is common in org. life. Org. politics must be
viewed as an inevitable dimension of org.
decision making and hence must be
accommodated.
The PESTEL Framework : A Tool for
Environment Analysis
Categorises environmental influences into six
main types:
1.Political
2.Economic
3.Social
4.Technological
5.Environmental and
6.Legal
Portfolio Analysis
BCG Matrix
MG 20

a r QUESTION
MARKS
r o STARS

k w

e t
DOGS
t h
Rate 0 CASH COW
10x 1x 0.1x
Relative Market Share
Limitations of BCG Growth Matrix Approach
1. Clearly defining a market and accurate measurement
of share and growth rate are often difficult
2.Division into 4 cells on low/high classification is
simplistic in nature. Markets with av. Growth rates or
businesses with average market shares usually
neglected
3. Assumes that profitability will be proportional to
market share; it may vary across industries & market
segments; there need not be any direct relation
between market share & profitability.
4.Not helpful in relative investment opportunities across
different business units in the corp. portfolio.
Contd…
5.Str. Evaluation of a set of businesses requires
examination of more than relative market share
& mkt. growth. Attractiveness may increase
based on tech., seasonal, competitive or other
considerations.
6. It doesn’t reflect the diversity of options
available since the classification is very
simplistic
GE Nine-Cell Planning Grid/GE Business Screen
Industry Attractiveness
High Medium Low

100

Strong

Business
Strength
Factors Average

Weak
Legend: 0
Invest/Grow
Selectivity/earning

Harvest/divest
Bus. Strength factors: Market share, profit
margin, ability to compete, customer & market
knowledge, competitive position, technology &
management calibre etc
Industry Attractiveness factors: Market growth,
size & industry profitability, competition,
seasonality & cyclical qualities, economies of
scale, technology &social/environmental/
legal/human factors
A business’s position within the grid is
calculated by subjectively quantifying the two
dimensions of the grid by assigning weights for
various factors under the industry
attractiveness and business strength factors.
 Ind. Attr. Factor Wt(%) Rating Score
Wt*Rating
Market size 20 0.50 10.00
Proj. Mt Gr. Rate 35 1.00 35.00
Tech. Reqmt. 15 0.50 7.50
Competition 30 0.00 0.00
(Concentr-
ation- few large
competitors)
Political &regu. -- ----- -----
factors
100 52.50
Rating: indicate favourable / unfavourable future
conditions for the factors on 0-1 scale
H:1.0,M:0.5,L:0.00
Bus. Str.Factor Wt(%) Rating Score
Wt*Rating
Rel.MKt.Share 20 0.50 10.00
Production
Capacity 10 1.00 10.00
Efficiency 10 1.00 10.00
Location 20 0.00 -------
Tech. Capacity 20 0.50 10.00
Marketing
Sales Org 15 1.00 15.00
Promo & Ad 5 0.00 --------
100 55.00
Shell Matrix( for portfolio analysis)-a variant of
the GE matrix
Industry attractiveness
Unattractive Average Attractive

Divest
W Invest for
e Phased Market share
Co a Or withdraw
Withdra-
mp k wal
et Invest
it Av selectively
Ive Invest to retain
er to maximise
ag market share
cash gen-
Po e as industry grows
eration
si
ti
on St Priority
ro products &
ng services
Arthur D. Little Life Cycle Approach
Business Environment Vs. Business Strength
Business environment indicates the 4 stages of
the life cycle of the industry namely embryonic,
growing, mature and aging.
Business strength measures the competitive
position of a firm’s business units, namely
dominant, strong, favourable, weak or non-
viable
 Life Cycle Approach
Life Cycle
Stage Embryonic Growth Mature Aging
Position

Dominant

Strong

Favourable

Tenable

Weak
Legends

Natural Development

Selective Development

Prove Viability

Out
6 steps in the approach
• Identify each line of business based on
commonalities like common rivals, customers,
sustainability, prices, quality/style,
divestments, liquidation etc
• Assessing the life cycle stage of each
business based on market share,
investments, profitability, or cash flow.
• Identifying competitive position of the firm as
dominant, strong, favourable, tenable or
weak.
• Identifying strategy for the business based on
its lifecycle stage and competition
• Assigning a natural thrust to the natural
strategy detailing the set of specific actions
that’ support the general direction defined in
step 4(For eg. the actions can be start-up for
a business with strong competitive potential or
growth with industry for a strong or dominant
business in a mature industry seeking to
maintain its position or gain position gradually
by increasing market share incrementally or
defend in the early stages of industry maturity
or harvest in the aging stage enabling freeing
of resources and reallocation to strong
businesses
• Selection of one of the twenty four generic
strategies keeping the strategic thrust of
step 5 in mind.
24 Generic Strategies
1.Backward Integration 13.Mkt rationalization
2.Develop Business Overseas 14.Method/functions
3.Develop overseas Facilities efficiency
15.New products/new mkts
4.Distribution Rationalization 16.New prdcts/ same mkts
5.Excess Capacity 17.Production rationalization
6.Export same product 18.Product line rationalization
7.Forward integration 19.Pure survival
8.Hesitation 20.Same products/new markets
9.Initial Mkt. Devpt 21.Same Products/same markets
10.Liscensing abroad 22.Technological Efficiency
11.Complete rationalization 23.Traditional Cost Cutting
12.Mkt penetration 24.Unit Abandonment
Core Competence Theory (Hamel &
Prahalad( Ref: Reading Material)

Competitive Strategy
Involves in developing a broad idea reg how business
is going to compete, what its goals should be, and
what policies will be needed to carry out those goals.
The Wheel of Competitive Strategy
Product Target
Line Markets

Finance & Marketing

control
GOALS
Definition of how the
R&D business is going to Sales
Compete
Objectives of profitability,
Growth, market share,
Social responsi Distribution
Purchasi -veness etc
ng

Manufactu
Labour ring
The hub of the wheel defines the goals and
objectives-economic as well as non-economic.
Spokes are the key operating policies the
execution ways with which the firm is seeking
to achieve its goals. Hence the spokes
(policies) must emanate from the hub (goals).
Also, the spokes must be connected with each
other or the wheel may fail to roll
Context in which Competitive Strategy Is Formulated
Company Industry
Strengths Opportunities
& &
Weaknesses Threats

Factors Factors
Internal External
to the Competitive to the
Company Strategy Company

Personal Broader
Values of the Societal
Key Expectations
Implementers
Internal Factors
1. Strengths & Weaknesses -the profile of assets and
skills incl financial resources, technological
capabilities, brand equity etc
2. Personal values of Key Implementers - the
motivations and needs of the key executives and other
people who must execute the strategy
External Factors
1. Industry opportunities and threats - define the
competitive environment, with the associated risks and
potential rewards.
2. Societal expectations – reflect the impact on the
company of things such as govt. policy, social
concerns, evolving mores etc
Competitive Analysis (Structural Analysis of Industry)
by M. E. Porter
A framework on which one can identify the
attractiveness of an industry.
According to Porter, 5 forces determine the ultimate
profit potential of the industry. The impact of these
forces may vary from intense, where no firm can
expect to earn spectacular returns, to relatively mild, in
which case returns are quite high.
Forces driving industry competition
@Threat of entry
@Intensity of rivalry among existing competitors
@Pressure from substitute products
@Bargaining power of buyers
@Bargaining power of suppliers
Force I. Threat of entry- depends on
b. Barriers to entry and
c. Reaction from existing competitors
a. Major sources of barriers:
5. Economies of Scale – can be present or help in
many functions
6. Product Differentiation- established firms have brand
identification and customer loyalties arising from
many factors
7. Capital needs –requirements of large investments in
order to compete
8. Switching costs – one time costs facing the buyer for
switching from one supplier’s products to another
9. Access to distribution channels -
6. Cost Disadvantages independent of scale –
proprietary product technology- thro’ patents or
secrecy
7.Access to raw materials
8.Favourable locations –
9.Government subsidies –preferential subsidies to
established firms
Learning or experience curve – lesser unit costs as the
firm gains experience- methods improvement, layout
improvements, balancing equipments
10.Govt. policy – policies can change over time- eg:
pollution control
 Expected retaliation – conditions that signal
strong retaliation are:
• a history of vigorous retaliation to entrants
• established firms with substantial resources to
fight back –like creating additional capacity to
meet all future needs, or leverage with
distribution channels or customers
• established firms with great commitment to the
industry with highly illiquid assets employed in it
• Slow industry growth, which limits the ability of
the industry to absorb a new firm
Force II: Intensity of rivalry among existing
competitors
Rivalry can be either “warlike”, “bitter”,” cut-throat” or
“polite” or “gentlemanly”
Rivalry is the result of interacting structural
factors like:
 Numerous or equally balanced competitors
 Slow industry growth
 High fixed or storage costs – when excess
capacity leading to price cutting
 Lack of differentiation or switching costs – with
undifferentiated products like commodities,
customers put pressure for better price or services
 Capacity augmentation in large increments –
Large capacity additions for attaining economies of
scale can disrupt the industry supply/demand
balance especially in periods of
overcapacity and price cutting
 Diverse competitors – when competitors are
diverse in terms of origins, strategies,
personalities will have diverse ways of competing;
one may find it difficult to “read” others
 High strategic stakes – rivalry becomes more
volatile if a number of firms have high stakes in
achieving success. For eg Toyota may perceive a
strong need to establish a solid position in the US
market in order to build global prestige
High exit barriers- sources of exit barriers can be
@specialized assets having low liquidation values
or high costs transfer or conversion
@fixed costs of exit-like labour agreements,
resettlement costs, maintaining capabilities for
spare parts etc
@strategic interrelationships-of the business with
other units of the company in terms of its image,
marketing ability, access to financial markets,
shared facilities etc
@emotional barriers – like management’s
identification with the particular business, loyalty to
employees, pride, fear for own career etc-not
based on any economic reasons
@Govt and social restrictions- Govt may deny or
discourage exits due to concerns of job loss and
regional economic effects (mostly seen in
developing countries)
Force III: Pressure from substitute products
In a broad sense, all firms in an industry are
competing with industries producing substitute
products. Substitutes to put a limit to which prices
can be increased, and when the price-performance
alternative offered by the substitutes, the stronger
the pressure on industry profits. (Examples)
 Force IV Bargaining Power of Buyers
Buyer group will be powerful under conditions of:
 concentrated purchase or purchases a large
volume of seller’s sales-results in – will be able to
extract better prices
 what gets bought forms a significant fraction of
buyers costs or purchases
 what gets purchased are standard or
undifferentiated
 few switching costs, enabling buyer to switch if
necessary
 buyer earning low profits as pressure on profits
forces them to be more price sensitive.
 buyer has potential for backward integration
 the quality of the industry’s product do not
put any pressure on the buyer product quality
and hence price sensitive to buying
 When buyer has all the information about the
demand, market prices, and even supplier
costs.
Force V Bargaining Power Of Suppliers
 when supplier group is more concentrated
than the industry or dominated by a few
companies, can exert considerable influence in
prices, quality and even terms
 When substitutes are not competing
 Industry is not important customer for the
supplier group
 suppliers’ product is an important input to the
buyer’s business.
 Supplier group’s products are differentiated or it
has built up switching costs.
 the supplier group poses a threat of forward
integration
 Competitor Analysis
A response profile can be built on the basis of
“Four Components of Competitor Analysis”
1.The future goals of the competitor
2.The current strategy of the competitor
3.Key assumptions that the competitor makes about
itself and about industry
4.Its capabilities in terms of strength and weaknesses
The profile helps to predict the likely str. moves of the
competitor
-offensive or defensive
Competitor Analysis- A Framework
What drives What the competitor
the is doing and
Competitor can do

FUTURE GOALS CURRENT STRATEGY

At all levels of management How the business is
And in multiple dimensions currently competing

COMPETITOR’S RESPONSE PROFILE

Is the competitor satisfied with its current position
What likely moves or strategy shifts will the competitor make?
Where is the competitor vulnerable?
What will provoke the greatest and most effective retaliation by the competitor?

ASSUMPTIONS CAPABILITIES
Held about itself Both strengths
and the industry and weaknesses
Competitor Analysis helps
@to determine each competitor’s probable
reaction to the industry & env. Changes
@to anticipate the response of each competitor
to the likely strategic moves by the other firms
@to develop a profile of the nature & success of
the possible strategic changes each competitor
might undertake
Adopting Competitive Strategy
Once the five forces and the underlying causes
diagnosed, the firm can identify its strengths
and weaknesses relative to the industry. It
helps a firm to adopt an offensive or defensive
action to defend itself against the five forces.
This process leads to the adoption of one or
more of Competitive Strategies to have
Competitive Advantage
Generic Competitive Strategies
Three strategies namely,
 Overall cost leadership -thro’ scale, vigourous pursuit
of cost reduction from experience, tight control of
costs & OHs, avoiding marginal customer accounts,
minimizing expenditure on R&D, service, sales force,
advertising etc
 Differentiation – can be in terms of design or brand
image, technology, features, customer service, dealer
network etc .
 Focus – on a particular buyer group, segment of the
product line or geographic market –rests on the
premise that firm is able to serve its strategic narrow
target more efficiently and effectively.
• Risks of Generic Strategies (Ref : material)
• Competitive Strategy under uncertainty
Environment being not static, the industry structure
also can’t be static. Sources of uncertainty are
numerous and originate both within the industry and in
the industry’s broader environment. While contingency
plans can alleviate the impact to some extent, they
may not be suitable as they fail to examine alternative
future industry structures or to force managers to
consider their implications. Flexible strategies may be
used when firms face considerable uncertainty.
• Using Scenarios
One tool to address uncertainty is scenarios. A
scenario is an internally consistent view of what the
future might turn out to be. By constructing multiple
scenarios, a firm can systematically explore the
possible consequences of uncertainty for its choice of
strategies. Scenarios can be prepared for the macro
or industry level. Pl note that scenarios are not an end
itself. Companies have to translate the scenarios into
strategy.
 Identify the uncertainties that may affect
industry structure
Determine the causal factors driving them

Make a range of plausible assumptions about each

important causal factor

Combine assumptions about individual factors into internally

consistent scenarios

Analyze the industry structure that would prevail under each

scenario

Determine the sources of competitive advantage under each scenario

Predict competitive behaviour under each scenario

The Process of constructing Industry Scenarios
The feedback loops are present as it may be
difficult to determine fully what uncertainties
are most important until a number of
scenarios have been analyzed.

Strategic Approaches with Scenarios (Ref:

Material)
Intended Strategy & Realized Strategy:
Strategists might have decided on a particular
strategy considering the environment and
forecasting the changes therein. Or they will
have a “intended” strategy. But, the changes in
the environment need not be according to
forecast and hence they may change the
course as they proceed and the strategy
“realized” may be different from intended.
Realized strategy may differ also due to
execution related issues.
Game Theory In Strategic Analysis
When we consider strategy from a competitive
perspective, it can be considered as a game, just like
any other game. In any game, players plan to succeed
by trying to make estimations about the other’s
moves. The basic assumption or premise on which it
works is that the players are rational and their moves
will be rational or based on information and data. This
could be a fundamental flaw of the theory because the
players and their decisions are not always rational.
Hence, it has been observed that the theory is popular
in highly regulated industries where there are not very
high possibilities of the decision makers being
irrational because of limited competition or actions by
other players will be more or less predictable (like
power generation and certain other basic
infrastructure areas) or cartels
Elements in a game
 Players: firms who participate in the game who
make choices and receive pay-offs
 Pay-offs: result of the game, reward or
punishment
 Rules: who are the players, what are the pay-
offs, who knows what??? etc etc
 Actions: choices that players can make (each is
aware that the other firm’s actions can affect its
profit)
Framework:
 Define the problem
 Identify the critical factors
 Build a model
 Develop intuition using the model
 Formulate strategy –covering all possible scenarios
Zero-sum game: In any game in a given scenario, the
benefits that one gets will be equal to the sum of the
negative benefits the others get, or the total benefit for
the total game will be zero. If a firm makes more
profits, it will be the result of other players getting
lesser profits, because the total industry profits is
expected to be constant in a given scenario. Such
games are called non-cooperative games, where there
was no possibility of win-win
The current thinking is that there can be co-operative or
participative games leading to win-win situations for
two or more players of the industry. This is the result
of co-operating while competing. A new terminology
has also been evolved- ”Co-opetition”. A number of
electronic companies and a number of automobile
companies have started collaborating for a number of
input items while still competing in the end products.
Dominant Strategy: In a game, one player may use a
strategy such that it does better by using this strategy
than any other strategy, no matter what actions others
choose. Such a strategy will be called dominant
strategy. For example, the rolling out of projects in
large size by RIL
The Nash Equilibrium
It is the point when no player can improve his
position by changing strategy
Resource-based View (RBV)
The fundamental principle of RBV is that the basis for a
comp. advantage of a firm lies primarily in the application
of the set of valuable resources at the firm’s disposal. In
order to achieve sustained competitive advantage, these
resources have to be heterogeneous in nature and not
perfectly mobile. This results in valuable resources that are
neither perfectly imitable nor substitutable without great
effort. Then, these resources can assist the firm can to
sustain above average returns.
Key points of the theory
a. Identify the firm’s potential key resources
b. Evaluate whether these resources fulfill the VRIN
(Valuable, Rare, In-imitable and Non-substitutable).
c. Care for and protect resources that possess these evaluations
Resources: include all assets, capabilities, org. processes, firm
attributes, information, knowledge etc; controlled by a firm that enable
the firm to conceive of and implement strategies that improves its
efficiency and effectiveness.
Epilogue
Let’s look to the most celebrated corporate leader of the
century, Jack Welch, for some insights into new
strategic thinking. Welch identified strategy for GE
based on what the Prussian General Karl Von
Clausenwitz ,who in “ON WAR” observed in 1833 that
men could not reduce strategy to a formula because
chance events, imperfections in execution and the
independent will of opponents automatically doomed
detailed planning. ”They didn’t expect a plan of
operation beyond the first contact with the enemy.
They set only the broadest objectives & emphasized
seizing unforeseen opportunities as they arose.
Strategy was not a lengthy action plan; it was the
evolution of a central idea thro’ continually changing
circumstances”
Welch noted that in running GE, he adopted the
notion that strategy had to evolve & not be
etched in stone. According to him, strategy is
nothing but planful opportunism.
Buffet on strategy:
“We have no master strategy, no corporate
planners delivering us insights about socio-
economic trends, and staff to investigate a
multitude of ideas presented by promoters &
intermediaries. Instead, we simply hope that
something sensible comes along- and when it
does, we act”.
(in his address to shareholders in 1985)
“The question that faces the strategic
decision maker is not ‘what his organization
should do tomorrow?’. It is, ’what do we have
to do today to be ready for an uncertain
tomorrow?’”
Peter Drucker