Strategy and Industry analysis

1. Strategy and Industry analysis

2. What is Strategy? “to fight and conquer is not supreme excellence . . ; . . . supreme excellence consists in breaking the enemy’s resistance without fighting . . . ” Art of War - Sun Tzu Bingfa (350 BC) “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of course of action and the allocation of resources necessary for carrying out these goals.” Chandler, 1962,

3. What is Strategy?(Porter, M.E. (1996), “What is Strategy,” Harvard Business Review, 74(12): 61-78. • Rivals can easily copy your improvement in quality and efficiency. But they shouldn’t be able to copy your strategic positioning--what distinguishes your company from all the rest. • Strategy is the creation of a unique and valuable position, involving a different set of activities. • Strategy require you to make trade-offs in competing--to chose what not to do. • Strategy involves creating “fit” among a company’s activities.

4. Operational Effectiveness is not Strategy • What is operational effectiveness? • Why is it not strategy? • Why both operational effectiveness and strategy are important?

5. Operational Effectiveness is not Strategy • Operational effectiveness means performing similar activities better than rivals perform them. • Strategic positioning means performing differentactivities from rivals’ or performing similar activities in different ways. • Operational effectiveness and strategy are both essential to superior performance, which is the primary goal of any enterprise. high Productivity Frontier(state of best practice) Non-price buyer value delivered low high low Relative cost position

6. Operational Effectiveness Tools • Total quality management (360 Degrees) • Benchmarking • Outsourcing • Partnering • Reengineering • Change management

7. Strategy Rest on Unique Activities Competitive strategy is about being different. • What are the sources of differentiation? • How valuable is the differentiation to the buyer? • How much of this differentiation is tactical , how much is strategic? • What is the buyer’s reservation price for this difference? • How much of this difference is “jnd”

8. Sources of Strategic Positions Art of War • Variety-based positioning • Needs-based positioning • Access-based positioning “a clever combatant imposes his will on the enemy but does not allow the enemy’s will to be imposed on him” Create focal points that make dominant strategies yield maximum payoffs

9. Strategy is about Being Different • Air Deccan • Low Price • Short / Medium Routes • No frills • Jet Airways • Premium Price • Short & Long routes • Frills (Jet kids pack for kids etc..)

10. Defining the Business Customer Groups Customer Needs Technology Reference: Abell, 1980

11. Variety-based positioning - Different types of soaps for different women groups Skin Beauty Customer Groups Working Dove Non - Working Customer Needs Technology Reference: Abell, 1980

12. Needs-based positioning Customer Groups Television screens are 29inch , 25 inch and 14 inch for different drawing room dimensions Technology Customer Needs Reference: Abell, 1980

13. Access-based positioning Mainframes require different processing speed as compared to a personal PC Customer Groups Customer Needs Technology Reference: Abell, 1980

14. Strategic Management & SWOT Strengths&Weaknesses Drivers Opportunities&Threats InternalEnvironment ExternalEnvironment STRATEGY ValuesofManagers ValuesofShareholders Objectives References: Andrews, 1971; Hofer and Schendel, 1978

15. Strategic Management Tasks Task 1 Task 2 Task 3 Task 4 Task 5 Develop a Strategic Vision and Mission Set Objectives Craft a Strategy to Achieve Objectives Implement and Execute Strategy Monitor, Evaluate, and Take Corrective Action Revise as Needed Revise as Needed Improve/ Change Improve/ Change Recycle as Needed

16. Redefining the Value Chain The Traditional Value Chain Start with Assets, Core Competencies Assets/ Core Competencies Product/ Service Offering Inputs, Raw Material The Customer Channels The Modern Value Chain Start with the Customer Assets/ Core Competencies Customer Priorities Inputs, Raw Material Channels Offering (Slywotzky, Morrison, 1997)

17. The Modern Value Chain Truly Understanding the Customer Purchase Criteria Customer Anger(against existing products) Preferences Power over decision Inputs, Raw Material Customer Priorities Assets/ Core Competencies Channels Offering Decision-Making Process Purchase Occasion Buyer Behavior Functional Needs (Slywotzky, Morrison, 1997)

18. Porter’s (1980) Five Forces Model of Competition Threat of New Entrants Threat of New Entrants Rivalry Among Competing Firms in Industry Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products

19. Intensity of Rivalry Among Existing Competitors Cutthroatcompetition is more likely to occur when: Numerous or equally balanced competitors  Slow growth industry  High fixed costs  High storage costs  Lack of differentiation or switching costs  Capacity added in large increments  Diverse competitors  High strategic stakes  High exit barriers 

20. Intensity of Rivalry Among Existing Competitors High Exit Barriers are economic, strategic and emotional factors which cause companies to remain in an industry even when future profitability is questionable. Specialized assets  Fixed cost of exit (e.g., labour agreements)  Strategic interrelationships  Emotional barriers  Government restrictions 

21. Bargaining Power of Suppliers • Suppliers are likely to be powerful if: • Supplier industry is dominated by a few firms • Suppliers’ products have few substitutes • Buyer is not an important customer to supplier • Suppliers’ product is an important input to buyers’ product • Suppliers’ products are differentiated • Suppliers’ products have high switching costs • Supplier poses credible threat of forward integration Suppliers exert power in the industry by: Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

22. Threat of New Entrants • Economies of Scale • Product Differentiation • Capital Requirements • Switching Costs • Access to Distribution Channels • Cost Disadvantages Independent of Scale • Government Policy • Expected Retaliation Barriers to Entry

23. Buyer groups are likely to be powerful if: Buyers compete with the supplying industry by: Buyers are concentrated or purchases are large relative to seller’s sales  Purchase accounts for a significant fraction of supplier’s sales  Bargaining down prices Products are undifferentiated  Forcing higher quality Buyers face few switching costs  Playing firms off of Buyers’ industry earns low profits  each other Buyer presents a credible threat of backward integration  Product unimportant to quality  Buyer has full information  Bargaining Power of Buyers

24. Keys to evaluate substitute products: Products with improving price/performance tradeoffs relative to present industry products  For Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery Threat of Substitute Products Products with similar function limit the prices firms can charge

25. Business power Power of the Five forces 5 Forces correlation • Power of forces are mutually exclusive of each other- (Any collinearity occurring should be excluded for purposes of calculation) • Their combined power inverses the power of the business • Their probability of occurrence and power the power of their impact change over time (By function they are hetroscedastic ) • They determine the relative bargaining power of the business and the businesses ability to augment its market share and or its profitability

26. Effects of Entry Barriers and Exit Barriers on Industry Profits Exit Barriers Low High Low Low, Stable Returns Low, Risky Returns Entry Barriers High High, Stable Returns High, Risky Returns

27. Competitor Analysis Future Objectives What Drives the competitor? How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk?

28. Competitor Analysis What is the competitor doing?What can the competitor do? Current Strategy How are we currently competing? Does this strategy support changes in the competitive structure?

29. Competitor Analysis What does the competitor believe about itself and the industry? Assumptions Do we assume the future will be volatile? What assumptions do our competitors hold about the industry and themselves? Are we assuming stable competitive conditions?

30. Competitor Analysis What are the competitor’s capabilities? Capabilities What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors?

31. Future Objectives How do our goals compare to our competitors’ goals? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Assumptions Does this strategy support changes in the competition structure? Do we assume the future will be volatile? What assumptions do our competitors hold about the industry and themselves? Capabilities What are my competitors’ strengths and weaknesses? Are we operating under a status quo? How do our capabilities compare to our competitors? Competitor Analysis Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?

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