1. “Competitive strategy is about being different
“Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value.”
Michael E. Porter

2. Corporate strategy is basically concerned with the choice of businesses, products and markets. It tries to answer certain key questions:
(i) What businesses the firm should be in, in terms of the range of products it supplies. Punjab Tractors is a specialized company. It is involved almost exclusively in the manufacture of tractors. Hindustan Lever Ltd. is highly diversified with interests in soaps, tea, washing powders, detergents, tooth pastes, shampoo, creams, salt, hair oils etc.
(ii) What should be the optional geographic spread of activities for the firm? In the restaurant business, most firms serve small local markets, whereas McDonald’s operates in more than one hundred countries throughout the world.
(iii) What range of vertically linked activities should the firm encompass? Reliance Industries is a key player in each of the products in the Petrochemical—Fibre intermediate chain (synthetic textiles, PSF, PFY, PTA MEG)
(iv) How the corporate office should manage its group of businesses? Corporate strategy spells out the businesses in which the firm will participate, the markets it will serve and the customer needs it will satisfy.

3. The five Generic Competitive Strategies
Five Competitive Strategies
Low-Cost Provider Strategies
Differentiation Strategies
Best-Cost Provider Strategies
Focused (or Market Niche) Strategies

4. Long Term Objectives Quantitative Measurable Realistic Understandable
Challenging
Hierarchical
Obtainable
Congruent

5. Financial vs. Strategic Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Larger profit margins
Greater ROI
Higher earnings per share
Rising stock price
Improved cash flow

6. Financial vs. Strategic Objectives Strategic Objectives
Larger market share
Quicker on-time delivery than rivals
Shorter design-to-market times than rivals
Lower costs than rivals
Higher product quality than rivals
Wider geographic coverage than rivals
Achieving technological leadership
Consistently getting new or improved products to market ahead of rivals

7. Not Managing by Objectives
Managing by Extrapolation – “If it ain’t broke, don’t fix it”
Managing by Crisis – The true measure of a good strategist is the ability to fix problems
Managing by Subjectives – “Do your own thing, the best way you know how”
Managing by Hope – The future is full of uncertainty and if at first you don’t succeed, then you may on the second or third try

8. The Balanced Scorecard
Robert Kaplan & David Norton –
Strategy evaluation & control technique
Balance financial measures with nonfinancial measures
Balance shareholder objectives with customer & operational objectives

9. The Balanced Score Card: A Balanced Approach
R S Kaplan and D P Norton came out with a popular, balanced score card approach in early 90s linking corporate goals with strategic actions undertaken at the business unit, departmental and individual level. The score-card allows managers to evaluate a firm from different complementary perspectives. The arguments run thus:
A firm can offer superior returns to stockholders if it has a competitive advantage in its product or service offerings when compared to its rivals.
(ii) In order to sustain a competitive advantage, a firm must offer superior value to customers.
(iii) This, in turn, requires development of operations with necessary capabilities.
(iv) In order to develop the needed operational capabilities, a firm requires the services of employees having requisite skills, creativity, diversity and motivations. Thus, the performance as assessed in one perspective supports performance in other areas—as shown below:
Cont….

10. Four Perspectives of the Balanced Scorecard
Financial
EVA
Profitability
Growth
Customer
Differentiation
Cost
Quick Response
Operations
Product Development
Demand Management
Order Fulfilment
Organisational
Leadership
Organisational Learning
Ability to Change

11. Levels of Strategies –Large Company

12. Levels of Strategies –Small Company

13. Strategy and Competitive Advantage
Competitive advantage exists when a firm’s strategy gives it an edge in
Attracting customers and
Defending against competitive forces
Convince customers firm’s product / service offers superior value
A good product at a low price
A superior product worth paying more for
A best-value product
Key to Gaining a Competitive Advantage

14. What Is“Competitive Strategy”?
Deals exclusively with a company’s business plans to compete successfully
Specific efforts to please customers
Offensive and defensive moves to counter maneuvers of rivals
Responses to prevailing market conditions
Initiatives to strengthen its market position
Narrower in scope than business strategy

15. The Five GenericCompetitive Strategies

16. Low-Cost Provider Strategies
Keys to Success
Make achievement of meaningful lower costs than rivals the theme of firm’s strategy
Include features and services in product offering that buyers consider essential
Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match
Low-cost leadership means low
overall costs, not just low
manufacturing or production costs!

17. Options: Achieving a Low-CostAdvantage
Option 1: Use lower-cost edge to
Underprice competitors and attract price-sensitive buyers in enough numbers to increase total profits
Option 2: Maintain present price, be content with present market share, and use lower-cost edge to
Earn a higher profit margin on each unit sold, thereby increasing total profits

18. Nucor Corporation’s Low-Cost Provider Strategy
Eliminate some production processes from value chain used by traditional integrated steel mills; cut investment in facilities and equipment
Strive hard for continuous improvement in the efficiency of its plants and frequently invest in state-of-the art equipment to reduce unit costs
Carefully select plan sites to minimize inbound and outbound shipping costs and to take advantage of low rates for electricity
Hire a nonunion workforce that uses team-based incentive compensation systems
Heavily emphasize consistent product quality and maintain rigorous quality systems
Minimize general and administrative expenses by maintaining a lean staff at corporate headquarters and allowing only 4 levels of management

19. Approaches to Securing a Cost Advantage
Control costs!
By-pass
costs!
Do a better job than rivals of performing value chain activities efficiently and cost effectively
Revamp value chain to bypass cost-producing activities that add little value from the buyer’s perspective
Approach 2

20. Approach 1: Controlling the Cost Drivers
Capture scale economies; avoid scale diseconomies
Capture learning and experience curve effects
Manage costs of key resource inputs
Consider linkages with other activities in value chain
Find sharing opportunities with other business units
Compare vertical integration vs. outsourcing
Assess first-mover advantages vs. disadvantages
Control percentage of capacity utilization
Make prudent strategic choices related to operations

21. Approach 2: Revamping the Value Chain
Make greater use of Internet technology applications
Use direct-to-end-user sales/marketing methods
Simplify product design
Offer basic, no-frills product/service
Shift to a simpler, less capital-intensive, or more flexible technological process
Find ways to bypass use of high-cost raw materials
Relocate facilities closer to suppliers or customers
Drop “something for everyone” approach and focus on a limited product/service

22. Keys to Success in Achieving Low-Cost Leadership
Scrutinize each cost-creating activity, identifying cost drivers
Use knowledge about cost drivers to manage costs of each activity down year after year
Find ways to restructure value chain to eliminate nonessential work steps and low-value activities
Work diligently to create cost-conscious corporate cultures
Feature broad employee participation in continuous cost-improvement efforts and limited perks for executives
Strive to operate with exceptionally small corporate staffs
Aggressively pursue investments in resources and capabilities that promise to drive costs out of the business

23. Characteristics of a Low-Cost Provider
Cost conscious corporate culture
Employee participation in cost-control efforts
Ongoing efforts to benchmark costs
Intensive scrutiny of budget requests
Programs promoting continuous cost improvement
Successful low-cost producers champion
frugality but wisely and aggressively
invest in cost-saving improvements !

24. When Does a Low-Cost Strategy Work Best?
Price competition is vigorous
Product is standardized or readily available from many suppliers
There are few ways to achieve differentiation that have value to buyers
Most buyers use product in same ways
Buyers incur low switching costs
Buyers are large and have significant bargaining power
Industry newcomers use introductory low prices to attract buyers and build customer base

25. Pitfalls of Low-Cost Strategies
Being overly aggressive in cutting price
Low cost methods are easily imitated by rivals
Becoming too fixated on reducing costs and ignoring
Buyer interest in additional features
Declining buyer sensitivity to price
Changes in how the product is used
Technological breakthroughs open up cost reductions for rivals

26. Differentiation Strategies
Objective
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals
Not spending more to achieve differentiation than the price premium that can be charged
Keys to Success

27. Benefits of Successful Differentiation
A product / service with unique, appealing attributes allows a firm to
Command a premium price and/or
Increase unit sales and/or
Build brand loyalty
= Competitive Advantage
Which hat is unique?

28. Types of Differentiation Themes
Unique taste -- Dr. Pepper
Multiple features -- Microsoft Windows and Office
Wide selection and one-stop shopping -- Home Depot and Amazon.com
Superior service -- FedEx, Ritz-Carlton
Spare parts availability -- Caterpillar
More for your money -- McDonald’s, Wal-Mart
Prestige -- Rolex
Quality manufacture -- Honda, Toyota
Technological leadership -- 3M Corporation
Top-of-line image -- Ralph Lauren, Chanel, Cross

29. Sustaining Differentiation: Keys to Competitive Advantage
Most appealing approaches to differentiation
Those hardest for rivals to match or imitate
Those buyers will find most appealing
Best choices to gain a longer-lasting, more profitable competitive edge
New product innovation
Technical superiority
Product quality and reliability
Comprehensive customer service
Unique competitive capabilities

30. Where to Find Differentiation Opportunities in the Value Chain
Purchasing and procurement activities
Product R&D and product design activities
Production process / technology-related activities
Manufacturing / production activities
Distribution-related activities
Marketing, sales, and customer service activities

31. Where to Find Differentiation Opportunities in the Value Chain
Internally
Performed
Activities,
Costs, &
Margins
Margins of
Suppliers
Buyer/User
Value
Chains
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners

32. How to Achieve a Differentiation-Based Advantage
Approach 1
Incorporate product features/attributes that lower buyer’s overall costs of using product
Approach 2
Incorporate features/attributes that raise the performance a buyer gets out of the product
Approach 3
Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways
Approach 4
Compete on the basis of superior capabilities

33. Importance of Perceived Value
Buyers seldom pay for value that is not perceived
Price premium of a differentiation strategy reflects
Value actually delivered to the buyer and
Value perceived by the buyer
Actual and perceived value can differ when buyers are unable to assess their experience with a product

34. Signaling Value as Well as Delivering Value
Incomplete knowledge of buyers causes them to judge value based on such signals as
Price
Attractive packaging
Extensive ad campaigns
Ad content and image
Characteristics of seller
Facilities
Customers
Professionalism and personality of employees
Signals of value may be as important as actual value when
Nature of differentiation is hard to quantify
Buyers are making first-time purchases
Repurchase is infrequent
Buyers are unsophisticated

35. When Does a Differentiation Strategy Work Best?
There are many ways to differentiate a product that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar differentiation approach
Technological change and product innovation are fast-paced

36. When Does a Differentiation Strategy Work Best?
There are many ways to differentiate a product that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar differentiation approach
Technological change and product innovation are fast-paced

37. Pitfalls of Differentiation Strategies
Buyers see little value in unique attributes of product
Appealing product features are easily copied by rivals
Differentiating on a feature buyers do not perceive as lowering their cost or enhancing their well-being
Over-differentiating such that product features exceed buyers’ needs
Charging a price premium buyers perceive is too high
Not striving to open up meaningful gaps in quality, service, or performance features vis-à-vis rivals’ products

38. Best-Cost Provider Strategies
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation
Make an upscale product at a lower cost
Give customers more value for the money
Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands
Objectives

39. Competitive Strength of a Best-Cost ProviderStrategy
A best-cost provider’s competitive advantage comes from matching close rivals on key product attributes and beating them on price
Success depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivals
A best-cost producer can often out-compete both a low-cost provider and a differentiator when
Standardized features/attributes won’t meet diverse needs of buyers
Many buyers are price and value sensitive

40. Risk of a Best-Cost Provider Strategy
A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies
Low-cost leaders may be able to siphon customers away with a lower price
High-end differentiators may be able to steal customers away with better product attributes

41. Focus / Niche Strategies
Involve concentrated attention on a narrow piece of the total market
Serve niche buyers better than rivals
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs
Develop unique capabilities to serve needs of target buyer segment
Objective
Keys to Success

42. Approaches to Defining a Market Niche
Geographic uniqueness
Specialized requirements in using product/service
Special product attributes appealing only to niche buyers

43. Examples of Focus Strategies
eBay
Online auctions
Porsche
Sports cars
Jiffy Lube International
Maintenance for motor vehicles
Pottery Barn Kids
Children’s furniture and accessories
Bandag
Specialist in truck tire recapping

44. Focus / Niche Strategies and Competitive Advantage
Achieve lower costs than rivals in serving the segment --
A focused low-cost strategy
Approach 1
Offer niche buyers something different from rivals --
A focused differentiation strategy
Approach 2
Which hat is unique?

45. What Makes a Niche Attractive for Focusing?
Big enough to be profitable and offers good growth potential
Not crucial to success of industry leaders
Costly or difficult for multi-segment competitors to meet specialized needs of niche members
Focuser has resources and capabilities to effectively serve an attractive niche
Few other rivals are specializing in same niche
Focuser can defend against challengers via superior ability to serve niche members

46. Risks of a Focus Strategy
Competitors find effective ways to match a focuser’s capabilities in serving niche
Niche buyers’ preferences shift towards product attributes desired by majority of buyers – niche becomes part of overall market
Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered

47. Deciding Which Generic Competitive Strategy to Use
Each positions a company differently in its market and competitive environment
Each establishes a central theme for how a company will endeavor to outcompete rivals
Each creates some boundaries for maneuvering as market circumstances unfold
Each points to different ways of experimenting with the basics of the strategy
Each entails differences in product line, production emphasis, marketing emphasis, and means to sustainthe strategy

48. Deciding Which Generic Competitive Strategy to Use
Each positions a company differently in its market
Each establishes a central theme for how a company will endeavor to outcompete rivals
Each creates some boundaries for maneuvering as market circumstances unfold
Each points to different ways of experimenting with the basics of the strategy
Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy
The big risk – Selecting a “stuck in the middle” strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position.

50. Horizontal Integration
Types of Strategies
Forward Integration
Vertical Integration Strategies
Backward Integration
Horizontal Integration

51. Vertical Integration Strategies
Forward Integration
Gaining ownership or increased control over distributors or retailers
Backward Integration
Seeking ownership or increased control of a firm’s suppliers
Horizontal Integration
Seeking ownership or increased control over competitors

52. Types of Strategies Market Penetration Market Development
Intensive Strategies
Market Development
Product Development

53. Intensive Strategies Market Penetration Market Development
Seeking increased market share for present products or services in present markets through greater marketing efforts
Market Development
Introducing present products or services into new geographic areas
Product Development
Seeking increased sales by improving present products or services or developing new ones

54. Diversification Strategies
Types of Strategies
Related
Diversification
Diversification Strategies
Unrelated
Diversification

55. Diversification Strategies
Related Diversification
Adding new but related products or services
Unrelated Diversification
Adding new, unrelated products or services

56. Types of Strategies Retrenchment Divestiture Liquidation
Defensive Strategies
Divestiture
Liquidation

57. Defensive Strategies Retrenchment Divestiture Liquidation
Regrouping through cost and asset reduction to reverse declining sales and profit
Divestiture
Selling a division or part of an organization
Liquidation
Selling all of a company’s assets, in parts, for their tangible worth

58. Means for Achieving Strategies
Cooperation among competitors
Joint venture / partnering
Merger / acquisition
First mover advantages
Outsourcing

59. Strategic Management in Nonprofit and Governmental Organizations
Educational Institutions
Medical Organizations
Governmental Agencies and Departments

60. Outsourcing in Indian Companies
Industry
National Panasonic
Ciba -
Geigy
Since marketing has become crucial, the
The company is outsourcing its colour television
company focuses on it, buying all its bottling,
assembling processes from Salora, preferring to
packaging, and stamping since these are
direct its resources to leveraging the equity of its
commoditised aspects where it can expect to
famous brand and on breaking into a crowded ad
d little value itself.
marketplace.
TV Sets
Pharmaceuticals
Mahindra Ford
Indo Rama
Jenson & Nicholson
Entering a crowded market,
With global markets for
Intent on catching up with
it will focus on its core
yarns still expanding, the
the leaders, the company
function of assembly,
company had opted to focus
has invested in marketing
keeping start -
up costs as
on its core strength instead
and distribution. Unable to
low as possible, and is
of integrating. Since
integrate backwards, there
outsourcing 40 per cent of
production is crucial, it
fore, it has to outsource all
its components, its
outsources marketing,
its chemicals and raw
warehousing as
well as its
distribution, and ware
materials.
distribution.
housing .
Cont….
Automobiles
Textiles
Paints