Presentation on theme: "“Competitive strategy is about being different"— Presentation transcript:
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 StrategiesLow-Cost Provider StrategiesDifferentiation StrategiesBest-Cost Provider StrategiesFocused (or Market Niche) Strategies
4 Long Term Objectives Quantitative Measurable Realistic Understandable ChallengingHierarchicalObtainableCongruent
5 Financial vs. Strategic Objectives Financial ObjectivesGrowth in revenuesGrowth in earningsHigher dividendsLarger profit marginsGreater ROIHigher earnings per shareRising stock priceImproved cash flow
6 Financial vs. Strategic Objectives Strategic Objectives Larger market shareQuicker on-time delivery than rivalsShorter design-to-market times than rivalsLower costs than rivalsHigher product quality than rivalsWider geographic coverage than rivalsAchieving technological leadershipConsistently 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 problemsManaging 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 techniqueBalance financial measures with nonfinancial measuresBalance 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 FinancialEVAProfitabilityGrowthCustomerDifferentiationCostQuick ResponseOperationsProduct DevelopmentDemand ManagementOrder FulfilmentOrganisationalLeadershipOrganisational LearningAbility to Change
13 Strategy and Competitive Advantage Competitive advantage exists when a firm’s strategy gives it an edge inAttracting customers andDefending against competitive forcesConvince customers firm’s product / service offers superior valueA good product at a low priceA superior product worth paying more forA best-value productKey to Gaining a Competitive Advantage
14 What Is“Competitive Strategy”? Deals exclusively with a company’s business plans to compete successfullySpecific efforts to please customersOffensive and defensive moves to counter maneuvers of rivalsResponses to prevailing market conditionsInitiatives to strengthen its market positionNarrower in scope than business strategy
16 Low-Cost Provider Strategies Keys to SuccessMake achievement of meaningful lower costs than rivals the theme of firm’s strategyInclude features and services in product offering that buyers consider essentialFind approaches to achieve a cost advantage in ways difficult for rivals to copy or matchLow-cost leadership means lowoverall costs, not just lowmanufacturing or production costs!
17 Options: Achieving a Low-CostAdvantage Option 1: Use lower-cost edge toUnderprice competitors and attract price-sensitive buyers in enough numbers to increase total profitsOption 2: Maintain present price, be content with present market share, and use lower-cost edge toEarn 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 equipmentStrive hard for continuous improvement in the efficiency of its plants and frequently invest in state-of-the art equipment to reduce unit costsCarefully select plan sites to minimize inbound and outbound shipping costs and to take advantage of low rates for electricityHire a nonunion workforce that uses team-based incentive compensation systemsHeavily emphasize consistent product quality and maintain rigorous quality systemsMinimize 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-passcosts!Do a better job than rivals of performing value chain activities efficiently and cost effectivelyRevamp value chain to bypass cost-producing activities that add little value from the buyer’s perspectiveApproach 2
20 Approach 1: Controlling the Cost Drivers Capture scale economies; avoid scale diseconomiesCapture learning and experience curve effectsManage costs of key resource inputsConsider linkages with other activities in value chainFind sharing opportunities with other business unitsCompare vertical integration vs. outsourcingAssess first-mover advantages vs. disadvantagesControl percentage of capacity utilizationMake prudent strategic choices related to operations
21 Approach 2: Revamping the Value Chain Make greater use of Internet technology applicationsUse direct-to-end-user sales/marketing methodsSimplify product designOffer basic, no-frills product/serviceShift to a simpler, less capital-intensive, or more flexible technological processFind ways to bypass use of high-cost raw materialsRelocate facilities closer to suppliers or customersDrop “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 driversUse knowledge about cost drivers to manage costs of each activity down year after yearFind ways to restructure value chain to eliminate nonessential work steps and low-value activitiesWork diligently to create cost-conscious corporate culturesFeature broad employee participation in continuous cost-improvement efforts and limited perks for executivesStrive to operate with exceptionally small corporate staffsAggressively 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 cultureEmployee participation in cost-control effortsOngoing efforts to benchmark costsIntensive scrutiny of budget requestsPrograms promoting continuous cost improvementSuccessful low-cost producers championfrugality but wisely and aggressivelyinvest in cost-saving improvements !
24 When Does a Low-Cost Strategy Work Best? Price competition is vigorousProduct is standardized or readily available from many suppliersThere are few ways to achieve differentiation that have value to buyersMost buyers use product in same waysBuyers incur low switching costsBuyers are large and have significant bargaining powerIndustry newcomers use introductory low prices to attract buyers and build customer base
25 Pitfalls of Low-Cost Strategies Being overly aggressive in cutting priceLow cost methods are easily imitated by rivalsBecoming too fixated on reducing costs and ignoringBuyer interest in additional featuresDeclining buyer sensitivity to priceChanges in how the product is usedTechnological breakthroughs open up cost reductions for rivals
26 Differentiation Strategies ObjectiveIncorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivalsFind ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivalsNot spending more to achieve differentiation than the price premium that can be chargedKeys to Success
27 Benefits of Successful Differentiation A product / service with unique, appealing attributes allows a firm toCommand a premium price and/orIncrease unit sales and/orBuild brand loyalty= Competitive AdvantageWhich hat is unique?
28 Types of Differentiation Themes Unique taste -- Dr. PepperMultiple features -- Microsoft Windows and OfficeWide selection and one-stop shopping -- Home Depot and Amazon.comSuperior service -- FedEx, Ritz-CarltonSpare parts availability -- CaterpillarMore for your money -- McDonald’s, Wal-MartPrestige -- RolexQuality manufacture -- Honda, ToyotaTechnological leadership -- 3M CorporationTop-of-line image -- Ralph Lauren, Chanel, Cross
29 Sustaining Differentiation: Keys to Competitive Advantage Most appealing approaches to differentiationThose hardest for rivals to match or imitateThose buyers will find most appealingBest choices to gain a longer-lasting, more profitable competitive edgeNew product innovationTechnical superiorityProduct quality and reliabilityComprehensive customer serviceUnique competitive capabilities
30 Where to Find Differentiation Opportunities in the Value Chain Purchasing and procurement activitiesProduct R&D and product design activitiesProduction process / technology-related activitiesManufacturing / production activitiesDistribution-related activitiesMarketing, sales, and customer service activities
31 Where to Find Differentiation Opportunities in the Value Chain InternallyPerformedActivities,Costs, &MarginsMargins ofSuppliersBuyer/UserValueChainsActivities, Costs,& Margins ofForward ChannelAllies &Strategic Partners
32 How to Achieve a Differentiation-Based Advantage Approach 1Incorporate product features/attributes that lower buyer’s overall costs of using productApproach 2Incorporate features/attributes that raise the performance a buyer gets out of the productApproach 3Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible waysApproach 4Compete on the basis of superior capabilities
33 Importance of Perceived Value Buyers seldom pay for value that is not perceivedPrice premium of a differentiation strategy reflectsValue actually delivered to the buyer andValue perceived by the buyerActual 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 asPriceAttractive packagingExtensive ad campaignsAd content and imageCharacteristics of sellerFacilitiesCustomersProfessionalism and personality of employeesSignals of value may be as important as actual value whenNature of differentiation is hard to quantifyBuyers are making first-time purchasesRepurchase is infrequentBuyers are unsophisticated
35 When Does a Differentiation Strategy Work Best? There are many ways to differentiate a product that have value and please customersBuyer needs and uses are diverseFew rivals are following a similar differentiation approachTechnological 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 customersBuyer needs and uses are diverseFew rivals are following a similar differentiation approachTechnological change and product innovation are fast-paced
37 Pitfalls of Differentiation Strategies Buyers see little value in unique attributes of productAppealing product features are easily copied by rivalsDifferentiating on a feature buyers do not perceive as lowering their cost or enhancing their well-beingOver-differentiating such that product features exceed buyers’ needsCharging a price premium buyers perceive is too highNot 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 differentiationMake an upscale product at a lower costGive customers more value for the moneyDeliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectationsBe the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brandsObjectives
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 priceSuccess depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivalsA best-cost producer can often out-compete both a low-cost provider and a differentiator whenStandardized features/attributes won’t meet diverse needs of buyersMany 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 strategiesLow-cost leaders may be able to siphon customers away with a lower priceHigh-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 marketServe niche buyers better than rivalsChoose a market niche where buyers have distinctive preferences, special requirements, or unique needsDevelop unique capabilities to serve needs of target buyer segmentObjectiveKeys to Success
42 Approaches to Defining a Market Niche Geographic uniquenessSpecialized requirements in using product/serviceSpecial product attributes appealing only to niche buyers
43 Examples of Focus Strategies eBayOnline auctionsPorscheSports carsJiffy Lube InternationalMaintenance for motor vehiclesPottery Barn KidsChildren’s furniture and accessoriesBandagSpecialist in truck tire recapping
44 Focus / Niche Strategies and Competitive Advantage Achieve lower costs than rivals in serving the segment --A focused low-cost strategyApproach 1Offer niche buyers something different from rivals --A focused differentiation strategyApproach 2Which hat is unique?
45 What Makes a Niche Attractive for Focusing? Big enough to be profitable and offers good growth potentialNot crucial to success of industry leadersCostly or difficult for multi-segment competitors to meet specialized needs of niche membersFocuser has resources and capabilities to effectively serve an attractive nicheFew other rivals are specializing in same nicheFocuser 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 nicheNiche buyers’ preferences shift towards product attributes desired by majority of buyers – niche becomes part of overall marketSegment 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 environmentEach establishes a central theme for how a company will endeavor to outcompete rivalsEach creates some boundaries for maneuvering as market circumstances unfoldEach points to different ways of experimenting with the basics of the strategyEach 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 marketEach establishes a central theme for how a company will endeavor to outcompete rivalsEach creates some boundaries for maneuvering as market circumstances unfoldEach points to different ways of experimenting with the basics of the strategyEach entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategyThe big risk – Selecting a “stuck in the middle” strategy! This rarely produces a sustainable competitive advantage or a distinctive competitive position.
51 Vertical Integration Strategies Forward IntegrationGaining ownership or increased control over distributors or retailersBackward IntegrationSeeking ownership or increased control of a firm’s suppliersHorizontal IntegrationSeeking ownership or increased control over competitors
52 Types of Strategies Market Penetration Market Development Intensive StrategiesMarket DevelopmentProduct Development
53 Intensive Strategies Market Penetration Market Development Seeking increased market share for present products or services in present markets through greater marketing effortsMarket DevelopmentIntroducing present products or services into new geographic areasProduct DevelopmentSeeking increased sales by improving present products or services or developing new ones
54 Diversification Strategies Types of StrategiesRelatedDiversificationDiversification StrategiesUnrelatedDiversification
55 Diversification Strategies Related DiversificationAdding new but related products or servicesUnrelated DiversificationAdding new, unrelated products or services
56 Types of Strategies Retrenchment Divestiture Liquidation Defensive StrategiesDivestitureLiquidation
57 Defensive Strategies Retrenchment Divestiture Liquidation Regrouping through cost and asset reduction to reverse declining sales and profitDivestitureSelling a division or part of an organizationLiquidationSelling all of a company’s assets, in parts, for their tangible worth
58 Means for Achieving Strategies Cooperation among competitorsJoint venture / partneringMerger / acquisitionFirst mover advantagesOutsourcing
59 Strategic Management in Nonprofit and Governmental Organizations Educational InstitutionsMedical OrganizationsGovernmental Agencies and Departments
60 Outsourcing in Indian Companies IndustryNational PanasonicCiba-GeigySince marketing has become crucial, theThe company is outsourcing its colour televisioncompany focuses on it, buying all its bottling,assembling processes from Salora, preferring topackaging, and stamping since these aredirect its resources to leveraging the equity of itscommoditised aspects where it can expect tofamous brand and on breaking into a crowdedadd little value itself.marketplace.TV SetsPharmaceuticalsMahindra FordIndo RamaJenson & NicholsonEntering a crowded market,With global markets forIntent on catching up withit will focus on its coreyarns still expanding, thethe leaders, the companyfunction of assembly,company had opted to focushas invested in marketingkeeping start-up costs ason its core strength insteadand distribution. Unable tolow as possible, and isof integrating. Sinceintegrate backwards, thereoutsourcing 40 per cent ofproduction is crucial, itfore, it has to outsource allits components, itsoutsources marketing,its chemicals and rawwarehousing aswell as itsdistribution, and warematerials.distribution.housing .Cont….AutomobilesTextilesPaints