1. MANAGEMENT POLICY AND STRATEGY SESSION - VI
Generic and Grand Strategies
Prof. Sushil
Department of Management Studies
Indian Institute of Technology, Delhi
INDIA
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2. Prof.Sushil\IITD\Session-VI
Generic Strategies
Low-cost leadership
Differentiation
Focus
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3. PORTER’S GENERIC STRATEGIES
Competitive Advantage
Lower Cost
Differentiation
Broad Target
1. Cost Leadership
2. Differentiation
Competitive Score
3 B. Differentiation
Focus
3 A. Cost Focus
Narrow Target
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4. REQUIREMENTS FOR GENERIC COMPETITIVE STRATEGIES
Generic Commodity Required Common Organizational
Strategy Skills and Resources Requirements
Overall cost  Sustained capital investment  Tight cost control
leadership access to capital  Frequent, detailed control reports
 Process engineering skills  Structured organization and responsibilities
 Intense supervision of labour  Incentives based on
 Products designed for ease meeting strict quantitative
 Low-cost distribution system targets in manufacture
Differentiation  Strong marketing abilities  Strong coordination  Product engineering among functions in R&D,  Creative flare product development, and marketing
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5. REQUIREMENTS FOR GENERIC COMPETITIVE STRATEGIES CONTD…
 Strong capability in basic  Subjective measurement and
research incentives instead of quantitative measures
 Corporate reputation for  Amenities to attract highly
quality or technological skilled labour, scientists, or
leadership creative people
 Long tradition in the industry
or unique combination of skills
drawn from other businesses
 Strong cooperation from
channels
Focus  Combination of the above  Combination of the above policies
policies directed at the directed at the regular strategic
particular strategic target target
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6. RISKS OF THE GENERIC STRATEGIES
Risks of Cost Leadership Risks of Differentiation Risk of Focus
Cost of leadership is not Differentiation is not The focus strategy is sustained initiated
sustained:  Competitors imitate The target segment
Competitors imitate:  Bases for differentiation becomes structurally unattractive
Technology changes becomes less imported to  Structure erodes
Other bases for cost buyers  Demand disappears
leadership erode
Proximity in differentiation Cost proximity is lost Broadly targeted
is lost competitors overwhelm
the segment:
 The segment’s differences from other segments narrow  The advantages of a broad line increase
Cost focusers achieve Differentiation focusers New Focusers sub-segments
even lower cost in segments achieve even greater the industry
differentiation in segments
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7. STAGE OF `INDUSTRY’ DEVELOPMENT
Growth
Maturity
Decline
Cost leadership Raise barriers Deter competitors
Redefine scope Divest peripherals Encourage departures
Keeping ahead of the field
Leader
Strategic position of organization
Imitation at lower cost Joint ventures
Differentiation Focus
Differentiation
New opportunities
Follower
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8. Types of Grand Strategies
Concentrated Growth
Conglomerate Diversification
Market Development
Turnaround
Product Development
Divestiture
Innovation
Liquidation
Horizontal Integration
Bankruptcy
Vertical Integration
Joint Ventures
Concentric Diversification
Strategic Alliances
Consortia
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9. Characteristics of a Concentrated Growth Strategy
Involves focusing resources on the profitable growth of a single product, in a single market, with a single dominant technology
Rationale - Firm develops and exploits its expertise in a delimited competitive arena
Determinants of competitive market success
Ability to assess market needs
Knowledge of buyer behavior
Customer price sensitivity
Effectiveness of promotion
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10. Conditions Favoring a Concentrated Growth Strategy
Firm’s industry is resistant to major technological advancements
Firm’s targeted markets are not product saturated
Firm’s markets are sufficiently distinctive to dissuade competitors in adjacent markets from entering firm’s segment
Firm’s inputs are stable in price and quantity and available in amounts and at times needed
Firm’s industry is stable
Firm’s competitive advantages are based on efficient production or distribution channels
Success of market generalists
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11. Strategies of Market and Product Development
Market development
Consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by
Adding channels of distribution or
Changing content of advertising or promotion
Product development
Involves substantial modification of existing products or creation of new but related products
Based on penetrating existing markets by
Incorporating product modifications into existing items or
Developing new products connected to existing products
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12. Specific Options for Selected Grand Strategies
Concentration: Increasing use of present products in present markets
1. Increasing present customers’ rate of use:
a. Increasing size of purchase
b. Increasing rate of product obsolescence
c. Advertising other uses
d. Giving price incentives for increased use
2. Attracting competitors’ customers
a. Establishing sharper brand differentiation
b. Increasing promotional effort
c. Initiating price cuts
3. Attracting nonusers to buy the product
a. Inducing trial use through sampling, price incentives, and so on
b. Pricing up or down
c. Advertising new uses
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13. Specific Options for Selected Grand Strategies (continued)
Market Development: Selling present products in new markets
1. Opening additional geographic markets
a. Regional expansion
b. National expansion
c. International expansion
2. Attracting other market segments
a. Developing product versions to appeal to other segments
b. Entering other channels of distribution
c. Advertising in other media
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14. Specific Options for Selected Grand Strategies (concluded)
Product Development: Developing new products for present markets
1. Developing new product features
a. Adapt (to other ideas, developments)
b. Modify (change color, motion, sound, odor, form, shape)
c. Magnify (stronger, loner, thicker, extra value)
d. Minify (smaller, shorter, higher
e. Substitute (other ingredients, process, power)
f. Rearrange (other patterns, layout, sequence, components)
g. Reverse (inside out)
h. Combine (blend, alloy, assortment, ensemble; combine units, purposes, appeals, ideas)
2. Developing quality variations
3. Developing additional models and sizes (product proliferation)
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15. Prof.Sushil\IITD\Session-VI
Innovation Strategy
Involves creating a new product life cycle, thereby making similar existing products obsolete
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16. Strategies of Horizontal and Vertical Integration
Horizontal integration
Based on growth via acquisition of one or more similar firms operating at the same stage of the production-marketing chain
Involves eliminating competitors, providing acquiring firm with access to new markets
Vertical integration
Involves acquiring firms
To supply acquiring firm with inputs - backward integration or
Are customers for firm’s outputs - forward integration
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17. Vertical and Horizontal Integrations
Textile producer
Shirt manufacturer
Clothing store
Acquisitions or mergers of suppliers or customer businesses are vertical integrations
Acquisitions or mergers of competing businesses are horizontal integrations
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18. Motivations Related to Diversification Strategies
Increase firm’s stock value
Increase growth rate of firm
Investment is better use of funds than using them for internal growth
Improve stability of earnings and sales
Balance or fill out product line
Diversify product line
Acquire a needed resource quickly
Achieve tax savings
Increase efficiency and profitability
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19. Diversification Strategies
Concentric diversification
Involves acquisition of businesses related to acquiring firm in terms of technology, markets, or products
Conglomerate diversification
Involves acquisition of a business because it represents a promising investment opportunity
Primary motivation is profit pattern of venture
Difference between the approaches
Concentric diversification emphasizes commonality whereas conglomerate diversification emphasizes profits for each individual unit
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20. Prof.Sushil\IITD\Session-VI
Turnaround Strategy
Involves a concerted effort over a period of time to fortify a firm’s distinctive competencies, returning it to profitability
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21. A Model of the Turnaround Process
Turnaround situation
Turnaround response
Cause
Severity
Retrenchment phase
Recovery phase
(operating)
Internal factors
Declining sales or margins
Cost reduction
Efficiency maintenance
Low
Stability
Recovery
High
Imminent bankruptcy
Asset reduction
Entrepreneurial reconfiguration
External factors
(strategic)
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22. Divestiture and Liquidation Strategies
Divestiture strategy
Involves selling a firm or a major component of a firm
Reasons for divestiture
Partial mismatches between acquired firm and parent firm
Corporate financial needs
Government antitrust action
Liquidation strategy
Involves selling parts of a firm, usually for its tangible asset value and not as a going concern
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23. The Strategy of Bankruptcy
Two approaches
Liquidation - Involves complete distribution of a firm’s assets to creditors, most of whom receive a small fraction of amount owed
Reorganization - Involves creditors temporarily freezing their claims while a firm reorganizes and rebuilds its operations more profitably
Advantage of a reorganization bankruptcy
Proactive option offering maximum repayment of a firm’s debt in the future if a recovery strategy is successful
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24. Corporate Combination Strategies
Joint venture
Involves establishing a third company (child), operated for the benefit of the co-owners (parents)
Strategic alliance
Involves creating a partnership between two or more companies that contribute skills and expertise to a cooperative project
Exists for a defined period
Does not involve the exchange of equity
Consortia, Keiretsus, and Chaebols
Defined as large interlocking relationships between businesses of an industry
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25. The Top Five Strategic Reasons for Outsourcing
1. Improve Business Focus
2. Access to World-Class Capabilities
3. Accelerated Reengineering Benefits
4. Shared Risks
5. Free Resources for Other Purposes
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26. INDIAN BUSINESS HOUSES TATA GROUP
Group Overview
India’s largest business house
More than 85 companies
39 listed
8% of India’s market capitalization
2.6 Million shareholders
2,70,000 employees
Turnover Rs 343 billion ( )
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27. INDIAN BUSINESS HOUSES TATA GROUP Contd...
Financial Highlights
Assets
Turnover
PBT
PAT
Exports
% change Over
18.8 18
-7.1
- 16 19
Rs (Billion)
322
343 30 23 40
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28. INDIAN BUSINESS HOUSES TATA GROUP Contd...
Metals
Automobiles
Energy
Engineering
Chemicals
Pharmaceuticals
Consumer Products
Services
Agro Industries
IT and Communication
Exports
Finance
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29. INDIAN BUSINESS HOUSES TATA GROUP Contd...
Tata Heritage
Jamsetji Tata
Started textile mill in 1877
Inspired steel and power industry
Technical education and philanthropy
JRD Tata
Pioneered civil aviation
Funded Hom Bhabha’s nuclear programme
Guided the Tata group for over half a century
Ratan Tata
Present Chairman since 1991
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30. INDIAN BUSINESS HOUSES TATA GROUP Contd...
Holding Companies
Tata Sons
Founded by Jamsetji Tata
Promoted many of the present Tata companies
63% held by Tata philanthropic trusts
Tata Industries
100% subsidiary of Tata Sons founded in 1945
Managing agency till 1970
Promoted new Tata companies in technology based businesses
Cross holdings among other Tata companies
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31. INDIAN BUSINESS HOUSES TATA GROUP Contd...
Restructuring
Prompted by post 1991 changing environment
Need to identify and focus on core businesses
Resistance from satraps
Russi Mody, Darbari Seth, Ajit Kerkar
Shrink number of companies
From over 85 to about 30
Shrink number of core businesses
From about 25 to around 10 or 12
Mergers and divestments
McKinsey hired as a consultants
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32. INDIAN BUSINESS HOUSES TATA GROUP Contd...
Restructuring Strategy
Keep and grow
Power, watches, metals, chemicals, telecom, hospitality, financial services, infotech, emerging services, infrastructure, automobiles
Forge strategic tie ups
Tea and beverages, retailing
Remain only as strategic investors
Luxury cars, infotech, printing, cosmetics
Sell
Refrigeration, paints, textiles, trading, electronics, oil drilling, petrochemicals, pharma, specialty chemicals
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33. INDIAN BUSINESS HOUSES TATA GROUP Contd...
Recent Developments
Voltas focus on air conditioning and engineering business
Hive off pesticides business to Ralchem Pesticides (wholly owned subsidiary of Rallis - largest integrated agrochemical company in India)
Electrolux Voltas - JV between Voltas and AB Electrolux
Refrigerators
Washing machines
Compressors for refrigerators
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34. INDIAN BUSINESS HOUSES TATA GROUP Contd...
Recent Developments
Tata Tea focusing on global agro business
Manages 32 tea gardens in Sri Lanka
Adding tea gardens inTurkey
Acquired a 9.5% stake in Asian Coffee
Overseas Operations
Automobile assembly in Bangladesh
Instant tea operations in the US
Chain of hotels across the world
Precision tooling operations in Singapore
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