MDI, GURGAON

Strategy and Consulting

Domain Compendium
GD-PI Preparatory Compendium

Porter's Five Forces

In an existing industry, market entry and survival is determined by various forces that
prevail in
the industry. The main five factors or forces that drive competition:
1. Competitors: Existing rivalry between firms can take a firms profits to zero and may lead
to shut down. In a competitive environment, firms decision is highly influenced by what the
competitors do.
2. Barriers to Entry: The threat of new entrants to the market determines the sustainability
of estimated market share. It is evaluated in terms of market entry barriers which may be in
the form of high fixed cost, product differentiation etc.
3. Substitutes: There is always a threat of substitute products replacing the existing
product(s) of a firm.
4. Suppliers: A competitive market with limited suppliers brings with it high level of
bargaining power of suppliers.
5. Buyers: Multiple products of same category gives the buyers an advantage in bargaining,
thus high bargaining power of buyers exists in multi-brand products.

Value Chain Analysis

Value Chain Analysis describes the activities that take place in a business and relates them to
an analysis of the competitive strength of the business. The activities of a business could be
grouped under two headings:

(1) Primary Activities activities that are directly concerned with creating and
delivering a product or service (e.g. component assembly). Primary activities are
broken down further into inbound logistics, operations, outbound logistics, marketing
and sales, and after-sales service
(2) Support Activities activities that make primary activities possible or easier i.e.
these activities are not directly involved in production, but may increase effectiveness
or efficiency. Support activities include procurement of inputs, development of
technology and human resources management, and general firm infrastructure. It is
rare for a business to undertake all primary and support activities.
Steps in Value Chain Analysis
Value chain analysis can be broken down into the following sequential steps:
(1) Internal Cost Analysis First Catalogue activities - Break down a market/organization
into its key activities under each of the major headings Primary or Secondary. A firm or
an industry needs to understand its own value chain in order to compare to its competitors
Identify the processes to create the product
Determine the portion of the total cost of the product to each process
Identify the cost drivers for each process
Identify the links between the processes
Evaluate opportunities for achieving relative cost advantage

(2) Internal Differentiation Analysis: Identify the processes that distinguish its products or
services from that of its competitors. Use activities to analyze relative costs and relative
willingness to pay, i.e. assess the potential of activities for adding value via cost
advantage or differentiation. The competitive advantage can be

Superior product features

Improved marketing channels
Enhanced support/service
Brand or image positioning
Price

(3) Explore Options and make Choices: Identify current activities where a business appears
to be at a competitive disadvantage. Determine strategies built around focusing on
activities where competitive advantage can be sustained.

Competitive Strategy - Porter's Generic Strategies

Competitive strategy of a company is given by the firms source of competitive advantage
and the scope of the business. A firm can choose to come up with a low-cost product or a
differentiating product in the market. On the other hand, the scope of business can be narrow
and focused on one market or can be wide and encompass diverse product lines and
geographies.
Cost Leadership: Strategy used by businesses to create a low cost of operation within their
niche. The use of this strategy is primarily to gain an advantage over competitors by reducing
operation costs below that of others in the same industry.
Differentiation: Approach under which a firm aims to develop and market unique products
for different customer segments. Usually employed where a firm has clear competitive
advantages, and can sustain an expensive advertising campaign.
Focus strategy: The scope over which the company should compete in the market- either on
cost leadership or differentiation

BCG Matrix
The matrix, developed by Boston Consulting Group in the early 1960s is used to plan market
strategies. Growth rate is determined by reference to market research, or it can be estimated.
Competitive position includes an assessment of the firms overall market penetration and
profitability compared to the other players in that market. Products are then positioned in the
four cells as shown in the figure.

Cash cows are units with high market share in a slowgrowing industry. These units typically
generate cash in excess of the amount of cash needed to maintain the business. They are
regarded as staid and boring, in a "mature" market, and every corporation would be thrilled to
own as many as possible. They are to be "milked" continuously with as little investment as
possible, since such investment would be wasted in an industry with low growth.
Dogs, or more charitably called pets, are units with low market share in a mature,
slowgrowing industry. These units typically "break even", generating barely enough cash to
maintain the business's market share. Though owning a breakeven unit provides the social
benefit of providing jobs and possible synergies that assist other business units, from an
accounting point of view such a unit is worthless, not generating cash for the company. They
depress a profitable company's return on assets ratio, used by many investors to judge how
well a company is being managed. Dogs, it is thought, should be sold off.
Question marks (also known as problem child) are growing rapidly and thus consume large
amounts of cash, but because they have low market shares they do not generate much cash.
The result is large net cash consumption. A question mark has the potential to gain market
share and become a star, and eventually a cash cow when the market growth slows. If the
question mark does not succeed in becoming the market leader, then after perhaps years of
cash consumption it will degenerate into a dog when the market growth declines. Question
marks must be analyzed carefully in order to determine whether they are worth the
investment required to grow market share.

Stars are units with a high market share in a fastgrowing industry. The hope is that stars
become the next cash cows. Sustaining the business unit's market leadership may require
extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader. When
growth slows, stars become cash cows if they have been able to maintain their category
leadership, or they move from brief stardom to dogdom.

As a particular industry matures and its growth slows, all business units become either cash
cows or dogs. The natural cycle for most business units is that they start as question marks,
and then turn into stars. Eventually the market stops growing thus the business unit becomes
a cash cow. At the end of the cycle the cash cow turns into a dog

Core Competency
Core competencies are particular strengths of a firm relative to other organizations in the
industry which provide the fundamental basis for the added value. Core competencies are
critical to the business for achieving competitive advantage. Core competencies of firms
should fulfill three key criteria:

It is not easy for competitors to imitate

It can be reused widely for many products and markets

It must contribute to the end consumer's experienced benefits and the value of the
product/service to its customers

PESTEL Analysis
PESTEL analysis is a tool used by companies to analyze the environment in which they
operate while starting a major project or launching a new product in the market. The
components of PESTEL are
1. Political
These factors determine the extent to which a government may influence the
economy or a certain industry.
Government introducing extra tax on diesel cars affects the entire auto industry.
2. Economic
These factors are determinants of an economys performance that directly impacts a
company and have resonating long term effects.
Rise in the inflation rate would cause companies to increase prices
3. Social
These factors scrutinize the social environment of the market, and gauge
determinants like cultural trends, demographics, population analytics etc.
Buying of items such as cars, sweets etc increase during the festival season

4. Technological
These factors pertain to innovations in technology that may affect the operations of
the industry and the market favourably or unfavourably
Introduction of touch screen caused Nokia to lose market share to the likes of Apple
and Samsung
5. Environmental
These factors include all those that influence or are determined by the surrounding
environment.
Particularly significant for industries such as tourism
The need for a cleaner environment might force automobile companies to adopt
stricter norms.
6. Legal:
These factors have both external and internal sides. There are certain laws that affect
the business environment in a certain country while there are certain policies that
companies maintain for themselves.
The GAAR provisions brought about by Central government force foreign companies
to reshape their policies and strategies

SWOT Analysis
SWOT analysis (alternatively S WOT Matrix) is a structured planning method used to
evaluate
the Strengths, Weaknesses, Opp ortunities, and Threats involved in a project or in a business
venture. It helps orga nization to understand the competitive advantages it possesses and also the
areas where it nee ds to improve. SWOT analysis is usually de veloped during a retreat session
where there are se veral hours available to brainstorm.

The components of SWOT analysis are

1. Strength : This details the strengths that an organisation possess that give s it an
advantage over others
2. Weakness : The shortcomings that an organisation possess that the other players in the
industry might exploit
3. Opportunities: Events or changes in the external environment that an organisation
could use to its advantage.
4. Threat : Events or changes in the external environment that can cause the organisation
to lose its competitive advantage

Consultancy as a Career Option

Is Consultancy for Me?
Team Work
Consultants rarely if ever work alone. You work with consultants from your firm, you
work with employees in the client company, and you work with consultants from the
other firm that the client may have hired.
In short, if you prefer working in your own comfort zone, in your own nook and corner,
consulting is not for you
Great Academics
It has been observed that there exists a high co-relation between academic curiosity and
performance in consulting industry. People who have done well academically tend to do

well in this industry as well

Multitask
Consulting assignments vary greatly in duration, location and function. It may require
context switching from one deliverable to another.
If you are one who prefers working with the horses blinkers on, consulting is not for you
Willing to work long hours
Consultants must strive to meet and beat client expectations. That takes time and loads of
it. Top consultants are known to put 70+ hours per week to prepare that deliverable that
will crack the problem at hand and satisfy the client.
If you have multiple engagements outside work and cannot dedicate such volume of time,
consultancy is not for you.
Travel Enthusiast
Consultants are on the road most of the time. Consultants from established names are
known to spend at-least four days out of 7 in a week on client site.
Client sites are themselves located in obscure corners of the world and you may end up
lot of time in travelling.
If you obligations back home and cannot stay away from long durations or cannot
adjust with
the erratic travel schedule, consultancy is not for you.