GENERIC STRATEGIES AND

VALUE CHAIN
 What is Strategy?
• A company's objectives and philosophy
• Defining strategy
– the five 'Ps' of strategy
• a plan
• a ploy
• a pattern of behaviour
• a position with respect to others
• a perspective

– strategy as a mix of the five Ps

 What is Strategy?
• Strategic management
– strategic and day-to-day management
– the components of strategic management
• strategic analysis
• strategic choice
• strategic implementation
– different business types
• big or small business
• manufacturing or service provider business
• domestic or multinational business
• private-sector or public-sector business
• for-profit or not-for-profit organisations
 Strategic Analysis
• Factors affecting strategic choices
• The business environment
– PEST analysis
– Porter's five forces model
• the bargaining power of suppliers
• the bargaining power of buyers
• the threat of potential new entrants
• the threat of substitutes
• the extent of competitive rivalry
 Porter's Five Forces Model

Industry competitors

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Porter's Five Forces Model

Industry competitors

Rivalry among
existing firms

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Industry competitors

Rivalry among
existing firms

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Industry competitors

Rivalry among
existing firms

Threat of
substitutes

Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors

of suppliers
Suppliers
Rivalry among
existing firms

Threat of
substitutes

Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Porter's Five Forces Model

Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors Bargaining power

of suppliers of buyers
Suppliers Buyers
Rivalry among
existing firms

Threat of
substitutes

Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
 Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-

Target
Market Leadership tiation
Breadth of
Competitive
Scope
Focused
Narrow Focused Low Cost
Target Differen-
Market
tiation
Gaining competitive advantage out of Generic strategy

Example
 The Value Chain
Support
activities

Primary activities
Inbound logistics Materials receiving, storing, and distribution to manufacturing
premises
Operations Transforming inputs into finished products.
Outbound logistics Storing and distributing products
Marketing and Sales Promotions and sales force
Service Service to maintain or enhance product value
Corporate infrastructure Support of entire value chain, e.g. general management
planning,
financing, accounting, legal services, government affairs, and
QM
Human resources management Recruiting, hiring, training, and
VALURE CHAIN ANALYSIS

•Activity Analysis: Firstly, you identify the activities

you undertake to deliver your
product or service;
2.Value Analysis: Secondly, for each activity, you think

through what you would do to add

the greatest value for your customer;

and
3.Evaluation and Planning: Thirdly you evaluate
whether it is worth making changes, and
then plan for action.
 TYPE OF ACTIVITIES

DIRECT ASSEMBLY, PARTS MACHINING,ADVERTISING

INDIRECT MAINTENANCE, SCHEDULING, RESEARCH

ADMINISTRATION

QUALITY ASSURANCE INSPECTING, TESTING, REVIEWING

IDENTIFICATION OF DISCRETE ACTIVITIES

ACTIVITIES WITH DIFFERENT ECONOMICS

ACTIVITIES HAVING POTENTIAL IMPACT ON

DIFFERENTIATION

ACTIVITIES REPRESENTING A GROWING PROPORTION OF

COST
 The Value Chain
Support
activities

Primary activities

MARKETING ADVERTISING SALES TECH PROMOTION

MANAGEMENT FORCE LITERATURE
ADMIN &
OPERATION
LINKAGES WITHIN THE VALUE CHAIN

THE SAME FUNCTION CAN BE DONE IN DIFFERENT WAYS

THE COST OR PERFORMANCE OF DIRECT ACTIVITIES IS

IMPROVED BY GREATER EFFORTS IN INDIRECT ACTIVITIES

ACTIVITIES PERFORMED INSIDE A FIRM REDUCE THE NEED

TO DEMONSTRATE , EXPLAIN, OR SERVICE A PRODUCT IN
THE FIELD.

QUALITY ASSURANCE FUNCTIONS CAN BE PERFORMED

IN DIFFERENT WAYS.
Value chain participants
 Value Creating Activities common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective Practices to Reduce Management Layers to
MIS Systems Planning Costs Reduce Overhead
Activities

M
Support

Effective Training Programs

Consistent Policies to
to Improve Worker
Reduce Turnover Costs
Efficiency and Effectiveness A
Easy-to-Use Manufacturing Investments in Technology in order
RG
Technologies to Reduce Costs Associated with
Manufacturing Processes
IN
Systems and Procedures to find the Frequent Evaluation Processes to
Lowest Cost Products to Purchase Monitor Suppliers’ Performances
Raw Materials
Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product
Systems to Link Scale to Minimize that Reduces Trained Sales Installations to
Suppliers’ Manufacturing Costs Force Reduce Frequency
Products with the Costs and Severity

IN
Firm’s Production Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales

G
Purchases Carriers Volume

AR
Located in Close Policy Choice of Efficient Order National Scale

M
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities common to a
Differentiation Business Level Strategy
Highly Developed Information A company wide
Systems to better understand emphasis on producing
customers’ purchasing preferences high quality products
Activities

Compensation programs Extensive use of subjective Superior

M
Support

intended to encourage worker rather than objective personnel

creativity and productivity performance measures training A
Coordination among R&D, Investments in technologies that will Strong
RG
product development and
marketing
allow the firm to consistently produce
highly differentiated products
capability in
basic research
IN
Systems and procedures used to find Purchase of highest quality
the highest quality raw materials replacement parts

Superior Consistent Accurate and Strong Coordin- Complete field

handling of manufacturing of responsive order ation among stocking of
incoming raw attractive processing functions in R&D, replacement parts
materials to products procedures Marketing and

IN
minimize Product
damage and Development

G
improve the

AR
Rapid responses Extensive
quality of the to customers Rapid and timely personal
final product product deliveries relationships

M
unique
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
 Example of Reconfiguring the Value Chain

Transport to Convert
Old Collect Export and
The plant to milk
Way: Milk sell
Near the town powder
From
villages
 Example of Reconfiguring the Value Chain

Feeder Balancing Dairy

New
New Collect milk Sell and export
Make powder in
Milk powder
Way: the plant near
directly
village

Save on shipping costs by 10 times

Utilize cheaper non-union rural labor
THE COMPETITIVE SCOPE

SEGMENT NEEDS AND GROUPS

Microprocessor against mainframe

Individual against Large corporation

VERTICAL IN HOUSE V/S OUTSOURCED

Make or Buy
Self owned distribution system against distributors
GEOGRAPHICAL RANGE OF marketing domain

Canon develops it at Japan and then spreads over globe

Costs of coordination and differences amongst regions at
times lead to reduce the advantage of sharing, however.

INDUSTRY RANGE OF RELATED INDUSTRIES

Shared R&D, joint technology or quality mission

Common Logistical support
 Broad scope Performing more activities internally

Narrow scope Serve the target at a low cost uniquely

COALITIONS AND SCOPE
•Vertical and horizontal
•Technology Licenses, Supply agreements, Marketing
agreements, Joint ventures.
•Bargaining powers to be evaluated before coalitions
VALUE CHAIN AND INDUSTRY STRUCTURE
Collective value chains of the competitors
VALUE CHAIN AND ORGANISATIONAL STRUCTURE
Departmental coordination and optimization should be the
priority