WHAT IS STRATEGIC MANAGEMENT?

Without a strategy, an organization is like a ship

without a rudder, going around in circles. Its like
a tramp; it has no place to go. Joel Ross & Michael Kami (Fred 2011)
According to Wheelen and Hungers study (2006), STM is a set of
managerial decisions and actions that determines the long-term
performance of a corporation. It involves
Environmental scanning (both external and internal), strategy formulation
(strategic or
Long range planning), strategy implementation, and evaluation and control. They
Emphasize the analyzing and evaluating of external opportunities and threats in
terms of an organizations strengths and weaknesses.

From the perspectives of Dess and Miller (1993), STM is a process

that combines three major interrelated activities: strategic analysis,
strategy formulation and strategy implementation.

11/5/15

STM Defined
In the other way, Lamb (1984) states that strategic
management is an ongoing process that:
Evaluates and controls the business and the industries in
which the company is involved;
Assesses its competitors and sets goals and strategies to
meet all existing and potential competitors; and then
Reassesses each strategy annually or quarterly to determine
how it has been implemented and whether it has succeeded
or needs replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new
economic environment, or a new social, financial, or
political environment.

11/5/15

PURPOSE OF STRATEGIC MANAGEMENT.

Regardless of the size, the scale, every

organization needs to adopt a wellplanned strategic management to survive
and compete in the market and try to
optimize for tomorrow following the trend
of today.
11/5/15

SUCCESSFUL STRAT MGMT

An industry is composed of a set of firms that
produce similar products or services, sell to
similar customers, and use the similar methods
of production.
Gathering

industry

information

and

understanding competitive dynamics among the

different companies in an industry is key to
successful strategic management.
11/5/15

LP-1 dt 7 & 8 Sep 15

Ch-1
Strat. Mgmt Creating
Competitive Advantages
Learning Objectives
Definition and 4 key attributes of Strat. Mgmt
The Strat. Mgmt Process and its 3 related principal
activities
Corporate Governance
Environmental Forces
Vision, Mission and Objectives Awareness of
5

11/5/15

STRATEGIC MANAGEMENT MODEL

Improve strategic management process

Planning
1.Establish vision,
Purpose, values, and
3-5 yrs scorecard
2. determine
annual
Obj & Goals
3. Address
implementation
Barriers

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Annual strategic planning

Development
Implementation
7. Identify drivers with
Targets for annual
Objectives
6. Develop project action plans
For drivers

5. Charter improvement
teams
And
Create infrastructure

4. Design and execute

communication
plan

8. Execute Project
Action
Plans

Do
Proj
Mgmt

9. Review Project plan Study

Perfor
In a database
mance
And systematic
Evaluat
process
ion

10. Sustain the

Improvements
(Trg & Doc)

Act
Instituti
onalize

STRAT MGMT & CEO

All Org are run by the CEOs
Role of CEOs
CEOs are synonymous with the success and failure of the org
Strat Mgmt is based on participatory decision making techniques
with the CEO taking full responsibility for the outcome
Leadership roles:
Romantic ---- Leader is the key to success or failure
External Factor ---- Focus is on the external factors for success
or failure of the Org
Recent examples:
BP Oil Rig disaster in Florida Bay and its fallout
Corporate fines against BOA, SC Bank, Lehman Brothers etc
Downfall of BCCI
Recent economic downturn in USA / Euro Zone / DPW etc
11/5/15

STRAT MGMT
The Essence of STRAT MGMT is to focus on 2 fundamental
questions:
How should we compete in order to create competitive
advantages (CA) in the market place
How can we create competitive advantage in the market place
that are not only unique, sustainable and valuable but also
difficult for competitors to copy or substitute.
Important to note is:

Sustainable CA cannot be achieved without operational

effectiveness which means performing similar activities better
than rivals.

Operational Effectiveness includes concepts of TQM, just-in-time,

benchmarking, business process reengineering, and outsourcing
etc
11/5/15
Strategy is all about being different from everyone 8else.

STRAT MGMT DEFINITION

What is Strat Mgmt?
Step further than incremental management Taking
minor decisions in a stable, simple and unchanging
industry.
Does it happen always? No, therefore, need for Strat
Mgmt which is defined as:
Analyzing, taking decisions, and initiating actions in
order to create and sustain competitive advantage.
Biggest Question
How (and when) and why do some firms outperform
others?
Critical Answer
The challenge to managers is to decide on strategies that
provide advantages that can be sustained over time

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STRAT MGMT AND 4 KEY ATTRIBUTES

Directed at overall organizational goals
Looking at the strategic issues rather than functional areas
What to produce and at what cost
Involving multiple stakeholders
Involve owners, employees, customers, suppliers, and the
community at large
Incorporating short term and long term perspectives
Keep an eye on the current production needs as well as
vision for the future ---- Creative Tension
Recognizing need for trade-offs between efficiency and
effectiveness
Using organizational resources wisely and optimally
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10

THE STRAT. MGMT PROCESS

It involves 3 related principal activities:

Analysis

Of strategic goals (V + M + Strat Obj)

Internal and External Environment of the Org

Decisions (Strategic)

Based on Orgs domestic and international operations, the Org

should address 2 basic questions, i.e.,
1.
2.

Actions

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What industries should we compete in?

How should we compete in those industries?

In order to achieve success as a result of decisions, the

necessary resources must be made available for a desirable
outcome.
It is a continuing process and seeks intimate involvement of CEO

Be able to differentiate between Intended Strategy and Realized

Strategy---------?
11

Economic
Forces

Sociocultural
Focus

Politico-Legal
Forces
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Suppliers
Shareholders
Employees
Interest Groups
Customers
Creditors
Communities
Trade Associations
Competitors

Internal
Environment
Culture
Resources

Task
Environment
Industry
Societal
Environment

Technological
Forces
12

CORPORATE GOVERNANCE AND STAKEHOLDERS

MANAGEMENT

Management (CEO)
To run the Org to satisfy the interests and needs of
the shareholders under the guidelines prepared by
BOD
Shareholders (Owners)
BOD (Elected by the shareholders to represent their
interests)
To align the interests and motives of the
management with those of the owners

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13

ROLE OF CEO--- Electronic Data System since 1962

In 1998 --- EDS earned $22Bn (Total market $140Bn) as
Revenue with shares trading at $35.
In March 2003 --- Shares shrunk to $16. Additionally,
EDSs reputation was tarnished due investigations by
S&EC resulting in loss of competitive position.
EDS CA -- technical competence, steady growth, old
CEOs conservative culture --- crisp white shirt and
military cut hair style v/s new CEOs culture --- gung-ho
style to get rid of bureaucratic life style
To spur growth the new CEO pushed for megadeals
requiring outsourcing companies to make large
investments. Resultantly, stocks were pushed up to $77.
By 2001, CEO (Mr. Brown) received $52M in
compensation.
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14

EDS- WHAT WENT WRONG

CEOs Attitude --- Over ruling the managers
By 2002, Navy contract suffered loss of $1.9Bn due poor
calculation of margins Megadeals / megarisks
In the same time frame, a contract with Worldcom
signed in 1998 incurred a loss of $118M due bankruptcy
of Worldcom as a result of Internet Bubble Burst
2002 estimates were fudged and investors were assured
of 13-14% growth despite recession
Stocks plunged to $11.68
By 2003, EDS BOD lost patience and replaced CEO
Closing statement: Pay for performance, differentiate
performance- not organizational level.make difficult
choices. Do as I say, not as I do.
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15

CORPORATE GOVERNANCE AND STAKEHOLDERS

MANAGEMENT --CONTD

Creating Symbiosis or Zero Sum

Two views

1. Zero Sum --- All the stakeholders are to be satisfied:

Employees want higher wages

Shareholders want higher profits
Zero sum concept gives rise to Unionism

2. Stakeholder symbiosis ---- Managers acknowledge

interdependence between employees, suppliers,
customers, shareholders and the community at
large
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16

Corporate Governance and Social Responsibility

Social Responsibility is the expectation that businesses or
individuals will strive to improve the overal welfare of the
society. Companies have determined Triple Bottom Line
which is:
1. Financial Measures / Capital
2. Ecological and material capital
--- Renewable
resources generated by living systems, such as wood or
animal by-products
3. Human and Social Capital --- Human deals with
peoples knowledge, skills, health, nutrition, safety,
security, and fossil fuels, and Social includes assets of
civil society, social cohesion, trust, reciprocity, equity and
other values that provide mutual benefits
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17

THE STRAT. MGMT Perspective --- An imperative

It requires managers to take an integrative view of the

Org and assess how all of the functions and activities
fit together to help an Org achieve its goals and
objectives.
Some Key Driving Forces are:
1. Globalization

Global economy is NOT the flow of goods only but it is flow

of capital, people, and information worldwide.

2. Technology

Innovative technology is having impact on our lives, trade,

services and products
(Innovation, Invention and
digitization)

3. Intellectual Capital

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Creating and applying knowledge to deliver differentiated

products and services of superior value for customers
require the acquisition of superior talent, as well as ability
18
to develop and retain that talent

EMPLOYEES AND STRAT MGMT

Role of Leaders
Thinking and Working groups can not be
different and separated (System Approach)
Ideas must be encouraged, analyzed and
implemented
Trg and Dev must move hand in glove
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19

VISION, MISSION AND OBJECTIVES

Vision tend to be quite broad, and can be inspiring,
overarching and emotionally driven
Org express priorities best through stated goals and
objectives that form a hierarchy of goals
Hierarchy of goals is the Companys Vision
A vision may or may not succeed
Give examples of vision:

11/5/15

GOP
BU
Unilever
Telenor
PTCL
Engro Foods
20

MISSION
It encompasses both the purpose of the company as
well as the basis of competition and competitive
advantage
More specific and depict rationale for existence of
org
Effective mission statements incorporates the concept
of stakeholder management, suggesting that org must
respond to multiple constituencies if they are to
survive and prosper.
They also have the greatest impact when they reflect
an orgs enduring, overarching strategic priorities and
competitive positioning.
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21

STRATEGIC OBJECTIVES

Operationalization of Mission statement

Outlining Strategy how to achieve higher goals
Cover well defined time frame
Resources are identified and allocated
To be meaningful, Objectives must be:
Measurable
Specific - clear and concise
Appropriate - Consistent with vision and mission
Timely Have a time frame

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22

LP- 2 Wk 2 14-15 Sep 15

Ch-2

Analyzing the External Environment of

the Firm
Learning Objectives
Importance of developing forecasts of the business
environments
Critical inputs to forecasting, i.e., scanning,
monitoring and collecting CI
Scenario Planning why and how?
Impact of Competitive Environment on Profitability
Trends and Events of General environment
Strategic Grouping and its impact on business
Strategies
11/5/15

23

CORPORATE WATCH
Pakistan becomes 5th largest remittances recipient count
ry
Yamaha to invest $150m in Pakistan auto sector
Pakistan can become world's 18th largest economy by 2
050
and Now is the right time to invest in Pakistan startups
----- How? Sit-in caused Rs. 547bn loss to national
economy so far and visit by Chinese President was
postponed and caused a delay in initiating plans for
around $46Bn investment
Pakistani businesses can export over 3,500 items to the
US duty free
Dollar hits six-month high against rupee (Sep 15)

11/5/15

24

EXAMPLES OF CA / CP
The Standard Chartered Bank. The bank`s clients can now print cheques
any time at their own premises, through its internet based global delivery
channel.
European Competition Commissioner is preparing to decide on the case
after spending three years examining whether Google squeezes out rival
services in online search results.
Airbus and Boeing both topped 1,000 new jets orders in the first eight
months of the year (2014) but Boeing is far ahead after adjusting for
cancellations
KASB Bank posts Rs171m profit The bank`s total assets amounted over
Rs.69 billion. The bank is now defunct.
July 2014 -----The Indus Motor Company (IMC) announced final cash
dividend of Rs23.50 per share, in addition to an earlier interim dividend of
Rs6 per share. IMC reported profit-after-tax of Rs3.87 billion during 201314, increase of 15 per cent over the previous year. However, the sales
revenue decreased by 11pc to Rs. 57bn from Rs.64bn in 2012-13.
11/5/15

25

WHY ANALYZE EXTERNAL ENVIRONMENT?

Purpose: Forecasting
Highlight with examples:

11/5/15

Motorola case study

Lehman Brothers
MECO & NTR in Pakistan
Bicycle Industry in Pakistan
Privatization of PTCL
Power Generation in Pakistan
Auto industry in Pakistan
Tractor Industry in Pakistan
26

Privatization Measures in Pakistan

SECTOR

Banking

Sale proceeds 1991 to August 4, 2014

Amount
No.
(Rs. in million)
7
41,023

Capital Market Transaction

Energy
Telecom
Automobile
Cement
Chemical
Engineering
Fertilizers
Ghee Mills
Rice
Roti Plants
Textile
Newspapers
Tourism
Others

24
14
4
7
17
16
7
7
24
8
15
4
5
4
6

186,689
51,756
187,024
1,102
16,177
1,643
182
40,281
842
236
91
370
270
1,805
159

Total

169

529, 650

11/5/15

Where has the money gone?

27

Results of Failure to ANALYZE EXTERNAL

ENVIRONMENT
Motorola
Founded in 1930 as maker of radios, and consumer
electronics
Color TV business sold in 1970 and intensified high tech
for commercial, industrial and governments sectors
1980 became leading supplier of cellular telephones
1994 Fortune magazine rated as the most loved
company
What went wrong?
Failed to notice changes in trends switching from
analog to digital tech and arrival of competitors (Nokia
and Ericsson)
11/5/15

28

Eastman KODAK
George Eastman (a High School drop out) started
operations in 1880
1928 - 1st colored movie
1975 1st Digital camera
2000 Patents worth $2.2Bn - $2.6Bn
2003 64000 employees
2012 17000 employees and filed for bankruptcy
2011 Share price $1 (only) down from a top
price of $94

11/5/15

29

Questions?
1. Why has Kodak and some other retail outlets in
USA & UK filed for Bankruptcy?
2. Do we have Bankruptcy Laws in Pakistan?
3. How many firms and Orgs have filed for
bankruptcy in Pakistan in last 10 years?

11/5/15

30

WHY DO WE DO THAT?
We undertake External analysis by Scanning, Monitoring
and obtaining Competitive Intelligence / Information (CI)
so as to

Forecast
events and trends.
The trends and events are product of:

11/5/15

Globalization
Time to Market
Innovating technologies
Shifting roles and responsibilities ---- Economic conditions
31

CREATING ENVIRONMENTALLY AWARE ORG

3 Steps:
1. Institute measures for and inculcate the habit of:
Undertaking Environmental Scanning
Uninterrupted Monitoring of business activities and
Obtain Competitive Intelligence (CI) in order to pre-empt the
changing trends and events

2. Be aware of the General Environment arising out of:

Demography, Social, Politico-legal, Technology, Economic and
Global environment (slide-13)

3. Remain abreast of Competitive Environment

Porters Five-Forces (Buyers, Suppliers, Substitutes, Potential
Entrants and Mutual rivalry

11/5/15

32

Ist Step ENVIRONMENTAL SCANNING

Definition
The process of conducting surveillance of firms
external environment to predict environmental
changes to come and detect changes already
underway.

Purpose
To become aware of changing trends
To adopt pro-active strategies rather than resorting to
reactive strategies / measures to correct the changing
trends and events

11/5/15

33

ENVIRONMENTAL MONITORING
Definition

It is to track the evolution of environmental trends,

sequence of events, or streams of activities

Purpose

To undertake closer scrutiny to become fully

cognizant of impact of changing trends and events

It enables the firms to evaluate how dramatically

environmental trends are changing the CI.
11/5/15

34

COMPETITIVE INTELLIGENCE (CI)

Definition

It is an activity which helps firms define and

understand their industry and identify their rivals
strengths and weaknesses.

Purpose
To collect data for managerial decision making
If done properly, it avoids surprises for the firms and
companies

Is it an ethical issue?

11/5/15

Refer to page 41 Exh 2.2

35

ENVIRONMENTAL FORECASTING
Definition
Based on Scanning, Monitoring and CI, the process
involves the development of plausible projections
about the direction, scope, speed, and intensity of
environmental changes.

Purpose
To predict change
It answers the questions:
How long would it take to for a new technology to reach the
market place ?
Will the present social concern about an issue result in new
legislation?
Are current lifestyles trends likely to continue?
11/5/15

36

SCENARIO PLANNING

Definition: A military borrowed concept:

As a result of environmental scanning, monitoring and
competitive intelligence, plan a range of scenarios
An in-depth analysis based on range of disciplines,
interests, tangible and intangible impacts and effects
emerging out of various conditions of economic, local
and international laws and changing geo-political and
politico-military situations

Purpose
Not to miss out any factor
To develop range of options (Opportunities)
11/5/15

37

SCENARIO PLANNING AT SHELL OIL COMPANY

Process involves following steps:

Extensive interviews through open ended
questionnaires
Analyzing of interviews and making agenda
points
Synthesizing agenda points
Holding series of workshops and deliberating on
agenda points and formulating Scenarios that
may occur in 10 -15 years time
Testing of Strategic Options (Policy Options/
Strategy) to ascertain robustness of each
scenario
11/5/15

38 basis
Specially formed teams may do this job on continuous

2nd Step THE GENERAL ENVIRONMENT

Definition

It is composed of 6 factors that can have dramatic

affects on the firms adopted strategy.

It includes

1. Demographic Segmentation
2. Socio-cultural aspect of life
3. Politico / Legal Environment
4. Technological Innovations
5. Economic Conditions
6. Global Environment
Discuss Exh 2.3 page 46 and Exh 2.4 page 54
11/5/15

39

3rd Step THE COMPETITIVE ENVIRONMENT

Definition. Termed as Task or Industry environment, it includes

factors that have direct relationship with the industry or the firm.
However, it may not generate as much strategic advantage as the
Value net analysis, (S-19)

They are Porters Five Forces:

1. Threat of new entrants (Competitors)
2. Bargaining powers of buyers
3. Rivalry among existing firms
4. Bargaining powers of suppliers
5. Threat of introduction of substitute products or services

11/5/15

40

Porters Five Forces

Potential
Entrants
Bargaining powers
of Suppliers

Suppliers

Threat of
substitute
products or
services
11/5/15

Threat of new
Entrants
Bargaining powers
of buyers

Industry
Competitors
Rivalry among
Existing Firms

Buyers

Substitutes

41

THREAT OF NEW ENTRANTS (COMPETITORS)

The Measures that reduce threat of new

entrants:
Economies of Scale
Product Differentiations
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Scale

11/5/15

Proprietary product
Favorable access to raw materials
Government subsidies
Favorable government policies
42

BARGAINING POWERS OF BUYERS

Purchasing large volumes
Products Standard or undifferentiated
Few switching costs
Earns low profits
Buyers pose credible threat of backward
integration
Product v/s quality unimportant

11/5/15

43

RIVALRY AMONG EXISTING FIRMS

Numerous or equally balanced competitors

Slow industry growth
High fixed or storage costs
Lack of differentiation or switching costs
Capacity augmented in large increments
economies of scale

High Exit Barriers economic, strategic and

emotional factors that keep firms competing though they
may be earning low or negative returns on their
investments
11/5/15

44

INDUSTRY ANALYSIS- FEW caveats

Customers
Transactions

Substitutes

Interactions

Company

Interactions

Complements
(Nintendo)

Transactions

suppliers
11/5/15

Value Net

45

Bargaining Power of Suppliers

Threat to raise prices or reduce quality of purchased goods and
services is omnipotent. The profitability can always be squeezed.
The powerful groups can always assert in the following manner:
Dominated by few companies
Not obliged to contend with substitute products for sale to industry
Industry is not an important customer of the supplier group
Suppliers product is an important input to the buyers business
Products are differentiated or switching costs have been built up
Threat of forward integration is persistent

11/5/15

46

THREAT OF INTRODUCTION OF SUBSTITUTE

PRODUCTS OR SERVICES
Substitutes limit the profitability of industry by placing a
ceiling on the prices (price war)
More attractive the price/performance ratio ---- tighter the
lid on profitability of industry
Travel by executives v/s teleconferencing is one example
causing losses to airline, hotelling and automobile
industry

Discussion forums Twitter, Bloggers etc

11/5/15

47

STRATEGIC GROUPS WITHIN INDUSTRY

No two firms are totally different
No two firms are exactly the same
What value is the strategic group concept?
Strategic groupings help a firm identify barriers to mobility that
protects a group by other groups
It helps a firm identify groups whose competitive position may be
marginal.
It helps chart future directions of firms strategies.
Strategic groupings is helpful in thinking through implications of
each industry trend for the strategic group as a whole
11/5/15

48

World Automobile Industry

High

Ferrari,
Lexus

BMW,
Mercedes
Toyota
Ford,
GM,
Honda,
Nissan

Price
Hyundai,
Kia,
Suzuki

Low
Breadth of product Line
11/5/15

Prepare Pakistani Model -------

High
49

Thank you
Quiz-1 ----- next week
Assignment -1 issued separately

11/5/15

Wk-2 last slide of LP-2

50

LP-3 Wk 4
28 Sep 15

Chap 3 ----- Internal Analysis

Learning Objectives:
How does a firm achieve CA over its
rival (2nd part)
Why one firm outperforms than the
other
What is value chain analysis ---- its
importance and impact on business
strategy
How best we can achieve results from
11/5/15
resources available to the firm 51

HOW CAN WE DO INTERNAL ANALYSIS?

Most common technique is SWOT. But it has certain

limitations like:

1. Strengths may not necessarily lead to

an advantage
2. Focus on external environment is too
narrow
3. One-shot view
4. Undue emphasis on single attribute of
a product or service.
5. Therefore, we move on to the next
stage
of
our
answer:
the
alternative
11/5/15

52

INTERNAL ANALYSIS

Value Chain Analysis --- Better than

SWOT

Resource Based View

Inter-relationship between the Firm,
Suppliers and Customers gets established

Making meaningful comparisons

With past performances
With success factors in the industry
With competitors (Benchmarking)

11/5/15

53

VALUE CHAIN DEFINED

Value chain
A perspective in which business is seen as a
chain of activities that transforms inputs into
outputs that customers value
Value chain analysis

An analysis that attempts to understand

how a business creates customer value by
examining the contributions of different
activities within the business to that value,
and:
The actions include:
Eliminating wasteful activities
Combining duplicated activities
Minimizing bottlenecks
11/5/15
54
Enhancing market responsiveness

VALUE CHAIN ANALYSIS

Views the org as a sequential process of

value-creating activities for the purposes
of CA (Competitive Advantage)
Value is the amount that buyers are
willing to pay for what a firm provides
them.
Value is measured by total revenue, a
reflection of the price a firms product
commands and the quantity it can sell.
A firm is profitable to the extent that the
value it receives exceeds the costs
involved in creating its product
or
11/5/15
55

THE VALUE CHAIN

p
Su

General Admin

s
itie
tiv
Ac
rt
po

Inbound
Logistics

M
ar
gi
ns

HRM
Technological Development
Procurement

Operations
Outbound
Logistics

Marketing
and
sales

Service

Primary Activities

11/5/15

For details Refer to Exhibit

3.2 & 3.3 of your book

56

M
ar
gi
n

VALUE CHAIN ANALYSIS - 5 PRIMARY

ACTIVITIES

1.Inbound Logistics:

It is
associated
with
receiving,
storing, and distributing inputs
to the products incl material
handling,
warehousing,
inventory
control,
vehicle
scheduling, and return to
suppliers.
. JIT is one such example. (JIT
Toyota 5 days).

11/5/15

57

VALUE CHAIN ANALYSIS - 5 PRIMARY

ACTIVITIES

2. Operations
.

It includes all activities associated

with transforming inputs into the
final product form, such as
machining, packaging, assembly,
testing,
printing,
and
facility
operations. The factors for success
are:
Efficiency of plants in cost
minimization

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58

VALUE CHAIN ANALYSIS - 5 PRIMARY

ACTIVITIES

3. Outbound

logistics:

Activities
associated with collecting, storing, and
distributing the product or service to
buyers through wholesalers, retailers or
directly. It includes:
Shipping procedures and how to
reduce freight charges
Finished
goods
warehousing,
processing and handling of products
incl Insurances etc

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59

VALUE CHAIN ANALYSIS - 5 PRIMARY

ACTIVITIES
4. Marketing and Sales: Activities associated
with purchases of products and services by end
users and the inducements used to get them to
make purchases.
Level of motivation and competence of Sales
Force
Innovative approaches to promotion and
advertising
Selection of efficient distribution channels
Segmentation of Customers and their needs
Effectiveness of Pricing strategy

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60

VALUE CHAIN ANALYSIS - 5 PRIMARY

ACTIVITIES

5. Services:

Activities associated with

providing services to enhance or maintain the
value of the product such as installation,
repair, training, parts supply and product
adjustment.
Procedure to receive customer feedback
and further action
Warranty and Guarantee policies
Level of response to customer
Ability to furnish replacement parts and
their inventory
Quality of service personnel
Use of Internet and e commerce etc

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61

VALUE CHAIN ANALYSIS 4 SUPPORT

ACTIVITIES

Support Activities:

Defined as
competing in any industry and can be divided
into four categories:

1. General

Admin:

It includes activities like

management, planning, finance, accounting, legal,
government affairs, QA/QC, and information systems.

Effective planning systems

Ability to obtain funds at the lowest rates

Visibility due Org culture, reputation, and values

2. HR Mgmt:

It includes activities like recruiting, hiring,

training, development, and compensation of all types incl
industrial relations.

Reward and incentive programs to motivate all

employees

Environment
to
maximize
overall
employee
11/5/15
62
performance

Value Chain Analysis 4 Support

Activities - Contd
3. Technology
Dev: Technology
development related to the product and its
features that support the entire value chain.

Effective R&D
Culture to enhance creativity and innovation
State of the art facilities and equipment

4. Procurement

It is a function of
purchasing inputs used in the firms value
chain.

11/5/15

Activities to minimize costs

Development of collaboration with suppliers (winwin)
Effective procedures to purchase advertising and
media services
63
Search for alternate sources

RESOURCE BASED VIEW (RBV) OF THE

FIRM

RBV

A method of analyzing and identifying a

firms
strategic
advantages
based
on
examining its distinct combination of skills,
assets, capabilities, and intangibles as an
organization.

RBV of the firm combines 2 perspectives:

1. The internal analysis of phenomena within

a company and
2. An external analysis of the industry and its
competitive environment
It is important to note that resources by
themselves typically do not yield CA unless
integrated with other value creating activities.

11/5/15

64

VCA Linkages within and outside

Firms
Utilization of HR --- do not dump them but
reposition them
Manage inventory
Continue to Create customer value by
remaining
competitive
(invention,
innovation,
digitization,
revisiting
processes and procedures) --- TQM---and
repositioning your products, and better
still backing up your products with after
sales support, and in corporate terms keep
up your promises.
11/5/15

65

TYPES OF valuable RESOURCES

1. Tangible:

11/5/15

Financial: Firms ability to raise cash,

cash
equivalent,
equity,
and
borrowing capacity etc
Physical:
Plant
and
facilities,
locations,
and
machinery
and
equipment etc
Technological: Trade
secrets,
innovative
production
processes,
Patents, Copyrights, and trademarks
etc
Organizational:
Strategic 66 planning
Refer to Exhibit 3.5
processes, evaluation and control

TYPES OF RESOURCES

Contd

2. Intangible:

Human:
Resources
indicating
experiences, skills, practices and
procedures

Innovation and Creativity: Technical

and scientific skills and capacity for
innovation

Reputation: Brand name, reputation

with customers for quality and
reliability,
and reputation with
67
suppliers for fairness, non-zero-sum

11/5/15

RESOURCE BASED VIEW OF THE FIRM

3. Organizational Capabilities:
Firms competences or skills the firm
employs to transfer inputs to outputs
Capacity to combine tangible and
intangible
resources,
using
organizational processes to attain
desired end

Standard of Customers services

Product development capabilities
Ability to hire, motivate and retain
human capital
11/5/15

Refer to Ex 3.5 pg 85

68

GENERATION AND DISTRIBUTION OF

FIRMS PROFITS
An extension of resource based view of
the firm
4 factors that would determine share
taking of the profit:

Employee bargaining power ---- Clients

move with the managers and professionals,
consultants , experts etc
Employee Replacement Cost ---- Employee
with rare expertise demand more salaries
Employee Exit Costs ---- An individual may
face high costs when leaving the org
Manager Bargaining Power ---- The power
would depend as to how best they create
11/5/15
69
resource based advantage

EVALUATING FIRMS PERFORMANCE

2 Approaches

1.Financial
Ratio
Analysis
Approach: How a firm is operating
according to its balance sheet, and
income statement.

11/5/15

Short term solvency or liquidity

Long term solvency measures
Asset management
Profitability
Market Value
Next slide

70

RATIO ANALYSIS Factors

depending upon
The financial worth of the firm must
not be worked out in isolation.
Comparison must be carried out in
Historical perspective, with industry
and its key competitors.
Historical Comparisons ---- at least last
10 years
Comparison with Industry Norms ---Reputation with lending agencies etc
Comparison with Key Competitors ---Sales v/s R&D
budget is one example
Refer to Appendix to Chap

11/5/15

3 page 102-112

71

EVALUATING FIRMS PERFORMANCE 2nd

Approach

Stakeholders perspective

11/5/15

Customers perspective --- top priority

for the Firm
Internal
business
perspective
--Processes, actions and decisions that
occur throughout the Org
Innovation and Learning perspective
--- The parameters company considers
most critical to success
Financial perspective --- Typical goals
include
profitability,
growth
and
shareholders
value.
72
Balanced
Score Card

SUSTAINABLE CA ---- HOW

Resources

CA in
-----------------

Tangible

Ownership costs

%age allocated to
ownership v/s
Industry costs

Intangible

Brand reputation Minimum

promotional costs
Employee Loyalty
Lower labor costs
V/s Industry

Capabilities

Supplier chain
Managerial
Judgment

Lower costs and

higher quality of
goods sold
Fewer layers of
hirerachy

Give examples out of Pakistani Industry and Products -----------11/5/15

73

The Balanced Scorecard

The Managers do not need to look at
their job as primarily balancing
stakeholder demands. They need to
avoid the mindset, i.e.,
How many units in employee
satisfaction do I have to give up to
get
some
additional
units
of
customer satisfaction or profits.
Balanced scorecard provides a WinWin approach. It is the combination
of Financial Ratio Analysis and four
11/5/15

74

LP - 5
5/6 Oct 2015

Ch 4
Recognizing a Firms Intellectual Assets
Learning Objectives
Why Management of Knowledge professionals
and knowledge itself are critical in todays Org
How leveraging human capital is critical to
strategy formulation Hiring for attitude,
training for skill
Key role of social capital in leveraging Human
capital
Vital role of technology in leveraging
knowledge and human capital
11/5/15

75

Basic Concepts
Knowledge is the primary means of wealth
generation in todays economy
Human capital - being a resource is the
foundation of intellectual capital. Therefore,
while attracting human capital, issues such as
hiring for attitude, training for skills must be
addressed.
Social Capital networks relationships among
a firms members play a pivotal role in
achieving value.
Technology is dominant in leveraging human
capital
Finally, Leveraging human capital is vital to
formulation of strategy
11/5/15
76

Leveraging Human Capital

Strong human capital often leads

to
useful
relationships
among
others, within the firm, promoting a
social infrastructure that is often
vital for gaining consensus on major
decisions,
integrating
multiple
administrative levels, promoting
cooperation,
and
sharing
information across departmental
boundaries.
XEROX is not such a company.

11/5/15

77

XEROX

Human Leveraging at the lowest

In 1990, Paul Allaire becomes CEO with a mission --- To

ensure XEROX to be major Technology Player. In 1997, Rick
Thoman joins ex IBM as COO.
By 1999, the stocks soared to all-time high - $64. The BOD
appointed Paul Allaire Chairman and Thoman the CEO.
Together they launched millennium goals. However, the
plan failed due poor management of human and social
capital inherent in XEROXs executive ranks.
In 1999, The CFO (Barry Romeril) faired badly causing huge
losses to XEROX. There was plethora of law suits, penalties
by S & E Commission for falsification of profits, and loan
write offs etc. However, CFO could not be fired being a
close friend of Chairman.
Thomas Dolan, president of global sales and her sister a
director prevailed upon Chairman not to restructure XEROX
despite stiff competition by Japanese firms.
The move
adversely affected morale of sales force.
11/5/15
78

XEROX

Human Leveraging at the lowest

The Uncertainty prevailed throughout the firm

resulting into loss of Sales Reps and with that:
Loss of product knowledge and
Valuable social relationship with the clients

In May 2001, inevitable happened:

Thoman (CEO) was fired
Dolans (President Global Sales) sister (Business Director) made COO
Romeril (CFO) retained the job

By 2003, XEROX

was facing bankruptcy and:

Experienced problems leveraging its talent and

technologies into successful products and services
Human and social capital eroded due dysfunctional
organizational politics at the top

11/5/15

79

THE ROLE OF KNOWLEDGE IN TODAYS

ECONOMY

Until yesterday, most Managers

directed maximum efforts towards 2
traditional factors of production, -Labor and Capital and were duly
interested in:
Tangible
resources

Land,
Machinery, Finance and
Intangible resources Brand
names, Image of the firm, and
Customer loyalty etc
11/5/15

80

WHY AND HOW DO ORG GROW?

Decisions made by its Executives (HR) based on Knowledge
People dont buy Microsofts stock because of its software
factories; it doesnt own any. Rather, the value of Microsoft is
bid up because it sets standards for personal-computing
software, exploits the value of its name, and forges alliances
with other companies.
Similarly, Merck didnt become the Most Admired
company, for seven consecutive years in Fortune s annual
survey, because it can manufacture pills, but because its
scientists can discover medicines. P. Roy Vagelos, former CEO
of Merck, the $47 billion pharmaceutical giant, during its long
run atop the Most Admired survey, said, A low-value
product can be made by anyone anywhere. When you have
knowledge no one else has access tothats dynamite.
11/5/15

81

COMPANY WORTH

Start with the big three

financial statements: income statement, balance sheet, and
statement of cash flow. If these statements tell a story that
investors find useful, then a companys market value * should
roughly (but not precisely, because the market looks forward
and the books look backward) be the same as the value that
accountants ascribe to itthe book value of the firm. However,
this is not the case.
A study compared the market value with the book value of 3,500
U.S. companies over a period of two decades.
In 1978 the two were similar: Book value was 95 percent of
market value. However, market values and book values have
diverged significantly. Within 20 years, the S&P industrials
wereon averagetrading at 2.2 times book value. Robert A.
Howell, an expert on the changing role of finance and
accounting, muses, The big three financial statements . . . are
about as useful as an 80-year-old Los Angeles road map.
The gap between a firms market value and book value is far
greater for knowledge intensive corporations than for firms with
strategies based primarily on tangible assets.
11/5/15
82

Ratio of Market Value to Book Value for

Selected Companies
Company
Ratio of

Annual
Sales
($ billions)

Market
Value
($ billions)

Apple

157

510

17

4.4

Google

47.3

237

58

Oracle

37

162

44

3.7

Microsoft

73

229

66

3.5

Intel

54

106

46

2.3

Nucor

20

14

7.5

1.9

Southwest
Airlines

17

7.9

6.9

1.1

11/5/15

Book Value Market to

($ billions) Book Value

As of January 2013--Source:
finance.yahoo.com .

83

COMPARISON OF MACHINE V/S KNOWLEDGE BASED

ECONOMIES

Machine age
Physical world
It consisted of things
Companies made and
distributed things
(Products)
Management allocated
things (capital budgets)
Management invested in
things (Plant and
equipment)
Peoples ancillary and
things central.
11/5/15

Knowledge /
Information age
Things are ancillary
Knowledge is central
Companys values derive
from knowledge, knowhow, intellectual assets,
and competencies ---- all
imbedded in people.
Wealth is created through
the management of
knowledge workers

84

INTELLECTUAL CAPITAL

The difference between the market

value of the firm and the book value
of the firm, including assets such as:
reputation,
employee loyalty and commitment,
customer relationships,
company values,
brand names, and
the experience and skills of employees
11/5/15

85

THE ROLE OF KNOWLEDGE IN TODAYS ECONOMY -

Times have changed and with that

the emphasis:
50% of GDP in developed economies is
due to Knowledge based economy --Intellectual assets as well as intangible
peoples skills.
In USA, 76% of GDP is from the services.
R & D plays a pivotal role in
Manufacturing sector
A comparison of machine v/s knowledge
based economies is on the next slide:
11/5/15

86

HOW TO CREATE VALUE IN KNOWLEDGE INTENSIVE

ECONOMIES

1. Consider
Human
Capital
--individual
capabilities, knowledge, skills, and experiences
of employees and managers
2. Social capital is critical in sharing and leveraging
knowledge and in acquiring resources
3. The Concept of knowledge --1. Explicit --- codified, documented, easily reproduced
and widely distributed (Drawings, software etc)
2. Tacit --- That rests in the minds of employees and is
based on experience and backgrounds shared only
through consent

4. The new knowledge is constantly being

created through a mix of Explicit and Tacit
5.
11/5/15

knowledge .
Knowledge management is being stressed upon by Org
87

INTELLECTUAL CAPITAL --- MARKET VALUE OF

FIRM---- BOOK VALUE OF THE FIRM
Human capital is the individual capabilities,
knowledge, skills, and experience of the companys
employees and managers.
Social capital is the network of relationships that
individuals have throughout the organization. Third
is the concept of knowledge, which comes in two
different forms. First, there is
Explicit knowledge that is codified, documented,
easily reproduced, and widely distributed,
such as engineering drawings, software code, and
patents. 18 The other type of knowledge is
Tacit knowledge . Its the knowledge acquired and
held by the employees.
11/5/15

88

Human Capital Foundation for Intellectual

Capital
In todays world, talent is so critical to the
success of what youre doingtheir
core competencies and how well they fit into your
office culture. The combination
can be, well, extraordinary. But only if you bring
in the right people.
Mindy Grossman, CEO of HSN (Home Shopping
Network)
35

The knowledge worker (KW) has risen to prominence in recent

times. It is a source of CA and is changing the balance of power in
todays org.
The KW places professional development and personal enrichment
above company loyalty.
Attracting, recruiting and hiring the best and the brightest is a
critical first step in the process of building intellectual capital. The
other two equally critical steps are Developing and Retaining
11/5/15
89
human capital.

ATTRACTING HUMAN CAPITAL

Hiring for Attitude, Training for Skills

---- Due emphasis on general knowledge,
experience, social skills, values, beliefs
and attitude of employees

Sound recruiting
Networking ----

approaches

and

Best and the brightest out of thousands

of applications.
The other best practice could be
recruiting the one proposed by a current
employee
11/5/15

90

DEVELOPING HUMAN CAPITAL

A $ spent on training is worth $30 in terms of
productivity gains.
The Org must not lose in terms of morale, values
turnover and productivity.
Therefore:
Ensure adequate Training to maintain High
growth and high quality of product
Encourage widespread involvement of leaders
at all levels of the Org
Mentoring and Sponsoring
--- Monitor
progress and track development
Evaluate Human Capital
11/5/15

91

RETAINING HUMAN CAPITAL

Employees must identify with the Org Mission
and Values ---- Your Satisfaction is our pride or
duty before self
Provide challenging work and Stimulating
Environment

---

Create internal market for

employees by lowering barriers to mobility

Ensure timely availability of due financial and
nonfinancial rewards --- criterion must be known
and well publicized
Sound
11/5/15

Recruiting

Approaches
92

and

What are some of the best practices to

attract Millennia's and keep them engaged?

Dont fudge the sales pitch. High-tech sales presentations and

one-on-one attention may be attractive to undergrads.
Let them have a life. Typically, they are unenthusiastic about
their parents 70 or 80-hour workweeks. Millennia's strive for more work-life
balance, so liberal
vacations become very important. At KPMG, 80 percent of
employees used 40 hours of paid time off in the first six months of
a recent year.
No time clocks, please. Recent graduates dont mind long hours
if they can work them on their own schedule. As noted by its
CEO, Dan Rosensweig, If you provide them with the right
environment, theyll work forever.
Give them responsibility. A chance to work on fulfilling projects
and develop new ones on their own is important. Google urges
entry-level employees to spend 20 percent of their time
developing new ideas.
Feedback and more feedback. Career planning advice and
11/5/15
frequent performance appraisals are keys to holding on to young 93

THE SOCIAL CAPITAL VITAL ROLE

Social capital is defined as friendships,

and working relationships among talented
individuals
Notwithstanding the critical roles of
recruiting,
developing
and
retaining
Human Capital, the development of social
capital has gained importance, because it
ties KW to a given firm.
An indulgent, mutually acceptable, and
tolerant attitude helps in retainer ship of
employees
11/5/15The downside of Social capital94 is Group

Enhancing Human Capital: The Role of

Diversity in the Workforce
The effective management of diversity can enhance
the social responsibility goals of an organization.
However, there are many other benefits as well. Six
other areas where sound management of diverse
workforces can improve an organizations
effectiveness and competitive advantages are:
Cost
Resource acquisition
Marketing
Creativity,
Problem-solving, and
Organizational flexibility.
11/5/15

95

TECHNOLOGY AND LEVERAGING HUMAN

CAPITAL AND KNOWLEDGE
Modern Tech is helping dissemination of
information within and outside the Org in the
most speedier and effective way
The Tech has given rise to Virtual World and
Virtual Teams
In order to make gains and ensure CA, the
knowledge has been codified an expensive
preposition
It is becoming exceedingly difficult to retain
knowledge once the employee leaves the org.
The reverse is also true in cases where the
information is available on net.
Wikileaks -------- ?
11/5/15

96

Protecting the Intellectual Assets of the

Organization: Intellectual Property and
Dynamic Capabilities
Protecting a firms intellectual property requires a
concerted effort on the part of the company.
After all, employees become disgruntled and
patents expire.
The management of intellectual property (IP)
involves,
besides
patents,
contracts
with
confidentiality and non competing clauses,
copyrights, and the development of trademarks.
Dynamic capabilities entail the capacity to
build and protect a competitive advantage. This
rests on knowledge, assets, competencies, and
complementary assets and technologies as well
as the ability to sense and seize new
opportunities, generate new knowledge, and
11/5/15
97
reconfigure existing assets and capabilities.

LEVERAGING HUMAN CAPITAL AND STRATEGY

FORMULATION
Business-Level Strategy --- Managers must
integrate the primary and support activities in
their firms value chain. (External Analysis)
Corporate Level Strategy --Managers must
determine what important relationships (products,
markets, technologies) exist across businesses and
how they can be leveraged. (Internal Analysis)
International - Level Strategy --- How to achieve
economies of scale and how to adopt to local
market demands
Internet Strategies --- Internet based technologies
create CA by relaying information, enhancing
speed of decision making and resolution of ideas.
11/5/15

98

LP- 5
12-13 Oct 15

Ch 5
Creating and Sustaining CA through
Business-Level Strategies

The three generic strategies are:

Overall cost leadership
Differentiation
Focus

Industry Life Cycle

Understanding and developing strategies

Turn around Strategies -----

Why and

How?
11/5/15

99

99

Case Study ---- Food Lion

Few Corporations have rewarded their
(100) original backers as much as Food
Lion has done.
A share bought for $10 in 1957 was split
into more than 12,000 shares by 1991 with
a value of over $200,000. But,
In 1967, The CEO lowered the prices of all
its products 3,000 in number and had its
sales increased by 50%.
In 1990, Food Lion opened 100 stores.
The first blow came in 1992.
11/5/15

100

100

Case Study ---- Food Lion

Bad publicity a real one --- a compromise
on quality --- a misadventure based on lack
of control
By 1993, over 1,000 violations registered
and being countered
Problem
Management team out of touch with
operations
Continued traditional methods and missed the
message ---for CA one should have greater
product variety and a high level of customer
services (Outbound Logistics)

Net Results

In 1994, forced to retreat and closed down

more than half the stores it had opened in
1991.

Solution

11/5/15

101

101

THE THREE GENERIC BUSINESS

STRATEGIES
Competitive Advantage

Strategic Target

Uniqueness perceived
By the customer

11/5/15

Low cost position

Overall
Differentiation
cost
Leadersh
ip

Focus
102

Industry wide

Particular
Segment
only

THE THREE GENERIC BUSINESS STRATEGIES

1. Overall Cost Leadership --- is based on

creating a low-cost position relative to a
firms peers.
2. The firm must maintain the relationship
throughout its value chain and be
devoted to lowering costs throughout the
entire chain.
3. Differentiation --- requires a firm to
create products /services that are valued
and unique
4. Focus --- a firm must direct its attention
toward:
1. Narrow product lines,
2. Buyer segments, and / or
3. Targeted geographic markets.
11/5/15

103

103

THE VALUE CHAIN

p
Su

General Admin

s
itie
tiv
Ac
rt
po

Inbound
Logistics

M
ar
gi
ns

HRM
Technological Development
Procurement

Operations
Outbound
Logistics

Marketing
and
sales

Service

Primary Activities

11/5/15

104

M
ar
gi
n

1. OVERALL COST LEADERSHIP

(OCL)
Definition

---

is based on creating a low-cost

position relative to a firms peers. The firm must maintain
the relationship throughout its value chain and be devoted
to lowering costs throughout the entire chain.

Interrelated Tactics to achieve OCL

1. Highly efficient economy of scale facilities
2. Vigorous pursuit of cost reductions from
experience
3. Tight cost and O/H controls
4. Avoidance of marginal customer accounts
5. Cost minimization in all the activities in the
value-chain of the firm --6. Consult Exhibit 5.3, which provides sufficient details
in each segment of value chain
11/5/15

105

105

POTENTIAL PITFALLS IN OVERALL COST

LEADERSHIP STRATEGIES
Too much focus on one or few aspects of valuechain activities ---- Exhibit 5.3 Pg 152
All rivals share a common input or raw material --vulnerable to price fluctuations and quantities vis-vis availability (Example--?)
The strategy is imitated too easily by competitors
(Example ---?)
A lack of parity on differentiation (Example --?)
Erosion of cost advantage v/s informed customer
(Example --?)

11/5/15

106

106

2. DIFFERENTIATION
Definition --- Creating differences in the firms
product or services by creating something that is
perceived industry-wide as unique and valued by
customers. (Example) The --- (Ex 5.5 Pg157)
Creativity may include:
Prestige or brand image
Use of innovative Technology
Innovation coupled with Technology
Features --- Customer Services
Dealer Network
Handling of Mistakes / Technical anomalies
(Toyota in Jun 15 and VW in Sep 15)
11/5/15

107

107

TOYOTA AND VW ----- Creating

Value?

Toyota:
As of January 28, 2010, Toyota had announced recalls of
approximately 5.2 million vehicles for the pedal entrapment/floor
mat problem, and an additional 2.3 million vehicles for the
accelerator pedal problem.
Sales of multiple recalled models were suspended for several
weeks as a result of the accelerator pedal recall with the vehicles
awaiting replacement parts.
VW
Volkswagen is poised to recall up to 11m vehicles as the
carmaker prepares its response to the emissions scandal that
has rocked the automotive industry.

Out of these affected, 5m are Volkswagen-branded cars,

including the sixth-generation Golf, the seventh-generation
Passat and the first-generation Tiguan. The other vehicles
include 2.1m Audis, 1.2m Skodas, 700,000 Seats, and 1.8m light
commercial vehicles.
11/5/15

108

POTENTIAL PITFALLS IN
DIFFERENTIATION STRATEGIES
Uniqueness that is not valuable

to

customers
Too much differentiation ----

Software Languages

Too high a price premium for a comparable

worth
Easily imitable differentiation techniques /
features
Losing CA (Brand Name) by adding new
low cost products

11/5/15

109

109

THE use of VALUE CHAIN

Diff
strat

Low cost & Differentiation strategies

Cost
Ldrship

p
Su

Reduce Mgmt levels ----

s
itie
tiv
Ac
rt
po

Low turnover

General Admin ---- Knowledge based activities

---

HRM ---- enhance tech competence

Pursue process innovation ----Technological

Inbound
Logistics
Online
suppliers

Economy
Of scale

Purchase
superior
quality
Material

High
level of
TQM

11/5/15

Development ---Use Cutting Edge Tech

Long term contracts ----Procurement-----

Operations

TQM

Marketing
and
sales

Service

Computerized Cooperative
routing
Activities

Sub
contracting

Outbound
Logistics

Cost Leadership
Coord
JIT

Build
Brand
Image

M
ar
gi
ns

Allow
discretion
to service
people

Differentiation strategy
110

M
ar
gi
n

3. FOCUS STRATEGIES
Definition: A firm must direct its attention toward
narrow product lines, buyer segments, or
targeted geographic markets.
Strategies
It could be done by improving CA and CP by
applying Porters Five Forces. It requires:
Low cost position with a strategic target or the
exploitation of a particular market niche that is
different from the rest of the industry
High differentiation, i.e., Achieve CA by
dedicating itself exclusively to the segmented
market
11/5/15

111

POTENTIAL PITFALLS IN FOCUS

STRATEGIES

Erosion of cost advantage within the

narrow segment
Competition / Threat to Strategies
Focusers can become too focused to
satisfy buyer needs

11/5/15

112

112

COMBINATION STRATEGIES*

Integrated strategy is the best

strategy
Remain Innovative
Adopt modern day automated and
manufacturing systems
Continue to REVISE Processes and
Procedures
Exploit the profit pool concept across
the industry
11/5/15

113

113

COMBINATION STRATEGIES
Ideal Solution: Integrating Overall
Low
Cost
and
Differentiation
Strategies
The successful combination is harder
for the competitors to imitate.
An integrated strategy enables a firm
to provide two types of value to
customers:
Differentiated attributes like quality,
features etc
11/5/15
114
Lower Prices due firms Overall
Low Cost

OPTIONS TO ACHIEVE CA THROUGH

INTEGRATED BUSINESS STRATEGIES

Adopt Automatic and Flexible

Manufacturing Systems
Exploit the Profit Pool concept
Exploit full benefits of Information
Technology
Make use of Porters Five Forces

11/5/15

115

POTENTIAL PITFALLS IN ADOPTING

INTEGRATED STRATEGIES
Get stuck in the middle.
Understand challenges and expenses
associated with coordinating activities in
the extended value chain
Miscalculating sources of revenue and
profit pools in the firms industry
What did J C Penny did between 1998 2000?
Improved Store presentations
Radically re-thought of merchandise
Marketed the company brand items more
effectively
11/5/15
116
Slashed costs, closed down 44 stores, and cut

INDUSTRY LIFE CYCLE STAGES --STRATEGIC IMPLICATIONS

Introduction Stage

Developing the product and finding a way to

get the customers to try it
Generating enough exposure so the product
emerges as the standard by which all other
competitors products are evaluated

Growth Stage

Strong increase in sales

Primary concern is to build consumer
preferences fro specific brands
Revenues increase at an accelerated rate
Competitors attempt to manipulate the
business situation by brining in substitute and
alternative products
Contd

11/5/15

117

INDUSTRY LIFE CYCLE STAGES --- STRATEGIC

IMPLICATIONS --- Contd

Maturity Stage
Demands begin to slow down
Innovative measures are required to recoup the sales

Decline Stage
Maintain the product
Harvest the profits from the firms
portfolios
Consider Exiting from the market
Consolidate with other firms
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INDUSTRY LIFE CYCLE STAGES &

STRATEGIES
Stage /
Introduction Growth
Maturity
Decline
Factor
Generic
Strategies

Differentiation Differentiation Differentiation Overall cost

Overall cost
leadership
leadership
Focus

Mkt Growth
rate

Low

Very large

Low to
moderate

Negative

Number of
segments

Very few

Some

Many

Few

Intensity of
competition

Low

Increasing

Very intense

Changing

Emphasis on
product
design

Very high

High

Low to
moderate

Low

Emphasis on
process
design

Low

Low to
moderate

High

Low

Major areas of R&D

concern

Sales &
Marketing

Production

General
management
& finance

Overall
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objective

Create
consumer

Demand Mkt
119 Consolidate,
share &
maintain,

Increase
market

TURNAROUND STRATEGIES

Carefully
analyze
internal
external environment
Generalized Strategies

and

Asset and Cost surgery to raise cash

Undertake selective product and market
pruning
Consider
Piecemeal
productivity
improvements
Business strategies

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Re-engineering
Divestment
Outsourcing
Privatization etc etc

120