Ism Module - 2new
Ism Module - 2new
Ism Module - 2new
MANAGEMENT
Module II
Anila Mathew V.
Lecturer, School of Management Studies
Cochin University of Science and Technology
Competitive Strategies
Basic Competitive Strategies
18-22
Basic Competitive Strategies
18-23
Requirements of Cost Leadership
18-24
Differentiation
Requirements
Creative flair
Engineering skills
R&D capabilities
Innovative marketing capabilities
Motivation for innovation
Corporate reputation for quality or
technological capabilities
Risks of Differentiation
Imitation erodes differentiation.
If the price difference between the
differentiating firm and others is very great, it
may become very difficult to get enough
demand.
Changes in consumer needs / tastes may make
the differentiating factor less significant.
Differentiation focusers may achieve even
greater differentiation in segments.
Basic Competitive Strategies
18-25
Risks of Focus
Competitors may imitate.
Competitors may focus on sub-markets
within the strategic segment and out-
perform the focuser.
The basis of focus may erode.
Customer characteristics and base may
shift.
Competitive Strategies
Basic Competitive Strategies
18-26
LEVELS OF STRATEGY
Corporate strategy
SBU-1 strategy
SBU-2 strategy
SBU-3 strategy
Operating strategies
CORPORATE LEVEL STRATEGIES
Management Factor
Human Resource Factor
Production Facilities
Finance Management
Product Mix Modification
Marketing Strategy
Miscellaneous
Elements In Turnaround Management
1-46
SBU has three characteristics:
1. It is a single business or collection of
related businesses that can be planned
separately from the rest of the company.
2. It has its own set of competitors.
3.It has a manager who is responsible for
strategic planning and profit performance
and who controls most of the factors
affecting profit.
1-47
SBU
Establishing Strategic Business Units
A business can be defined in terms of three
dimensions: customer groups, customer needs,
and technology.
1-48
Assigning Resources to SBUs
18-32
Marketing Strategies
18-33
Competitive Strategies
Market Leader Strategies
18-34
Competitive Strategies
Market Leader Strategies
Expanding Total Demand
18-35
Competitive Strategies
Market Leader Strategies
Protecting Market Share
18-36
Competitive Strategies
Market Leader Strategies
Expanding Market Share
18-37
Defense Strategy
A market leader should generally adopt
a defense strategy
Six commonly used defense strategies
Position Defense
Mobile Defense
Flanking Defense
Contraction Defense
Pre-emptive Defense
Counter-Offensive Defense
Defense Strategy (contd)
Position Defense
Least successful of the defense strategies
continue to invest in your current markets
and attempt to build your brand name and
customer loyalty.
A company attempting a fortress defense
will find itself retreating from line after line
of fortification into shrinking product
markets. Saunders (1987)
HUL increased its ad-spend on Clinic Plus and
Sun silk shampoos and gave heavy
promotions
Defense Strategy (contd)
Mobile Defense
By market broadening and
diversification
Market broadening involves shifting
focus from the current product to
underlying generic need.
Market diversification involves shifting into
unrelated industries
Defense Strategy (contd)
Flanking Defense:
Secondary markets (flanks) are the weaker areas
and prone to being attacked
Pay attention to the flanks
danger of the flanking defense is that it can
stretch your resources thin and pull attention
away from your main focus
HUL successfully nourished its first Rs.100 crore
Indian-made brand Vim in a competitive dish wash
market.
It was able to check the attack of competitors
through product innovation, attractive public
campaigns, road shows and public relations.
Defense Strategy (contd)
Contraction Defense
Withdraw from the most vulnerable
segments and redirect resources to those
that are more defendable
By planned contraction or strategic
withdrawal
e.g. Indias TATA Group sold its soaps and
detergents business units to Unilever in
1993
Defense Strategy (contd)
Pre-emptive Defense
Detect potential attacks and attack the
enemies first
Let it be known how it will retaliate
Product or brand proliferation is a form of
pre-emptive defense
Eg. Titan launched more brands and sub-
brands to corner the market share of HMT
watches in the early 1990s.
Defense Strategy (contd)
Counter-Offensive Defense
The counter-offensive defense is a
retaliatory strategy. When a competitor
attacks your business, you strike back with
your own attack.
For instance, if you operate a bakery that
only produces gluten-free products and a
competitor who produces regular bread
also begins producing gluten-free products,
you could hit back at it by introducing
regular bread products.
Responding to competitors head-on attack
by identifying the attackers weakness and
Competitive Strategies
Market Challenger Strategies
18-38
Market Challenger Strategies
The market challengers strategic objective is
to gain market share and to become the
leader eventually
How?
By attacking the market leader
By attacking other firms of the same size
By attacking smaller firms
Market Challenger
Strategies (contd)
Types of Attack Strategies
Frontal attack
Flank attack
Encirclement attack
Bypass attack
Guerrilla attack
Frontal Attack
Seldom work unless
The challenger has sufficient fire-power (a
3:1 advantage) and staying power, and
The challenger has clear distinctive
advantage(s)
Frontal attack involves a head on attack on
the competitor by matching the competitor
in all aspects product, price, place
promotion
e.g. cola war
Flank attack
Attack the enemy at its weak points or
blind spots i.e. its flanks
Ideal for challenger who does not have
sufficient resources
Encirclement attack
Attack the enemy at many fronts at the
same time
Ideal for challenger having superior
resources
Bypass attack
By diversifying into unrelated products or
markets neglected by the leader
Could overtake the leader by using new
technologies
Guerrilla attack
By launching small, intermittent hit-and-
run attacks to harass and destabilize
the leader
Usually use to precede a stronger attack
e.g. airlines use short promotions to
attack the national carriers especially
when passenger loads in certain routes
are low
Which Attack Strategy should a
Challenger Choose?
18-39
Market-Follower Strategies
Theodore Levitt in his article, Innovative
Imitation argued that a product imitation
strategy might be just as profitable as a
product innovation strategy
e.g. Product innovation--Sony
Product-imitation--Panasonic
Market-Follower Strategies
(contd)
Each follower tries to bring distinctive
advantages to its target market--
location, services, financing
Four broad follower strategies:
Counterfeiter (which is illegal)
The best example of counterfeiting is
pirated movies
Market-Follower Strategies
(contd)
Cloner e.g. the IBM PC clones
Cloning means making the same product as
yours, but with very subtle difference.
Cloning makes advantage of the top brands
and makes same to same products.
Market-Follower Strategies
(contd)
Imitator e.g. car manufacturers imitate the
style of one another
Imitators make use of your hard earned
brand equity and give a product which has
the same characteristics as yours, albeit at a
lower price. The difference might be that the
new product is made from poor material or
that it does not have the service or promise
that your brand can offer.
Adapter Launches improved products over
that of the innovators.
e.g. many Japanese firms are excellent
adapters initially before developing into
challengers and eventually leaders
Competitive Strategies
Market Nicher Strategies
18-40
Market-Nicher Strategies
In selecting a business-level
strategy, the firm determines
1. who it will serve
2. what needs those target customers
have that it will satisfy
3. how those needs will be satisfied
93
Basis for Customer
Segmentation
Customers
Consumer Industrial
Markets Markets
94
Market Segmentation: Consumer
Markets
Demographic
factors
Per. Dem.
Socioeconomic factors
Consumer
Con. Soc. Geographic
Markets factors
Psychological factors
Psy. Geo.
Consumption patterns
Perceptual factors
95
Market Segmentation: Industrial
Markets
End-use segments
Product segments Size End
Geographic Industrial
segments MarketsPro.
Buy.
Common buying
factor segments Geo.
97
Core Competencies and
Strategy
The resources and capabilities that have been
Core determined to be a source of competitive advantage for a
competencies firm over its rivals
98
Business-Level Strategy
Business-level strategy: an integrated and
coordinated set of commitments and
actions the firm uses to gain a
competitive advantage by exploiting core
competencies in specific product markets
99
Key Issues of Business-Level
Strategy
What good or service to offer customers
How to manufacture or create the good
or service
How to distribute the good or service in
the marketplace
100
Types of Business-Level
Strategies
Business-level strategies are intended to
create differences between the firms
position relative to those of its rivals
To position itself, the firm must decide
whether it intends to perform activities
differently or to perform different
activities as compared to its rivals
101
Five Generic Strategies
Competitive Advantage
Cost Uniqueness
Cost Differentiation
Leadership
Competitive Scope
Broad
target
Integrated Cost
Leadership/
Differentiation
Click
Narrow
target
Her
e
Return to
Focused Cost Focused
Discussion
Leadership Differentiation
Questions
102
Discussion Question 3
103
Cost Leadership Strategy
An integrated set of actions designed to
produce or deliver goods or services at
the lowest cost, relative to competitors
with features that are acceptable to
customers
relatively standardized products
features acceptable to many customers
lowest competitive price
104
Cost Leadership Strategy
Cost saving actions required by this strategy:
building efficient scale facilities
tightly controlling production costs and overhead
minimizing costs of sales, R&D and service
building efficient manufacturing facilities
monitoring costs of activities provided by
outsiders
simplifying production processes
105
How to Obtain a Cost
Advantage
Determine and Reconfigure, if
control needed
107
Questions Leading to Lower
Costs
1. How can an activity be performed
differently or even eliminated?
2. How can a group of linked value
activities be regrouped or reordered?
3. How might coalitions with other firms
lower or eliminate costs?
Click
Her Return to Discussion Questions
e
108
Discussion Question 4
109
Cost Leadership Strategy and the
Five Forces of Competition
R
Co iva
e
t of
a ute
m lr
pe y
tin Am
Rivalry Among
r it s
Th bst uct
Su rod
g on
Fi g
rm Competing Firms
P s
Can use cost leadership
Thr ntran
Buy r of
E
Competition er s
since:
ga
e
of N
Bar
ts
competitors avoid
ew
Bargaining
Power of price wars with cost
Suppliers
leaders, creating
higher profits for the
entire industry
110
Cost Leadership Strategy and the
Five Forces of Competition
R
Co iva
e
t of
a ute
m lr
pe y
tin Am
Bargaining Power of
r it s
Th bst uct
Su rod
g on
Fi g
rm Buyers
P s
Can mitigate buyers
Thr ntran
Buy r of
E
Competition er s
driving prices far
ga
e
of N
Bar
ts
below competitors,
ew
Bargaining
Power of causing them to exit
Suppliers
and shifting power
with buyers back to
the firm
111
Cost Leadership Strategy and the
Five Forces of Competition
R
Co iva
e
t of
a ute
m lr
pe y
tin Am
Bargaining Power of
r it s
Th bst uct
Su rod
g on
Fi g
rm Suppliers
P s
Can mitigate suppliers
Thr ntran
Buy r of
E
Competition er s
being able to absorb
ga
e
of N
Bar
ts
Bargaining
Power of low cost position
Suppliers
being able to make
e
t of
a ute
m lr
pe y
tin Am
Threat of New
r it s
Th bst uct
Su rod
g on
Fi g
rm Entrants
P s
Can frighten off new
Thr ntran
Buy r of
E
Competition er s
their need to enter
ga
e
of N
Bar
ts
on a large scale in
ew
Bargaining
Power of order to be cost
Suppliers
competitive
the time it takes to
e
t of
a ute
m lr
pe y
tin Am
Threat of
r it s
Th bst uct
Su rod
g on
Fi g
rm Substitute Products
P s
Cost leader is well
Thr ntran
Buy r of
E
Competition er s
make investments
ga
e
of N
Bar
ts
to be first to create
ew
Bargaining
Power of substitutes
Suppliers
buy patents
developed by
potential
114 substitutes
Structure for Cost Leadership
Strategy
Operations is main Office of the President
function
Process engineering is
emphasized over R&D
Large centralized staff
Centralized Staff
Formalized procedures
Structure is mechanical,
job roles highly
structured
Engineering Operations Accounting
Marketing Personnel
115
Click
Her Return to Discussion Questions
Risks of Cost Leadership
e
Strategy
Processes used by the cost leader to
produce and distribute its good or service
could become obsolete because of
competitors innovations
Too much focus by the cost leader on cost
reductions may occur at the expense of
trying to understand customers
perceptions of competitive levels of
differentiation
Competitors may learn how to
successfully imitate the cost leaders
116 strategy
Discussion Question 5
117
Differentiation Strategy
An integrated set of actions designed by a
firm to produce or deliver goods or
services (at an acceptable cost) that
customers perceive as being different in
ways that are important to them
price for product can exceed what the firms
target customers are willing to pay
nonstandardized products
customers value differentiated features more
than they value low cost
118
Differentiation Strategy
Value provided by unique features and
value characteristics
Command premium price
High customer service
Superior quality
Prestige or exclusivity
Rapid innovation
119
Differentiation Strategy
Differentiation actions required by this
strategy:
developing new systems and processes
shaping perceptions through advertising
quality focus
capability in R&D
maximize human resource contributions
through low turnover and high motivation
120
How to Obtain a Differentiation
Advantage
Control if Reconfigure to
needed maximize
Lower buyers
costs of product or
Raise performance
Create service
sustainability
customerthrough:
perceptions of
uniqueness
customer reluctance to switch to non-
121
unique product
Factors That Drive
Differentiation
Unique product features
Unique product performance
Exceptional services
New technologies
Quality of inputs
Exceptional skill or experience
Detailed information
Extensive personal relationships with
buyers and suppliers
122
Differentiation Strategy and the Five
Forces of Competition
R
Co iva
e
t of
a ute
m lr
pe y
tin Am
Rivalry Among
r it s
Th bst uct
Su rod
g on
Fi g
rm Competing Firms
P s
Can defend against
Thr ntran
Buy r of
E
Competition er s
brand loyalty to
ga
e
of N
Bar
ts
differentiated
ew
Bargaining
Power of product offsets price
Suppliers
competition
Click
Her Return to Discussion Questions
e
123
Discussion Question 6
124
Differentiation Strategy and the Five
Forces of Competition
R
Co iva
e
t of
a ute
m lr
pe y
tin Am
Bargaining Power of
r it s
Th bst uct
Su rod
g on
Fi g
rm Buyers
P s
Can mitigate buyer
Thr ntran
Buy r of
E
Competition er s
well differentiated
ga
e
of N
Bar
ts
products reduce
ew
Bargaining
Power of customer sensitivity
Suppliers
to price increases
125
Differentiation Strategy and the Five
Forces of Competition
R
Co iva
e
t of
a ute
m lr
pe y
tin Am
Bargaining Power of
r it s
Th bst uct
Su rod
g on
Fi g
rm Suppliers
P s
Can mitigate suppliers
Thr ntran
Buy r of
E
Competition er s
absorbing price
ga
e
of N
Bar
ts
increases due to
ew
Bargaining
Power of higher margins
Suppliers
passing along higher
supplier prices
because buyers are
126 loyal to
Differentiation Strategy and the Five
Forces of Competition
R
Co iva
e
t of
a ute
m lr
pe y
tin Am
Threat of New
r it s
Th bst uct
Su rod
g on
Fi g
rm Entrants
P s
Can defend against
Thr ntran
Buy r of
E
Competition er s
new products must
ga
e
of N
Bar
ts
surpass proven
ew
Bargaining
Power of products or,
Suppliers
new products must
be at least equal to
performance of
127 proven products, but
Differentiation Strategy and the Five
Forces of Competition
R
Co iva
e
t of
a ute
m lr
pe y
tin Am
Threat of Substitute
r it s
Th bst uct
Su rod
g on
Fi g
rm Products
P s
Well positioned relative
Thr ntran
Buy r of
E
Competition er s
brand loyalty to a
ga
e
of N
Bar
ts
differentiated
ew
Bargaining
Power of product tends to
Suppliers
reduce customers
testing of new
products or
128 switching brands
Structure for Differentiation
Strategy
President and
Limited Staff
R&D Marketing
Operations Human
Resources
130
Major Risks of Differentiation
Strategy
Experience may narrow customers
perceptions of the value of differentiated
features of the firms products
Makers of counterfeit goods may
attempt to replicate differentiated
features of the firms products
Click
Her Return to Discussion Questions
e
131
Discussion Question 7
132
Focused Business-Level
Strategies
A focus strategy must exploit a narrow
targets differences from the balance of
the industry by:
isolating a particular buyer group
isolating a unique segment of a product line
concentrating on a particular geographic
market
finding their niche
133
Factors That May Drive Focused
Strategies
Large firms may overlook small niches
Firm may lack resources to compete in
the broader market
May be able to serve a narrow market
segment more effectively than can
larger industry-wide competitors
Focus may allow the firm to direct
resources to certain value chain
activities to build competitive advantage
134
Major Risks of Focused
Strategies
Firm may be outfocused by
competitors
Large competitor may set its sights on
your niche market
Preferences of niche market may
change to match those of broad market
Click
Her Return to Discussion Questions
e
135
Discussion Question 8
136
Advantages of Integrated
Strategy
A firm that successfully uses an
integrated cost leadership/differentiation
strategy should be in a better position
to:
adapt quickly to environmental changes
learn new skills and technologies more
quickly
effectively leverage its core competencies
while competing against its rivals
137
Benefits of Integrated
Strategy
Successful firms using this strategy
have above-average returns
Firm offers two types of values to
customers
some differentiated features (but less than a
true differentiated firm)
relatively low cost (but now as low as the
cost leaders price)
138
Using the Functional
Structure
The integrated form of the functional
structure
must have decision-making patterns that are
partially centralized and partially
decentralized
will have semi-specialized jobs and rules and
procedures that call for some formal and
some informal job behavior
Strategic flexibility is obtained via
flexible manufacturing systems
information networks
139
total quality management systems
Major Risks of Integrated
Strategy
An integrated cost/differentiation
business level strategy often involves
compromises (neither the lowest cost
nor the most differentiated firm)
The firm may become stuck in the
middle lacking the strong commitment
and expertise that accompanies firms
following either a cost leadership or a
differentiated strategy
140
Factors Affecting Portfolio
Strategy
1. Mission / Vision
2. Value System
3. Future of Current Business
4. Position on the Portfolio Matrix / PLC
5. Government Policy
6. Competitive Environment
7. Company Resources
8. Supply / Demand Conditions
9. Competitive Moves
10.Portfolio Strategy of Parent
11.Business Environment