• Once attendance taken there is no scope for marking

present
• Although group Needs to present articles everyone
must read.
• Examples for explaining the articles during group
presentations should not be copied from the articles.
• Preparing and participating in case discussion is life line
of the course
• Projects are to be carried out religiously
• Scoring better marks in class participation rests on your
initiatives to make me remember you.
• All activities except quiz and exam are group functions.
Dr. AKS
 THER
O M O
NT F R
F ER E S
DI F R S E
BIT COU

Dr. AKS
 i ne ss
e b u s
e nti r
te d to le
Devo w h o
a s a

• What determines total corporate

performance of an enterprise?
• Why some companies succeed while
some fail?
• What if anything managers can do
about it? Dr. AKS
 What a company should do

What a company should not do

IDEALLY STRATEGY SHOULD RESTRICT A COMPANY

NOT TO DO WHAT IT DOES BEST RATHER TO DO
WHAT IT DOES BETTER THAN COMPETITORS Dr. AKS
How do we
execute?

How do we
compete?

Where do we
compete?

HOW
BOUNDARIES
DEFINED

Dr. AKS
& LOOKING AT THE THEME
OF THE COURSE

Dr. AKS
 Competitive
positioning

Generic
strategies
Business Level
Building CA

Internal
STRATEGY analysis
Sustaining CA

Vertical
integration
Corporate
Level
Diversification
Industry
analysis
Comp. Ind. TY
Dynamics Evolution

ION
TUNI

RESOURCES
Ex.
S.F.

AT
Analysis
PPOR

T
MEN
KET O

MPLE
MA R

I
Dr. AKS

Strategy is an answer to four key questions faced by a B. Ex.

Where do we compete; What unique value we do bring; What resources and capabilities do we
utilize; How unique value delivery sustained.
 ANALYTICAL
SKILLS

Lesser
required

DIAGONSTIC
REASONING SKILLS
Reaching accurate
conclusions without
having complete
information.
Communicating diagnosis and Must have ability to fill
recommendations in a persuasive in the gaps in
information Dr. AKS
and well reasoned way
 HOW ASSIGNMENTS AND COURSE
ACTIVITIES BEGIN
• We wish to prepare you to deal with ambiguous information. There will be
a slow push from the comforts of class room to complex world outside.
• Read all articles to understand main strategic frameworks (they have there
own strengths and weaknesses)
• Engaging you with real world business cases (controlled situations).
• If time permits some simulations .

in a presentation
every group member
must know what is
the Subject &content
Dr. AKS
 WHAT IS
STRATEGY
 GAUSE’S PRINCIPLE OF COMPETITIVE
EXCLUSION
• No two species can co exist that make their
living in identical way
G.F.Gause- Moscow University, Father of Mathematical biology
• Natural competition over years involved no strategy-
Chance and Law of probability the drivers.
• What differentiates the e commerce websites /
organized retail/auto manufacturers.
• Σ price, function, time & place utility= Value
• Strategy is management of natural competition. That
is how it compresses time
 How Snapdeal is turning around its fortune

• in the summer of 2017, that dream run came crashing down. Seven
years after it was founded, an imminent shutdown loomed over the
Gurugram-headquartered company after a failed merger with Flipkart.
It was left with inadequate funds, enough to barely last a month.
• Over the last three years, Snapdeal has reduced its loss by an
incredible 95 percent, while revenue from operations grew by 85
percent. Traffic, the company claims, has seen a 100 percent growth.
Last year, more than 27 million unique buyers bought on the platform,
and amidst the pandemic, it added another six million users and
20,000 new sellers, apart from its already-existing 500,000 sellers.
• It’s about focusing on very few things and doing those few things very
well, It is about unlocking aspirations for those with less money Value
eCommerce
 WHAT IS COMMON IN THESE STATEMENTS
Unrivaled customer
Low cost provider
service

Pursue a Global Always be the first

Strategy mover

Integrate a set of From defense to

regional acquisitions industrial app.

Buzzword
To demonstrate intellectual acumen
Choice of the word seems to be a smart idea

“We refer to many mundane and uninteresting aspects

of business to be strategic”
 “Strategos”
Art of general
Art of war
Winning good Losing very bad

Generals responsible for multiple

units required to win the battle

How General Adds value

High level orchestration and vision
Can see what the field commanders
do not see
Think about the whole
May sacrifice some pieces to ensure
that overall goals are achieved
 BUSINESS IS MODERN DAY WAR,
CAUSALITIES ARE MAINLY THE INVESTORS
POCKET BOOKS RATHER THAN HUMAN
LIFE. BUT THE CHALLENGES ARE SAME AS
MILITARY GENERALS

Modern day executives have to develop

a set of complex tactics that lead to
victory
Sells inexpensive, contemporary Scandinavian furniture and
home furnishings to primarily young and white collared
customers all across the world

First retailer to establish stores in every major country.

Has greater scale than local competitors.
Sells furniture's in fun and low pressure show rooms where
order fulfillment is usually immediate.
They are able to sell expensive and stylish furniture because
they have developed excellent design capabilities for
inexpensive Scandinavian designs.

Products mass manufactured by supplies and shifted in flat

boxes. Assembly by customers. Shipping cost very low.
Manufacturing+shipping+design= Threat to imitation
 What IKEA does not do?
• Do not compete in high end furniture
• Do not provide high level of service or
customization to customers
• Designs most of the furniture but does not
manufacture.
WHAT MAKES A
SUCCESSFUL STRATEGY
THE BASIC FRAMEWORK
AKS-FSM
Strategy is how you get from where you are now to where you
want to be- and with real competitive advantage (Grundy, 1995)

• Distinguishing strategy from tactics

o Strategy is the overall plan for deploying resources to establish a
favorable position
o Tactic is a scheme for a specific manoeuvre

• Characteristics of strategic decisions

o Important
o Involve a significant commitment of resources
o Not easily reversible

AKS-FSM
AKS-FSM
 DESCRIBING STRATEGY
Current Positioning; Future Direction

AKS-FSM
Did Harvard University Zuckerberg’s original concept
in 2003 had a dark nature. After
student Mark Zuckerberg set being dumped by his girlfriend,
a bitter Zuckerberg created a
out to build a billion-dollar website called “FaceMash”
company with more than six where the attractiveness of
young women could be voted
hundred million active users? on.

Certainly, Zuckerberg’s emergent and realized strategies turned out to be far nobler than the
intended strategy that began his adventure in entrepreneurship.
 Strategy
A Design or Process

AKS-FSM
 Mintzberg’s Critique of Formal Strategic
Planning
• The fallacy of prediction – The future is
unknown
• The fallacy of detachment – Impossible to
divorce formulation from implementation
• The fallacy of formalization – Inhibits
flexibility, spontaneity, intuition and
learning

STRATEGY AS DESIGN STRATEGY AS PROCESS

Planning and rational choice Many decision makers

responding to multitude of
external and internal forces

INTENDED STRATEGY EMERGENT STRATEGY

REALIZED STRATEGY

AKS-FSM
 Source of Origin LADY GAGA

Goals Aspirations/strategic
intent/BHAGs/Mission

Understanding the Where to compete

Environment

Resource Appraisal How to compete

Implementation How to execute

AKS-FSM
 ISSUES
ADDRESSED TILL
DATE
 Case reference Robin
Hood What
Develop an issue relevance
disaggregation tree for Madonna
this case case has in
context of
In strategy
Facebook
case how What are the
do you levels on which
interpret value can be
created if we
strategy as. consider
Is it about strategy as a
position or value game
direction plan.
Why strategy is different from other courses
Strategy as boundary
How boundaries are defined
Theme of the course
Which skill sets required the most
Operationalisation of the course
Case reference Robin Hood
Strategy as buzzword and for impression management
What is unique in Generalship
A good strategy provide answers to
Where we compete
What unique value we do bring
Which resources and capabilities we utilize
How do we sustain value
Eg. IKEA and case reference Madonna

Ingredients for success: Goals, Understanding environment,

Resource appraisal, implementation
Strategy maps the intersection of firm and industry boundaries
Evolution of strategy; Strategy vs Tactics
Sources of superior profitability: The industry attractiveness (where)
and competitive advantage(how)
Strategy as a position and direction (Facebook)
Intended/emergent/realized strategy
Business Some Fundamental Questions …
•Does the senior management have a clear understanding of how the
industry may be different in the next 10 years?
•Is it regularly defining new ways of doing business, building new
capabilities and setting new standards of customer satisfaction?
•Is management aware of the threats posed by new rivals?
•Do senior executives have a sense of urgency about the need to reinvent
the current business model?
•Is my company pursuing growth and new business development?

Strategy means putting things in place carefully, and with a great deal of
thought. It is the opposite of just waiting for things to happen.
In a changing environment one of the most difficult things in business is
to know when to stick to your strategy and when to change it.

What is vision? Dhiru Bahi Ambani

Good Vision
Good visions are inspiring and exhilarating.
It creates a common identity and a shared sense of purpose.
They are competitive, unique and simple.
Good visions foster risk-taking and experimentation.
They represent integrity.

What is Mission?
Feasible/precise/clarity/Motivating/distinctive/showing direction
4 Levels of strategy
• To understand how
industry structure The Objectives
drives competition,
which determines the
of Industry
level of industry
profitability
Analysis
• To assess industry
attractiveness

• To use evidence on
changes in industry
structure to forecast
future profitability

• To formulate strategies
to change industry
structure to improve
industry profitability

• To identify Key Success

Factors
EXTERNAL ENVIRONMENT ANALYSIS
We often forecast- Factors which are
beyond our control

Why is it
required?
macro environment analyses seeks to answer the questions “what will
affect the growth of our industry as a whole” and “What is the likely
impact of all of the things that affect the growth of our industry”

• The Industry Environment lies at

the core of the Macro
environment
• The Macro Environment impacts
the firm through its effect on the
Industry Environment

Events, Trends, Issues and Expectations of the

different interest groups
EVENTS:
Demonitization,
Donald Trumph
TRENDS: ?
???
ISSUES: ?????

EXPECTATIONS??
BUSINESS QUALITY AND A NATIONS COMPETITIVENESS
 Moving from merely
important to Vital
What determines the level of profit of
industry
Three key influences:

1. The value of the product to customers

2. The intensity of competition

3. Relative bargaining power at different stages of the

value chain
 Competitor Assessment

3 I’s Competitor Radar Screen

Competitor Data:
Who are they?
Market share?
Positioning?
Reactions?
Immediate
Competitors Immediate Already a major player in your particular
Competitor industrial segment (s); Publicly admits
Impending s competitive position and market share;
Competitors High knowledge base
Invisible Impending Small players making a move for growth
Competitors Competitor and market share capture; Major
s players from other industrial segments
(related) announcing entry into your
market; Medium knowledge base
Invisible Large players considering an
Competitor unanticipated move from other industrial
s segments (unrelated) into your market –
in secret; Low knowledge base
Firm for profit Is the value
must create created by
value for the the firm
customer N alone?????
O I
AT
Q U
E E
LU Am I the only one
VA eyeing for the value
creating
opportunity?????
 Value of
Product to
customer Relative
The bargaining
intensity of power at various
competition stages of value
chain

DETERMINANTS
OF INDUSTRY
PROFITABILITY
Perfect Oligopoly Duopoly Monopoly
Competition

Concentration Many firms A few firms Two firms One firm

Entry and Exit No barriers Significant barriers High barriers

Barriers

Product Homogeneous Potential for product differentiation

Differentiation product

Information Perfect Imperfect availability of information

information
flow
 Managing
THE ECONOMIC RENT FOR CONSUMERS?????
Surplus

MONOPOLY PERFECT
Industry profitability is
neither random nor the
result of entirely industry-
specific influences

SYSTEMIC
INFLUENCES
The Structural Determinants of Competition
APPLYING 5F’ ANALYSIS

• Forecasting Industry Profitability

o If we can forecast changes in industry structure we can predict
likely impact on competition and profitability

• Strategic Planning
o Once we know which structural features of the industry support
profitability and which depress profitability, we can choose a
favorable positioning within the industry

• Strategies to Improve Industry Profitability

o Which of the structural variables that are depressing profitability
can we change by individual or collective strategies?
 Drawing Industry Boundaries
What is the Relevant Market?

What industry is Jaguar in:

The motor vehicle industry (SIC 371)
The automobile industry (SIC 3712)
The luxury car industry?
Is its industry global, regional (Europe) or national ?

We may need to draw

industry boundaries
differently for different
Key criterion: SUBSTITUTABILITY types of decision

On the demand side: Are buyers willing to

substitute between types of cars and across
countries
On the supply side: Are manufacturers able
to switch production between types of cars
and across countries
 From industry attractiveness to competitive advantage
identifying key success factors
 IDENTIFYING KEY SUCCESS FACTORS
What do customers want? How do firms survive competition? Key success factors

Steel Low price Strong price competition and cyclical Cost efficiency through: large-scale
Product consistency profitability necessitates cost plants, low-cost location, speedy
Reliability of supply efficiency and strong financial capacity adjustment
Specific technical resources Or hi-tech mini-mills can achieve
specifications for special low costs through flexibility and
steels high productivity
Quality and service differentiation

Fashion Demand segmented by Intensely competitive due to low Combining differentiation with
clothing garment type, style, quality, entry barriers, low seller low-costs
color concentration and strong retail Key differentiation variables:
Customers pay price premium buying power design, speedy to fashion trends,
for brand, style, exclusivity Differentiation can yield substantial brand reputation, quality
and quality price premium but imitation rapid Cost efficiency requires
manufacture in low wage countries

Super- Low prices Market localized Low-cost operation requires

markets Convenient location Intensity of price competition operational efficiency, scale-
Wide range of products depends on number and proximity efficient stores, strong buying
adapted to local preferences of competitors power, low wage costs
Freshness of produce, good Bargaining power a critical Differentiation requires wide
service, pleasant ambience, determinant of cost of bought-in- product range (hence, large
easy parking goods stores), convenient location, easy
parking
 SWOT Analysis

External
Analysis

Strengths Weaknesses Threats

+ Opportunities

=
Economic Political/
Legal/
Governmental
Market/ Technological
Competitive

Social/ Geographic/
Demographic Environmental
+ Internal Analysis Threats &
Opportunities
Summary Analysis
TAKE HOME
Forecasting Industry Profitability
o Past profitability a poor indicator of
future profitability
o If we can forecast changes in industry
structure we can predict likely impact
on competition and profitability
Strategies to Improve Industry Profitability
o What structural variables are
depressing profitability?
o Which can be changed by individual or
collective strategies?
Defining Industry Boundaries
o Key criterion: substitution
o The need to analyze market competition
at different levels of aggregation
(depending on the issues being
considered)
Key Success Factors
o Starting point for the analysis of
competitive advantage
Profitability = Yield x Load factor – Unit cost

Income = Revenue x RSPMs - Expenses

ASMs RPMs ASMs ASMs

• Strength of • Price • Wage rates

competition on competitiveness • Fuel efficiency of
routes • Efficiency of route planes
• Responsiveness to planning • Employee
challenging market • Flexibility and productivity
conditions responsiveness • Load factors
• % business travellers • Customer loyalty • Administrative
• Achieving • Meeting customer overhead
differentiation requirements
advantage

ASM =Available Seat Miles RPM = Revenue Passenger Miles

Analyzing
profit
Drivers
A case of
retailing
 CASE
THE US AIRLINE INDUSTRY
IN 2012
VALUE PROFITS

GOALS

PERFORMANCE

62
AKS
• Recognize that every firm has a distinct purpose, the
common goal of every firm is creating value.
• Understanding relationship between profit, cash
flow and enterprise value.
• Use of tools of financial analysis to appraise firms
performance, diagnose the sources of performance
problems, and set performance targets.
• Appreciate how a firm’s values, principles, and
pursuit of corporate social responsibility can help
defining its strategy and support its creation of
value.
• Understand how real options contribute to firm
value and the role of options thinking in strategic
analysis. AKS 63
 VALUE ?????

AKS 64
 Henry Ford: Family cars for the
Multitude

James Dyson: Revolutionizing

vacuum cleaning

Steve Jobs: Bringing the

power of personal computing
J&J: Reducing deaths from to the Individual
infection after surgery
AKS 65
firm is a coalition STRATEGY exists to max.
of interest groups IS A QUEST FOR the wealth of its
VALUE owners
•How badly is the company performing? This requires evaluating the company’s performance.
•What are the reasons for poor performance? This requires identifying the sources of poor
performance.
•What changes in strategy might alleviate these problems and improve performance?

ADAPTING SCIENTIFIC
APPROACH
Deductive approach: formulate
inductive approach: delve into the
hypotheses concerning the sources of
details of the firm’s performance AKS 66
the problems
 CONDUCTING STRATEGIC
ANALYSIS

Let us for purposes of

strategy analysis assume
that the primary goal of the
firm is profit maximization.
RATIONALE
Boards of directors legally
obliged to pursue
shareholder interest.
To replace assets firm must
earn return on capital > cost
of capital (difficult when
competition strong).
Firms that do not max. stock-
AKS 67
market value will be acquired.
How do the World’s Leading Companies Perform Using
Different Profitability Measures?

Does the objective of

strategic analysis using
profitability as a measure
hold good? AKS 68
 MAXIMIZING THE VALUE OF THE
SOME QUESTIONS? FIRM

Total profit vs. rate of Max. net present value

profit? of free cash flows:
Over what time period?
What measure of Profit?
Accounting profile vs.
economic profit (e.g. Where:
Economic Value Added: V = market value of the firm
Post-tax operating profit Ct = Sum of free cash flow in time t
r = discounted at the enterprise
less cost of capital? cost of capital. Weighted average
cost of capital is r(e+d). This
averages the cost of equity and
the cost of debt.

AKS 69
ROIC: Operating Profit before interest after tax./FA+Net Current
Assets

• Organizational leadership efficiency

ROE: Net Income/Shareholders Equity

• Remuneration for investors (TRUST)

ROA: Operating Profits/Total Assets

• The numerator (EBITDA & EBIT)should correspond on all

company asset.

MARGINS: Gross (Sales-Cost of Bought-in

Goods/Sales) Operating (Operating Profits/sales)
Net (Net income/Sales)
• For EfficiencyAKSbut differs widely. 70
 PERFORMANCE
DIAGNOSIS:
DISAGGREGATING
RETURN ON CAPITAL
EMPLOYED- Du Pont
Formula AKS 71
 Example of
Performance
Diagnosis:
Disaggregating ROCE
for UPS (U) & FedEx
(F)
AKS 72
 Setting
Performance
Targets: Linking
Value Drivers to
Performance
Targets
AKS 73
Empirical
THE PARADOX OF
research shows
VALUE
that firms which “Visionary” companies
are most studied by Collins &
successful in Porras, e.g. Merck,
creating long- Wal-Mart, Proctor &
term Gamble, Disney, HP
a) Boeing
shareholder • Focus pre-1996: “To
value build great planes”,
Have a mission – weak financial
They give controls, yet high
precedence to goals profitability
other than • Focus 1997-2003:
“Creating shareholder
profitability and
value”. Outcome: loss
shareholder value
of market leadership,
Have strong, Profit is created not by declining profitability
consistent, ethical pursuing profit but by pursuing
values the factors that AKS
create profit 74
 THE SIX LAYERS OF FINANCIAL & REAL
OPTIONS
Financial options Real options Comments

Present value of The greater the NPV, the

Stock price = returns to the higher the option value
investment

The higher the cost, the

Exercise price = Investment cost lower the option value

Higher volatility
OPTION Uncertainty = Uncertainty
increases option values
VALUE
Time = opportunity to
Time to expiry = Duration of option learn about outcomes

Value lost over Loss of cash flow to fully

Dividends =
duration of option -committed competitors
lowers option value

Risk-free Risk-free Higher interest rate

= increases option value
Interest rate interest rate
by increasing value of
AKS deferring investment 75
 Michael and Mark Kramer argue that firms should re-conceptualize
their businesses towards the creation of “Shared Value”: “creating
economic value in a way which also creates value for society” This
requires the firm to recognize its co-dependence with its natural and
social environment.

• For survival and success a firm needs to:

o Maintain its reputation
o Ensure that it has a license to operate
o Be sensitive to its external environment – including its social, political
and natural environments
AKS 76
In an uncertain Two major types
world, strategy is of option:
increasingly about Growth options:
Small investments to
creating and
create opportunities
managing options for bigger
investments
Flexibility options

Valuing options
Binomial pricing model creates
Black-Scholes formula for valuing
an event tree for a project that
financial options can also be
can be converted into a
applied to real options (e.g. option
decision tree which allows
value rises with greater volatility,
project value to be calculated
more time, higher project value,
subject to options to abandon
higher interest rates) AKS 77
the project
Further Topics in Industry and
Competitive Analysis

OUTLINE
OUTLINE

 Objectives
 Extending 5-forces analysis
o Does Industry Matter?
o Complements
 Dynamic competition:
o Hypercompetition
o ­ Game Theory
o ­ Competitor Analysis
 Segmentation and strategic groups
o Segmentation analysis
o ­ Strategic Groups
FURTHER TOPICS IN INDUSTRY AND COMPETITIVE ANALYSIS

Objectives
 To recognize the limits of the Porter five forces
framework, and extend the framework to include the role
of complements as well as substitutes

 To acknowledge competition as a dynamic process, to

appreciate the insights that game theory offers into the
dynamics of rivalry, and to use competitor analysis to
predict competitive moves by rivals

 To segment an industry into its constituent markets,

appraise the relative attractiveness of different segments
and apply strategic group analysis to classify firms
according to their strategic types
OF INDUSTRY AND INDUSTRY
ANALYSIS
What is changing in the competitive What’s different today is that industries change
landscape? How are things today different – and change fast. Sectors shift from
from what they used to be? integration to dis-integration

What does this mean for how firms compete?

Firms do not only compete in a sector – they compete to shape the structure of a sector.
Successful firms understand that a key driver of success is to shape their competitive
environment – redefining “who does what”, and thus shaping “who takes what”.

What Google, for instance, has done with “Android”. Resulted in many developers of both
hardware and software to coalesce with it, to enable the emergence of a new type of mobile
phone, perhaps with new types of mobile services. Therefore defining who does what.
Google’s strategy is to keep the “bottleneck”, while it harnesses the energy of loads of potential
manufacturers of devices and resellers of frequency. It’s about shaping the nature of a sector
and creating what can be called “architectural advantage” – the ability to control an industry
without even owning it.

it’s becoming increasingly clear that the firms that succeed are not those that develop and
conceive of the new ideas, technologies, or products – but rather, those that implement
successful ecosystems, architectures of co-dependent firms around them. Take iPod as an
example.
Most fast moving companies do not just
compete within the confines of their industry,
they change the definition of their industry; Creating
and Capturing Value: From Innovation to Architectural Advantage, Professor Michael G Jacobides

Porter’s five forces are increasingly redundant in a world where

industries are now defined not only by technologies, IT, and
globalization, but also by industry participants reshaping their own
landscapes. Competition has shifted from identifying new value
propositions and building new value curves, to industry redefinition and
leveraging of the ecosystem.
Choosing where to focus should not just concern a company’s
strengths, or opportunities to make money; it should also be
about how the firm can best support its position within the
industry architecture: how its choices will shape the sector
and help it become a bottleneck.
Five Forces or Six?
Introducing Complements
EXTENDING 5-FORCES ANALYSIS

Platform-based Competition
Complements—especially in the markets for digital products—give rise
to platform-based competition

A platform is an interface in a 2-sided market

E.g. A smartphone operating system (iOS or Android) links a market for
smartphones to a market for applications

The complementary relationship gives rise to network externalities that

create a winner-take-all market
I.e. In smartphones, developers write apps for the biggest selling
smartphone platform; consumers buy the smartphone platform with
the most apps
(However, in smartphones market big enough and segmented enough
to support two winning platforms)
 OBJECTIVES OF
INDUSTRY ANALYSIS

• Porter framework assumes:

a) Industry structure drives competitive behaviour
b) Industry structure is (fairly) stable
• But, competition also changes industry structure
o Schumpeterian Competition – A “perennial gale of creative
destruction” – market leaders over thrown by innovation
o Hypercompetition – “Intense and rapid competition
moves… continuously creating new competitive advantages
and destroying existing competitive advantages
• Implication:
o Within 5 forces framework
INDUSTRY STRUCTURE COMPETITIVE
STRATEGY
o Under dynamic competition
COMPETITIVE STRATEGY INDUSTRY STRUCTURE
DYNAMIC COMPETITION

The Contribution of Game Theory

to Competitive Analysis
1. Frames strategic decisions as interactions between competitors
2. Predicts outcomes of competitive situations involving a few,
evenly-matched players
3. Provides key insights into the nature and determinants of interactions
among competitors. E.g.:
a)Competition and Cooperation—Game theory can show conditions
where cooperation more advantageous than competition
b)Deterrence—changing the payoffs in the game in order to deter
a competitor from certain actions
c)Commitment—irrevocable deployments of resources that
give creditability to threats
d)Signaling—communication to influence a competitor's decision

Problems of game theory:

• Able to explain past competitive behavior—weak in predicting future behavior.
• Lack of an integrated general theory— Many different models; outcomes highly
sensitive to small changes in assumptions
DYNAMIC COMPETITION

A Framework for Competitor Analysis

OBJECTIVES
What are competitor’s current goals?
Is performance meeting there goals?
How are its goals likely to change?
PREDICTIONS
STRATEGY
How is the firm competing? • What strategy changes
will the competitor
ASSUMPTIONS initiate?
What assumptions does the competitor
hold about the industry and itself? • How will the competitor
respond to our strategic
RESOURCES & CAPABILITIES
initiatives?
What are the competitors’ key
strengths and weaknesses?
 SEGMENTATION AND STRATEGIC GROUPS

Segmentation Analysis: The Principal Stages

Identify segmentation variables

1. Identify key variables Reduce to 2 or 3 variables
and categories Identify discrete categories for
each variable
2. Construct a segmentation matrix

3. Analyze segment attractiveness

4. Identify KSFs in each segment Potential for economies

of scope across segments
5. Analyze benefits of Similarity of KSFs
broad vs. narrow scope Differentiation benefits of
segment focus
SEGMENTATION AND STRATEGIC GROUPS

Customer and Product Characteristics

as Segmentation Variables •Size
•Technical
Industrial buyers sophistication
•OEM/replacement

Characteristics •Demographics
of the Buyers Household buyers •Lifestyle
•Purchase occasion

•Size
Distribution channel
•Distributor/broker
Opportunities for •Exclusive/
Differentiation Geographical nonexclusive
•General/specialist
location
• Size
• Price
• Features
Characteristics •Technology/design
of the Product • Inputs used (e.g. raw materials)
• Performance characteristics
•Pre-sales/after-sales services
SEGMENTATION AND STRATEGIC GROUPS

Segmenting the World Automobile Market

R E G I O N S
North Latin W. E. East South Pacific Africa/
America America Europe Europe Asia Asia Mid-dle
East
Luxury cars
Large/midsize sedans
P
Compact family cars
R
O Mini cars
D Sports cars
U
SUVs
C
T Multi-purpose vehicles
S Pickup trucks
Hybrid cars
Electric cars
SEGMENTATION AND STRATEGIC GROUPS

Vertical Segmentation & Industry

Profit Pools: The US Auto Sector
25

20
Operating margin (%)

Leasing Service & repair

15 Warranty
Aftermarket
Gasoline parts Auto
10 Auto Auto
manufacturing loans rental
Auto
New car insurance
dealers
5 Used car dealers

0
0 Share of industry revenue (%) 100
SEGMENTATION AND STRATEGIC GROUPS

Segmentation and Key Success

Factors: The U.S. Bicycle Market
SEGMENT KEY SUCCESS FACTORS

Low price bicycles sold primarily • Low-costs of components and assembly.

through department and discount • Supply contract with major retailer.
stores, mainly under the retailer’s Leading competitors: Assemblers in Taiwan & China
own brand (e.g. Sears’ “Free Spirit”); + a few U.S manufacturers, e.g. Murray Ohio, Huffy

•Cost efficiency through scale and low wage costs

Medium-priced bicycles sold mainly • Reputation for quality
under manufacturer’s brand and • Good dealer relations
distributed through specialist cycle * International marketing & distribution.
stores Leading competitors: Giant, Peugeot, Fuji

•Quality components and assembly

• Innovation in technology and design
High-priced bicycles for enthusiasts. • Reputation (including success in racing)
• Strong dealer relations.

Children’s bicycles /tricycles) sold Similar to low-price bicycle segment.

through discount stores, & toy stores)
SEGMENTATION AND STRATEGIC GROUPS

Strategic Group Analysis

A strategic group is a group of firms in an industry

that follow the same or similar strategies

Identifying strategic groups:

• Identify principal strategic variables which
distinguish firms.
• Position each firm in relation to these
variables.
• Identify clusters.
SEGMENTATION AND STRATEGIC GROUPS

Strategic Groups within the World

Automobile Industry
Broad GLOBAL, BROAD-LINE
PRODUCERS
e.g., GM, Ford, Toyota,
Honda, VW, Renault-Nissan,
Fiat-Chrysler

NATIONAL PRODUCERS OF ,
PRODUCT INTERMEDIATE RANGE OF
GLOBAL PRODUCERS OF A
MODELS
RANGE LIMITED RANGE OF
e.g. Tofas (Turkey), Proton MODELS e.g., BMW,
(Malaysia), Tata Motors (India), Fuji/Subaru, Isuzu, Suzuki,
Chery (China) , Avtovaz
(Russia)

NATIONALLY- FOCUSED, PERFORMANCE

SPECIALIST PRODUCERS e.g., CAR PRODUCERS
Bristol (UK), BDY (China), Premier e.g., Ferrari (Italy),
Narrow (India), Classic Roadsters (US), Aston Martin (UK),
Morgan (UK), Tesla, Fisker (US)

National GEOGRAPHICAL SCOPE Global

SEGMENTATION AND STRATEGIC GROUPS

Strategic Groups within the World

Petroleum Industry
Upstream INTERNATIONAL
NATIONAL
PRODUCTION EXPLORATION & PRODUCTION
COMPANIES COMPANIES
e.g. Saudi Aramco, Kuwait e.g. Conoco, Apache, Occidental,
Marathon Oil
Vertical Petroleum, Qatar
Petroleum,
Balance
INTEGRATED SUPER MAJORS
Integrated INTEGRATED
INTERNATIONAL e.g. ExxonMobil, Shell,
NATIONAL OIL COMPANIES
e.g. Petrobras, PDVSA, CNPC,
MAJORS BP, Chevron, Total,
Indian Oil, Pemex e.g. Eni, Repsol,
PetroCanada
DOMESTIC-FOCUSED
DOWWNSTREAM
COMPANIES
Down e.g. Valero, Nippon Oil,
stream Neste

National
Global Geographical Scope
FURTHER TOPICS IN INDUSTRY AND COMPETITIVE ANALYSIS

Summary

 The suppliers of complements a major influence on industry profitability—

and give rise to platform-based competition and winner-take-all markets

 The Porter 5-forces fails to address the dynamics of rivalry, notably the
tendency for competitive strategy to transform industry structures
—Game theory and competitor analysis offer two approaches to analysing
the interactions among competing firms

 Segmentation analysis and strategic group analysis permit a more detailed

understanding of industries and a more precise approach to strategic
positioning
 Business
Some Fundamental Questions …
Does the senior management have a
clear understanding of how the
industry may be different in the next 10 years?
Is it regularly defining new ways of doing
business, building new capabilities and setting new
standards of customer satisfaction?
Is management
aware of the
threats posed
by new rivals?
Do senior executives have a sense
of urgency about the need to
reinvent the current business model?
Is my company
pursuing growth
and new business
development?
 So …

A recap
what is Strategic
Management?
As defined by Hofer and others, it is “ The process which
deals with the fundamental organizational renewal and
growth with the development of strategies, structures,
and systems necessary to achieve such renewal and
growth, and with the organizational systems needed to
effectively manage the strategy formulation and
implementation processes”
Strategy means putting things in place carefully, and
with a great deal of thought. It is the opposite of just
waiting for things to happen.
 In a changing environment one of
most difficult things in business i
know when to stick to your strateg
when to change it.
 Vision
&
Why We Need ?
• A vision articulates the position that an organization
would like to attain in the distant future.
• Vision therefore is future aspirations that lead to an
inspiration to be the best in one’s field of activity.
Why should organizations have a “Vision”

• Good visions are inspiring and exhilarating.

• It creates a common identity and a shared sense of purpose.
• They are competitive, unique and simple.
• Good visions foster risk-taking and experimentation.
• They represent integrity.
Mission
• Mission is what an organization is and why it
exists.
• Mission is defined as “Essential purpose of
the organization, concerning philosophical
question s like What is our business, the
nature of business it is in, who are our
customers it looks to satisfy”.
 They should be feasible: Though
mission should aim high, it should be
realistic and achievable.
It should be precise: It
should not be very
narrow nor should it be
too broad.
It should have clarity: It should
be clear enough to lead to action
It should be motivating:
It should motivate
employees to achieve its
mission.
It should be unique and distinctive:
A unique because an organization should
be seen by market and customers as
“different”.
It should the major strategy components:
It should indicate the strategy direction for the
organization.
STRATEGY DISCUSSIONS PERPLEXED HENERY MINTZBERG A PROFESSOR AT
McGILL UNIVERSITY CANADA-WHO DISCOVERED TEN DIFFERENT SCHOOLS
OF STRATEGY JUST LIKE THE BLIND MAN DESCRIBE AN ELEPHANT

PRESCRIPTIVE
DESIGN (1970s): Strategy as a process of conception
PLANNING (Mid 1970s): Formal Process
POSITIONING (1980s): Generic Positions-Porter

DESCRIPTIVE
CONFIGURATION: A process of Transformation-Customized
COGNITIVE: As a Mental Process and creative interpretations
CULTURAL: Social Process rooted in Company Culture
ENTREPRENEURIAL: A visionary process-Intution
ENVIRONMENTAL: Reaction to changes in Env.
LEARNING: Emergent process-result of Learning
POWER: Negotiation-Political
OF STRATEGY
 Setting Performance Targets: Linking Value
Drivers to Performance Targets

© 2013 Robert M. Grant

www.contemporarystrategyanalysis.com 124
STRATEGY
CONTENT