CSTR Summary Notes – Session 1-5 Term 2

“Strategy di ma di” – Tommy Singh

Gaurav Pansari (ISB PGP Co17)

Contents

a
vi
Contents ................................................................................................................................................................................................................................................... 1
1. Porter’s 5 competitive forces ........................................................................................................................................................................................................... 2

d
re
1.1. Use of 5 forces (strategy in practice) ....................................................................................................................................................................................... 3
1.2. Steps in Industry Analysis......................................................................................................................................................................................................... 3

ha
1.3. Avoid Pitfalls............................................................................................................................................................................................................................. 3

s
2. New Game Strategies - Roberto Buaron - Mckinsey ....................................................................................................................................................................... 4

as
2.1. The Business System ................................................................................................................................................................................................................ 4
3. Competitive Advantage – Nature and Sources – Robert Grant ....................................................................................................................................................... 5

w
3.1. Sustaining competitive advantage – mitigating competition imitation .................................................................................................................................. 5

m e
3.2. Porter’s Generic Strategies – source of competitive advantage ............................................................................................................................................. 6
4.
co rc
VRIO - Looking inside for competitive advantage – Jay Barney ....................................................................................................................................................... 7
o. ou
5. How Industries Change – Anita McGahan ....................................................................................................................................................................................... 9
5.1. Four Trajectories of change ..................................................................................................................................................................................................... 9
er res

Unsolicited Gyaan
eH y


rs ud

Understand this – There is no textbook approach. Each of the methods given are models made by different management gurus for no one single task
 What can be suggested for understanding competitive scenario is as follows:
ou st

1. Dissect industry structure – Porter baba’s 5 pandavas. Do not think about firm but industry. Focus on what’s important – mind charts can help
2. Dissect VRIO – Ask each question at each step. What’s your mojo?
is

3. Dissect business system and look for sources of competitive advantage – (cost/ differentiation) – Who’s the gabru?
Th

https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 1
 1. Porter’s 5 competitive forces1

Supplier Bargaining
Threat - New Entrant Threat - Substitute Buyer Bargaining power Existing Rivalry
Power
• Barriers to entry: • High Costs • Eg. Video > Travel, • Lowers Prices • A. Competition
1. Supply side EOS - Plastic > Metal, Email > Intensity
mail, Online > Agents

a
low costs. • Factors: • Customer negotiating 1. Numerous

vi
2. Demand side EOS - 1. Concentrates/ leverage: competitors
Network effects. eg. FB Monopoly - Eg. • Sources of force to 1. Few buyers/ large 2. High exit barriers
3. Customer Switching Microsoft change customer buyer 3. Slow industry

d
cost eg. SAP ERP 2. Supplier not preference: 2. undifferentiated growth

re
4. Capital requirement dependent on industry 1. Lower prices product/ Commodity 4. Rivals are highly
- incl credit, inventory, 3. Switching costs of 2. Low cost of 3. Low switching cost committed. Eg. Ego,

ha
advertisement firm. eg. SAP switching. eg. Burger 4. Backward govt org, growth
5. Incumbency 4. Differentiated near Pizza store integration threat. eg. targets

s
advantage - cumulative product. Eg. Pharma Pepsi 5. Firms cannot read
experience, brand each other

as
5. No substitute. Eg. • Mitigation - Look for 5. Intermediate -
identity Pilots tech advancements influence final
6. Distribution access

w
6. Forward integration customer. Eg. Retailer • B1. Competition
blocked - Eg. shelf threat Dimension - Price
space displacement 1. Identical product or

m e
• Customer Price
7. Government policy - Sensitive: low switching cost
eg. Liquor license
8. Expected retaliation co rc 1. Significant fraction 2. High fixed cost, Low
marginal cost
o. ou
of spend
- history of pushback, 3. Volume needed for
2. Low profit/ low cash
substantial resources, EOS
3. Quality indifferent
er res
likely price war
4. Low effect on 4. Perishable product.
buyer's other costs. Eg newspaper, food,
hotel room
eH y
rs ud

• B2. Other Dimensions -

eg. Feature, service,
adv. Less likely to
ou st

erode profits
is
Th

1
NOT FORCES – Industry growth, Technology, Government, Complementary products – these affect 5 forces – evaluate how.

https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 2
 1.1. Use of 5 forces (strategy in practice)
1. Positioning the company (segmentation avail most value). Eg. Premium ice cream
2. Exploit changes in forces – evaluate forces and capitalize opportunities. Eg. I-tunes
3. Reshape industry to a. grow share, b. grow pie by neutralizing relevant force.

1.2. Steps in Industry Analysis

a
•What products are in it? Which ones are part of another industry?

vi
Define Industry
•Geographic Scope

•Buyers and buyer groups

d
•Supplier and supplier groups

re
Identify participants and segment
•competitors
into groups
•substitutes

ha
•potential entrants

s
Assess force drivers •Drivers of each force - weak or strong?

as
•Why is industry profitability so?
•What are profit controlling factors?
Determine industry structure

w
•Analysis consistent with actual ling run profitability?
•More profitable players better off in 5 forces?

m e
•Analyse recent and future changes in forces
Force changes

co rc •Change positive or negative?

o. ou
•Aspects of industry influenceable?
Possible influences
•By competition, new entrants or by you?
er res

1.3. Avoid Pitfalls

 Defining the industry too broadly or too narrowly.
eH y

 Making lists instead of engaging in rigorous analysis. (now that’s a paradox)

rs ud

 Paying equal attention to all of the factors rather than digging deeply into the most important ones. (Pareto! Pareto! Pareto!)
 Confusing effect (price sensitivity) with cause (buyer economics).
ou st

 Using static analysis that ignores industry trends.

 Confusing cyclical or transient changes with true structural changes.
is

 Using the framework to declare an industry attractive or unattractive rather than using it to guide strategic choices.
Th

https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 3
 2. New Game Strategies2 - Roberto Buaron - Mckinsey
How?
Same Game New Game

Across the board same game Across the board new game
1. Little differentiation 1. Convention made irrelevant
Across

a
2. Fierce competition; often price 2. Higher profits and long term advantage

vi
3. Low short term risk; low commitment 3. High risk; sustained commitment

“Follow the leader” Eg. Timex selling through drugstore chains

Where?

d
re
Selective same game
- create niche

ha
Selective new game
Selective

1. Limited competition
1. Convention refuted
2. Focus limited resources
2. Higher profits and long term advantage

s
3. Moderate risk and commitment
3. Moderate risk; sustained commitment

as
Eg. Jabong

w
Note – When? Is equally important

To find opportunities, look at a. business system and b. business environment – immediate industry milieu (5 forces) and panoply of external forces (govt,

m e
economic, social, international, etc)

2.1. The Business System co rc

o. ou
Technology Product Design Manufacturing Marketing Service Distribution
er res

• Source • Funtion • Integration • Prices • Channels • Warranty

eH y

• Sophistication • Physical • RM • Advertising/ • Integration • Speed

rs ud

• Patent Characteristics • Capacity promotion • Inventory • Captive/

• Product/ process • Aesthetics • Location • salesforce • Warehousing Independent
choices • Quality • Package • Prices
ou st

• Procurement • Transport
• Production + • Brand
is

Assembly
Th

2
Rare - Needs exceptionally imaginative entrepreneurial thinking and commitment. Temporary benefit – eroded by competitive forces over time.
https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 4
 3. Competitive Advantage – Nature and Sources – Robert Grant
“One firm earns (or has potential to earn) a persistently higher rate of profit”

Source: Responsiveness to change Source: Strategic Innovation/ New game

•Speed is critical! Umbrellas in the rain •Type A: create value for customer. eg. Starbucks
•Anticipating change - edge •Type B: Redesigned process/ organisation. Eg. Walmart, Southwest,

a
•Responsiveness key: Nike (outsource), Amazon

vi
•Resource - Information
•Capability - Flexibility •But How? Viewpoints:

d
•Eg. Dell, Zara •Reconstructing and rearranging value chain - capitalize on
competencies, erect barriers to advantage

re
•Deliver unpresendented customer satisfactions through erstwhile
conficting dimensions

ha
•elemination of intermediaries. E-commerce.
•Not one-time but continual reinvention

s
as
3.1. Sustaining competitive advantage – mitigating competition imitation

w
Identification Competition can gauge superior profitability
•Obscure superior performance (eg. Pvt companies, gold rush)

m e
•"Theory of limit pricing" - set prices at a level to just fail to attract entrants

Incentive co rcBelief that it too can earn superior returns

o. ou
•Deterrence: signal aggressive intentions to imitators
•Preemption: exploit all available opportunities/ segments. Proliferation of product varities, large investment in capacity, Patent proliferation (eg.
er res

Xerox). Possible if A. small market for EOS, B. first mover advantage

Diagnosis Competition can identifysource of competitive advantage

eH y

•Multidimensional competitive advantage - complex organisational capabilities.

•Leads to > Casual ambiguity > Uncertain imitability
rs ud

Resource acquisition Able to acquire resources and capability for CompAd

ou st

•Complex team based routines take years to reach leader standards. Acquisition is subject to transaction costs
is

•Base compAd on immobile and difficult to immitate resources

Th

https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 5
 3.2. Porter’s Generic Strategies – source of competitive advantage
Low Cost Differentiation
Cost Leadership Differentiation Advantage
similar product at lower cost Price premium from unique product

Drivers: Drivers:
Industry wide

a
1. EOS 1. Tangible (Observable aspects) – Product features,
Scope

2. Economies of learning service provided

vi
3. Technology 2. Intangible differences – Desire for status, exclusivity,
4. Low input costs individuality etc. by customer.

d
re
Single Segment Focus

s ha
Notes

as
 DUAL ADVANTAGE – Porter baba says, companies that try to do both can get ‘stuck in the middle’
o However, dual might just be an ideal position to be in if possible to sustain. Eg. Apple

w
m e
co rc
o. ou
er res
eH y
rs ud
ou st
is
Th

https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 6
 4. VRIO - Looking inside for competitive advantage – Jay Barney
“Environment analysis is half the story. Look inside for competitive advantage” 3

Value Rareness Imitability Organisation

• Is the firm able to exploit an • Is control of the • Is it difficult to imitate, and • Is the firm organized, ready,

a
opportunity or neutralize an resource/capability in the will there be significant cost and able to exploit the

vi
external threat with the hands of a relative few? disadvantage to a firm resource/capability? Is the
resource/capability? • Valuable but common trying to obtain, develop, or firm organized to capture
• Changes in customer tastes, resources lead to duplicate the value?

d
industry or technology can competitive parity resource/capability? • Complementary resources -

re
render them more/less • Rareness of resources gives • Either duplication or limited ability of CompAd in
useful competitive advantage. substitution isolation.

ha
• Resources not valuable in • Eg. Walmart's point of • Why costly to imitate? • Incl reporting structure,
vaccum, but only when they purchase data collection • History - skills, abilities and control systems,

s
exploit opportunities (then) resources picked up over compensation policies
• Eg. AT&T high quality + R&D time which are unique to

as
organisation. Eg Caterpillar
WW2

w
• Power of small decisions-
CompAd depends heavily

m e
on thousands of decisions

co rc made each day. Invisible to

competition.
o. ou
• Socially complex resources
- Reputation, trust,
er res
friendship, culture are
difficult to imitate. Eg. Sony
culture of continuous
innovation
eH y
rs ud

Examples
ou st

1. Cola wars – Comp parity – similar resources, advertising, financial resources and management. Diversifying – Diet coke, fast food, other businesses and
is

geographies
2. Macintosh – Responsiveness to market opportunity, in-house development team – motivated and enthusiastic, different “fun” concept of PC.
Th

3
“Power of small decisions” – Personal view – biggest internal factor. Take it, and go.
https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 7
 Exploited by
Costly to
Valuable? Rare? the Competitive implication
imitate?
organization?
No Competitive disadvantage
Yes No Competitive parity
Yes Yes No Temporary CompAd

a
vi
Yes Yes Yes No Unexploited CompAd
Yes Yes Yes Yes Sustained CompAd

d
re
s ha
as
w
m e
co rc
o. ou
er res
eH y
rs ud
ou st
is
Th

https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 8
 5. How Industries Change – Anita McGahan
“Shut out the noise from immediate comp threats; take a longer term look at the context in which you do business”

5.1. Four Trajectories of change

Core Activities4
Threatened Not Threatened

a
Radical Change/ Disruptive Creative

vi
 Knowledge, brand capital, customer/ supplier relationship  Assets turn over constantly/ not stable
erode  Companies usually sustain standing
 Trajectory changes. Rare  Capitalize on relationships

d
 Strategy – look at productivity, pace of transition and buyer’s  Tactics examples – a. spread risk of new projects over
Threatened

re
switching cost portfolio. B. Outsource project management. C. Acquisition
 Tactics examples – A. Staggered improvement to current + strategy6

ha
selective experiments on new assets. B. Abandon existing and  Eg. Film production, pharma, oil & gas exploration, software
move to emerging line (IBM) - risky. C. Reinvest in current
Core Assets5

s
industry – risky
 Eg. Travel companies

as
w
Intermediate Progressive
 Typically when buyers and suppliers have new options –  Incumbents have incentives to preserve status quo
access to information  Carving out distinct position based on geographic, technical or
Not Threatened

m e
 Difficult to manage – Preserve valuable assets and restructure marketing expertise.

co rc
key relationships
 Find unconventional way to extract value from core resources
 Goal to build resources and capabilities steadily and
incrementally. Low Risk.
o. ou
 Eg. Auto dealership – Internet info, customer engagement by  Eg. Changes in retail brought over time by Walmart
manufacturer, inventory management by bigger companies
er res
eH y
rs ud
ou st
is

4
Th

Core Activities – activities which have generated profits for the firm
5
Core Assets – Resources, knowledge, brand capital
6
Acquisition Strategy is a personal note. Eg. CISCO
https://www.coursehero.com/file/21332470/CSTR-Notes-1-5-Gaurav-Pansari/ Page 9
Powered by TCPDF (www.tcpdf.org)