BUSINESS STRATEGY

Strategic Management deals with the process of translating an organization's vision into
long term goals which will enable it to compete with sustained competitive advantage in
its business environment. Business Strategy is an important component of Strategic
Management. It deals with how a firm competes along the three dimensions of its
competitive space namely customers and markets, products and services, and
technologies including skills and capabilities. A firm's C.A. is determined by the breadth
of its target market. The target market could be mass market which means it is attractive
to a large number of customers spread across most income and occupation
groups(demographic groups). On the other hand, the market could appeal to a narrower
range of customers with specific requirements. Let us take a few examples.
Internationally WalMart the giant U.S. retailer, Timex the leading watch brand, Gateway
in P.C.s are good examples of firms with very large markets running into tens of
millions of customers. What is it they have in common. They all have products that are
extremely reasonably or even low priced which gives them a significant edge over their
competitors. These they are able to provide because they are very efficient in their
primary operations be they manufacturing in the case of Timex or Procurement in the
case of WalMart and Gateway. To put it quite simply they are able to sell cheap because
they produce/procure cheap. In other words they have Cost Leadership. In the Indian
scene, Nirma who is the industy leader in the detergent industry, and T Series the Cassette
Manufacturer are impressive in their ability to sell inexpensively vis. a vis. their
competitiore. This ability is driven by their extremely low cost of manufacture which
also gives them cost leadership.

Let us look at Daimler Benz who produce and market the world famous Mercedes line of
passenger automobiles, Maytag who manufacture and market a much sought after range
of Washing machines and appliances, and Disney who have the most sought after
entertainment parks on the planet. What is common between these companies' business
strategies? All of them market products which are priced significantly higher than the
products of their competitors. Clearly there are enough customers who are willing to pay
the price premiums charged by these companies on their products. This is because each
of these products offers something of extra value to their respective customers. This is
driving comfort, and style in the case of Mercedes, long lasting washing machines that
offer extremely reliable trouble free service in the case of Maytag, and superb customer
handling by friendly and helpful company staff at Disney theme parks. These companies
clearly position their products as "a cut above the rest" and offer additional value which
justifies the premium that they charge on their products. Their Business Strategy can be
described as Differentiation. To provide an Indian example of differentiation, Titan
Watches have made available to the Indian consumer products that have an international
look, carry the image of premium quality and therefore are able to set their prices higher
than their competitors in the Indian watch market.

The alternative strategies of Cost leadership and Differentiation owe their origin
and widespread acceptance in Management Science to Professor Michael Porter
who is acknowledged as one of the most influential management thinkers of our
generation and whose contribution to Strategic management is substantial. According
to Porter a firm should pursue one of either cost leadership of Differentiation failing
which it risks being stuck in the middle. While this is generally true, there are some
notable exceptions. Both Honda Motor Co. and Toyota Motors - leading players in the
international auto industry-have low priced products and premium priced products in
their portfolios and have been able to successfully market both types without
difficulty. In the Indian Context let us examine the strategies of Titan and Maxima
two leading firms in the Watch business. Titan followed a differentiation strategy
for many years, but decided to launch a low priced watch range which they named
Sonata. This backfired on Titan with the new range eating into the share of Titans own
products( a phenomenon known as Cannibalization). On the other hand Maxima
followed a cost leadership strategy while entering the watch market and having
acquired considerable market share decided to follow a partial differentiation
strategy. This is called "Focussed Differentiation" and it worked. We may conclude that
it is easier for firms who have established a strong market position with a cost
leadership strategy to move up the price ladder for some market segments than it is for
Differentiated Strategy companies to move down the price ladder.

Tactics These are specific operating plans which are part of and fit into the larger
strategic plan. In Warfare, tactics are plans made to fight and win battles. Strategy is the
larger set of plans to win Wars. Similarly in business tactics can be viewed as short
term plans to achieve smaller goals - also called targets- and are part of a larger
strategic plan to achieve long term goals. A useful way of viewing tactics is to consider
them as linking elements between Strategy formulation and Strategy Implementation.
There are two types of primary tactics viz. Timing Tactics and Market Location
Tactics. Timing refers to the order in which a firm makes market moves in relation to
its competitors. A firm may choose to be first in the market with a product or new
features to an existing product. This is known as a first mover tactic. Usually a firm
that employs this tactic is a market leader with an established acceptance of its brand.
However a notable exception to this has been Microsoft who has launched its P.C.
related software products much after the initiator companies and still managed to gain
leadership positions with its products. We may recall the success of Excel which
became the leader in the spreadsheet category and MS Word which gained the number
one slot in word processor software. Most leading Indian firms be they in the
automobile sector like Telco or in the FMCG sector like Nestle have been able to
employ first mover tactics because of their undisputed position as market leaders.
Market Location Tactics (M.C.T.) are employed as responding moves to
competitor's initiating tactics. They can also be viewed as competing inside or
outside the current market position. A notable M.C.T. is the Offensive Tactic where a
competitor's initiating tactic be it by way of an advertising campaign or a price
promotion is met by an overwhelming response in Sales or Marketing. A fine
example can be found in Honda's response to Suzuki's attempts -through massive
advertising and aggressive selling to gain the no.l position in the Japanese motor cycle
market. Honda's response was to declare a war on Suzuki with the rallying slogan to all
its marketing and Sales people "Annihilate Suzuki" Honda spent billions of yen over a
three month period and significantly reduced its profits for that year but had the
satisfaction of obtaining Suzuki's public apology for their recklessness in trying to
unseat the premier firm in the motor cycle business and to acknowledge Honda's
supremacy in the market. Sometimes firms employ 'flanking tactics" by introducing
new products that do not directly contest the marketing " right of way" with their
competitor's product, but offer an interesting alternative. Cyrix the U.S.
semiconductor manufacturer faced with Intel's blockbuster 386 micro processor
chip introduced a math co processor chip that offered an additional facility to the
segment of P.C. users who favoured heavy computational capability and thereby
created a unique selling proposition (U.S.P) through which it gained considerable
market share. Timex Watches in India faced with the absolutely dominant position of
Titan Watches in the Indian watch market, launched a complete range of Plastic
watches that offered a refreshing product alternative to the market particularly to the
youth market ( 18 to 35 age group) and was able to achieve a staggering sales volume
of 2 million watches in just two years,- a figure that the market leader took more
than five years to reach in considerably less competitive conditions.

Other tactics include Encirclement where the firm launches a huge variety of products
to minimize the impact of a single extremely strong competitor product . Frito Lay
has done just that in India by launching a huge variety of salted and flavoured potato
chips against the sole potato chip product of its major rival Uncle Chips. By pass tactics
consist of introducing an improved product to gain advantage over one's rivals.
Motorola introduced an electronic ballast( choke) to contest the vacuum tube lamp
market with its rivals in the U.S. Hindustan Lever and Procter and Gamble
introduced improved detergents Surf Excel and Ariel Plus to bypass the mass market
leader Nirma. Guerilla tactics are employed by two strongly positioned players
who employ hit and run maneuvers to disconcert their opponents in the market
place. Coke and Pepsi in India steal each others cases( the containers that hold the
bottles} quite often to gain a temporary advantage in the market place. The Indian
Watch marked is punctuated by the tactical promotions and discount schemes that
major players resort to in order to effect increase in unit sales.

A mention must be made of defensive tactics employed by firms and these can be
responsive or pre-emptive in nature. Examples of these are exclusive agreements with
distributors and dealers to handle a firm's products. Another example would be
keeping prices low or even reducing them from previous levels to discourage
aggressive entry of new competitors or new products from existing competitors
An exhaustive list of defensive tactics would include foreclosing on technologies
through patenting and licensing favoured by pharmaceutical companies and
software companies, limiting outside access to facilities and personnel favoured by
air craft manufacturers and semi conductor companies, boycotting suppliers who deal
with competitors a practice which existed for a long time in the auto industry, and
Lobbying with government to prevent entry or to restrict growth of competitors, a
practice universally followed in India by incumbent industry players during the long
years of the license permit raj. Two examples of firms that employed several of these
tactics simultaneously are Titan in India and Microsoft worldwide. Sadly these
tactics provide short term advantage , usually build a lot of resentment throughout the
industry and invariably draw vehement responses which tend to neutralise the initial
gains.

Choosing a Business Strategy.

There are a few steps that have to be taken to ensure that the choice of Business
Strategy made by a firm is sound. Firstly there should be the realization that
resources and capabilities have to searched for and located and the search has to be
systematically made over each of the functional areas including Marketing,
production, Sales and Finance. After this is done, the feasibility of using these
resources individually or collectively has to be determined. This is a serious exercise
and should involve senior and top management. A firm may have manufacturing
skills in plenty, but if the challenge facing the company is to increase market
penetration, priority will have to be given to strengthening the marketing and sales
functions and provide them with the lions share of the operating budget to achieve the
company's aims. Another requirement to kept in mind, is that skills and capabilities
identified in the earlier steps have to tapped and exploited to the full. Only then can
the organization achieve the competitive advantage which ultimately ensures the
success of the firm in the long run over its competitors. In addition the firm should
also provide support to these capabilities. If for instance the marketing initiative has
to include a large number of new products developed in a short span of time, it might
call for special training of the product design staff in creative techniques and could
well include purchase of specialized graphics software and training of key designers.

While tactics which are short term and narrow in focus can and often do include
responses to competitor moves in the market place and other key result areas of
the industry, Business Strategy is a long term concept and therefore in it's planning,
and formulation, utmost care should be taken to seriously analyze the business
environment of the firm both internally and externally, determine the positives, i.e.
strengths and opportunities as well as the negatives i.e. weaknesses and threats, and
to determine the best means of minimising the adverse factors while optimizing the
favourable ones. Sound Strategy is the most important factor in a firm's quest for
dominance in the market place and once that is ensured, the implementation becomes
feasible, and reinforces the soundness of the firms plans for competing with
sustained advantage in its business environment. Lastly, it is useful to remember
that while the suggestions given by renowned management experts should be
respected, we must realize that management is still in the realm of an art rather than
that of a science and the rich diversity of the competitive environment permits
innovative and sometimes even unconventional tactics can be envisaged and used to
competitive advantage. The only thing that we should do is to refer to the competitive
space framework of Customers and Markets, Products and Services, and
Skills/Capabilities including Technology and choose those moves which will give
competitive advantage in the short and medium term while not sacrificing the long term
interest
BUSINESS AND FUNCTIONAL STRATEGY

BUSINESS STRATEGY DEALS WITH HOW A FIRM

COMPETES IN ITS ENVIRONMENT WITH
SUSTAINED ADVANTAGE.

FIRST QUESTIONS-LOW COST OR

DIFFERENTIATION?

A FIRM'S C.A. DETERMINED BY BREADTH OF

TARGET MARKET, MASS OR SPECIALISED

EXAMPLE-
INTERNATIONALWALMATIMEX,GATEWAY
FOR COST LEADERSHIP, INDIA-NIRMA,T
SERIES

DIFFERENTIATORS-
INTERNATIONAL,DISNEY,MAYTAG,MERCEDES
INDIA,TITAN WATCHES
 PORTER'S GENERIC STRATEGIES

A FIRM SHOULD PURSUE ONE OF EITHER COST

LEADERSHIP OR DIFFERENTIATION OR IT RISKS
BEING STUCK IN THE MIDDLE

TOYOTA AND HONDA PROVE THE

EXCEPTIONS

HOWEVER IT IS ARGUABLE THAT THESE TWO

ARE MUTUALLY DISTINCT AND INCOMPATIBLE.
STAGE APPROPRIATENESS IS KEY. FUNCTIONAL
FOCUS WILL VARY WITH SPECIFIC TACTIC
 TACTICS

TACTIC IS A SPECIFIC OPERATING PLAN.

NARROW IN FOCUS, SHORTER IN TIME
HORIZON

TACTICS LINK STRATEGY FORMULATION AND

IMPLEMENTATION

TWO TYPES OF TACTICS VIZ. TIMING AND

MARKET LOCATION TACTICS.

FIRST MOVER TACTIC ENSURES HIGHER MARKET

SHARE AND PROFITABILITY. LONG TERM PROFIT
ADVANTAGE

INDIAN FIRMS IN POST

INDEPENDENCE/PRE REFORMS ERA HAD MUCH
OF P.M. ADVANTAGE

MICROSOFT A RARE EXAMPLE OF

FOLLOWER BEATING THE FIRST MOVERS
 MARKET LOCATION TACTICS

MARKET LOCATION REFERS TO

COMPETING INSIDE'OR OUTSIDE THE
CURRENT MARKET POSITION

OFFENSIVE TACTICS, SEVERAL. THESE INCLUDE

FRONTAL ASSAULT. MATCH THE COMPETITOR
ON PRICE, PROMOTION,DISTRIBUTION. MCI,
SPRINT VS. AT&T
FLANKING MANUEVER. CYRIX AGAINST INTEL
WITH MATH CO PROCESSOR FOR 386 CHIP. TIMEX
WATCHES WITH INITIAL PLASTIC OFFERING
 MARKET LOCATION TACTICS

ENCIRCLEMENT USES FULL PRODUCT

RANGE. HONDA IN U.S , FRITO LAY IN INDIA

BYPASS ATTACK-NEW IMPROVED VERSION OF

EXISTING PRODUCT. MOTOROLA WITH
ELECTRONIC BALLAST. H.L.L. AND P&G WITH
IMPROVED DETERGENTS

GUERILLA TACTICS- HIT AND RUN. PEPSI AND

COKE, TWO WHEELER PLAYERS, INDIAN WATCH
MARKET PLAYERS
 DEFENSIVE TACTICS

DEFENSIVE TACTICS LOWER THE PROBABILITY

OF ATTACK, DIVERT ATTACKS OR LESSEN
INTENSITY. INVOLVES RAISING OF STRUCT.
BARRIERS

FULL LINE OF PRODUCTS IN EVERY

SEGMENT

EXCLUSIVE AGREEMENTS WITH

DISTRIBUTORS AND DEALERS

RAISING SWITCHING COSTS THROUGH LOW

COST TRAINING

KEEPING PRICES LOW ON LIKELY ENTRY

PRODUCTS FOR NEWCOMERS
DEFENSIVE TACTICS
FORECLOSING ON TECHNOLOGIES
THROUGH PATENTING, LICENSING

LIMITING OUTSIDE ACCESS TO

FACILITIES AND PERSONNEL

TYING UP SUPPLIERS THROUGH EXCLUSIVE

CONTRACTS

AVOID/BOYCOT SUPPLIERS WHO SERVE

COMPETITORS

LOBBY WITH GOVT/REGULATORY AGENCIES

TO RAISE SAFETY/POLLUTION STANDARDS

MICROSOFT AND TITAN EMPLOYED SEVERAL OF

THE ABOVE SUCCESSFULLY
 DEFENSIVE TACTICS

INCREASE EXPECTED RETALIATION. SEND

SIGNALS ON NEW PRODUCTS/CAPACITY
ADDITION. P&GVS.CLOROX

LOWERING INDUCEMENT FOR ATTACK. REDUCE

CHALLENGER EXPECTATION OF PROFITS. S.W.
AIR.
CHOOSING A BUSINESS STRATEGY

ASSESS FEASIBILITY FOR STRATEGY AND

TACTICS IN TERMS OF RESOURCES/
CAPABILITIES

RESOURCES USUALLY EXIST WITHIN

FUNCTIONAL AREAS

TAPPING AND STRETCHING RESOURCES IS

KEY TO SUPERIOR COMPETITIVE
CAPABILITY

ORGANISATION MUST SUPPORT THE

SKILLS/CAPABILITIES