Ism Module - 2new

INTERNATIONAL STRATEGIC
MANAGEMENT
Module II
Anila Mathew V.
Lecturer, School of Management Studies
Cochin University of Science and Technology
Competitive Strategies
Basic Competitive Strategies
Michael Porters four basic competitive

positioning strategies
Overall cost leadership
Differentiation
Focus
Middle-of-the-roaders
18-22
Overall cost leadership strategy is

when a company achieves the lowest
production and distribution costs and
allow it to lower its prices and gain
market share
18-23
Requirements of Cost Leadership
Aggressive construction of efficient scale

facilities.
Vigourous pursuit of cost reduction from
experience.
Tight cost and overhead control.
Avoidance of marginal customer accounts.
Cost minimization in areas like R&D,
services, sales force, advertising and so on.
Risks of Cost Leadership
Other firms may imitate the cost leader
so that the cost leadership is lost.
Technological changes may result in the
firm losing cost leadership.
Cost focusers may achieve even lower
cost in segments.
Competition on bases other than cost
may become more important.
Differentiation strategy is when a

company concentrates on creating a
highly differentiated product line and
marketing program so it comes across
as an industry class leader
18-24
Differentiation
Bases: the product itself, the delivery system,

the marketing approach, credit facilities, after-
sales service etc.
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.
Focus strategy is when a company

focuses its effort on serving few
market segments well rather than
going after the whole market
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.
Porter believed that companies that

pursued a clear strategy would achieve
superior performance and that
companies without a clear strategy
would not succeed
Porter considered them to be middle-of-

the-roaders
18-26
LEVELS OF STRATEGY
Corporate strategy
SBU-1 strategy
SBU-2 strategy
SBU-3 strategy
OperationsMarketing Finance HRM

strategy strategy strategy strategy
Operating strategies
CORPORATE LEVEL STRATEGIES
Corporate strategy deals with 3 key issues

facing the corporation
1. The firms overall orientation toward
growth, stability or retrenchment
(directional strategy)
2. The industries or markets in which the firm
competes through its products and business
units. (portfolio analysis)
3. The manner in which management
coordinates activities and transfers
resources and cultivates capabilities among
product lines and business units
(parenting strategy)
CORPORATE LEVEL STRATEGIES
Grand strategy general orientations of a

firm
Growth
Stability
Retrenchment
Growth Strategy
It enters new business (including
functions) or market.
Effects major increase in its current
business.
Reasons for Growth Strategy
Current business is perceived as having no future

Current business is unstable or volatile in nature
Under utilisation of available resources and
capabilities
Need for spreading business risks
Retaliatory move
Imitate the growth strategies of competitors
Urge to grow
Objective of increasing the market share or gain
dominance
Desire to exploit the environmental opportunities
Growth Strategies
Intensive Integrative Diversification

Growth Growth Growth
Backward Forward Horizontal

Integration Integratio Integration
n
Market Market Product

Penetration Development Development
Conglomerate Concentric Horizontal

Diversificatio Diversificatio Diversificati
n n on
Ansoff Matrix
Market Penetration Strategy
Aaj Horlicks Diya Kya

Intensive Growth Strategy
Market Penetration Strategy

Increase sales to the current customers
Pull customers from the competitors
products
Convert non-users into users
Increase the frequency used
Increase the quantity used
Find new applications for current users
Market Development Strategy
Add new channels of distribution
and thereby expanding the
consumer reach of the product
Enter new market segments
Enter new geographical markets
Product Development Strategy
Add product feature

Expand product line
Develop a new generation product
Develop new products for same market
Reasons for Diversification
Saturation or decline of the current

business
Additional opportunities
Better Opportunities
Risk minimisation
Better utilisation of resources and
strengths
Benefits of integration
Competitive strategy
Need related diversifications
Consolidation
Inspiration
Concentric Diversification > A type of diversification in
which a company acquires or develops new products or
services (closely related to its core business or technology) to
enter one or more new markets.
Ex: the addition of tomato ketchup and sauce to the
existing "Maggi" brand processed items of Food Specialities
Ltd. is an example of technological-related concentric
diversification.
Horizontal diversification > Introducing a new product

which is technologically unrelated to the current product line
but which has appeal to its current customers. For example, a
company that was making notebooks earlier may also
enter the pen market with its new product.
Conglomerate diversification - Type of diversification

whereby a firm enters (through acquisition or merger) an
entirely different market that has little or no synergy with its
core business or technology
Vertical integration is the process in
which several steps in the production
and/or distribution of a product or
service are controlled by a single
company or entity, in order to increase
that companys or entitys power in
the marketplace. The company tries to
get more things under their reign to gain
more control over the profits the product /
service delivers.
Eg. Soft drinks and its bottle
There are basically 3 classifications of Vertical
Integration namely:
Backward integration Like a car company

owning a company which makes tyres.
Forward integration Where the business
tries to control the post production areas,
namely the distribution network. Like a mobile
company opening its own Mobile retail chain.
Balanced integration a mix of the above
two. A balanced strategy to take advantages
of both the worlds.
Horizontal Integration
Also known as lateral integration, simply
means a strategy to increase your market
share by taking over a similar company.
This take over / merger / buyout can be
done in the same geography or probably in
other countries to increase your reach.
Motives /Advantages of M&As
Achieving Economies of Scale

Increasing the Market Power
Diversification
Acquisition of Technology
Market Entry
Possession of Marketing Infrastructure
Use of Surplus Funds
Optimum utilisation of Resources and Facilities
Product Mix Optimisation
Pre-emptive Strategy
Vertical Integration
Tax Benefits
Logistical Factors
Increasing the Share of Promoters' Stake
Acquisition of Brands
Stability Strategy
It continues to serve the customers in the
same product or service, market, and
functional sectors as defined in its
business definition, or in very similar
sectors.
Its main strategic decisions focus on
incremental improvement of functional
performance.
Sometimes viewed as a lack of strategy
Dangerous to follow for too long
Reasons for Stability Strategy
The company is doing fairly well and it is hopeful

of the same in future.
The feeling that sticking to the known business is
always better and safe.
Resource constraints
Risks of growth and expansion.
Absence of the mind-set of a strategist
Stability Strategies
Pause/Proceed with caution strategy
deliberate attempt to make only incremental
improvement until a particcular
environmental situation changes
During recession and financial crisis
No change strategy
Decision to continue current operations and
policies for the foreseeable future
Provided no significant change occurs in the
firm environment
Profit Strategy
Attempt to artificially support profits when a
companys sales are declining by reducing
investment and short term discretionary
expenditures
Passive short term self- serving response by
top management to a difficult situation
Should not be continued for long
Retrenchment Strategy
Drops product line(s), market(s), market
segment(s) or function(s).
Focuses on functional improvements or
reversing certain deteriorating trends.
Defensive Strategies
Divestiture Liquidation
Becoming a Captive Turnaround
Reasons for Retrenchment Strategy
Certain divisions / product lines / products /

market segments / functions are not
profitable
The profit from a business is less than the
target rate
The companys new strategy is to focus on
its core business
The company is too diversified / scattered
that effective management is not possible
The company has serious financial problem
Certain current business does to confirm to
the company philosophy / ethics
The company is confronted with
deteriorating performance indicators
Danger Signals
Deteriorating Performance Indicators
Decreasing Market Share
Decreasing Constant Rupees Sales
Decreasing Profitability
Deteriorating Financing Problems
Increasing Reliance on Debt
Restrictive Dividend Policy
Danger Signals
Investment Policies
Inadequate Reinvestment in Business
Proliferation of New Ventures at the
Expense of the Priority Business
Lack of Planning
Problems at the Top Management
Levels
Lack of Receptiveness of CEO
Management Succession Problem
Ineffective Directors
Ineffective Management Team
Combination
Stability and growth strategies.
Stability and retrenchment strategies.
Growth and retrenchment strategies.
Growth, retrenchment and stability
strategies.
TURNAROUND MANAGEMENT
The management measures that reverse

the negative trends in the performance
indicators of the company.
The management measures which turn a
sick company back to a healthy one
Measures which reverse the deteriorating
trends of the performance indicators such
as falling market share, sales (in
constant rupees), and profitability and
worsening debt-equity ratio.
Turnaround Management Factors
Management Factor
Human Resource Factor
Production Facilities
Finance Management
Product Mix Modification
Marketing Strategy
Miscellaneous
Elements In Turnaround Management
Change in the top management

Initial credibility building actions
Neutralising external pressures
Initial control
Identifying quick pay off activities
Quick cost reductions
Revenue generation
Asset liquidation for generating cash
Mobilisation of the organisation
Better internal coordination.
Turnaround Management
Two basic stages of turnaround strategy are
Contraction and Consolidation
Contraction initial effort to quickly stop
the bleeding
Consolidation implements a program to
stabilise the now learner corporation
Captive Company strategy
the scenario in which a small firm sacrifices
its freedom for the security of being part of
a large conglomerate
Sell out / divestment
The partial or full disposal of a business unit through sale,
exchange, closure or bankruptcy.
Divestiture may result from a management decision to no longer
operate a business unit because it is not part of a core competency.
It may also occur if a business unit is deemed redundant after a
merger or acquisition, if jettisoning a unit increases the resale value
of the firm or if a court requires the sale of a business unit to
improve market competition.
Bankruptcy/ Liquidation
Giving up management of the firm to the
courts in return for some settlement of the
corporations obligations
Liquidation is the termination of the firm
Strategic Business Units
The purpose of identifying the company's

strategic business units is to develop
separate strategies and assign appropriate
funding.
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.
It is a company within a company

The business is differentiated from the rest of
the company
It has its own set of competitors
It is a separate profit centre
1-48
Assigning Resources to SBUs
The purpose of identifying the companys

strategic business units is to develop
separate strategies and assign appropriate
funding to the entire business portfolio.
Senior managers generally apply analytical

tools to classify all of their SBUs according to
profit potential.
Two of the best-known business portfolio
evaluation models are the Boston Consulting
1-49
BCG Matrix
The growthshare matrix is a chart that was created
by Bruce D. Henderson for the Boston Consulting
Group in 1970 to help corporations to analyze their
business units, that is, their product lines.
the product portfolio
BCG-matrix
Boston matrix
Boston Consulting Group analysis
portfolio diagram
This helps the company allocate resources and is
used as an analytical tool in brand marketing,
product management, strategic management, and
portfolio analysis
Cash cows
high market share in a slow-growing
industry.
These units typically generate cash in
excess of the amount of cash needed
to maintain the business.
They are regarded as staid and boring, in a
"mature" market, yet corporations value
owning them due to their cash generating
qualities.
They are to be "milked" continuously
with as little investment as possible,
since such investment would be wasted in
an industry with low growth.
Dogs
Low market share in a mature, slow-growing
industry.
These units typically "break even", generating
barely enough cash to maintain the business's
market share.
Though owning a break-even unit provides the
social benefit of providing jobs and possible
synergies that assist other business units, from an
accounting point of view such a unit is worthless, not
generating cash for the company.
They depress a profitable company's return on
assets ratio, used by many investors to judge how
well a company is being managed.
Dogs, it is thought, should be sold off.
Question marks
Also known as problem children, are business operating
in a high market growth, but having a low market share.
They are a starting point for most businesses. Question
marks have a potential to gain market share and
become stars, and eventually cash cows when market
growth slows.
If question marks do not succeed in becoming a market
leader, then after perhaps years of cash consumption,
they will degenerate into dogs when market growth
declines.
Question marks must be analyzed carefully in order to
determine whether they are worth the investment
required to grow market share.
Stars
High market share in a fast-growing industry.
They are graduated question marks with a
market or niche leading trajectory, for example:
amongst market share front-runners in a
high-growth sector
The hope is that stars become next cash cows.
Stars require high funding to fight competitions
and maintain a growth rate.
When industry growth slows, if they remain a
niche leader or are amongst market leaders its
have been able to maintain their category
leadership stars become cash cows, else they
become dogs due to low relative market share.
As a particular industry matures and its
growth slows, all business units become
either cash cows or dogs.
The natural cycle for most business units is
that they start as question marks, then turn
into stars.
Eventually the market stops growing thus
the business unit becomes a cash cow.
At the end of the cycle the cash cow turns
into a dog.
Only a diversified company with a balanced
portfolio can use its strengths to truly
capitalize on its growth opportunities. The
balanced portfolio has:
stars whose high share and high growth
assure the future;
cash cows that supply funds for that future
growth; and
question marks to be converted into stars
with the added funds.
Question Marks
Magi 2-minute Noodles currently require
lots of investment in order to capitalize on
the growing culinary segment, which may
not offer the highest return on investment
in Nestles brand portfolio.
Stars
Nestles wide range of mineral water has
benefited from the combination of healthier
lifestyle trends and emerging markets.
These products require large amounts of
investments in order to differentiate the
bottled water brands from competitors in
mature markets and grow brand awareness
in emerging markets.
Dogs
. Sales of Jenny Craig and Lean Cuisine,
weight loss management brands, have
failed to expand outside of the USA these
two brands are tipped to be divested in the
future. Sports performance and nutrition
brand, PowerBar, is confirmed to be
divested. This is most likely because of
poor sales in a saturated market. SBUs in
this classification may generate enough
profit to be self-sufficient, be are
considered to never be major sources of
revenue.
Pitfalls of BCG
Multi-industry comparisons
Market growth may be directly
influenced by the firm
No consideration of future trends
Time Consuming
Functional - marketing
Market leader strategy

Market challenger strategy
Market follower strategy
Market nicher strategy
18-32
Marketing Strategies
Market leader is the firm with the largest

market share and leads the market price
changes, product innovations, distribution
coverage, and promotion spending
Market challengers are firms fighting to
increase market share
Market followers are firms that want to hold
onto their market share
Market nichers are firms that serve small
market segments not being pursued by other
firms
18-33
Market Leader Strategies
Expand total demand

Protect their current market
Expand market share
18-34
Expanding Total Demand
Expand total demand by developing:

New users
New uses
More usage of its products
18-35
Protecting Market Share
Protect current market by:

Fixing or preventing weaknesses that provide
opportunities to competitors
Maintaining consistent prices that provide
value
Keeping strong customer relationships
Continuous innovation
18-36
Expanding Market Share
Expand market share by:

Increasing market share in served markets,
thus increasing profitability
Producing high-quality products
Creating good service experiences
Building close customer relationships
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
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
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.
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
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.
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
Market Challenger Strategies
Challenge the leader with an aggressive

bid for more market share
Play along with competitors and not rock

the boat
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?
Use a combination of several

strategies to improve market
share over time
Market Follower Strategies
Second mover advantage occurs when

a market follower observes what has
made the leader successful and
improves on it
Challenges firms its own size or smaller
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
(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
(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.
(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
Market Nicher Strategies
Ideal market niche is big enough to be profitable

with high growth potential and has little
interest from competitors
Key to market niching is specialization

Market
Customer
Product
Marketing mix
18-40
Market-Nicher Strategies
Smaller firms can avoid larger firms by

targeting smaller markets or niches that
are of little or no interest to the larger
firms
e.g. Logitech--mouse
Microbrewers--special beers
Market-Nicher Strategies (contd)
Nichers must create niches, expand the
niches and protect them
e.g. Nike constantly created new niches--
cycling, walking, hiking, cheerleading, etc
What is the major risk faced by nichers?
Market niche may be attacked by larger firms
once they notice the niches are successful
Multiple Niching
[A] firm should `stick to its niching but not
necessarily to its niche. That is why
multiple niching is preferable to single
niching. By developing strength in two or
more niches the company increases its
chances for survival.
Philip Kotler
The Central Role of
Customers
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.
Customer size segments

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Her Return to Discussion Questions
e
96
Discussion Question 2
What is business level strategy?

What are some types of
business level strategy?
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
An integrated and coordinated set of actions taken to

Strategy exploit core competencies and gain a competitive
advantage
Actions taken to provide value to customers and gain a

competitive advantage by exploiting core competencies in
Business-level specific, individual product markets
strategy
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
What type of customers are

necessary to pursue a cost
leadership strategy? How is a
cost leadership strategy
developed?
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
Cost DriversValue Chain
Alter production process New raw material

Change in automation Forward integration
New distribution channel
Backward integration
New advertising media Change location
Direct sales in relative to
place of indirect suppliers or buyers
106
sales
Factors That Drive Costs
Economies of scale Product features
Asset utilization Performance
Capacity utilization pattern Mix & variety of products
Seasonal, cyclical Service levels
Interrelationships Small vs. large buyers
Order processing Process technology
and distribution Wage levels
Value chain linkages Product features
Marketing & sales Hiring, training, motivation
Logistics & operations
Service
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
e
108
How does establishing the cost

leadership position deal with the
five competitive forces? What
are the risks of pursuing cost
leadership?
109
Cost Leadership Strategy and the
Five Forces of Competition
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110
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111
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Bargaining
Power of low cost position
Suppliers
being able to make
very large purchases,

reducing chance of
112 supplier using power
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 frighten off new
Thr ntran

entrants due to:
eat
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
move down the

113 learning curve
R
Co iva
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

positioned to:
eat
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
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
What type of customers are

necessary to pursue a
differentiation strategy? How is a
differentiation strategy developed?
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
Value provided by unique features and
value characteristics
Command premium price
High customer service
Superior quality
Prestige or exclusivity
Rapid innovation
119
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
Cost DriversValue Chain
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

competition because:
eat
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
e
123
How does establishing

differentiation help a firm fend off
threats from the five forces? What
are the risks of pursuing
differentiation?
124
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

power because:
eat
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
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

power by:
eat
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
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

new entrants because:
eat
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
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

to substitutes because:
eat
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
New Product Marketing Finance

R&D
Operations Human
Resources
Marketing is the main function for tracking new product

ideas
New product R&D is emphasized
Most functions are decentralized
129 Formalization is limited to foster change and promote
Major Risks of Differentiation
Strategy
Customers may decide that the price
differential between the differentiated
product and the cost leaders product is
too large
Means of differentiation may cease to
provide value for which customers are
willing to pay
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
e
131
When should a focus strategy be

implemented? What are the
risks of a focus strategy?
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
e
135
What is the integrated low-cost

differentiation strategy? What
are the arguments as to why it is
increasing in importance? What
are the risks associated with the
integrated strategy?
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

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INTERNATIONAL STRATEGIC

Michael Porters four basic competitive

Overall cost leadership strategy is

Aggressive construction of efficient scale

Differentiation strategy is when a

Bases: the product itself, the delivery system,

Focus strategy is when a company

Porter believed that companies that

Porter considered them to be middle-of-

OperationsMarketing Finance HRM

Corporate strategy deals with 3 key issues

Grand strategy general orientations of a

Current business is perceived as having no future

Intensive Integrative Diversification

Backward Forward Horizontal

Market Market Product

Conglomerate Concentric Horizontal

Aaj Horlicks Diya Kya

Market Penetration Strategy

Add product feature

Saturation or decline of the current

Horizontal diversification > Introducing a new product

Conglomerate diversification - Type of diversification

Backward integration Like a car company

Achieving Economies of Scale

The company is doing fairly well and it is hopeful

Certain divisions / product lines / products /

The management measures that reverse

Change in the top management

The purpose of identifying the company's

It is a company within a company

The purpose of identifying the companys

Senior managers generally apply analytical

Market leader strategy

Market leader is the firm with the largest

Expand total demand

Expand total demand by developing:

Protect current market by:

Expand market share by:

Challenge the leader with an aggressive

Play along with competitors and not rock

Use a combination of several

Second mover advantage occurs when

Challenges firms its own size or smaller

Ideal market niche is big enough to be profitable

Key to market niching is specialization

Smaller firms can avoid larger firms by

Customer size segments

What is business level strategy?

An integrated and coordinated set of actions taken to

Actions taken to provide value to customers and gain a

What type of customers are

Cost DriversValue Chain

Alter production process New raw material

How does establishing the cost

Five Forces of Pow ining

Five Forces of Pow ining

Five Forces of Pow ining

cost increases due to

very large purchases,

Five Forces of Pow ining

move down the

Five Forces of Pow ining