Lecture - 2

STRATEGIC MANAGEMENT

Textbooks :
1. Strategic Management by Colin White
2. Strategic Management from Theory to Implementation by David Hussey

RAKESH KUMAR, IIT & IIM Alumnus

STRATEGY PROCESS
2

[output: mission, vision, goals, objectives, policies, strategy and

their execution]
Strategy Development Process
Strategic Analysis

Political, Regulatory, Economic, Social Technological [PREST] Analysis

Industry and competitive analysis [ICA]
Resources and capability analysis [RCA]
Organization and culture analysis [OCA]
Stakeholder expectations analysis [SEA]

Strategic options, evaluation and choice

Strategy execution
RAKESH KUMAR

STRATEGY DEVELOPMENT
PROCESS

RAKESH KUMAR

STRATEGY DEVELOPMENT PROCESS

4

STRATEGIC

ANALYSIS
DEVELOPMENT OF STRATEGIC
OPTIONS, EVALUATION AND
CHOICE
STRATEGY EXECUTION
RAKESH KUMAR

STRATEGIC ANALYSIS

[1. What is happening and why? And 2. where the business context is
heading in the future?]

STRATEGY DEVELOPMENT PROCESS

STRATEGIC ANALYSIS [to be done at two levels: past to the

present and present to the future}

Past to present: INSIGHT

Present to the Future: FORESIGHT

Political, Regulatory, Economic, Social, Technological Analysis

[PREST] O &T
Industry and Competitive Analysis [ICA]- O&T
Resources and Capability Analysis [RCA]- S&W
Organization and Culture Analysis [OCA]-S&W
Stakeholder Expectations Analysis [SEA]- OBJ.
RAKESH KUMAR

PREST ANALYSIS
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Political
Regulatory
Economic
Social
Technological
Note:
Past

2 present and present 2 future

POV is required ref future evolution

RAKESH KUMAR

INDUSTRY AND COMPETITIVE

ANALYSIS [ICA]

RAKESH KUMAR

INDUSTRY STRUCTURE AND INDUSTRY ECONOMICS

[I.E. PROFIT POTENTIAL]
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INDUSTRY ECONOMICS AND NATURE OF

COMPETITION ARE INFLUENCED BY THE
COLLECTIVE STRENGTHS OF FIVE COMPETITIVE
FORCES:

POWER OF CUSTOMERS
POWER OF SUPPLIER
THREATS OF SUBSTITUTE
THREATS OF NEW ENTRANTS
JOCKEYING AMONG CURRENT PLAYERS
RAKESH KUMAR

STRUCTURAL ATTRACTIVENESS OF AN
INDUSTRY
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An industry is called structurally attractive [i.e.

High profit potential] if all or most of the forces
are weak.
An industry is called structurally unattractive
[i.e. Low profit potential] of all or most of the
forces are strong.

RAKESH KUMAR

STRATEGIC CHOICES
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STRATEGIC CHOICES INVOLVE:

Positioning, based on companys capabilities, that

helps in defending against competitive forces [all 5
competitive forces]
Influencing the balance of forces through offensive
strategic moves thereby improving companys
positioning.
Anticipating shift in factors underlying the 5 forces and
responding to them ahead of opponents.

RAKESH KUMAR

STRATEGIC CHOICES
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POSITIONING vis--vis current five forces is

the business model of the firm that and
reflects choices regarding:
TARGET CUSTOMERS
TARGET COMPETITION
VALUE PROPOSITION
VALUE DELIVERY MODEL
RAKESH KUMAR

STRATEGIC CHOICES
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Objective of POSITIONING is to either defend

against competitive forces or find position in
the industry where the forces are weakest.
INFLUENCING goes beyond defending and is
offensive enough to alter the relative power of
5 forces.

RAKESH KUMAR

STRATEGIC CHOICES
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ANTICIPATING takes into account the future changes in

the power of 5 competitive forces caused by developments
in macro-economic environment, technology, regulations,
social concerns, life style, innovations etc and their impact
on the future profit potential of the industry [which can be
very different from the present one]
Such an anticipation goes beyond scenario building and
requires managers to build a Point Of View [POV] on
future industry evolution.

RAKESH KUMAR

UNDERSTANDING COMPETITIVE
ADVANTAGE
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THREE IMPORTANT AREAS OF UNDERSTANDING:

Concept of customer value
Competitor's capabilities and strategic options available to them
Firms capabilities to create value in a unique way that is valuable to
customers and not easy to imitate
CAPABILITY= RESOURCES [Assets + people] + PROCESSES to deploy
the resources; (it must be valued by customers)
DEVELOPMENT OF SUSTAINABLE COMPETITIVE ADVANTAGES BY A
FIRM
REQUIRE DEEP UNDERSTANDING OF THESE THREE
ASPECTS.
RAKESH KUMAR

CUSTOMER VALUE
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VALUE = PERCEIVED BENEFITS IN THE EYES OF THE

CUSTOMERS

CUSTOMER PERCEIVES VALUE UNDER THREE HEADS [V= P +S +E:]

Product or core offerings [P]+
Solution of customers central problem or aspirations [S] +
Experience of customer during acquisition
and use of the offerings [E]
RAKESH KUMAR

CUSTOMER VALUE
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VALUE THUS IS:

Perceived
Individualistic
To a great extent subjective
Relative
Dynamic

The Key Challenge of a Company is How to

convert its PRODUCT to VALUE in the mind of
customer.

REMEMBER CUSTOMER DECISION IS FINAL

RAKESH KUMAR

CUSTOMER VALUE PROPOSITION (CVP) :

WHAT TO OFFER?
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Which attributes , which are currently taken for

granted, can be eliminated?
Which attributes should be
- reduced to below industry standards ?
- increased to above industry standards?
Which new attributes should be created that
the industry has never offered?
RAKESH KUMAR

VALUE PRICE RELATIONSHIP

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Perceived value must be more than the effective

price charged - [equal to actual cash outflow]
Value-price ratio [v/p] of a companys offerings
must be more than the same of its competitors for
it to dominate the market.
Premium pricing is possible only if v/p of the
concerned company
is higher than v/p of its
competitors.
For offerings that are perceived by customers as
standard, customers perceive value only when the
prices charged are lowest.
RAKESH KUMAR

ANALYSIS OF COMPETITORS: KEY COMPONENTS

[ANALYSIS IS A MUST BEFORE DEVELOPMENT OF BUSINESS STRATEGY]
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FUTURE
GOALS

CURRENT
STRATEGY

COMPETITORS
RESPONSE
PROFILE

ASSUMPTIONS

CAPABILITIES

RAKESH KUMAR

ANALYSIS OF COMPETITORS: KEY COMPONENTS

[ANALYSIS IS A MUST BEFORE DEVELOPMENT OF BUSINESS STRATEGY]

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FUTURE GOALS OF COMPETITORS

What

drives the competitor overall and at all levels of

management and in multiple dimensions

CURRENT STRATEGY OF COMPETITORS

What

the competitor is currently doing and can do

ASSUMPTIONS MADE BY COMPETITORS

Held

about itself and the industry [as assessed by the

competitor]

CAPABILITIES OF COMPETITORS
Both

strengths and weaknesses [as assessed by us]

RAKESH KUMAR

ANALYSIS OF COMPETITORS: KEY COMPONENTS

[ANALYSIS IS A MUST BEFORE DEVELOPMENT OF BUSINESS STRATEGY]
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COMPETITORS RESPONSE PROFILE

Is

the competitor satisfied with its current

position?
What likely moves or strategy shifts will the
competitor make?
Where is the competitor vulnerable?
What will provoke the greatest and most effective
retaliation by the competitor?

RAKESH KUMAR

MARKETING WARFARE: DEFENSIVE STRATEGIES

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Only the market leader should consider

playing defense
The best defensive strategy is the courage
to attack oneself
Strong competitive moves should always be
blocked

RAKESH KUMAR

MARKETING WARFARE: OFFENSIVE STRATEGIES

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The main consideration is the strength of

leaders position
Find a weakness in leaders strength and
attack at that point
Launch the attack on as narrow a front as
possible

RAKESH KUMAR

MARKETING WARFARE: FLANKING STRATEGIES

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A good flanking move should be made in

an uncontested area
Tactical surprise ought to be an important
element of the plan
The pursuit is just as critical as the attack
itself

RAKESH KUMAR

MARKETING WARFARE: GUERILLA STRATEGIES

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Find a segment small enough to defend

No
matter how successful a player
becomes, it must not act like a leader
Be prepared to bug out at a moments
notice

RAKESH KUMAR

SUSTAINING COMPETITIVE ADVANTAGE IN

HYPERCOMPETITIVE CONDITIONS
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REPOSITIONING

OVVERCOMING
COMPETITORS
BARRIERS

RAKESH KUMAR

COMPETITIVE
STRATEGIES
IN HYPERCOMPETITIVE
CONDITIONS

OVERCOMING
COMPETITORS
MARKETBASED MOVES

COMPETING
SUCCESSFULLY

APPLYING GAME THEORY TO DEVELOP COMPETITIVE

STRATEGY
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GAME THEORY
is concerned with the interrelationships between competitive moves of a set of
competitors
The central idea is that the strategist has to anticipate
the reactions of competitors
Three key assumptions:

A competitor will always behave rationally and will always try to

win to their own benefits
All competitors are having interdependent relationship with other
competitors [implying that all competitors are affected by what
other competitors do]
To some extent, all competitors are aware of interdependencies
that exist between them and the range of moves each can make
RAKESH KUMAR

28

Thank You

RAKESH KUMAR