Michael Porter

Strategy is about
making choices and
trade offs: its about
deliberately choosing
to be different
 The New Economy
Substantial increase in buying power
A greater variety of goods and services
A greater amount of information about practically
anything
A greater ease in interacting and placing and
receiving orders
An ability to compare notes on products and
services
Kotler on
Marketing
It is more
important to do
what is
strategically right
than what is
immediately
profitable.
Kotler on
Marketing
Poor firms ignore
their competitors;
average firms copy
their competitors;
winning firms lead
their competitors.
 The Competitive Landscape

Globalization/ Technology and Innovation, Hyper-

competition

Pace of change is rapid

Industry boundaries are blurring

Financial capital is more scarce and markets are

increasingly volatile
 The Competitive Landscape

Hyper-competition extremely intense rivalry among

competing firms

Two primary drivers of the competitive landscape:

The global economy
Technology
 The Competitive Landscape

The Global Economy

Goods, services, people, skills and ideas move freely

across geographic borders

In summary: globalization increased economic

interdependence among countries as reflected in the flow of
goods and services, financial capital, and knowledge across
country borders
 The Competitive Landscape

Technology and Technological Changes

3 categories:

1. Technology diffusion & disruptive technologies

2. The information age

3. Increasing knowledge intensity

 The Competitive Landscape

1. Technology diffusion

Perpetual innovation: describes how new information-

intensive technologies are replacing older forms

Speed to market may be primary competitive advantage

Disruptive technologies :Technologies that

Destroy value of existing technology
Create new markets
 The Competitive Landscape
2 .The information age
Dramatic changes over last several years
Major technological developments effect how information is
used and disseminated
Internet provides infrastructure for information anytime,
anywhere

3. Increasing knowledge intensity

Defined as information, intelligence & expertise and is the
basis of technology and its application
Gained through experience, observations and inferences
Strategic Flexibility set of capabilities used to respond to
various demands and opportunities existing in a dynamic
and uncertain competitive environment
 Definitions Of Management
Mary Follett : The art of getting things done
through people.

Griffin : Management is a set of functions

directed at the efficient and effective utilization of
resources in the pursuit of organizational goals.
Definition of Strategy

comes from the Greek word Strategos

meaning Art of the general

Military used the word strategy to mean

grand plans made in the light of what it is
believed an adversary might or might not
do.
Strategy is about
Positioning an organization for competitive
advantage
Deciding what to do and what NOT to do
Which industries to participate in
What products and services to offer
How to allocate resources, add value
Creating value for shareholders and other
stakeholders by providing value to
customers
Strategy is about making
choices

Who will you target as customers and

who will you not?
What will you offer these customers
and what will you not offer them?
How will you do all this? What
activities will you perform; which will
you not?
 Definition of Strategy
Strategy is the direction and scope of
an organisation over the long term,
which achieves advantage in a
changing environment through its
configuration of resources and
competences with the aim of fulfilling
stakeholder expectations.
 Strategic Business Unit (SBU)
A strategic business unit (SBU) is a part
of an organisation for which there is a
distinct external market for goods or
services that is different from another SBU
 Strategy Formulation

Defined:
Development of long-range plans for the
effective management of environmental
opportunities and threats in light of
corporate strengths and weaknesses.
 Strategic Management

Defined:
Set of managerial decisions and
actions that determines the
long-run performance of a firm.
 What is Strategy?- 5 Ps

Mintzberg (1987):
1. Plan: Strategy as plan is some sort of consciously intended course of
action or a set of guidelines to deal with a situation and shows the firm
how to reach its intended position from its current state.
2. Ploy: Strategy as ploy could be a specific manoeuvre intended to outwit
an opponent or competitor so that competitive scenario turns in its favour.
3. Pattern: Strategy as pattern refers to patterns in a stream of actions and
by this definition strategy is consistency in behaviour, whether or not
intended.
4. Position: It is a means of locating an organisation in an environment and
by this definition strategy becomes a mediating force between
organisation and environment.
5. Perspective: Strategy as perspective refers to the way a firm perceives
the world and suggests that strategy is a concept.
 Strategic Management Process
1. Establishing Strategic Intent- Vision (direction), Mission ( purpose
of existence) and core values (for guiding conduct, behaviour &
beliefs)
2. Setting Objectives as yardstick for measuring company's
performance and progress ( both financial objectives and strategic
objectives)
3. Crafting strategy to achieve objectives including evaluating
alternatives/options ( macro environment assessment , industry
assessment and organization assessment)
4. Implementation /execution of strategies
5. Strategic Evaluation and control : Monitoring development,
evaluating performance and initiate corrective adjustments in light
of actual experience, changing conditions, new ideas and new
opportunities.
 The Vocabulary of Strategy
Mission overriding purpose

Vision/strategic intent desired future state

Goal general statement of aim or purpose

Objective quantification or more precise statement of goal

Strategic capability resources, activities and processes

Business model how product, service and information flow

Control monitoring of action steps

 Vision Statement
Vision
Picture of what the firm wants to be and, in broad terms, what
it ultimately wants to achieve

Vision Statement describes managements aspirations for the

future

Foundation for the mission

Encompasses Product, Market, Customers and Technology

Need to excite Stake holdersEmployees, Customers and

Stakeholders/ shareholders

VISION is all about companys long term direction(

3to 5years)
 Do s and Donts of Vision statements

Need to be distinctive and specific to a particular

organization
Should avoid generic feel good statements such as

We will become a global leader and the first choice of

customers in every market we serve
which would apply to hundreds of organizations.
 Mission Statement

Purpose or reason for the organizations existence

Promotes shared expectations among employees

Communicates public image important to stakeholders

Who we are, what we do, what wed like to become

Specifics business(es) in which firm intends to

compete and customers it intends to serve

More concrete than the vision

Mission is all about companys purpose-

who are we? what we do? and why we are here?
The Three Stakeholder Groups
 Evaluation of Mission & Vision
Statements
Proposed by Andrew Campbell, Director of Ashridge
Strategic Management Centre (1997)

1. Does the statement describe an inspiring purpose that

avoids playing to the selfish interests of the stakeholders?

2. Does the statement describe the companys responsibility

to its stakeholders?

3. Does the statement define a business domain and explain

why it is attractive?
 Evaluation of Mission & Vision
Statements
4. Does the statement describe the strategic positioning that the
company prefers in a way that helps to identify the sort of
competitive advantage it will look for?

5. Does the statement identify values that link with the

organisations purpose and act as beliefs with which
employees can feel proud?

6. Do the values resonate with and reinforce the organisations

strategy?
 Evaluation of Mission and Vision
Statements
7. Does the statement describe important behaviour standards
that serve as beacons of the strategy and the values?

8. Are the behaviour standards described in a way that enables

individual employees to judge whether they are behaving
correctly?

9. Does the statement give a portrait of the company capturing the

culture of the organisation?

10. Is the statement easy to read?

 Policy

Defined:
Broad guidelines for decision making that link
the formulation of strategy with its
implementation.
 Linking the Vision and Mission with
Core Values
Values refer to beliefs, traits and behaviour norms

Guides the conduct of the company operations and

behaviour of its personnel.

Core Values are the integral part of the DNA of the

company
 Setting Objectives
Objectives denote what an organization hopes to accomplish in a
future period of time.

Characteristics of objectives

1 ) Should be understandable

2) should be quantifiable

3) should be time bound

4) should be measurable

5) should be challenging

eg :To increase market share from 12% to 30%in 2 years

 Objectives

The end results of planned activity

What is to be accomplished
Time in which to accomplish it
Quantified when possible

Corporate goals and objectives include:

Profitability (net profits)
Growth (increase in total assets, etc.)
Utilization of resources (ROE or ROI)
Market leadership (market share)
 Objectives
2 very distinctive types of performance targets:

1. Financial Objectives
eg : %increase in sales, increase in EPS, Bond and credit
rating

2. Strategic Objectives
eg: % Market Share, % revenue from new products, having
stronger global and national sales and distribution network
than rivals

Balance scrore card:

It is a tool that is widely used to help a company achieve its

financial objectives by linking them to specific strategic
objectives derived from company's business model.
Strategic choices must be supported
by organizational choices

Culture

People Strategy Structure

Processes/
Incentives
 Various levels of Strategy

1. Corporate level ( at overall organization level covering all

lines of business of the company as a whole- which business
to hold, which one to divest, where to enter Diversification,
acquisition, JV, strategic alliance etc)

2. Business level ( at the level of each line of business )

3. Functional level ( eg: R&D, Sales & Marketing, Customer

Service, Finance )

4. Operational level ( eg: Plants, distribution centers,

purchasing centers, brand management, internet sales,
quality control )
 3 tests of winning strategy

1. Good fit

2. Sustainable Competitive advantage

3. Strong performance
Nature of Competition: Basic concepts

Strategic Competitiveness
Achieved when a firm formulate & implements a value-
creating strategy
Competitive Strategy
Integrated and coordinated set of commitments and
actions designed to exploit core competencies and gain
a competitive advantage
Competitive Advantage (CA)
Implemented strategy that competitors are unable to
duplicate or find too costly to imitate
Above Average Returns
Returns in excess of what investor expects in
comparison to other investments with similar risk
 Nature of Competition: Basic concepts

Risk
Investors uncertainty about economic gains/losses
resulting from a particular investment

Average Returns
Returns equal to what investor expects in comparison to
other investments with similar risk

Strategic Management Process (SMP)

Full set of commitments, decisions and actions required
for a firm to achieve strategic competitiveness and earn
above average returns
Competitive Advantage

Competitive
Key question:
Advantage: a
how do Firms
Firms ability to
create
create value in
sustained
a way that its
above-average
rivals cannot
returns?
 3 Perspectives of Competitive advantages

Internal External Dynamic

Often called the Also called the

Suggests that in
resource view, positional view,
dynamic, rapidly
contends that firms are contends that variations
changing markets, a
heterogeneous bundles in a firms competitive
firms current market
of resources and advantage and
position is not an
capabilities and firms performance are
accurate prediction of
with superior resources primarily a function of
future performance.
and capabilities enjoy industry attractiveness.
Instead, we look at the
competitive advantage Companies should
past for clues about how
over other firms. This therefore either (1)
the firm arrived at its
advantage makes it position themselves to
current position and to
relatively easier to compete in attractive
future trends both
achieve consistently industries or (2) adopt
internal and external in
higher levels of strategies that will make
an effort to predict the
performance their current industries
future landscape
more attractive
 Industrial
Organizational
(I/O) Model of
Above-Average
Returns (AAR)
 The
Resource-
Based
Model of
AAR
 Which View is Best?

Strategic management involves looking externally

(I/O View) and internally (RBV) to develop strategies
to achieve a sustainable competitive advantage.
Since the environment is constantly changing,
sources of competitive advantage can be found in
different places at different times.
 Formulation of strategies

Environment Appraisal ( includes Macro-

environment assessment/ industry assessment
and competitive forces assessment )

Organizational Appraisal ( assessment of

capabilities and resources of the organization for
gaining competitive advantage)-SWOT Analysis

Business level strategies -5 Generic Competitive

Strategies

Corporate Level Strategies

 Environmental Scanning

Defined:
The monitoring, evaluating, and disseminating
of information from the external and internal
environments to key people within the firm to
avoid strategic surprise and ensure the long-
term health of the firm.
 External Environment Analysis

Opportunity
General environment condition that, if exploited,
helps a company achieve strategic
competitiveness

Threat
General environment condition that may hinder
a company's efforts to achieve strategic
competitiveness
 External Environment Analysis

4 components of Environmental Analysis

Scanning

Monitoring

Forecasting

Assessing
 External Environment Analysis
Scanning:
Scanning entails the study of all segments in the general environment. Through scanning
firms identify early signals of potential changes in the general environment and detect
changes that are already under way

Monitoring :

When monitoring, analysts observe environmental changes to see if an important trend is

emerging from among those spotted through scanning. Critical to successful monitoring is
the firms ability to detect meaning in different environmental events and trends

Forecasting :

Scanning and monitoring are concerned with events and trends in the general environment
at a point in time. When forecasting, analysts develop feasible projections of what might
happen, and how quickly, as a result of the changes and trends detected through scanning
and monitoring

Assessing :

The objective of assessing is to determine the timing and significance of the effects of
environmental changes and trends that have been identified.

Through scanning, monitoring, and forecasting, analysts are able to understand the
general environment.

Going a step further, the intent of assessment is to specify the implications of that
understanding. Without assessment, the firm is left with data that may be interesting but
are of unknown competitive relevance
 Macro-environment PESTEL

Political Economic
Economic policies such as
industrial, monetary and fiscal
policies
The economic structure adopted
Taxation policy such as capitalistic, socialistic or
Foreign trade regulations mixed economy
Social welfare policies Business cycles-Recession
Government stability GDP trends
Attitudes toward foreign Interest rates
companies
Money supply
Laws on hiring and promotion
Inflation
Unemployment
wage/price controls
Energy availability and cost
Disposable and discretionary
income
 Macro-environment PESTEL
Sociocultural
Population demographics
Income distribution
Social mobility
Lifestyle changes
Attitudes to work and leisure
Consumerism/Consumer activism
Levels of education
Career expectations
Growth rate of population
Age distribution of population
Regional shifts in population
Life expectancies
Birth rates
socio-cultural attitudes , beliefs ,
values
awareness of rights , work ethics
the role of men, women, children
and the aged in family and society
Technological
Government spending on R&D
Total industry spending for R&D
Government and industry focus on
technological effort
New discoveries /developments
Communication and infrastructural
technology
Speed of technology transfer from lab to
market place
Rates of obsolescence
Productivity improvements through
automation
 Macro-environment PESTEL

Environmental Legal
Environmental protection laws Competition law
Waste disposal Employment law
Energy consumption Health and safety policies
Product safety
Policies related to licensing
foreign investment, foreign stakes
Policies related to import and
export
Policies related to PSU , small scale
industries , sick industries
development of backward areas ,
environment pollution
consumer protection