DYNAMICS OF COMPETITIVE STRATEGY PROF. OM TRIVEDI

Transcription

1 CHAPTER 2 DYNAMICS OF COMPETITIVE STRATEGY PROF. OM TRIVEDI By:

2 Competition Competition is a contest between organisms, animals, individuals, groups, etc. Direct competition: Products which perform the same function compete against each other. Indirect competition: Products which are close substitutes for one another compete.

3 Competitors Any person or entity which is a rival against another in business. A company in the same industry or a similar industry which offers a similar product or service. Example: Fast-food restaurants McDonald s and Burger King Coca-Cola and Pepsi Wal-Mart and Target.

4 How to Deal with Competition? Who are the competitors? What are their product and services? What are their market shares? What are their financial positions? What gives them cost and price advantage? What are they likely to do next? How strong is their distribution network? What are their manpower strengths?

5 Competitive Landscape A business analysis which identifies competitors. Permits the comparison of their mission, vision, core values, niche market, strengths and weaknesses.

6 I. Identify the competition Steps to Understand Competitive Landscape II. Understand the competition III. Determine the strengths of the competition IV. Determine the Weaknesses of the competition V. Put all the Things Together

7 Competitive Strategy Competitive strategy is designed to help firms achieve competitive advantage. A competitive strategy consists of moves to Attract customers Face Competition Perceived Value Tata Nano Beat Competition Strengthen an organization s market position

8 Competitive Advantages It allows a firm to gain an edge over rivals when competing. The set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. Bade Aaram Se

9 Value Creation Providing products and services to the customers with more worth.

10 WALMART Self-service Super Market Business Model In 1962 by Sam Walton A year of Recession Sales- 410 Billion Dollars, 7400 stores in 15 countries and over 2 million employees ROIC: 14.5% Competitors- Costco (11.7%) and Target (9.5%)

11 McDonald s In 120 countries outlets in US and outlets outside 2/3 rd revenue comes from out of US Feeds 58 million customers everyday A year of Recession Revenue: 22.7 Million in 2007 to 23.7 Million in 2008 Income: 2.4 Billion in 2007 to 4.3 Billion in Million new customers, 650 new outlets

12 Role of Resources, Capabilities and Value Creation is Achieving Competitive Advantages

13 Characteristics of Resources that Provide Sustainable Competitive Advantages I. Imitability II. Durability III. Transferability IV. Appropriability

14 Strategic Analysis

15 What is Strategic Analysis Strategic analysis seeks to determine alternative course of action that could best enable the firm to achieve its mission and objectives. Strategic analysis tries to find out: How effective has the present strategy been? How effective will that strategy be in the future? How effective will the selected alternative strategy be in the future?

16 Strategic Analysis

17 Issues to be Considered for Strategic Analysis Strategy evolves over a period of time (Result of a series of small Decisions) Balance (Balance between the internal and external factors) Strategic Risk (Analyzing risk involved and consequences thereon)

18 What is Risk? Certainty Risk Uncertainty

19 Strategic Risks

20 Situational Analysis A systematic approach for identifying and analyzing macro-environmental factors external to the organization and matching them with the firm s capabilities. A Firm s macro-environment includes all relevant factors and influences outside the company s boundaries.

21 Choosing a Strategy through Situation Analysis

22 Important Factors Considered while doing a Situation Analysis Product Situation Competitive Situation Distribution Situation Environmental Factors Opportunity and Threat analysis

23 Strategic Analysis Framework Strategic Analysis External Analysis Customer Analysis Competitor Market Environmental Opportunities, threats, trends, and strategic uncertainties Internal Analysis Performance Analysis Determinates Analysis Strengths, Weaknesses, trends, and strategic uncertainties Strategy Identification and Selection i. Identify strategic alternatives ii. Select strategy iii. Implement the operating plan iv. Review strategies

24 Industry and Competitive Analysis Industries differ widely in their economic characteristics, competitive situations, and future profit prospects.

25 Methods of Industry and Competitive Analysis D ominant Economic Features of Industry I ntensity of Competition D rivers of Change I dentifying Companies in Strongest and Weakest Position S trategic or Competitive Moves of Rivals E xamine Key Factors for Competitive Success E valuate Financial Attractiveness of Industry

26 Important Concepts Strategic Groups Strategic Group Mapping Key Success Factors (KSFs)

27 The Value Chain Analysis (Important Concepts) Value Analysis It is an accounting analysis to understand the value added of separate activities in a complex manufacturing process, in order to determine where cost improvement could be made and/or value creation improved. Value Added Creation of a competitive advantage by bundling, combining, or packaging features and benefits that result in greater customer acceptance.

28 Value Chain Framework of Porter (1990)

29 Managing Linkages Internal Linkages Between Primary Activities Primary and Support Activities Between Support Activities External Linkages 1. Vertical Linkages Involving suppliers while finalizing specifications for raw-material. Involving distributors at the design stage of a product. 2. Horizontal Linkages

30 What is Core Competencies? Core Competencies are created by superior integration of technological, physical and human resources. They represent distinctive skills as well as intangible, invisible, intellectual assets and cultural capabilities. It also refers to the strengths of an organization that provide competitive advantage and value to it.

31 C K Prahlad and Gary Hamel s View on Core Competence (CC) Three competencies that can be termed CC: A. Competitor differentiation or CA B. Customer value or Value creation C. Application of competencies

32 Tools to identify and build CC Four criteria of sustainable competitive advantage (Capabilities that are Core Competencies) Value Chain Analysis

33 Capabilities that are Core Competencies Valuable Non-substitutable Costly to Imitate Rare

34 Identifying Core Competencies Leverage Test Does it provide potential access to a wide variety of markets? Value Enhancement Test Does it make a significant contribution to the perceived customer benefits of the end product? Imitability Test Can it be imitated? Does it reduce the threat of imitation by competitors?

35 Value Chain Analysis (VCA) and Core Competencies 1. Validate core competencies in current businesses. 2. Export or leverage core competencies to the Value Chains of other existing businesses. 3. Use Core Competencies to reconfigure the Value Chains of existing businesses 4. Use core competencies to create new Value Chains.

36 SWOT Analysis Internal S W Things the company does well. Things the company does not do well. O External T Conditions in the external environment that favor strengths. Conditions in the external environment that do not relate to existing strengths or favor areas of current weakness. South-Western College Publishing

37 SWOT Analysis Strengths and Weaknesses INTERNAL Strengths Financial resources Broad product line No debt Committed employees Technology Weaknesses Huge debts High employee turnover Wastage of raw materials Obsolete Machinery

38 SWOT Analysis Opportunities And Threats EXTERNAL Opportunities Emerging markets Population changes Government policies FDI in retail Changes in Interest Rates Threats Changing technology Price wars Reduction in industry profits Recession

39 Significance of SWOT Analysis Provides a Logical Framework Presents a Comparative Analysis Guides strategist in Strategy Identification

40 SWOT Analysis Framework

41 TOWS Matrix (Heinz Weihrich)

42 Portfolio Analysis Business Portfolio: A business portfolio is a collection of businesses and products that make up the company. Portfolio Analysis: A set of techniques that help strategists in taking strategic decisions with regard to individual products or businesses in a firm s portfolio.

43 Strategic Business Unit (SBU) SBU is an autonomous division in the organization which deals with specific business concerns. It has its own set of competitors and a manager, who has responsibility for strategic planning and implementation, and who has control over the resources and profit-influencing factors. Manufacturing Showroom Service Centre SBU 1 SBU 2 SBU 3

44 Experience Curve Experience curve shows the relationship between production cost and cumulative production quantity.

45 Product Life Cycle (PLC)

46 Boston Consulting Group Growth- Share Matrix (BCG Matrix)

47 Four strategies Based on BCG Matrix Build Hold/Protect Harvest Divest

48 Ansoff s Product Market Growth Matrix (Igor Ansoff) The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy.

49 ADL Matrix (Arthur D Little) The ADL Matrix is a two dimensional 4*5 matrix Based on the Product Life Cycle (PLC) and Competitive positioning. Matrix Positioning Base Industry Maturity Competitive Position

50 ADL Matrix

51 The General Electric Model

52 GLOBAL ENVIRONMENT

53 Global Environment Factors I. Positive and negative impact of significant international events II. Emerging global markets III. Changing global markets IV. Cultural attributes of individual global markets. V. Institutional attributes of individual global markets.

54 Factors that influence globalization Sports Meets Terrorist Attacks Natural Disasters Emerging new market The culture and attributes towards change

55 Globalization Globalization refers to the linkage between markets that exist across national borders. These linkages may be economic, financial, social or political.

56 The Indicators of Globalization International trade in goods and services. The transfer of money capital from one country to another. The movement of people across national borders.

57 Types of Global Companies

58 Characteristics of a Global Company Common ownership Common pool of resources Common strategy

59 Reasons why Companies go Global Domestic markets are no longer enough to absorb whatever is produced Foreign markets have grown enough to justify foreign investment Availability of cheaper and reliable resources in other countries Reduction in transportation cost for export to remote countries Rapid shrinking of time and distance across the globe

60 Importance of Globalization Proper use of Resources Multiple choices Foreign Exchange Government incentives Creates Employment Technology Spreading of Risk of Loss Benefit to the consumers