Complete CS.pdf

1. Session 1: Competitive Strategy IIFT Delhi - MBA(IB), 2020-23 | Weekend Batch

2. Strategy A strategy is the pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole A well-formulated strategy helps to marshal and allocate an organization's resources into a unique and viable posture based on its relative internal competencies and shortcomings anticipated changes in the environment, and contingent moves by intelligent opponents James Brian Quinn - The Strategy Process: Concepts and Contexts, "

3. Strategy Kenichi Ohmae (The Mind of the Strategist) says: the strategic triangle "In terms of these three key players, strategy is defined as the way in which a corporation endeavors to differentiate itself positively from its competitors, using its relative corporate strengths and weaknesses to better satisfy customer needs” Competition Company Customer

4. Strategy – Peter Drucker Strategy is about knowing where your company is today, where you want to take it, and how you are going to get there

5. Simple Framework Set your long-term goals Conduct a market and competitive analysis Assess where your company is now Do a SWOT analysis--Strength, Weaknesses, Opportunities and Threats Compare where you are now and five years out. How big is the gap between the two? Determine what steps need to would need be taken to enable you to bridge this gap If the gap is too big, review and possibly reset your strategic goals Map out your strategic plan in writing Meet regularly to review how you’re doing vs. goals Share it not only with the management team, but with all your employees, and assign tasks at all levels so everybody is working towards the plan. Be flexible

6. Competitive Strategy The framework that guides competitive positioning decisions is called competitive strategy The purpose of its competitive strategy is to build a sustainable competitive advantage over the organization’s rivals It defines the fundamental decisions that guide the organization’s marketing, financial management and operating strategies

7. Competitive Strategy A competitive strategy answers the following questions: How do we define our business today and how will we define it tomorrow? In what industries or markets will we compete? The intensity of competition in an industry determines its profit potential and competitive attractiveness. How will we respond to the competitive forces in these industries or markets (from suppliers, rivals, new entrants, substitute products, customers)? What will be our fundamental approach to attaining competitive advantage (low price, differentiation, niche)? What size or market position do we plan to achieve? What will be our focus and method for growth (sales or profit margins, internally or by acquisition)?

8. Competitive Strategy • Michael Porter on competitive strategy - two ways to win a competition • You either deliver a different product/ service • Or, you deliver it differently

9. To Understand CS…. • First, how firms behave over time to gain insight into the causes and consequences of competitive strategy (Bergh 1993; Menard 1991). • Second, they need to observe the timing and duration of strategic activities. • Third, they need to account for the long-term path characteristics of strategic change as well as the path dependencies that result from strategic choices.

10. Fundamental Framework Environmental Context Tech Regulatory Competitor actions Other conditions Organizational Performance Organizational Context Current strategy Strategic outlook Organization structure Org resources including capabilities Strategic Actions Product strategy Market strategy Functional strategy Cooperative strategy Outcome Strategic context Tech context Regulatory context Competitor actions Org performance Organizational structure Org resources and capabilities

11. What is a Successful Strategy? • Successful firms achieve a sustainable competitive advantage • Businesses achieve competitive advantage by emphasizing cost, value to the customer, or both • A firm’s strategy is found in its investments in resources and capabilities that – Determine its market position – Defend this position from competitors

12. The Origins of Strategy Firm evolution Industry evolution Evolutionary economics Strategic planning Game theory Structure/Conduct/ Performance Paradigm Industrial economics Business cases Business history Institutional economics Economic and organizational sociology Industry history The firm and its immediate business context The overall market or industry Focus of analysis Not necessarily rationally Rationally Assumption about how managers make decisions Business cases Business history Institutional economics Economic and organizational sociology Industry history

13. Session 2: Competitive Positioning and Competitive Advantage IIFT Delhi - MBA(IB), 2020-23 | Weekend Batch

14. Competitive Positioning • Competitive positioning is a – marketing strategy that refers to how a marketing team can differentiate a company from its competitors • The position of the company depends on – how the value it provides with goods and services compares to the value of similar goods and services in the market • It requires you to understand - who are your competitors; what are they doing today; what are they planning to do in future; how their operations and offerings affect our product/ services; what can protect us

15. Types of Comp Positioning • Operation excellence – When a company’s business strategies and processes are completed effectively, efficiently, and consistently. Operational excellence translates to customer benefits because problems are solved rapidly or better quality products and services are delivered sooner. • Product leadership – When a company sells what is perceived to be the best product. To do so, a company will need to constantly research and improve on existing products in the marketplace. It should also aim to be the first brand that comes to mind when a potential customer is asked which company offers the best product. • Service excellence – When a company provides its customers with better service than any of its competitors. For example, a company that boasts exceptional customer reviews and a reputation for quickly and resolutely responding to queries.

16. Types of Comp Positioning • Cost leadership – When a company is known for being the cheapest around or for offering the best value from its products or services. • Niche positioning – When a company targets a very specific niche or section of a market. This allows it to position itself as the leading brand in its chosen niche. It may reduce the competition it faces. Some examples of niche positioning include a law firm that concentrates on providing services to seniors, or a realtor that focuses on first-time buyers.

17. Competitive Positioning Map Source: https://hbr.org/2007/11/mapping-your-competitive-position

18. How to identify position? • A business needs to determine its desired position – Do you want to be seen as the cheapest? – Do you want to be known for the reliability of your products? – Do you want your business to be a luxury provider? • Perceptual maps: – A business can use a perceptual map to identify gaps in the market. A perceptual map is a basic graph, with two axes representing two key variables. The most common combination of variables is price and quality. – Competitors are plotted on the graph according to their performance in these variables and a gap on the chart represents a gap in the market or an opportunity for a new market entrant. For example, a chart could show a gap exists for a brand that is deemed to be high quality with high prices. • The position statement: – This should be a paragraph and articulate how to identify the target market and their needs. It should then detail how the brand meets those needs and what differentiates it from the rest of the companies on the market. Finally, it should outline the reasons why consumers should believe the brand position.

19. Position Statement • It is not to be used as a tag-line or meant for external use • It has to be a dynamic, organic, living statement that reflects, guides and inspires its people in the organization on what is expected, what to do, how to achieve what it wants to achieve etc.

20. Competitive Advantage • Competitive advantage is the favourable position an organization seeks in order to be more profitable than its rivals. • A business must provide a clear benefit to its target market that's better than what the competition offers. – Why the word ‘seeks’ instead of ‘has’? • Sustainable Competitive Advantage – Ability to sustain these clear benefits that you may have created over a period of time – While others may be either copying these benefits or giving customers a better choice than yours

21. What Sustains Comp Adv? A strong offence to attain market superiority Creates a higher economic contribution Contribution = Value - Cost A strong defence of the sources of the market position against rivals Customer retention Defending against imitation Both are necessary and neither is sufficient.

22. 4 Rs of gaining advantage • Recognize a customer need; • Help the customer identify a solution, which will lead the customer to Request the desired option; • This in turn will trigger the company to Respond. • Those that are able to Repeat these interactions and learn each time will be able to build lasting connections with customers that competitors will struggle to match.

23. Cycle of Comp Adv

24. Value Cost framework Value that the product offers the customer Product price The firm’s cost to produce and sell the product The benefit the customer receives from buying the product (Value minus Price) The profit the firm receives from producing and selling the product (Price minus Cost) What is the importance and/ or implications of this framework?

25. Customer Value Creation Framework • Functional/Instrumental value: – the attributes of the product itself; the extent to which a product is useful and fulfils a customer’s desired goals • Experiential/Hedonic value: – the extent to which a product creates appropriate experiences, feelings, and emotions for the customer • Symbolic/Expressive value: – the extent to which customers attach or associate psychological meaning to a product • Cost/Sacrifice value: – the cost or sacrifice that would be associated with the use of the product

26. Elements of Industry Analysis.. • Has the industry passed through a shakeout? • Has the industry experienced significant disruption? If so, how have entrants competed against incumbents? • If not, are there identifiable forces or products that could be disruptive to the industry? • What are the key value and cost drivers in the industry? • How is the industry structured into strategic groups based on these value and cost drivers?

27. Elements of Industry Analysis.. • What is the trend in industry revenue? • Which competitors are growing faster in revenue than the industry trend? Why? • What are the key competitors the firm faces in its major markets? • What are their strategies and performance levels? • What is the trend in industry profitability? • Which competitors are growing faster in profitability than the industry trend? Why?

28. Elements of Competitor Analysis • What new strategic initiatives and programs have key competitors developed, if any? • How likely is it that these initiatives will improve the market positions of these competitors? • How aggressive are these firms in growing their market positions? How aggressively do these firms defend their positions? • Where is the firm located in this competitive landscape in terms of its value and cost drivers? • How are the resources and capabilities underlying the value and cost drivers protected from imitation?

29. Session 3: Resources and Competencies IIFT Delhi - MBA(IB), 2020-23 | Weekend Batch

30. What Sustains Comp Adv? • A strong offence to attain market superiority – Creates a higher economic contribution • Contribution = Value - Cost • A strong defence of the sources of the market position against rivals – Customer retention – Defending against imitation • Both are necessary and neither is sufficient.

31. Building Competitive Advantage

32. Triangle of Corp Strategy B u s i n e s s a c t i v i t i e s o f o r g a n i z a t i o n B u s i n e s s Technical expertise, Resource allocation, Production capacity Resources Organization Structure, systems, processes What is the relevance of these elements? How do these elements interact and

33. Triangle of Corp Strategy

34. Resource Continuum

38. Building Competitive Advantage

39. Examples of Value Drivers • Technology – Functionality, features • Quality – Durability, reliability, aesthetics • Delivery – Just-in-time production systems Breadth of line Potential benefits: one- stop shopping, interchangeable parts, interface compatibility and cross-selling Service Responsiveness, problem solving

40. Examples of Value Drivers • Customization – Customers determine product design • Geography – Location, scope • Risk assumption – Warranties • Brand/ Reputation – Signals of price or quality Network externalities Common communications standard Environmental policies Sustainable practices Complements DVD players and disks

41. Examples of Cost Drivers • Scale economies – Average cost declines as volume increases based on high sunk costs or high recurring fixed costs • Scope economies – Cost of producing two products together is lower than the cost of producing them separately • Learning curve – Cost declines with cumulative volume increases as learning takes place and practices improve

42. Examples of Cost Drivers • Low input costs – Firms with lower cost inputs are better positioned to take advantage of industry opportunities and absorb changes • Vertical integration – For tasks that are specialized to the firm, coordination costs are lower within the firm than with a market supplier • Organizational practices – Firms develop process innovations to lower costs or improve value in specific activities

43. Defending Against Competitors • Isolating mechanisms – Mechanisms that prevent competitors from eating up the firm’s profits – Factors that: • Increase customer retention • Reduce imitation by competitors

44. Resource and Capabilities • Resource – A relatively stable, observable, tradable asset owned by the firm that contributes to its performance • Examples: a brand, a geographical location • Capability – A set of activities and policies involving the firm’s organization and people executing tasks at a high level of expertise continuously over time • Examples: practices leading to superior quality, customer service or pricing

45. Barriers to Imitation • Property rights – Patents, trademarks, asset ownership • Dedicated assets – Exclusive distribution channels or suppliers – Tie-up or lock-in • Learning and development costs – Created by sunk costs, complementary practices within the firm, and history-dependent capabilities – Time-compression diseconomy • Casual ambiguity – Difficulty in copying a capability because it cannot be modelled effectively – Barrier to improvement for poor performing firms – Shields a firm with a superior market position against imitation

46. Increasing Customer Retention • Increase switching costs – Search costs • High for products whose value is apparent only after experiencing the product – experience goods – Transition costs • Costs associated shifting from old equipment or practices to new – Learning costs • Costs incurred in learning a new process

47. Competencies, Core Competencies Distinctive Competencies • A competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity • A core competence is a well-performed internal activity central (not peripheral or incidental) to a company’s competitiveness and profitability • A distinctive competence is a competitively valuable activity a company performs better than its rivals

48. Core Competencies – A Valuable Company Resource • A competence becomes a core competence when the well- performed activity is central to a company’s competitiveness and profitability • Often, a core competence is knowledge-based, residing in people, not in assets on a balance sheet • A core competence is typically the result of cross-department collaboration • A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset

49. Distinctive Competence – A Competitively Superior Resource • A distinctive competence is a competitively valuable activity that a company performs better than its competitors • A distinctive competence is a competitively potent resource because it – Gives a company a competitively valuable capability unmatched by rivals – Can underpin and add real punch to a company’s strategy – Is a basis for sustainable competitive advantage because it is difficult to imitate

50. Determining the Competitive Power of a Company Resource • To qualify as competitively valuable or to be the basis for sustainable competitive advantage, a “resource” must pass 4 tests: 1. Is the resource hard to copy? 2. Is the resource durable – does it have staying power? 3. Is the resource really competitively superior? 4. Can the resource be trumped by the different capabilities of rivals?

51. Identifying Resource Weaknesses and Competitive Deficiencies • A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage • Resource weaknesses relate to – Inferior or unproven skills, expertise, or intellectual capital – Lack of important physical, organizational, or intangible assets – Missing capabilities in key areas Resource weaknesses and deficiencies are competitive liabilities!

52. Thoughts to munch on … • Natural gravitation towards corporate strategy and guidelines • Static assumptions about environment • Unpredictability and ambiguity • Calculative rationality rather than intuitive and experiential • Learning and cognitive mechanisms that can create and sustain competencies • Reductionism bias of predictive tools Source: https://www.researchgate.net/publication/220588588

53. Knowledge sharing and transfer • Between individuals (communication between the employees) • From individual to external structure (employees transferring their knowledge to the outer world) • From external structure to individuals (employee learning from customers, suppliers, and others) • From individual competence into internal structure (capturing individual competence in data repositories) • From internal structure to individual competence (capturing individual competence in a system) • Within the external structure (communication between customers, suppliers, and others) • From external to internal structure (organisational learning from the external world) • From internal to external structure (external public’s learning from the organisation), and • Within internal structure (between the organisational systems) Source: https://www.researchgate.net/publication/220588588

54. Session 4: Industry Definition and 5 Forces Model IIFT Delhi - MBA(IB), 2020-23 | Weekend Batch

55. Creating an Industry • Firms create industries • Competing firms influence each other • Shifts in product value and price ● Increasing strategic interaction establishes mutual dependence between firms ● Behavior and performance subject to common industry forces

56. Industry Boundaries • Identifying competitors – Firms whose products provide value in functionally equivalent ways. – Firms that compete directly through changes in product value and price. – Firms that face the same common factors of economic interdependence in an industry. • Identifying substitute producers – Firms whose products are functionally different from an industry’s products but compete to provide value to the same industry buyers.

57. How Are Industries Defined? • Market Segmentation – Firms align their product lines with one or more customer oriented segments, which could overlap – Segments are defined by customer preferences – Specialist firms: Tailor their product to cater to a chosen segment – Generalist firms: Design their product for all segments

58. Industry Development over Time Market Segmentation Early Late Product Value Lower Higher Industry Development Market Segmentation

59. What Determines Firm Profitability? • Macroeconomic factors – Forces in the overall economy, regulation, interest rates • Industry factors – Conditions specific to an industry • The firm’s market position as determined by its resources and capabilities – Those economic factors that are specific to the firm

60. Forces Lowering Firm Performance • Porter’s five industry forces: – Strength of competition – Potential for entry into the industry – The bargaining power of buyers – The bargaining power of suppliers – The strength of substitutes for the industry’s products • When forces are strong, profitability is low and when forces are weak, profitability is high

61. 5 Forces Model of Competition

62. Analyzing - 5 Competitive Forces Step 1: Identify the specific competitive pressures associated with each of the five forces Step 2: Evaluate the strength of each competitive force -- fierce, strong, moderate to normal, or weak? Step 3: Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits

63. Competitive Pressures • Usually the strongest of the five forces • Key factor in determining strength of rivalry – How aggressively are rivals using various weapons of competition to improve their market positions and performance? • Competitive rivalry is a combative contest involving – Offensive actions – Defensive countermoves

64. Weapons for Competing and Factors Affecting Strength of Rivalry

65. Typical Weapons for Competing? • Lower prices • More or different performance features • Better product performance • Higher quality • Stronger brand image and appeal • Wider selection of models and styles Bigger/better dealer network Low interest rate financing Higher levels of advertising Stronger product innovation capabilities Better customer service Stronger capabilities to provide buyers with custom- made products

66. What Causes Rivalry to be Stronger? • Competitors are active in making fresh moves to improve market standing and business performance • Slow market growth • Number of rivals increases and rivals are of equal size and competitive capability • Buyer costs to switch brands are low • Industry conditions tempt rivals to use price cuts or other competitive weapons to boost volume • A successful strategic move carries a big payoff • Diversity of rivals increases in terms of visions, objectives, strategies, resources, and countries of origin • Outsiders acquire weak firms in the industry and use their resources to transform new firms into major market contenders

67. What Causes Rivalry to be Weaker? • Industry rivals move only infrequently or in a non-aggressive manner to draw sales from rivals • Rapid market growth • Products of rivals are strongly differentiated and customer loyalty is high • Buyer costs to switch brands are high • There are fewer than 5 rivals or there are numerous rivals so any one firm’s actions has minimal impact on rivals’ business

68. Competitive Pressures Associated With Potential Entry • Seriousness of threat depends on – Size of pool of entry candidates and available resources – Barriers to entry – Reaction of existing firms • Evaluating threat of entry involves assessing – How formidable entry barriers are for each type of potential entrant and – Attractiveness of growth and profit prospects

69. Factors Affecting Threat of Entry

70. Common Barriers to Entry • Sizable economies of scale • Cost and resource disadvantages independent of size • Brand preferences and customer loyalty • Capital requirements and/or other specialized resource requirements • Access to distribution channels • Regulatory policies • Tariffs and international trade restrictions • Ability of industry incumbents to launch vigorous initiatives to block a newcomer’s entry

71. When Is the Threat of Entry Stronger? • There’s a sizable pool of entry candidates • Entry barriers are low • Industry growth is rapid and profit potential is high • Incumbents are unwilling or unable to contest a newcomer’s entry efforts • When existing industry members have a strong incentive to expand into new geographic areas or new product segments where they currently do not have a market presence

72. When Is the Threat of Entry Weaker? • There’s only a small pool of entry candidates • Entry barriers are high • Existing competitors are struggling to earn good profits • Industry’s outlook is risky • Industry growth is slow or stagnant • Industry members will strongly contest efforts of new entrants to gain a market foothold

73. Competitive Pressures from Substitute Products Substitutes matter when customers are attracted to the products of firms in other industries Concept ➔ Sugar vs. artificial sweeteners ➔ Eyeglasses and contact lens vs. laser surgery ➔ Newspapers vs. TV vs. Internet Examples

74. How to Tell Whether Substitute Products Are a Strong Force • Whether substitutes are readily available and attractively priced • Whether buyers view substitutes as being comparable or better • How much it costs end users to switch to substitutes

75. Factors Affecting Competition From Substitute Products

76. When Is the Competition From Substitutes Stronger? • There are many good substitutes readily available • Substitutes are attractively priced • The higher the quality and performance of substitutes • The lower the end user’s switching costs • End users grow more comfortable with using substitutes

77. Competitive Pressures From Suppliers and Supplier-Seller Collaboration • Whether supplier-seller relationships represent a weak or strong competitive force depends on – Whether suppliers can exercise sufficient bargaining leverage to influence terms of supply in their favor – Nature and extent of supplier-seller collaboration in the industry

78. Factors Affecting Bargaining Power of Suppliers

79. When Is the Bargaining Power of Suppliers Stronger? • Industry members incur high costs in switching their purchases to alternative suppliers • Needed inputs are in short supply • Supplier provides a differentiated input that enhances the quality of performance of sellers’ products or is a valuable part of sellers’ production process • There are only a few suppliers of a specific input • Some suppliers threaten to integrate forward

80. When Is the Bargaining Power of Suppliers Weaker? • Item being supplied is a commodity • Seller switching costs to alternative suppliers are low • Good substitutes exist or new ones emerge • Surge in availability of supplies occurs • Industry members account for a big fraction of suppliers’ total sales • Industry members threaten to integrate backward • Seller collaboration with selected suppliers provides attractive win-win opportunities

81. Competitive Pressures: Collaboration Between Sellers and Suppliers • Sellers are forging strategic partnerships with select suppliers to – Reduce inventory and logistics costs – Speed availability of next-generation components – Enhance quality of parts being supplied – Squeeze out cost savings for both parties • Competitive advantage potential may accrue to sellers doing the best job of managing supply-chain relationships

82. Competitive Pressures From Buyers and Seller-Buyer Collaboration • Whether seller-buyer relationships represent a weak or strong competitive force depends on –Whether buyers have sufficient bargaining leverage to influence terms of sale in their favor –Extent and competitive importance of seller-buyer strategic partnerships in the industry

83. Factors Affecting Bargaining Power of Buyers

84. When Is the Bargaining Power of Buyers Stronger? • Buyer switching costs to competing brands or substitutes are low • Buyers are large and can demand concessions • Large-volume purchases by buyers are important to sellers • Buyer demand is weak or declining • Only a few buyers exists • Identity of buyer adds prestige to seller’s list of customers • Quantity and quality of information available to buyers improves • Buyers have ability to postpone purchases until later • Buyers threaten to integrate backward

85. When Is the Bargaining Power of Buyers Weaker? • Buyers purchase item infrequently or in small quantities • Buyer switching costs to competing brands are high • Surge in buyer demand creates a “sellers’ market” • Seller’s brand reputation is important to buyer • A specific seller’s product delivers quality or performance that is very important to buyer • Buyer collaboration with selected sellers provides attractive win- win opportunities

86. Competitive Pressures: Collaboration Between Sellers and Buyers • Partnerships are an increasingly important competitive element in business-to-business relationships • Collaboration may result in mutual benefits regarding – Just-in-time deliveries – Order processing – Electronic invoice payments – Data sharing • Competitive advantage potential may accrue to sellers doing the best job of managing seller-buyer partnerships

87. Strategic Implications of the Five Competitive Forces • Competitive environment is unattractive from the standpoint of earning good profits when – Rivalry is vigorous – Entry barriers are low and entry is likely – Competition from substitutes is strong – Suppliers and customers have considerable bargaining power

88. Strategic Implications of the Five Competitive Forces • Competitive environment is ideal from a profit-making standpoint when – Rivalry is moderate – Entry barriers are high and no firm is likely to enter – Good substitutes do not exist – Suppliers and customers are in a weak bargaining position

89. Coping With the Five Competitive Forces • Objective is to craft a strategy to – Insulate firm from competitive pressures – Initiate actions to produce sustainable competitive advantage – Allow firm to be the industry’s “mover and shaker” with the “most powerful” strategy that defines the business model for the industry

90. What Factors Are Driving Industry Change and What Impacts Will They Have? • Industries change because forces are driving industry participants to alter their actions • Driving forces are the major underlying causes of changing industry and competitive conditions • Where do driving forces originate? –Outer ring of macroenvironment –Inner ring of macroenvironment

91. Analyzing Driving Forces: Three Key Steps STEP 1: Identify forces likely to exert greatest influence over next 1 - 3 years – Usually no more than 3 - 4 factors qualify as real drivers of change STEP 2: Assess impact – Are the driving forces acting to cause market demand for product to increase or decrease? – Are the driving forces acting to make competition more or less intense? – Will the driving forces lead to higher or lower industry profitability? STEP 3: Determine what strategy changes are needed to prepare for impacts of driving forces

92. Common Types of Driving Forces • Emerging new Internet capabilities and applications • Increasing globalization of industry • Changes in long-term industry growth rate • Changes in who buys the product and how they use it • Product innovation • Technological change/process innovation • Marketing innovation

93. Common Types of Driving Forces (con’t) • Entry or exit of major firms • Diffusion of technical knowledge • Changes in cost and efficiency • Consumer preferences shift from standardized to differentiated products (or vice versa) • Changes in degree of uncertainty and risk • Regulatory policies / government legislation • Changing societal concerns, attitudes, and lifestyles

94. Figure 3.7 The Value Net

95. Session 5: Competing Over Time IIFT Delhi - MBA(IB), 2020-23 | Weekend Batch

96. Three Stages of Industry Growth • Growth – Entry rate exceeds the exit rate • Shakeout – Exit rate exceeds the entry rate • Maturity – Entry and exit rates are about the same • Industry disruption – Technological substitutes or disruptive technologies offer a stronger buyer surplus to the industry’s customers, drawing them away (e.g., DVDs vs. videotapes)

97. Industry Evolution • All industries evolve over time as new firms enter and failing firms exit • Industry evolution threatens all sources of competitive advantage • The more a firm resists the forces of industry evolution, the less likely it is to survive • Product life cycle – Not the same as industry evolution but often linked closely to it

98. Figure 4.1 Dynamic Growth Cycle Firm Size Innovation in Processes or Products Improved Market Position Through Higher Value, Lower Cost or Both Capacity Expansion Increased Profitability

99. Key Concepts in Developing and Maintaining Dynamic Capability • Dynamic growth cycle – The cycle of firm growth linking size, innovation, productivity, profitability, and capacity expansion • Dynamic capability – The ability of a firm, as it grows, to build its innovative potential and exploit it effectively • Path dependence – The tendency of a firm over time to invest in innovations that are upwardly compatible with each other, thereby creating a relatively unique path of product and process development

100. Key Concepts in Developing and Maintaining Dynamic Capability (cont’d) • Absorptive capacity – The ability of the firm to adopt innovations developed by other organizations based on its prior experience with similar or related practices or technologies • Core rigidity – The inability of a firm to adapt to changing market or technological conditions because of its attachment to its core practices and customers

101. Expansion During the Growth Stage • Developing scale-based value drivers – Which drivers are adopted depends on the purchasing criteria of the majority of buyers • For example: brand, service, network externalities, quality • Moving from early adopters to the early majority is crossing the chasm • Developing scale-based cost drivers in specific value chain activities – Economies of scale – Economics of scope – Learning curve

102. Early Mover Advantage • Defined by a combination of competitive advantage (short term) and dynamic capability (long term) • Opportunity to establish and defend a strong market position • Opportunity to grow over a longer period of time • Higher chances of being exposed to opportunities for growth and innovation

103. Strategic Pricing • Strategic pricing – Pricing below marginal cost in order to attract additional buyers • Strategic pricing makes sense under two conditions – When increases in volume are sustainable through customer loyalty due to higher switching costs – When increased demand leads to lower costs for the firm through scale-driven cost drivers such as the learning curve and scale economies

104. Risks of Strategic Pricing • Cost reduction due to learning or scale does not make up for the profits lost by setting a lower price – Poor understanding of technologies or other activities • Inability to protect cost advantages • Higher demand does not materialize • Customers cannot be retained

105. What Determines a Shakeout? • Shakeout – Due to the emergence of a dominant, sustainable business model (value minus cost) – The strongest competitors use their higher productivity to drive out weaker firms • Shakeouts can occur in the same time frame – As the product life cycle shifts toward maturity • The product life cycle does not explain which firms will survive the shakeout – As a dominant design emerges • A dominant design is the culmination of a series of innovations in a product’s components and architecture and in related value drivers, such as service, network externalities, complements, or breadth of line • For example, the IBM PC, the general purpose tractor, the piano

106. What Determines a Shakeout’s Severity? • Expectations about future market demand and the degree of sunk costs • Ease of imitation of the dominant firms’ market position • The existence of defendable niche markets ➢About six percent of the firms in an industry exit during the shakeout every year

107. Indicators of Industry Maturity • The long-term leveling-off or decline in the market growth rate • Rising buyer experience with industry products • The high concentration of market share among large, relatively similar firms • The persistence of niche markets

108. An Increase in Buyer Experience • Firms attempt to counter the growing power of experienced buyers by: – Introducing innovations that increase search and transition costs for buyers: • Improved service • Higher quality • Breadth of line and product customization – Lowering prices

109. Industry Concentration • Industry concentration depends on – The ratio of market size to the minimum scale required to compete • The lower the scale, the more firms are viable – Sunk cost investments in value drivers that have increasing returns to scale • Higher sunk costs force out smaller rivals and deter entry

110. Hyper-competition • Hyper-competition is the combination of: – Multipoint competition • Industries in which large firms compete across many products in a product line and across geographical regions • Mutual footholds in the core market of rival firms ensure competitive stability – An arms race • The requirement to develop product and process innovations to keep up with competitors • Returns on innovations become lower innovations are copied by competitors

111. Niche Markets • Competition in niche markets is affected by: – Size of the niche – Growth rate of the niche – Barriers to entry – Changes in niche buyers’ preferences toward core market products – Minimum level of scale required to compete – Ability to improve non-scale based cost and value drivers – Increase in the buyer switching costs

112. Types of Industry Disruption • Technological substitution – Introduction of a radically new technology that has a higher rate of return on investment in R&D than the current technology in the industry • Disruptive innovation – Introduction of a new product with lower value but much lower cost than the incumbent product • Typically based on standard components • Exploits emergent customer price sensitivity • Radical institutional change – A radical shift in the regulation of competition that opens the market to firms with innovative capabilities

113. Adapting to Industry Disruption • When can incumbents adapt to disruption? – When they control assets (e.g., distribution) that are critical for competing in the industry – When isolating mechanisms protecting the innovation are weak – When incumbents do not suffer large short-term opportunity costs in switching to the innovation

114. Figure 4.5 Industry Disruption from Technological Substitution

115. Incumbents Adaptation to Technological Substitutes • Incumbents delay adopting technological substitutes for the following reasons – Emphasis on total (rather than marginal) return on investment in R & D – Potential cannibalization by the new technology of profits from the traditional technology – Poor absorptive capacity to adopt new technology

116. Disruptive Technology • Characteristics include: – Technology initially introduced by start-ups into niche market too small to attract incumbents’ attention – Product based on technology has relatively lower initial functionality and also a lower cost – Price-value profile of new product does not initially attract customers in industry’s core market

117. Disruptive Technology (cont’d) – Over time, preferences of incumbents’ customers shift toward value-price profile of new product – Complementary assets (distribution) necessary for market penetration of disruptive technology not controlled by incumbents – Start-ups selling new product develop a dynamic growth cycle which allows them to penetrate core market rapidly through scale-based cost drivers

118. 1/8/23 1 Session 6: Porter’s 5 Generic Strategies IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch 1 Value Delivery Different Value Delivered Differently 2

119. 1/8/23 2 Competitive Strategy • A company achieves Comp Adv whenever it has some type of edge over rivals in attracting buyers and coping with competitive forces. • There may be many routes to Comp Adv, but they all involve giving buyers what they perceive as superior value. • Delivering superior value – whatever form it takes – nearly always requires performing value chain activities differently than rivals and building competencies and resource capabilities that are not readily matched. 3 Fig. 5.1: The Five Generic Competitive Strategies 4

120. 1/8/23 3 Low-Cost Provider Strategies • Make achievement of meaningful lower costs than rivals the theme of firm’s strategy • Include features and services in product offering that buyers consider essential • Find approaches to achieve a cost advantage in ways difficult for rivals to copy or match Keys to Success Low-cost leadership means low overall costs, not just low manufacturing or production costs! 5 Translating a Low-Cost Advantage into Higher Profits: Two Options Option 1: Use lower-cost edge to under-price competitors and attract price-sensitive buyers in enough numbers to increase total profits Option 2: Maintain present price, be content with present market share, and use lower-cost edge to earn a higher profit margin on each unit sold, thereby increasing total profits 6

121. 1/8/23 4 Approaches to Securing a Cost Advantage Do a better job than rivals of performing value chain activities efficiently and cost effectively Revamp value chain to bypass cost-producing activities that add little value from the buyer’s perspective Approach 1 Approach 2 Control costs! By-pass costs! 7 Approach 1: Controlling the Cost Drivers • Capture scale economies; avoid scale diseconomies • Capture learning and experience curve effects • Control percentage of capacity utilization • Pursue efforts to boost sales and spread costs such as R&D and advertising over more units • Improve supply chain efficiency • Substitute use of low-cost for high-cost raw materials • Use online systems and sophisticated software to achieve operating efficiencies • Adopt labor-saving operating methods • Use bargaining power to gain concessions from suppliers • Compare vertical integration vs. outsourcing 8

122. 1/8/23 5 Approach 2: Revamping the Value Chain • Use direct-to-end-user sales/marketing methods • Make greater use of online technology applications • Streamline operations by eliminating low-value-added or unnecessary work steps • Relocate facilities closer to suppliers or customers • Offer basic, no-frills product/service • Offer a limited product/service as opposed to a full product/service line 9 Keys to Success in Achieving Low-Cost Leadership • Scrutinise each cost-creating activity, identifying cost drivers • Use knowledge about cost drivers to manage costs of each activity down year after year • Find ways to restructure value chain to eliminate nonessential work steps and low-value activities • Work diligently to create cost-conscious corporate cultures – Feature broad employee participation in continuous cost- improvement efforts and limited perks for executives – Strive to operate with exceptionally small corporate staffs • Aggressively pursue investments in resources and capabilities that promise to drive costs out of the business 10

123. 1/8/23 6 Characteristics of a Low-Cost Provider • Cost conscious corporate culture • Employee participation in cost-control efforts • Ongoing efforts to benchmark costs • Intensive scrutiny of budget requests • Programs promoting continuous cost improvement Successful low-cost producers champion frugality but wisely and aggressively invest in cost-saving improvements ! 11 When Does a Low-Cost Strategy Work Best? • Price competition is vigorous • Product is standardized or readily available from many suppliers • There are few ways to achieve differentiation that have value to buyers • Most buyers use product in same ways • Buyers incur low switching costs • Buyers are large and have significant bargaining power • Industry newcomers use introductory low prices to attract buyers and build customer base 12

124. 1/8/23 7 Pitfalls of Low-Cost Strategies • Being overly aggressive in cutting price • Low cost methods are easily imitated by rivals • Becoming too fixated on reducing costs and ignoring – Buyer interest in additional features – Declining buyer sensitivity to price – Changes in how the product is used • Technological breakthroughs open up cost reductions for rivals 13 Differentiation Strategies • Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals • Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals • Not spending more to achieve differentiation than the price premium that can be charged Objective Keys to Success 14

125. 1/8/23 8 Benefits of Successful Differentiation A product / service with unique, appealing attributes allows a firm to ➔ Command a premium price and/or ➔ Increase unit sales and/or ➔ Build brand loyalty = Competitive Advantage Which hat is unique? 15 Types of Differentiation Themes • Unique taste – Dr. Pepper • Multiple features – Microsoft Windows and Office • Wide selection and one-stop shopping – Home Depot, Amazon.com • Superior service -- FedEx, Ritz-Carlton • Spare parts availability – Caterpillar • Engineering design and performance – Mercedes, BMW • Prestige – Rolex • Product reliability – Johnson & Johnson • Quality manufacture – Karastan, Michelin, Toyota • Technological leadership – 3M Corporation • Top-of-line image – Ralph Lauren, Starbucks, Chanel 16

126. 1/8/23 9 Sustaining Differentiation: Keys to Competitive Advantage • Most appealing approaches to differentiation – Those hardest for rivals to match or imitate – Those buyers will find most appealing • Best choices to gain a longer-lasting, more profitable competitive edge – New product innovation – Technical superiority – Product quality and reliability – Comprehensive customer service – Unique competitive capabilities 17 Where to Find Differentiation Opportunities in the Value Chain • Purchasing and procurement activities • Product R&D and product design activities • Production process / technology-related activities • Manufacturing / production activities • Distribution-related activities • Marketing, sales, and customer service activities Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Suppliers Buyer/User Value Chains Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners 18

127. 1/8/23 10 How to Achieve a Differentiation-Based Advantage Approach 1 Incorporate features/attributes that raise the performance a buyer gets out of the product Approach 2 Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways Approach 3 Compete on the basis of superior capabilities Approach 4 Incorporate product features/attributes that lower buyer’s overall costs of using product 19 Importance of Perceived Value • Buyers seldom pay for value that is not perceived • Price premium of a differentiation strategy reflects – Value actually delivered to the buyer and – Value perceived by the buyer • Actual and perceived value can differ when buyers are unable to assess their experience with a product 20

128. 1/8/23 11 Signaling Value as Well as Delivering Value • Incomplete knowledge of buyers causes them to judge value based on such signals as – Price – Attractive packaging – Extensive ad campaigns – Ad content and image – Seller facilities or professionalism and personality of employees – Having a list of prestigious customers • Signals of value may be as important as actual value when – Nature of differentiation is hard to quantify – Buyers are making first-time purchases – Repurchase is infrequent – Buyers are unsophisticated 21 When Does a Differentiation Strategy Work Best? • There are many ways to differentiate a product that have value and please customers • Buyer needs and uses are diverse • Few rivals are following a similar differentiation approach • Technological change and product innovation are fast-paced 22

129. 1/8/23 12 Pitfalls of Differentiation Strategies • Appealing product features are easily copied by rivals • Buyers see little value in unique attributes of product • Overspending on efforts to differentiate the product offering, thus eroding profitability • Over-differentiating such that product features exceed buyers’ needs • Charging a price premium buyers perceive is too high • Not striving to open up meaningful gaps in quality, service, or performance features vis-à-vis rivals’ products 23

130. 1/8/23 1 CS 7: Strategic Decision Making IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch 1 2

131. 1/8/23 2 Decision Making Model oA decision making model is a framework for making any kind of decision in an organization • The methods or process the individuals will use oRational decision making oBounded rationality (satisfycing) oLayered decision making oIntuitive decision making • In all the models there are objective as well as subjective elements involved Kenichi Ohmae’s 3C model 3 Rational Decision Making oPsychology tells us that emotions drive our behavior, oLogic only justifies our actions after the fact oMarketing confirms this theory oHumans associate the same personality traits with brands as they do with people oBut emotions can cloud your reasoning, especially when you need to do something that could cause internal pain, like giving constructive criticism oRDMM will help you make logically sound decisions even in situations with major emotional ramifications oThis approach can help to ensure discipline and consistency factor into the decision-making process 4

132. 1/8/23 3 Generic Steps for RDMM oIdentifying a Problem or Opportunity oDefine the Desired Outcome oGathering Relevant Information oAnalyzing the Situation oDeveloping Options oEvaluating Options oSelecting a Preferred Alternative (Aware of Opportunity Costs) • In other words, what is your second best option in comparison to your first? If you have option #1 in mind, what could you otherwise decide with option #2? This is your opportunity cost. oActing on the Decision 5 Generic Steps for RDMM o Identifying a Problem or Opportunity o Define the Desired Outcome o Gathering Relevant Information o Analyzing the Situation o Developing Options o Evaluating Options o Selecting a Preferred Alternative (Aware of Opportunity Costs) • In other words, what is your second best option in comparison to your first? If you have option #1 in mind, what could you otherwise decide with option #2? This is your opportunity cost. o Acting on the Decision • Structured and logical • Brings discipline to the process • Limited learning from post-mortem • Data sanctity and relevance • Data recency • Ambiguity around the other 2Cs • Model is static rather than dynamic • Individual expertise in data interpretation • Data interpretation usually linked with past experience 6

133. 1/8/23 4 Dealing with Uncertainty oHBR suggests we can use a simple four-step process to work with and through ambiguity to make careful, reasoned decisions oIdentify the category of historical data • Salient data • Contextual data • Patterned data oRecognise the associated bias • Salience bias (what we consider salient or imp) • Framing bias (how context is created by framing same reason differently - “80% lean ground beef” sounds more healthful than “beef with 20% fat.” ) • Clustering illusion (random event used to predict future - hot hand fallacy. Human mind is wired to look for pattern) o Invert the problem and focus on outcome o Formulate the right question • Behaviour, Opinion, Feeling, Knowledge 7 Bounded Rationality oBounded rationality is a decision-making mechanism in which we try to satisfy rather than optimize our goals. Instead of seeking the optimal decision, we choose a decision that will suffice • Cognitive limitations • Time constraints • Imperfect information oOptimum solution by an individual may not be the optimal solution as viewed by the Org or CEO - maximise profit vs other priorities like sustainability, env, exploitation etc. • Whatever satisfies the criteria set by both will be selected • Min difference or resistance rather than optimum solution 8

134. 1/8/23 5 HBR Decision Making Information Use Satisfying (less info) Maximising (more info) Number of Options Single focus (One Option) Multi focus (many Option) Hierarchic People using this highly analytical and focused style expect their decisions, once taken, to be final and to stand the test of time. In public, this complex style comes across as highly intellectual. Integrative People frame problems broadly, using inputs from many sources and make decisions involving multiple courses of action that may evolve over time as circumstances change. In public, this creative style comes across as highly participative. Decisive This decision is direct, fast and firm In public, this action-focused style comes across as task oriented Flexible This style is about speed, adaptability. Managers make decisions quickly and change course just as quickly to keep abreast of immediate, shifting situations. In public, this comes across as highly social and responsive. 9 Future proofing businesses oA combination of savvy consumers and economic turmoil, brand allegiance is on a steady decline oEngaging customers and delivering deep value to them has always been key to driving retention and repeat customers, and fueling a healthy business. oDuring times of economic uncertainty, that engagement and retention become more important than ever. oExceptional customer experience (CX)—one that’s personalized, contextual, and engaging across the customer journey—and doing it in a highly efficient way that saves 10

135. 1/8/23 6 Decision Making Biases … oMyopia • Weighting short term over long term outcomes, controlling for a discount rate oSunk costs • Continuing to invest in failing projects in hope of getting back the original investment oBias based on whether a decision is framed in terms of gains or losses • Tending to be risk seeking in terms of losses and risk adverse to gains, as described by Prospect theory 11 Decision Making Biases… oInformation availability • Valuing and using information simply because it is favored, most recent, or readily at hand. oInformation anchoring • Overweighting information that appears first in the information flow. 12

136. 1/8/23 7 Determining How Much Authority to Delegate Organizational Approaches to Decision Making: Authority is retained by top management. Decentralized Decision Making: Authority is delegated to lower-level managers and employees. Centralized Decision Making: 13 3rd Party Involvement o To provide independence and unbiased judgment o They present new ideas and fresh approach o They may possess ability to diagnose problems and evaluate solutions o They perform tasks with technical skills infrequently needed o They supplement present skills of staff and management o They implement systems and train employees 14

137. 1/8/23 8 Roles of a 3rd party o The Expert • Brings specific knowledge and skill, not available inside the org • Insight of industry; best in class benchmarked practices o The Provocateur • Identify critical info needs, ask difficult and unanticipated questions, challenges the status quo • Insight into prevalent decision making process; provoke the mgt team o The Legitimizer • Reinforces and verifies information; identifies biases in decisions, if any • Facilitates implementation • His perspective may prevent misallocation of resources, escalating commitment to a failing cause or strategic mistakes 15 Other roles oEducators and facilitators in corp training o‘hatchet men’ for handling extreme cases like downsizing oCatalysts to break organizational inertia oCorporate spies, to conduct organizational espionage 16

138. 1/8/23 1 Session 8: Competitive Manœuvres IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch 1 Competitive Stance • It is a truism that strategic management is all about gaining and maintaining competitive advantage. • The term can be defined to mean and justify “anything that a firm does especially well when compared with rival firms”. • Gains importance in a context where there may be a conflict or likelihood of a conflict between ‘political imperative’ and ‘economic imperative’ – What could be some instances of this in India? 2

139. 1/8/23 2 Competitive Stance • Aggressive • Defensive • Pre-emptive What could be some of the advantages and challenges inherent in these stances? Which one of these stances could be a preferred strategy and when? 3 Offensive Strategy • Consists of actively trying to pursue changes within the industry – seek to shape an industry through first-mover – generally make acquisitions – invest heavily in research and development and technology in an effort to stay ahead of the competition – generate and actively protect IPRs – challenge competitors by cutting off new or under-served markets, or – going head-to-head with them 4

140. 1/8/23 3 Types of Offensive Strategy • Neutralize, match, or exceed the competitive strength of rival firms • Turn competitive attention to the weaknesses of rival firms in brand perceptions, demographic/geographic reach, and organizational resources, • Throw rival firms off balance with multiple tactics (new product introductions coupled with increases in advertising and reductions in price) across a wide range of market segments, • Lead to a first-mover advantage in unserved or uncontested markets by maneuvering around rival firms rather than meeting them head on (end-run offensives), • Selectively captures market share from rival leaders when the lack of resources or market visibility prevents a full scale offense (guerrilla offensives) and • Secure a first mover advantage that is difficult to imitate with initiatives such as expanding capacity beyond current market demand and securing pricing advantages with long-term supply contracts. 5 Types of Offensive Strategy • "End run strategy" – eschews direct competition and instead seeks to exploit untouched markets or neglected segments, demographic groups or areas. • "Pre-emptive strategy" – simply the natural advantage a company has when it is the first to serve a particular marketplace or demographic. It can be exceptionally hard to unseat. Also known as "first-mover" advantage. • "Direct attack strategy" – price war, or even a competition as to who can introduce new product features at a faster pace – taking charge of the public conversation through marketing campaigns. • "Acquisition strategy" – seeks to remove a competitor by buying it - wealthy or well- capitalized competitor 6

141. 1/8/23 4 Defensive Strategy • Meant to counteract offensive competitive strategies • Moves that reduce the ability of rival firm strategies to threaten the firm’s competitive strength or organizational resources – Because of this, they are rarely a source of a competitive advantage • Their intended purpose is to defend an industry position, protect competitive resources from imitation, and sustain an existing advantage by lowering the risk and weakening the impact of rival firm offensive attacks 7 Types of Defensive Strategy • Deter retaliation by communicating a commitment to unequivocally follow through on offensive moves • Deter threatening moves with a commitment to direct and continued retaliation if rival firms make certain moves and • Create trust by communicating a commitment to make no new moves or forego existing moves in an effort to de-escalate a competitive battle • Government intervention strategies involve the use of political and legal tactics to prevent rival firms from changing the rules of the game. • Strategy flexibility protects firm resources through the ability to move quickly out of declining markets into more prosperous ones. • Lastly, avoidance strategies dodge confrontation by focusing on market segment of little interest to rival firms. 8

142. 1/8/23 5 Types of Def Strategy • Exclusion – set up exclusive arrangements with key suppliers in the market- access to suppliers, sources or partners. • Pricing – A simple strategy is to match any price cuts by the competition - as long as the price war does not get out of hand and ruin both sides. • Features – Adding new features or capabilities can be a positive and appealing • Service – Emphasize after-sales service or warranties, implicitly demonstrating that it stands by the superiority of its products. • Advertising – demonstrating commitment to the market, confidence in the products, or a willingness to meet the competitor’s challenge. – Counter-parry – Companies respond to an attack in their own market, by moving into the competitor’s home market, participate in community events to position themselves as friendly and familiar rather than foreign and aggressive. Original article: https://www.tradeready.ca/2014/fittskills-refresher/list-offensive- defensive-strategies-international-business/ 9 Pre-emptive strategy • It is not reactive but pro-active – Taken in anticipation of what the competition might do or to deter it • Locking up Capacity – 1984 Sony announced 5X increase in prod capacity of 3.5” disk • Locking in Markets – Gillette Sensor (19 countries); P&G Pampers (90 countries) launch • Locking up Minds – Announce prod much before launch to capture customer imagination • Blocking a competitor’s intended action – Nabisco blocking launch of Kellogg’s ‘most nutritious shredded wheat you can buy’ claim, by threatening to sue it since it was also launching wheat cereal 10

143. 1/8/23 6 How do you pre-empt? • Competitive signals – test marketing; acquisitions; Patent search; hiring or firing; strategic alliances • Competitive analysis – Past record of competitors; historical strengths and weaknesses; personality and actions of key decision makers; • Distribution channels – SWOT of current and emerging rack space pattern; distribution and other channel partners; • Environmental analysis – Changes in PESTEL that could trigger new moves of competitors 11 Future proofing businesses • A combination of savvy consumers and economic turmoil, brand allegiance is on a steady decline • Engaging customers and delivering deep value to them has always been key to driving retention and repeat customers, and fueling a healthy business. • During times of economic uncertainty, that engagement and retention become more important than ever. • Exceptional customer experience (CX)—one that’s personalized, contextual, and engaging across the customer journey—and doing it in a highly efficient way that saves money. • The businesses that do this are the ones that will thrive and emerge as winners. 12

144. 1/8/23 7 Hyper-competition • What is it? • What could be some of its features/ attributes? – How will you identify if the market has become hpyer-compeititive? – Is there an optimal way to respond to it? 13 Hyper-competition • When organizations use tactics to disrupt the competitive advantage held by industry leaders. • A condition when the competition is very intense, creating instability in the market. – These conditions require companies to change strategies continuously. – Companies maneuver with each other so that changing market dynamics quickly. – As a result, the strategic competitiveness of a company can disappear immediately or in short-run 14

145. 1/8/23 8 Hyper-competition - characteristics • High level of rivalry among the players • Strategic maneuvers occur at a quick, intense and unexpected pace • Rapid technological and structural changes • Adoption of flexible strategies is common because the competitive landscape is changing rapidly • Low entry barriers, allowing new players to enter and challenge existing companies. • The competitive advantage is temporary. • The new strategic competitiveness would immediately appear, destroy, and replace the old ones. 15 Hyper-competition - Causes • Globalization increases corporate mobility between countries and reduces barriers to market entry. – Also, trade bloc leads to free entry and exit of companies • Ongoing technological innovation. – New technology is beginning to disrupt conventional business models. It also brings competition across national boundaries. • The bargaining power of buyers is also getting stronger, bringing higher pressure to producers. – Through technology, consumers nowadays are easy to compare prices between products. – They can easily switch to competing products when unsatisfied with a product. That, in turn, drives them to want not only higher quality products but also cheaper ones. 16

146. 1/8/23 9 Hyper-competition - Framework Richard A D’Aveni created a framework of 4 pillars • Consumer expectation has gone up dramatically • Technology is driving – business + customers • Falling entry barriers – Trade related tie ups – Technology disruption – Global reach • Deep pockets – Contributory pockets against individual pocket earlier 17 D’Aveni Framework • 4 arenas analysis – It looks at how competition builds up in each of the four areas below, in order to identify patterns and predict future strategic action. – Cost and quality (C – Q) of competitors and how they rate as leaders or followers. – Timing and know-how (T–K) capabilities that affect efficiencies in the value chain. – Strongholds (S) referring to a firm’s core competencies that are difficult to copy. – Deep pockets (D), the financial resources of players in the industry. • Four lenses analysis looks at how a single competitive action (the introduction of tablets, for example) affects the four arenas of an industry. 18

147. 1/8/23 10 D’Aveni Framework 1. Vision for disruption – creating temporary advantage through: – (i) stakeholder satisfaction – adding value for customers, partners, and investors; – (ii) strategic soothsaying – predicting windows of opportunity. 2.Capabilities for disruption – sustaining competitive momentum through: (i) speed – preparing the organization to react to market changes; (ii) surprise – planning of strategies that will disrupt competitors. 3.Tactics for disruption – maintaining equilibrium through: (i) shifting rules - innovating products, processes and revenue models; (ii) signalling intent of selective strategies to the industry; (iii) simultaneous and sequential strategic thrusts to maintain a proactive lead and to keep competitors in a defensive position. 19 20

148. 1/8/23 1 Strategic Management Complete session is delivered based on content and presentation available in the book by Thompson IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch 1 Why Do Companies Expand into Foreign Markets? Gain access to new customers Capitalize on core competencies Achieve lower costs and enhance competitiveness Spread business risk across wider market base Obtain access to valuable natural resources 2

149. 1/8/23 2 The Four Big Strategic Issues in Competing Globally ¡ Whether to customize a company’s offerings in each different country market to match preferences of local buyers or offer a mostly standardized product worldwide ¡ Whether to employ essentially the same basic competitive strategy in all countries or modify the strategy country by country ¡ Where to locate a company’s production facilities, distribution centers, and customer service operations to realize the greatest locational advantages ¡ How to efficiently transfer a company’s resource strengths and capabilities from one country to another to secure competitive advantage 3 ¡ Cultures and lifestyles differ among countries ¡ Differences in market demographics and income levels ¡ Variations in manufacturing and distribution costs ¡ Fluctuating exchange rates ¡ Differences in host government economic and political demands Cross-Country Differences in Cultural, Demographic, and Market Conditions 4

150. 1/8/23 3 ¡ Consumer tastes and preferences ¡ Consumer buying habits ¡ Market size and growth potential ¡ Distribution channels ¡ Driving forces ¡ Competitive pressures One of the biggest concerns of companies competing in foreign markets is whether to customize their product offerings in each different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide. How Markets Differ from Country to Country 5 ¡ Manufacturing costs vary from country to country based on ¡ Wage rates ¡ Worker productivity ¡ Inflation rates ¡ Energy costs ¡ Tax rates ¡ Government regulations ¡ Quality of business environment varies from country to country ¡ Suppliers, trade associations, and makers of complementary products often find it advantageous to cluster their operations in the same general location Different Countries Have Different Locational Appeal 6

151. 1/8/23 4 Fluctuating Exchange Rates Affect a Company’s Competitiveness ¡ Currency exchange rates are unpredictable ¡ Competitiveness of a company’s operations partly depends on whether exchange rate changes affect costs favorably or unfavorably ¡ Lessons of fluctuating exchange rates ¡ Exporters always gain in competitiveness when the currency of the country where goods are manufactured grows weaker ¡ Exporters are disadvantaged when the currency of the country where goods are manufactured grows stronger 7 Differences in Host Government Trade Policies ¡ Local content requirements ¡ Restrictions on exports ¡ Regulations on prices of imports ¡ Import tariffs or quotas ¡ Other regulations ¡ Technical standards ¡ Product certification ¡ Prior approval of capital spending projects ¡ Withdrawal of funds from country ¡ Ownership (minority or majority) by local citizens 8

152. 1/8/23 5 Characteristics of Multi-Country Competition ¡ Market contest among rivals in one country not closely connected to market contests in other countries ¡ Buyers in different countries are attracted to different product attributes ¡ Sellers vary from country to country ¡ Industry conditions and competitive forces in each national market differ in important respects Rival firms battle for national championships – winning in one country does not necessarily signal the ability to fare well in other countries! 9 ¡ Competitive conditions across country markets are strongly linked ¡ Many of same rivals compete in many of the same country markets ¡ A true international market exists ¡ A firm’s competitive position in one country is affected by its position in other countries ¡ Competitive advantage is based on a firm’s worldwide operations and overall global standing Rival firms in globally competitive industries vie for worldwide leadership! Characteristics of Global Competition 10

153. 1/8/23 6 The Integration/ Responsiveness Grid and Strategy Types 11 Strategy Options for Competing in Foreign Markets ¡ Exporting ¡ Licensing ¡ Franchising strategy ¡ Multi-country strategy ¡ Global strategy ¡ Strategic alliances or joint ventures ¡ FDI or Acquisition 12

154. 1/8/23 7 ¡ Involve using domestic plants as a production base for exporting to foreign markets ¡ Excellent initial strategy to pursue international sales ¡ Advantages ¡ Conservative way to test international waters ¡ Minimizes both risk and capital requirements ¡ Minimizes direct investments in foreign countries ¡ An export strategy is vulnerable when ¡ Manufacturing costs in home country are higher than in foreign countries where rivals have plants ¡ High shipping costs are involved ¡ Adverse fluctuations in currency exchange rates Export Strategies 13 Licensing Strategies ¡ Licensing makes sense when a firm ¡ Has valuable technical know-how or a patented product but does not have international capabilities to enter foreign markets ¡ Desires to avoid risks of committing resources to markets which are ¡ Unfamiliar ¡ Politically volatile ¡ Economically unstable ¡ Disadvantage ¡ Risk of providing valuable technical know-how to foreign firms and losing some control over its use 14

155. 1/8/23 8 Franchising Strategies ¡ Often is better suited to global expansion efforts of service and retailing enterprises ¡ Advantages ¡ Franchisee bears most of costs and risks of establishing foreign locations ¡ Franchisor has to expend only the resources to recruit, train, and support franchisees ¡ Disadvantage ¡ Maintaining cross-country quality control 15 Locating Activities to Build a Global Competitive Advantage ¡ Two issues ¡ Whether to ¡ Concentrate each activity in a few countries or ¡ Disperse activities to many different nations ¡ Where to locate activities ¡ Which country is best location for which activity? 16

156. 1/8/23 9 ¡ Activities should be concentrated when ¡ Costs of manufacturing or other value chain activities are meaningfully lower in certain locations than in others ¡ There are sizable scale economies in performing the activity ¡ There is a steep learning curve associated with performing an activity in a single location ¡ Certain locations have ¡ Superior resources ¡ Allow better coordination of related activities or ¡ Offer other valuable advantages Concentrating Activities to Build a Global Competitive Advantage 17 Dispersing Activities to Build a Global Competitive Advantage ¡ Activities should be dispersed when ¡ They need to be performed close to buyers ¡ Transportation costs, scale diseconomies, or trade barriers make centralization expensive ¡ Buffers for fluctuating exchange rates, supply interruptions, and adverse politics are needed 18

157. 1/8/23 10 Transferring Valuable Competencies to Build a Global Competitive Advantage ¡ Transferring competencies, capabilities, and resource strengths across borders contributes to ¡ Development of broader competencies and capabilities ¡ Achievement of dominating depth in some competitively valuable area ¡ Dominating depth in a competitively valuable capability is a strong basis for sustainable competitive advantage over ¡ Other multinational or global competitors and ¡ Small domestic competitors in host countries 19 Global Strategic Offensives ¡ Attack a foreign rival’s profit sanctuaries ¡ Approach places a rival on the defensive, forcing it to ¡ Spend more on marketing/advertising ¡ Trim its prices ¡ Boost product innovation efforts ¡ Take actions raising its costs and eroding its profits ¡ Employ cross-market subsidization ¡ Attractive offensive strategy for companies competing in multiple country markets with multiple products ¡ Dump goods at cut-rate prices ¡ Approach involves a company selling goods in foreign markets at prices ¡ Well below prices at which it sells in its home market or ¡ Well below its full costs per unit Three Options 20

158. 1/8/23 11 Achieving Global Competitiveness via Cooperation ¡ Cooperative agreements with foreign companies are a means to ¡ Enter a foreign market or ¡ Strengthen a firm’s competitiveness in world markets ¡ Purpose of alliances ¡ Joint research efforts ¡ Technology-sharing ¡ Joint use of production or distribution facilities ¡ Marketing / promoting one another’s products 21 Strategic Appeal of Strategic Alliances ¡ Gain better access to attractive country markets from host country’s government to import and market products locally ¡ Capture economies of scale in production and/or marketing ¡ Fill gaps in technical expertise or knowledge of local markets ¡ Share distribution facilities and dealer networks ¡ Direct combined competitive energies toward defeating mutual rivals ¡ Take advantage of partner’s local market knowledge and working relationships with key government officials in host country ¡ Useful way to gain agreement on important technical standards T h e pi ct u r e c a n' t b e di s pl a y 22

159. 1/8/23 12 Pitfalls of Strategic Alliances ¡ Overcoming language and cultural barriers ¡ Dealing with diverse or conflicting operating practices ¡ Time consuming for managers in terms of communication, trust- building, and coordination costs ¡ Mistrust when collaborating in competitively sensitive areas ¡ Clash of egos and company cultures ¡ Dealing with conflicting objectives, strategies, corporate values, and ethical standards ¡ Becoming too dependent on another firm for essential expertise over the long-term 23 ¡ Tailoring products for big, emerging markets often involves ¡ Making more than minor product changes and ¡ Becoming more familiar with local cultures ¡ Companies have to attract buyers with bargain prices as well as better products ¡ Specially designed and/or specially packaged products may be needed to accommodate local market circumstances ¡ Management team must usually consist of a mix of expatriate and local managers Characteristics of Competing in Emerging Foreign Markets 24

160. 1/8/23 13 Strategic Options: How to Compete in Emerging Country Markets ¡ Prepare to compete on the basis of low price ¡ Be prepared to modify aspects of the company’s business model to accommodate local circumstances ¡ Try to change the local market to better match the way the company does business elsewhere ¡ Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances 25 ¡ If a local company has resources and capabilities that it can transfer to operations in other countries, it can launch a strategy aimed at ¡ Entering markets of other countries as rapidly as possible ¡ Shifting to a more globalized strategy ¡ Building brand recognition and a brand image that extends to more and more countries ¡ Gradually establishing the resources and capabilities to go head-to-head against large global rivals Strategic Options for Local Companies: Contend on a Global Level 26

161. 1/8/23 1 Session 10: Strategies for Stagnant or Declining Industry IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch 1 Identifying Decline • Showing financial trouble o Margins below sustainable levels o Inventories piling up, stock not moving at rates they did earlier • Lack of innovation/ R&D o Companies in the industry are risk averse o Recycle rather than innovation is relied on • Too much emphasis on past success/ reputation o External business drivers vanishing • Lack of transparency • Talent moving away to other areas 2

162. 1/8/23 2 What spurs decline? • Factors that could spur decline o Technological disruptions o Demographic changes o Shift in customer needs o Complementary products o Cost of inputs 3 Strategies for Growth • Organic growth or Inorganic through M&A • JV or SA • Porter (1980), states that the firm should o evaluate competitors’ strengths, industry structure, potential barriers to exit, and the firm’s own strengths in relation to competitors 4

163. 1/8/23 3 Porter’s – End game strategy • “End-game strategies” in declining industries (Porter, 1980, 1983) • The framework is built upon four strategies that can be employed in order to cope with a declining industry o Further investment in the industry to a complete exit o Take a leadership role by aiming to be one of the last operating firms in the industry o Niche itself into a specific segment within the industry o Harvest investments by focusing on cash flow, or making a quick divestment and exit the industry 5 End Game strategies • Conditions of demand o Better quality, lower price substitutes o Changing customer preferences o Shrinking consumer groups o Cost of inputs or complementary products • Competitor’s perception of demand o Decline or rejuvenate – runaway bloodbath or hold on • Rate and pattern of decline o Rapid or erratic decline • Nature of demand pockets o cigars from regular to premium 6

164. 1/8/23 4 End Game strategies • Exit barrier o Types – complexities, indigestible, incongruent o Contingent liabilities – labour settlements, land use, dismantling assets • Inter-relatedness • Access to financial markets • Vertical integration • Information gaps o Bundled products hiding behind success of other units • Managerial resistance 7 Leveraging strategies • Strategy for shrinking industries usually focus on divestment or harvest strategies, but managers should consider two other alternatives - leadership and niche as well • Refresh and Rebrand o Create a niche space – vinyl records, cigars • Segmentation/ Fragmentation • Harvest cash cow o Identifying digestible and indigestible assets is the key 8

165. 1/8/23 5 Factors influencing Strategy • External o as the industry grows and ages, industry effects will have a stronger impact on firm performance as the industry moves from heterogeneous to standardized procedures, which is common in the decline stage o Factors of Porter’s diamond o Lamont et al. (1995) argue that in a munificent industry, i.e. where resources are plenty, companies are independent of each other, whereas in an industry characterized by scarce resources, the companies become more strategically interdependent o some declining industries are also characterized by destructive competitive behavior 9 Factors influencing Strategy • Internal o Follows RBV of strategy o differences in firm performance could be explained by scarce, idiosyncratic resources and capabilities o argument that resources are scarce and heterogeneous puts a strong pressure on managers to employ them successfully o ability to forecast, continuous need to monitor the customer’s needs and appropriately respond to opportunities and threats based on those needs o Inter-relationships between firms o identify themselves with the industry too much or fail to realize possible substitute products (Porter, 1980) o Companies that have been successful in declining industries have had managers who tended to view decline as an opportunity rather than a threat (Harrigan & Porter, 1983) 10

166. 1/8/23 6 Growth Champions - Strategy • In a study spread over one year o Only 13% firms grew over 10 year period based on market share growth o Over 90% firms cultivated growth using dynamic resource-allocation as well as M&A o Executives who have enjoyed strong phases of growth tell us about a zealous growth mind-set that gave them a crucial edge Source: How growth champions thrive even in stagnating markets, Yuval Atsmon, August 30, 2017, McKinsey Quarterly 11 Declining Industry • Growth in demand and profitability goes down o Major reasons are changes in the tastes and preferences of customers, o the emergence of sophisticated technology in the industry that has ushered in new uses of products, o customers have become tired of using the same types of products for a long time, o substitute products have entered into the market with high success, o technological substitution has taken place o social changes have occurred (such as people are less using cigarettes due to more health consciousness), or o foreign competition (such as low-cost Chinese and Indian ball pens are pushing our ballpen industry into decline) o Profitability goes down mainly due to slackened demand for products and very high competition among the producers. 12

167. 1/8/23 7 Declining Industry: Strategy Options • Harvesting strategy o harvest maximum possible amount of cash from the business o Involves sacrificing market position in return for bigger near-term cash flows or current profitability o It may have to cut down the budget substantially o Reinvestment is rarely made, new equipment is not purchased (rather old ones are used as long as possible), and priority is given on the extensive use of existing facilities of the firm. o To obtain greater cash flows, advertising expenses are cut down, quality is reduced carefully and less-essential customer services are curtailed. 13 Declining Industry: Strategy Options • Divestiture strategy o The firm may divest or sell off a portion of its assets like equipment, land, stock of materials, etc. o The cash proceeds can be used for improving the core business. Or, the firm may dispose of the business entirely. • Niche or Focus Strategy o Any industry, whether emerging or maturing or declining, may have several niches (a small segment of a market that generally remains unserved or inadequately served by competitors). o A firm in a declining industry can look for niche markets where it can operate a business profitably. Some of these niche markets may be growing despite stagnation in the industry as a whole. 14

168. 1/8/23 8 Declining Industry: Strategy Options • Differentiation Strategy o A firm can place more emphasis on the differentiation strategy of products based on quality improvement and innovation. o Differentiation can rejuvenate demand through alluring customers to the firm’s products innovation-based differentiation is also helpful for a firm in a stagnant/declining industry to survive easy imitation by the competitors. • Low-Cost Strategy o A firm may also follow a low-cost strategy by driving costs down. o If the costs can be reduced continuously in an innovative way, it can help the firm improve its profit margin and return-on-investment. o Cost reductions may take the form of dropping less essential business-activities, outsourcing some functions, redesigning internal business processes, consolidating unutilized production facilities, closing down high-cost retail outlets, and pruning marginal products. 15 Mistakes to avoid …. • Getting trapped in a profitless war of attrition • Diverting too much cash out of the business too quickly • Being overly optimistic about the industry’s future and spending too much on improvements in anticipation that things will get better 16

169. 1/8/23 1 Session 11: Strategies for Emerging Industry IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch 1 Emerging Industry • The most common definition of an “industry” holds that it is a group of firms producing products that are close substitutes for one another (Porter, 1980; Hitt et al., 2009). 2

170. 1/8/23 2 Emerging Industry • An emerging industry is an industry which is at its early stage of development. • It is an embryonic or’ infant industry.’ It is just beginning to develop or emerge. • Although growth potential in the emerging industry is high, the actual growth at this stage is slow. Slow growth is mainly attributed to customers’ unfamiliarity with products. • Other reasons usually include high prices due to the producers’ inability to achieve economies of scale and weak distribution channels. 3 Emerging Industry • It is characterized by o few competitors, o high growth potential, o the uncertainty of demand, o the dominance of proprietary technology, o wide differences in product quality, o low entry barriers, o difficulty in having ample supply of raw materials 4

171. 1/8/23 3 Emerging Industry Characteristics o Minimal competition o Lots of growth potential o High risk and high volatility o High prices due to absence of economies of scale o Low barriers to entry Barriers for o Lack of consumer awareness and customer loyalty o Lack of financing o Restrictions and regulations o High cost of R&D o Lack of suppliers 5 Challenges – Emerging Ind • Doubts exist about the functioning, growth, and size of the market. • The practices set at this point may define the industry even later and all this setting up is done by trial, since no one has any experience • Managers cannot make useful projections of sales and profits due to a lack of historical data. • Proprietary technology dominates the industry. • Uncertainty prevails regarding the product attributes that may win customer acceptance. • Uniformity is difficult to find in product quality and product performance. • Therefore, competition in the industry centres around each company’s strategic approach to technology, product design, and marketing. • Entry into the emerging industry is relatively easy. As a result, financially and professionally strong companies may enter into the industry if there is a high growth prospect. 6

172. 1/8/23 4 Challenges – Emerging Ind • In an emerging industry, all buyers are first-time users of products • therefore, marketing managers must try to induce an initial purchase. • Products are first-generation products (new). • Thus, many potential customers defer their purchase until the quality improves. • The firms in the emerging industry most often fail to attract the suppliers of raw materials to gear up their production. • This happens due to the immature stage of the industry. This creates hurdles in getting a regular and adequate supply of raw materials. • It could disrupt the existing industry and established players in the market o Mapping and managing customer expectations could be a challenge in a disrupted industry 7 Barriers for Emerging Industry • Lack of consumer awareness and loyalty • Lack of finance availability on manageable terms • Lack of credible and capable suppliers • Regulations • High cost of research and development 8

173. 1/8/23 5 Strategy Options 1.A low-cost strategy is viable to discourage potential competitors from entering the industry. Even a company can use price-cuts to attract price-sensitive buyers. 2.Differentiation strategies may be adopted based on technological or product superiority. 3.A company may adopt a cooperative strategy (strategic alliance) by forming a partnership with key suppliers of materials and components. 4.A company may form Strategic affiance with other companies having the technological expertise to outcompete strong competitors. 5.Acquisition strategy may be followed to acquire special skills or capabilities so that the company can weaken the competitors based oh technological superiority. 6.A company may enter into a joint venture agreement (if there are financial constraints) to cover greater geographical areas or pursue new customer groups. 9 Main Engines of Globalization • Transnational corporations (TNCs) • Transnational media organizations (TMCs) • Intergovernmental organizations (IGOs) • Non-governmental organizations (NGOs), and • Alternative government organizations (AGOs). 10

174. 1/8/23 6 Globalization perspectives • Westhuizen (2003) emphasizes that “globalization involves the process by which most of the world's developed countries and some of the developing countries aim to improve inter alia the free flow of information, money, ideas, cooperation, detection, exchange, technology, and trade between nations.” • Khor (1995) argue that globalization is ‘‘what the third world (developing) countries have for several centuries called colonization.” • Kelechi Ugwu & Charles Njoku (2014) argue that globalization favors one side of the world called ‘stronger countries’ more than the other side of the world called ‘weaker countries’. 11 +ve effects of Globalization • Obaseki (2000) notes, globalization has positive effects : o Increase in specialization and efficiency leading to higher trade, o Better quality products at reduced prices, o Economics of scale in production, competitiveness and improvement, and o Increase in managerial capabilities. o Counters inflationary growth, and fiscal imbalances with approved real interest rates, that is, it brings good prospects for investment and structural reforms especially in transition economies. o Loto (2011) stress that globalization opens and stabilizes the economy through export strategy. o Structural adjustment program (SAP) is one of the measures adopted as liberation strategy to open up the economy and penetrate international market. 12

175. 1/8/23 7 -ve effects of Globalization • It does not improve global welfare (Obaseki & Ojo, 1998) o Differences in macroeconomic, sectoral and structural policies of countries have resulted to varying degrees of benefits and looses of the rapid integration of goods, services and financial sector across the globe o Does not favor countries that have weak macroeconomic policies towards financial and exchange rate stability. o Policy measures should be applied to prevent banking crises to be able to achieve current account convertibility through removal of non-tariff barriers to trade to allow free flow of goods and services and factors of production. 13 Globalization • Ten years ago, globalization seemed unstoppable. o It was a Coke CEO, the late Roberto Goizueta, who declared in 1996: “The labels ‘international’ and ‘domestic’…no longer apply.” His globalization program, often summarized under the tagline “think global, act global,” had included an unprecedented amount of standardization. o By the time he passed away in 1997, Coca-Cola derived 67% of its revenues and 77% of its profits from outside North America. • By the end of 1999, when Douglas Daft took the reins, earnings had slumped, and Coke’s stock had lost nearly one-third of its peak market value—a loss of about $70 billion. o Daft’s solution was an aggressive shift in the opposite direction. On taking over, he avowed, “No one drinks globally. Local people get thirsty and…buy a locally made Coke.” o Unfortunately, “local” didn’t seem to be any better a description of Coke’s market space than “global.” o On March 7, 2002, the Asian Wall Street Journalannounced: “After two years of lackluster sales…the “think local, act local” mantra is gone. Oversight over marketing is returning to Atlanta.” 14

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