DYNAMICS OF COMPETITIVE STRATEGY - Om Trivediomtrivedi.com/admins/pic/20181023120342_Chapter...

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I CHAPTER 2

DYNAMICS OF

COMPETITIVE STRATEGY

By: PROF. OM TRIVEDI

ICompetition

▪ Competition is a contest between

organisms, animals, individuals, groups,

▪ Direct competition: Products which

perform the same function compete

against each other.

▪ Indirect competition: Products which are

close substitutes for one another

compete.

ICompetitors

▪ Any person or entity which is a rival against

another in business.

▪ A company in the same industry or a similar

industry which offers a similar product or service.

▪ Example:

• Fast-food restaurants McDonald’s and Burger King

• Coca-Cola and Pepsi

• Wal-Mart and Target.

IHow to Deal with Competition?

▪ Who are the competitors?

▪ What are their product and services?

▪ What are their market shares?

▪ What are their financial positions?

▪ What gives them cost and price advantage?

▪ What are they likely to do next?

▪ How strong is their distribution network?

▪ What are their manpower strengths?

ICompetitive Landscape

▪ A business analysis which identifies

competitors.

▪ Permits the comparison of their

mission, vision, core values, niche

market, strengths and weaknesses.

ISteps to Understand

Competitive Landscape

I. Identify the competition

II. Understand the competition

III. Determine the strengths of the

competition

IV. Determine the Weaknesses of the

competition

V. Put all the Things Together

ICompetitive Strategy

▪ Competitive strategy is designed to help firms

achieve competitive advantage.

▪ A competitive strategy consists of moves to

• Attract customers

• Face Competition

• Beat Competition

• Strengthen an organization’s market position

Perceived

ICompetitive Advantages

▪ It allows a firm to gain an edge over rivals when competing.

▪ The set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition.

Bade Aaram Se

IValue Creation

▪ Providing products and services to the

customers with more worth.

IWALMART

▪ Self-service Super Market Business Model

▪ In 1962 by Sam Walton

▪ 2008- A year of Recession

▪ Sales- 410 Billion Dollars, 7400 stores in 15

countries and over 2 million employees

▪ ROIC: 14.5%

▪ Competitors- Costco (11.7%) and Target (9.5%)

IMcDonald’s

▪ 2008- A year of Recession

▪ Revenue: 22.7 Million in 2007 to 23.7 Million in

▪ Income: 2.4 Billion in 2007 to 4.3 Billion in 2008

▪ 60 Million new customers, 650 new outlets

▪ In 120 countries

▪ 14000 outlets in US and 18000 outlets outside

▪ 2/3rd revenue comes from out of US

▪ Feeds 58 million customers everyday

IRole of Resources, Capabilities and Value

Creation is Achieving Competitive

Advantages

ICharacteristics of Resources that

Provide Sustainable Competitive

Advantages

I. Imitability

II. Durability

III. Transferability

IV. Appropriability

Strategic

Analysis

IWhat is Strategic Analysis

▪ Strategic analysis seeks to determine

alternative course of action that could best

enable the firm to achieve its mission and

objectives.

▪ Strategic analysis tries to find out:

• How effective has the present strategy been?

• How effective will that strategy be in the

future?

• How effective will the selected alternative

strategy be in the future?

IStrategic Analysis

IIssues to be Considered for

Strategic Analysis

▪ Strategy evolves over a period of

time (Result of a series of small Decisions)

▪ Balance (Balance between the internal and external

factors)

▪ Strategic Risk (Analyzing risk involved and

consequences thereon)

IWhat is Risk?

Certainty UncertaintyRisk

IStrategic Risks

ISituational Analysis

▪ A systematic approach for identifying and

analyzing macro-environmental factors

external to the organization and matching

them with the firm’s capabilities.

▪ A Firm’s macro-environment includes all

relevant factors and influences outside the

company’s boundaries.

IChoosing a Strategy through

Situation Analysis

IImportant Factors Considered while

doing a Situation Analysis

▪ Product Situation

▪ Competitive Situation

▪ Distribution Situation

▪ Environmental Factors

▪ Opportunity and Threat analysis

IStrategic Analysis

Framework

Strategic Analysis

Internal AnalysisExternal Analysis

➢ Customer Analysis

➢ Competitor

➢ Market

➢ Environmental

➢ Performance Analysis

➢Determinates Analysis

Opportunities, threats, trends,

and strategic uncertainties

Strengths, Weaknesses, trends,

and strategic uncertainties

Strategy Identification and Selectioni. Identify strategic alternatives

ii. Select strategy

iii. Implement the operating plan

iv. Review strategies

IIndustry and Competitive

Analysis

▪ Industries differ widely in their

• economic characteristics,

• competitive situations, and

• future profit prospects.

IMethods of Industry and

Competitive Analysis

D ominant Economic Features of Industry

I ntensity of Competition

D rivers of Change

I dentifying Companies in Strongest and Weakest Position

S trategic or Competitive Moves of Rivals

E xamine Key Factors for Competitive Success

E valuate Financial Attractiveness of Industry

IImportant Concepts

▪ Strategic Groups

▪ Strategic Group Mapping

▪ Key Success Factors (KSFs)

IThe Value Chain Analysis

(Important Concepts)

▪ Value Analysis

It is an accounting analysis to understand the

‘value added’ of separate activities in a

complex manufacturing process, in order to

determine where cost improvement could be

made and/or value creation improved.

▪ Value Added

Creation of a competitive advantage by

bundling, combining, or packaging features

and benefits that result in greater customer

acceptance.

IValue Chain Framework of Porter

(1990)

IManaging Linkages

▪ Internal Linkages

• Between Primary Activities

• Primary and Support Activities

• Between Support Activities

▪ External Linkages

1. Vertical Linkages

• Involving suppliers while finalizing

specifications for raw-material.

• Involving distributors at the design stage of a

product.

2. Horizontal Linkages

IWhat is Core Competencies?

▪ Core Competencies are created by superior

integration of technological, physical and human

resources.

▪ They represent distinctive skills as well as

intangible, invisible, intellectual assets and

cultural capabilities.

▪ It also refers to the strengths of an organization

that provide competitive advantage and value to

IC K Prahlad and Gary Hamel’s View

on Core Competence (CC)

Three competencies that can be termed CC:

A. Competitor differentiation or CA

B. Customer value or Value creation

C. Application of competencies

ITools to identify and

build CC

▪ Four criteria of sustainable

competitive advantage

(Capabilities that are Core Competencies)

▪ Value Chain Analysis

ICapabilities that are Core

Competencies

▪ Valuable

▪ Non-substitutable

▪ Costly to Imitate

▪ Rare

IIdentifying Core Competencies

▪ Leverage Test

• Does it provide potential access to a wide

variety of markets?

▪ Value Enhancement Test

• Does it make a significant contribution to the

perceived customer benefits of the end

product?

▪ Imitability Test

• Can it be imitated?

• Does it reduce the threat of imitation by

competitors?

IValue Chain Analysis (VCA) and

Core Competencies

1. Validate core competencies in current

businesses.

2. Export or leverage core competencies to the

Value Chains of other existing businesses.

3. Use Core Competencies to reconfigure the Value

Chains of existing businesses

4. Use core competencies to create new Value

Chains.

ISWOT Analysis

©South-Western College Publishing

Things the company does well.

Things the company does not do well.

Conditions in the external environment that favor strengths.

Conditions in the external environment that do not relate to existing strengths or favor areas of current weakness.

Internal

External

ISWOT Analysis

Strengths •Financial resources

•Broad product line

•No debt

•Committed employees

•Technology

Weaknesses•Huge debts

•High employee turnover

•Wastage of raw materials

•Obsolete Machinery

Strengths and

Weaknesses

INTERNAL

ISWOT Analysis

OpportunitiesAnd

Threats

EXTERNAL

Opportunities • Emerging markets

• Population changes

• Government policies

• FDI in retail

• Changes in Interest Rates

Threats• Changing technology

• Price wars

• Reduction in industry profits

• Recession

ISignificance of SWOT Analysis

Provides a Logical Framework

Presents a Comparative Analysis

Guides strategist in Strategy Identification

ISWOT Analysis Framework

ITOWS Matrix

(Heinz Weihrich)

IPortfolio Analysis

▪ Business Portfolio: A business portfolio is

a collection of businesses and products

that make up the company.

▪ Portfolio Analysis: A set of techniques that

help strategists in taking strategic

decisions with regard to individual

products or businesses in a firm’s

portfolio.

IStrategic Business Unit

▪ SBU is an autonomous division in the

organization which deals with specific business

concerns.

▪ It has its own set of competitors and a manager,

who has responsibility for strategic planning and

implementation, and who has control over the

resources and profit-influencing factors.

Manufacturing

Showroom

Service Centre

IExperience Curve

▪ Experience curve shows the relationship

between production cost and cumulative

production quantity.

IProduct Life Cycle

IBoston Consulting Group Growth-

Share Matrix (BCG Matrix)

IFour strategies Based on

BCG Matrix

▪ Build

▪ Hold/Protect

▪ Harvest

▪ Divest

IAnsoff ’s Product Market Growth

Matrix (Igor Ansoff)

The Ansoff Growth matrix is a tool that helps businesses

decide their product and market growth strategy.

IADL Matrix

(Arthur D Little)

▪ The ADL Matrix is a two dimensional 4*5

matrix

▪ Based on the Product Life Cycle (PLC) and

Competitive positioning.

▪ Matrix Positioning Base

• Industry Maturity

• Competitive Position

IADL Matrix

IThe General Electric Model

GLOBAL

ENVIRONMENT

IGlobal Environment

FactorsI. Positive and negative impact of

significant international events

II. Emerging global markets

III. Changing global markets

IV. Cultural attributes of individual global

markets.

V. Institutional attributes of individual

global markets.

IFactors that influence

globalization

▪ Sports Meets

▪ Terrorist Attacks

▪ Natural Disasters

▪ Emerging new market

▪ The culture and attributes towards change

IGlobalization

▪ Globalization refers to the linkage between

markets that exist across national borders.

▪ These linkages may be economic, financial, social

or political.

IThe Indicators of Globalization

❑ International trade in goods and services.

❑ The transfer of money capital from one

country to another.

❑ The movement of people across national

borders.

ITypes of

Global Companies

ICharacteristics of a

Global Company

▪ Common ownership

▪ Common pool of resources

▪ Common strategy

IReasons why Companies

go Global

▪ Domestic markets are no longer enough to absorb

whatever is produced

▪ Foreign markets have grown enough to justify

foreign investment

▪ Availability of cheaper and reliable resources in

other countries

▪ Reduction in transportation cost for export to

remote countries

▪ Rapid shrinking of time and distance across the

IImportance of Globalization

▪ Proper use of Resources

▪ Multiple choices

▪ Foreign Exchange

▪ Government incentives

▪ Creates Employment

▪ Technology

▪ Spreading of Risk of Loss

▪ Benefit to the consumers

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