1-lifecycle of industries

8/8/2019 1-LifeCycle of Industries

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An understanding of strategy

from financeperspective



PRODUCT LIFE CYCLE



COMPETITIVE LIFE CYCLE



Tata GroupChairman

Ratan Tata gave the nearly 100companies under the conglomerate'sumbrella some tough love last year (2009): It was up to each, he said, tofigure out how to survive the recession.

If they couldn't, they wouldn't -- hewould offer no bail-outs. Clearly, TataGroup still saw opportunity in themarketplace. In May, it announced plansto build the world's cheapest high-riseapartments in India; Nano-like in their simplicity, each unit will cost just $8,000to $15,000. In December, the companydebuted the $16 Tata Swach, the world'scheapest water filter, which uses rice-husk ash and silver particles to kill

bacteria.



You are not low-cost, you are cost-

effective and clever.You are not premium, you are cost-

inefficient and slow.

You are not low-end market, you use a

bottom-up approach to market

dynamics.

You are not high-end market, you

have reached a state of inertia.

You are not ‘local’, you are relevant.

You are not ‘global’, you are colonial.

You are not ‘copy cats’, you are

flexible and adaptive.You are not ‘original’, you have also

copied for generations



InitialGrowth RapidGrowth MatureIndustries DecliningIndustries

Intensemarketingeffort topromote

maximumawareness

Sustainedandaggressivemarketing

activities

Cost of promotionincreases

Cost of promotionincreases(due to

extensionstrategies)

Marketing effort and Cost




Products areyet to beaccepted bythe market

Productsare fullyaccepted bythe market

Products arebeginning tofade

Productsfade givingroom fornew

products dueto innovation/ invention

Trial and

impulsivepurchases bycustomers

Increasing

customerinterest.Repeatpurchasers.

Only loyal

customerspurchase theproduct

New fashion

trends /productspushes outthecustomers

Products and Customer loyalty




Sales beginsto rise

Increasingsales

Salesvolumereachessteady state.

Salesvelocitydramaticallyreduces

Continuousdecline insales

Sales Growth




Competitionnot present

Emergenceof competitors

Competitorsbegin toleave themarket due

to shake-outs

Lingeringeffect of competition

Competition




Investment inresearch,productdesign and

product

Installationof plantfacilitiesand addition

to capacity

Negativeinvestment

Negativeinvestment

Investment cycle




HighReinvestment of cash

Reinvestment of cash

Noreinvestment of cash

No questionof reinvestment of cash

Reinvestments




Negativecash flowsdue toreinvestment

Negativecash flowsdue toreinvestmen

t

Positive cashflows

Negativecash flowsdue to losses

Cash flows




Increasingreturns

Above-average butfadingreturns

Averagereturns

Below-averagereturns

Margins




Bankruptcy,Development failure,Poor

consumeracceptance

CompetitionandUnfavorableeconomic

conditions

Shrinkingmargins

Innovation

Risks




•Healthcare•Education•Retail

•MicroFinance•Wind Turbines•Insurance•Logistics

• Tourism•Domestic-IT

services•Aircraftmaintenance•Rural SME

•FinancialServices•Real Estate

•Infrastructure•Power•Entertainment• Telecom•Consumer

durables•IT services

•Steel•Cement•Auto

• Textiles•Chemicals•FMCG•Oil & Gas•Beverages

Products-scootersradios

gramaphonescomputerssemi-

conductors

pagersfilms

(movies)

Classification of Industries-(can be debated)



Corporate Strategy

Business Strategy

Functional Strategy

STRATEGY



Corporate Strategy

• Describes interest in differentbusinesses

• Indicates overall planning mode

• Indicates propensity to take risk inthe face of external uncertainties

• Provides framework for attainingcorporate objectives under resourceconstraints.



Apex level planning

• What products to make?

• Who are the customers to be targeted?

• Where should the competition be kept?

• What should be the geographic boundaries?• How should the corporate resources be allocated

among various business units?

– Money would be the most critical resource for anycorporate



TWO EXTREME MODES OF PLANNING

Proactive mode Reactive mode

Turbulent environment Stable environment

(Think of US outsourcing issues)



TWO EXTREME RISK STATES

High risk taking state Low risk taking state

Turbulent environment Stable environment

(Involves innovating)



BUSINESS STRATEGY

• Managerial plan for achieving thegoal of the business unit

– Should be consistent with Corporate

Strategy

– Should be drawn within the frameworkprovided by the Corporate Planners

• Specifies the product market power – The way of competing in that particular

business activity



BUSINESS STRATEGY

• Developing and nurturing distinctivecompetence for translation intocompetitive advantages

– Cannot be copied by rival players

• Reduces cost

• Improves quality

• Leads to product development



FUNCTIONAL STRATEGY

• Low level plan to carry out principalactivities of a business

– Must be consistent with business

strategy

• Functional activities

– Production, Marketing, Finance, HR, R&D



INANCE ASSUMES THE HIGHEST IMPORTANC

URING THE TOP DOWN AND BOTTOM UP

NTERACTION OF PLANNING



FINALLY EVERYTHING REDUCES TO……

INVESTING DECISIONwhere to invest?

FINANCING DECISIONhow to fund?

&

DIVIDEND DECISION

how much to take out profitsor how much to leave it in the business?

1-lifecycle of industries

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