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B to B chapter 6,7

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Business Strategy

Business Strategy

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Business Strategy Strategy formulation is the process of

determining appropriate courses of action

for achieving organizational objectivesand thereby accomplishing organizational

purpose.

Establish profitable, sustainable marketposition, continuously create competitive

advantage

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Business Strategy

Str.MarketingSTP decisions

Product innovationBranding

Pricing,distrbn,Strategies etc

Strategyimplemntation

& control

Where arewe

Where dowe want to be

Did weget there?

How will weget there?

ExternalInternalanalysis

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Heirarchy of strategies

Corporate Strategy

Business level Strategy(SBU)

Functional Strategy

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Heirarchy of strategies

Corporate Strategy Defines the businesses in which the firm competes How

should we allocate resources across businesses? In whichbusinesses should we grow Provides overall direction

eg Relaince ,Yahoo Airtel Business level Strategy(SBU)

Single business or a collection of businesses that has itsown competitors, related products,distinct channels , relatively independent of otherbusinesses usually serves one or many product markets

Should Airtel acquire more companies Functional Strategy how resource is allocated to support

the business level strategy Strategy at the level of R&D,Finance, Production etc

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Business Strategy

Cross functional connections in formulatingfunctional strategy

Eg Marketing has to provide information onmarkets , forecasts, data on competition so thatmanufacturing can plan their volumes,R&D canplan new product development

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Business Strategy Vision

A short and inspiring statement of what

the organisation intends to become andachieve in the future

Envisioning the future

Akio Morita Everyone should access

Portable sound Dirubai Ambani A cell phone in everyone

hands

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Business Strategy Vision of L&T (Chairman A M NAIK)

We would like to be in 2015 a company

with greater technological excellence,which indulges in very complex projects We want to be the Indian equivalent ofMitsubishi

L&T inConstruction, E&

CHeavy IndustryMachinery Industrial Products Technology

Services

5 year strategic planning process

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Vision Statements Vision of Vedanta Resources

chairman

Vedanta must be the best miningand metal company in the world inthree to five years like CVRD the

Brazilian mining giant Presence in Copper Zinc Aluminium

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Business StrategyMission statements

Focus on limited no of goals,stress on policies and valuesOffer the best service,produce highest quality goods

Stress major policies and values

Establishes Common purpose within the organisation

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Business Strategy Coca Cola Mission statement

Everything we do is inspired by our

enduring mission: To Refresh the World... in body,

mind, and spirit.

To Inspire Moments of Optimism...

through our brands and our actions. To Create Value and Make a

Difference... everywhere we engage."

For whom do we do it, what is the benefit

focus on purpose

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Business Strategy

The strategy process

External analysis-

customer,(segments, motivations, unmetneeds)

competitive- analysis of competitors -Brand Identity,cost structure, groups

addressed,strengths, weakness Environment- technological environment

economic environment, culturaldemographic etc

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Business Strategy

Self analysis

Performance- Profitability, salesshareholder value. Customersatisfaction, brand associations,relative cost.

External Abnalysis, self analysis,strategty identification and selection

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Business Strategy

Tools for formulating strategy

SWOT analysis Brings a balancedperspective build strengths, exploitopportunities, resolve weaknesses

Avoid threats balances idealism and

pragmatismLimitations of Swot?

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SwotOutput of SWOT tends to be toobroad and trivial to be of any

consequence in making decisions,the strengths and weaknesses listedtend to be common to all industry

players eg Distribtution, Brand

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Business Strategy

Porters Five forces ModelInternal rivalry( no of competitors, growth, nature of

competition)Bargaining power of suppliers(Eg Intel)

Threat of potential entrants barriers to entry such as patentsstrong brand equity , high investments

threat of substitutes (switching costs, cola versus juices,CDs versus MP3s eg Two Wheelers to Nano)

Power of customers buyer price sensitivity, ability tobackward integrate, bargaining leverage

Helps to determine market attractiveness

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Porters five forces Model

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Porters Five Forces Model Porters five forces Model

Industry rivalry may be high in futureprice competition, differentiation?

Subsitutability of process may not be thathighBargaining power of customersPrice sensitivity may be aproblem.Backward integration?

Bargaining power of suppliersPetrex itself is vertically integratedCore competence ofPetrex?

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Business Strategy

Weaknesses of Porters model

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Business Strategy

Static Model, does not capture what happens inperiod of rapid change

Porducts within an industry viewed as differentfrom products different from other industries. (eg Convergence in digital technologies,)

What is the relative power of the forces? To be used at the micro industry level, not at the

industry group level, eg Cell phones, notCommunication Industry, Televisions notentertainment

Not based empirical research based study

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Business Strategy

Barriers to Entry

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Business Strategy

An analysis of competitive forces will leadto an analysis of ofBarriers to entry

Obstacles a potential entrant mustovercome to compete in a marketCommon Barriers to entry

Brand Loyalty , economies of scale,accessto distribution channels, patent

protection, access to inputs Capital requirements Distribution

channels, government policy

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Business Strategy

Core Competence

Distinctive collection of value creating

skills unique to the company egCannonskills in Fibre optics,precision mechanics

Microelectronics,

Honda designing small motors

L&T engineering services, Projectexecution

Unilever Building and sustaining brands

3M innovation for unmet needs

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Business Strategy

Sustainable competitive advantage

Sustainable competitive advantage is the

prolonged benefitof implementing some uniquevalue-creating strategy based on uniquecombination of internal organizational resourcesand capabilities that cannot be replicatedbycompetitors.

Tangible_ IP rights, Licenses

Intangible Team work, Tacit knowledge andskills,organisation culture etc

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Synergy

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Business Strategy

Other tools for strategy formulation

Ansoffs Matrix

BCG MatrixResource Based View (viewing the

organisations as a bundle of

resources)

Balanced Score Card

Porters Cost Leadership, focus Differentiation Strategies

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Learning organisation

A learning organisation is one that

continuously creates and refines itscapabilities by connecting newinformation and skills to known andremembered requisites for future success

Ability to learn and transfer knowledge

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Market Orientation

What is a market oriented company?

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Market Orientation A company with superior skills in

understanding and satisfying customers More likley to be superior in product

development and other areas Market orientation must exist in the

culture of the organisation Marketing isembedded in the culture of the

organisation Key role of Marketing Market sensing anticipating market

requirements ahead of competition

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Market Orientation Companies wanting to be market

oriented must have sufficient

spanning processes Internal processes Customer

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Market Orientation Obstacles to market orientation

Silos structure within the organisationInterdepartmental rivalry

Lack ofinternal partnering between departmentsand functions

( Internal Partnering Results in better post sale

service, new product development, marketpenetration and development)

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Market Orientation Silos structure

Marketing Sales manufacturing engineeering financeNo communication

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Market Orientation How to achieve market orientation?

Cross functional teams

Total quality Movement(internalsuppliers and customers)

TQM viewed each department in a firmas customers to another department

Voice of customer programmes

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Developing and managing products

Firm has to develop and offer a line

of products or services that providesuperior value to customers

Long term competitive advantage

tied to their ability to offer a streamof new products and services

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Developing and managing products

Core product or service

Augmented Product or service

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Developing and managing

new productsCore and Augmented product

Core product or service

Hotel Accomodation Augmented Product or service

Eg Hotel Room (accomodation) plus free

airport transfers, plus sightseeingpackage

Value adds

Augmented product serves a broader

market

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Basic copier

Copier with added

features ,scannermagnifier colormultisize ,

All above plusmaintenancecintracr, freepaper, cartridge

basic

augmented

augmented

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Developing and managing

new products

Product Life cycle

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Developing and managing

new products (Development stage)

Introduction Stage

Low sales volume,demand creation, no or low profits,competition watching

Growth stage

Sales volume rises rapidly, profits start to rise

awareness goes up, competiton starts, price reductionmay start as competition has emerged,copycat products

Maturity stage

Sales volume peaks, more competition costs lowered dueto volume growth, prices drop further, brands start todifferentiate

Decline stage

Volumes drop, costs further rise,production and

distribution efficiencies required as sales does not go up

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Developing and managing

new productsProducts that have almost disappeared

Black and White TVS

Audio Cassettes Floppy Disks

VCRs ( dead and buried)

Mainframe computers

Propellor Aircraft Carbon paper

Conventional carburettor- MPFI

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Developing and managing

new products Products may be on the way out soon

Conventional tube TVS LCDs

Scooters- Motorcycles!Tyres with tubes _ tubeless tyres

Land Lines? Mobiles!

Cash?- Credit cards!in developed

countriesFax machine email, documentattachments!

Conventional incandescent lamp-CFLs

Books Kindle from Amazon!?

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Developing and managing

new products

Marketing strategy during the PLCstages

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Developing and managing

new products Introduction stage

Develop distributor network, Invest heavily inadvertising,target innovators for product adoption,target

best prospects

Growth stageRapid expansion of distribution, product line

expansion,encourage refferals, sales force incentives,

Maturity stageDefend home markets, start pruning productline, more trade thanconsumer promotion,emphasise gross contribution rather than market

share

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Developing and managing

new products Decline stage

cut low gross margin, withdraw from unprofitable

channels, freeze R&D attempt to maintain price whilethere is still some going, consider divesting

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Developing and managing

new productsRisks in new product development

Investment riskproduct fails and we

loose some of our investments

Opportunity riskdeciding to kill aproduct and loosing revenue

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Developing and managing

new products Classifying development projects

Derivative projects incremental product enhancements eg carwith new features or cost reduced Initiatives that realise smalladvances such as cost reductions in existing products

Platform Projects design and components shared by a set ofproducts Eg Black and Decker power tools

More product and process changes that derivative projects dontdo increases engg efficiency, reduces direct costs

Eg Accenture Consulting Platform ERP, CRM etc

Breakthrough projects- new core products and technologies eg

Fibre Optic cable,plasma television, New knowhow

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Radical versus Incremental

Innovation Radical Innovation versus Incremental

innovation

Radical innovation- revolutionary , new to themarket , new technologies, conceptualshifts,R&D thinks up new ideas

Incremental Innovation- Extension of existingproduct or process, product characteristics well

defined customer pull based

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Developing and managing

new products What drives a firms new Product

development and performance?

Process- market assesment,productconcept descriptions, positioningstrategies

Flexible stages, skipping stages if

required (aircraft development) Resource commitments

Top Management commitment

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Developing and managing

new productsNew Product Development Process

Generate New Ideas constant flow of ideas Look for Lead users those who recognise need much ahead

of others Face needs that will be general in the market

place , recognise it ahead of the market Screening and preliminary investigation of ideasConsistency with objectives, market potential, marketpotential possible,ability to manufacture the product

Specify featuresGive Weights to benefits and features define physical

characteristics

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New product Dev ProcessBeta testing-

Field testing or testing the product at thecustomers real world conditions

Risk of competitors knowingLaunch the product Limited launch rollinglaunchEvaluate the product after launch

Pre release testing

Beta testing detected 27% of the bugs inWindows 3.1 version !!!

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Developing and managing

new products Product family- Products that share

a common platform but have

different sets of features andenhancements required for differentsegments of consumers

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Technology adoption lifecyleTechnology adoption life cycle

Technology enthusiasts

Visionaries Early adopters

Pragmatists

Conservatives Late majority

Skeptics Laagards

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Indian Innovations Printing Ink from vegetable oil non petroleum

based

chemicals used in textile processing being

replaced by organic compounds Software to measure carbon footprint of a

company

Low cost fuel injection system to reduce fuelconsumption by 15%

Water purification system using micro organismsto convert sewage water to water for industrialuse.

Beating heart surgery

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PetrexCorporation

Petrex Corporation Issue:Market Attractiveness SWOT

S trengths Brand reputation,customer base Technical knowhow Large scale Financial power Synergy with existing operations

Opportunities Huge growth market 15% already customers Expansion of customer base

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PetrexCorporation

Weaknesses

High cost structure

No experience in smaller projects

Threats

Competition from low cost players

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Boeing CaseKey learningsNew Product Development is fraught with risksInvestment Risk, Opportunity Risk

New Product Development is a long drawn processTakes time even several years

Prediction has to made about future technologies years

in advance.Flexibility in the development process has to be built inFlexibility in terms of switching over to new products

midway, changing specificationsHuge costs of developmentStrategies to mitigate risk through consortium approach

Through partnering with other companies in thedevelopment process.Has to begin with market analysis and understanding

customer needs