dynamics of competitive strategy - om trivedi
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I CHAPTER 2
DYNAMICS OF
COMPETITIVE STRATEGY
By: PROF. OM TRIVEDI
Copyright © 2018. Prof. Om Trivedi. All rights reserved.
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ICompetition
▪ Competition is a contest between
organisms, animals, individuals, groups,
etc.
▪ Direct competition: Products which
perform the same function compete
against each other.
▪ Indirect competition: Products which are
close substitutes for one another
compete.
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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.
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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?
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ICompetitive Landscape
▪ A business analysis which identifies
competitors.
▪ Permits the comparison of their
mission, vision, core values, niche
market, strengths and weaknesses.
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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
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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
Tata
Nano
Perceived
Value
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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
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IValue Creation
▪ Providing products and services to the
customers with more worth.
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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%)
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IMcDonald’s
▪ 2008- A year of Recession
▪ Revenue: 22.7 Million in 2007 to 23.7 Million in
2008
▪ Income: 2.4 Billion in 2007 to 4.3 Billion in 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
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IRole of Resources, Capabilities and Value
Creation is Achieving Competitive
Advantages
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ICharacteristics of Resources that
Provide Sustainable Competitive
Advantages
I. Imitability
II. Durability
III. Transferability
IV. Appropriability
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I
Strategic
Analysis
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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?
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IStrategic Analysis
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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)
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IWhat is Risk?
Certainty UncertaintyRisk
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IStrategic Risks
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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.
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IChoosing a Strategy through
Situation Analysis
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IImportant Factors Considered while
doing a Situation Analysis
▪ Product Situation
▪ Competitive Situation
▪ Distribution Situation
▪ Environmental Factors
▪ Opportunity and Threat analysis
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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
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IIndustry and Competitive
Analysis
▪ Industries differ widely in their
• economic characteristics,
• competitive situations, and
• future profit prospects.
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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
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IImportant Concepts
▪ Strategic Groups
▪ Strategic Group Mapping
▪ Key Success Factors (KSFs)
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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.
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IValue Chain Framework of Porter
(1990)
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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
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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
it.
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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
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ITools to identify and
build CC
▪ Four criteria of sustainable
competitive advantage
(Capabilities that are Core Competencies)
▪ Value Chain Analysis
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ICapabilities that are Core
Competencies
▪ Valuable
▪ Non-substitutable
▪ Costly to Imitate
▪ Rare
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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?
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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.
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ISWOT Analysis
©South-Western College Publishing
S
W
O
T
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
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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
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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
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ISignificance of SWOT Analysis
Provides a Logical Framework
Presents a Comparative Analysis
Guides strategist in Strategy Identification
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ISWOT Analysis Framework
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ITOWS Matrix
(Heinz Weihrich)
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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.
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IStrategic Business Unit
(SBU)
▪ SBU is an autonomous division in the
organization which deals with specific business
concerns.
▪ It has its own set of competitors and a manager,
who has responsibility for strategic planning and
implementation, and who has control over the
resources and profit-influencing factors.
Manufacturing
Showroom
Service Centre
SBU 1
SBU 2
SBU 3
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IExperience Curve
▪ Experience curve shows the relationship
between production cost and cumulative
production quantity.
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IProduct Life Cycle
(PLC)
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IBoston Consulting Group Growth-
Share Matrix (BCG Matrix)
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IFour strategies Based on
BCG Matrix
▪ Build
▪ Hold/Protect
▪ Harvest
▪ Divest
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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.
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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
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IADL Matrix
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IThe General Electric Model
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I
GLOBAL
ENVIRONMENT
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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.
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IFactors that influence
globalization
▪ Sports Meets
▪ Terrorist Attacks
▪ Natural Disasters
▪ Emerging new market
▪ The culture and attributes towards change
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IGlobalization
▪ Globalization refers to the linkage between
markets that exist across national borders.
▪ These linkages may be economic, financial, social
or political.
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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.
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ITypes of
Global Companies
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ICharacteristics of a
Global Company
▪ Common ownership
▪ Common pool of resources
▪ Common strategy
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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
globe
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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