MDI, GURGAON

Strategy and Consulting

Domain Compendium

GD-PI Preparatory Compendium

Porter's Five Forces

In an existing industry, market entry and survival is determined by various forces that prevail in the industry. The main five factors or forces that drive competition: 1. Competitors: Existing rivalry between firms can take a firm’s profits to zero and may lead

to shut down. In a competitive environment, firm’s decision is highly influenced by what the

competitors do.

2. Barriers to Entry: The threat of new entrants to the market determines the sustainability

of estimated market share. It is evaluated in terms of market entry barriers which may be in

the form of high fixed cost, product differentiation etc.

3. Substitutes: There is always a threat of substitute products replacing the existing

product(s) of a firm. 4. Suppliers: A competitive market with limited suppliers brings with it high level of

bargaining power of suppliers. 5. Buyers: Multiple products of same category gives the buyers an advantage in bargaining,

thus high bargaining power of buyers exists in multi-brand products.

Value Chain Analysis

Value Chain Analysis describes the activities that take place in a business and relates them to

an analysis of the competitive strength of the business. The activities of a business could be

grouped under two headings:

(1) Primary Activities ‐ activities that are directly concerned with creating and

delivering a product or service (e.g. component assembly). Primary activities are

broken down further into inbound logistics, operations, outbound logistics, marketing

and sales, and after-sales service

(2) Support Activities – activities that make primary activities possible or easier i.e.

these activities are not directly involved in production, but may increase effectiveness

or efficiency. Support activities include procurement of inputs, development of

technology and human resources management, and general firm infrastructure. It is

rare for a business to undertake all primary and support activities.

Steps in Value Chain Analysis

Value chain analysis can be broken down into the following sequential steps: (1) Internal Cost Analysis – First Catalogue activities - Break down a market/organization

into its key activities under each of the major headings – Primary or Secondary. A firm or

an industry needs to understand its own value chain in order to compare to its competitors

Identify the processes to create the product

Determine the portion of the total cost of the product to each process

Identify the cost drivers for each process

Identify the links between the processes

Evaluate opportunities for achieving relative cost advantage

(2) Internal Differentiation Analysis: Identify the processes that distinguish its products or

services from that of its competitors. Use activities to analyze relative costs and relative

willingness to pay, i.e. assess the potential of activities for adding value via cost

advantage or differentiation. The competitive advantage can be

Superior product features

Improved marketing channels

Enhanced support/service

Brand or image positioning

Price

(3) Explore Options and make Choices: Identify current activities where a business appears

to be at a competitive disadvantage. Determine strategies built around focusing on

activities where competitive advantage can be sustained.

Competitive Strategy - Porter's Generic Strategies

Competitive strategy of a company is given by the firm’s source of competitive advantage

and the scope of the business. A firm can choose to come up with a low-cost product or a

differentiating product in the market. On the other hand, the scope of business can be narrow

and focused on one market or can be wide and encompass diverse product lines and

geographies.

Cost Leadership: Strategy used by businesses to create a low cost of operation within their

niche. The use of this strategy is primarily to gain an advantage over competitors by reducing

operation costs below that of others in the same industry.

Differentiation: Approach under which a firm aims to develop and market unique products

for different customer segments. Usually employed where a firm has clear competitive

advantages, and can sustain an expensive advertising campaign.

Focus strategy: The scope over which the company should compete in the market- either on

cost leadership or differentiation

BCG Matrix

The matrix, developed by Boston Consulting Group in the early 1960s is used to plan market

strategies. Growth rate is determined by reference to market research, or it can be estimated. “Competitive position” includes an assessment of the firm’s overall market penetration and

profitability compared to the other players in that market. Products are then positioned in the

four “cells as shown in the figure.

Cash cows are units with high market share in a slow‐growing industry. These units typically

generate cash in excess of the amount of cash needed to maintain the business. They are

regarded as staid and boring, in a "mature" market, and every corporation would be thrilled to

own as many as possible. They are to be "milked" continuously with as little investment as

possible, since such investment would be wasted in an industry with low growth.

Dogs, or more charitably called pets, are units with low market share in a mature,

slow‐growing industry. These units typically "break even", generating barely enough cash to

maintain the business's market share. Though owning a break‐even unit provides the social

benefit of providing jobs and possible synergies that assist other business units, from an

accounting point of view such a unit is worthless, not generating cash for the company. They

depress a profitable company's return on assets ratio, used by many investors to judge how

well a company is being managed. Dogs, it is thought, should be sold off. Question marks (also known as problem child) are growing rapidly and thus consume large

amounts of cash, but because they have low market shares they do not generate much cash.

The result is large net cash consumption. A question mark has the potential to gain market

share and become a star, and eventually a cash cow when the market growth slows. If the

question mark does not succeed in becoming the market leader, then after perhaps years of

cash consumption it will degenerate into a dog when the market growth declines. Question

marks must be analyzed carefully in order to determine whether they are worth the

investment required to grow market share.

Stars are units with a high market share in a fast‐growing industry. The hope is that stars

become the next cash cows. Sustaining the business unit's market leadership may require

extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader. When

growth slows, stars become cash cows if they have been able to maintain their category

leadership, or they move from brief stardom to dogdom.

As a particular industry matures and its growth slows, all business units become either cash

cows or dogs. The natural cycle for most business units is that they start as question marks,

and then turn into stars. Eventually the market stops growing thus the business unit becomes

a cash cow. At the end of the cycle the cash cow turns into a dog

Core Competency

Core competencies are particular strengths of a firm relative to other organizations in the

industry which provide the fundamental basis for the added value. Core competencies are

critical to the business for achieving competitive advantage. Core competencies of firms

should fulfill three key criteria:

It is not easy for competitors to imitate

It can be reused widely for many products and markets

It must contribute to the end consumer's experienced benefits and the value of the

product/service to its customers

PESTEL Analysis

PESTEL analysis is a tool used by companies to analyze the environment in which they

operate while starting a major project or launching a new product in the market. The

components of PESTEL are

1. Political

These factors determine the extent to which a government may influence the

economy or a certain industry.

Government introducing extra tax on diesel cars affects the entire auto industry.

2. Economic

These factors are determinants of an economy’s performance that directly impacts a

company and have resonating long term effects.

Rise in the inflation rate would cause companies to increase prices

3. Social

These factors scrutinize the social environment of the market, and gauge

determinants like cultural trends, demographics, population analytics etc.

Buying of items such as cars, sweets etc increase during the festival season

4. Technological

These factors pertain to innovations in technology that may affect the operations of

the industry and the market favourably or unfavourably

Introduction of touch screen caused Nokia to lose market share to the likes of Apple

and Samsung

5. Environmental

These factors include all those that influence or are determined by the surrounding

environment.

Particularly significant for industries such as tourism

The need for a cleaner environment might force automobile companies to adopt

stricter norms. 6. Legal:

These factors have both external and internal sides. There are certain laws that affect

the business environment in a certain country while there are certain policies that

companies maintain for themselves.

The GAAR provisions brought about by Central government force foreign companies

to reshape their policies and strategies

SWOT Analysis

SWOT analysis (alternatively S WOT Matrix) is a structured planning method used to evaluate the Strengths, Weaknesses, Opp ortunities, and Threats involved in a project or in a business

venture. It helps orga nization to understand the competitive advantages it possesses and also the

areas where it nee ds to improve. SWOT analysis is usually de veloped during a retreat session

where there are se veral hours available to brainstorm.

The components of SWOT analysis are

1. Strength : This details the strengths that an organisation possess that give s it an

advantage over others

2. Weakness : The shortcomings that an organisation possess that the other players in the

industry might exploit

3. Opportunities: Events or changes in the external environment that an organisation

could use to its advantage.

4. Threat : Events or changes in the external environment that can cause the organisation

to lose its competitive advantage

Consultancy as a Career Option

Is Consultancy for Me?

Team Work

Consultants rarely if ever work alone. You work with consultants from your firm, you

work with employees in the client company, and you work with consultants from the

other firm that the client may have hired.

In short, if you prefer working in your own comfort zone, in your own nook and corner,

consulting is not for you

Great Academics

It has been observed that there exists a high co-relation between academic curiosity and

performance in consulting industry. People who have done well academically tend to do

well in this industry as well

Multitask

Consulting assignments vary greatly in duration, location and function. It may require

context switching from one deliverable to another.

If you are one who prefers working with the horse’s blinkers on, consulting is not for you

Willing to work long hours

Consultants must strive to meet and beat client expectations. That takes time and loads of

it. Top consultants are known to put 70+ hours per week to prepare that deliverable that

will crack the problem at hand and satisfy the client.

If you have multiple engagements outside work and cannot dedicate such volume of time,

consultancy is not for you.

Travel Enthusiast

Consultants are on the road most of the time. Consultants from established names are

known to spend at-least four days out of 7 in a week on client site.

Client sites are themselves located in obscure corners of the world and you may end up

lot of time in travelling.

If you obligations back home and cannot stay away from long durations or cannot adjust with

the erratic travel schedule, consultancy is not for you.