Formulating Long Term Objectives and

Grand Strategies
Long Term Objectives
• There are seven areas in which long term objectives
have to be established
1. Profitability
– The ability of any firm to operate in the long term depends on
attaining an acceptable level of profits.
– Strategically managed firms have a long term objective, usually
expressed in earnings per share or return on equity.
1. Productivity
– Commonly used productivity objectives are the number of items
produced or the number of services rendered per unit of input.
– They are also, sometimes, defined in terms of desired cost
decrease.
3. Competitive position
– This is in terms of relative dominance in the marketplace.
– Companies often use total sales or market share as a measure
of competitive position.
4. Employee Development
– Employee development in terms of training which increases
productivity and decreases employee turnover.
5. Employee relations
– Proactive steps in anticipating the employee needs and
expectations are characteristics of good strategic
management.
– This builds employee loyalty leading to increase in
productivity.
– Such programs include safety training, employee stock option
and worker representation on management committees.
6. Technological leadership
– Firms have to adopt different strategies depending on its
intention of being a leader or a follower of technology
leadership.
• e.g., Companies like Intel and Microsoft have an advantage of
being known as technological leaders in their domains.
• e-commerce technology will lead to emergence of new leaders who
are better positioned to take advantage of internet technology to
improve productivity and innovation.

7. Public responsibility
– Corporates ensure that their responsibility go beyond
providing good products and services to include
corporate social responsibility.
– They donate to educational projects, nonprofit
organizations, charities and other socially relevant
activities.
• e.g. MindTree is involved with Spastics Society of Karnataka, Tata
Steel in credited with development of Jamshedpur
Qualities of long-term objectives
1. Acceptable
– The long term objectives should be consistent with the
preferences of the employees.
– They may ignore or even obstruct an objective that offend
them or that they believe to be inappropriate and unfair.
– The long term objectives should also be designed to be
acceptable to groups external to the firm.
• e.g. development of hybrid cars

1. Flexible
– Objectives should be adaptable to unforeseen or extraordinary
changes in the firm's competitive or environmental forecasts.
– Such flexibility is at the expense of specificity.
– One way of providing flexibility while minimizing its negative
effects is to allow for adjustments in the level, rather than in the
nature, of objectives.
• e.g. there may be some flexibility in the growth rate in terms of revenues in
times of recession
3. Measurable
– The objectives must clearly state what will be achieved and by
when it will be achieved.
• e.g. Adobe wants to increase its revenues from India to 5% of their total revenue
in the next five years

4. Motivating
– The objectives have to be set to a motivating level which is high
enough to challenge, but not so high enough as to frustrate, and
also it should not be so low as to be easily attained.
– Since different group of people have different levels of motivation,
different long term objectives should be set to motivate the groups.
5. Suitable
– Long term objective must be suited to the broad aims of the firm,
which are expressed in its mission statement.
– Each of the objectives should help the firm to move closer to
achieving its mission.
• e.g. companies with mission of global reputation cannot do anything which is
unethical
6. Understandable
– All the people involved in the execution of the objectives
must be able to clearly understand the objectives.
– They should also understand the major criteria by which
their performance would be evaluated.
– The objectives must be clear, meaningful and
unambiguous.
7. Achievable
– Objectives must be possible to achieve.
– The objectives have be set to be achievable under
normal conditions, when extreme changes in the
external and internal environments are not expected.
Grand Strategies
• Grand strategies provide basic direction for
strategic actions.
• They are the basis for coordinated and sustained
efforts directed towards achieving long-term
business objectives.
• They indicate a time period over which long-term
objectives are to be achieved.
• Firms involved with multiple industries,
businesses, product lines or customer groups
usually combine several grand strategies.
The fifteen grand principles are:
1. Concentrated growth e.g. e-bay in online auction
2. Market development e.g. J&J catering to the adults, using sachets for
market penetration
3. Product development e.g. personal care products from HUL, newer
version of books,
4. Innovation
5. Horizontal integration
6. Vertical integration
7. Concentric diversification
8. Conglomerate diversification
9. Turnaround
10.Divestiture e.g. Sale of TOMCO by Tata, selling of cement division by
L&T
11.Liquidation
12.Bankruptcy
13.Joint ventures
14.Strategic alliances
15.Consortia e.g. Mitsubishi, LG
Innovation
• Innovation is needed since both consumer and industrial markets
expect periodic changes and improvements in the products offered.
• Firms seeking to making innovation as their grand strategy seek to reap
the initially high profits associated with customer acceptance of a new
or greatly improved product.
• As the products enters the maturity stage these companies start
looking for a new innovation.
• The underlining rationale is to create a new product life cycle and
thereby make similar existing products obsolete.
• This strategy is different from the product development strategy in
which the product life cycle of an existing product is extended.
– e.g. Polaroid which heavily promotes each of its new cameras until
competitors are able to match its technological innovation; by this time
Polaroid normally is prepared to introduce a dramatically new or
improved product.
– Intel, 3M
Horizontal integration
• It is a strategy in which a firms long term strategy is based
on growth through acquisition of one or more similar firms
operating at the same stage of the production-marketing
chain. E.g. Acquisition of Arcrol by Mitta Steels
• Such acquisitions eliminate competitors and provide the
acquiring firm with access to new markets.
• The acquiring firm is able to greatly expand its operations,
thereby achieving greater market share, improving
economics of scale, and increasing the efficiency of capital
use.
– e.g. acquisition of Arcerol by Mittal steels, acquisition of VoiceStream
Wireless by Deutsche Telekom
• The risk associated with horizontal integration is the
increased commitment to one type of business.
Vertical integration
• It is a process in which a firm's grand strategy is to acquire
firms that supply it with inputs (such as raw materials) or are
customers for its outputs (such as warehouses for finished
products).
• The acquiring of suppliers is called backward integration.
• The main reason for backward integration is the desire to
increase the dependability of the supply or quality of the raw
materials used in the production inputs.
• This need is particularly great when the number of suppliers
are less and the number of competitors is large.
• In these conditions a vertically integrated firm can better
control its costs and, thereby, improve the profit margin.
– e.g. acquiring of textile producer by a shirt manufacturer
• The acquiring of customers is called forward
integration.
– e.g. acquiring of clothing store by a shirt manufacturer
• Forward integration is preferred if great
advantages accrue to stable production.
• It also helps in greater predictability of demand
for its outputs.
• Vertical integration has a risk which results from
the firm's expansion into areas requiring strategic
manager to broaden the base of their
competences and to assume additional
responsibilities.
Concentric diversification
• It involves the acquisition of businesses that are related to
the acquiring firm in terms of technology, markets, or
products.
• The selected new business must possess a very high degree
of compatibility with the firm's existing business.
• The ideal concentric diversification occurs when the
combined company profits increase the strengths and
opportunities and decreases the weaknesses and exposure
to risk.
• Thus, the acquiring firm searches for new businesses whose
products, markets, distribution channels, technologies and
resource requirements are similar to but not identical with
its own, whose acquisition results in synergies but not
complete interdependence.
– e.g. acquiring of Spice Telecom by Idea
Conglomerate Diversification
• It is a grand strategy in which a very large firm plans to
acquire a business because it represents the most
promising investment opportunity available.
• The principal concern, and often the sole concern, of the
acquiring firm is the profit pattern of the venture.
• It gives little concern to creating product-market synergy
with existing business.
• They may seek a balance in their portfolio between
current businesses with cyclical sales and acquired
businesses with countercyclical sales, between high-
cash/low-opportunity and low-cash/high-opportunity
businesses or between debt-free and high leveraged
businesses.
– e.g. acquisition of Adlabs by Anil Dirubhai Ambani Group
Turnaround
• Sometimes the profit of a company decline due to
various reasons like economic recession,
production inefficiencies and innovative
breakthrough by competitors.
• In many cases the management believes that
such a firm can survive and eventually recover if
a concerted effort is made over a period of a few
years to fortify its distinctive competences.
• This is known as turnaround strategy.
Turnaround typically is begun with one or both of the following
forms of retrenchment being employed either singly or in
combination.
1. Cost reduction
– It is done by decreasing the workforce through employee
attrition, leasing rather than purchasing equipment, extending
the life of machinery, eliminating promotional activities, laying
off employees, dropping items from a production line and
discontinuing low-margin customers.
2. Asset reduction
– This includes sale of land, buildings and equipment not
essential to the basic activity of the firm.
• Research have showed that turnaround almost always was
associated with changes in top management.
• New managers are believed to introduce new perspectives,
raise employee morale and facilitate drastic actions like deep
budgetary cuts in established programs.
Turnaround situation
• The model begins with the depiction of external and internal
factors as causes of a firm's performance downturn.
• When these factors continue to detrimentally impact the firm, its
financial health is threatened.
• Unchecked decline places the firm in a turnaround situation.
• A turnaround situation represents absolute and relative to the
industry declining performance of a sufficient magnitude to
warrant explicit turnaround actions.
• Turnaround situations may be a result of years of gradual
slowdown or months of sharp decline.
• For a declining firm, stabilizing operations and restoring
profitability almost always entail strict cost reduction followed by
shrinking back to those segments of the business that have been
the best prospects of attractive profit margins.
Situation severity
• The urgency of the resulting threat to company survival
posed by the turnaround situation is known as situation
severity.
• Severity is the governing factor in estimating the speed
with which the retrenchment response will be formulated
and activated.
• When severity is low stability can be achieved through cost
reduction alone.
• When severity is high cost reduction must be
supplemented with more drastic asset reduction measures.
• Assets targeted for divestiture are those determined to be
underproductive.
• More productive resources are protected and will become
the core business in the future plan of the company. E.g .
strategy adopted by Citibank
Turnaround response
• Turnaround response among successful firms
typically include two strategic activities:
– Retrenchment phase
– Recovery phase
Retrenchment phase
• It consists of cost-cutting and asset-reducing activities.
• The primary objective of this process is to stabilize the
firm's financial condition.
• Firms in danger of bankruptcy or failure attempt to halt
decline through cost and asset reductions.
• It is very important to control the retrenchment process in
a effective and efficient manner for any turnaround to be
successful.
• After the stability has been attained through
retrenchment, the next step of recovery phase begins.
Recovery phase
• The primary causes of the turnaround situation
will be associated with the recovery phase.
• For firms that declined as a result of external
problems, turnaround most often has been
achieved through creative new entrepreneurial
strategies.
• For firms that declined as a result of internal
problem, turnaround has been mostly achieved
through efficiency strategies.
• Recovery is achieved when economic measures
indicate that the firm has regained its
predownturn levels of performance.
 Tailoring strategy to fit specific industry and
company situations
Strategies based on industry situation
• Strategies for emerging industries
• Strategies for competing in turbulent, high-velocity
markets
• Strategies for competing in maturing industries
• Strategies for firms in stagnant or declining industries
• Strategies for competing in fragmented industries

Strategies based on company situation

• Strategies for sustaining rapid company growth
• Strategy for industry leaders
• Strategies for runner-up firms
• Strategies for weak and crisis-ridden businesses
Strategies for emerging industries
• An emerging industry is one which is in its
formative stage.
• The two critical strategic issues confronting firms
in an emerging industry are:
1. How to finance initial operations until sales and
revenues take off
2. What market segments and competitive
advantages to go after in trying to secure a front-
runner position.
Challenges when competing in emerging industries
1. Because the market is new and unproven, there is speculation
about how it will function, how fast it will grow and how big it will
get.
– It is difficult to make sales and profit projections.
– There will be guess work about how rapidly customers would be
attracted and how much they would be willing to pay.
1. Much of the technological know-how for the products of
emerging industries is proprietary and closely guarded.
– Patents and unique technical expertise are key factors in securing
competitive advantage.
1. Often, there is no consensus regarding which of the several
competing technologies will win or which product attributes will
prove decisive in winning buyer favor.
– e.g. The mobile service providers are using both GSM and CDMA
technologies and they are not sure which technology will be the winner.
4. Entry barriers tend to be low, even for entrepreneurial
start-up companies.
– Large companies with ample resources will enter the market if
they find the promise for explosive growth or if its emergence
their existing business.
– e.g. entry of large number of players to the mobile services
market
5. Strong learning and experience curve effects may be
present, allowing significant price reductions as
volume builds and costs fall.
6. The marketing task is to induce initial purchases and
to overcome customer concerns about product
features, performance reliability and conflicting claims
of rival firms.
7. Potential buyers expect first-generation products to
be rapidly improved, so they delay purchase till
second or third generation products are released.
8. It will take time for companies to secure ample
raw materials and components. Till suppliers
gear up to meet the industry's needs.
9. A lot of mergers and acquisitions happen as
many small companies not able to fund R&D will
be willing to be acquired.
Strategic avenues for competing in an emerging market
1. Try and win early race for industry leadership with
risk-taking entrepreneurship and a bold creative
strategy. Broad or focused differentiation strategies
with emphasis on technology or product superiority
offers the best chance for early competitive
advantage.
2. Push to perfect the technology, improve product
quality and develop additional attractive performance
features.
3. As technological uncertainty clears and a dominant
technology emerges, adopt it quickly.
4. Form strategic alliances with key suppliers to gain
access to specialized skills, technological capabilities
and critical materials or components.
5. Acquire of form alliances with companies that have related or
complementary technological expertise as a means of helping
outcompete rivals on the basis of technological superiority.
6. Try to capture any first-mover advantage associated with early
commitments to promising technologies.
7. Pursue new customer groups, new user applications and entry
into new geographical areas.
8. Make it easy and cheap for first-time buyers to try the
industry's first generation product. Then, as the product
becomes familiar to a large section of the market, shift
advertisement emphasis to increasing frequency of use and
building brand loyalty.
9. Use price cuts to attract the next layer of price-sensitive buyers
into the market.
Strategies for competing in turbulent, high-velocity
markets
• The characteristics of the turbulent, high-velocity
markets is the occurrence of all the following
things at once:
– rapid technological change
– short product life cycles
– entry of new rivals into the marketplace
– frequent launches of new competitive moves by rivals
– fast evolving customer requirements
– e.g. mobile services, cell phones,
Strategies for coping with rapid changes
• The central strategy-making challenge in a
turbulent market environment is managing
change.
• A company can assume any of the three strategic
postures in dealing with high-velocity change.
• Ideally a company's approach should incorporate
all three postures, in different proportions.
• The best-performing companies in high-velocity
markets consistently seek to lead change with
proactive strategies, at the same time anticipating
and preparing for the future and reacting quickly
to unpredictable and uncontrollable new
developments.
1. It can react to change
• The company can respond to a rival's new
product with a better product.
• It can counter unexpected shift in buyer tastes
and buyer demand by redesigning or repacking
its product.

Disadvantages
• Reacting is a defensive strategy.
• It is unlikely to create fresh opportunity.
2. It can anticipate change, make plans for dealing with the
expected change and follow its plans as changes occur
(fine-tuning them as may be needed)
• It entails looking ahead to analyze what is likely to occur
and then preparing and positioning for that future.
• It entails studying buyer behavior, buyer needs, and buyer
expectations to get insight into how the market will
evolve, then preparing for the necessary production and
distribution capabilities ahead of time.

Advantages
• It can open new opportunities and thus is a better way to
manage change than just pure reaction.

Disadvantages
• Anticipating change is fundamentally a defensive strategy.
3. It can lead change
• It entails initiating the market and competitive forces
that others must respond to.
• It means being the first to market with an important
new product or service.
• It means being technological leader.
• It means having products whose features and
attributes shape customer preferences and
expectations
• It means proactively seeking to shape the rules of
the game.

Advantage
• It is a offensive strategy aimed at putting a company
in the driver's seat.
Strategic moves for fast-changing markets
• The strategic moves depends on the company's ability to
– Improvise
– Experiment
– Adapt
– Reinvent
– regenerate
• It has to constantly reshape its strategy and its basis for
competitive advantage.
• Cutting-edge know-how and first-to-market capabilities are very
valuable competitive assets.
• A company has to have quick reaction time and should have
flexible and adaptable resources.
• Organizational agility would be a competitive asset.
• When a company's strategy are not doing well, it has to quickly
regroup probing, experimenting, improvising and trying again
and again, until it finds something that is acceptable by
customers.
The following five strategic moves provide the best payoff
between altering offensive and defensive strategies and
fast-obsolescing strategy.
1. Invest aggressively in R&D to stay on the leading edge of
technological know-how
• If technology is the primary driver of change, it is important to
translate technological advances into innovative new products
and remaining close to whatever advancements and features
are pioneered by rivals.
• It is desirable to focus the R&D effort on a few critical areas to:
– - avoid stretching the company's resources too thin
– - deepen the firm's expertise
– - master the technology
– - fully capture learning curve effects
– - become a dominant player in a particular technology area or
product category.
2. Develop quick-response capability
• Since it will not be possible to anticipate all the
changes that can happen, having an
organizational capability to react quickly
becomes very crucial.
• This means:
– - shifting resources internally
– - adapting existing competencies and capabilities
– - creating new competencies and capabilities
– - not falling far behind rivals
3. Rely on strategic partnerships with outside suppliers and with
companies making tie-in products
• As discussed earlier specialization and focus are desirable, even
though technology in high-velocity market creates new paths and
product categories continuously.
• It helps to Partner with suppliers making state-of-the-art parts and
components and collaborating closely with developers of related
technologies and makers of tie-in products.
– e.g. PC manufacturers rely heavily on suppliers of components and software
for innovative advances. Suppliers stay on the cutting edge of their
specialization and can achieve economics of scale.
• The managerial challenge is to strike a good balance between
building a rich internal resource base that keeps the firm from being
at the mercy of the suppliers and allies and at the same time
maintain organizational agility by relying on resources and expertise
of outsiders.
4. Initiate fresh actions every few months, not just when
a competitive response is needed
• A company can be proactive by making proactive time-
paced moves - introducing a new or improved product
every few months rather than when the market
declines or when rivals introduce new models.
• It can enter a new market every few months rather
wait for opportunity to present itself.
• It can refresh existing brands often rather wait for its
popularity to wane.
• The key to successfully using time pacing strategy is
the right interval.
– e.g. 3M had pursued a objective of having 25 percent of its
revenues come from products less than four years old. The
target has been revised to 30 percent to have more focus on
innovation.
5. Keep the company's products and services fresh
and exiting enough to stand out in the midst of
all the change that is taking place.
• The marketing challenges for companies in fast
changing markets is to keep the firm's products
and services in limelight.
• The products should be innovative and well
matched to the changes that are occurring in the
marketplace.
Strategies for competing in maturing industries
What are the characters of an maturing industry?
• It is moving from a rapid growth to a significantly
slower growth.
• Nearly all its potential buyers are already users of
the industry's products.
• Demand consists mainly of replacement sales to
existing users, the growth is restricted to the
industry's ability to attract the remaining few new
buyers and in convincing existing buyers to up the
usage.
• Consumer goods industries that are mature
typically have a growth rate roughly equal to the
growth of the consumer base or economy as a
whole.
What are the changes we can see in an industry as it
enters the mature stage?
1. Slowing growth in buyer demand generates more
competition for market share
– Firms looking for higher growth will try to take customers away
from competitors.
– Price cutting, increased advertising and other aggressive tactics
are seen as markets mature.
1. Buyers become more sophisticated, often driving a
harder bargain on repeat purchases
– Since buyers have already experienced the product and are
familiar with competing brands, they evaluate different brands
and can negotiate for a better deal with seller
1. Competition often produces a greater emphasis on
cost and service
– As sellers add all features in a product, the sellers focus shifts to
combination of price and service.
4. Firms are not ready to add new facilities
5. Product innovation and new end-use applications are harder to
come by
6. International competition increases
– Firms start looking for foreign markets for growth. E.g. Vodafone
– Production activity will be shifted to countries where products can be
produced at best cost. E.g. Automobile companies starting operations in
India
– Product standardization and diffusion of technical know-how lowers
barrier and encourages foreign companies to enter the market.
– The focus for most global players will be to capture the large geographic
markets. E.g. P&G entering India
4. Industry profitability falls temporarily or permanently
5. Stiffening competition induces a number of mergers and
acquisitions among competitors, weaker firms are driven out
and consolidation is seen. E.g. Vodafone acquired Hutch
What strategic moves can be adopted for maturing
industries?
1. Pruning marginal products and models e.g. HUL
reducing its number of brands
– A wide variety of products is suitable for growth stage,
when consumer tastes are still evolving. E.g. cellphone
handset market
– A variety of products in a mature industry means
additional costs in terms of maintaining more inventory,
not able to reach economics of scale, and distribution
costs.
– Pruning marginal products helps the firms to cut cost,
concentrate on a few items with highest margins and
where firms have competitive advantage.
• e.g. HUL pruning its many brands to concentrate on only a few
power brands
2. More emphasis on value chain innovation e.g. Maruti
Suzuki asking its vendors to invest in R&D, Vendors involved in
Nano, setting up company owned retail shops by companies like
Reliance (Vimal)
– Value chain innovation can lead to:
• lower costs
• better product and service quality
• greater ability to produce customized products
• shorter design-to-market time
– Innovation in production technology by using better technology,
labor efficiency, flexible manufacturing, redesign of assembly
lines can lead to saving and customization. E.g. using robots in
automobile manufacturing
– Better collaboration with suppliers and distributors can increase
quality of service.
3. Trimming costs e.g. reduction in employees through
automation
4. Increasing sales to present customers e.g. Credit card
companies offering multiple cards to same customers
– This is a more easier option as compared to converting customers
loyal to rival companies.
– This may include finding new applications for the products and
sales promotions. E.g. Johnson making soaps for mothers also
5. Acquiring rival firms at bargain prices e.g. Acquisition of
Modern Breads by HUL, acquisition of Kissan jams by HUL, acquisition
of Merrill Lynch by Bank of America
– Rival firms which are not doing well can be targets for acquisition at
bargain prices.
– Acquisitions helps in:
• increasing the customer base by adding acquired customers
• reaching economics of scale, if possible
• using new technologies from acquired firms
– The acquisition must be done carefully to ensure the overall
competitive strength of the firm increases.
6. Expanding internationally e.g. Vodafone acquisition
of Hutch
– Firms should look for markets which have attractive growth
potential and competitive pressures are less.
– It is more suitable when the firm's skills, reputation and
products can be readily transferable to foreign markets.

7. Building new or more flexible capabilities e.g.

Toyota building multiple model of cars from a single
platform
– Firms need to strengthen their competitive capabilities
making them harder to imitate.
– New competencies and capabilities can be added.
– Existing competencies can be made more adaptable to
changing customer requirements. E.g. ITC using its
expertise in running five star hotels to customize food
products like atta
What can be the strategic pitfalls in an maturing industry?
1. A company should not choose a middle path between low cost,
differentiation and focusing.
2. Slow to mounting a defense against stiffening competitive
pressures. E.g. HTM watches against Titan
3. Concentrating more on short-term profitability rather than building
long-term competitive position. E.g. Unilever losing market share
to local brands like Babool in toothpaste
4. Waiting for too long to respond to price cutting by rivals. E.g.
Ambassador not responding to introduction of smaller cars
5. Over expanding in the face of slowing growth.
6. Over spending on advertising and sales promotion efforts in a
losing effort to combat the growth slowdown.
7. Failing to pursue cost reduction at the earliest and aggressively.
Strategies for firms in stagnant or declining industries
Characteristics:
• Demand is growing slower than economy-wide average.
• Harvesting the business to obtain cash flow e.g. selling of
Gillette to P&G, selling out
• Preparing for closedown is a strategy for uncommitted firms.
E.g. government selling Modern Breads to HUL
• Closing operations is always the last resort.
• The performance targets should be consistent with available
market opportunities. E.g. Khadi garments
• Cash flow and return-on-investment criteria are more
appropriate than growth-oriented performance measures.
• Acquisition or exit of weaker firms creates opportunities for the
remaining companies to capture greater market share.
Strategies that can be followed
1. Pursue a focused strategy aimed at the fastest
growing segment within the industry
– Focusing on the segment within the industry which is
growing will help companies to escape stagnating sales
and profits and even gain competitive advantage. E.g.
Polyester Khadi
1. Stress differentiation based on quality
improvement and product innovation.
– Innovation can create important new growth segments.
– Differentiating based on innovation helps in being
different and making it difficult for rivals to imitate.
3. Strive to drive costs down and become the
industry's low-cost leader
• Potential cost-saving actions include:
– cutting marginally beneficial activities out of the value
chain
– outsourcing functions and activities that can be
performed more cheaply by outsiders
– redesigning internal business processes to exploit cost-
cutting
– consolidating underutilized production facilities
– adding more distribution channels to ensure the unit
volume needed for low-cost production
– closing low-volume, high-cost retail outlets
– pruning marginal products from the firm's offerings
The most common strategic mistakes
1. Getting trapped in a profitless war of attrition
2. Diverting too much cash out of the business too
quickly
3. Being over optimistic about the industry's future
and spending too much on improvements in
anticipation that things will improve.
Strategies for competing in fragmented industries
Characteristics:
• Hundreds of small and medium sized companies,
many privately held and none with a substantial
share of total industry sale.
• Absence of market leaders with large market
share or widespread buyer recognition.
• e.g. restaurants, computer hardware assemblers,
hospitals
Reasons for supply-side fragmentation
1. Market demand is so extensive and so diverse that very large
number of firms can easily coexist trying to accommodate the range
and variety of buyer preferences and requirements and to cover all
the needed geographic locations. E.g. hotels and eateries catering to
various tastes and budgets of customers
2. Low entry barriers allow small firms to enter quickly and cheaply.
E.g. starting a real estate business just needs a contact number and
a small office
3. An absence of scale economics permits small companies to compete
on an equal footing with larger firms.
4. Buyers require relatively small quantities of customized products.
5. The market for the industry's product or service is becoming more
global, putting companies in more and more countries in the same
competitive market arena. e.g. interest shown by automobile
manufacturers the world over to launch of Nano
6. The technologies embodied in the industry's
value chain are exploding into so many new
areas and along so many different paths that
specialization is essential just to keep abreast in
any one area of expertise. E.g restaurants
specializing in a particular variety
7. The industry is young and crowded with aspiring
contenders, with no firm having yet developed
the resource base, competitive capabilities and
market recognition to command a significant
market share.
Strategic options for a fragmented industry
1. Constructing and operating "formula" facilities
– This approach is frequently employed in restaurant and
retailing businesses operating at multiple locations.
– It involves constructing standardized outlets in favorable
locations at minimum cost and then operating them cost
effectively.
• e.g. Pizza Hut, Cafe Coffee Day, Adiga's, MTR

1. Becoming a low-cost operator

– Companies can stress no-frills operations featuring low
overhead, high-productivity, low-cost labor, lean capital
budgets. E.g. low cost eateries like Darshinis
– Successful low-cost producers can use price-discounting and
still earn profit above industry average.
1. Specializing by product type
– Focus on one product or service.
• e.g. Dosa Corners, auto-repair shops specializing in only one brand of
vehicles
4. Specializing by customer type
– Cater to customers interested in low cost or unique
product attributes or customized features.
• e.g. Only outdoor caterers

4. Focusing on limited geographic area

– Concentrating company efforts on a limited
geographical area can produce greater operating
efficiency, speed of delivery and customer service and
promote strong brand
• e.g. Supermarkets
 Strategies based on company position in the industry
Strategies for sustaining rapid company growth e.g. Airtel
• Companies that are focused on growing their revenues and earnings
at a rapid or above-average pace year after year generally have to
draft a portfolio of strategic initiatives covering three horizons.
Horizon 1
– "Short-jump" strategic initiatives to fortify and extend the company's position in
existing businesses e.g. price cutting by Airtel
– Short jump initiatives typically include adding new items to the company's
present product line, expanding into new geographic areas where the company
does not yet have a market presence, and launching offensives to take market
share away from rivals. E.g. prepaid cards and low price strategies of Airtel
– The objective is to capitalize fully on whatever growth potential exists in the
company's present business arenas.
Horizon 2
– "Medium-jump" strategic initiatives to leverage existing
resources and capabilities by entering new businesses with
promising growth potential e.g. entering into 3G segment and
the DTH segment by Airtel
– These initiatives become more important as the present
businesses enter maturity stage with the growth rate slowing
down.
Horizon 3
– "Long-jump" strategic initiatives to plant the seeds for
ventures in businesses that do not yet exist e.g. failed
attempt by Airtel to acquire MTN, foray into Sri Lanka by Airtel
– It includes putting funds in R&D projects, investing in
promising start-up companies creating industries of the
future, looking for new products.
• e.g. Intel invests multibillion dollar in start-up companies.
• Shell encourages its employees to come up with new ideas
• Tata’s entering defense production
• The tendency of many firms is to focus on Horizon
1 strategies and devote only sporadic and uneven
attention to Horizon 2 and 3 strategies.
• A study by McKinsey & Company shows that a
relatively balanced portfolio of strategic initiatives
covering all the three horizons are critical to
maintain above the industry growth. E.g.
initiatives by GE to look for potential business in
2025
• A portfolio of initiatives also provides some
protection against unexpected adversity in
present or newly entered businesses.
The risks of pursuing multiple strategy horizons
1. A company cannot pursue all the opportunities that are available in the
environment because of resource constraints.
2. Medium-jump and long-jump initiatives can cause a company to stray
far from its core competence and may end up trying to compete in
businesses for which it may be ill-suited. E.g. L&T entering cement
manufacturing business
3. It is difficult to achieve competitive advantage in medium and long
jump businesses, if those businesses do not mesh with the present
businesses and resource strengths. E.g. L&T entering cement
manufacturing business
4. The payoff's of long-jump initiatives often prove elusive; not all the
initiatives are successful, only a few may evolve into significant
contributors to the company's revenue and profit growth.
5. The losses from unsuccessful long-jump initiatives may be substantial
to erode gains from successful initiatives.
Strategies for industry leaders
Characteristics
• The competitive positions of industry leaders range from
"stronger than average" to "powerful“ e.g. Google and
Microsoft are powerful, Airtel is stronger than average
• Leaders have proven strategies. E.g. acquiring and turning
capabilities of Arcerol Mittal
• The main concern for a leader revolves around how to
defend and strengthen its leadership position.
• The pursuit of industry leadership and large market share
is primarily important because of the competitive
advantage and profitability that accrue to being the
industry's biggest company. E.g . it helps in reaching
economics of scale, being a technology leader
Some of the strategies that can be followed are:
1. Stay-on-the-offensive strategy
– The central goal of this strategy is to be a first-mover and a
proactive market leader. E.g. Microsoft, Google
– It rests on the principle that staying a step ahead and forcing
rivals to follow is the surest path to industry prominence and
potential market dominance. E.g. Intel
– Being the industry standard setter entails relentless pursuit of
continuous improvements and innovation. E.g. Google
– Innovation involves technical improvements, new and better
products, more attractive features, quality enhancements,
improved customer service and cutting costs.
– Initiatives to expand overall industry demand - spurring
creation of new families of products, making products more
customer friendly, discovering new use for the product and
attracting new users. E.g. Nokia in mobile handset
2. Fortify-and-defend strategy
– The essence of this strategy is to make it harder
for challengers to gain ground and for new firms
to enter. E.g. Microsoft in operating system
– The goals of a strong defense are:
• To hold on to the present market share
• Strengthen the current market position
• Protect the competitive advantage
– Some of the defense actions can be:
• Attempting to raise the competition for
challengers and new entrants through
increased spending for advertising, higher
levels of customer service and bigger R&D
spending.
• Introducing more product versions or brands to
match the product attributes that challengers
brands have or to fill vacant niches. E.g. Nokia
• Adding personalized services and other extras that
boost customer loyalty and make it harder or more
costly for customers to switch to rival products. E.g.
earning points system by credit cards
• Keeping prices reasonable and quality attractive
• Building new capacity ahead of market demand to
discourage smaller competitors from adding
capacity of their own. E.g. Nokia starting
manufacturing unit in India
• Investing enough to remain cost-competitive and
technologically progressive.
• Patenting the feasible alternative technologies
• Signing exclusive contracts with the best suppliers
and dealer distributors.
 – When is this suitable?
• This strategy is best suited for companies that have already achieved
industry dominance and don't wish to risk antitrust action. E.g. Microsoft,
Google
• It is also suitable for conditions where a firm wishes to use its position for
profits and cash flow because the industry's prospects for growth are low
and further gains in market share do not appear profitable enough to go
after.

3. Muscle-flexing strategy
– Here the dominant player plays tough when smaller rivals
challenge with price cuts or mount new market offensives that
directly threaten its position. E.g. Microsoft’s reaction to
Netscape browser
– Specific response can include:
• Quickly matching and exceeding challengers price cuts. E.g. 1 paise per
second offers by Aircel in response to Tata Docomo offer
• Using larger promotional campaign and offering better deals to their major
customers. E.g. bundling of free browser by Microsoft
• The leaders may also dissuade distributors from carrying rivals products.
• Provide salespersons with documented information about the weaknesses
of competing firms
 – Try to fill any vacant position in their own firms by making
attractive offers to the better executives of rival firms.
– Use various arm-twisting tactics to put pressure on present
customers not to use the products of rivals. like:
• agreeing for exclusive arrangements in return for better prices e.g. types
sold to automobile manufacturers
• charging them higher price if they use competitor's products e.g. chargers
levied by BSNL for calls originating from a competitor to their customer
landline
• give special discounts to certain customers e.g. corporate discounts
offered by five star hotels
• preferred treatment if they do not use any products of rivals e.g. no check-
ins for frequent flyers offered by major airlines

Risks
• Running afoul of the antitrust laws.
• Alienating customers with bullying tactics
• Arousing adverse public opinion.
Strategies for runner-up firms
Characteristics
• Runner-up or "second-tier" firms have smaller market
share than market leaders. E.g. Microsoft and Yahoo in
online search
• Some of the runner-up firms can be market challengers by
employing offensive strategies to gain market share and
build a stronger market position. E.g. Microsoft in online
search
• Other runner-up competitors are focusers, seeking to
improve their lot by concentrating their attention on
serving a limited portion of their market. E.g. Cavincare in
hair care segment
• Some runner-up firms may be termed perennial runner-
up, because they lack the resources and competitive
strengths to do more than continue in trailing positions.
E.g. Nirma in detergents
Obstacles for firms with small market shares
1. Less access to economics of scale in
manufacturing, distributing, or marketing and
sales promotion
2. Difficulty in gaining customer recognition
3. Weaker ability to use mass media advertising
4. Difficulty in funding capital requirements
Strategic approaches for runner-up companies
1. Offensive strategies to build market share e.g. Microsoft
in online search
– A cardinal rule in offensive strategy is to avoid attacking a leader head-on
with an imitative strategy regardless of the resources and staying power of
the runner-up firm.
– Some of the offensives can be:
• Pioneering a leapfrog technological breakthrough e.g. K6 processor from AMD
• Getting new or better products into the market consistently ahead of rivals
and building a reputation for product leadership e.g. Tata Motors in
passenger car segment
• Being more agile and innovative in adapting to evolving market conditions
and customer expectations. E.g. Cavincare adopted sachets before HUL
• Forging attractive strategic alliances with key distributors and dealers. E.g.
Acquiring of graphics chip design company by AMD
• Finding innovative ways to dramatically drive down costs and then using the
attraction of lower prices to win customers. E.g. ITC in foods in distribution
• Crafting an attractive differentiation strategy based on premium quality,
technological superiority, outstanding customer service, rapid product
innovation or online shopping. E.g. Hyundai in cars
2. Growth via acquisition strategy e.g. Wipro consumer
care acquiring Chandrika brand
1. Vacant niche strategy e.g. successful strategy of Paramount
airlines
– This strategy focuses on some niches in customer requirements
which have been overlooked by the market leader.
– The niche should be:
• of sufficient size
• Profitable
• has growth potential
• well suited to the firms ability
• is hard for the leading firm to serve

2. Specialist strategy e.g. SAP

– A specialist firm will focus on one technology, product or product
family, end use or market share.
– The aim is to use company's resource strengths and capabilities on
building competitive edge through leadership in a specific area.
5. Superior product strategy e.g. Mercedes Benz in
passenger car
– Here the firm uses differentiation based focused strategy with
emphasis on superior product quality or unique attributes.
– Sales and marketing efforts are aimed directly at quality conscious
and performance oriented buyers.
5. Distinctive image strategy
– Some of the ways to create a distinct image are:
• creating a reputation for charging the lowest prices e.g. Big Bazaar
• providing best quality at good price e.g. Toyota with Lexus
• going all out to give superior customer service e.g. Oberoi Hotels
• designing unique product attributes e.g. Apple
• being a leader in new product introduction e.g. Apple

7. Content follower strategy e.g. HMT in watches

– The firm deliberately refrain from initiating trendsetting strategic
moves and aggressive attempts to take customers from leaders.
– They do not want to compete with the leader directly.
– They prefer defense to offense.
– They would rather react than be proactive.
GE nine cell planning grid
• General Electric with the assistance of McKinsey and Company
developed this matrix.
• This martix includes 9 cells based on long-term industry
attractiveness(on Y-axis) and business strength/competitive position
(on X-axis).
• The industry attractiveness includes Market size, Market growth rate,
Market profitability, Pricing trends, Competitive intensity / rivalry,
Overall risk of returns in the industry, Entry barriers, Opportunity to
differentiate products and services, Demand variability,
Segmentation, Distribution structure, Technology development
• Business strength and competitive position includes Strength of
assets and competencies, Relative brand strength (marketing),
Market share, Market share growth, Customer loyalty, Relative cost
position (cost structure compared with competitors), Relative profit
margins (compared to competitors), Distribution strength and
production capacity, Record of technological or other innovation,
Quality, Access to financial and other investment resources,
Management strength
Plotting the Information:
1. Select factors to rate the industry for each
product line or business unit. Determine the value
of each factor on a scale of 1 (very unattractive)
to 5 (very attractive), and multiplying that value
by a weighting factor.
Industry attractiveness = factor value1 x factor weighting1
+ factor value2 x factor weighting2
.
.
.
+ factor valueN x factor weightingN
2. Select the key factors needed for success in each
of the product line or business unit. Determine
the value of each key factor in the criteria on a
scale of 1 (very unattractive) to 5 (very
attractive), and multiplying that value by a
weighting factor.
Business strengths/competitive position = key factor value1 x
factor weighting1
+ key factor value2 x factor weighting2
.
.
.
+ key factor valueN x factor weightingN
3. Plot each product line's or business unit's current
position on a matrix.
4. The individual product lines or business units is
identified by a letter and plotted as circles on the GE
Business Screen.
5. The area of each circle is in proportion to the size of
the industry in terms of sales. The pie slice within
the circles depict the market share of each product
line or business unit.
6. Plot the firm's future portfolio assuming that present
corporate and business strategies remain
unchanged. This is shown as an arrow which starts
from the circle representing the current position and
the tip of the arrow will be the tentative center of
the future circle.
Strategic Implications
• Resource allocation recommendations can be made to
grow, hold, or harvest a strategic business unit based on its
position on the matrix as follows:
1. Grow strong business units in:
– attractive industries
– average business units in attractive industries
– strong business units in average industries.
1. Hold average business units in:
– average industries
– strong businesses in weak industries
– weak business in attractive industies.
1. Harvest weak business units in:
– unattractive industries
– average business units in unattractive industries
– weak business units in average industries.
• There are strategy variations within these three groups. For
example, within the harvest group the firm would be
inclined to quickly divest itself of a weak business in an
unattractive industry, whereas it might perform a phased
harvest of an average business unit in the same industry.

• GE business screen represents an improvement over the

more simple BCG growth-share matrix.

Limitations
– It presents a somewhat limited view by not considering
interactions among the business units
– It neglects to address the core competencies leading to value
creation
– Rather than serving as the primary tool for resource allocation,
portfolio matrices are better suited to displaying a quick synopsis
of the strategic business units.