8USINLSS CLIC AND S1kA1LGIC MANAGLMLN1

S1kA1LGIC GkCUS
A sLraLeglc group ls a seL of buslness unlLs or flrms LhaL pursue slmllar sLraLegles wlLh slmllar
resources CaLegorlzlng flrms ln any one lndusLry lnLo a seL of sLraLeglc groups ls very useful as a way of
beLLer undersLandlng Lhe compeLlLlve envlronmenL 8esearch shows LhaL some sLraLeglc groups ln Lhe
same lndusLry are more proflLable Lhan oLhers8ecause a corporaLlons sLrucLure and culLure Lend Lo
reflecL Lhe klnds of sLraLegles lL follows companles or buslness unlLs belonglng Lo a parLlcular sLraLeglc
group wlLhln Lhe same lndusLry Lend Lo be sLrong rlvals and Lend Lo be more slmllar Lo each oLher Lhan
Lo compeLlLors ln oLher sLraLeglc groups wlLhln Lhe same lndusLry lor example alLhough Mcuonalds
and Cllve Carden are a parL of Lhe same lndusLry Lhe resLauranL lndusLry Lhey have dlfferenL mlsslons
ob[ecLlves and sLraLegles and Lhus Lhey belong Lo dlfferenL sLraLeglc groups 1hey generally have very
llLLle ln common and pay llLLle aLLenLlon Lo each oLher when plannlng compeLlLlve acLlons 8urger klng
and Pardees however have a greaL deal ln common wlLh Mcuonalds ln Lerms of Lhelr slmllar sLraLegy
of produclng a hlgh volume of lowprlced meals LargeLed for sale Lo Lhe average famlly ConsequenLly
Lhey are sLrong rlvals and are organlzed Lo operaLe slmllarly SLraLeglc groups ln a parLlcular lndusLry can
be mapped by ploLLlng Lhe markeL poslLlons of lndusLry compeLlLors on a Lwodlmenslonal graph uslng
Lwo sLraLeglc varlables as Lhe verLlcal and horlzonLal axes (See llgure 43) l SelecL Lwo broad
characLerlsLlcs such as prlce and menu LhaL dlfferenLlaLe Lhe companles ln an lndusLry from one
anoLher 2 loL Lhe flrms uslng Lhese Lwo characLerlsLlcs as Lhe dlmenslons 3 uraw a clrcle around
Lhose companles LhaL are closesL Lo one anoLher as one sLraLeglc group varylng Lhe slze of Lhe clrcle ln
proporLlon Lo Lhe groups share of LoLal lndusLry sales (?ou could also name each sLraLeglc group ln Lhe
resLauranL lndusLry wlLh an ldenLlfylng LlLle such as qulck fasL food or buffeLsLyle servlce) CLher
dlmenslons such as quallLy servlce locaLlon or degree of verLlcal lnLegraLlon could also be used ln
addlLlonal graphs of Lhe resLauranL lndusLry Lo galn a beLLer undersLandlng of how Lhe varlous flrms ln
Lhe lndusLry compeLe keep ln mlnd however LhaL Lhe Lwo dlmenslons should noL be hlghly correlaLed
oLherwlse Lhe clrcles on Lhe map wlll slmply lle along Lhe dlagonal provldlng very llLLle new lnformaLlon
oLher Lhan Lhe obvlous
INDUS1k AND CCML1L1IVL ANALSISCk1Lk'S MCDLL
lndusLry Analysls An lndusLry ls deflned as a group of companles offerlng producLs or servlces LhaL are
close subsLlLuLes of oLher Close subsLlLuLes are Lhose producLs or servlces LhaL saLlsfy Lhe same baslc
cusLomer needs lor eg Lea ls a close subsLlLuLe of coffee as lL ls consldered a healLhler alLernaLlve wlLh
a lower caffelne conLenL and anLloxldanL properLles LhaL help develop body reslsLance Lo cancer and
hearL dlsease Any analyslsS of Lhe Lea or coffee lndusLry would have Lo conslder Lhe oLher sLlmulanL as
a close subsLlLuLe
Mlchael L orLer has made lmmense conLrlbuLlon ln Lhe developmenL of Lhe ldeas of lndusLry and
compeLlLor analysls and Lhelr relevance Lo Lhe formulaLlon of compeLlLlve sLraLegles Pe advocaLes LhaL
a sLrucLural analysls of lndusLrles be made so LhaL a flrm ls ln a beLLer poslLlon Lo ldenLlfy lLs sLrengLhs
and weaknesses A model has been proposed conslsLlng of flve compeLlLlve forcesLhreaL of new
enLranLs rlvalry among compeLeLors bargalnlng power of suppllers bargalnlng power of buyers and
LhreaL of subsLlLuLe producLsLhaL Lhe lnLenslLy of lndusLry compeLlLlon and proflLablllLy97 orLers
flve forces model of compeLlLlon ln an lndusLry (pg 287 kazml)




1)1hreaLs of new enLranLsAny lndusLry LhaL ls percelved as belng proflLable Lends Lo aLLracL new
enLranLs1hese enLranLs are flrms LhaL are lnLeresLed ln lnvesLlng ln Lhe lndusLry Lo share Lhe growLh
prospecLs Such new enLranLs augmenL Lhe exlsLlng producLlon capaclLy and ofLen possess a deslre Lo
make large lnvesLmenLs and secure subsLanLlal markeL share 1he exlsLlng flrms have elLher Lo share a
growlng markeL ple wlLh a larger number of compeLlLors or parL wlLh some of Lhelr own markeL share Lo
Lhe new enLranLs LlLher waynew enLranLs may cause comparaLlvely lesser sales volume and revenue
and lower Lhe reLurns for all Lhe flrms ln Lhe lndusLry 1he chance LhaL new enLranLs wlll enLer lnLo an
lndusLry depends on Lwo facLors Lhe enLry barrlers Lo an lndusLry and Lhe expecLed reLallaLlon from
exlsLlng flrms Cf Lhese enLry barrlers are slgnlflcanL demoLlvaLors for new enLranLs 1he concepL of
enLry barrlers lmplles LhaL Lhere are subsLanLlal cosLs lnvolved ln enLerlng lnLo a new lndusLry 1he
hlgher Lhe enLry barrlers ln an lndusLry Lhe less llkely are Lhe new enLranLs Lo enLer Lhe lndusLry So
hlgher enLry barrlers serve Lo keep ouL poLenLlal enLranLs lnLo an lndusLry 1he enLry barrlers may arlse
as a consequence of several facLors such as Lhose glven below
Lconomles of scale ln producLlon and sale of producLs leadlng Lo lower cosLs for exlsLlng flrms
CaplLal requlremenLs belng very hlgh may prevenL new enLranLs from maklng lnvesLmenLs
SwlLchlng cosLs from Lhe exlsLlng producLs or servlces Lo a new one may dlscourage cusLomers from ng
new commlLmenLs owlng Lo Lhe cosLs lncurred ln buylng new anclllary equlpmenLs reLralnlng loyees or
esLabllshlng a new neLwork of relaLlonshlp
roducL dlfferenLlaLlon by exlsLlng flrms based on percelved dlsLlncLlveness by Lhe cusLomers based on
effecLlve adverLlslng repuLaLlon as a servlce provlder brand loyalLy of cusLomers Lowards exlsLlng flrms
or some such oLher facLor
Access Lo dlsLrlbuLlon channel can be monopollsed by Lhe exlsLlng flrms on Lhe basls of Lhelr longLerm
relaLlonshlp wlLh Lhe dlsLrlbuLors
CosL dlsadvanLages lndependenL of scale may arlse from proprleLary producLs Lechnology excluslve
access Lo raw maLerlals favourable locaLlon and beneflL of governmenLal subsldles
CovernmenL pollcles Lhrough llcenslng and oLher means can prevenL Lhe enLry of new flrms Lo an
lndusLry 8esldes Lhe enLry barrlers Lhe expecLed reLallaLlon Lo Lhe new enLranLs from Lhe exlsLlng flrms
may be a poLenLlal LhreaL Lo enLry Any poLenLlal enLranL Lo an lndusLry would have Lo predlcL Lhe llkely
moves LhaL Lhe exlsLlng flrms could make lor lnsLance an exlsLlng flrm wlLh a large sLake ln Lhe lndusLry
may lower lLs prlce Lo creaLe a dlfflculL slLuaLlon for Lhe new enLranL Cr an exlsLlng flrm wlLh subsLanLlal
resources may aLLempL Lo alLer Lhe basls of compeLlLlon so LhaL Lhe new enLranL ls dlscouraged from
maklng a foray uesplLe Lhe formldable hurdles posed by exlsLlng flrms new flrms do enLer lndusLrles lf
Lhey flnd Lhem Lo be promlslng 1he popular sLraLegy for dolng so ls flndlng markeL nlches noL served by
exlsLlng flrms aL gradually bulld up a presence ln Lhe lndusLry
k|va|ry among Compet|tors CompeLlLlon ls a game ln whlch normally one player loses aL Lhe expense
Lhe oLher A move on Lhe parL of a player may cause oLher players Lo make counLermoves or lnlLlaLe
efforL Lo proLecL Lhemselves from Lhe danger posed by Lhe lnlLlal move ln Lhls manner flrms wlLhln an
lndusLry are muLually dependenL 1he slLuaLlon ln an lndusLry keeps changlng wlLh Lhe acLlons and
reacLlons of consLlLuenL flrms 1he deslre Lo be Lhe markeL leader or Lo corner a larger markeL share
leads Lo rlvalry among compeLlLors 1he exLenL of Lhe rlvalry among compeLlLors ln an lndusLry affecLs
Lhe compeLlLlon wlLhln lndusLry When Lhe rlvalry ls weak Lhere ls llkely Lo be lesser compeLlLlon when
such rlvalry ls hlgh Lhe level of compeLlLlon ls hlgher 1hls has lmpllcaLlons for exlsLlng flrms as well as
Lhose flrms conLemplaLlng enLry lnLo Lhe lndusLry 1he dlmenslons of rlvalry among compeLlLors are
several Some of Lhe ma[or ones are descrlbed below
CompeLlLlve sLrucLure refers Lo Lhe number of compeLlLors Lhelr slze and Lhelr dlverslLy ulfferenL Lypes
of compeLlLlve sLrucLures have dlfferenL lmpllcaLlons for Lhe exlsLlng flrms and for Lhe new enLranLs
SLrucLures could elLher be fragmenLed or consolldaLed A fragmenLed sLrucLure means LhaL Lhere are
large number of small or medlumslzed companles none of Lhem ln a poslLlon Lo domlnaLe Lhe lndusLry
1hls sLrucLure ls characLerlsed by low enLry barrlers and less or no dlfferenLlaLlon leadlng Lo producL
becomlng commodlLles CompeLlLlon ls lnLense and Lhe lndusLry faces booms and busLs leadlng Lo
frequenL changlng of Lhe sLrucLure A consolldaLed sLrucLure conslsLs of a few large companles _
ollgopollsLlc markeL) or of [usL one large flrm (a monopoly) Such a sLrucLure has a closely knlL group
companles whose acLlons and reacLlons are maLched Lhe acLlons of one lead Lo reacLlons from
oLhersCompeLlLlve acLlons of Lhe compeLlLors are under close waLch by Lhe oLhers as Lhey affecL Lhe
dlsLrlbuLlon of markeL share 1he lnLenslLy of compeLlLlon may range from benlgn Lolerance Lo flerce
rlvalry ln such lndusLrles Lhe compeLlLors may adopL a pollcy of llve and leL llve whlle ln oLhers Lhere
mlghL be LhroaL compeLlLlon leadlng Lo underprlclng or severely foughL compeLlLlve baLLles on Lhe basls
of oLher facLors such as dellvery adverLlslng or afLersale servlce ulverslLy among compeLlLors means
LhaL dlfferenL flrms ln an lndusLry have dlfferenL ldeas on Lhe basls of whlch Lo compeLe dlfferenL seL of
go achleve or dlfferenL organlsaLlonal culLures An lndusLry wlLh greaLer dlverslLy poses a hlgher
poLenLlal challenge Lo exlsLlng flrms or new enLranLs for devlslng compeLlLlve sLraLegles
uemand condlLlons refer Lo Lhe naLure of Lhe cusLomer demand exlsLlng ln an lndusLry A hlgh demand
or growlng demand Lends Lo moderaLe compeLlLlon as each flrm has enough for lL and need noL grab lL
from oLhers SLagnanL demand may lead Lo compeLlLlve sLraLegles deslgned Lo snaLch markeL share from
oLhers uecllnlng demand may cause companles Lo malnLaln Lhelr markeL shares LxlsLlng flrms or new
enLranLs need Lo Lake Lhe demand condlLlons ln Lhe lndusLry lnLo accounL for Lhe purpose of formulaLlng
buslness sLraLegles
LxlL barrlers resLrlcL Lhe flrms ln an lndusLry and prevenL Lhem from leavlng even Lhough Lhe reLurns
mlghL be low or mlghL even be someLlmes negaLlve 1he exlL barrlers are economlc sLraLeglc or
emoLlonal facLors prevenLlng companles from movlng ouL afLer dlvesLmenL of Lhelr buslnesses
Lconomlc facLors could be Lhe hlgh lnvesLmenLs commlLLed Lo planL and equlpmenL LhaL have no
alLernaLlve usage and hlgh flxed cosLs of exlL such as hlgh reLrenchmenL cosLs or hlgh severance pay
owlng Lo labour agreemenLs SLraLeglc facLors could be lnLerllnkages beLween Lhe dlfferenL buslnesses
of a company such as a flrm belng lLs own suppller or buyer or dlfferenL buslnesses sharlng a common
pool of resources LmoLlonal facLors could be a senLlmenLal aLLachmenL Lo a buslness lL belng an
ancesLral buslness or one founded by Lhe enLrepreneur on hls own or unwllllngness Lo parL wlLh a
buslness owlng Lo loyalLy Lo employees or dlsLrlbuLors CollecLlvely Lhe Lhree facLors of compeLlLlve
sLrucLure demand condlLlons and exlL barrlers deLermlne Lhe buslness sLraLegles LhaL a flrm ls llkely Lo
adopL
8arga|n|ng ower of 8uyers 1he bargalnlng power of buyers consLlLuLes Lhe ablllLy of Lhe buyers or
collecLlvely Lo force a reducLlon lnprlces of producLs or servlces demand a hlgher quallLy or servlce or
Lo seek more value for Lhelr purchases ln any way A hlgh buyer bargalnlng power consLlLuLes a negaLlve
feaLure for exlsLlng flrms or new enLranLs of an lndusLry A low buyer bargalnlng power enables a flrm Lo
pass on Lhe cosL escalaLlon Lo buyers or Lo make Lhe buyers accepL a lower quallLy of producL and
servlce aL a hlgher prlce bargalnlng power of buyers ls hlgh under Lhese condlLlons
- When Lhe buyers are few ln number
- When Lhe few buyers place large orders lndlvldually
- When alLernaLlve suppllers are presenL wllllng Lo supply aL a lower prlce or on favourable selllng
condlLlons
- When Lhe swlLchlng cosLs of buyers from one suppller Lo Lhe oLher ls low
- When Lhe buyer lLself charges a low prlce for lLs producLs and ls senslLlve Lo prlce lncreases
- When Lhe purchased producL consLlLuLes a hlgh percenLage of a buyers cosLs maklng lL look around
for lowerprlced supplles
- When Lhe buyer lLself has Lhe ablllLy Lo lnLegraLe backwards and creaLe lLs own capLlve supply source

8arga|n|ng ower of Supp||ers Llke Lhe bargalnlng power of buyers suppllers Loo have a level of
bargalnlng power 1he bargalnlng power of suppllers consLlLuLes Lhelr ablllLy lndlvldually or collecLlvely
Lo force an lncrease ln Lhe prlce of Lhe producLs or servlces or make Lhe buyers accepL a lower quallLy of
producL or level of servlce A hlgh suppller bargalnlng power consLlLuLes a poslLlve feaLure for Lhe
exlsLlng flrms or enLranLs of an lndusLry A low suppller bargalnlng power prevenLs a flrm from passlng
on lLs cosL lncrease Lhe buyers or Lo make Lhe buyers accepL a lower quallLy of producL and servlce aL a
hlgher prlce 1he bargalnlng power of suppllers ls hlgh under Lhese condlLlons
When Lhe suppllers are few and Lhe buyers are many
When Lhe producLs or servlces are unlque and are noL commonly avallable
When Lhe subsLlLuLes of Lhe producLs or servlces supplled are noL freely avallable
When Lhe swlLchlng cosLs of a suppller from one buyer Lo Lhe oLher ls low
When Lhe suppller ls noL crlLlcally dependenL on Lhe producLs or servlces supplled
When Lhe buyer buys ln small quanLlLles and Lherefore ls noL lmporLanL Lo Lhe suppller
When Lhe suppllers have Lhe ablllLy Lo lnLegraLe forward and use Lhelr own supplles for producLlon end
producL or servlce

1hreat of Subst|tute roducts SubsLlLuLe producLs or servlces are Lhose LhaL apparenLly are dlfferenL buL
saLlsfy Lhe same seL of cusLomer needs We referred Lo Lhe example of Lea and coffee as subsLlLuLable
pre ln Lhe beglnnlng of Lhls secLlon We could also lnclude aeraLed drlnks as anoLher form of subsLlLuLe lL
caLegory of producLs servlng Lhe cusLomer needs for drlnks CLher examples of subsLlLuLe producL
servlces could be alLernaLlve modes of LransporLaLlon posLal fax and courler servlces and elecLrlcal llke
bulbs and LubellghLs 1he plaLform for subsLlLuLablllLy ln every case ls Lhe servlng of Lhe cusLomer 1he
avallablllLy of close subsLlLuLes consLlLuLes a negaLlve compeLlLlve force ln an lndusLry ln oLher words
lndusLrles whlch have no close subsLlLuLes are more aLLracLlve Lhan Lhose LhaL have one or more
subsLlLuLes Cbvlously flrms ln an lndusLry havlng no close subsLlLuLes can charge a hlgher prlce hlgher
reLurns lor lndusLrles where close subsLlLuLes are avallable Lhe level of prlce of producLs chargeable ls
resLrlcLed by Lhe prlce of Lhe subsLlLuLe avallable 1hus flrms have Lo formulaLe Lhelr buslness keeplng ln
vlew Lhe lnLenslLy of Lhe compeLlLlve force arlslng ouL of Lhe presence or absence of Lhe subsLlLuLes
Competitor Analysis
CompeLlLor analysls focuses on each company wlLh whlch a flrm compeLes dlrecLlyle lL deals wlLh Lhe
acLlons and reacLlons of lndlvldual flrms wlLhln an lndusLry or Lhe group lL becomes especlally lmporLanL
ln Lhe case of ollgopollsLlc lndusLrles where Lhere are a few powerful compeLlLors and each needs Lo
keep Lrack of Lhe sLraLeglc moves of Lhe oLhers
Accordlng Lo orLer Lhe purpose of conducLlng a compeLlLor analysls ls Lo
OueLermlne each compeLlLors probable reacLlon Lo Lhe lndusLry and envlronmenLal changes
OAnLlclpaLe Lhe response of each compeLlLor Lo Lhe llkely sLraLeglc moves by Lhe oLher flrms and
Ouevelop a proflle of Lhe naLure and success of Lhe posslble sLraLeglc changes each compeLlLor mlghL
Components of Competitor Analysis A compeLlLor response proflle can be bullL on Lhe basls of Lhe four
componenLs of compeLlLor analysls 1hese four componenLs are fuLure goals of compeLlLor lLs currenL
sLraLegy Lhe key assumpLlons LhaL Lhe compeLlLor makes abouL lLself and abouL Lhe lndusLry and lLs
capablllLles ln Lerms of sLrengLhs and weaknesses
OluLure goals of compeLlLor deals wlLh quesLlons such as Lhese how do our goals compare Lo our
compeLlLors goals? Where wlll emphasls be placed ln Lhe fuLure? WhaL ls Lhe aLLlLude Loward rlsk?
OCurrenL sLraLegy of compeLlLor deals wlLh quesLlons such as Lhese Pow are we currenLly compeLlng?
uees Lhls sLraLegy supporL changes ln Lhe compeLlLlon sLrucLure?
Okey assumpLlons made by compeLlLor deal wlLh quesLlons such as Lhese uo we assume Lhe fuLure wlll
be volaLlle? Are we operaLlng under a sLaLus quo? WhaL assumpLlons do our compeLlLors hold abouL Lhe
lndusLry and abouL Lhemselves?
O CapablllLles of compeLlLor deal wlLh quesLlons such as Lhese WhaL are our sLrengLhs and weaknesses?
do we raLe compared Lo our compeLlLors?
8ased on a Lhorough analysls of Lhese componenLs a response proflle can be prepared for each
compeLlLor LhaL can help predlcL Lhelr llkely sLraLeglc moves whlch can elLher be of an offenslve or
defenslve Lype 1he response proflle could be based on a flrm asklng quesLlons such as Lhese WhaL wlll
our compeLlLors do ln Lhe fuLure?Where do we hold an advanLage over our compeLlLors? and Pow wlll
Lhls change our relaLlonshlp wlLh compeLlLors? 1he lnformaLlon collecLed ln Lhe response proflle ls a
vlLal lnpuL for Lhe purpose of buslness sLraLegy formulaLlon by any organlsaLlon
lL musL be noLed LhaL Lhe approach ouLllned above ls a hlghly sLrucLured and sysLemaLlc one and can be
used proflLably where compeLlLlon ls an lmporLanL conslderaLlon ln sLraLeglc cholce ln lndla
compeLlLlon ls noL new Lo lndusLry buL lL has been parLlcularly pronounced afLer Lhe successlve
llberallsaLlon measures Laken by Lhe governmenL afLer 1984 parLlcularly afLer 1991 Supply has
exceeded demand ln lndusLrles and companles have overhauled Lhelr markeLlng sLraLegles Lo be able Lo
compeLe well ln Lhe markeL 1he case of Lwowheeler and fourwheeler lndusLrles ls lllusLraLlve of Lhe
changlng scenarlo of compeLlLlveness WalLlng llsLs for scooLers and cars were a common phenomenon
prlor Lo Lhe 1990s buL now Lhese markeLs have become hlghly compeLlLlve
1here ls very less lnformaLlon avallable regardlng Lhe means adopLed by companles Lo keep Lrack of
compeLlLors 8uL many execuLlves and lndusLrlallsLs admlL LhaL Lhey do rely on Lhelr markeLlng
lnLelllgence sysLem Lo collecL lnformaLlon regardlng Lhe probable sLraLeglc moves by Lhelr compeLlLors
8esldes companles Lap varlous formal as well as lnformal sources CompeLlLor analysls ls lmporLanL
because compeLlLlve forces shape Lhe sLraLegles adopLed by rlval because Lhese sLraLegles of rlval flrms
ln Lurn shape Lhe compeLlLlve forces lL ls useful for a flrm lf Lhe resulLs of Lhe compeLlLor analysls lnLo
accounL whlle exerclslng a sLraLeglc cholce

LVALUA1ICN AND CCN1kCL
LvaluaLlon and conLrol ls a process ln whlch corporaLe acLlvlLles and performance resulLs are monlLored
so LhaL acLual performance can be compared wlLh deslred performance Managers aL all levels use Lhe
resulLlng lnformaLlon Lo Lake correcLlve acLlon and resolve problems AlLhough evaluaLlon and conLrol ls
Lhe flnal ma[or elemenL of sLraLeglc managemenL lL can also plnpolnL weaknesses ln prevlously
lmplemenLed sLraLeglc plans and Lhus sLlmulaLe Lhe enLlre process Lo begln agaln
1he evaluaLlon and conLrol process ensures LhaL a company ls achlevlng whaL lL seLs ouL Lo accompllsh
lL compares performance wlLh deslred resulLs and provldes Lhe feedback necessary for managemenL Lo
evaluaLe resulLs and Lake correcLlve acLlon as needed1hls process can be vlewed as a flvesLep feedback
model as deplcLed ln llgure 111
1 ueLermlne whaL Lo measure 1op managers and operaLlonal managers need Lo speclfy whaL
lmplemenLaLlon processes and resulLs wlll be monlLored and evaluaLed1he processes and resulLs musL
be capable of belng measured ln a reasonably ob[ecLlve and conslsLenL manner 1he focus should be on
Lhe mosL slgnlflcanL elemenLs ln a processLhe ones LhaL accounL for Lhe hlghesL proporLlon of expense
or Lhe greaLesL number of problems MeasuremenLs musL be found for all lmporLanL areas regardless of
dlfflculLy
2 LsLabllsh sLandards of performance SLandards used Lo measure performance Lalled expresslons of
sLraLeglc ob[ecLlves 1hey are measures of accepLable performance resulLs Lach sLandard usually
lncludes a Lolerance range whlch accepLable devlaLlons SLandards can be seL noL only for flnal ouLpuL
buL also for lnLermedlaLe sLages of producLlon ouLpuL
3 Measure acLual performance MeasuremenLs musL be made aL predeLermlne Llmes
4 Compare acLual performance wlLh Lhe sLandard lf acLual performance resulLs are wlLhln Lhe deslred
Lolerance range Lhe measuremenL process sLops here
3 1ake correcLlve acLlon lf acLual resulLs fall ouLslde Lhe deslred Lolerance rangeacLlon musL be Laken
Lo correcL Lhe devlaLlon 1he followlng quesLlons musL be answered?
ls Lhe devlaLlon only a chance flucLuaLlon?
b Are Lhe processes belng carrled ouL lncorrecLly?
c Are Lhe processes approprlaLe Lo Lhe achlevemenL of Lhe deslred sLandards musL be Laken LhaL wlll
noL only correcL Lhe devlaLlon buL also prevenL lLs happenlng agaln
d Who ls Lhe besL person Lo Lake correcLlve acLlon?
1op managemenL ls ofLen beLLer aL Lhe flrsL Lwo sLeps of Lhe conLrol model Lhe Lhe lasL Lwo follow
Lhrough sLeps lL Lends Lo esLabllsh a conLrol sysLem and Lhen Lhe lmplemenLaLlon Lo oLhers 1hls can
have unforLunaLe resulLs
S1kA1LGIC IMLLMLN1A1ICN
SLraLegy lmplemenLaLlon ls Lhe sum LoLal of Lhe acLlvlLles and cholces requlred for Lhe execuLlon of a
sLraLeglc plan lL ls Lhe process by whlch ob[ecLlves sLraLegles and pollcles are puL lnLo acLlon Lhrough
Lhe developmenL of programs budgeLs and procedures AlLhough lmplemenLaLlon ls usually consldered
afLer sLraLegy has been formulaLed lmplemenLaLlon ls a key parL of sLraLeglc managemenL SLraLegy
formulaLlon and sLraLegy lmplemenLaLlon should Lhus be consldered as Lwo sldes of Lhe same coln oor
lmplemenLaLlon has been blamed for a number of sLraLeglc fallures lor example sLudles show LhaL half
of all acqulslLlons fall Lo achleve whaL was expecLed of Lhem and ouL of four lnLernaLlonal venLures does
noL succeed
1he mosLmenLloned problems reporLed ln posLmerger lnLegraLlon were poor communlcaLlon
unreallsLlc synergy expecLaLlons sLrucLural problems mlsslng masLer plan losL momenLum lack of Lop
managemenL commlLmenL and unclear sLraLeglc flL 1o begln Lhe lmplemenLaLlon process sLraLegy
makers musL conslder Lhese quesLlons
Who are Lhe people who wlll carry ouL Lhe sLraLeglc plan?
WhaL musL be done Lo allgn Lhe companys operaLlons ln Lhe new lnLended dlrecLlon?
Pow ls everyone golng Lo work LogeLher Lo do whaL ls needed?
1hese quesLlons and slmllar ones should have been addressed lnlLlally when Lhe pros cons of sLraLeglc
alLernaLlves were analyzed 1hey musL also be addressed agaln before approprlaLe lmplemenLaLlon
plans can be made unless Lop managemenL can answer Lhese baslc quesLlons saLlsfacLorlly even Lhe
besL planned sLraLegy ls unllkely Lo provlde Lhe deslred ouLcome A survey of 93 lorLune 300 flrms
revealed LhaL more Lhan half of Lhe corporaLlons experlenced Lhe followlng 10 problems when Lhey
aLLempLed Lo lmplemenL a sLraLeglc change 1hese problems are llsLed ln order of frequency
1 lmplemenLaLlon Look more Llme Lhan orlglnally planned
2 unanLlclpaLed ma[or problems arose
3 AcLlvlLles were lneffecLlvely coordlnaLed
4 CompeLlng acLlvlLles and crlses Look aLLenLlon away from lmplemenLaLlon
3 1he lnvolved employees had lnsufflclenL capablllLles Lo perform Lhelr [obs
6 Lowerlevel employees were lnadequaLely Lralned
7 unconLrollable exLernal envlronmenLal facLors creaLed problems
8 ueparLmenLal managers provlded lnadequaLe leadershlp and dlrecLlon
9 key lmplemenLaLlon Lasks and acLlvlLles were poorly deflned
10 1he lnformaLlon sysLem lnadequaLely monlLored acLlvlLles

unct|ona| Area Strategy
luncLlonal sLraLegy ls Lhe approach a funcLlonal area Lakes Lo achleve corporaLe and buslness unlL
ob[ecLlves and sLraLegles by maxlmlzlng resource producLlvlLy lL ls concerned wlLh developlng and
nurLurlng a dlsLlncLlve compeLence Lo provlde a company or buslness unlL wlLh a compeLlLlve advanLage
!usL as a mulLldlvlslonal corporaLlon has several buslness unlLs each wlLh lLs own buslness sLraLegy each
buslness unlL has lLs own seL of deparLmenLs each wlLh lLs own funcLlonal sLraLegy 1he orlenLaLlon of a
funcLlonal sLraLegy ls dlcLaLed by lLs parenL buslness unlLs sLraLegy lor example a buslness unlL
followlng a compeLlLlve sLraLegy of dlfferenLlaLlon Lhrough hlgh quallLy needs a manufacLurlng
funcLlonal sLraLegy LhaL emphaslzes expenslve quallLy assurance processes over cheaper hlghvolume
producLlon a human resource funcLlonal sLraLegy LhaL emphaslzes Lhe hlrlng and Lralnlng of a hlghly
skllled buL cosLly workforce and a markeLlng funcLlonal sLraLegy LhaL emphaslzes dlsLrlbuLlon channel
pull uslng adverLlslng Lo lncrease consumer demand over push uslng promoLlonal allowances Lo
reLallers lf a buslness unlL were Lo follow a lowcosL compeLlLlve sLraLegy however a dlfferenL seL of
funcLlonal sLraLegles would be needed Lo supporL Lhe buslness sLraLegy !usL as compeLlLlve sLraLegles
may need Lo vary from one reglon of Lhe world Lo anoLher funcLlonal sLraLegles may need Lo vary from
reglon Lo reglon When CocaCola company declded Lo enLer Lhe lndlan markeL lL undersLood LhaL
dlsLrlbuLlon was Lhe key Lo bulldlng a sLrong lndlan brand 1herefore lL declded Lo buy one of lndlas
mosL successful sofL drlnk companles and manufacLurers of popular soda brand 1hums up 1he lnlLlal
declslon of Lhe company was Lo dlsconLlnue 1hums up Powever 1hums up brand recall moLlvaLed Lhe
company Lo relaunch lL and remalned more popular Lhan Coke for many years Slmllarly ln 1994 Lhree
years afLer Lhe barrlers Lo lnLernaLlonal Lrade had opened ln lndla kelloggs declded Lo lnvesL lnLo Lhls
markeL Powever Lhe lndlan subconLlnenL found Lhe whole concepL of eaLlng breakfasL cereals a new
one lndeed Lhe mosL common way Lo sLarL Lhe day ln lndla was wlLh paranLhas or a bowl of hoL
vegeLables 1hls meanL kelloggs had few dlrecL compeLlLors lL also meanL LhaL Lhe company had Lo
promoLe noL only lLs producL buL also Lhe very ldea of eaLlng breakfasL cereal ln Lhe flrsL place AfLer
Lrylng for a few years wlLh sLraLegles llke lndlanlze Lhe brand Lhe company also experlmenLed by
launchlng blsculLs Lo esLabllsh a brand and also markeLlng lLs producL as mldday snacks for klds

CCML1L1IVL S1kA1LGILS8USINLSS LLVLL S1kA1LGILS
8us|ness Strateg|es
8uslness sLraLegy focuses on lmprovlng Lhe compeLlLlve poslLlon of a companys or buslness unlLs
producLs or servlces wlLhln Lhe speclflc lndusLry or markeL segmenL LhaL Lhe company or buslness unlL
serves 8uslness sLraLegy ls exLremely lmporLanL because research shows LhaL buslness unlL effecLs have
double Lhe lmpacL on overall company performance Lhan do elLher corporaLe or lndusLry effecLsll
8uslness sLraLegy can be compeLlLlve (baLLllng agalnsL all compeLlLors for advanLage) and/or
cooperaLlve (worklng wlLh one or more companles Lo galn advanLage agalnsL oLher compeLlLors) !usL
as corporaLe sLraLegy asks whaL lndusLry(les) Lhe company should be ln buslness sLraLegy asks how Lhe
company or lLs unlLs should compeLe or cooperaLe ln each lndusLry
C81L8'S CCML1l1lvL S18A1LClLS CompeLlLlve sLraLegy ralses Lhe followlng quesLlons
Should we compeLe on Lhe basls of lower cosL (and Lhus prlce) or should we dlfferenLlaLe our producLs
or servlces on some basls oLher Lhan cosL such as quallLy or servlce?

Should we compeLe head Lo head wlLh our ma[or compeLlLors for Lhe blggesL buL mosL soughLafLer
share of Lhe markeL or should We focus on a nlche ln whlch we can saLlsfy a less soughLafLer buL also
proflLable segmenL of Lhe markeL?
Mlchael orLer proposes Lwo generlc compeLlLlve sLraLegles for ouLperformlng oLher corporaLlons ln a
parLlcular lndusLry lower cosL and dlfferenLlaLlon1hese sLraLegles are called generlc because Lhey can
be pursued by any Lype or slze of buslness flrm even by noLforproflL organlzaLlons
Lower cost strategy ls Lhe ablllLy of a company or a buslness unlL Lo deslgn produce and markeL a
comparable producL more efflclenLly Lhan lLs compeLlLors
D|fferent|at|on strategy ls Lhe ablllLy of a company Lo provlde unlque and superlor value Lo Lhe buyer ln
Lerms of producL quallLy speclal feaLures or afLersale servlce
orLer furLher proposes LhaL a flrms compeLlLlve advanLage ln an lndusLry ls deLermlned by lLs
compeLlLlve scope LhaL ls Lhe breadLh of Lhe companys or buslness unlLs LargeL markeL 8efore uslng
one of Lhe Lwo generlc compeLlLlve sLraLegles (lower cosL or dlfferenLlaLlon) Lhe flrm or unlL musL
choose Lhe range of producL varleLles lL wlll produce Lhe dlsLrlbuLlon channels lL wlll employ Lhe Lypes
of buyers lL wlll serve Lhe geographlc areas ln whlch lL wlll sell and Lhe array of relaLed lndusLrles ln
whlch lL wlll also compeLe 1hls should reflecL an undersLandlng of Lhe flrms unlque resources Slmply
puL a company or buslness unlL can choose a broad LargeL (LhaL ls alm aL Lhe mlddle of Lhe mass
markeL) or a narrow LargeL (LhaL ls alm aL a markeL nlche) Comblnlng Lhese Lwo Lypes of LargeL markeLs
wlLh Lhe Lwo compeLlLlve sLraLegles resulLs ln Lhe four varlaLlons of generlc sLraLegles When Lhe lower
cosL and dlfferenLlaLlon sLraLegles have a broad massmarkeL LargeL Lhey are slmply called cosL
leadershlp and dlfferenLlaLlon When Lhey are focused on a markeL nlche (narrow LargeL) however
Lhey are called cosL focus and dlfferenLlaLlon focus AlLhough research does lndlcaLe LhaL esLabllshed
flrms pursulng broadscope sLraLegles ouLperform flrms followlng narrowscope sLraLegles ln Lerms of
8CA (8eLurn on AsseLs) new enLrepreneurlal flrms have a beLLer chance of survlvlng lf Lhey follow a
arrowscope raLher Lhan a broadscope sLraLegyCosL leadershlp ls a lowercosL compeLlLlve sLraLegy
LhaL alms aL Lhe broad mass markeL and requlres aggresslve consLrucLlon of efflclenLscale faclllLles
vlgorous pursulL of cosL reducLlons from experlence LlghL cosL and overhead conLrol avoldance of
marglnal cusLomer accounLs and cosL mlnlmlzaLlon ln areas llke 8u servlce sales force adverLlslng
and so on14 8ecause of lLs lower cosLs Lhe cosL leader ls able Lo charge a lower prlce for lLs producLs
Lhan lLs compeLlLors and sLlll make a saLlsfacLory proflL AlLhough lL may noL necessarlly have Lhe lowesL
cosLsln Lhe lndusLry lL has lower cosLs Lhan lLs compeLlLors Some companles successfully followlng Lhls
sLraLegy are WalMarL (dlscounL reLalllng) Mcuonalds (fasLfood resLauranLs) uell (compuLers)
SouLhwesL Alrllnes and 1lmex (waLches)
8lg 8azar ls a hypermarkeL chaln LhaL comblnes Lhe look and feel of lndlan bazaars wlLh aspecLs of
modern reLalllng llke cholce convenlence and hyglene 1he sLore dlsplays relaLed producLs ln an
organlzed mannerllke dlsplaylng shower curLalns Lowels and ceramlc baLhroom accessorles on an
alsle 1hls arrangemenL encourages sales of mulLlples of relaLed producLs 1he aLLenLlon Lo layouL
deLalls helps Lhe sLore shape shoppers aLLlLudes 1he fun and colorful lnLerlors buzz wlLh energy and
cusLomer exclLemenL 1he sLore offers bargaln prlces and an assorLmenL unllke oLher sLores ln lndla
1he dlscounLs offered range from 3 Lo 60 (dlscounL sLores ls sLlll a nascenL concepL ln lndla) whlch
makes lL a cosLfocus sLore Many reLalllng execuLlves conslder lL Lo be WalMarL of lndla 1he sLore ls
apL aL sLrlklng Lhe dellcaLe balance needed Lo convlnce cusLomers LhaL lLs prlces are low wlLhouL maklng
people feel LhaL sLore ls cheapPavlng a lowercosL poslLlon also glves a company or buslness unlL a
defense agalnsL rlvals lLs lower cosLs allow lL Lo conLlnue Lo earn proflLs durlng Llmes of heavy
compeLlLlon lLs hlgh markeL share means LhaL lL wlll have hlgh bargalnlng power relaLlve Lo lLs suppllers
(because lL buys ln large quanLlLles) lLs low prlce wlll also serve as a barrler Lo enLry because few new
enLranLs wlll be able Lo maLch Lhe leaders cosL advanLage As a resulL cosL leaders are llkely Lo earn
aboveaverage reLurns on lnvesLmenL
D|fferent|at|on ls almed aL Lhe broad mass markeL and lnvolves Lhe creaLlon of a producL or servlce LhaL
ls percelved LhroughouL lLs lndusLry as unlque 1he company or buslness unlL may Lhen charge a
premlum for lLs producL 1hls speclalLy can be assoclaLed wlLh deslgn or brand lmage Lechnology
feaLures a dealer neLwork or cusLomer servlce ulfferenLlaLlon ls a vlable sLraLegy for earnlng above
average reLurns ln a speclflc buslness because Lhe resulLlng brand loyalLy lowers cusLomers senslLlvlLy
Lo prlce lncreased cosLs can usually be passed on Lo Lhe buyers 8uyer loyalLy also serves as an enLry
barrler new flrms musL develop Lhelr own dlsLlncLlve compeLence Lo dlfferenLlaLe Lhelr producLs ln
some way ln Lo compeLe successfully Lxamples of companles LhaL successfully use a dlfferenLlaLlon s
lrkegy are WalL ulsney roducLlons (enLerLalnmenL) 8MW (auLomoblles) nlke (aLhlnc shoes) and
Apple CompuLer (compuLers and cell phones) Slmllarly lndlan CorporaLe secLor has mulLlple examples
of Companles adopLlng ulfferenLlaLlon sLraLegy successfully llr example l1C before enLerlng Lhe 8lsculLs
segmenL conducLed exLenslve markeL research 1he markeL research pro[ecL helped l1C develop a
undersLandlng abouL Lhe lndlan consumers who accordlng Lo Lhe companles flndlngs LhaL Lhe lndlan
consumers wlshed Lo LasLe new and lnnovaLlve producLs (someLhlng compeLlLlon had lgnored)

Cost focus ls a lowcosL compeLlLlve sLraLegy LhaL focuses on a parLlcular buyer group or geographlc
markeL and aLLempLs Lo serve only Lhls nlche Lo Lhe excluslon of oLhers ln uslng cosL focus Lhe
company or buslness unlL seeks a cosL advanLage ln lLs LargeL segmenL A good example of Lhls sLraLegy
ln lndla are enLrepreneurlal sLarL ups MosL of Lhese sLarL ups compeLe dlrecLly wlLh MnCs by maLch
Lhelr quallLy buL keep Lhelr cosL low by ellmlnaLlng adverLlslng and promoLlonal expenses 1hese
companles focus on drlvlng down Lhe cosLs ln Lhelr nlche markeLs

D|fferent|at|on focus llke cosL focus concenLraLes on a parLlcular buyer group producL llne segmenL
or geographlc markeL 1hls ls Lhe sLraLegy successfully followed by Paldlram LLd nlckelodeon (a cable
channel for chlldren) and local eLhnlc grocery sLores ln uslng dlfferenLlaLlon focus a company or
buslness unlL seeks dlfferenLlaLlon ln a LargeLed markeL segmenL 1hls sLraLegy ls valued by Lhose who
belleve LhaL a company or a unlL LhaL focuses lLs efforLs ls beLLer able Lo serve Lhe speclal needs of a
narrow sLraLeglc LargeL more effecLlvely Lhan can lLs compeLlLlon lor example ln 1999 Cs foods
launched boLLled naLural sprlng waLer under Lhe caLch brand lL approached Lhe hlghend markeL wlLh
focused dlfferenLlaLlon sLraLegy lL markeLed lLs producL as a zero calorle flavored soda waLer lL
launched varlous flavors llke lemon peach black currenL eLc Lo appeal Lo lLs cusLomers palleLLe

k|sks |n Compet|t|ve Strateg|es no one compeLlLlve sLraLegy ls guaranLeed Lo achleve success and
some companles LhaL have successfully lmplemenLed one of orLers compeLlLlve sLraLegles have found
LhaL Lhey could noL susLaln Lhe sLraLegy varlous rlsks are assoclaLed wlLh Lhe Cenerlc CompeLlLlve
SLraLegles suggesLed by orLer 1hey are menLloned as follows
1)8lsk of CosL Leadershlp CosL leadershlp cannoL be susLalned because of a LhreaL of lmlLaLlon by Lhe
compeLlLors or lf Lhere ls a change ln Lechnology AnoLher reason ls Lhe eroslon of oLher bases for cosL
leadershlp uue Lo Lhese elemenLs Lhe proxlmlLy ln dlfferenLlaLlon ls losL and even lower cosLs are
achleved ln Lhe segmenL by Lhe companles who focus on cosLs
2)8lsks of ulfferenLlaLlon non susLenance of dlfferenLlaLlon happens under Lwo condlLlons llrsLly
because of Lhe lmlLaLlon by compeLlLors and secondly when Lhe buyers preference ls losL or Lhe
reasons/bases for cosL leadershlp are losL 1he closeness of cosL ln case dlsappears As a resulL Lhe
companles LhaL focus on dlfferenLlaLlon achleve even more dlfferenLlaLlon ln segmenLs
3)8lsks of locus ln Lhls case Lhe sLraLegy of focus ls lmlLaLed and Lhe LargeL segmenL loses lLs appeal
sLrucLurally whlch resulLs ln eroslon of sLrucLure and Lhe dlsappearance of demand 8roadly LargeLed
compeLlLors cover Lhe whole segmenL As a resulL narrowlng segmenLs can be wlLnessed from oLher
segmenLs and Lhere ls a conslderable lncrease ln Lhe advanLages of Lhe broad llne
lor example a company followlng a dlfferenLlaLlon sLraLegy musL ensure LhaL Lhe hlgher lL charges for
lLs hlgher quallLy ls noL Loo far above Lhe prlce of Lhe compeLlLlon oLherwlse cusLomers wlll noL see Lhe
exLra quallLy as worLh Lhe exLra cosL

Issues |n Compet|t|ve Strateg|es orLer argues LhaL Lo be successful a company or buslness unlL musL
achleve one of prevlously menLloned generlc compeLlLlve sLraLegles CLherwlse Lhe company or
buslness sLuck ln Lhe mlddle of Lhe compeLlLlve markeLplace wlLh no compeLlLlve advanLage doomed Lo
belowaverage performance A classlc example of a company LhaL found lLself ln Lhe mlddle was kMarL
1he company spenL a loL of money Lrylng Lo lmlLaLe boLh Wal MarLs lowcosL sLraLegy and 1argeLs
quallLy dlfferenLlaLlon sLraLegyonly Lo end up ln bankrupLcy wlLh no clear compeLlLlve advanLage
AlLhough some sLudles do supporL orLers argumenLs LhaL companles Lend Lo sorL Lhemselves lnLo
elLher lower cosL or dlfferenLlaLlon sLraLegles successful companles emphaslze only one sLraLegy oLher
research suggesLs LhaL Lhe comblnaLlon of Lhe Lwo compeLlLlve sLraLegles may also be successful1he
1oyoLa and Ponda auLo companles are ofLen presenLed as examples of successful flrms able Lo achleve
boLh of Lhese generlc compeLlLlve sLraLegles 1hanks Lo advances ln Lechnology a company may be able
Lo deslgn quallLy lnLo a producL or servlce ln such a way achleve boLh hlgh quallLy and hlgh markeL
shareLhus lowerlng cosLs
orLer does admlL however LhaL many dlfferenL klnds of poLenLlally proflLable compeLlLlve sLraLegles
exlsL AlLhough Lhere ls generally room for only one company Lo successfully pursue Lhe mass markeL
cosL leadershlp sLraLegy (because lL ls so dependenL on achlevlng domlnanL markeL share) Lhere ls room
for an almosL unllmlLed number of dlfferenLlaLlon and focus sLraLegles (dependlng on Lhe range of
posslble deslrable feaLures and Lhe number of ldenLlflable markeL nlches) CuallLy alone has elghL
dlfferenL dlmenslons each wlLh a poLenLlal of provldlng a producL wlLh a compeLlLlve advanLage

ercepLlon of CuallLy 1he repuLaLlon of Lhe producL plays an lmporLanL role slnce large emphasls ls lald
by Lhe consumer on lL
8ellablllLy lL refers Lo Lhe chances or probablllLy of funcLlonlng of a producL wlLhouL any slgnlflcanL
malnLenance
AesLheLlcs 1hls refers Lo Lhe characLerlsLlcs LhaL wlll make Lhe producL appeallng as Lo how a producL
looks feels sounds LasLes or smells 1hey help ln maklng a cholce for Lhe cusLomer
leaLures leaLures supplemenL Lhe baslc funcLlons of a producL lor example 8ells and WhlsLles are
Lhe crulse conLrol ln a car
ServlceablllLy 1he ease wlLh whlch Lhe producL can be repalred
uurablllLy 1he perlod for whlch a consumer can expecL a servlce Lo conLlnue for a producL before lL
deLerloraLes slgnlflcanLly 1here ls a conslderable dlfference beLween durablllLy and rellablllLy A
refrlgeraLor may be durable for Lhe facL LhaL lL may conLlnue Lo work for several years Powever lL may
sLlll noL be rellable lf lL requlres a loL of malnLenance Llme
Conformance 1hls deLermlnes Lhe degree Lo whlch a producL meeLs Lhe sLandards proposed ln Lerms
of quallLy assured lf a person buys a washlng machlne from a warehouse lL should perform ln Lhe same
manner as lL dld on Lhe showroom floor
erformance 1he funcLlon LhaL a producL ls expecLed Lo perform prlmarlly 1hls ls Lhe maln operaLlng
characLerlsLlc of Lhe producL lor example washlng machlne cleanlng ablllLy
MosL enLrepreneurlal venLures follow focus sLraLegles 1he successful ones dlfferenLlaLe Lhelr producL
from Lhose of oLher compeLlLors ln Lhe areas of quallLy and servlce and Lhey focus Lhe producL on
cusLomer needs ln a segmenL of Lhe markeL Lhereby achlevlng a domlnanL share of LhaL parL of Lhe
markeL AdopLlng guerrllla warfare LacLlcs Lhese companles go afLer opporLunlLles ln markeL nlches Loo
small Lo [usLlfy reLallaLlon from Lhe markeL leaders