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Gaining Competitive Advantage through: * Differentiation * Cost Leadership * Quick Response * Market Focus * Market Life Cycle
Addressing Financial Performance through: * Economic Value Addition * Profitability * Growth * Managing Financial Risk * Ability to arrange low cost funds
* Rivalry amongst Existing Players * Threat of New Entrants * Threat of Substitute Products * Bargaining Power of the Buyers * Bargaining Power of the Suppliers
* Cash Flow
Firms Capacities: * Strategic Plans * Organizational Learning * Structure and Culture * Systems * Motivating Actions
Components .
Socio- Cultural: * Changing Composition of Workforce * Health and Fitness Awareness * Erosion of Educational Standards * Spread of Drug Addictiveness
Components .
Macro Economic: * Interest Rate Changes * Fluctuation in Exchange Rates * Budget / Trade Deficit and Surplus * Inflation Rates
* Savings Rates
Components .
Political / Legal:
* Deregulation
* Alliance Governments * Enactment of Laws
Components .
* Biotechnology Development
* Industrial Disasters
Components .
Global: * Consumer tastes and preferences * Trade Blocs * Global Debt * Global Terrorism
Potential Entrants
Industry Competitiveness
Suppliers
Rivalry among Existing firms
Buyers
Substitutes
Source: Michael Porter - Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York
* Bring substantial resources such as huge advertising budget, willingness to spend heavily on R & D
The Threat..
Barriers to Entry:
* Other advantages patents, favourable access to raw materials, favourable location, government subsidies, etc. * Capital Requirements * Customers switching costs psychological or financial
Dominance by few suppliers Absence of substitutes Greater concentration among suppliers Size of the customer Importance of Suppliers product to buyers
Example: Coke to McDonalds
Places upper price limit on the product Encourages switching amongst customers Number increasing due to deregulation and technological advancements Example: Growth in Banking industry Example: CD- ROMs replacing Books
Well-matched rivals Slow Industry growth encouraging retaliation High fixed costs desire to increase sales Lack of differentiation encourage switching Large increases in manufacturing capacity High profit earning opportunities
Cluster of competitors that share similar strategies and therefore compete more directly Are grouped together for the purpose of improving analysis and understanding competition within their industry Do not necessarily belong to an real group such as Industry Trade Association or Strategic Alliance .
Strategic Groups may be Homogeneous or Heterogeneous Homogenous similarity in terms of Strategies, Product, marketing efforts, R & D expenditure, Capital Intensity, etc. For Example: Paper Mills Heterogeneous Group with multiple strategies For Example: Automobile Manufacturers
Breadth of Market: Niche or Otherwise Product and Service Quality: Standard, Premium or Luxury
Environmental Scanning: - Done to collect information relevant to strategy formulation. - Also known as Gathering Intelligence
- Uses include: a. Information on competitive environment b. Challenging common assumptions about competitive environment
Sources of Information:
Local Newspaper
Databases
Governmental Agencies
Customers and Suppliers Competitors
Scenario Planning: Scenarios are future environmental events and the firms response Based on assumptions that it is inappropriate to simply identify an outcome and reasonable highs and lows around it Attempt to identify a set of diverse alternative futures Highlights forces that shape the future
Mckinseys 7 S Model:
Structure
Strategy
Shared Vision Skills Staff
Systems
Style
Mckinseys 7 S Model:
Shared Vision A set of values aspirations often unwritten that go beyond profit, ROI, Growth, etc.
Strategy Set of actions, plans and policies aimed at attaining sustainable competitive advantage.
Mckinseys 7 S Model:
Structure Firm's reporting line up, the organization chart, functional divisions and their integration
System Provides flow chart of operations, the processes, quality control systems, manufacturing process and information system.
Mckinseys 7 S Model:
Style Working philosophy, time management and interpersonal behaviour, peer group, leading by example
Staff Career growth of the employees, training patterns and honing intrinsic values
Mckinseys 7 S Model: