Basic Tenets of Strategy:

CA
 Why is Strategy important?

• Strategy is meant to shape future

• It helps reach future goals of individuals and organizations
• It has been found that firms which have strategy do better than those who
do not
• It helps learn to do trade off decisions, based on priorities
• It is future oriented and helps trade offs between present and future, across
functions
• Since strategy implementation is simultaneous rather than sequential to
formulation all levels of managers are involved
• It is about costs, revenues and profits and thus need everybody’s
contribution
• As one moves from functional to business responsibility, you need clear
strategies .
• Although realized strategies are combination of intended and emerging
strategies- some strategies are unrealized
 Concept of competitive advantage
What is the purpose of a business firm?
The strategic purpose of a firm is to create value that meets the
need of its stakeholders.

Who are the stakeholders?

All parties that have an interest (or a stake) in the success or

performance of the firm are its stakeholders. All the parties that
stand to benefit from a firm’s successful operation, including
owners, suppliers, customers, employees, local communities,
trade associations, and society at large.
 INDUSTRY CONTEXT
Profitability Difference Along Selected Industries

Tyre 0.66

Synthetic Rayon 3.31

Dairy 4.90

Com. Veh. 6.47

Cement 7.10

Bank 7.18

Con. Elec. 7.97

Oil and Gas 8.73

Cars 8.78

Two Wheeler 12.87

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00

Operating income/Total Assets, 2000-2004 (%)

 CONTEXT OF COMPANY RESOURCES & STRATEGIES

Profitability Difference Within the Tyre Industry

India Rubber Ltd.

-4.4

Dunlop
-2.6India Ltd.

Ceat Ltd. 3.8

Modi Rubber Ltd. 6.4

J K Industries Ltd. 7.8

Goodyear India Ltd. 10.0

Vikrant Tyres Ltd. 11.0

Apollo Tyres Ltd. 13.8

M R F Ltd. 16.4

T V S Srichakra Ltd. 18.0

-10.0 -5.0 0.0 5.0 10.0 15.0 20.0

Operating Inc/Total Assets, 2000-2004 (%)

 CONTEXT OF COMPANY RESOURCES & STRATEGIES

Profitability Differences Within 2/3 Wheeler Industry

Maharashtra Scooters Ltd. 3.2

Majestic Auto Ltd. 3.6

Scooters India Ltd. 7.8

Kinetic Motor Co. Ltd. 8.2

Kinetic Engineering Ltd. 8.4

Atul Auto Ltd. 9.8

L M L Ltd. 11.8

Bajaj Auto Ltd. 12.2

T V S Suzuki Ltd. 21.2

Hero Honda Motors Ltd. 23.8

0 5 10 15 20 25
Operating Inc/Total Assets, 2000 -2004(%)
 COMPETITIVE ADVANTAGE: FOCAL POINT OF STRATEGY

Competitive Advantage can be defined as the ability of a firm to

outperform its industry, that is, to earn higher rates of profits
than the industry norm. And for a firm to achieve a competitive
advantage, it must create more value for its customers than its
competition.

In the simplest terms, such a competitive advantage is based on

excelling in providing one or more of three forms of customer
value. Customers want goods and services which are i) better, ii)
cheaper and iii) faster. These corresponding forms of
competitive advantage are referred as 1) Differentiation, 2) Cost
Leadership and 3) Quick response.
COMPETITIVE ADVANTAGE: FOCAL POINT OF STRATEGY

Competitiveness Financial Performance

Differentiation

Competitive Economic Market Value

Cost Leadership Advantage Value Added Added

Quick Response

Value Created for Value Captured for

Customers Investors
 Differentiation
• In pursuing CA based on differentiation , firms attempt to
create unique bundles of products/ services that will be highly
valued by customer . The activity focus is on R&D, higher
quality material, advertising, Quality systems
• They are willing to pay premium price for the differentiated
products and services as given below:
• Product features: A Product’s physical characteristics or
capabilities may be an important form of differentiation e.g.
Philips TV can display two channels on one screen
• After-sales service: Convenience and quality of service may
be a critical factor in deciding among alternative products, e.g.
Maruti’s after-sales service given through extensive network
• Desirable Image: This is obviously the basis of virtually all
fashion products, e.g. Tanishq Jewelry
 Differentiation……….
• Technological Innovation: Technological innovation
provides the basis of competitive advantage for broad range of
firms. Bose’s speakers which provide quality of sound better
than giant loudspeakers, but small enough to fit in any
apartment
• Reputation: Tata’s image of providing affordable price a
good quality product as compared to its competitors
• Manufacturing consistency : This is achieved through
Statistical Process Control (SPC)and TQC. MacDolad’s
produts are found the same across the globe
• Status symbol: They satisfy status and psychological needs
.e,g. Mercedes or BMW cars or Harley Davidson motorcycle
 Cost Leadership
• A company which follows cost leadership strategy focuses on
reducing its cost below those of its competitors. P&G ‘s Ivory
soap follows this strategy by using ingredients that are not
expensive, low cost packaging and limited advertising
• This strategy is implemented through employing economies of
scale by producing large volumes so that fixed cost is spread
across large volumes
• The cost leader uses specialized machines
• Use plant and equipment whose fixed cost per unit is lower
• Use employee specialization who do more repetitive roles
• They keep Overhead costs low
• They enjoy steep experience curve
• They put less money in advertisement and R&D
• Maruti, Nirma soaps, Tata Motors use cost leadership
 Quick Response Strategy
• The customer took value from cost leadership and
differentiation for granted, they shifted their focus to quick
response
• Which essentially means providing value to customers faster
than rivals.
• The slow response to customer expectations can make
customer choose other suppliers
• Only a flexible firm can respond to the customers need for
quick response
• Speed can improve the value of cost leadership and
differentiation
• In fact customer value is added only .05 to 5% time but cost is
continuously incurred- e.g. suite stitching
 Quick Response

• The product value deteriorate if not supplied in time: inventory

cost, parts rust or get damaged, become obsolete, and are lost,
customer wait destroys value. Atlas Door is able to add value
to use quick response to improve cost leadership and
differentiation
• It fills orders in weeks instead of months. It charges premium
for on its products through quick response
• It takes order on phone , the engineer takes the specifications
and immediately goes to work and produces the product in
record time
• The strategy essentially manages order fulfillment, operations
and delivery and service in quick time