Competitive Intelligence

Getting actual information about competitor that allows management to anticipate competitor moves in advance rather than merely react to them.

Why strategies fail? Inappropriate strategy Poor implementation

Reasons for inappropriate strategy Failure to understand the nature of problem Strategies implemented are not capable of obtaining desired results. Inaccurate information gathering. Poor fit between external environment and organization resources infeasibility.

Reasons for poor implementation

Over estimation of resources and abilities. Failure in coordination. Ineffective attempt to gain support to overcome the resistance. Underestimation of time, personal or functional requirement.

Reasons why strategic plans fail

There are many reasons why strategic plans fail, especially: Failure to understand the customer
Why do they buy Is there a real need for the product inadequate or incorrect marketing research

Inability to predict environmental reaction

What will competitors do
Fighting brands Price wars

Will government intervene

 Over-estimation of resource competence

Can the staff, equipment, and processes handle the new strategy Failure to develop new employee and management skills

Failure to coordinate
Reporting and control relationships not adequate Organizational structure not flexible enough

Failure to obtain senior management commitment

Failure to get management involved right from the start Failure to obtain sufficient company resources to accomplish task

 Failure to obtain employee commitment

New strategy not well explained to employees No incentives given to workers to embrace the new strategy

Under-estimation of time requirements

No critical path analysis done

Failure to follow the plan

No follow through after initial planning No tracking of progress against plan

 No consequences for above Failure to manage change

Inadequate understanding of the internal resistance to change Lack of vision on the relationships between processes, technology and organization

Poor communications
Insufficient information sharing among stakeholders Exclusion of stakeholders and delegates

Failure to focus Inability or unwillingness to make choices which are true to the strategic mission (i.e. to do fewer things, better), leads to mediocrity, inability to compete

MANAGING ACTIVITIES & BUSINESS INTERRELATIONSHIP

It seeks to develop synergy by sharing and coordinating staff and other resources across the business units, investing financial Across business units. Management Practices- How to govern business units by Direct Corporate Intervention ie Centralizations Decentralization

Business Unit Level Strategy

SBU may be a division or product line or other profit center that can be planned independently from the other business unit of the firm. At this level it is more about developing and sustaining competitive advantage for the goods and services that are produced.

Formulation of strategy at level deals with

Positioning the business against the competitor. Anticipating the changes in demand and technology and adjusting the strategy to accommodate them. Influencing the nature of competition through strategic activities such as vertical integration, and through political action such as lobbying.

There are three generic strategies Micheal Porter identified. They are Cost Leadership Differentiation Focus These strategies can be implemented at the business unit level to create a competitive advantage.

COMPEITION

It is at core of success and failure of the firm.

COMPEITIVE ADVANTAGE
When a firm sustains profit that exceeds the average for the industry , he firm is said to posses competitive advantage over its competitors. Competitive advantage exist when the firm is able to deliver the same benefits as competitor but at a lower cost (Cost Advantage) OR deliver the benefits that exceeds those of competing products. (Differentiation Advantage) Thus it helps to create superior value for its customs & superior for itself. Cost and differentiation advantage are known as POSIIONAL ADVANAGS since they describe the firm position in the industry as a leader.

 From the point of view of resources firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation.

COMPTITIVE ADVANTAGE
RESOURCES

DISTINCTIVE COMPETENCIES

COST ADVANTAGE OR DIFFERENTIATION

VALUE CREATION

CAPABILITIES

Resources & Capabilities:

In order to develop the competitive advantage the firm must have resources and capabilities for superior to those of its competitor Resources- those assets of the firm, which are useful for creating a cost or differentiation advantage and that there competitor, cannot acquire easily. PATENTS & TRADE MARKS PROPERIETARY KNOW HOW REPUTATION OF THE FIRMBRAND EQUITY

 Are the few examples of resources. Capability-It is ability of the firm to use is resources efficiently. Eg.- Ability to bring a product market faster than competitor. The resources and capabilities together form its distinctive competence.

COST ADVANTAGE & DIFFERENTIATION ADVANTAGE:

Using resources and capabilities to achieve either lower cost sructure or a differented product create cost advantage.

VALUE CREATION:
A firm creates value y performing a series of activities. To achieve a competitive advantage he firm must perform one or value creating activities in a way it more overall value than competitor Superior value is created through cost or superior benefit to the consumer (differentiation)

COMPETITIVE FORCES
An organisation in any industry area directly affected by at least five forces. They are Competitors Potential entrants Substitutes Suppliers Buyers

 The combined strength of these forces affects long-term profitability of a firm. PORTERS FIVE FORCES MODEL: The state of competition in an industry depends upon the five basic competitive forces.

They are Rivalry among existing firms Threat of new entrants Threat of substitutes Bargaining power of supplier Bargaining power of buyers

 The collective strengths of the forces determine ultimate profit potential in the industry., where profit potential is measured in terms of long run returns on invested capital. The goal of the competitive strategy for a business unit in an industry is o find a position in the industry where he the company can best defend itself against these forces or can influence them in its favor. The strategic business manager seeking to develop an edge over its rival firms can use this model to better understand the industry context in which the firm operates.

POTENTIAL ENTRANTS

THREAT OF NEW ENTRANTS

SUPPLIERS

RIVALRY AMONG EXISTING FIRMS (INDUST COMPETITION)

BUYERS

BARGAINING POWER BARGAINING POWER OFSUPPLIER OF BUYER THREAT OF SUBSTITUTES SUBSTITUTES

 Porters Five Forces Model is a powerful tool for systematically diagnosing the principle competitive pressure in a market & assign how strong & important each one is.

RIVALRY AMONG THE EXISTING FIRMS:

The existing firms are engaged in repeated & regular moves against each other. This is the strongest of the five competitive forces. In some industries, cross company rivalry is centered on price competitiona competition to offer buyers the best price is typical among retailers & sellers of standard commodities such as nails, plywood, sugar, printed paper,

 Occasionally price can be so lively that market price temporarily falls below unit costs, forcing losses on some or most rivals. In other industries , price competition is minimal to moderate & rivalry is focused on one or more of the following factors,

 Offering buyers the most attractive combinations of performance features, Being first to the market with innovative product, Out competing rivals with higher quality or more durable products, Offering buyers longer warranties, Providing superior after sales service, Creating a stronger brand image,

 The pattern of action & reaction makes competitive rivalry a war games type of contest conducted in a market setting according to the rules of fair competition.

The common factors influence the tempo of the cross- company rivalry:
Rivalry intensifies as the numbers of competitors increase & as competitors become more equal in size & capability. Rivalry is usually stronger when demand for the product is growing slowly. Rivalry is more intense when condition tempt competitors to use price cuts other competitive weapons to boost & with volume. Rivalry is stronger when customers cost to switch brand is low.

 Rivalry is stronger when one or more competitors are dissatisfied with their market position & launch moves to bolster their standing at expense Rivalry increase in proportion to the size of the pay offs from a successful strategic move. Rivalry tends to be more vigorous when it costs more to get out of business than to stay in & compete. Rivalry becomes more volatile & unpredicted the more diverse competitors are terms of their visions, strategic intents, objectives, strategies, resources & countries of origin.

 Rivalry is stronger when one or more competitors are dis satisfied with their market position & launch moves to bolster their standing at expense Rivalry increase in proportion to the size of the pay offs from a successful strategic move. Rivalry tends to be more vigorous when it costs more to get out of business than to stay in & compete. Rivalry becomes more volatile & unpredicted the more diverse competitors are terms of their visions, strategic intents, objectives, strategies, resources & countries of origin.

 According to a traditional economic model competition among the rival firms drives profit to zero. Firms strive for a competitive advantage over their rival. The intensity of rivalry among the firms varies across the industry.

 Economist measures the rivalry by concentration ratio (CR). A high CR indicates high concentration market share is held by the largest firm-the industry is concentrated. Few firms holding a large market share the competitive bondage is less competitive or closet monopoly. A low CR indicates that the industry is characterised by many rivals none of them holding significant market share-the fragmented market. These fragmented markets are said to be competitive.

 If the rivalry among the firms in the industry is low, the industry is said to be disciplined. Common competitive actions includes Price change Promotional measures Customer service Warranty Product improvement New products introduction Channel promotion etc

Factors influencing intensity of rivalry:

Number of firms and their relatives market share, strength. etc State of growth industry. In case of stagnant or declining and slow growth rate a firm is able to increase its sales by increasing its market share. Low switching cost increase rivalry. Strategic stakes are high when a firm is loosing market position or has potential for greater gains. High exit barriers cause a firm to remain in the industry even when the venture is not profitable.eg .The plant & equipment required for manufacturing a product, which is highly specialised.

 A diversity of rivals with different culture, history and philosophy make an industry unstable. Industry shakeout- Growing market and the potential for higher profit induces new firms to enter market and incumbent firms to increase production . A point reached where the industry becomes crowded with competitors and demand cannot support the new entrants and the resulting increased supply .Too many goods and few buyers.

THREATS OF SUBSTITUTES:
An important force of competition is the power of substitutes. To the economists a threat of substitutes exists when the product demand is affected by the price changes of substitute product. As more substitutes become available the demand decreases .eg. -To the tyre manufacturer tyre retreader is a substitute.

 Firms in one industry are quite often close competition with firms in another industry because their respective products are good substitutes. Eg. The producer of eyeglasses competes with the makers of contact lenses & with eye specialists who performs laser surgery to correct vision problems. Cotton & wool producers are in head on competition with the makers of polyester fabric

The strength of substitute depends upon

Whether attractively priced substitutes are available, Whether buyers view substitute as being satisfactory in terms of quality, performance & other relevant substitute. Whether buyers can switch to substitutes easily.

 The availability of substitutes inevitably invites customers to compare quality, features, performance, ease of use & other attributes as well as price. Another determinant of the strength of substitutes is how difficult or costly it is for industrys customer to switch to a substitute. The switching costs includes price premium, the costs of additional equipment, time & cost in testing the reliability & quality of the substitute, the psychic cost of serving old supplier relationship & establishing new ones.

BARGAINING POWER OF BUYERS:

Whether seller buyer relationship represents a weak or strong competitive forces depends upon Whether buyers have sufficient bargaining power to influence the terms & conditions of sales in their favour & The extent competitive importance of seller buyer strategic partnership in the industry.

How buyer bargaining power can create competitive pressures:

Large retail chains like Wal - Mart have a considerable negotiating leverage in purchasing products from manufacturers because of manufacturers need for broad exposure & favourable shelf spaces for their products. Retailers may stock one or even several brands but rarely all brands, so competition among rival manufacturers for the business of popular or high volume retailers gives such retailers significant bargaining leverage

 Buyers have substantial bargaining leverage in a number of occasions, the most obvious is when the buyers are large & purchases a sizable quantity of industry out put. Even if buyers do not purchase in large quantities or offer a seller important market exposure or prestige , they may still have some degree of bargaining power in following cases ,

 If buyers cost of switching to competitive brands or substitutes are relatively low. If the number of buyers is small or if a customer is particularly important to a seller. If the buyers are well informed about sellers products, prices, & costs. If the buyer pose a credible threat of integrating backward into the business of sellers. If buyers have discretion in whether & when they purchase the product.

 Buyers typically have weak bargaining power when they buy infrequently or in small quantities & when they have high cost to switch brands. High switching cost s can keep buyer locked into present brand. In some cases in industry buyers are potential competitors- they may integrate backward .The power of buyers is the impact that customer have on producing industry.

 Eg -Monospony -Many supplier to one buyer (INDIAN RAILWAY) ,in this condition buyer can set price Buyer power depend upon Volume of purchase relative to the total sale of the seller. Product is important to the buyer interims of total cost. Profitability of the buyer. The extent of standardisation or differentiation of the product.

How Collaborative partnerships between sellers & buyers can create competitive pressures:
Partnership between sellers & buyers are an increasingly important element of competitive picture in business to-business relationships as opposed to business to consumer relationships.

 Eg. Wal Mart provides the manufacturer with whom it does business with daily sales data from each of its stores so that they can replenish inventory stocks on time.

BARGAINING POWER OF SUPPLIR:

Whether supplier seller relationship represents weak or strong competitive forces depends upon Whether supplier can exercise sufficient bargaining power to influence the terms & conditions of supply in their favour. The extent of supplier-seller collaborations in the industry..

How suppliers bargaining power can create competitive pressure: .

Suppliers have no or little bargaining power or leverage over rivals when the items they provide are available in the open market from numerous suppliers with ample capabilities to fill orders.

 Suppliers are likewise relegated to weak bargaining positions whenever there are good substitutes for the items they provide & buyer fined it neither costly nor difficult to switch their purchase to the supplier of alternative items. Supplier also tends to have little bargaining power over price & other terms of sale when company they are supplying is a major customer.

 When suppliers provides an item that accounts for a sizable fraction of the costs of an industry s products, is crucial to the industry; s production process, or significantly affects the quality of the industry product, suppliers have considerable influence on the competitive process. Suppliers e more powerful when they can supply components more cheaply than industry members can make it themselves.

How collaborative partnership between sellers & suppliers can create competitive pressure:
In many industries sellers are forming strategic & close relationship with select suppliers in order to, Promote just in time deliveries & reduced inventory & logistic costs. Speed the availability of next generation components.

Eg. Dell Computers has used strategic partnership with key suppliers as a major element in its strategy to be the worlds low cost suppliers of branded PCs. The producing industry requires raw materials and other supplies. This leads to supplier-buyer relationship. A powerful supplier can pressurise producing industry by selling raw material at higher price to capture some of the industry profits.

Factors influencing supplier power Importance of product to the buyer. Extent of substitutability of the product. Switching costs Extent of convention & dominance in the in the supplier industry

THREAT OF NEW ENTRANTS:

New entrants to a market bring new production capacity, a desire to establish a secure place in the market & sometimes-substantial resources with which it competes. The seriousness of the threat of entry in a particular market depends upon two factors; Barriers to entry, The expected reaction to the of incumbent firms to the new entry.

 Entry of new firms affects competition. In case of markets having normal profit it is easy to enter and exit. Industry posses characteristic that protects the high profit level of firms in the market and inhibit additional rivals from entering the market. These are the barriers to entry. Barriers reduce the rate of entry of new firms thus maintaining a kevel of profit for those already in the industry.

 Government creates barrier through reservation policy, industrial licensing restricting foreign capital &technology. Patents and proprietary knowledge serve to restrict entry into an industriesPOLOROID Edwin Land in1947camera for instant photograph. KODAK1975. SUED KODAK &kept them out of industry.

Economies of scale.

 Cost & resources disadvantages independent of size. Learning & experience curve effects.. Inability to match technology & specialized know how of firms already in the industry. Brand preference & customer loyalty . Capital requirements. Access to distribution channels.

 Entry barriers can be formidable for star- up enterprises trying to compete against established companies.
In evaluating the potential threat of entry, the management must look for, How formidable the entry barriers are for each type of potential entrant. How profit prospects are for new entrants.

 The stronger the threat of entry the more that incumbents firms are driven to fortify their position in the market place against the new comers, endeavouring not only to protect their market share but also to make entry more costly & difficult. The threat of entry changes as the industry s prospects grow brighter or dimmer & as an entry barriers rise or fall eg. The expiration of key patent can greatly increase the threat of entry.

Strategic Implication of the Five Competitive Forces:

The special contribution of the five forces model is the thoroughness with which it exposes what competition is like in a given market The strength of each of the five competitive forces. The nature of the competitive pressures comprising each force. Overall structure of competition. As a rule stronger the collective impact of competitive forces the lower the combined profitability of participating firms.

 When competitive forces are not collectively strong the competitive structure of industry is favorable or attractive from the standpoint of earning superior profits. The ideal competitive condition is one in which both suppliers & customers are in weak bargaining positions, there are no substitutes, entry barriers are relatively high & rivalry among present sellers is only moderate. When some of the five forces are strong , an industry can be competitively attractive to those firms whose market position & strategy provides a good enough defense against competitive pressure to preserve their ability to earn above average profits.

COMPETITOR ANALYSIS:
It is required for formulating right strategy determining right positioning for the firm in the industry. Competitor analysis seeks to find answers to following questions Who are the competitors? Which are the current strategies of the competitor? What are the future goals& likely strategies? What drives the competition? When the competitor is vulnerable How the competitors are likely to respond to the strategies of others?

What strategic moves are rivals likely to make?

Unless a company pays attention to what competitors are doing, it ends up flying blind into competitive battle.. A company cannot plan its moves without monitoring competitors actions, understanding their strategies & anticipating what moves they are likely to make next. Competitive intelligence is about strategies rivals are deploying, their latest moves, their resources, strengths, & weakness & the plans they have announced is essential to anticipating the actions they are likely to take next & what bearing their moves might have on a companys own best strategic moves.

Monitoring Competitors Strategies:

The best source of information about a competitors strategy comes from examining what it is doing in the marketplace & from what its management is saying about the companys plans. Addition to this what competitor is up to & its future strategy can be achieved by considering the competitors geographic arena, strategic intent, market share objectives, position on the industry strategic group map & willingness to take risks ,further it is important to know whether the competitors recent moves are mostly offensive or defensive.

Good sources include The companys annual report. Recent speeches by its managers The reports of security analyst Articles in business media Companys press release Information at companys website Exhibits at international trade show Conversation with rivals customers & former employees .

The concept of Driving Forces:

It is important to judge what growth stage an industry is in , there is more analytical values in identifying the specific factors causing fundamental industry & competitive adjustment. Industry & competitive conditions change because forces are in motion that create incentive or pressure for change. The most dominant force s are called driving forces, because they influence the kinds of changes that will take place in the industrys structure & competitive environment.

Value Chain Analysis

Value Chain
Michael Porter identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as VALUE CHAIN Value is the amount buyers are willing to pay for what affirm provides them. Total resources and he units it can sell measure it. Affirms is profitable if the value it commands exceeds the cost involved in creating the product. Creating the value or the buyer that exceeds the cost of doing so is the goal of any generic strategy. The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

 The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.

 Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); Primary activities are those that are related with production. Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. Support activities are those that provide the background necessary for the effectiveness and efficiency of the firm, such as human resource management.

 The value chain framework of Porter (1990) is an interdependent system or network of activities, connected by linkages .When the system is managed carefully, the linkages can be a vital source of competitive advantage . The value chain analysis essentially entails the linkage of two areas. Firstly, the value chain links the value of the organisations activities with its main functional parts. Then the assessment of the contribution of each part in the overall added value of the business is made. In order to conduct the value chain analysis, the company is split into primary and support activities.

Primary Activities
Inbound Logistics Operations Outbound Logistics Marketing and Sales Service

Primary Activities.
Inbound Logistics. Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation. Operations. This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine.

 Outbound Logistics. The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Marketing and Sales. In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. Service. This includes all areas of service such as installation, aftersales service, complaints handling, training and so on.

Support Activities.
Procurement Technology Development Human Resource Management (HRM) Firm Infrastructure

 Procurement. This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims). Technology Development. Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.

 Human Resource Management (HRM). Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy. Firm Infrastructure. This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.

Main aspects of Value Chain Analysis

Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organisation, and have the potential of a sustainable competitive advantage for a company. Therein, competitive advantage of an organisation lies in its ability to perform crucial activities along the value chain better than its competitors.

How to write a Good Value Chain Analysis

The ability of a company to understand its own capabilities and the needs of the customers is crucial for a competitive strategy to be successful. The profitability of a firm depends to a large extent on how effectively it manages the various activities in the value chain, such that the price that the customer is willing to pay for the companys products and services exceeds the relative costs of the value chain activities. It is important to bear in mind that while the value chain analysis may appear as simple in theory, it is quite time-consuming in practice. The logic and validity of the proven technique of value chain analysis has been rigorously tested, therefore, it does not require the user to have the same indepth knowledge as the originator of the model. The first step in conducting the value chain analysis is to break down the key activities of the company according to the activities entailed in the framework. The next step is to assess the potential for adding value through the means of cost advantage or differentiation. Finally, it is imperative for the analyst to determine strategies that focus on those activities that would enable the company to attain sustainable competitive advantage.

 The value chain should be analysed with the core competence of the company at its very heart. The value chain framework is a handy tool for analysing the activities in which the firm can pursue its distinctive core competencies, in the form of a low cost strategy or a differentiation strategy. It is to be noted that the value chain analysis, when used appropriately, makes the implementation of competitive strategies more systematic overall. Analysts should use the value chain analysis to identify how each business activity contributes to a particular competitive strategy. A company may benefit from cost advantages if it either reduces the cost of individual activities in the value chain or the value chain is essentially reconfigured, through structural changes in the activities.

Limitations of Value Chain Analysis

One of the limitations of the value chain model is that it describes an industrial organization which essentially buys raw materials and transforms these into physical products. Notably, at the time when the model was introduced ,service industries in the western countries employed lesser workforce compared to todays statistics of the same. Academics and practitioners alike have critiqued the model and its applicability in the context of service organisations. Partnerships, alliances and collaboration along with differentiation and low costs are common drivers of value today.

CORPARATE LEVEL GROWTH STRATEGIES

Integration Diversification Co-operation

Integration Corporate Level Growth Strategies

It is the most common growth strategy, which involves Integration at the same level / stage of business in the same industry Horizontal Integration Integration at different levels / stage of business in the same Industry Vertical Integration

INTEGRATION

HORIZONTAL INTEGRATION

VERTICAL INTEGRATION

Horizontal Integration
Integration at same level of business is popularly known as Horizontal Integration. The acquisition of additional business activities at the same level of the value chain is referred as horizontal integration. Horizontal integration can be achieved by internal expansion on by external expansion through merger & acquisition of firms offering similar products of services. Eg. : - Acquisition of Universal luggage (Aristocrat) by BLOW PLAST (VIP).

Advantage: Economics of scale achieved by selling made of sample product. Eg. Geographic expansion. Economics of scopes achieved by sharing resources common to different product. Reduces competition

Vertical Integration: Integration of the different levels / stages of the same industry is known as vertical integration. It is also defined as the degree to which firms own its upstream suppliers & its downstream buyers. It defines the division of activities between firm & its suppliers, Channel & buyers.

 Vertical Integration extends firms competitive & operating scope within the same basic industry .It involves expanding the firms range of activities backward in to sources of supply & /or forward towards end users. Thus, if a manufacturer invest in facilities to produce certain component parts that is formerly purchased from outside suppliers, it in the same industry as before.

 A vertical integration strategy aims at Full integration- Participating in all the stages of industry value chain. or Partial integration-Building positions in selected stages of the industrys value chain. A firm can pursue vertical integration by starting its own operations in other stages of industrys activity chain or by acquiring a company already performing the activities, it wants to bring in-house. The only good reason for investing company resources in vertical integration is to strengthen the firms competitive position.

Forward Integration:
Expansion of activities down steam is referred as forward integration. The strategic impetus for forward integration is to gain better access to end users market visibility. In many industries independent sales agents, wholesalers, & retailers handle competing brands of the same product, they tend to sell whatever sells & earn them the biggest profits.

 This behavior by wholesalers, distributors can frustrate a company attempt to boost sales & market share, give rise to costly inventory pile-ups, reduction in capacity. In such cases it is advantageous for a manufacturer to integrate forward in to wholesaling or retailing via company owned distributorship or chain of retail stores. Some times the companys product line is not broad enough to justify stand- alone distributorship or a chain of retail stores, in that case option of integrating forward into the activity of selling directly to end users is via Internet. This may reduce the distribution costs & produce relative cost advantage over rivals & result in lowering prices to end users.

 Forward Integration means entering the subsequent stage of the industry.

Eg.

The manufactures / Suppliers of raw material to finished product may start producing finished product. Manufactures may take up markedly of its own product that was done by dealer. Bombay Dyeing entering marketing of readymade garments VIVALDI Raymonds Park Avenue.

Backward Integration: Expansion of activities up steam is referred as backward integration. Integrating backwards generates cost savings only when the volume needed is big enough to capture the same scale economies suppliers have & when suppliers production efficiency can be matched or exceeded with no drop in quality & new product development capability. Backward integration is most likely to reduce costs when supplier have sizable amount of profit margins.

 Integrating backward can sometimes significantly enhance the companys technological capabilities & give it expertise needed to stake out position in the industries & product of the future. Backward integration can produce a differentiations based competitive advantage when a company by performing activities in house that were outsourced, ends up with a better quality offering, improves the caliber of its customer service or in other ways enhance the performance of its final product.

 It starts at a preceding stage of the current business. Eg. A manufacturer of finished products may start manufactory the raw material required for finished product. A deferent manufactures may take up the manufacturer of LAB that is a raw material for detergent (NIRMA). Brook Bond acquiring two tea plantations.

Advantages: Good quality raw materials at cheap price. Ensure good supply of raw material even during short supply.

Diversification:

Diversification is adding new line of business. The new line may be or may not be related to current business .In diversified companies corporate- level executives delegates considerable strategy making authority to the heads of each business, usually giving them the latitude to craft the a business strategy suited to their particular industry & competitive circumstances & holding them accountable for producing good results. But the task of crafting a diversified companys overall or corporate strategy falls squarely on the shoulders of top level executives.

WHEN TO DIVERSIFY?:
Companies that concentrate on a single business can achieve enviable success over many decades. The big risk of single business company is having the entire firm; s eggs in one industry basket. If the market is eroded by the appearance of new technology , new products or fast shifting buyer preference , then a company s prospects are dim . For example Consider digital cameras are doing to the market for film & film processing, What CD & DVD technology has done to the markets for cossets & floppy disks?

 When there are substantial risks that a single business companys market will dry up or when opportunities to grow revenues & earnings in the company s mainstay business begin to peter out , managers usually have to make diversifying into other business a top consideration.

Factors that signals it is time to diversify:

Following are the conditions in which a company becomes a prime candidate for diversifying. When it can expand in to industries whose technologies & products compliments its present business. When it can leverage existing competencies & capabilities by expanding in to business where these same resource strength are valuable competitive assets. When diversifying in to closely related business opens new avenues for reducing costs.

When it has a powerful & well-known brand name that can be transferred to the product of other business. Eg. :- Videocon Related business Wipro Which is in business of edible oil, soaps, computer. LG From electronics to FMCG Sahara Airline, TV Channels. Joint ventures are generally t durable options , usually lasting only until the partners decide to go their own ways .

There are two types of diversification:

Diversification

Concentric /Synergistic

Conglomerate

Choosing the diversification path: Related v/s Unrelated Business: After the decision has been taken regarding the diversification , the firm must choose whether to diversify in to related business or unrelated business or some mix of both . Business are said to be related when their value chains possess competitively valuable cross business value chain match ups or strategic fits. A related diversification strategy involves building the company around business whose value chains possess competitively valuable strategic fits.

 Business are said to be unrelated when the activities comprising their respective value chains are so dissimilar that no competitively valuable cross business relationships are present. A strategy of diversifying into unrelated business discounts the value & importance of strategic fits benefits associated with related diversification & instead focuses on building & managing portfolio business subsidiaries capable of delivering good financial performance in their respective industries.

 Cooperation: Basic Cooperation Tie up. Eg.:- Company having the up travel agency. - Xerox machine operation is outscored - AC maintenance contract. Strategic tie up - Air India having flight kitchen with Taj or Ambassador both the parties grow by co-operatives. Value chain Partnership - Coke & Mc Donald (Supplier / Distributor) Co-branding - Credit Cards Master Card with Bank both the parties harnessing the brand. Licensing -HAL & Russian Plains Joint venture- Essential far project where single player cannot rope in all resource.

Business level growth strategies Market Penetration Strategy Market Development Strategy Product Development Strategy.