Implementing Yin-Yang

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WELCOME To ALL OF YOU – (Strategy)

RAHUL JAIN

(Striving for excellence)

BCOM (H), PGPM, FCS

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Strategy formulation ...

An organization must select any of innumerableways of seeking to attain its objectives.

Strategies define how organizations shoulduse their resources to meet their objectives.

Hence, … strategies put constraints on employees to focus activities on what the organization does best or areas where it has an advantage over competitors.

Mission – Basic reason for existence

Mission: How do we intend to win in this business?Factors influencing Mission Stakeholders Internal resources and Power Values of top management Past development of firm

Business definition Products Markets Function (Technology and Processes)

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Vision- Yin Yang

Core Ideology (Core values and Purposes)

Envisioned Future (BHAG and vivid description)

A vision, is more encompassing. It answers the question, "What will success look like?" It is the pursuit of this image of success that really motivates people to work together.

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Starbucks’ Mission and Vision

Starbucks’ MissionStarbucks’ mission is to “establish Starbucks as the premier purveyor of the finest

coffee in the world while maintaining our uncompromising principles as we grow” (Starbucks Website, 2006, p.1).

Starbucks strategic plan to make its mission a reality is evidence by the company’s rapid expansion worldwide. Starbucks has locations in all 50 States in the US, plus the District of Columbia and Puerto Rico (Starbucks Company Fact Sheet, 2006). Starbucks can also be found in 36 countries outside the US (Starbucks Company fact Sheet, 2006). Starbucks is committed to buying only certified coffee in pursuit of selling the finest coffee.

Starbucks’ Vision

According to the company’s profile, (2006) its vision is to make Starbucks coffee the most recognized and respected brand in the world by using high quality roast beans to make coffee beverages along with other products. The company wants to develop enthusiastically satisfied customers at all times. They want to make positive contributions to their communities and their environment.

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How to create value for the corporation as a wholeHow to create value for the corporation as a whole

2. Corporate-Level Strategy2. Corporate-Level Strategy (Companywide Strategy)(Companywide Strategy)

- low cost- low cost- differentiation- differentiation- integrated low cost/differentiation- integrated low cost/differentiation

- focused low cost- focused low cost- focused differentiation- focused differentiation

How to create competitive advantage in each How to create competitive advantage in each business in which the company competesbusiness in which the company competes

1. Business-Level Strategy1. Business-Level Strategy (Competitive Strategy)(Competitive Strategy)

A Diversified CompanyA Diversified CompanyHas Two Levels of StrategyHas Two Levels of Strategy

Cost Leadership Strategy

Key Criteria

Standard Product

Compete Based on Price:– Low costs– High volume– Low margins

Achieving Low Costs

Controlling Cost Drivers

Reconfiguring Value Chain

Characteristics of Cost Leader

Controlling Cost Drivers

1. Economies of Scale / Capacity Utilization

2. Learning Curve Effects

3. Reduce Input Costs (monitor suppliers)

4. Economies of Scope

5. Consider Vertical Integration & Outsourcing

6. Process Engineering / Simplification

7. Minimize Overhead

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How to obtain a Cost AdvantageHow to obtain a Cost Advantage

11 Control Cost DriversControl Cost Drivers

Alter production processAlter production process

Change in automationChange in automation

New distribution channelNew distribution channel

Direct sales in place of indirect salesDirect sales in place of indirect sales

New raw materialNew raw material

New advertising mediaNew advertising mediaBackward integrationBackward integration

Forward integrationForward integration

Change location relative to suppliers or buyersChange location relative to suppliers or buyers

Reconfigure the as neededReconfigure the as neededValue ChainValue Chain

The Major The Major Risks involved Risks involved with a with a Cost Leadership Cost Leadership Business Level Business Level StrategyStrategy

The Major The Major Risks involved Risks involved with a with a Cost Leadership Cost Leadership Business Level Business Level StrategyStrategy

Technological changesTechnological changes

Focus on efficiency causes Cost Leader to overlook changes in

customer preferences

Focus on efficiency causes Cost Leader to overlook changes in

customer preferences

Competitors imitate Value Chain

Competitors imitate Value Chain

Examples of Cost Leadership

Nissan; Wal-Mart; Dell Computers, Koutons

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Value provided by unique features and value characteristicsValue provided by unique features and value characteristics

Command premium priceCommand premium price

Superior qualitySuperior quality

Key CriteriaKey Criteria

Differentiation Business Level StrategyDifferentiation Business Level Strategy

Rapid innovationRapid innovation

Prestige or exclusivityPrestige or exclusivity

High customer serviceHigh customer service

Differentiation Business Level StrategyDifferentiation Business Level Strategy

RequirementsRequirementsConstant effort to differ-Constant effort to differ-entiate products through:entiate products through:

** Developing new systems Developing new systems and processesand processes

**

**Maximize Human Resource Maximize Human Resource contributions through low contributions through low turnover and high motivationturnover and high motivation

Product R&D capabilitiesProduct R&D capabilities

** Shaping perceptions through Shaping perceptions through advertisingadvertising

Value provided by unique features and value characteristics

Value provided by unique features and value characteristics

Command premium priceCommand premium price

Superior qualitySuperior quality

Rapid innovationRapid innovation

Prestige or exclusivityPrestige or exclusivity

High customer serviceHigh customer service

Differentiation Business Level StrategyDifferentiation Business Level Strategy

Effectiveness with DifferentiationDifferentiation grows out of Value ChainValue Chain activities activities

Effectiveness with DifferentiationDifferentiation grows out of Value ChainValue Chain activities activities

Heineken beerHeineken beer Raw materialsRaw materials

Caterpillar tractorsCaterpillar tractors Service buyers’ needs quickly anywhere in the worldService buyers’ needs quickly anywhere in the world

Steinway pianosSteinway pianos Raw materials & Workmanship Raw materials & Workmanship

Examples:

Intel microprocessorsIntel microprocessors Technological superiorityTechnological superiority

Mercedes Benz autosMercedes Benz autos Technology and WorkmanshipTechnology and Workmanship

Direct resources to certain value chain activities to build competitive advantageDirect resources to certain value chain activities to build competitive advantage

Serve narrow market segment more effectively than industry-wide competitorsServe narrow market segment more effectively than industry-wide competitors

Firm lacks resources to compete industry-wideFirm lacks resources to compete industry-wide

Large firms overlook small nichesLarge firms overlook small niches

Opportunities exist because:Opportunities exist because:

**

**

**

**

Focused Business Level StrategiesFocused Business Level Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

The Major Risks involved with a FocusedDifferentiation Business Level Strategy

The Major Risks involved with a FocusedDifferentiation Business Level Strategy

“Outfocused” “Outfocused”

Preferences of niche market change to those of broad

market

Preferences of niche market change to those of broad

market

Large competitors enter niche market

Large competitors enter niche market

Focus

Examples of Differentiation Focus: any successful niche retailers; (e.g. The Perfume Shop); or specialist holiday operator (e.g. Carrier)

Strategy - Cost Focus

Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's".

Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products.

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Flexible Manufacturing SystemsFlexible Manufacturing Systems

Firms using an Integrated Strategy:Firms using an Integrated Strategy:

Dual Strategic Emphasis:•Upscale product•Competitive pricing (“best value”)

Dual Strategic Emphasis:•Upscale product•Competitive pricing (“best value”)

Information Networks across multiple business unitsInformation Networks across multiple business units

Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy

Total Quality Management (TQM)Total Quality Management (TQM)

1. What businesses should the corporation 1. What businesses should the corporation be in?be in?

2. How should the corporate office manage 2. How should the corporate office manage the array of business units?the array of business units?

Corporate StrategyCorporate Strategy is what makes the corporate whole is what makes the corporate whole add up to more than the sum of its business unit partsadd up to more than the sum of its business unit parts

Key Questions of Corporate StrategyKey Questions of Corporate Strategy

Levels and Types of DiversificationLevels and Types of DiversificationLow Levels of DiversificationLow Levels of Diversification

Moderate to High Levels of DiversificationModerate to High Levels of Diversification

Very High Levels of DiversificationVery High Levels of Diversification

Related linked (mixed)Related linked (mixed) < 70% of revenues from dominant < 70% of revenues from dominant business, and only limited links existbusiness, and only limited links exist

AAAA

BBBB CCCC

Single businessSingle business > 95% of revenues from a single > 95% of revenues from a single business unitbusiness unit

AAAA

Dominant businessDominant business Between 70% and 95% of Between 70% and 95% of revenues from a single business revenues from a single business unitunit BBBB

AAAA

Unrelated-DiversifiedUnrelated-Diversified Business units not closely related Business units not closely related

AAAA

BBBB CCCC

< 70% of revenues from dominant < 70% of revenues from dominant business; all businesses share product, business; all businesses share product, technological and distribution linkagestechnological and distribution linkages

Related constrainedRelated constrainedAAAA

BBBB CCCC

BCG Matrix – Product Portfolio strategy

BCG MATRIX helps in determining the product portfolio strategy of the organization. It leverages the knowledge of the corporation to optimally utilize the resources. Resources are channelized in the right direction by appropriate product strategy.

The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. It involves rating products according to their market share and market growth rate.

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BCG Matrix – Product Portfolio strategy

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Industry Attractiveness- Porter 5 Forces

The five forces are environmental forces that impact on a company’s ability to compete in a given market.

The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

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Threat of New

Entrants

Threat of New

Entrants

Threat of New

Entrants

Threat of New

Entrants

Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition

Threat for New EntrantsThreat for New Entrants

Barriers to Entry

Barriers to Entry

Expected RetaliationExpected Retaliation

Government PolicyGovernment Policy

Economies of ScaleEconomies of Scale

Product DifferentiationProduct Differentiation

Capital RequirementsCapital Requirements

Switching CostsSwitching Costs

Access to Distribution ChannelsAccess to Distribution Channels

Cost Disadvantages Independent Cost Disadvantages Independent of Scaleof Scale

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Threat of New

Entrants

Threat of New

Entrants

Threat of New

Entrants

Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition

Bargaining Power of SuppliersBargaining Power of Suppliers

Suppliers exert power in the industry by:Suppliers exert power in the industry by:

* Threatening to raise* Threatening to raiseprices or to reduce qualityprices or to reduce quality

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:

Supplier industry is dominated by a Supplier industry is dominated by a few firmsfew firms

Suppliers’ products have few substitutesSuppliers’ products have few substitutes

Buyer is not an important customer to Buyer is not an important customer to suppliersupplier

Suppliers’ product is an important Suppliers’ product is an important input to buyers’ productinput to buyers’ product

Suppliers’ products are differentiatedSuppliers’ products are differentiated

Suppliers’ products have high Suppliers’ products have high switching costsswitching costs

Supplier poses credible threat of Supplier poses credible threat of forward integrationforward integration

Bargaining Power of Buyers

Bargaining Power of Buyers

Threat of New

Entrants

Threat of New

Entrants

Threat of New

Entrants

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition

Bargaining Power of BuyersBargaining Power of Buyers

Buyers compete with the supplying

industry by:

Buyers compete with the supplying

industry by:

* Bargaining down prices* Bargaining down prices

* Forcing higher quality* Forcing higher quality

* Playing firms off of* Playing firms off ofeach othereach other

Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases Buyers are concentrated or purchases are large relative to seller’s salesare large relative to seller’s sales

Purchase accounts for a significant Purchase accounts for a significant fraction of supplier’s salesfraction of supplier’s sales

Products are undifferentiatedProducts are undifferentiated

Buyers face few switching costsBuyers face few switching costs

Buyers’ industry earns high profitsBuyers’ industry earns high profits

Buyer presents a credible threat of Buyer presents a credible threat of backward integrationbackward integration

Product unimportant to qualityProduct unimportant to quality

Buyer has full informationBuyer has full information

Threat of Substitute Products

Threat of Substitute Products

Threat of New

Entrants

Threat of New

Entrants

Threat of New

Entrants

Bargaining Power of Buyers

Bargaining Power of Buyers

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition

Threat of Substitute ProductsThreat of Substitute Products

Products with similar function limit the prices firms can charge

Products with similar function limit the prices firms can charge

Keys to evaluate substitute products:Keys to evaluate substitute products:

Products with improving Products with improving price/performance tradeoffs price/performance tradeoffs relative to present industry relative to present industry productsproducts

Example:Example:

Electronic security systems in Electronic security systems in place of security guardsplace of security guards

Fax machines in place of Fax machines in place of overnight mail deliveryovernight mail delivery

Threat of Substitute Products

Threat of Substitute Products

Threat of New

Entrants

Threat of New

Entrants

Threat of New

Entrants

Rivalry Among Competing Firms

in Industry

Rivalry Among Competing Firms

in Industry

Bargaining Power of Buyers

Bargaining Power of Buyers

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:

Jockeying for strategic positionJockeying for strategic position

Using price competitionUsing price competition

Staging advertising battlesStaging advertising battles

Making new product introductionsMaking new product introductions

Increasing consumer warranties or serviceIncreasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but Advertising battles may increase total industry demand, but may be costly to smaller competitorsmay be costly to smaller competitors

CutthroatCutthroat competitioncompetition is more likely to occur when: is more likely to occur when:

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Numerous or equally Numerous or equally balanced competitorsbalanced competitors

Slow growth industrySlow growth industry

High fixed costsHigh fixed costs

Lack of differentiation or switching costsLack of differentiation or switching costs

High storage costsHigh storage costs

Capacity added in large incrementsCapacity added in large increments

High strategic stakesHigh strategic stakes

High exit barriersHigh exit barriers

Diverse competitorsDiverse competitors

Following Up

The challenge for each company's management team is to craft and execute a competitive strategy that results in a respected brand image, keeps their company in contention for global market leadership, and produces good financial performance as measured by earnings per share, return on equity investment, stock price appreciation, and credit rating.

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Assignment

Assignment for next class:

1) One page analysis on Indian retail Industry article

(Page 125 of the handout)

2) Key learnings

Website

www.learningfinancialmanagement.pbworks.com

Phone: 9811228852

Email: rahulkjain16@yahoo.co.in

Make a file for key learnings

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