Strategy and Competition

VU DBA Mantissa College
Dr Meysam Safari

29/3/2014
Strategy and Competition
DBSC9745
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Meysam Safari
Course Outline
Course Synopsis:
This course introduces participant to the nature and aspects of
strategy and the management of uncertainty of strategy and
scenario planning. Topics covered include strategizing,
economizing internal and external drivers of strategic
decisions, critical issues in strategy and path dependencies. It
introduces participants to organizational culture and
configurations, strategy processes and change, challenges in
the new economy, hyper competition and globalization. It also
covers new strategy paradigm, rule of knowledge
management and competences followed with related issues in
networks and partnerships in line with globalization.
Date: 29/3/2014 9:30 am 1:00 pm and 2:00 pm 5:30
pm
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Meysam Safari
Course Outline Cont.
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Assessment:
Individual Research Assignment: 50%
Students are required to write a report of 4500 words on preparation of a
strategic plan for a company of their own choice.
Final Exam: 50%
A take-home open-book case exam. Students are required to read the
assigned case study and answer all questions. They are required to
submit their answers within the stipulated time frame.
Passing grade: students are required to obtain a minimum
of B (80/100) to pass this subject.

Vision and Mission Statements
The fundamental principle of strategic planning: hope
for the best, plan for the worst, George Friedman
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Vision Statement
5
Vision statement is the idealized future that the company
sees. Its the future that the company aims to reach, not
necessarily in near future.

We seek to be Earths most customer-centric company for
four primary customer sets: consumers, sellers,
enterprises, and content creators. Amazon.com

Our vision is put into action through programs and a focus
on environmental stewardship, activities to benefit society,
and a commitment to build shareholder value by making
PepsiCo a truly sustainable company. PepsiCo
Sun Tzus The Art of War
6
The general who wins a battle
makes many calculations in his
temple ere {before} the battle is
fought.
If you know Heaven and know
Earth, you may make your victory
complete.
If you know the enemy and know
yourself, your victory will not stand
in doubt.
What enables the wise sovereign
and the good general to strike and
conquer, and achieve things
beyond the reach of ordinary men,
is foreknowledge
Mission Statement
7
Mission statement is the fundamental aims and purposes of the
company, it defines the organizations role and objective in the
world. Mission statement is the organizations chosen way to
reach the vision.

To bring inspiration and innovation to every athlete in the world.
Nike
To inspire and nurture the human spirit one person, one cup
and one neighborhood at a time. Starbucks
Our mission is: - To refresh the world - in mind, body and spirit -
To inspire moments of optimism - through our brands and
actions - To create value and make a difference everywhere we
engage. Coca Cola
Strategy and Objectives
8
Objectives:
Specific, measurable targets: the things a firm needs to do to
achieve its mission
Should influence other elements in the strategic
management process

Strategy: A firms theory about how to gain competitive
advantages

9
Strategic Planning : The Big Picture
Economic Clients/
Social Customers
Political Competitive/
Technological
Collaborative forces

Resources Present strategy
Capabilities Performance
Technology Top
Management
Develop
Vision &
Mission

Set Long-
Term
Objectives

Craft
Strategie
s

Implement
Strategies

Evaluate
Performance
REVISE AND CHANGE AS NEEDED
REVISE AND CHANGE AS NEEDED

EXTERNAL ENVIRONMENT
INTERNAL ENVIRONMENT
Assess
Organizations
Current and Future
Situation

Strategy-Formulation Framework
10
Stage 1 - Input Stage
EFE matrix
IFE matrix
Competitor analysis
Stage 2 - Matching Stage
SWOT
SPACE matrix
BCG matrix
IE matrix
Grand strategy matrix

Stage 3 - Decision Stage
Consolidation, prioritization and selection (QSPM)
Input Stage
Evaluating a Firms External Factors
Evaluating a Firms Internal Factors

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Why External Analysis?
12
discover threats and opportunities
see if above normal profits are likely in an industry
better understand the nature of competition in an industry
make more informed strategic choices

General External Environment
13
Focal
Firm
Buyers
Suppliers
Entry
Rivalry
Substitutes
Complementors
Demographic
Trends
Technological
Change
Cultural
Trends
Economic
Climate
Legal/Political
Conditions
Specific
International
Events
Industry
Porters Five Forces Model
14
Focal
Firm
Buyers
Suppliers
Entry
Rivalry
Substitutes
Industry
Threat
Higher Threat
Lower Average Profits
15
Threat of Entry
if firms can easily enter the industry, any above normal profits
will be bid away quickly
barriers to entry lower the threat of entry
barriers to entry make an industry more attractive
this is true whether the focal firm is already in the industry or thinking
about entering
Barriers to Entry:
economies of scalefirm that cant produce the minimum efficient scale
will be at a disadvantage
product differentiationentrants are forced to overcome customer
loyalties to existing products
cost advantages independent of scaleincumbents may have learning
advantages, etc.
government policiesgovernments may impose trade restrictions
and/or grant monopolies

16
Threat of Rivalry
high rivalry means firms compete vigorouslyand compete away
above average profits
Industry conditions that facilitate rivalry:
large numbers of competitors
slow or declining growth
high fixed costs and/or high storage costs
low product differentiation
industry capacity added in large increments
Threat of Substitutes
substitutes fill the same need but in a different way
Coke and Pepsi are rivals, milk is a substitute for both
substitutes create a price ceiling because consumers switch to the
substitute if prices rise
substitutes will likely come from outside the industrybe sure to
look

17
Threat of Powerful Suppliers
powerful suppliers can squeeze (lower profits) the focal firm
Industry conditions that facilitate supplier power:
small number of firms in suppliers industry
highly differentiated product
lack of close substitutes for suppliers products
supplier could integrate forward
focal firm is an insignificant customer of supplier
Threat of Powerful Buyers
powerful buyers can squeeze (lower profits) the focal firm by
demanding lower prices and/or higher levels of quality and service
Industry conditions that facilitate buyer power:
small number of buyers for focal firms output
lack of a differentiated product
the product is significant to the buyer

Generic Industry Structures
18
at any point in time, the structure of most industries fits
into one of four generic categories
each industry structure presents opportunities that may be
exploited
firms can choose to exploit an industry structure, continue
business as usual, or exit the industry
Four generic industry types are:
Fragmented Industry Structure
Emerging Industry Structure
Mature Industry Structure
Declining Industry Structure

Fragmented Industry Structure
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Industry Characteristics
large number of small firms
no dominant firms
no dominant technology
commodity type products
low barriers to entry
few, if any, economies of scale
Opportunity: Consolidation
buy competitors
build market power
exploit economies of scale

Emerging Industry Structure
20
new industry based on break through technology or product
no product standard has been reached
no dominant firm has emerged
new customers come from non-consumption not from
competitors
Opportunity: first mover advantages
Technology
locking-up assets
creating switching costs

Mature Industry Structure
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slowing growth in demand
technology standard exists
increasing international competition
industry-wide profits declining
industry exit is beginning
Opportunities
refine current products
improve service
process innovation

Declining Industry Structure
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industry sales have sustained pattern of decline
some well-established firms have exited
firms have stopped investing in maintenance
Opportunities
market leadership
Niche
Harvest
Divest

External Environmental Factors
Assessment
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1- identify all external factors affecting the business:
Economic Forces
Social, Cultural, and Demographic Factors
Environmental Forces
Political and Governmental Factors
Legal Factors
Technological Factors
2- identify the impact of each factor on the business of the firm.
Give a score of 1-10 to each factor. Then, based on the total
sum of all impacts, calculate the weighted impact of each factor.
3- assess the capability of the firm with respect to each factor.
Give a score of 1-10 to each capability.
4- calculate the product of weighted impact X capability for
each factor. Then, sort the list based on this criteria. Choose the
top 5 factors as the external opportunities for the firm
5- calculate the impact capability for each factor. Then, sort
the list based on this criteria. Choose the top5 factors as the
external threats for the firm
What Does Internal Analysis Tell Us?
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Internal analysis provides a comparative look at a firms
capabilities
what are the firms strengths?
what are the firms weaknesses?
how do these strengths & weaknesses compare to
competitors?
Internal analysis helps a firm:
determine if its resources and capabilities are likely sources of
competitive advantage
establish strategies that will exploit any sources of competitive
advantage

Resources and Capabilities
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Resources:
tangible and intangible assets of a firm
tangible: factories, products
intangible: reputation
used to conceive of and implement strategies
Capabilities:
a subset of resources that enable a firm to take full advantage
of other resources
marketing skill, cooperative relationships

The Internal Analysis Tool
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Value: Does the resource enable the firm to exploit an
external opportunity or neutralize an external threat? Does
the resource result in an increase in revenues, a
decrease in costs, or some combination of the two?
Rarity: if a resource is not rare, then perfect competition
dynamics are likely to be observed (i.e., no competitive
advantage, no above normal profits)
Imitability: the temporary competitive advantage of
valuable and rare resources can be sustained only if
competitors face a cost disadvantage in imitating the
resource
Organization: a firms structure and control mechanisms
must be aligned so as to give people ability and incentive
to exploit the firms resources
The VRIO Framework
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Valuable? Rare?
Costly to
Imitate?
Exploited by
Organization?
Competitive
Implications
No
Yes
Yes
Yes
Yes
Yes Yes Yes
No
No
No
Disadvantage
Parity
Temporary
Advantage
Sustained
Advantage
Economic
Implications
Below
Normal
Normal
Above
Normal
Above
Normal
Internal Factors Assessment
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1- identify all internal factors:
Financial (Liquidity, Leverage, Activity, Profitability, Growth)
Physical (plant & equipment, geographic location)
Human (skills & abilities of individuals)
Organizational (reporting structures, relationships)
Technology and Skills
2- identify the impact of each factor on the business of the firm. Give
a score of 1-10 to each factor. Then, based on the total sum of all
impacts, calculate the weighted impact of each factor.
3- assess the capability of the firm with respect to each factor. Give a
score of 1-10 to each capability.
4- calculate the product of weighted impact X capability for each
factor. Then, sort the list based on this criteria. Choose the top 5
factors as the external strength for the firm
5- calculate the impact capability for each factor. Then, sort the list
based on this criteria. Choose the top5 factors as the external
weaknesses for the firm

Different Levels of Strategies
Corporate Level
Business Level
Functional Level
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Levels of Strategies
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Corporate Level
Business Level
Functional Level
Corporate Level Strategies
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Concerned with the selection of businesses in which the
company should compete and with the development and
coordination of that portfolio of businesses.
The strategies include identifying the overall goals of the
corporation, the types of businesses in which the
corporation should be involved, and the way in which
businesses will be integrated and managed.
Corporate strategy seeks to develop synergies by sharing
and coordinating staff and other resources across business
units, investing financial resources across business units,
and using business units to complement other corporate
business activities.
Decides how business units are to be governed: through
direct corporate intervention (centralization) or through
more or less autonomous government (decentralization)
that relies on persuasion and rewards.

Corporate Strategies Relationship
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Grand
Strategies
Secondary
Level Strategies
Tactical Level
Strategies
Grand Strategies
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Growth
To grow better
than
previously
Stable
Growth
Similar to
current times
Turnaround
To turn away
from the
previous state
Combination
Combination
of strategies
Secondary Level Strategies
34
Tactical Level Strategies
35
Organically
Using own strengths and capabilities
Joint Venture
Setting up equity participation with others through new companies
Merger
Consolidate with others into a new entity
Acquisition /Takeovers
Buying over entities
Strategic Alliances
Cooperating with others to achieve similar objectives
Licensing/Franchising
Using permission, rights or license to expand the business
Corporate Strategies - The Igor Ansoff
Matrix
36
Business Unit Strategy
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About developing and sustaining a competitive advantage
for the goods and services that are produced.
Positioning the business against rivals.
Anticipating changes in demand and technologies and
adjusting the strategy to accommodate them.
Influencing the nature of competition through strategic
actions such as vertical integration and through political
actions such as lobbying.

Business Level Strategies- Porters Generic Strategies
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Functional Level Strategy
39
Related to business processes and the value chain.
Functional level strategies in marketing, finance,
operations, human resources, and R&D involve the
development and coordination of resources through which
business unit level strategies can be executed efficiently
and effectively.

Alternative Strategies
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Forward Integration: getting ownership or increased
control over distributors or retailers. E.g. PepsiCo launched
a hostile takeover of Pepsi Bottling Group after its US$ 4.2
billion offer was rejected.
Backward Integration: seeking ownership or increased
control of a firms supplier. E.g. Chinese carmaker Geely
Automobile Holding Ltd purchased Australian car-parts
maker Drivetrain Systems International Pty Ltd.
Horizontal Integration: seeking ownership or increased
control over competitors. E.g. Pfizer acquires Wyeth,
another huge drug company
Market Penetration: seeking increased market share for
present products or services in present markets through
greater marketing efforts. E.g. Coke spending millions on
its new slogan Open Happiness.
Alternative Strategies Defined, cntd
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Market Development: introducing present products or services
into new geographic area. E.g. Time Warner purchased 31
percent of Central European Media Enterprise Ltd in order to
expand into Romania, Czech Republic, Ukraine, and Bulgaria.
Product Development: seeking increased sales by improving
present products or services or developing new ones. E.g.
News Corps book publisher HarperCollins began producing
audio books for download
Related Diversification: adding new but related products or
services. E.g. Sprint Nextel Corp diversified from the cell phone
business by partnering with Garmin Ltd to deliver wireless
internet service into GPS machines.
Unrelated Diversification: adding new, unrelated products or
services. E.g. Cisco Systems Inc entered the camcorder
business by acquiring Pure Digital Technology.
Alternative Strategies Defined, cntd
42
Retrenchment: regrouping through cost and asset
reduction to reverse declining sales and profit. E.g. the
worlds largest steelmaker, ArcelorMittal, shut down half of
its plants and laid off thousands of employees even amid
worker protests worldwide.
Divesture: selling a division or part of an organization. E.g.
the British airport firm BAA Ltd divested three UK airports
Liquidation: selling all of a companys assets, in parts, for
their tangible worth. E.g. Michigan newspapers such as
Ann Arbor News, Detroit Free Press, and Detroit News
liquidated hard-copy operations.
Matching Stage
SWOT
SPACE matrix
BCG matrix
Blue Ocean Strategy

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SWOT Analysis
44
SWOT analysis is a form of structured planning methods
that incorporates external and internal factors and their
inter-relationship.
Identifies fundamental policy choices that can help
decision-makers formulate strategies.
SWOT Analysis Principals
45
First, external environmental analysis. The agency must
respond to the external environment not the other way
round
External environmental analysis:
Societal environment PESTLE
Industry analysis (Porters five forces; competitor analysis; supply chain)
Search for opportunities for growth or product development
Search for threats to its core mission, strategy and supporting
activities
Second: Internal environmental analysis agencys
products or services, structure, resources, operational
systems, processes, procedures, culture, current strategy
Four resource groups finances, workforce, technology and
information (see McKinseys 7 S Model)
Look for existing factors or emerging trends that suggest the
agency is strong or weak regarding these factors

SWOT Analysis Steps
46
Round 1: Identifying opportunities and threats in the societal
and task environments
Integration with strengths and weaknesses
What strengths will exploit this opportunity?
What strengths will avert this threat?
Round 2: Identifying strengths and weaknesses
Identifying O and T
Identify links with S and W
For each item ask:
Will this particular strength help the agency to capitalize on an
external O or avert a T?
Will this particular weakness constrain the agencys efforts to
capitalize on an external O or avert a T?
Round 3: Mapping interactions
Matrix portrayal of links between S, W, O and T
SWOT Matrix
47
EXTERNAL FACTORS
INTERNAL
FACTORS
Opportunities Threats
Strengths O and S that are significantly
related
Comparative Advantage (How
can the co. leverage on its
strengths to capitalize on an
opportunity?)

T and S that are
significantly related
Mobilization
(How can the co. mobilize its
strengths to avert a threat or
transform that threat into an
opportunity)
Weaknesses O and W that are significantly
related
Investment/Divestment
(Should the co. invest in weak
programs to become more
competitive given the
opportunity?)
T and W that are
significantly related
Damage Control
(How can the co. minimize
the damage from the
threats?)
SWOT Matrix example
48
SWOT Matrix
Strength
1. Strong brand portfolio
2. Market share
3. Strong R&D
4. High Quality
5. Effective distribution system
Weakness
1. Slow revenue growth
2. Low profit margin
3. Performance in North America
4. Difficulty in control due to decentralized
organizational structure
5. Low position in men's product
Opportunity
1. Growth of Aging Population
2. Benefits from Economies Of
Scale
3. R&D Requirement barriers
4. Needs for different products
5. Customer Loyalty
1. Branding more products (S1, O4)
2. Provide new and superior product (S3,
O3)
3. Developing specialized products for
senior customers (S3, O1)
4. New campaign on different brands in
different channels (S1, S5, O5)
5. Value chain investigation to assure
economies of scale (S2, S5, O2)
1. Generating more revenue by introducing new
products for senior Consumers (W1, O1, O5)
2. Operation reengineering (W2, O2)
3. More marketing campaigns in North America (W3,
O4, O5)
4. Introducing new products for men (W5, O5)
5. Price increase (W1, W2, O5)
Threat
1. Counterfeiting
2. Cosmetic Market In Emerging
Nations
3. Health Protection Laws
4. Growing Popularity Of
Cosmetic Surgery
5. Competitive Rivalry
1. Expanding distribution channels to
emerging markets (S5, T2)
2. Focusing R&D on safer products (S3, T3)
3. Focusing on quality of product and
authorized distributors in advertising
campaigns (S4, S5, T1)
4. Focusing on quality, risk and side effects
in advertising campaigns (S1, S3, S4,
T4)
5. Using all possible strength to make a
high barrier for new entrant and acquiring
them (S1, S2, S3, S4, S5, T5)
1. Enhancing market presence in emerging markets
(W1, T2)
2. Performance monitoring based on industry norm
(W4, T5)
3. Acquiring some firm in the cosmetic surgery (W1,
T2, S3)
4. Horizontal integration (W1, W2, T5)
The SPACE Model
49
Strategic Positioning Action Evaluation was introduced by Rowe et al.
in 1982.
Focuses on strategy formulation especially as related to the
competitive position of an organization.
Uses two internal and two external strategic dimensions to determine
the organization's strategic posture in the industry.
Based on four areas of analysis:
External factors: 1) Industrial attractiveness (IA) i.e. industry
growth potential.
2) Environmental stability (ES) i.e. overall
economic condition, GDP growth, technology &
barriers to entry.
Internal factors ; 3) Financial strength (FS) comes from company
accounting
4) Competitive advantage (CA)- includes the
speed of innovation, market niche, customer loyalty &
product life cycle.
The SPACE Model & The Proposed
Strategies
50
FS
C
A
ES
IA
Aggressive
Conservative
Competitive Defensive
Acquisition - backward, forward
integration
Expansion- horizontal integration
Market penetration
Market development
Diversification related and unrelated
Product development
Market development
Market penetration
Backward, forward and
horizontal integration
Product development
Joint venture for product
Related diversification
Retrenchment
Divestiture
Seek partner
Liquidation
0
10
10
-10
-10
SPACE Model
51
Step 1: Identifying factors for IS, ES, FS and CA & rate using the
specific ranking.
External Factors Rating Internal
Factors
Rating
Industry Strength (IS) Financial Strength (FS)
Customer loyalty
Growth potential
9
9

18
Return on investment
Gearing ratio
PE ratio
9
1
2
Environment Stability (ES) Competitive Advantage (CA)
Green technology palm oil Sime Darby -
improved manufacturing technology the first
carbon-neutral emission in Southeast Asia.
Increased of Per Capita Income
Negative perception by public when Sime Darby
suffered loss of RM2.1 billion.
Strong response to the more pricey products.
Government rules.
Malaysias Gross Domestic Product (GDP)
expected to exceed 5% in 2011
Strengthening of Ringgit
Stiff competition (Sime Darby vs IOI Corp.)

-3

-6
-4

-6
-5
-5

-3
-4

-36
Highly skilled workforce
Experienced managers
Wide distribution system
High quality outputs
Strategic location
Market share
Enchanced inventory control
Technological know-how
Reliable source of raw materials
-3
-4
-2
-3
-2
-1
-3
-5
-5

-27
Factor Ratings: FS and IS (1 is low; 10 is high) CA and ES (-1 is high; -10 is low)
SPACE Model
52
Step 2: Find the average scores for FS, ES, IS and CA.

Calculations:

FS Average: 12/3 = 4 IS Average : 18/2 = 9
ES Average: - 36/8 = - 4.5 CA Average : -27/9 = - 3.0

Step 3: Plot values from step 2 on the appropriate axis.

Direct Vector Coordinates:

X axis = IS + CA Y axis = FS + ES
= 9 + (- 3.0) = 4 + (- 4.5)
= 6.0 = - 0.5

So the coordinates are (6.0, -0.5)

SPACE Model
53
Step 4: Draw a line based on the X and Y points. It reveals the
companys strategy.
-10
10
6.0
10
FS
C
A
ES
IA
Competitive
-0.5
0
Suggested
strategy type
Conservative Aggressive
Defensive
-10
Boston Consulting Group Matrix
54
Contrasting one major
internal (market share) and
one external factor (growth)
Question Marks low
relative market share in a
high-growth industry
Stars high relative market
share in a high-growth
industry
Cash Cows high relative
market share in a low-growth
industry
Dogs Low relative market
share in a slow or no growth
industry
Measurement of Market Share and Growth Rate
55
Market Share
= Business Unit This Year
Leading Rival Sales This Year
Why use market share?
Carries more information than cash flows
Shows where the brand is positioned vis--vis the competition
Inspires the type of marketing activities that will likely be effective
Growth Rate
= Industry Sales This Year Sales Last Year
Sales Last Year
Why market growth rate?
Indicates investment requirements for future profits
BCG Strategies
56
Strategies
57
Question Mark Fast-growth industry; low market share
Promotion and marketing to become a Star
Star High-growth rate; high relative market share
Expansion
Product development
Cash Cow High market share; low growth rate
Consolidation
Cost-cutting through backward and forward integration
Advertising
Dog Low market share; low growth rate
Divest

Blue Ocean Strategy
58
Red oceans and blues oceans make up the market universe
Red ocean: Industries in existence/products known in the
market space
Blue ocean: Industries not in existence/products unknown in the
market space
Seeks to gain a dramatic, durable
competitive advantage by
Abandoning efforts to beat out
competitors in existing markets and
Inventing a new industry or distinctive
market segment to render existing
competitors largely irrelevant and
Allowing a company to create and
capture altogether new demand

What Is Different About a Blue Ocean?
Typical Market Space
Blue Ocean Market
Space
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Industry boundaries
are defined and
accepted
Competitive rules are
well understood by all
rivals
Companies try to
outperform rivals by
capturing a bigger
share of existing
demand
Industry does not exist yet
Industry is untainted
by competition
Industry offers wide-open
opportunities if a firm has
a product and strategy
allowing it to
Create new demand and
Avoid fighting over
existing demand
Six principles to generate BOS
strategies
60
1. Reconstruct market boundaries - Look across:
alternative industries housing, hotel
Strategic groups property development groups;
customers young couples, old people
Complementary product and service offerings security
and recreational club in property development
Functional-emotional orientation of the industry green
housing
Time
2. Focus on the big picture
3. Reach beyond existing demand e.g. new demand
4. Get the strategic sequence right utility, price, cost,
adoption
5. Overcome organizational hurdles resistance,
resources, leadership
6. Building execution into strategy fair processes
Strategy Canvas
61
depicts current competitive situation:
lot competitive factors on x axis
define boundary and focus of analysis
plot offering levels on y axis
chart curve of competitors
American Wine Industry
62
Premium Wines Budget Wines
Massive Choice
Polarised Strategic
Groups
American Wine Industry: highly competitive
63
3rd largest in world: worth $20 billion
Californian makes 66% - the rest is from Italy, France, Spain, Chile,
Argentina, Australia
Exploding number of new wines new vineyards in Oregon, Washington,
New York
Customer base stagnant
31st in the world in per capita consumption!
What people said
It is too confusing and complex
Wine descriptions and terminology
The shopping experience
The lack of clear guidance on what to buy and drink
Thus, massively intimidating for noncustomers (the large majority of the
US population who were not wine drinkers)
64
Very high
O
f
f
e
r
i
n
g

L
e
v
e
l

v
e
r
s
u
s

W
i
n
e

D
r
i
n
k
e
r
s

E
x
p
e
c
t
a
t
i
o
n
s

High
Normal
Low
Very low
Non-
existent
Premium and Budget Wines
Yellow Tail
65
Only 2 types initially Chardonnay and Shiraz
Fruity, soft on palette, sweetish great for those who had
not drunk wine before
Same bottle for red and white low logistics costs
Simple vibrant packaging lower case letters/kangaroo
Unintimidating
They were selling The essence of a great land
Australia ie they were not selling the wine
Australian clothing for the retail staff they enthusiastically
promoted a wine they could understand.

66
Very high
High
Normal
Low
Very low
Non-
existent
The Essence of a Great Land
Yellow Tail Value Curve
Yellow Tail Strategy
67
Eliminated: Fancy terminology (Oenological) terminology
and distinctions, Aging qualities, Above the line marketing
Reduced: Wine complexity, Wine range, Vineyard prestige
Raised: Price versus Budget Wines, Simplicity of retail
store environment, Enthusiasm of Sales People
Created: Easy drinking, Ease of selection, Sense of fun
and adventure

Results
68
No 1 imported wine (outsells France and Italy)
Fastest growing imported wine in the history of the USA
industry
New consumers of wine
Jug drinkers trade up
Premium wine drinkers trade down
Industry criticizes them mercilessly at first
Now wine press blurb gives it a best buy for value;
winning wine awards.

Blue Ocean SUV Cars
69
PRICE PASSENGER
CAPACITY
FUEL
ECONOMY
FUNCTIONALITY
LOW
HIGH
STYLING
VAN
SUV
STATION
WAGON
Strategy Canvas: Air Asia
70
PRICE SPEED SERVICE SAFETY
LOW
HIGH
COMFORT
MAS
EXPRESS
BUS
AIR ASIA
TRAIN
Summary
71
Conventional Logic Blue Ocean Logic
Industry
Assumpti
on
Industry conditions are given Industry condition can be shaped.
Strategic
Focus
Build competitive
advantages to beat the
competition.
Create a quantum leap in buyer value
to dominate the market.
Customer
s
Retain and expand the
customer base through
further segmentation and
customization. Think in terms
of embracing customer
differences.
Go for the mass of buyers and willingly
let some existing customers go. Think
in terms of embracing key customer
value commonalities.
Assets &
Capabiliti
es
Think in terms of a
companys existing assets
and capabilities.
Build on what it has.
Think free from a companys existing
assets and capabilities.
Ask, what if we start anew?
Product/
Service
offerings
Think in terms of
products/services offered by
the industry. Seek to
maximize the value of these
offerings.
Think in terms of buyers solution even
if that transcends the industry. Seek to
solve buyers major bottlenecks/chief
compromises in using the
products/services of the industry.
72
What factors
should be
eliminated that the
industry has taken
for granted and
that has low value
to customers?
Eliminate
What factors
should be reduced
well below the
industry standard?
Reduce
What factors should
be created that the
industry has never
offered?
Create
What factors
should be raised
well beyond the
industry standard?
Raise
Four Actions to create a Blue Ocean
Decision Stage
Consolidating and Prioritizing Strategies
29/3/2014
Meysam Safari
73
Group and Rank Method
74
1. Group similar strategies from all the sources
2. Consolidate the strategies in each group
3. Set evaluation criteria

No. Strategies Source Group Consolidated
strategy
1.
2.
3.
4.
5.
Find new markets
Increase market share
BOS
SWOT
A
A
Increase
market share
through
promotion and
market
development
99 Grow by concentric
diversification
SPACE B Concentric
diversification
100 Joint-venture in the same
industry
BCG B
Grouping of Strategies example
75
General
Strategy
LOreal
Case
SWOT Matrix index
1 Related
Diversification
Introducing
new products
and product
development
SO1: Branding more products
SO3: Developing specialized products for senior customers
WO1: Generating more revenue by introducing new products for senior Consumers
WO4: Introducing new products for men
2 Product
Development
Producing
products with
superior
quality
SO2: Provide new and superior product
ST2: Focusing R&D on safer products
ST3: Focusing on quality of product and authorized distributors in advertising campaigns
3 Market
Penetration
More effort
and focus on
marketing
campaigns
SO4: New campaign on different brands in different channels
ST1: Expanding distribution channels to emerging markets
ST4: Focusing on quality, risk and side effects in advertising campaigns
WO3: More marketing campaigns in North America
WT1: Enhancing market presence in emerging markets
4 Retrenchmen
t
Value chain
reengineerin
g
SO5: Value chain investigation to assure economies of scale
WO2: Operation reengineering
WO5: Price increase
WT2: Performance monitoring based on industry norm
5 Integration Merger and
acquisition
ST5: Using all possible strength to make a high barrier for new entrant and acquiring them
SO5: Value chain investigation to assure economies of scale
WT3: Acquiring some firm in the cosmetic surgery
WT4: Horizontal integration
How do we evaluate the strategies?
76
Organization capabilities
Workability/appropriateness/acceptability of the strategy
Return on investment
Supported by the organization's culture?
Employee compatibility
Affordable?
Payback period?

Criteria
77
High ROI Expected R0I if the strategy is executed Rating
( 1-10)
Low Risk The extent of risk that is involved in implementing the
strategy
Short Time
Taken
The amount of time taken to implement the strategy
High
Acceptability
The reception of the customers and stakeholders towards
the strategy. Can the strategy enhance customer
experience and sustain customer loyalty?
Low
Investment
How much money must be shunted to the execution of
the strategy? Is the strategy affordable?
High Feasibility Can the strategy be implemented given the
organizational resources, structure and climate?
High Employee
Capatibility
How will the employees adapt their behavior and skills to
the new strategy?
Captures New
Markets
Does the strategy capture new markets?
Competitive
Advantage
Does it have first-mover advantage and allow the
company to operate better than the competitors?
Low Legal
Restriction
Does the strategy encounter any legal impediments?
Prioritizing Strategies example
78
No. STRATEGIES
Worka
ble
Return to
Company
Organiza
tion
Culture
Financ
ial
Ability
Resourc
e
Avalaila
bility
Risk
Involve
Cost
Involve
Duration Total
1
Introducing new products
and product development
9 9 9 8 8 7 6 4 60
2
Producing products with
superior quality
8 9 9 7 8 8 5 4 58
3
More effort and focus on
marketing campaigns
10 9 9 7 8 8 5 8 64
4 Value chain reengineering 4 7 6 8 6 6 6 7 50
5 Merger and acquisition 7 9 7 8 7 5 2 8 53
6 Price increase 6 7 6 9 7 1 9 9 54
Assessing Different Strategies
79
Score rating (1 10)
Factors:
Workable: 1 least workable, 10 most workable
Return to company: 1 least return to the company, 10 most return to the company
Organization culture: 1 least acceptable, 10 most acceptable
Financial ability: 1 least ability, 10 most ability
Resource availability: 1 least availability, 10 most availability
Risk involve: 1 most risk involve, 10 least risk involve
Cost involve: 1 most cost involve, 10 least cost involve
Duration: 1 longest duration, 10 shortest duration
Quantitative Strategic Planning Matrix
(QSPM)
80
Technique designed to determine the relative
attractiveness of feasible alternative actions
Steps to Develop a QSPM
1. Make a list of the firms key external opportunities/threats
and internal strengths/weaknesses in the left column
2. Assign weights to each key external and internal factor
3. Examine the Stage 2 (matching) matrices, and identify
alternative strategies that the organization should
consider implementing
4. Determine the Attractiveness Scores
5. Compute the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score

QSPM
81
Key Internal Factors (IFE
Matrix)
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information
Systems
Strategy 3 Strategy 2 Strategy 1 Weight Key External Factors (EFE
Matrix)
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/En
vironmental
Technological
Competitive
82
Key Internal Factors (IFE Matrix)
Management
Marketing
Finance/Accounting
Production/Operations
Research and Development
Management Information Systems
TOTAL 1.0 Sum of TS 6.5 Sum of TS
7.5 Sum of TS 8.5

Strategy 3 Strategy 2 Strategy 1 Weight

Key External Factors (EFE
Matrix)
Economy
Political/Legal/Governmental
Social/Cultural/Demographic/En
vironmental
Technological
Competitive
A
S
TS
(ASxWeigh
t)
AS TS A
S
TS
QSPM
83
Advantages
Sets of strategies considered simultaneously or sequentially
Integration of pertinent external & internal factors in the
decision-making process
Limitations
Requires intuitive judgments & educated assumptions
Only as good as the prerequisite inputs

Action Plan
84
Strategies
and
strategic
outcomes
Expected
Outcomes
Strategic
Initiatives
(Programs)
Unit/Person
Responsibl
e
KPI Critical
Success
Factors
1.Increase
market
share:
Market
share to
expand by
10%
-Promotion
-Advertising

Marketing/
Sales (?)
Division
%
increase in
market
share
1. Adequate
sales
budget
2. Trained
sales
personal
of 50
people(?)
2. Expand to
overseas
markets
20%
increase in
export
sales
Join
government
trade
missions and
fairs
Export
Division
%
increase in
export
sales
Participation
in two
government-
led trade
missions
3.
Strategic Planning Never Ends.
85
Assignment
86
Individual Research Assignment: 50%
Students are required to write a report of 4500 words on preparation of a
strategic plan for a company of their own choice.
Choose a company of your preference. Then, perform followings:
Evaluate corporate vision and mission statements
perform an external factor analysis and suggest 5 opportunities and 5
threats
Perform an internal factor analysis and suggest 5 strengths and 5
weaknesses
Perform SWOT analysis
Perform SPACE analysis
Perform BCG analysis
Perform Blue Ocean analysis and suggest a blue ocean to the firm
Group your suggested strategies and prioritize them.
It is suggested that you choose a company that you work in, or you
know very well.
Your report should cover all abovementioned criteria as well as a
proper executive summary and introduction.
Put all relevant information, as well as list of all external and internal
factors, in appendix
Final Exam
87
Final Exam: 50%
A take-home open-book case exam. Students are required to
read the Apple Inc. in 2010 case study and answer all
questions. They are required to submit their answers within
the stipulated time frame.
Answer all following questions:
1- what, historically, have been Apple's competitive
advantages?
2- Analyze the Personal Computer industry. Are the
dynamics favorable or problematic for Apple?
3- How sustainable is Apples competitive position in PCs?
4- How sustainable is Apples competitive position in MP3
Players?
5- How sustainable is Apples competitive position in
Smartphone?
6- What are the prospects for the iPad?
Dr. Meysam Safari
Meysam.Safari@gmail.com
29/3/2014
Meysam Safari
88

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