Introduction to Strategy

By: Abhishek Pokhrel

What is strategy ?

Large-scale, future-oriented plan for interacting with the competitive

environment to achieve objectives
Companys game plan
Framework for managerial decisions.
It is an unending task. Neither can strategy be defined and explained
by a clear set of rules and actions
What is Strategy Management ?
The set of decisions and actions that result
in the formulation and implementation of
plans designed to achieve a companys
objectives.
Dimension of Strategy
Strategy Process
Strategy Content
Strategy Context
Strategy Process
The manner in which strategies come about is referred to as the
strategy process.
Concern with how, who and when of strategy
How is , and should , strategy be made , analyzed ,dreamt-up,
formulated , implemented , changes and controlled , who is involved
and when do the necessary activities take place.
Strategy Process
Thinking
Formation
Change
Thinking
Logic or Creativity (how we should reason) do we follow rational
lines of reasoning building strategies on analysis or

do we make leaps of imagination creatively breaking out of existing

frames of mind
Formation
Formation Deliberation or Emergentness (how we should formulate
and implement) do we intentionally move our organisation in a
particular direction as effectively as possible or do we allow strategy
to gradually take shape incorporating new opportunities and growing
insights whilst adapting.
Change
Change Revolution or Evolution (how fast and sweeping should
change be) do we break the old established order and overthrow
the status quo or gradually and steadily transform building on current
strengths and loyalties
Strategy Content
Strategy can take many forms and each organisations strategy is and
should be unique.
strategy can apply to functions, business units, corporations or
networks the content tensions are related
Strategy Content
Business
Corporate
Network
Business
Sum of the function is the business
Markets and Resources (how to sustain competitive advantage) do
we adapt to the market place and focus on satisfying the customer or
do we build on our own unique qualities and focus on where we can
offer a clear advantage
Corporate
Many companies that are in two or more business.
Multi business corporate level strategy is required
Responsiveness and Synergy (how to manage what business we are in
) do we aim to quickly react autonomously to the demands of the
environment and our specific circumstances or do we add value by
creatively bringing things together coordinating and cooperating
across businesses
Network

Competition and Cooperation (what types of relationships do we

want with others) do we want independence and power to assert our
own interests or do we want to cooperate in joint undertakings to
create stability and minimise risk
Context
There is the internal organisational context of the resources and
activities that make up our organisations and there is the geographic
context of the world in which we operate.
 Industry Compliance and choice do we adhere to the rules of the
game in our industry or sector or do we seek to shape the industry or
sector in which we operate
Organisational Control and chaos do we order and regulate
behaviour to set standards or allow for self-organising emergence in
shaping our organisations
Geographic Global and local do we coordinate across boundaries of
geography through integration, standardisation and similarity or do
we allow for dissimilarity and fragmentation to meet local demands
Strategy Management Process
Strategic Management Model
Analysis and diagnosis: " ...to search the environment and diagnose the impact
of the threats and opportunities."
* Choice: ...to consider various alternatives and assure that the appropriate
strategy is chosen."
* Implementation: "...to match plans, policies, resources, structure, and
administrative style with the strategy."
* Evaluation: "...to ensure strategy and implementation will meet objectives."
Vision

Vision: A vision is a Big Picture Idea of What the organization wants

to achieve. What you want to achieve, something in Future
A vision statement should inspire the people in organizations, people
are excited to be part of What, and motivated to put their energy and
time to achieve the Future
A good vision statement, for an agriculture business:
A Vibrant Economy driven by value added agriculture
Here the Vibrant Economy has the ability to inspire the people, who
are involved in this agricultural business
Mission
Mission: A Mission is about what the organizationdoes to achieve the
vision.
A mission is an action statement to achieve the vision. A mission
statement is not required to be inspirational; instead, it provides a
clear focus about what an organization does and what it doesnt.
For example, a mission statement is defined to achieve the above
vision:
To create and facilitate the development of value added agriculture
Contd
Here Create and facilitate are two clear focus areas where the
organization is required to put its energy. Organization does efforts
for the development (Create) and to make ease (facilitate) the
agriculture business and whatever is not mentioned here
Objective
An objective is time sensitive statement to achieve the goals of the organization and defined in
measurable terms.
And goals are statements of milepost to achieve the vision, goals describe what you want to
achieve through your efforts.
Goals for the above mentioned vision of agriculture business can be defined as, but not limited
to:
Improve profitability
Increase volume
Provide stability
A goal is a broad definition, saying improve profitability it lacks the specifics and defined in
general and broad terms. Objectives on the other hand, are quite specific and further define the
goal. To continue with profitability example, objectives can be defined as:
15k$ net profit as % of sale in a year
10k$ net profit as % of investment in a year.
 Objectives
Profitability (net profits)
Efficiency (low costs, etc.)
Growth (increase in total assets, sales, etc.)
Shareholder wealth (dividends plus stock price appreciation)
Utilization of resources (ROE or ROI)
Reputation (being considered a top firm)
Contributions to employees (employment security, wages, diversity)
Contributions to society (taxes paid, participation in charities, providing a needed product or service)
Market leadership (market share)
Technological leadership (innovations, creativity)
Survival (avoiding bankruptcy)
Personal needs of top management (using the firm for personal purposes, such as provid- ing jobs for
relatives)
Strategies
Strategies are long term implementation plans to achieve the goals
and objectives. These statements define how you can succeed in
achieving your mission and stay along in the completion. Strategies
are likely to be defined following a SWOT analysis as both external
and internal environment assessment is needed as an input to
develop strategies.
Policies
It is pre- determine norms and values of the organization .
If needed have to be changed . However, it is not that easy
 Example
3M: 3M says researchers should spend 15% of their time working on
something other than their primary project. (This supports 3Ms strong
product development strategy.)
Intel: Intel cannibalizes its own product line (undercuts the sales of its
current products) with better products before a competitor does so. (This
supports Intels objective of mar- ket leadership.)
General Electric: GE must be number one or two wherever it competes.
(This supports GEs objective to be number one in market capitalization.)
Southwest Airlines: Southwest offers no meals or reserved seating on
airplanes. (This supports Southwests competitive strategy of having the
lowest costs in the industry.)
Strategy Implementation
Activity needed to perform
Cost of the program
Sequence
Control

Process to monitor and control

SWOT
Strength
Weakness
Opportunity
Threat
Strength
Core competencies in key areas.
Adequate Financial resources.
Well-thought-of by buyers.
An acknowledged market leader.
Well-conceived functional area strategies.
Access to economies of scale.
Insulated (at least somewhat) from strong competitive pressures.
Proprietary technology.
Cost advantages.
Better advertising campaigns.
Weakness
Obsolete facilities.
Profitability issues because...
Lack of management depth and talent.
Missing some key skills or competencies.
Poor track record in implementing problems.
Falling behind in R&D.
Too narrow product line.
Weak market image
Weak distribution network.
Below-average marketing skills.
Opportunity
Ability to grow rapidly because of strong increases in market demand.

Emerging new technologies

Threat
Entry of lower-cost foreign competitors.
Rising sales of substitute products.
Slower market growth.
Adverse shifts in foreign exchange rates and trade policies of foreign
governments.
ft
Formality of Strategic Management
Definition
Degree to which participants, responsibilities, authority, and discretion in decision making
are specified
Forces affecting degree of formality
Size of organization
Predominant management styles
Complexity of environment
Problems
Stage of development
Size of the Organization
Entrepreneur Model adapted by small organization and single owned
organization
Strategy is made by one powerful individual. The focus is on op-
portunities; problems are secondary. Strategy is guided by the
founders own vision of di- rection and is exemplified by large, bold
decisions. The dominant goal is growth of the corporation.
Amazon.com, founded by Jeff Bezos, is an example of this mode of
strategic decision making.
Adaptive
Sometimes referred to as muddling through, this decision-making
mode is characterized by reactive solutions to existing problems,
rather than a proactive search for new opportunities.
Encyclopaedia Britannica Inc., operated successfully for many years in
this mode, but it continued to rely on the door-to-door selling of its
prestigious books long after dual-career couples made that marketing
approach obsolete. Only after it was acquired in 1996 did the
company change its door-to-door sales to television advertising and
Internet marketing. The company now charges libraries and individual
subscribers for complete access to Brittanica.com and of- fers CD-
ROMs in addition to a small number of its 32-volume print set.81
Planning Mode
BM under CEO Louis Gerstner is an example of the planning mode. When Gerstner
accepted the position of CEO in 1993, he realized that IBM was in serious difficulty.
Mainframe computers, the companys primary product line, were suffering a rapid
decline both in sales and market share. One of Gerstners first actions was to convene a
two-day meeting on corporate strategy with senior executives. An in-depth analysis of
IBMs product lines revealed that the only part of the company that was growing was
services, but it was a relatively small segment and not very profitable. Rather than
focusing on making and selling its own com- puter hardware, IBM made the strategic
decision to invest in services that integrated information technology. IBM thus decided to
provide a complete set of services from building systems to defining architecture to
actually running and managing the computers for the customerregardless of who
made the products. Because it was no longer important that the company be completely
vertically integrated, it sold off its DRAM, disk-drive, and lap- top computer businesses
and exited software application development. Since making this strategic decision in
1993, 80% of IBMs revenue growth has come from services.82
Stage of Development
 Product Life Cycle about theories abt Strategy,
Competition and Performance
Introduction Growth Maturity Decline
Buyer and Buyer High Income Widening buyer Mass Market Customers are
Behavior Purchaser group Saturation sophisticated buyer
Buyer Inertia Consumer will Repeat Buying of the products
Buyer must be accept uneven Choosing among
convinced to try this quality brands is the rule
product
Marketing Very high High advertising , Market Low a/s and othe
advertising sales but lower Segmentation marketing
Creaming price percentage of sales Efforts to extend life
strategy than introductory cycle
High Marketing Advertising and Broaden line
costs distribution key for services
non technical Packaging important
products Advertising
competition
 Introduction Growth Maturity Decline
Overall Strategy Best Period to Practical to change Bad time to increase Cost ontrol Key
increase market price or quality market share ,
share image particularly if low
R&D , engineering Marketing the key share company
are key function function
Having competitive
cost becomes key

Bad time to change

price image or
quality

Market
Effectiveness key

Competition Few Companies Entry Many Price Competition Exits

 Characteristics of Strategic Management
Decisions: Corporate

Often carry greater risk, cost, and profit

potential
Greater need for flexibility
Longer time horizons
Choice of businesses, dividend policies, sources
of long-term financing, and priorities for growth

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Characteristics of Strategic Management
Decisions: Functional
Implement the overall strategy formulated at the
corporate and business levels
Involve action-oriented operational issues
Relatively short range and low risk
Modest costs: depend upon available resources
Relatively concrete and quantifiable

1-43
 Characteristics of Strategic Management
Decisions: Business

Help bridge decisions at the corporate and functional levels

Less costly, risky, and potentially profitable than corporate-level
decisions
More costly, risky, and potentially profitable than functional-level
decisions
Include decisions on plant location, marketing segmentation, and
distribution

1-44
 Strategic Objective
Market standing: It means to check the current position of the organisation in the market, and
the competitive environment.
Innovation: While setting the strategic objectives an organisation must has to keep an eye to
improve its services and to develop its goods according to the required changes that occurs with
the passage of time and to adopt new techniques and methods.
Human resources: For the development of an organisation well trained and experienced staff is a
very important factor.
Financial resources: To identify the current financial position and the methodologies to utilize it.
Physical resources: To check the equipment and how to use it for the betterment of the
organisation.
Productivity: To use the available sources efficiently.
Responsibility: The approachability to the effects on the widespread community of the
stakeholders.
Profit Requirement: To set a target to achieve a required profit rate and to increase it within the
resources of the organisation.
Financial Objective
An x percent of increase in annual revenues.
Annual increase in after-tax profit of x percent.
Annual increase in earnings per share of x percent.
Profit margins of x percent.
An x percent return on capital employed (ROCE)or return on
shareholders investment(ROI).
Increasing shareholder value-in the form of an upward-trending
stock price.
 External Environment analysis
Learning Objectives:
Recognize aspects of an organizations environment that can influence its long- term
decisions
Identify the aspects of an organizations environment that are most strategically
important
Conduct an industry analysis to understand the competitive forces that influence
the intensity of rivalry within an industry
Understand how industry maturity affects industry competitive forces
Use publicly available information to conduct competitive intelligence
Know how to develop an industry scenario
 Identifying External Environmental Variables
In undertaking environmental scanning, strategic managers must be aware of the
many variables within a corporations natural, societal, and task environments
Natural environment includes physical resources, wildlife, and climate that are an
inherent part of existence on Earth. These factors form an ecological system of
interrelated life.
Societal environment is mankinds social system that includes general forces that do
not directly touch on the short-run activities of the organization but often influence
its long-run decisions. These factors are as follows:
Politicallegal forces that allocate power and provide constraining and protecting laws and
regulations.
Economic forces that regulate the exchange of materials, money, energy, and information.
Sociocultural forces that regulate the values, mores, and customs of society.
Technological forces that generate problem-solving inventions.
Task environment includes those elements or groups that directly affect a
corporation and, in turn, are affected by it. These are governments, local
communities, suppliers, competitors, customers, creditors, employees/labor unions,
special-interest groups, and trade associations. A corporations task environment is
typically the industry within which the firm operates.
 The natural, societal, and task environments must be monitored to
detect the strategic factors that are likely in the future to have a
strong impact on corporate success or failure. Changes in the natural
environment usually affect a business corporation first through its
impact on the societal environment in terms of resource availability
and costs and then upon the task environment in terms of the growth
or decline of particular industries.
Some Important Variables in the Societal Environment
Economical Environment
Gross Domestic Product Trends
Money Supply
Interest Rates
Foreign Exchange Rate
Inflation
Unemployment Levels
Wage Price Controls
Disposable And Discretionary Income
 Economic variables
Gross Domestic Product Trends

GDP refers to the value of a nations annual total production of goods and
services.
GDP is a key area of concern for all firms but can become quite complex for
those heavily involved in global markets.
Consistent GDP growth generally produces a healthy economy fueled by
increases in consumer spending. In contrast, however, a GDP decline signals
lower consumer spending and decreased demand for goods and services.
GDP declines for two consecutive quarters, a nations economy is generally
considered to be in a recession, during which time competitive pressures can
lower profits and increase business failure rates.
Consumers respond to a recession by spending less. When a recession hit in
the 2000s, revenues declined at restaurants such as Olive Garden, Red Lobster,
Chilis, and Applebees, while fast-food chains like McDonalds and Burger King
fared well. In Europe, consumers began to eat out less and became more
price-conscious in their visits to grocery stores.
Firms typically respond to economic downturns by cutting costs
 Money Supply
The Central Bank has the ability to control money circulation in the
economy and the costs of borrowing money (interest rate).
The process of handling nation's money supply is known as monetary
policy and its effects on everyday life including business
Various tools used by central bank to control money supply are
Interest Rates
Foreign Exchange (Devaluation/revaluation)
Inflation
 Interest Rates
Short- and long-term interest rates affect the demand for many products
and services, especially items whose costs are financed over an extended
period of time, such as automobiles, appliances, housing etc.
If interest rate increases, people tend to save more than to invest, as they
can earn more by depositing their money in banks which is less risky than
to invest in any business. Consequently, demand for products and services
also will decrease
Lower rates, however, are more likely to spawn capital expenditures on
expansion and development as people save less ( due to low interest rate)
and spend more (by borrowing at low interest rate). Example: after 2008
financial crisis in US, federal reserve reduced their interest rate near to
zero, to encourage Americans to save less and spend more in the country.
Countries like Japan and Switzerland have negative interest rates to
encourage people to spend more.
Foreign Exchange Rate
Interest rates and the value of the currency have a distinct relationship.
When the central bank makes the cost of borrowing cheaper, more money
starts flowing in the economy.
The more currency of the country are out, the less each one is worth. The
currency value drops.
Example, often, when the Fed drops interest rates, it intends to lower the
dollar's value in order to make U.S. goods more affordable, and therefore,
increase U.S. exports, which can foster growth in business and jobs.
Similarly in Japan, Central bank has always been keeping its interest rate
very low to increase its money in circulation ultimately devaluing its
currency and increase export
 Inflation
During a time of low interest rates and increased money flowing
through the economy
Inflation can occur if economic production and employment do not
increase as stagnant business, despite increased cash, means that
more money is chasing fewer goods and prices rise.
One of the goals of monetary policy is to prevent excessive inflation
while fostering economic growth.
 Unemployment Levels
On one hand, higher rates of unemployment will tend to hold down
demands for wage increases, which are typically the largest cost for
most businesses.
On the other hand, lower wages and less spending power in general is
bad for many of the business and services.
Higher rates of unemployment strain the governments finances. As
government receives less in income tax and VAT, for instance. At the
same time, welfare expenditure rises.
This increases the likelihood that at some point, the government will
have to cut expenditure in other areas, and/or raise taxes
 Wage Price Controls
People who make income above their cost of living usually decide on an allocation mix between
savings and spending. As wages increase, so too does a consumer's propensity to both save and
consume.
If the minimum wage of an economy increased, for example, it would cause consumers within the
economy to purchase more product, increasing demand. The lift in aggregate demand and the
increased wage burden causes businesses to increase the prices of products and services. Even
though wages are higher, the increase in prices causes workers to naturally demand even higher
wages.
If the higher wages are granted, it will start a spiral where prices subsequently increase, repeating
the cycle until wage levels can no longer be supported. This is called Wage-Price Spiral
Governments and economies like to have stable inflation or price increases. A wage-price spiral
often makes inflation increase higher than is ideal. Governments have the option of stopping this
inflationary environment through the actions of the central bank.
Through the use of monetary policy, by way of the interest rate, reserve requirement or open
market operations, to curb the wage-price spiral.
 Disposable And Discretionary Income
Disposable income, also known as disposable personal income (DPI),
is the amount of money that households have available for spending
and saving after income taxes have been accounted for.
It is often monitored as one of the many key economic
indicators used to gauge the overall state of the economy.
 Political and Legal Environment
High levels of taxation and constraining labor laws
Government bureaucracy
WTO
SUBSIDIES
PATENT Right
Expropriation of Profit
Foreign Sweat shop
Outsourcing Regulation
Laws on hiring and promotion
Stability of Government
High levels of taxation and constraining labor
laws

In Western European countries stimulate companies to alter their

competitive strategies or find better locations elsewhere.
It is because Germany has some of the highest labor and tax costs in
Europe that German companies have been forced to compete at the
top end of the market with high-quality products or else move their
manufacturing to lower-cost countries
Government bureaucracy

Government bureaucracy can create multiple regulations and make it

almost impos- sible for a business firm to operate profitably in some
countries. For example, the number of days needed to obtain the
government approvals necessary to start a new business vary from
only one day in Singapore to 14 in Mexico, 59 in Saudi Arabia, 87 in
Indonesia, to 481 in the Congo.
WTO

The $66 trillion global economy operates through a set of rules

established by the World Trade Organization (WTO).
Composed of 153 member nations and 30 observer nations, the WTO
is a forum for governments to negotiate trade agreements and settle
trade disputes. Originally founded in 1947 as the General Agreement
on Tariffs and Trade (GATT), the WTO was created in 1995 to extend
the ground rules for international commerce. The systems purpose is
to encourage free trade among nations with the least undesirable
side effects. Among its prin-ciples is trade without discrimination. This
is exemplified by its most-favored nation clause, which states that a
country cannot grant a trading partner lower customs duties without
granting them to all other WTO member nations.
 The systems purpose is to encourage free trade among nations with
the least undesirable side effects.
Among its principles is trade without discrimination. This is
exemplified by its most-favored nation clause, which states that a
country cannot grant a trading partner lower customs duties without
grant- ing them to all other WTO member nations.
SUBSIDIES

A subsidy is a form of financial aid or support extended to an

economic sector (or institution, business, or individual) generally with
the aim of promoting economic and social policy.
Subsidies come in various forms including: direct (cash grants,
interest-free loans) and indirect (tax breaks, insurance, low-interest
loans, accelerated depreciation, rent rebates)
Decision to subsidies building new houses in an area could be good
for a local brick works.
Patent
A patent is a government license that gives the holder exclusive rights
to a process, design or new invention for a designated period of time.
Applications for patents are usually handled by a government agency.
Most patents are valid for 20 years in America. By granting the right
to produce a new product without fear of competition, patents
provide incentive for companies or individuals to continue developing
innovative new products or services. As an example, pharmaceutical
companies spend large sums on research and development, and
patents are essential to earning a profit.
Expropriation of Profit

Government imposes severe limitation on repatriation of profit

,dividends, royalties or technical assistance fees from local
investments or technology arrangement.
It imposes severe rules on local-content requirement , quotas for
hiring local nationals, price controls and other restrictions affection
return on investment (ROI). This all gives an implicit message Get out
of our country
When it takes severe form. It is known as creeping Expropriation.
This was a common problem faced by south asian who are doing
business in Uganda during its tyrant rule of Idi Amin.
Agitation
It disrupts sales and cause damage to the property and the personnel.
Agitation mostly comes from non-governmental forces like opposition
parties, laborers and consumers.
It involves strikes, gheraos, chakka jams and other form of force to
protest the foreign business
Foreign Sweat shop

Sweatshop (or sweat factory) is a pejorative term for

a workplace that has poor, socially unacceptable working conditions.
The work may be difficult, dangerous, climatically challenged or
underpaid.
Workers in sweatshops may work long hours with low pay, regardless
of laws mandating overtime pay or a minimum wage; child labor laws
may also be violated.
 According to the Fair Labor Association, at least 18 countries are
operating sweatshops, including Bangladesh, Costa Rica, El Salvador,
China, the Dominican Republic, India, Vietnam, Honduras, Indonesia,
Armenia, Brazil, Haiti, Taiwan, the Ivory Coast, Nicaragua, Mexico, the
United States and its territories.
Outsourcing Regulation
Government of the country decide the business that can be
outsource to other country .
Eg Recently donald trump announce gradually they will withdraw
outsource business from India .
Laws of Hiring and Promotion
It is very important to know .
Eg in total work force the percentage of women , ethnic group .
Eg. For external recruitment Nepalese organization have to give
advertisement in National dailies.
Stability of Government

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 Sociocultural
attitudes, values and beliefs tastes of held by people including ethnic
minorities.
Culture: Attitude to work, savings and investment, ethics, etc.
Demography: Size and structure of the workforce, population shift,
aging.
Social structure: class and segmentation of the market.
Increasing environmental awareness:
Recycling and conservation are becoming more than slogans. Busch
Gardens, for example, has eliminated the use of disposable styrofoam
trays in favor of washing and reusing plastic trays.
Growing health consciousness:
Concerns about personal health fuel the trend toward physical fitness
and healthier living. As a result, sales growth is slowing at fast-food
burgers and fries retailers such as McDonalds. Changing public
tastes away from sugar-laden processed foods forced Interstate
Bakeries, the maker of Twinkies and Won- der Bread, to declare
bankruptcy in 2004 .
The spread of AIDS to more than 40 million people worldwide adds
even fur- ther impetus to the health movement.
 Expanding seniorsmarket:
As their numbersi ncrease,people over age 55will become an even
more important market. Already some companies are segmenting the
senior population into Young Matures, Older Matures, and the
Elderlyeach having a different set of attitudes and interests. Both
mature segments, for example, are good markets for the health care
and tourism industries; whereas, the elderly are the key market for
long-term care facilities. The desire for companionship by people
whose children are grown is caus- ing the pet care industry to grow
4.5% annually in the United States. In 2007, for exam- ple, 71.1
million households in the U.S. spent $41 billion on their petsmore
than the gross domestic product of all but 16 countries in the world
Declining mass market
Niche markets are defining the marketersenvironment.People want
products and services that are adapted more to their personal needs.
For example, Estee Lauders All Skin and Maybellines Shades of
You lines of cosmetic products are specifically made for African-
American women.
Only 10% of the 6,200 magazines sold in the United States in 2004
were aimed at the mass market, down from 30% in the 1970s.
Changing pace and location of life:
Instant communication viae-mail,cellphones,and overnight mail
enhances efficiency, but it also puts more pressure on people.
Merging the personal computer with the communication and
entertainment industries through telephone lines, satellite dishes,
and cable television increases consumers choices and allows workers
to leave overcrowded urban areas for small towns and telecommute
via personal computers and modems.
Changing house hold composition
Single-person households, especially those of single women with
children, could soon become the most common household type in
the United States. Married-couple households slipped from nearly
80% in the 1950s to 50.7% of all households in 2002.30 By 2007, for
the first time in U.S. history, more than half of women were single.31
Thirty-eight percent of U.S. children are currently being born out of
wed- lock.
Increasing diversity of workforce and markets

Heavy immigration from the developing to the developed nations is

increasing the number of minorities in all developed countries and
forcing an acceptance of the value of diversity in races, religions, and
life style
Demographic trends
Demographic trends are part of the sociocultural aspect of the
societal environment. Even though the worlds population is growing
from 3.71 billion people in 1970 to 6.82 billion in 2010 to 8.72 billion
by 2040, not all regions will grow equally. Most of the growth will be
in the developing nations. The population of the developed nations
will fall from 14% of the to- tal world population in 2000 to only 10%
in 2050.18 Around 75% of the world will live in a city by 2050
compared to little more than half in 2008.19 Developing nations will
continue to have more young than old people, but it will be the
reverse in the industrialized nations.
 Short case
Bipolar dimensions or determinate of culture
Power Distance
Individualism
Masculinity
Uncertainty avoidance
Long term versus short term orientation
Power Distance
The degree of inequality among people which the population of a
country consider as normal
From relatively equal (that is small power distance) to extremely
unequal ( large power distance)
All societies are unequal but some are more uneual than others.
Individualism
It is the degree to which people in a country prefer to act as individual
rather than as member of groups.
The opposite of individualism can be called collectivism , so
collectivism is low individualism .
In collectivist societies , a child learn to respect the group to which it
belongs, usually family and differentiate between in group members
and out group members.
I : It excepts one day to have to stand on its own feet and not to get
protection from its group any more and therefore it also does not feel
a need for strong loyalty .
Masculinity
The third dimension is called masculinity and its opposite pole
femininity.
It is the degree to which tough values like assertiveness ,
performance, success and competition , which nearly all societies are
associated with the role of men, prevail over tender values like the
quality of life, maintaining warm personal relationships, service , care
for the weak and solidarity ,which in nearly all societies are more
associated with women roles.
Womens role differ from mens role in all countries ;but in tough
societies ,the difference are larger than in tender societies.
Uncertainty Avoidance
It can be defined as the degree to which people in a country prefer
structured over unstructured situations.
Structured situations are those in which there are clear rules as to how
one should behave.
These rules can be written down and is implemented.
Strong uncertainty avoidance is rigid and low uncertainty avoidance is
flexible.
In countries where uncertainty avoidance is strong prevails of what is
different is dangerous.
In weak uncertainty societies the feeling would rather be what is
different is curious
Long term vs Short term orientation
Long term side one funds value oriented towards the future like thrift
of saving and persistence.
On the short term side one finds values rather oriented towards the
past and present , like respect for tradition and fulfilling social
obligations.
Comparison
Power Distance Individualism Masculinity Uncertainty Av Long term Orien
USA 40L 91H 62H 46L 29L
Germany 35L 67H 66H 65M 31M
Japan 54M 46M 95H 92H 80H
France 68H 71H 43M 86H 30L
Netherland 38L 80H 14L 53H 44M
Hong Kong 68H 25L 57H 29L 96H
Indonesia 78H 14L 46M 48L 25L
West Africa 77H 20L 46M 54M 16L
Russia 95H 50M 40L 90H 10
China 80H 20L 50M 60M 98H

H=Top third M=Medium third, L=Bottom Third (among

53 countries for 4 dimension ; among 23 countries for
fifth
Traits of Collectivism
Each person is encouraged to be an active player in society, to do
what is best for society as a whole rather than themselves.
The rights of families, communities, and the collective supersede
those of the individual.
Rules promote unity, brotherhood, and selflessness.
Working with others and cooperating is the norm; everyone supports
each other.
as a community, family or nation more than as an individual
strong cohesive group
Traits of Individualism
"I" identity.
Promotes individual goals, initiative and achievement.
Individual rights are seen as being the most important. Rules attempt to ensure
self-importance and individualism.
Independence is valued; there is much less of a drive to help other citizens or
communities than in collectivism.
Relying or being dependent on others is frequently seen as shameful.
People are encouraged to do things on their own; to rely on themselves
people strive for their own successes
Examples of Countries with Generally
Collectivist Cultures
China, Denmark,Sweden,NorwayIsland,India,Pakistan,Bangladesh
Indonesia ,Afghanistan ,Malaysia ,Egypt ,Cyprus ,Ghana ,Nepal
Argentina Armenia Belarus Brazil Ethiopia Bulgaria Guatemala
Dominican Republic El Salvador Mexico Georgia Kazakhstan Morocco
Korea Lebanon Portugal Romania Russia Ukraine Saudi Arabia Serbia
Singapore Turkey Vietnam
African countries (Zambia, Kenya, Uganda, Somalia, etc.)
Poland Philippines Japan Sri Lanka Azerbaijan
Polynesia
Examples of Countries with Generally
Individualistic Cultures
United States Australia United Kingdom Canada Netherlands
Hungary (post-communist generation) New Zealand Italy
Belgium Ireland Switzerland Germany
South Africa Finland Luxembourg
Czech Republic (post-communist generation)
Austria Israel Slovakia (post-communist generation)
Spain
Poland (post-communist generation)
Greece
Technology Environment
Change in technology have big impact on the business.
Technology are in the flux specially with effect of globalization .
Change or Die theory prevail in the environment.
Kindle can buy books and newspaper
Nepal Entry of Nabil bank pressurize Nepal bank and Rastriya Banjiya
bank to change
Result of not meeting customer expectation huge decline in market of
mobile giant NOKIA.
Factor of technology
Automation The automation of many unskilled tasks can allow
companies to replace human production lines with entirely machine
ones. This can reduce costs for manufacturers, distributors,
supermarkets, and many other different businesses. On the flip side,
the gradual increase in job automation might not be such a great
thing for job search firms.
 Internet connectivity Its undoubtable that in recent years global
internet connectivity has been on the rise. This presents an even
larger market for many companies who use the internet to connect
with their customers. On the flip side though, a global rise in internet
connectivity might mean less interest in traditional communication
means, which is a negative consequence for some telephone
service providers will have to change their offerings to stay relevant,
while paper-and-ink printing companies might receive less business.
Alternative energy sources:
The use of wind, geothermal, hydroelectric, solar, biomass, and other
alternative energy sources should increase considerably. Over the
past two decades, the cost of manufacturing and installing a
photovoltaic solar-power system has decreased by 20% with every
doubling of installed capacity. The cost of generating elec- tricity from
conventional sources, in contrast, has been rising along with the price
of pe- troleum and natural gas.11
Stage of Technology
Introduction
Beta version is ready to be tested by early adopters. This is also
known as the bleeding edge, its when revenues are low and youre
pouring money into its development most likely out of your own
pocket.
THE GROWTH STAGE

This is where youve moved from beta to launching the product. And
where your initial has been recovered. Here youll want to take
advantage of the newness of the technology and start creating some
hype. Ideally you want to get covered by all the major blogs to grow
your user base and expand your distribution to more people.
Maturity Stage
This is a stage your technology is being accepted by the public. The
bad news? The market has reached a saturation point where
competitors have caught up. And revenue slows down as your
technology becomes a commodity.
Decline Stage
This is what everybody dreads. The inevitable decline. Or more
appropriately the death stage. This is a stage where youll see a
decrease in sales or the emergence of a replacement technology.
Here youll reach a point of no return, where further development is
not profitable. For example Nokias mobile operating system Symbian
was the cream of the crop for many years, that is until Google and
Apple entered the market with Android and iOS respectively.
The technology life cycle represents the business side of things here.
But consumers should not be neglected either. After all, its their
willingness to adopt new technology that will determine your success.
Ecological Environment
What is Volkswagen accused of? (Source: www.bbc.uk)

It's been dubbed the "diesel dupe". In September, the Environmental Protection Agency (EPA)
found that many VW cars being sold in America had a "defeat device" - or software - in diesel
engines that could detect when they were being tested, changing the performance accordingly to
improve results. The German car giant has since admitted cheating emissions tests in the US.
VW has had a major push to sell diesel cars in the US, backed by a huge marketing campaign
trumpeting its cars' low emissions. The EPA's findings cover 482,000 cars in the US only, including
the VW-manufactured Audi A3, and the VW models Jetta, Beetle, Golf and Passat. But VW has
admitted that about 11 million cars worldwide, including eight million in Europe, are fitted with
the so-called "defeat device".
The company has also been accused by the EPA of modifying software on the 3 litre diesel
engines fitted to some Porsche and Audi as well as VW models. VW has denied the claims, which
affect at least 10,000 vehicles.
France to 'ban all petrol and diesel vehicles by 2040

France will outlaw the sale of all petrol and diesel vehicles by 2040, its new
environment minister, Nicolas Hulot, has announced.
It will also ban any new project to use petrol, gas or coal, as well as shale oil, by
that date.
The radical measures were unveiled at a press conference as part of French
president Emmanuel Macrons pledge to make the planet great again.
Mr Hulot, a former star wildlife TV presenter, announced the end of the sale of
petrol or vehicles between now and 2040" and a pledge to make France carbon
neutral by 2050. "The carbon neutral objective will force us to make the
necessary investments,"
Source:http://www.telegraph.co.uk/news/2017/07/06/france-ban-petrol-diesel-
vehicles-2040/
Totalitarianism Vs Democratic
Totalitarianism are subdivided into theocratic and secular
Theocratic: religious leader are also the political leader eg. Iran
Secular: The government often imposes order through military power.
Eg. Iraq (Saddam Regime), Afghanistan (Taliban rule).
Form of Totalitarianism
Fascism
Authoritarianism
Communism
Fascism
Fascism profusely desire to rule people
Fascism is an extreme form of totalitarain.
Fascist state as a synthesis and a unit which includes all value ,
interpret, develops and lends additional power to the whole life of a
people.
Eg. Italy under Mussolini , Germany under Hitler
Authoritarianism
Desires to control peoples minds and soul to convert them to its own
faith.
Example: Chile under dictator Pinocet and south africa prior Nelson
Mandela
Communism
Western analysis consider communism is a form of secular
totalitarianism that combines political and economical systems into a
socio-political agenda.
Communist believes in the equal distribution of wealth , which entails
total government ownership and control of resources.
China , North korea, cuba and Vietnam are communist countries with
centralized authoritarian control over the political process
Totalitarianism Vs Democratic
Totalitarianism
Settlement of conflict through enforcement of rules ,
regulations and established authority
Limited degree of participation by others in decision
making processes
Opposition to ruling party or individual not permitted
Authority of individual or group which has assumed
political power is total
Democratic
Conflict resolved through rational discussion between
all parties in the conflict
All individual are involved in the decision making
process if required and solutions are accepted by all
Individual are able to select another individual or
group to represent them .
Wishes and views of individuals represented by
established authority chosen by the people.
 Common law gives judges an active role in developing rules; civil law
is based on fixed codes and statutes
Civil Law Vs Common Law
Legal System Legal system originating in
Europe whose most prevalent
feature is that its core
principles are codified into a
referable system which serves
as the primary source of law.
Legal system characterized by
case law, which is law
developed by judges through
decisions of courts and similar
tribunals.
Countries Spain, China, Japan, United States, England,
Germany, most African Australia, Canada, India
nations, all South
American nations (except
Guyana), most of Europe
Brief Description
The collective strength of these five competitive forces determined
the ability of firms in an industry to earn , on average, rate of return
on investment in excess of the cost of capital.
The strength of the five forces varies from industry to industry , and
can change as an industry evolves.
In industries where five forces are favorable, such as pharmaceuticals,
soft drinks many competitors earn attractive returns
However, company such as rubber, steel and video games, few firm
command attractive return despite the best effort of management.
Contd
Industry profitability is not a function of what product looks like or
whether it embodies high or low technology , but of industry
structure.
Industries such as postage meter and grain trading are extremely
profitable , while some more glamorous high technology industries
such as personal computers and cable television are not profitable for
many participants .
PORTERs FIVE FORCEs MODEL
Potential
entrants

Threat of New Entrants

Bargaining power
Bargaining power of Bargaining power of
Supplier Industry competitors Supplier

Suppliers Buyers
Rivalry among Bargaining power
existing firms of buyers

Threat of
substitutes
Threat of Substitutes
Substitute
products
New entrants
New entrants to an industry typically bring to it new capacity, a desire
to gain market share, and substantial resources. They are, therefore,
threats to an established corporation. The threat of entry depends on
the presence of entry barriers and the reaction that can be expected
from existing competitors.
An entry barrier is an obstruction that makes it difficult for a
company to enter an industry. For example, no new domestic
automobile companies have been success- fully established in the
United States since the 1930s because of the high capital
requirements to build production facilities and to develop a dealer
distribution network.
Some of the possible barriers to entry are:

Economies of scale: Scale economies in the production and sale of

microprocessors, for example, gave Intel a significant cost advantage
over any new rival.
Product differentiation: Corporations such as Procter & Gamble and
General Mills, which manufacture products such as Tide and Cheerios,
create high entry barriers through their high levels of advertising and
promotion.
Capital requirements: The need to invest huge financial resources in
manufacturing fa- cilities in order to produce large commercial airplanes
creates a significant barrier to en- try to any competitor for Boeing and
Airbus.
Contd..
Switching costs: Once a software program such as Excel or Word
becomes established in an office, office managers are very reluctant
to switch to a new program because of the high training costs.
Access to distribution channels: Small entrepreneurs often have
difficulty obtaining su- permarket shelf space for their goods because
large retailers charge for space on their shelves and give priority to
the established firms who can pay for the advertising needed to
generate high customer demand.
Contd
Cost disadvantages independent of size: Once a new product earns
sufficient market share to be accepted as the standard for that type
of product, the maker has a key ad- vantage. Microsofts development
of the first widely adopted operating system (MS- DOS) for the IBM-
type personal computer gave it a significant competitive advantage
over potential competitors. Its introduction of Windows helped to
cement that advan- tage so that the Microsoft operating system is
now on more than 90% of personal com- puters worldwide.
Threat of Substitute Products or Services

A substitute product is a product that appears to be different but can

satisfy the same need as another product. For example, e-mail is a
substitute for the fax, Nutrasweet is a substitute for sugar, the
Internet is a substitute for video stores, and bottled water is a
substitute for a cola.
According to Porter, Substitutes limit the potential returns of an
industry by placing a ceiling on the prices firms in the industry can
profitably charge.To the extent that switching costs are low,
substitutes may have a strong effect on an industry.
Contd..
Tea can be considered a substitute for coffee. If the price of coffee
goes up high enough, coffee drinkers will slowly begin switch- ing to
tea. The price of tea thus puts a price ceiling on the price of coffee.
Bargaining Power of Buyers

Buyers affect an industry through their ability to force down prices,

bargain for higher quality or more services, and play competitors
against each other. A buyer or a group of buyers is pow- erful if some
of the following factors hold true:
A buyer purchases a large proportion of the sellers product or service
(for example, oil filters purchased by a major auto maker).
A buyer has the potential to integrate backward by producing the
product itself (for example, a newspaper chain could make its own
paper).
Contd
Alternative suppliers are plentiful because the product is standard or
undifferentiated (for example, motorists can choose among many gas
stations).
Changing suppliers costs very little (for example, office supplies are
easy to find).
The purchased product represents a high percentage of a buyers
costs, thus providing an incentive to shop around for a lower price
(for example, gasoline purchased for resale by convenience stores
makes up half their total costs).
Contd..
A buyer earns low profits and is thus very sensitive to costs and
service differences (for example, grocery stores have very small
margins).
The purchased product is unimportant to the final quality or price of
a buyers products or services and thus can be easily substituted
without affecting the final product adversely (for example, electric
wire bought for use in lamps).
Bargaining Power of Suppliers

Suppliers can affect an industry through their ability to raise prices or

reduce the quality of pur- chased goods and services. A supplier or
supplier group is powerful if some of the following factors apply:
The supplier industry is dominated by a few companies, but it sells to
many (for example, the petroleum industry).
Its product or service is unique and/or it has built up switching costs
(for example, word processing software).
Contd..
Substitutes are not readily available (for example, electricity).
Suppliers are able to integrate forward and compete directly with
their present customers
(for example, a microprocessor producer such as Intel can make PCs).
A purchasing industry buys only a small portion of the supplier
groups goods and ser- vices and is thus unimportant to the supplier
(for example, sales of lawn mower tires are less important to the tire
industry than are sales of auto tire
Rivalry among Existing Firms

A competitive move by one firm can be expected to have a noticeable

effect on its competitors and thus may cause retaliation. For Scanning
the Environment
example, the entry by mail order companies such as Dell and Gateway
into a PC industry previously dominated by IBM, Apple, and Compaq
increased the level of competitive activity to such an extent that any
price reduction or new product introduction was quickly followed by
similar moves from other PC makers.
According to Porter, intense rivalry is related to the presence of
several factors, including:
Contd..
Number of competitors: When competitors are few and roughly
equal in size, such as in the auto and major home appliance
industries, they watch each other carefully to make sure that they
match any move by another firm with an equal countermove.
Rate of industry growth: Any slowing in passenger traffic tends to set
off price wars in the airline industry because the only path to growth
is to take sales away from a competitor.
Contd..
Product or service characteristics: A product can be very unique,
with many qualities differentiating it from others of its kind or it may
be a commodity, a product whose char- acteristics are the same,
regardless of who sells it. For example, most people choose a gas
station based on location and pricing because they view gasoline as a
commodity.
Amount of fixed costs: Because airlines must fly their planes on a
schedule, regardless of the number of paying passengers for any one
flight, they offer cheap standby fares whenever a plane has empty
seats.

Contd..
Height of exit barriers: Exit barriers keep a company from leaving an
industry. The brew- ing industry, for example, has a low percentage of
companies that voluntarily leave the in- dustry because breweries are
specialized assets with few uses except for making beer.
Diversity of rivals: Rivals that have very different ideas of how to
compete are likely to cross paths often and unknowingly challenge
each others position. This happens of- ten in the retail clothing
industry when a number of retailers open outlets in the same
locationthus taking sales away from each other. This is also likely to
happen in some countries or regions when multinational corporations
compete in an increasingly global economy.
Short Example or Analysis
A strategist can analyze any industry by rating each competitive force
as high, medium, or low in strength. For example, the global athletic
shoe industry could be rated as follows: rivalry is high (Nike, Reebok,
New Balance, Converse, and Adidas are strong competitors
worldwide), threat of potential entrants is low (the industry has
reached maturity/sales growth rate has slowed), threat of substitutes
is low (other shoes dont provide support for sports activities),
bargaining power of suppliers is medium but rising (suppliers in Asian
countries are increasing in size and ability),
 bargaining power of buyers is medium but increasing (prices are
falling as the low-priced shoe market has grown to be half of the U.S.
branded athletic shoe market), and threat of other stakeholders is
medium to high (government regulations and human rights concerns
are growing). Based on current trends in each of these competitive
forces, the industrys level of competitive intensity will continue to be
highmeaning that sales in- creases and profit margins should
continue to be modest for the industry as a whole
Sixth Force
Some of these groups are governments local communities, creditors
trade associations, special-interest groups, unions, shareholders, and
complementors. According to Andy Grove, Chairman and past CEO of
Intel, a complementor is a com- pany (e.g., Microsoft) or an industry
whose product works well with a firms (e.g., Intels) product and
without which the product would lose much of its value.51 An
example of complementary industries is the tire and automobile
industries. Key international stakeholders who determine many of the
international trade regulations and standards are the World Trade Or-
ganization, the European Union, NAFTA, ASEAN, and Mercosur.
Strategic Mapping
Strategic group mapping is used for the purpose of displaying the
competitive positions that rival firms occupy in the industry.
In every industry there are some companies which enjoy stronger
market position than other.
Therefore, it becomes important to analyze the industry competitive
structure and identify the strategic group (cluster of industry rivals
that have similar competitive approaches and market position)
 Identification of attractive and unattractive positions of the firms in
industry.
This attractiveness depends upon the industry driving forces,
prevailing competitive pressures and profit potentials of different
strategic groups..
It helps in analyzing the type and level of entry barriers the firm will
face.
Example
Example
Monitoring Competition
Market Share
Breath of Product line
Effectiveness of sales distribution
Price competitiveness
Advertising and promotion effectiveness
Capacity and Productivity
Experience
Raw material Costs
 Financial Position
Relative product quality
Patents and copyrights
Technological position
Community reputation
General images R&D advantage position
Internal Analysis
The resource based view emphasizes the internal capabilities of the
organization in formulating strategy to achieve sustainable
competitive advantages in its markets and industries.
Competitive advantage pyramid
Company Resources
Resources are an organizations assets and are thus the basic building
blocks of the organization. They include tangible assets, such as its
plant, equipment, finances, and location, human assets, in terms of
the number of employees, their skills, and motivation, and intangible
assets, such as its technology (patents and copyrights), culture, and
reputation.
 Physical resources, nancial resources, and human resources.
Physical resources include such things as the current state of
buildings, machinery, materials, and productive capacity. To add value
these physical resources must be capable of responding exibly to
changes in the marketplace. Clearly, organizations with the most
up to date technology and processes which possess the knowledge to
exploit their potential will be at an advantage.
 The extent to which an organization can achieve an acceptable
return on its capital employed will determine the extent to which it
can attract outside capital or nancial resources. This will be linked to
expectations about its future growth. Its nancial resources will
include its cash balances, debtors and creditors, and gearing (debt-to-
equity ratio).
The total workforce employed and their productivity, as measured by
criteria such as prot or sales per employee, form a tangible human
resource.
 Intangible resources comprise intellectual /technological
Technological resources include an organizations ability to innovate
and the speed with which innovation occurs. Intellectual resources
include patents and copyrights which themselves may derive from the
organizations technological resources. For example, an intangible
resource for the manufacturing company, Dyson, is the creative
innovation of its founder, James Dyson, which competitors have been
unable to successfully imitate. Organizations with valuable tacit
knowledge built up through their culture, processes, and employees
possess an intangible resource which cannot readily be transferred.
 The reputation or goodwill of an organization is increasingly
recognized as a valuable intangible asset
For Eg.

Tangible Assets Intangible Assets

Coca Colas Formula Tatas brand name
FedExs plane fleet Apples reputation
Toyota Motor company cash Bhusan dahal for kantipur TV
reserve eBays team culture
Contd..
They include tangible assets, such as its plant, equipment, finances,
and location, human assets, in terms of the number of employees,
their skills, and motivation,
intangible assets, such as its technology (patents and copyrights),
culture, and reputation.
Competitive Capabilities

Whilst the existence of resources is important, resources per se do

not confer any benet on an organization. It is the efcient
conguration of resources that provides an organization with
competencies.
A competence is the attributes that rms require competencies
in order to be able to compete in the marketplace. In this respect, all
rms possess competencies. It is a prerequisite for competing within
an industry.
Contd
However, competencies in and of themselves do not confer any
competitive advantage for the organization. It may be useful to think
of competencies as deriving from the bundle of resources that a
rm possesses. For example, in order to be able to compete in
the automobile industry organizations must possess knowledge about
design and engine and body manufacture. Without this base
knowledge, rms would simply be unable to compete effectively in
that industry irrespective of their resources.
Core Competence
Thus a core competence or strategic capability can be thought of as a
cluster of capability

attributes that an organization possesses which in turn allows it to

achieve competitive advantage. It may simply be that the organization
has congured its collection of resources in such a way that allows it
to compete more successfully.
 Core competency: It is an activity central to a firm's profitability and
competitiveness that is performed well by the firm. Core
competencies create and sustain firm's ability to meet the critical
success factors of particular customer groups.
 Similarly, the Japanese motor manufacturer Toyota has achieved a
core competence in the production of petrol-and-electric hybrid cars
(: Toyotas Core Competencies). This in no small measure results from
their rst-mover advantages.
 A core competence should provide access to a wide variety of
markets. For example, Hondas capabilities in engine design and
production have enabled it to leverage its core competencies to
compete in markets such as cars, lawnmowers, and powerboats.
A core competence should make a signicant contribution to the
perceived customer benets of the end products. For example, BMW
has distinctive capabilities in engineering which allow it to produce
high-quality cars that sell at a premium
 A core competence should be difcult for competitors to imitate. For
a core competence to have any lasting value to the organization the
competitive advantage that derives from its use must be sustainable.
In order for that condition to hold, the core competence must be
difcult for competitors to imitate. This is the case in the USA with
Southwest Airlines; competitors have found that having similar
resources to the airline has not enabled them to deconstruct what
makes the airline so successful. In the UK, the competitors of the
supermarket retailer Tesco have been unable to replicate its success
despite having similar resources
Distinctive
It is a competitively valuable activity that a firm performs better than
its competitors. These provide the basis for competitive advantage.
These are cornerstone of strategy. They provide sustainable
competitive advantage because these are hard to copy.

Distinctive
Distinctive capabilities of an organizations resources that are
important in providing it with competitive advantage. However, an
organizations capabilities are only distinctive when they emanate
from a characteristic which other rms do not have. Furthermore,
possessing a distinctive characteristic is a necessary but not sufcient
criteria for success; it must also be sustainable and appropriable
Contd
. For a distinctive capability to be sustainable it needs to persist over
time. For a distinctive capability to be appropriable it needs to benet
primarily the organization which holds it rather than its employees, its
customers, or its competitors.
Strategic Asset and Market Achievement
The four key criteria by which capabilities can be assessed in terms of
providing a basis for achieving sustainable competitive advantage are:
value,
rarity
inimitability
non-substitutability VRIN
 V Value of strategic capabilities
Strategic capabilities are of value when they:
take advantage of opportunities and neutralise threats,
provide value to customers
provide potential competitive advantage
at a cost that allows an organisation to realise acceptable levels of
return
 R Rarity
Rare capabilities are those possessed uniquely by one organisation
or by a few others only. (E.g. a company may have patented products,
have supremely talented people or a powerful brand.)
Rarity could be temporary. (Eg: Patents expire, key individuals can
leave or brands can be de-valued by adverse publicity.)
 I Inimitability
Inimitable capabilities are those that competitors find difficult to
imitate or obtain.
Competitive advantage can be built on unique resources (a key
individual or IT system) but these may not be sustainable (key people
leave or others acquire the same systems).
Sustainable advantage is more often found in competences (the way
resources are managed, developed and deployed) and the way
competences are linked together and integrated.
 N - Non-substitutability
Competitive advantage may not be sustainable if there is a threat of
substitution.
Product or service substitution from a different industry/market.
For example, postal services partly substituted by e-mail.
Competence substitution. For example, a skill substituted by expert
systems or IT solutions
Summary
Technique
Several techniques and frameworks are used to assess a companys
strategic capabilities:
1. Benchmarking
2. Value Chain and Value Networks
3. SWOT Analysis
4. Functional Approach
5. Resource Based View
Competitive Advantage
Competitive advantages are conditions that allow a company or
country to produce a good or service at a lower price or in a more
desirable fashion for customers. These conditions allow the
productive entity to generate more sales or superior margins than its
competition. Competitive advantages are attributed to a variety of
factors, including cost structure, brand, quality of
product offerings, distribution network, intellectual property and
customer support.
GENERIC BUILDING BLOCKS OF COMPETITIVE
ADVANTAGE
Efficiency
In a business organization, inputs such as land, capital, raw material
managerial know-how and technological know-how are transformed
into outputs such as products and services. Efficiency of operations
enables a company to lower the cost of inputs to produce given
output and to attain competitive advantage. Employee productivity is
measured in terms of output per employee
For ex: Japans auto giants have cost based competitive advantage
over their near rivals in U.S.
Quality
Quality of goods and services indicates the reliability of doing the job,
which the product is intended for. High quality products create a
reputation and brand name, which in turn permits the company to
charge higher price for the products. Higher product quality means
employees time is not wasted on rework, defective work or
substandard work.
For ex: In consumer durable industries such as mixers, grinders, gas
stoves and water heaters, ISO mark is a basic imperative for survival.
INNOVATION
Innovation means new way of doing things. Innovation results in new
knowledge, new product development structures and strategies in a
company. It offers something unique, which the competitors may not
have, and allows the company to charge high price.
For ex: Photocopiers developed by Xerox.
CUSTOMER RESPONSIVENESS
Companies are expected to provide customers what they are exactly
in need of by understanding customer needs and desires. Customer
Responsiveness is determined by customization of products, quick
delivery time, quality, design and prompt after sales service.
For ex: The popularity of courier service over Indian postal service is
due to the fastness of service
Steps to Avoid Failure:

Focus on the Building Blocks of competitive advantage:

Maintaining a competitive advantage requires a company to continue
focusing on all four generic building blocks of competitive advantage
efficiency, quality, innovation, and responsiveness to customers and
to develop distinctive competencies that contribute to superior
performance in these areas.
Institute continuous Improvement & Learning:

In such a dynamic and fast paced environment, the only way that a
company can maintain a competitive advantage overtime is to
continually improve its efficiently, quality innovation and
responsiveness to customer. The way to do this is recognize the
importance of learning within the organization.
Overcome Inertia

Overcoming the internal forces that are a barrier to change within an

organization is one of the key requirements for maintaining a
competitive advantage.
Once this step has been taken, implementing change requires good
leadership, the judicious use of power and appropriate changes in
organizational structure & control systems.
Supply Chain Management
The term value chain describes a way of looking at a business as chain
of activities that transform inputs into outputs that customer value.
Customer Value derives from three basic sources
Activities that differentiate the product
Activities that lower its cost
Activities that meet customers need quickly.
Contd.
Value chain analysis is basically divided into
Primary Activities
Support Activities
Value Chain Model
(FISH BONE DIAGRAM)
SUPPORT Firm Infrastructure (General Management)
ACTIVITIES
Human Resource Management

Technology Development

Procurement

Inbound Ops. Outbound Sales & Service and

Logistics Logistics Marketing Support

PRIMARY ACTIVITIES
TYPES OF FIRM ACTIVITIES
Primary activities: Support Activities:
Those that are involved in the creation, sale Those that merely support the primary
and transfer of products (including after-sales activities
service) Human resources (general and
Inbound logistics admin.)
Operations Tech. development
Outbound logistics Procurement
Sales and marketing
Service and support
Value Chain Model
from Michael E. Porters Competitive Advantage

Firm Infrastructure (General Management)

SUPPORT
Human Resource Management
ACTIVITIES
Technology Development

Procurement

Inbound Operation Outbound Sales & Service and

Logistics s Logistics Marketing Support

PRIMARY ACTIVITIES
 PRIMARY ACTIVITIES
1.INBOUND LOGISTICS
- CONCERNED WITH RECEIVING, STORING, DISTRIBUTING INPUTS (e.g.
HANDLING OF RAW MATERIALS, WAREHOUSING, INVENTORY
CONTROL)

2. OPERATIONS
- COMPRISE THE TRANSFORMATION OF THE INPUTS INTO THE FINAL
PRODUCT FORM (E.G. PRODUCTION, ASSEMBLY, AND PACKAGING)

3. OUTBOUND LOGISTICS
-INVOLVE THE COLLECTING, STORING, AND DISTRI BUTING THE PRODUCT
TO THE BUYERS (e.g. PROCESSING OF ORDERS, WAREHOUSING OF
FINISHED GOODS, AND DELIVERY)
 PRIMARY ACTIVITIES
4. MARKETING AND SALES
-Identification of customer needs and generation of sales.
(e.g. ADVERTISING, PROMOTION, DISTRIBUTION)

5. SERVICE
-INVOLVES HOW TO MAINTAIN THE VALUE OF THE PRODUCT
AFTER IT IS PURCHASED.(e.g. INSTALLATION, REPAIR,
MAINTENANCE, AND TRAINING)
SUPPORT ACTIVITIES
Value Chain Model
from Michael E. Porters Competitive Advantage
SUPPORT
ACTIVITIES
Firm Infrastructure (General Management)

Human Resource Management

Technology Development

Procurement

Inbound Ops. Outbound Sales & Service and

Logistics Logistics Marketing Support

PRIMARY ACTIVITIES
 SUPPORT ACTIVITIES
1.FIRM INFRASTRUCTURE
The activities such as Organization structure, control system, company
culture are categorized under firm infrastructure.
2.HUMAN RESOURCE MANAGEMENT
Involved in recruiting, hiring, training, development and compensation.
3.TECHNOLOGY DEVELOPMENT
These activities are intended to improve the product and the process, can
occur in many parts of the firm.
4.PROCUREMENT
Concerned with the tasks of purchasing inputs such as raw materials,
equipment, and even labor.
USES OF VALUE CHAIN ANALYSIS:
The sources of the competitive advantage of a firm can be seen from its
discrete activities and how they interact with one one another.
The value chain is a tool for systematically examining the activities of a firm
and how they interact with one another and affect each others cost and
performance.
A firm gains a competitive advantage by performing these activities better
or at lower cost than competitors.
Helps you to stay out of the No Profit Zone
Presents opportunities for integration
Aligns spending with value processes
TATA MOTORS
(A Manufacturing Based Company)
Value Chain & Value System of TATA motors
Transporters, Convoy Drivers Dealer Network, Marketing
Association Research Firms, Vehicle
Financing

SAP , VCM

Inbound Outbound
Operations Marketing Service

Logistics Logistics

SAP , CRM - DMS

Suppliers , Contractors
Regional Warehouses, Dealer
Workshops, Distributors, TASS

Strategic Alliances
PRIMARY ACTIVITIES
Inbound Logistics
Long term contract with service providers transporters and
agents.
Personnel at regional offices for over seeing the smooth transit
of goods.
Transparency and monitoring through deployment of IT all
transactions through SAP.
DTL (daily transport logistics) supplies for critical high value
items.
Efficient storage facilities easy storage and retrieval.
Operations
Capital Equipment Manufacturing division tooling development capabilities
of global standard.
Apprentice Trainee Course ensuring stable source of skilled manpower.
Kaizen & TPM(total productive management) team continuous drive to
improve efficiencies.
Automated manufacturing processes.
Distributed manufacturing Assembly units at South Africa, Thailand,
Bangladesh, Brazil etc.
Maintenance technical competence.
Capacity Utilization Mercedes Benz cars make use of Tata Motors paint shop
facilities.
Outbound Logistics
Stockyards, all across the country.
Long term contracts with transporters higher volume of
business to transporters ensures competitive price.
Regional Sales Office and Vehicle Dispatch Section linked through
SAP.
Efficient security system for prevention of any kind of pilferage.
Marketing & Sales
Structured approach to understanding the requirements of individual customers
QFDs conducted at regular intervals.
Clear identification of product requirements, leading to development of
innovative products Tata 207 DI, Tata Ace
India presence and global footprint.
Independent teams for addressing the requirements of institutional customers
Defense, State Transport Units
Helping to augment the scarce resources Fiat selling vehicles through Tata
dealerships, in return Tata has access to Fiats technology and unutilized capacity.
Quick assessment of the changing market dynamics and consumer preferences
Tata 407 LCV
Large network of dealers use of technology
Service
Easy availability of spare parts.
Efficient collection of data from field and communication to the
respective plants.
Pan India presence, as well as global presence.
Large network of workshops Dealer workshops and TASS.
Training facilities for dealer end and TASS personnel.
SUPPORT ACTIVITIES
Procurement
E procurement initiative.
Global Sourcing Team China , a key destination for sourcing
essential items like tires, power steering units etc., Steel procured
from Belarus
Long term relationships with a stable and loyal pool of suppliers.
Technology driven procurement SAP and VCM.
Strategic subsidiaries & JVs TACO group of companies , Tata
Cummins
Centralized Strategic Sourcing for key components FIPs, Steel
etc.
Group resources Tata Steel and Tata International .
Localized supplier base at mfg. locations low inventory levels.
Technology Development
Approximately 2% of the annual profits of the company invested
in research and development.
Knowledge portal helps employees keep abreast with the latest
technologies.
Extensive prototype building and testing facilities.
Strategic partnerships MDI (France), Fiat etc.
Formal benchmarking process.
Technology Day organized across all plant locations.
Human Resource
Vast pool of technically competent engineers and managers.
Focus on development of technical capabilities Technical
Training Centers, Alliance with technical Institutes
Focus on development of managerial capabilities
executive training programs at premier business schools
Career advancement schemes
Firm Infrastructure
Multi Location facilities
Strong leadership under the aegis of Tata Sons
Best in class prototype building facilities
Technology SAP
Large product portfolio
WALLMART
(A Service Based Company)
WALLMARTS VALUE CHAIN
 Functional Approach
Function Approach concerns itself with the identification and evaluation
of strengths and weaknesses of each function, commonly )known as
functional department. The functions that are commonly found include
production, marketing, finance, human resources, R&D and general
Management
Production

Factories that work up to full capacity with the least cost of

production;
Smooth and abundant availability of raw material and their cost;
Suppliers who are reliable and committed;
The desirable scale of production that returns economies of scale;
The production systems that give economies of scope and the
resultant benefit of mass customization;
Technological abilities consisting of cutting-edge processes or plant or
systems;
Marketing

Effectiveness of the segmentation, targeting and positioning;

The most profitable customer groups and markets;
Customer analysis that reveals to what extent the customers needs
are met;
The product lines that sell well and those that yield high profits;
The distribution channels that perform well and to what extent they
cover;
The advertisement media and campaigns that are effective;
The effectiveness of the sales organization;
 Culture and leadership;
Core values that were upheld through thick and thin;
The pricing policy and its reasonableness in terms of market share,
growth and profitability
Research and Development
Ratio of new product launches to the total number of prototypes
built;
Research on manufacturing process improvements;
Experience of persons in research and their training;
Benefit-Cost Analysis of research done or the projects in progress.
Importance of research, and the managements current level of focus
on it;
Contd..
Budget allotment on research and development as a percent of total
sales;
Appropriate mode of research - in-house or contract;
Benchmarking of R&D function with the competitors
Human Resource
Skills, Knowledge and Abilities;
Commitment to the firm and the motivational level of the employees;
Selection practices;
Cultural composition of employees;
Pay parity relative to industry standards, incentive systems and
compensation methods;
Attrition levels and absenteeism;
Aggregate Personnel Experience;
Employee productivity;
 Recruitment sources and their effectiveness;
Selection practices that sifts through the best talent;
Training methods that keep its people ahead of competition;
Shared vision and attitude towards team work;
Institutionalization of knowledge-sharing;
Industrial relations characterized by harmony and commitment;
Quality of work life;
Finance
Efficiency in the usage of funds as reflected in the sales as a ratio of
funds in use;
Reputation with general public and small investors;
Access to financial markets for both long-term and short-term debt;
Use of debt in relation to equity;
Debt Servicing efficiency;
Efficiency in the use of assets;
Adequacy of working capital and avoidance of excess working capital;
Contd..
Cash Management to strike a balance between unproductive excess
and crippling shortage;
Profitability in relation to sales, capital employed or equity;
Cost of capital relative to industry standard;
Cost control mechanisms;
Accounting and reporting systems;
General Management
Vision and mission
Organizational structure and its fit with the operations;
Lines of communication and distribution of power;
Resource Based Value
Is the resource or skill critical to fulfilling a customers need than that
of the firm competitor?
Is the resource scarce? Is it in short supply or not easily substituted
for or imitated?
Appropriability: Who actually gets the profit created by a resources?
Durability: How rapidly will the resource depreciate?
Is the resource or skill critical to fulfilling a
customers need than that of the firm competitor?
Two restaurants offer similar food, at similar prices, but one has a
location much more convenient to downtown offices than the other.
b)The tangible asset, location, helps fulfill daytime workers lunch-
eating needs better than its competitor, resulting in greater
profitability and sales volume for the conveniently located restaurant.
RBV Guideline 2: Is the resource scarce? Is it in short
supply or not easily substituted for or imitated?
Short Supply
(1)When a resource is scarce, it is more valuable.
(2)When a firm possesses a resource and few if any others do, and it is central to
fulfilling customers needs, then it can become the basis of a competitive
advantage for the firm.
(3)Literal physical scarcity is perhaps the most obvious way a resource might
meet this guideline.
(4)Very limited natural resources, a unique location, skills that are truly rareall
represent obvious types of scarce resource situations.
The threat of substitute products
The threat of substitute products in as part of the five forces model
for examining industry profitability.
(2)This basic idea can be taken further and used to gauge the scarcity-
based value of particular resources
Imitation
(1)A resource that competitors can readily copy can only generate
temporary value.
(2)It is scarce for only a short time.
(3)It cannot generate a long-term competitive advantage
Isolating mechanisms (scarcity come up with
absence of imitation )
Physically unique resources are virtually impossible to imitate
Casual ambiguity is a way resources can be very difficult to imitate.
This refers to situations in which it is difficult for competitors to
understand exactly how a firm has created the advantage it enjoys.
Economic deterrence is a another source of inimitability. This usually
involves large capital investments in capacity to provide products or
services in a given market that are scale sensitive
Appropriability: Who actually gets the profit
created by a resource?
Organization should get profit .
Durability: How rapidly will the resource
depreciate
The slower a resource depreciates, the more valuable it is.
Tangible assets, such as commodities or capital, can have their
depletion measured.
Intangible resources, such as brand names or
organizational capabilities, present a much more difficult depreciation
challenge
Some believe that this reality makes well-articulated visions and
associated cultures within organizations potentially the most
important contributor to long-term survival.
 Benchmarking is the process through which a company measures its
products, services, and practices against its toughest competitors, or
those companies recognized as leaders in its industry.
Benchmarking is one of a manager's best tools for determining
whether the company is performing particular functions and activities
efficiently, whether its costs are in line with those of competitors, and
whether its internal activities and business processes need
improvement
Benchmarking
The idea behind benchmarking is to measure internal processes
against an external standard. It is a way of learning which companies
are best at performing certain activities and functions and then
imitatingor better still, improving ontheir techniques.
 Among many possibilities, it may look at how materials are
purchased, suppliers are paid, inventories are managed, employees
are trained, or payrolls are processed;
at how fast the company can get new products to market; at how the
quality control function is performed; at how customer orders are
filled and shipped; and at how maintenance is performed.