Strategy Analysis and Formulation-Company's resources and

competitive position analysis- organisational capability

analysis-Strategic advantage analysis- Core competence-
Distinctive competitiveness. Analysis of External
Environment-SWOT Analysis-Industry Analysis-Porters five
forces model of competition-Corporate portfolio analysis-
BCG-GE Models.
 Strategic Formulation
Strategic intent

The vision of companies long term goals and objectives is

referred to as strategic intent it is the cornerstone of strategic
architecture.
Strategic intent also envisage the companies position in long
run. Thus, indent conveys a sense of direction. Similarly
strategic intent provides a unique point of view about the future
giving employees an opportunity to explore something new
enhancing cells of exploration.
 Components of strategic management
Vision of the company

Mission of the company

Profile of the company

External environment

Strategic analysis and choice

Objectives: Annual, short term and long term

 DEFINITION OF INDUSTRY
An industry can be broadly defined as ‘the group of firms producing
products that are close substitutes for each other’ There is,
however, a great deal of controversy over an appropriate definition
of industry.
INDUSTRY TYPES AND STRUCTURE
A fragmented industry is characterized by the existence of a large number of small and medium units, and, no single company has any significant
market share, and, none of these units can individually affect the market or industry outcome. The uniqueness of a fragmented industry is the absence
of any market leader, and, typically, the market share of the largest unit does not exceed 10 per cent.
agricultural produce, ATMs, dry cleaning, etc.,

An emerging industry is a developing or newly formed industry in which market for products initially exists in latent form, and,
becomes visible later. An emerging industry may be created by technological innovations, new consumers or industrial needs for
economic or sociological changes which create the environment or potential market for a new product or service.

A mature industry is one which has passed through transition from period of fast growth to more modest or stable growth.
Maturity is an important or critical phase in the industry life cycle. During this period, fundamental changes often take place in the
competitive environment, and, companies are usually faced with difficult strategic decisions for survival and growth because
competition becomes very intense.
photocopiers, Desktop computers etc.
Reasons

Slowing down of market growth means more competition for market share; Companies in the industry are increasingly selling to
loyal/repeat customers; Competition shifts towards greater focus on cost and service; Industry adjusts to slower growth rate,
capacity expansion slows down and overcapacity generally occurs; Manufacturing, marketing and other operations are
undergoing change; New products and applications are difficult to come by; Industry profits may fall because of slow growth
and fight for market share; Dealers margins fall, but, their power increases because their role increases; International
competition increases because of internationalization of the industry (driven by domestic competition).
A declining industry is one with negative growth, that is, an industry which has registered absolute decline in sales over a
sustained period of time. Such decline in sales is not because of business cycles or any other short-term factors like strike,
lockouts or material shortages. Therefore, a declining industry does not represent a short-term discontinuity, but, a trend
expressed in falling industry output, sales, profitability and dwindling number of competitors. In industry life cycle, decline
follows maturity. Decline sets in generally because of product obsolescence or emergence of a strong substitute product. For
example, demand for oil-based laundry soaps for cloth washing declined fast because of introduction of synthetic washing
materials.

In global industry, the strategic position of companies in different countries or national markets are governed by their overall
global positions. For example, IBM’s strategic position in competing for computer sales in France and Germany has improved
significantly because of technology and marketing skills developed in other countries, and a worldwide manufacturing system
which is well coordinated. To be called a global industry, an industry’s economics and competitors in different national markets
should be considered jointly rather than individually.

Distinction should be made between an international industry and a global industry. An industry in a country may be
international if it comprises a number of multinational companies. But, industries with multinational competitors are not
necessarily global industries. To be a global industry, as explained above about IBM, an industry should have multi-locational
manufacturing facilities, and, compete worldwide to secure global synergy or competitive advantage.
Competitive Strategy in Fragmented Industries
Competitive Strategy in Emerging Industries
Competitive Strategy in Mature industries
Competitive Strategy in Declining Industry
Competitive Strategy in Global Industries
 HOW TO CONDUCT INDUSTRY ANALYSIS

✒ What should be the starting point?

✒ Which types of data one looks for ?
✒ Should one look for only published or secondary data ?
✒ or, should one also generate primary data from industry
observers (participants)?
✒ What are the analytical techniques to be used for data
processing and analysis?
COMPETITION ANALYSIS
Competition
Analysis

Understanding
Identifying
and Evaluating
Competitors
Competitors

Customer Based Strategic Group

Approach Approach
• Market expansion

• Product expansion

• Backward integration

• Forward integration

• Transfer of assets and skills or takeover

• Retaliating or defensive strategies

 COMPETITION ANALYSIS
Identifying Competitors
• Who do we usually compete against? Who are our most intense competitors? Who are less intense, but, still serious
competitors? Who are makers of substitute products? • Can various competitors be divided into strategic groups on the basis
of their assets, skills or strategies? • Who are the potential competitors or potential entrants? Is there anything that can be done
to discourage them early?
Understanding and Evaluating Competitors
• What are competitors’ objectives and strategies? What are their levels of commitment and seriousness? • What is
competitors’ cost structure? Do they have a cost advantage or disadvantage or cost neutrality? • What is their image and
positioning strategy? • Who are the most successful competitors? Who are the unsuccessful ones? Why? • What are the
strengths and weaknesses of each competitor or competitor groups? • What are the leverages competitors have over us (our
strategic weaknesses, customer problems, etc.,) which they can exploit to enter the market or become stronger competitors? •
What are competitors’ special assets and skills that can be used against us?
Identifying Competitors
There are two different ways of identifying existing competitors: customer-based approach and strategic
group approach. The customer-based approach analyses thoughts (likes, dislikes, preferences, etc.,) of
customers who make their choices among competing suppliers of products. This gives a basis for grouping
competitors to the extent they compete for customer’s choice. The strategic approach for competitor
identification attempts to classify competitors into strategic groups on the basis of their competitive
strategies.
Customer-based Approach
Primary competitors, i.e., competitors in the same product category and, not in substitute product category, are clearly visible and more
easily identifiable. For example, if one takes the Indian soft drinks market, Coca-Cola and Pepsi are the most immediate competitors
followed by Thums Up, Sprite, Fanta, Limca, etc. Whenever consumers think of a soft drink, they will first think of one of these brands. But,
secondary competitors, i.e., competitors in substitute product categories are not so easily visible, and, are more difficult to identify. For
example, lemon soda, canned and packaged fruit drinks (like ‘Fruity’), slush, etc., also compete with soft drinks. Customers have a choice,
and, many times, they ask for these products/brands in place of soft drinks, and secondary competitors compete with primary competitors.
The above examples illustrate an important point. In most industries, competitors can be usefully identified in terms of how intensely they
compete for the business or product which attracts or induces customers. There are several very direct competitors; others who compete less
directly; and, still others who compete indirectly, but, are still relevant. A knowledge of this pattern can lead to a proper understanding of the
market structure and the competitive situation. Competitor groups which compete most intensely may require the most in-depth study, but
other groups would also require analysis in terms of the intensities of their involvement. This process helps in identification of primary
competitors, secondary competitors and also tertiary competitors (sellers of cold milk, cold coffee, etc., substituting for soft drink) on the
basis of customer choice.
Strategic Group Approach
Strategic group approach provides an alternative way of identifying competitors in an industry or market. A strategic group
generally exhibits the following features:
✒ Possess similar characteristics, (e.g., size, competences, resource base, etc.)
✒ Possess similar assets and skills, (e.g., cost efficiency, quality, image, etc.)
✒ Pursue similar competitive strategies, (e.g., use of same or similar sales promotion and advertising methods, aggressive or
offensive approach, etc.)
In many industries or markets, there are a large number of competitors (like in monopolistic competition) and, it is difficult to
analyse each of them individually. It may be possible to track the leader or one or two large competitors, but, it may not be
very feasible, even cost-wise, to analyse individually, say, 30 or 40 competitors. Reducing such large numbers to small
strategic groups makes the analysis easy and more usable from strategy formulation point of view. Let us take the Indian
detergents market. In this market, Surf (with brand extensions) and Ariel may be placed in one strategic group; Tide, Rin,
Wheel, Sunlight and Nirma may be classified into a second strategic group; Ghadi and similar regional brands can be in a third
group; and, many local brands can be put together in the fourth group. Each of these groups will show some distinct features or
characteristics like resource base, ability to compete, marketing skills, etc., and, such grouping will give a company a clear
Potential Competitors
Aaker (1995) has mentioned six different types of potential competitors or potential competing situations. These are discussed
below:
a. Market expansion: Any company planning market expansion, that is, planning to enter into a new market, is a potential
competitor for all those already operating in that market.
b. Product expansion: Product expansion, like market expansion, is a potential competitive threat. ITC diversified into
hospitality business and agri-business, and during the planning stage of diversification, was a potential competitor for all those
in agri-business and hospitality business.
c. Backward integration: Present customers can be potential sources of competition. General Motors bought many component
manufacturers during the initial years of its operation in a backward integration move. Many can users like Campbell Soup have
integrated backward by making their own containers. Backward integration is usually more common in business-to-business
products.
d. Forward integration: Suppliers or vendors are also potential competitors. TVS Motors (earlier Lucas-TVS), traditionally a
manufacturer of electrical accessories for automobiles and motorcycles/scooters, has integrated forward by entering into
manufacture of motorcycles. Like backward integration, forward integration also is more typical in business-to-business
markets.
e. Transfer of assets and skills or takeover: A small competitor with resource gap and strategic weaknesses can turn into a major
competitor if it is taken over by a large company which can eliminate or reduce its weaknesses and gaps. Coca-Cola took over
Parle Products, and competitiveness of Parle’s soft drinks has increased significantly. It now enjoys the support of Coca-Cola’s
assets and skills.
f. Retaliating or defensive strategies: Companies threatened by potential or actual entry into their market may retaliate to
defend themselves. Microsoft moved into networking as a retaliatory measure when Novell, the networking leader, entered
into word processing, graphic and spreadsheets by buying WordPerfect.
 UNDERSTANDING
COMPETITORS

Once the competitors are

identified, the next step is to
understand them by analysing their
actions. Competitor actions are
governed by many factors. More
important factors are objectives or
goals, size and growth,
organizational culture, strengths
and weaknesses, cost structure,
profitability, image and positioning,
and current and past strategies
The Economic Model MODELS OF COMPETITION
According to classical economic theory, markets begin as monopolies (single seller with no close
substitute product), move towards oligopoly (few sellers), then to monopolistic competition
(large number of sellers) and ultimately towards pure or perfect competition (very large
number of sellers). Behaviour affirms under different market conditions—in terms of price
policy, profit maximization or profitability, competitiveness, etc.,—are well documented in
economic literature. But, in real life, there are many exceptions to these basic theories or laws.
For example, perfect competition hardly exists in reality. All competitions are imperfect.
The Life Model
The life model or the product life cycle (PLC) approach analyses competitive intensities during
different phases of life cycles of a product. Although some management and marketing
academics have raised doubts about the validity of PLC in real world, it is, nevertheless, a useful
tool for analysing competition and determining appropriate strategies for competitive survival
and growth during different stages of PLC: introduction, growth, maturity and decline.
The War Model The war model of competition is based on close parallel between military
strategies for war and marketing strategies. Many marketing strategists have found close
similarities between the two. Most common forms of war strategies are defensive warfare,
offensive warfare, flanking warfare and guerrilla warfare.
 The War Model
Principles of Defensive Warfare
1. Only the market leader should adopt a defensive strategy
2. The best defensive strategy is the courage to attack yourself
3. Strong competitive moves should always be blocked
Principles of Offensive Warfare
1. The strength of the leader is the most important consideration for mounting an offensive attack
2. Find the leader’s weakness and attack on that
3. Launch the attack on as narrow a front as possible
Principles of Flanking Warfare
1. A good flanking move is made into an uncontrolled area of the opposition
2. Tactical surprise should be an important element of the strategy
3. The pursuit is as crucial as the attack itself
Principles of Guerrilla Warfare
1. Find a small segment for intermittent attack; avoid confrontation
2. However successful you may be, never act like the leader
3. Be prepared to quit/exit at very short notice

Offensive and defensive strategies signify different competitive moves and are of almost universal application in
strategic business management today.
 Environmental threats
and opportunities Profile
(ETOP )
Assessment of the environmental information and determining the

relative significance of threats and opportunities require a systematic

evaluation of the information developed in the course of

environmental analysis. For this purpose, preparation of a profile of

environmental threat and opportunity (ETOP) is considered to be a

useful device.
Environmental analysis carried out by Bharat Heavy
Electricals Ltd. [BHEL]
SWOT
SWOT is an acronym for the internal Strengths and Weaknesses of a business and environmental Opportunities and Threats
facing that business. SWOT analysis is a systematic identification of these factors and the strategy that reflects the best match
between them. It is based on the logic that an effective strategy maximizes a business’s strengths and opportunities but at the
same time minimizes its weaknesses and threats. This simple assumption, if accurately applied, has powerful implications for
successfully choosing and designing an effective strategy

Opportunities
An opportunity is a major favourable situation in the firm’s environment. Key trends represent one source of opportunity.
Identification of a previously overlooked market segment, changes in competitive or regulatory circumstances, technological
changes, and improved buyer or supplier relationships could represent opportunities for the firm.
Threats
A threat is a major unfavourable situation in the firm’s environment. It is a key impediment to the firm’s current and / or desired
future position. The entrance of a new competitor, slow market growth, increased bargaining power of key buyers or supplier,
major technologies change, and changing regulations could represent major threats to a firm’s future success.
Strengths
A strength is a resource, skill, or other advantage relative to competitors and the needs of markets a firm serves or anticipates
serving. a strength is a distinctive competence that gives the firm a comparative advantage in the marketplace. Financial
resources, image, market leadership, and buyer / supplier relations are examples.
Weaknesses
A weakness is a limitation (or) deficiency in resources, skills, and capabilities that seriously impedes effective performance.
Facilities, financial resources, management capabilities, marketing skills, and brand image could be sources of weaknesses. Sheer
size and level of customer acceptance proved to be key strengths around which IBM built its successful strategy
in the personal computer market.
BCG
 Boston Consulting Group (BCG) growth – share matrix
The basic idea underlying this approach is that a firm should have a balanced portfolio of businesses such that some generate
more cash than they use and can thus support other businesses that need cash to develop and become profitable. The role of
each business is determined on the basis of two factors: the growth rate of its market and the share of that market that it enjoys.

1. Question mark (sometimes called problem children): Company business that operate in a high-growth market but have low
relative market share. Most businesses start off as question marks, in that they enter a high – growth market in which there is
already a market leader. A question mark generally requires the infusion of a lot of funds. It has to keep adding plant, equipment,
and personnel to keep up with the fast – growing market, and it wants to overtake the leader. The term question mark is well
chosen, because the organization has to think hard about whether to keep investing funds in the business or to get out.
2. Star: They are question – mark businesses that have become successful. A star is the market leader in a high – growth market,
but it does not necessarily provide much cash. The organization has to spend a great deal of money keeping up with the market’s
rate of growth and fighting off competitors’ attacks. Stars are often cash –using rather than cash –generating Even so, they are
usually profitable in time.
3. Cash cow: Businesses in markets whose annual growth rate is less than 10 percent but that still have the largest relative
market share. A cash cow is so called because it produces a lot of cash for the organizations. The organization does not have to
finance a great deal of expansion because the market’s growth rate is low. And the business is a market leader, so it enjoys
economies of scale and higher profit margins. The organization uses its cash-cow businesses to pay its bills and support its other
struggling businesses.
4. Dog: Businesses that have weak market shares in low-growth markets. They typically generate low profits or losses, although
they may bring in some cash. Such businesses frequently consume more management time than they are worth and need to be
phased out. However, an organization may have good reasons to hold onto a dog, such as an expected turnaround in the
market growth rate or a new chance at market leadership
Nine cell Matrix
 GE Multi-factor
Port folio matrix
• GE Multifactor Portfolio Matrix is a tools that
helps managers develop organizational strategy
that is based primarily on market attractiveness
and business strengths.

• The GE Multifactor Portfolio was deliberately

designed to be more complete than the BCG
Growth Share Matrix.

• Each of the organization’s SBUs are plotted on a

2 dimensional matrix of Industry Attractiveness
and Business Strength.

• Each of these 2 dimensions are a composite of

a variety of factors that each firm must determine
for itself, given its own unique situation.
INDUSTRY ATTRACTIVENESS BUSINESS STRENGTH
Market Factors
Size (dollars, units or both) Your share (in equivalent terms)
Size of key segments Your share of key segments
Growth rate per year: Your annual growth ratae:
Total Total
Segments Segments
Diversity of market Diversity of your participation
Sensitivity to price, service features, and Your influence on the market
external factors
Cyclicality Lags or leads in your sales
Seasonality Bargaining power of your suppliers
Bargaining Power of Upstream Suppliers Bargaining power of your customers
Bargaining Power of Downstream Suppliers
Competition
Where you fit, how you compare in terms
Types of competitors
of products, marketing capability,
Degree of concentration
service, production strength, financial
Changes in type and mix
strength, management
Entries and exits
Segments you have entered or left
Changes in share
Your relative share change
Substitution by new technology
Your vulnerability to new technology
Degrees and types of integration
Your own level of integration
INDUSTRY ATTRACTIVENESS BUSINESS STRENGTH
Financial and Economic Factors
Contribution margins
Your margins
Leveragign factors, such as economies of
Your scale and experience
scale and experience
Barriers to your entry or exit (both
Barriers to entry or exit (both financial and
financial and non-financial)
non-financial)
Your capacity utilization
Capacity utilization
Technological Factors
Maturity and volatility Your ability to cope with change
Complexity Depths of your skills
Differentiation Types of your technological skills
Patents and copyrights Your paten protection
Manufacturing process technology required Your manufacturing technology
Socio-Political Factors in Your Environment
Social attitudes and trends Your company’s responsiveness and
Laws and government agency regulations flexibility
Influence with pressure groups and Your company’s ability to cope
government representatives Your company’s aggressiveness
Human factors, such as unionization and community acceptance. Your company’s relationships.
 BASIS FOR COMPARISON BCG MATRIX GE MATRIX
Meaning BCG Martrix, is a growth share GE Matrix implies multifactor
model, representing growth of portfolio matrix, that assist
business and the market share firm in making strategic
enjoyed by the firm. choices for product lines based
on their position in the grid.
Number of cells Four Nine
Factors Market share and Market Industry attractiveness and
growth Business strengths
Objective To help companies deploy their To prioritize investment among
resources among various various business units.
business units.
Measures used Single measure is used. Multiple measures are used.
Classification Classified into two degrees Classified into three degrees
Key Differences Between BCG and GE Matrices
The points depicted below, elaborate the fundamental differences between BCG and GE matrices:

[Link] matrix can be understood as the growth-share model, that reflects a growth of business and the market share
possessed by the firm. On the other hand, GE matrix is also termed as multifactor portfolio matrix, which businesses
use in making strategic choices for product lines or business units based on their position in the grid.
[Link] matrix is simpler in comparison to GE matrix, as the former is easy to draw and consist of only four cells, while
the latter consist of nine cells.
[Link] two dimensions on which BCG matrix is based are market growth and market share. Conversely, industry
attractiveness and business strengths are two factors of GE matrix.
[Link] matrix is used by the companies to deploy their resources among various business units. On the contrary, firms
use GE matrix to prioritize investment among various business units.
[Link] BCG matrix only a single measure is used, whereas in GE matrix multiple measures are used.
[Link] matrix represents two degrees of market growth and market share, i.e. high and low. In contrast, in GE matrix
there are three degrees of business strength, i.e. strong, average and weak, and industry attractiveness, are high,
medium and low.
5 Forces
Porter’s five forces analysis of competition
A useful approach to formulating business strategies is based on Michael Porter’s “competitive analysis”. Porter’s model
provides a process to make your competitive strategy explicit so it can be examined for focus, consistency, and comprehensive.
Porter’s approach is based on the analysis of five competitive forces

1. Threat of new entrants,

2. Bargaining power of suppliers,

3. Bargaining power of buyers,

4. Threat of substitute products,

5. Rivalry among existing firms.