2. Strategy
A strategy is the pattern or plan that
integrates an organization's major goals, policies, and action
sequences
into a cohesive whole
A well-formulated strategy helps to
marshal and allocate an organization's resources
into a unique and viable posture
based on its relative internal competencies and shortcomings
anticipated changes in the environment, and
contingent moves by intelligent opponents
James Brian Quinn - The Strategy Process: Concepts and Contexts, "
3. Strategy
Kenichi Ohmae (The Mind of the Strategist) says:
the strategic triangle
"In terms of these three key players, strategy is defined as the
way in which a corporation endeavors to differentiate itself
positively from its competitors, using its relative corporate
strengths and weaknesses to better satisfy customer needs”
Competition
Company
Customer
4. Strategy – Peter Drucker
Strategy is about
knowing where your company is today,
where you want to take it, and
how you are going to get there
5. Simple Framework
Set your long-term goals
Conduct a market and competitive analysis
Assess where your company is now
Do a SWOT analysis--Strength, Weaknesses, Opportunities and Threats
Compare where you are now and five years out. How big is the gap between the
two?
Determine what steps need to would need be taken to enable you to bridge this
gap
If the gap is too big, review and possibly reset your strategic goals
Map out your strategic plan in writing
Meet regularly to review how you’re doing vs. goals
Share it not only with the management team, but with all your employees, and
assign tasks at all levels so everybody is working towards the plan.
Be flexible
6. Competitive Strategy
The framework that guides competitive positioning
decisions is called competitive strategy
The purpose of its competitive strategy is to build a
sustainable competitive advantage over the
organization’s rivals
It defines the fundamental decisions that guide the
organization’s marketing, financial management and
operating strategies
7. Competitive Strategy
A competitive strategy answers the following questions:
How do we define our business today and how will we define it tomorrow?
In what industries or markets will we compete?
The intensity of competition in an industry determines its profit potential and
competitive attractiveness.
How will we respond to the competitive forces in these industries or markets
(from suppliers, rivals, new entrants, substitute products, customers)?
What will be our fundamental approach to attaining competitive advantage
(low price, differentiation, niche)?
What size or market position do we plan to achieve?
What will be our focus and method for growth (sales or profit margins,
internally or by acquisition)?
8. Competitive Strategy
• Michael Porter on competitive
strategy - two ways to win a
competition
• You either deliver a different
product/ service
• Or, you deliver it differently
9. To Understand CS….
• First, how firms behave over time to gain insight into the causes
and consequences of competitive strategy (Bergh 1993; Menard
1991).
• Second, they need to observe the timing and duration of strategic
activities.
• Third, they need to account for the long-term path characteristics
of strategic change as well as the path dependencies that result
from strategic choices.
10. Fundamental Framework
Environmental Context
Tech
Regulatory
Competitor actions
Other conditions
Organizational Performance
Organizational Context
Current strategy
Strategic outlook
Organization structure
Org resources including capabilities
Strategic Actions
Product strategy
Market strategy
Functional strategy
Cooperative strategy
Outcome
Strategic context
Tech context
Regulatory context
Competitor actions
Org performance
Organizational structure
Org resources and capabilities
11. What is a Successful Strategy?
• Successful firms achieve a sustainable competitive advantage
• Businesses achieve competitive advantage by emphasizing cost,
value to the customer, or both
• A firm’s strategy is found in its investments in resources and
capabilities that
– Determine its market position
– Defend this position from competitors
12. The Origins of Strategy
Firm evolution
Industry evolution
Evolutionary
economics
Strategic planning
Game theory
Structure/Conduct/
Performance Paradigm
Industrial
economics
Business cases
Business history
Institutional
economics
Economic and
organizational
sociology
Industry history
The firm and
its immediate
business
context
The
overall
market or
industry
Focus of
analysis
Not necessarily
rationally
Rationally
Assumption about how
managers make decisions
Business cases
Business history
Institutional
economics
Economic and
organizational
sociology
Industry history
14. Competitive Positioning
• Competitive positioning is a
– marketing strategy that refers to how a marketing team can differentiate a
company from its competitors
• The position of the company depends on
– how the value it provides with goods and services compares to the value
of similar goods and services in the market
• It requires you to understand - who are your competitors; what
are they doing today; what are they planning to do in future; how
their operations and offerings affect our product/ services; what
can protect us
15. Types of Comp Positioning
• Operation excellence
– When a company’s business strategies and processes are completed
effectively, efficiently, and consistently. Operational excellence translates to
customer benefits because problems are solved rapidly or better quality
products and services are delivered sooner.
• Product leadership
– When a company sells what is perceived to be the best product. To do so, a
company will need to constantly research and improve on existing products in
the marketplace. It should also aim to be the first brand that comes to mind
when a potential customer is asked which company offers the best product.
• Service excellence
– When a company provides its customers with better service than any of its
competitors. For example, a company that boasts exceptional customer reviews
and a reputation for quickly and resolutely responding to queries.
16. Types of Comp Positioning
• Cost leadership
– When a company is known for being the cheapest around or for offering the best
value from its products or services.
• Niche positioning
– When a company targets a very specific niche or section of a market. This
allows it to position itself as the leading brand in its chosen niche. It may reduce
the competition it faces. Some examples of niche positioning include a law firm
that concentrates on providing services to seniors, or a realtor that focuses on
first-time buyers.
18. How to identify position?
• A business needs to determine its desired position
– Do you want to be seen as the cheapest?
– Do you want to be known for the reliability of your products?
– Do you want your business to be a luxury provider?
• Perceptual maps:
– A business can use a perceptual map to identify gaps in the market. A
perceptual map is a basic graph, with two axes representing two key variables.
The most common combination of variables is price and quality.
– Competitors are plotted on the graph according to their performance in these
variables and a gap on the chart represents a gap in the market or an
opportunity for a new market entrant. For example, a chart could show a gap
exists for a brand that is deemed to be high quality with high prices.
• The position statement:
– This should be a paragraph and articulate how to identify the target market and
their needs. It should then detail how the brand meets those needs and what
differentiates it from the rest of the companies on the market. Finally, it should
outline the reasons why consumers should believe the brand position.
19. Position Statement
• It is not to be used as a tag-line or meant for external use
• It has to be a dynamic, organic, living statement that reflects,
guides and inspires its people in the organization on what is
expected, what to do, how to achieve what it wants to achieve
etc.
20. Competitive Advantage
• Competitive advantage is the favourable position an organization
seeks in order to be more profitable than its rivals.
• A business must provide a clear benefit to its target market that's
better than what the competition offers.
– Why the word ‘seeks’ instead of ‘has’?
• Sustainable Competitive Advantage
– Ability to sustain these clear benefits that you may have created over a
period of time
– While others may be either copying these benefits or giving customers a
better choice than yours
21. What Sustains Comp Adv?
A strong offence to attain market superiority
Creates a higher economic contribution
Contribution = Value - Cost
A strong defence of the sources of the market position
against rivals
Customer retention
Defending against imitation
Both are necessary and neither is sufficient.
22. 4 Rs of gaining advantage
• Recognize a customer need;
• Help the customer identify a
solution, which will lead the
customer to Request the desired
option;
• This in turn will trigger the
company to Respond.
• Those that are able
to Repeat these interactions and
learn each time will be able to build
lasting connections with customers
that competitors will struggle to
match.
24. Value Cost framework
Value that the product
offers the customer
Product price
The firm’s cost to produce
and sell the product
The benefit the customer
receives from buying the
product
(Value minus Price)
The profit the firm receives
from producing and selling the
product
(Price minus Cost)
What is the importance and/ or implications of this framework?
25. Customer Value Creation Framework
• Functional/Instrumental value:
– the attributes of the product itself; the extent to which a product is useful
and fulfils a customer’s desired goals
• Experiential/Hedonic value:
– the extent to which a product creates appropriate experiences, feelings,
and emotions for the customer
• Symbolic/Expressive value:
– the extent to which customers attach or associate psychological meaning
to a product
• Cost/Sacrifice value:
– the cost or sacrifice that would be associated with the use of the product
26. Elements of Industry Analysis..
• Has the industry passed through a shakeout?
• Has the industry experienced significant disruption?
If so, how have entrants competed against
incumbents?
• If not, are there identifiable forces or products that
could be disruptive to the industry?
• What are the key value and cost drivers in the
industry?
• How is the industry structured into strategic groups
based on these value and cost drivers?
27. Elements of Industry Analysis..
• What is the trend in industry revenue?
• Which competitors are growing faster in revenue
than the industry trend? Why?
• What are the key competitors the firm faces in its
major markets?
• What are their strategies and performance levels?
• What is the trend in industry profitability?
• Which competitors are growing faster in profitability
than the industry trend? Why?
28. Elements of Competitor Analysis
• What new strategic initiatives and programs have
key competitors developed, if any?
• How likely is it that these initiatives will improve the
market positions of these competitors?
• How aggressive are these firms in growing their
market positions? How aggressively do these firms
defend their positions?
• Where is the firm located in this competitive
landscape in terms of its value and cost drivers?
• How are the resources and capabilities underlying
the value and cost drivers protected from imitation?
30. What Sustains Comp Adv?
• A strong offence to attain market superiority
– Creates a higher economic contribution
• Contribution = Value - Cost
• A strong defence of the sources of the market position against
rivals
– Customer retention
– Defending against imitation
• Both are necessary and neither is sufficient.
32. Triangle of Corp Strategy
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Technical expertise, Resource
allocation,
Production
capacity
Resources
Organization
Structure, systems, processes
What is the relevance of these elements?
How do these elements interact and
39. Examples of Value Drivers
• Technology
– Functionality, features
• Quality
– Durability, reliability, aesthetics
• Delivery
– Just-in-time production systems
Breadth of line
Potential benefits: one-
stop shopping,
interchangeable parts,
interface compatibility
and cross-selling
Service
Responsiveness,
problem solving
40. Examples of Value Drivers
• Customization
– Customers determine product design
• Geography
– Location, scope
• Risk assumption
– Warranties
• Brand/ Reputation
– Signals of price or quality
Network externalities
Common
communications
standard
Environmental policies
Sustainable practices
Complements
DVD players and disks
41. Examples of Cost Drivers
• Scale economies
– Average cost declines as volume increases based on high
sunk costs or high recurring fixed costs
• Scope economies
– Cost of producing two products together is lower than the cost
of producing them separately
• Learning curve
– Cost declines with cumulative volume increases as learning
takes place and practices improve
42. Examples of Cost Drivers
• Low input costs
– Firms with lower cost inputs are better positioned to take
advantage of industry opportunities and absorb changes
• Vertical integration
– For tasks that are specialized to the firm, coordination costs
are lower within the firm than with a market supplier
• Organizational practices
– Firms develop process innovations to lower costs or improve
value in specific activities
43. Defending Against Competitors
• Isolating mechanisms
– Mechanisms that prevent competitors from eating up the firm’s
profits
– Factors that:
• Increase customer retention
• Reduce imitation by competitors
44. Resource and Capabilities
• Resource
– A relatively stable, observable, tradable asset owned by the
firm that contributes to its performance
• Examples: a brand, a geographical location
• Capability
– A set of activities and policies involving the firm’s organization
and people executing tasks at a high level of expertise
continuously over time
• Examples: practices leading to superior quality, customer service or
pricing
45. Barriers to Imitation
• Property rights
– Patents, trademarks, asset ownership
• Dedicated assets
– Exclusive distribution channels or suppliers
– Tie-up or lock-in
• Learning and development costs
– Created by sunk costs, complementary practices within the firm, and
history-dependent capabilities
– Time-compression diseconomy
• Casual ambiguity
– Difficulty in copying a capability because it cannot be modelled
effectively
– Barrier to improvement for poor performing firms
– Shields a firm with a superior market position against imitation
46. Increasing Customer Retention
• Increase switching costs
– Search costs
• High for products whose value is apparent only after experiencing the
product – experience goods
– Transition costs
• Costs associated shifting from old equipment or practices to new
– Learning costs
• Costs incurred in learning a new process
47. Competencies, Core Competencies
Distinctive Competencies
• A competence is the product of organizational learning and
experience and represents real proficiency in performing an
internal activity
• A core competence is a well-performed
internal activity central (not peripheral or incidental) to a
company’s competitiveness
and profitability
• A distinctive competence is a competitively valuable activity a
company performs better than its rivals
48. Core Competencies –
A Valuable Company Resource
• A competence becomes a core competence when the well-
performed activity is central to a company’s competitiveness and
profitability
• Often, a core competence is knowledge-based, residing in
people, not in assets on a balance sheet
• A core competence is typically the result of cross-department
collaboration
• A core competence gives a company a potentially valuable
competitive capability and represents a definite competitive
asset
49. Distinctive Competence –
A Competitively Superior Resource
• A distinctive competence is a competitively valuable activity that
a company performs better than its competitors
• A distinctive competence is a competitively potent resource
because it
– Gives a company a competitively valuable capability unmatched by
rivals
– Can underpin and add real punch to a company’s strategy
– Is a basis for sustainable competitive advantage because it is
difficult to imitate
50. Determining the Competitive
Power of a Company Resource
• To qualify as competitively valuable or to be the basis for
sustainable competitive advantage, a “resource” must pass 4
tests:
1. Is the resource hard to copy?
2. Is the resource durable – does it have staying power?
3. Is the resource really competitively superior?
4. Can the resource be trumped by
the different capabilities of rivals?
51. Identifying Resource Weaknesses
and Competitive Deficiencies
• A weakness is something a firm lacks, does poorly, or a condition
placing it at a disadvantage
• Resource weaknesses relate to
– Inferior or unproven skills,
expertise, or intellectual capital
– Lack of important physical,
organizational, or intangible assets
– Missing capabilities in key areas
Resource weaknesses and deficiencies
are competitive liabilities!
52. Thoughts to munch on …
• Natural gravitation towards corporate
strategy and guidelines
• Static assumptions about environment
• Unpredictability and ambiguity
• Calculative rationality rather than
intuitive and experiential
• Learning and cognitive mechanisms
that can create and sustain
competencies
• Reductionism bias of predictive tools
Source: https://www.researchgate.net/publication/220588588
53. Knowledge sharing and transfer
• Between individuals (communication between the employees)
• From individual to external structure (employees transferring their
knowledge to the outer world)
• From external structure to individuals (employee learning from
customers, suppliers, and others)
• From individual competence into internal structure (captur- ing
individual competence in data repositories)
• From internal structure to individual competence (capturing individual
competence in a system)
• Within the external structure (communication between customers,
suppliers, and others)
• From external to internal structure (organi- sational learning from the
external world)
• From internal to external structure (external public’s learning from the
organisation), and
• Within internal structure (between the organisational systems)
Source: https://www.researchgate.net/publication/220588588
55. Creating an Industry
• Firms create industries
• Competing firms influence each other
• Shifts in product value and price
● Increasing strategic interaction establishes mutual
dependence between firms
● Behavior and performance subject to common industry forces
56. Industry Boundaries
• Identifying competitors
– Firms whose products provide value in functionally equivalent
ways.
– Firms that compete directly through changes in product value
and price.
– Firms that face the same common factors of economic
interdependence in an industry.
• Identifying substitute producers
– Firms whose products are functionally different from an
industry’s products but compete to provide value to the same
industry buyers.
57. How Are Industries Defined?
• Market Segmentation
– Firms align their product lines with one or more customer
oriented segments, which could overlap
– Segments are defined by customer preferences
– Specialist firms: Tailor their product to cater to a chosen
segment
– Generalist firms: Design their product for all segments
58. Industry Development over Time
Market Segmentation
Early Late
Product Value
Lower
Higher
Industry Development
Market Segmentation
59. What Determines Firm Profitability?
• Macroeconomic factors
– Forces in the overall economy, regulation, interest rates
• Industry factors
– Conditions specific to an industry
• The firm’s market position as determined by its
resources and capabilities
– Those economic factors that are specific to the firm
60. Forces Lowering Firm Performance
• Porter’s five industry forces:
– Strength of competition
– Potential for entry into the industry
– The bargaining power of buyers
– The bargaining power of suppliers
– The strength of substitutes for the industry’s products
• When forces are strong, profitability is low and when
forces are weak, profitability is high
62. Analyzing - 5 Competitive Forces
Step 1: Identify the specific competitive pressures associated
with each of the five forces
Step 2: Evaluate the strength of each competitive force -- fierce,
strong, moderate to normal, or weak?
Step 3: Determine whether the collective strength of the five
competitive forces is conducive to earning attractive
profits
63. Competitive Pressures
• Usually the strongest of the five forces
• Key factor in determining strength of rivalry
– How aggressively are rivals using various weapons of
competition to improve their market positions and performance?
• Competitive rivalry is a combative contest involving
– Offensive actions
– Defensive countermoves
65. Typical Weapons for Competing?
• Lower prices
• More or different
performance features
• Better product
performance
• Higher quality
• Stronger brand image and
appeal
• Wider selection of models
and styles
Bigger/better dealer
network
Low interest rate financing
Higher levels of advertising
Stronger product innovation
capabilities
Better customer service
Stronger capabilities to
provide buyers with custom-
made products
66. What Causes Rivalry to be Stronger?
• Competitors are active in making fresh moves to improve
market standing and business performance
• Slow market growth
• Number of rivals increases and rivals are of
equal size and competitive capability
• Buyer costs to switch brands are low
• Industry conditions tempt rivals to use price cuts or other
competitive weapons to boost volume
• A successful strategic move carries a big payoff
• Diversity of rivals increases in terms of visions, objectives,
strategies, resources, and countries of origin
• Outsiders acquire weak firms in the industry and use their
resources to transform new firms into major market
contenders
67. What Causes Rivalry to be Weaker?
• Industry rivals move only infrequently or in a non-aggressive
manner to draw sales from rivals
• Rapid market growth
• Products of rivals are strongly
differentiated and customer loyalty is high
• Buyer costs to switch brands are high
• There are fewer than 5 rivals or there are numerous rivals so any
one firm’s actions has minimal impact on rivals’ business
68. Competitive Pressures
Associated With Potential Entry
• Seriousness of threat depends on
– Size of pool of entry candidates
and available resources
– Barriers to entry
– Reaction of existing firms
• Evaluating threat of entry involves assessing
– How formidable entry barriers are for each type of potential
entrant and
– Attractiveness of growth and profit prospects
70. Common Barriers to Entry
• Sizable economies of scale
• Cost and resource disadvantages independent of size
• Brand preferences and customer loyalty
• Capital requirements and/or other
specialized resource requirements
• Access to distribution channels
• Regulatory policies
• Tariffs and international trade restrictions
• Ability of industry incumbents to launch vigorous initiatives to
block a newcomer’s entry
71. When Is the Threat of Entry
Stronger?
• There’s a sizable pool of entry candidates
• Entry barriers are low
• Industry growth is rapid and profit
potential is high
• Incumbents are unwilling or unable to contest a
newcomer’s entry efforts
• When existing industry members have a strong
incentive to expand into new geographic areas or
new product segments where they currently do not
have a market presence
72. When Is the Threat of Entry
Weaker?
• There’s only a small pool of entry candidates
• Entry barriers are high
• Existing competitors are struggling to earn good profits
• Industry’s outlook is risky
• Industry growth is slow or stagnant
• Industry members will strongly contest
efforts of new entrants to gain a market foothold
73. Competitive Pressures from
Substitute Products
Substitutes matter when customers are attracted to the products of
firms in other industries
Concept
➔ Sugar vs. artificial sweeteners
➔ Eyeglasses and contact lens
vs. laser surgery
➔ Newspapers vs. TV vs. Internet
Examples
74. How to Tell Whether Substitute
Products Are a Strong Force
• Whether substitutes are readily
available and attractively priced
• Whether buyers view substitutes
as being comparable or better
• How much it costs end users
to switch to substitutes
76. When Is the Competition
From Substitutes Stronger?
• There are many good substitutes readily available
• Substitutes are attractively priced
• The higher the quality and
performance of substitutes
• The lower the end user’s switching costs
• End users grow more comfortable with using substitutes
77. Competitive Pressures From Suppliers
and Supplier-Seller Collaboration
• Whether supplier-seller relationships represent a
weak or strong competitive force depends on
– Whether suppliers can exercise sufficient bargaining leverage
to influence terms of supply in their favor
– Nature and extent of supplier-seller collaboration in the
industry
79. When Is the Bargaining
Power of Suppliers Stronger?
• Industry members incur high costs in switching their purchases
to alternative suppliers
• Needed inputs are in short supply
• Supplier provides a differentiated input
that enhances the quality of performance
of sellers’ products or is a valuable part
of sellers’ production process
• There are only a few suppliers of a specific input
• Some suppliers threaten to integrate forward
80. When Is the Bargaining
Power of Suppliers Weaker?
• Item being supplied is a commodity
• Seller switching costs to alternative suppliers are low
• Good substitutes exist or new ones emerge
• Surge in availability of supplies occurs
• Industry members account for a big
fraction of suppliers’ total sales
• Industry members threaten to integrate backward
• Seller collaboration with selected suppliers provides attractive
win-win opportunities
81. Competitive Pressures: Collaboration
Between Sellers and Suppliers
• Sellers are forging strategic partnerships
with select suppliers to
– Reduce inventory and logistics costs
– Speed availability of next-generation
components
– Enhance quality of parts being supplied
– Squeeze out cost savings for both parties
• Competitive advantage potential may accrue to sellers doing the
best job of managing supply-chain relationships
82. Competitive Pressures From Buyers
and Seller-Buyer Collaboration
• Whether seller-buyer relationships represent a
weak or strong competitive force depends on
–Whether buyers have sufficient bargaining
leverage to influence terms of sale in their
favor
–Extent and competitive importance of
seller-buyer strategic partnerships
in the industry
84. When Is the Bargaining
Power of Buyers Stronger?
• Buyer switching costs to competing brands or substitutes
are low
• Buyers are large and can demand concessions
• Large-volume purchases by buyers are important to sellers
• Buyer demand is weak or declining
• Only a few buyers exists
• Identity of buyer adds prestige
to seller’s list of customers
• Quantity and quality of information
available to buyers improves
• Buyers have ability to postpone purchases until later
• Buyers threaten to integrate backward
85. When Is the Bargaining
Power of Buyers Weaker?
• Buyers purchase item infrequently or in small quantities
• Buyer switching costs to competing brands are high
• Surge in buyer demand creates a “sellers’ market”
• Seller’s brand reputation is important to buyer
• A specific seller’s product delivers quality
or performance that is very important to buyer
• Buyer collaboration with selected sellers provides attractive win-
win opportunities
86. Competitive Pressures: Collaboration
Between Sellers and Buyers
• Partnerships are an increasingly important competitive element
in business-to-business relationships
• Collaboration may result in
mutual benefits regarding
– Just-in-time deliveries
– Order processing
– Electronic invoice payments
– Data sharing
• Competitive advantage potential may accrue to sellers doing the
best job of managing seller-buyer partnerships
87. Strategic Implications of
the Five Competitive Forces
• Competitive environment is unattractive from
the standpoint of earning good profits when
– Rivalry is vigorous
– Entry barriers are low and entry is likely
– Competition from substitutes is strong
– Suppliers and customers have considerable bargaining power
88. Strategic Implications of
the Five Competitive Forces
• Competitive environment is ideal from
a profit-making standpoint when
– Rivalry is moderate
– Entry barriers are high and no firm is likely to enter
– Good substitutes do not exist
– Suppliers and customers are in a weak bargaining position
89. Coping With the
Five Competitive Forces
• Objective is to craft a strategy to
– Insulate firm from competitive pressures
– Initiate actions to produce sustainable competitive advantage
– Allow firm to be the industry’s “mover and shaker” with the
“most powerful” strategy that defines the
business model for the industry
90. What Factors Are Driving Industry Change and
What Impacts Will They Have?
• Industries change because forces
are driving industry participants to alter
their actions
• Driving forces are the major underlying
causes of changing industry and
competitive conditions
• Where do driving forces originate?
–Outer ring of macroenvironment
–Inner ring of macroenvironment
91. Analyzing Driving Forces:
Three Key Steps
STEP 1: Identify forces likely to exert greatest influence over next
1 - 3 years
– Usually no more than 3 - 4 factors
qualify as real drivers of change
STEP 2: Assess impact
– Are the driving forces acting to cause market demand for
product to increase or decrease?
– Are the driving forces acting to make competition more or
less intense?
– Will the driving forces lead to higher or lower industry
profitability?
STEP 3: Determine what strategy changes are needed to prepare
for impacts of driving forces
92. Common Types of Driving Forces
• Emerging new Internet capabilities and applications
• Increasing globalization of industry
• Changes in long-term industry growth rate
• Changes in who buys the product and how they use it
• Product innovation
• Technological change/process innovation
• Marketing innovation
93. Common Types of Driving Forces
(con’t)
• Entry or exit of major firms
• Diffusion of technical knowledge
• Changes in cost and efficiency
• Consumer preferences shift from standardized to differentiated
products (or vice versa)
• Changes in degree of uncertainty and risk
• Regulatory policies / government legislation
• Changing societal concerns, attitudes, and lifestyles
96. Three Stages of Industry Growth
• Growth
– Entry rate exceeds the exit rate
• Shakeout
– Exit rate exceeds the entry rate
• Maturity
– Entry and exit rates are about the same
• Industry disruption
– Technological substitutes or disruptive technologies
offer a stronger buyer surplus to the industry’s
customers, drawing them away (e.g., DVDs vs.
videotapes)
97. Industry Evolution
• All industries evolve over time as new firms enter and
failing firms exit
• Industry evolution threatens all sources of competitive
advantage
• The more a firm resists the forces of industry evolution,
the less likely it is to survive
• Product life cycle
– Not the same as industry evolution but often linked
closely to it
98. Figure 4.1
Dynamic Growth Cycle
Firm Size Innovation in Processes or
Products
Improved Market Position
Through Higher Value, Lower
Cost or Both
Capacity
Expansion
Increased
Profitability
99. Key Concepts in Developing and Maintaining
Dynamic Capability
• Dynamic growth cycle
– The cycle of firm growth linking size, innovation,
productivity, profitability, and capacity expansion
• Dynamic capability
– The ability of a firm, as it grows, to build its innovative
potential and exploit it effectively
• Path dependence
– The tendency of a firm over time to invest in innovations
that are upwardly compatible with each other, thereby
creating a relatively unique path of product and process
development
100. Key Concepts in Developing and Maintaining
Dynamic Capability (cont’d)
• Absorptive capacity
– The ability of the firm to adopt innovations developed by
other organizations based on its prior experience with
similar or related practices or technologies
• Core rigidity
– The inability of a firm to adapt to changing market or
technological conditions because of its attachment to its
core practices and customers
101. Expansion During the Growth Stage
• Developing scale-based value drivers
– Which drivers are adopted depends on the purchasing
criteria of the majority of buyers
• For example: brand, service, network externalities, quality
• Moving from early adopters to the early majority is crossing the
chasm
• Developing scale-based cost drivers in specific value
chain activities
– Economies of scale
– Economics of scope
– Learning curve
102. Early Mover Advantage
• Defined by a combination of competitive advantage
(short term) and dynamic capability (long term)
• Opportunity to establish and defend a strong market
position
• Opportunity to grow over a longer period of time
• Higher chances of being exposed to opportunities for
growth and innovation
103. Strategic Pricing
• Strategic pricing
– Pricing below marginal cost in order to attract additional
buyers
• Strategic pricing makes sense under two conditions
– When increases in volume are sustainable through
customer loyalty due to higher switching costs
– When increased demand leads to lower costs for the
firm through scale-driven cost drivers such as the
learning curve and scale economies
104. Risks of Strategic Pricing
• Cost reduction due to learning or scale does not make
up for the profits lost by setting a lower price
– Poor understanding of technologies or other activities
• Inability to protect cost advantages
• Higher demand does not materialize
• Customers cannot be retained
105. What Determines a Shakeout?
• Shakeout
– Due to the emergence of a dominant, sustainable business model
(value minus cost)
– The strongest competitors use their higher productivity to drive out
weaker firms
• Shakeouts can occur in the same time frame
– As the product life cycle shifts toward maturity
• The product life cycle does not explain which firms will survive the
shakeout
– As a dominant design emerges
• A dominant design is the culmination of a series of innovations in a
product’s components and architecture and in related value drivers,
such as service, network externalities, complements, or breadth of line
• For example, the IBM PC, the general purpose tractor, the piano
106. What Determines a Shakeout’s Severity?
• Expectations about future market demand and the
degree of sunk costs
• Ease of imitation of the dominant firms’ market position
• The existence of defendable niche markets
➢About six percent of the firms in an industry exit during
the shakeout every year
107. Indicators of Industry Maturity
• The long-term leveling-off or decline in the market
growth rate
• Rising buyer experience with industry products
• The high concentration of market share among large,
relatively similar firms
• The persistence of niche markets
108. An Increase in Buyer Experience
• Firms attempt to counter the growing power of
experienced buyers by:
– Introducing innovations that increase search and
transition costs for buyers:
• Improved service
• Higher quality
• Breadth of line and product customization
– Lowering prices
109. Industry Concentration
• Industry concentration depends on
– The ratio of market size to the minimum scale required
to compete
• The lower the scale, the more firms are viable
– Sunk cost investments in value drivers that have
increasing returns to scale
• Higher sunk costs force out smaller rivals and deter entry
110. Hyper-competition
• Hyper-competition is the combination of:
– Multipoint competition
• Industries in which large firms compete across many products in a
product line and across geographical regions
• Mutual footholds in the core market of rival firms ensure
competitive stability
– An arms race
• The requirement to develop product and process innovations to
keep up with competitors
• Returns on innovations become lower innovations are copied by
competitors
111. Niche Markets
• Competition in niche markets is affected by:
– Size of the niche
– Growth rate of the niche
– Barriers to entry
– Changes in niche buyers’ preferences toward core
market products
– Minimum level of scale required to compete
– Ability to improve non-scale based cost and value
drivers
– Increase in the buyer switching costs
112. Types of Industry Disruption
• Technological substitution
– Introduction of a radically new technology that has a
higher rate of return on investment in R&D than the
current technology in the industry
• Disruptive innovation
– Introduction of a new product with lower value but much
lower cost than the incumbent product
• Typically based on standard components
• Exploits emergent customer price sensitivity
• Radical institutional change
– A radical shift in the regulation of competition that opens
the market to firms with innovative capabilities
113. Adapting to Industry Disruption
• When can incumbents adapt to disruption?
– When they control assets (e.g., distribution) that are
critical for competing in the industry
– When isolating mechanisms protecting the innovation
are weak
– When incumbents do not suffer large short-term
opportunity costs in switching to the innovation
115. Incumbents Adaptation to Technological
Substitutes
• Incumbents delay adopting technological substitutes for
the following reasons
– Emphasis on total (rather than marginal) return on
investment in R & D
– Potential cannibalization by the new technology of
profits from the traditional technology
– Poor absorptive capacity to adopt new technology
116. Disruptive Technology
• Characteristics include:
– Technology initially introduced by start-ups into niche
market too small to attract incumbents’ attention
– Product based on technology has relatively lower initial
functionality and also a lower cost
– Price-value profile of new product does not initially
attract customers in industry’s core market
117. Disruptive Technology (cont’d)
– Over time, preferences of incumbents’ customers shift
toward value-price profile of new product
– Complementary assets (distribution) necessary for
market penetration of disruptive technology not
controlled by incumbents
– Start-ups selling new product develop a dynamic growth
cycle which allows them to penetrate core market
rapidly through scale-based cost drivers
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Session 6:
Porter’s 5 Generic Strategies
IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch
1
Value Delivery
Different Value Delivered Differently
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Competitive Strategy
• A company achieves Comp Adv whenever it has some
type of edge over rivals in attracting buyers and coping
with competitive forces.
• There may be many routes to Comp Adv, but they all
involve giving buyers what they perceive as superior
value.
• Delivering superior value – whatever form it takes –
nearly always requires performing value chain activities
differently than rivals and building competencies and
resource capabilities that are not readily matched.
3
Fig. 5.1: The Five Generic Competitive Strategies
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Low-Cost Provider Strategies
• Make achievement of meaningful lower costs
than rivals the theme of firm’s strategy
• Include features and services in product
offering that buyers consider essential
• Find approaches to achieve a cost advantage
in ways difficult for rivals to copy or match
Keys to Success
Low-cost leadership means low overall costs, not
just low manufacturing or production costs!
5
Translating a Low-Cost Advantage into Higher
Profits: Two Options
Option 1: Use lower-cost edge to
under-price competitors and attract
price-sensitive buyers in enough
numbers to increase total profits
Option 2: Maintain present price, be
content with present market share,
and use lower-cost edge to earn a
higher profit margin on each unit sold,
thereby increasing total profits
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Approaches to Securing
a Cost Advantage
Do a better job than rivals of
performing value chain activities
efficiently and cost effectively
Revamp value chain to bypass
cost-producing activities that add little
value from the buyer’s perspective
Approach 1
Approach 2 Control
costs!
By-pass
costs!
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Approach 1: Controlling the Cost
Drivers
• Capture scale economies; avoid scale diseconomies
• Capture learning and experience curve effects
• Control percentage of capacity utilization
• Pursue efforts to boost sales and spread costs such as R&D
and advertising over more units
• Improve supply chain efficiency
• Substitute use of low-cost for high-cost raw materials
• Use online systems and sophisticated software to achieve
operating efficiencies
• Adopt labor-saving operating methods
• Use bargaining power to gain concessions from suppliers
• Compare vertical integration vs. outsourcing
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Approach 2: Revamping the Value
Chain
• Use direct-to-end-user sales/marketing methods
• Make greater use of online technology applications
• Streamline operations by eliminating low-value-added or
unnecessary work steps
• Relocate facilities closer to suppliers or customers
• Offer basic, no-frills product/service
• Offer a limited product/service as opposed to a full
product/service line
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Keys to Success in Achieving
Low-Cost Leadership
• Scrutinise each cost-creating activity, identifying cost
drivers
• Use knowledge about cost drivers to manage
costs of each activity down year after year
• Find ways to restructure value chain to eliminate
nonessential work steps and low-value activities
• Work diligently to create cost-conscious corporate cultures
– Feature broad employee participation in continuous cost-
improvement efforts and limited perks for executives
– Strive to operate with exceptionally small corporate staffs
• Aggressively pursue investments in resources and
capabilities that promise to drive costs out of the business
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Characteristics of a Low-Cost
Provider
• Cost conscious corporate culture
• Employee participation in cost-control efforts
• Ongoing efforts to benchmark costs
• Intensive scrutiny of budget requests
• Programs promoting continuous cost improvement
Successful low-cost producers champion
frugality but wisely and aggressively
invest in cost-saving improvements !
11
When Does a Low-Cost
Strategy Work Best?
• Price competition is vigorous
• Product is standardized or readily available
from many suppliers
• There are few ways to achieve
differentiation that have value to buyers
• Most buyers use product in same ways
• Buyers incur low switching costs
• Buyers are large and have
significant bargaining power
• Industry newcomers use introductory low prices to
attract buyers and build customer base
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Pitfalls of Low-Cost Strategies
• Being overly aggressive in cutting price
• Low cost methods are easily imitated by rivals
• Becoming too fixated on reducing costs
and ignoring
– Buyer interest in additional features
– Declining buyer sensitivity to price
– Changes in how the product is used
• Technological breakthroughs open up cost reductions
for rivals
13
Differentiation Strategies
• Incorporate differentiating features that cause buyers to
prefer firm’s product or service over brands of rivals
• Find ways to differentiate that create value for buyers
and are not easily matched or cheaply copied by rivals
• Not spending more to achieve differentiation
than the price premium that can be charged
Objective
Keys to Success
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Benefits of Successful Differentiation
A product / service with unique,
appealing attributes allows a firm to
➔ Command a premium price and/or
➔ Increase unit sales and/or
➔ Build brand loyalty
= Competitive Advantage
Which
hat is
unique?
15
Types of Differentiation Themes
• Unique taste – Dr. Pepper
• Multiple features – Microsoft Windows and Office
• Wide selection and one-stop shopping – Home Depot, Amazon.com
• Superior service -- FedEx, Ritz-Carlton
• Spare parts availability – Caterpillar
• Engineering design and performance – Mercedes, BMW
• Prestige – Rolex
• Product reliability – Johnson & Johnson
• Quality manufacture – Karastan, Michelin, Toyota
• Technological leadership – 3M Corporation
• Top-of-line image – Ralph Lauren, Starbucks, Chanel
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Sustaining Differentiation:
Keys to Competitive Advantage
• Most appealing approaches to differentiation
– Those hardest for rivals to match or imitate
– Those buyers will find most appealing
• Best choices to gain a longer-lasting, more profitable
competitive edge
– New product innovation
– Technical superiority
– Product quality and reliability
– Comprehensive customer service
– Unique competitive capabilities
17
Where to Find Differentiation
Opportunities in the Value Chain
• Purchasing and procurement activities
• Product R&D and product design activities
• Production process / technology-related activities
• Manufacturing / production activities
• Distribution-related activities
• Marketing, sales, and customer service activities
Internally
Performed
Activities,
Costs, &
Margins
Activities,
Costs, &
Margins of
Suppliers
Buyer/User
Value
Chains
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners
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How to Achieve a
Differentiation-Based Advantage
Approach 1
Incorporate features/attributes that raise the
performance a buyer gets out of the product
Approach 2
Incorporate features/attributes that enhance
buyer satisfaction in non-economic or intangible
ways
Approach 3
Compete on the basis of superior capabilities
Approach 4
Incorporate product features/attributes that
lower buyer’s overall costs of using product
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Importance of Perceived Value
• Buyers seldom pay for value that is not perceived
• Price premium of a differentiation strategy reflects
– Value actually delivered to the buyer
and
– Value perceived by the buyer
• Actual and perceived value can differ when buyers are
unable to assess their experience with a product
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Signaling Value as Well
as Delivering Value
• Incomplete knowledge of buyers causes them to
judge value based on such signals as
– Price
– Attractive packaging
– Extensive ad campaigns
– Ad content and image
– Seller facilities or professionalism and
personality of employees
– Having a list of prestigious customers
• Signals of value may be as important as
actual value when
– Nature of differentiation is hard to quantify
– Buyers are making first-time purchases
– Repurchase is infrequent
– Buyers are unsophisticated
21
When Does a Differentiation
Strategy Work Best?
• There are many ways to differentiate a product
that have value and please customers
• Buyer needs and uses are diverse
• Few rivals are following a similar
differentiation approach
• Technological change and
product innovation are fast-paced
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Pitfalls of Differentiation Strategies
• Appealing product features are easily copied by rivals
• Buyers see little value in unique attributes of product
• Overspending on efforts to differentiate the product
offering, thus eroding profitability
• Over-differentiating such that product
features exceed buyers’ needs
• Charging a price premium
buyers perceive is too high
• Not striving to open up meaningful gaps in quality,
service, or performance features vis-à-vis rivals’
products
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Decision Making Model
oA decision making model is a framework for making
any kind of decision in an organization
• The methods or process the individuals will use
oRational decision making
oBounded rationality (satisfycing)
oLayered decision making
oIntuitive decision making
• In all the models there are objective as
well as subjective elements involved
Kenichi Ohmae’s
3C model
3
Rational Decision Making
oPsychology tells us that emotions drive our behavior,
oLogic only justifies our actions after the fact
oMarketing confirms this theory
oHumans associate the same personality traits with
brands as they do with people
oBut emotions can cloud your reasoning, especially
when you need to do something that could cause
internal pain, like giving constructive criticism
oRDMM will help you make logically sound decisions
even in situations with major emotional ramifications
oThis approach can help to ensure discipline and
consistency factor into the decision-making process
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Generic Steps for RDMM
oIdentifying a Problem or Opportunity
oDefine the Desired Outcome
oGathering Relevant Information
oAnalyzing the Situation
oDeveloping Options
oEvaluating Options
oSelecting a Preferred Alternative (Aware of
Opportunity Costs)
• In other words, what is your second best option in comparison to your
first? If you have option #1 in mind, what could you otherwise decide
with option #2? This is your opportunity cost.
oActing on the Decision
5
Generic Steps for RDMM
o Identifying a Problem or
Opportunity
o Define the Desired
Outcome
o Gathering Relevant
Information
o Analyzing the Situation
o Developing Options
o Evaluating Options
o Selecting a Preferred
Alternative (Aware of
Opportunity Costs)
• In other words, what is
your second best option
in comparison to your
first? If you have
option #1 in mind,
what could you
otherwise decide with
option #2? This is your
opportunity cost.
o Acting on the Decision
• Structured and logical
• Brings discipline to the process
• Limited learning from post-mortem
• Data sanctity and relevance
• Data recency
• Ambiguity around the other 2Cs
• Model is static rather than dynamic
• Individual expertise in data
interpretation
• Data interpretation usually linked
with past experience
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Dealing with Uncertainty
oHBR suggests we can use a simple four-step
process to work with and through ambiguity
to make careful, reasoned decisions
oIdentify the category of historical data
• Salient data
• Contextual data
• Patterned data
oRecognise the associated bias
• Salience bias (what we consider salient or imp)
• Framing bias (how context is created by framing same
reason differently - “80% lean ground beef” sounds more
healthful than “beef with 20% fat.” )
• Clustering illusion (random event used to predict future -
hot hand fallacy. Human mind is wired to look for
pattern)
o Invert the problem and focus on outcome
o Formulate the right question
• Behaviour, Opinion, Feeling, Knowledge
7
Bounded Rationality
oBounded rationality is a decision-making mechanism
in which we try to satisfy rather than optimize our
goals. Instead of seeking the optimal decision, we
choose a decision that will suffice
• Cognitive limitations
• Time constraints
• Imperfect information
oOptimum solution by an individual may not be the
optimal solution as viewed by the Org or CEO -
maximise profit vs other priorities like sustainability,
env, exploitation etc.
• Whatever satisfies the criteria set by both will be selected
• Min difference or resistance rather than optimum solution
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HBR Decision Making
Information Use
Satisfying (less info) Maximising (more info)
Number
of
Options
Single
focus
(One
Option)
Multi
focus
(many
Option)
Hierarchic
People using this highly analytical
and focused style expect their
decisions, once taken, to be final
and to stand the test of time.
In public, this complex style comes
across as highly intellectual.
Integrative
People frame problems broadly,
using inputs from many sources
and make decisions involving
multiple courses of action that may
evolve over time as circumstances
change.
In public, this creative style comes
across as highly participative.
Decisive
This decision is direct, fast and
firm
In public, this action-focused
style comes across as task
oriented
Flexible
This style is about speed,
adaptability.
Managers make decisions quickly
and change course just as quickly
to keep abreast of immediate,
shifting situations.
In public, this comes across as
highly social and responsive.
9
Future proofing businesses
oA combination of savvy consumers and
economic turmoil, brand allegiance is on a
steady decline
oEngaging customers and delivering deep
value to them has always been key to driving
retention and repeat customers, and fueling
a healthy business.
oDuring times of economic uncertainty, that
engagement and retention become more
important than ever.
oExceptional customer experience (CX)—one
that’s personalized, contextual, and
engaging across the customer journey—and
doing it in a highly efficient way that saves
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Decision Making Biases …
oMyopia
• Weighting short term over long term outcomes, controlling for a
discount rate
oSunk costs
• Continuing to invest in failing projects in hope
of getting back the original investment
oBias based on whether a decision is
framed in terms of gains or losses
• Tending to be risk seeking in terms of losses and
risk adverse to gains, as described by Prospect
theory
11
Decision Making Biases…
oInformation availability
• Valuing and using information simply because
it is favored, most recent, or readily at hand.
oInformation anchoring
• Overweighting information that appears first in
the information flow.
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Determining How Much Authority to Delegate
Organizational Approaches
to Decision Making:
Authority is retained by
top management.
Decentralized
Decision Making:
Authority is delegated
to lower-level
managers and
employees.
Centralized
Decision Making:
13
3rd Party Involvement
o To provide independence and unbiased judgment
o They present new ideas and fresh approach
o They may possess ability to diagnose problems and
evaluate solutions
o They perform tasks with technical skills infrequently
needed
o They supplement present skills of staff and
management
o They implement systems and train employees
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Roles of a 3rd party
o The Expert
• Brings specific knowledge and skill, not available inside the org
• Insight of industry; best in class benchmarked practices
o The Provocateur
• Identify critical info needs, ask difficult and unanticipated questions,
challenges the status quo
• Insight into prevalent decision making process; provoke the mgt team
o The Legitimizer
• Reinforces and verifies information; identifies biases in decisions, if any
• Facilitates implementation
• His perspective may prevent misallocation of resources, escalating
commitment to a failing cause or strategic mistakes
15
Other roles
oEducators and facilitators in corp training
o‘hatchet men’ for handling extreme cases like
downsizing
oCatalysts to break organizational inertia
oCorporate spies, to conduct organizational espionage
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Session 8:
Competitive Manœuvres
IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch
1
Competitive Stance
• It is a truism that strategic management is all
about gaining and maintaining competitive advantage.
• The term can be defined to mean and justify “anything
that a firm does especially well when compared with rival
firms”.
• Gains importance in a context where there may be a
conflict or likelihood of a conflict between ‘political
imperative’ and ‘economic imperative’
– What could be some instances of this in India?
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Competitive Stance
• Aggressive
• Defensive
• Pre-emptive
What could be some of the advantages and challenges
inherent in these stances?
Which one of these stances could be a preferred strategy
and when?
3
Offensive Strategy
• Consists of actively trying to pursue changes within the
industry
– seek to shape an industry through first-mover
– generally make acquisitions
– invest heavily in research and development and technology in an
effort to stay ahead of the competition
– generate and actively protect IPRs
– challenge competitors by cutting off new or under-served markets, or
– going head-to-head with them
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Types of Offensive Strategy
• Neutralize, match, or exceed the competitive strength of rival
firms
• Turn competitive attention to the weaknesses of rival firms in
brand perceptions, demographic/geographic reach, and
organizational resources,
• Throw rival firms off balance with multiple tactics (new product
introductions coupled with increases in advertising and
reductions in price) across a wide range of market segments,
• Lead to a first-mover advantage in unserved or uncontested
markets by maneuvering around rival firms rather than meeting
them head on (end-run offensives),
• Selectively captures market share from rival leaders when the
lack of resources or market visibility prevents a full scale offense
(guerrilla offensives) and
• Secure a first mover advantage that is difficult to imitate with
initiatives such as expanding capacity beyond current market
demand and securing pricing advantages with long-term supply
contracts.
5
Types of Offensive Strategy
• "End run strategy"
– eschews direct competition and instead seeks to exploit untouched
markets or neglected segments, demographic groups or areas.
• "Pre-emptive strategy"
– simply the natural advantage a company has when it is the first to
serve a particular marketplace or demographic. It can be
exceptionally hard to unseat. Also known as "first-mover" advantage.
• "Direct attack strategy"
– price war, or even a competition as to who can introduce new
product features at a faster pace
– taking charge of the public conversation through marketing
campaigns.
• "Acquisition strategy"
– seeks to remove a competitor by buying it - wealthy or well-
capitalized competitor
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Defensive Strategy
• Meant to counteract offensive competitive strategies
• Moves that reduce the ability of rival firm strategies to
threaten the firm’s competitive strength or organizational
resources
– Because of this, they are rarely a source of a competitive advantage
• Their intended purpose is to defend an industry position,
protect competitive resources from imitation, and
sustain an existing advantage by lowering the risk and
weakening the impact of rival firm offensive attacks
7
Types of Defensive Strategy
• Deter retaliation by communicating a commitment to
unequivocally follow through on offensive moves
• Deter threatening moves with a commitment to direct and
continued retaliation if rival firms make certain moves and
• Create trust by communicating a commitment to make no new
moves or forego existing moves in an effort to de-escalate a
competitive battle
• Government intervention strategies involve the use of political
and legal tactics to prevent rival firms from changing the rules of
the game.
• Strategy flexibility protects firm resources through the ability to
move quickly out of declining markets into more prosperous
ones.
• Lastly, avoidance strategies dodge confrontation by focusing on
market segment of little interest to rival firms.
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Types of Def Strategy
• Exclusion
– set up exclusive arrangements with key suppliers in the market- access to
suppliers, sources or partners.
• Pricing
– A simple strategy is to match any price cuts by the competition - as long as the
price war does not get out of hand and ruin both sides.
• Features
– Adding new features or capabilities can be a positive and appealing
• Service
– Emphasize after-sales service or warranties, implicitly demonstrating that it
stands by the superiority of its products.
• Advertising
– demonstrating commitment to the market, confidence in the products, or a
willingness to meet the competitor’s challenge.
– Counter-parry
– Companies respond to an attack in their own market, by moving into the
competitor’s home market, participate in community events to position
themselves as friendly and familiar rather than foreign and aggressive.
Original article: https://www.tradeready.ca/2014/fittskills-refresher/list-offensive-
defensive-strategies-international-business/
9
Pre-emptive strategy
• It is not reactive but pro-active
– Taken in anticipation of what the competition might do or to deter it
• Locking up Capacity
– 1984 Sony announced 5X increase in prod capacity of 3.5” disk
• Locking in Markets
– Gillette Sensor (19 countries); P&G Pampers (90 countries) launch
• Locking up Minds
– Announce prod much before launch to capture customer imagination
• Blocking a competitor’s intended action
– Nabisco blocking launch of Kellogg’s ‘most nutritious shredded
wheat you can buy’ claim, by threatening to sue it since it was also
launching wheat cereal
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How do you pre-empt?
• Competitive signals
– test marketing; acquisitions; Patent search; hiring or firing; strategic
alliances
• Competitive analysis
– Past record of competitors; historical strengths and weaknesses;
personality and actions of key decision makers;
• Distribution channels
– SWOT of current and emerging rack space pattern; distribution and
other channel partners;
• Environmental analysis
– Changes in PESTEL that could trigger new moves of competitors
11
Future proofing businesses
• A combination of savvy consumers and economic turmoil,
brand allegiance is on a steady decline
• Engaging customers and delivering deep value to them has
always been key to driving retention and repeat customers, and
fueling a healthy business.
• During times of economic uncertainty, that engagement and
retention become more important than ever.
• Exceptional customer experience (CX)—one that’s
personalized, contextual, and engaging across the customer
journey—and doing it in a highly efficient way that saves money.
• The businesses that do this are the ones that will thrive and
emerge as winners.
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Hyper-competition
• What is it?
• What could be some of its features/ attributes?
– How will you identify if the market has become hpyer-compeititive?
– Is there an optimal way to respond to it?
13
Hyper-competition
• When organizations use tactics to disrupt the competitive
advantage held by industry leaders.
• A condition when the competition is very intense, creating
instability in the market.
– These conditions require companies to change strategies continuously.
– Companies maneuver with each other so that changing market
dynamics quickly.
– As a result, the strategic competitiveness of a company can disappear
immediately or in short-run
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Hyper-competition - characteristics
• High level of rivalry among the players
• Strategic maneuvers occur at a quick, intense and unexpected pace
• Rapid technological and structural changes
• Adoption of flexible strategies is common because the competitive
landscape is changing rapidly
• Low entry barriers, allowing new players to enter and challenge
existing companies.
• The competitive advantage is temporary.
• The new strategic competitiveness would immediately appear,
destroy, and replace the old ones.
15
Hyper-competition - Causes
• Globalization increases corporate mobility between countries and
reduces barriers to market entry.
– Also, trade bloc leads to free entry and exit of companies
• Ongoing technological innovation.
– New technology is beginning to disrupt conventional business models. It
also brings competition across national boundaries.
• The bargaining power of buyers is also getting stronger, bringing
higher pressure to producers.
– Through technology, consumers nowadays are easy to compare prices
between products.
– They can easily switch to competing products when unsatisfied with a
product. That, in turn, drives them to want not only higher quality
products but also cheaper ones.
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Hyper-competition - Framework
Richard A D’Aveni created a framework of 4 pillars
• Consumer expectation has gone up dramatically
• Technology is driving – business + customers
• Falling entry barriers
– Trade related tie ups
– Technology disruption
– Global reach
• Deep pockets
– Contributory pockets against individual pocket earlier
17
D’Aveni Framework
• 4 arenas analysis
– It looks at how competition builds up in each of the four areas below,
in order to identify patterns and predict future strategic action.
– Cost and quality (C – Q) of competitors and how they rate as
leaders or followers.
– Timing and know-how (T–K) capabilities that affect efficiencies in
the value chain.
– Strongholds (S) referring to a firm’s core competencies that are
difficult to copy.
– Deep pockets (D), the financial resources of players in the industry.
• Four lenses analysis looks at how a single competitive
action (the introduction of tablets, for example) affects
the four arenas of an industry.
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D’Aveni Framework
1. Vision for disruption – creating temporary advantage through:
– (i) stakeholder satisfaction – adding value for customers, partners,
and investors;
– (ii) strategic soothsaying – predicting windows of opportunity.
2.Capabilities for disruption – sustaining competitive momentum through:
(i) speed – preparing the organization to react to market changes;
(ii) surprise – planning of strategies that will disrupt competitors.
3.Tactics for disruption – maintaining equilibrium through:
(i) shifting rules - innovating products, processes and revenue models;
(ii) signalling intent of selective strategies to the industry;
(iii) simultaneous and sequential strategic thrusts to maintain a
proactive lead and to keep competitors in a defensive position.
19
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1
Strategic Management
Complete session is delivered based on content and presentation available in the book by Thompson
IIFT Delhi - MBA(IB), 2021-24 |
Weekend Batch
1
Why Do Companies Expand
into Foreign Markets?
Gain access to
new customers
Capitalize
on core
competencies
Achieve lower
costs and enhance
competitiveness
Spread
business risk
across wider
market base
Obtain access to
valuable natural
resources
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The Four Big Strategic Issues
in Competing Globally
¡ Whether to customize a company’s offerings in each
different country market to match preferences of local
buyers or offer a mostly standardized product worldwide
¡ Whether to employ essentially the same
basic competitive strategy in all countries
or modify the strategy country by country
¡ Where to locate a company’s production facilities,
distribution centers, and customer service operations
to realize the greatest locational advantages
¡ How to efficiently transfer a company’s resource
strengths and capabilities from one country to another to
secure competitive advantage
3
¡ Cultures and lifestyles differ among countries
¡ Differences in market demographics
and income levels
¡ Variations in manufacturing
and distribution costs
¡ Fluctuating exchange rates
¡ Differences in host government
economic and political demands
Cross-Country Differences in Cultural,
Demographic, and Market Conditions
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3
¡ Consumer tastes and preferences
¡ Consumer buying habits
¡ Market size and growth potential
¡ Distribution channels
¡ Driving forces
¡ Competitive pressures
One of the biggest concerns of companies competing in foreign
markets is whether to customize their product offerings in each
different country market to match the tastes and preferences of local
buyers or whether to offer a mostly standardized product worldwide.
How Markets Differ from
Country to Country
5
¡ Manufacturing costs vary from country to country based
on
¡ Wage rates
¡ Worker productivity
¡ Inflation rates
¡ Energy costs
¡ Tax rates
¡ Government regulations
¡ Quality of business environment varies from country to
country
¡ Suppliers, trade associations, and makers of
complementary products often find it advantageous to
cluster their operations in the same general location
Different Countries Have
Different Locational Appeal
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4
Fluctuating Exchange Rates Affect
a Company’s Competitiveness
¡ Currency exchange rates are unpredictable
¡ Competitiveness of a company’s operations
partly depends on whether exchange rate
changes affect costs favorably or unfavorably
¡ Lessons of fluctuating exchange rates
¡ Exporters always gain in competitiveness
when the currency of the country where
goods are manufactured grows weaker
¡ Exporters are disadvantaged when
the currency of the country where
goods are manufactured grows stronger
7
Differences in Host
Government Trade Policies
¡ Local content requirements
¡ Restrictions on exports
¡ Regulations on prices of imports
¡ Import tariffs or quotas
¡ Other regulations
¡ Technical standards
¡ Product certification
¡ Prior approval of capital spending projects
¡ Withdrawal of funds from country
¡ Ownership (minority or majority) by local citizens
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5
Characteristics of
Multi-Country Competition
¡ Market contest among rivals in one country not
closely connected to market contests in other
countries
¡ Buyers in different countries are
attracted to different product attributes
¡ Sellers vary from country to country
¡ Industry conditions and competitive forces in
each national market differ in important respects
Rival firms battle for national championships –
winning in one country does not necessarily signal the
ability to fare well in other countries!
9
¡ Competitive conditions across
country markets are strongly linked
¡ Many of same rivals compete in
many of the same country markets
¡ A true international market exists
¡ A firm’s competitive position in one country is
affected by its position in other countries
¡ Competitive advantage is based on a firm’s world-
wide operations and overall global standing
Rival firms in globally competitive
industries vie for worldwide leadership!
Characteristics of Global
Competition
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6
The Integration/ Responsiveness Grid and
Strategy Types
11
Strategy Options for
Competing in Foreign Markets
¡ Exporting
¡ Licensing
¡ Franchising strategy
¡ Multi-country strategy
¡ Global strategy
¡ Strategic alliances or joint ventures
¡ FDI or Acquisition
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7
¡ Involve using domestic plants as a production base
for exporting to foreign markets
¡ Excellent initial strategy to pursue international sales
¡ Advantages
¡ Conservative way to test international waters
¡ Minimizes both risk and capital requirements
¡ Minimizes direct investments in foreign countries
¡ An export strategy is vulnerable when
¡ Manufacturing costs in home country are higher
than in foreign countries where rivals have plants
¡ High shipping costs are involved
¡ Adverse fluctuations in currency exchange rates
Export Strategies
13
Licensing Strategies
¡ Licensing makes sense when a firm
¡ Has valuable technical know-how or a patented product but
does not have international capabilities to enter foreign
markets
¡ Desires to avoid risks of committing resources to markets
which are
¡ Unfamiliar
¡ Politically volatile
¡ Economically unstable
¡ Disadvantage
¡ Risk of providing valuable technical know-how to foreign firms
and losing some control over its use
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Franchising Strategies
¡ Often is better suited to global expansion efforts
of service and retailing enterprises
¡ Advantages
¡ Franchisee bears most of costs and
risks of establishing foreign locations
¡ Franchisor has to expend only the
resources to recruit, train, and support franchisees
¡ Disadvantage
¡ Maintaining cross-country quality control
15
Locating Activities to Build a
Global Competitive Advantage
¡ Two issues
¡ Whether to
¡ Concentrate each activity in a
few countries or
¡ Disperse activities to many
different nations
¡ Where to locate activities
¡ Which country is best
location for which activity?
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¡ Activities should be concentrated when
¡ Costs of manufacturing or other value chain activities are
meaningfully lower in certain locations than in others
¡ There are sizable scale economies
in performing the activity
¡ There is a steep learning curve associated
with performing an activity in a single location
¡ Certain locations have
¡ Superior resources
¡ Allow better coordination of related activities or
¡ Offer other valuable advantages
Concentrating Activities to Build
a Global Competitive Advantage
17
Dispersing Activities to Build a
Global Competitive Advantage
¡ Activities should be dispersed when
¡ They need to be performed close to buyers
¡ Transportation costs, scale diseconomies, or
trade barriers make centralization expensive
¡ Buffers for fluctuating exchange rates, supply interruptions,
and adverse politics are needed
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Transferring Valuable Competencies to Build a Global
Competitive Advantage
¡ Transferring competencies, capabilities, and resource
strengths across borders contributes to
¡ Development of broader competencies and capabilities
¡ Achievement of dominating depth in some competitively
valuable area
¡ Dominating depth in a competitively valuable
capability is a strong basis for sustainable competitive
advantage over
¡ Other multinational or global competitors and
¡ Small domestic competitors in host countries
19
Global Strategic Offensives
¡ Attack a foreign rival’s profit sanctuaries
¡ Approach places a rival on the defensive, forcing it to
¡ Spend more on marketing/advertising
¡ Trim its prices
¡ Boost product innovation efforts
¡ Take actions raising its costs and eroding its profits
¡ Employ cross-market subsidization
¡ Attractive offensive strategy for companies competing in
multiple country markets with multiple products
¡ Dump goods at cut-rate prices
¡ Approach involves a company selling goods in foreign markets
at prices
¡ Well below prices at which it sells in its home market or
¡ Well below its full costs per unit
Three Options
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11
Achieving Global
Competitiveness via Cooperation
¡ Cooperative agreements with foreign companies are a
means to
¡ Enter a foreign market or
¡ Strengthen a firm’s competitiveness
in world markets
¡ Purpose of alliances
¡ Joint research efforts
¡ Technology-sharing
¡ Joint use of production or distribution facilities
¡ Marketing / promoting one another’s products
21
Strategic Appeal of Strategic
Alliances
¡ Gain better access to attractive country markets from host
country’s government to import and market products
locally
¡ Capture economies of scale in production and/or
marketing
¡ Fill gaps in technical expertise or knowledge of local
markets
¡ Share distribution facilities and dealer networks
¡ Direct combined competitive energies
toward defeating mutual rivals
¡ Take advantage of partner’s local market
knowledge and working relationships with
key government officials in host country
¡ Useful way to gain agreement on
important technical standards
T
h
e
pi
ct
u
r
e
c
a
n'
t
b
e
di
s
pl
a
y
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Pitfalls of Strategic Alliances
¡ Overcoming language and cultural barriers
¡ Dealing with diverse or conflicting operating practices
¡ Time consuming for managers in terms of communication, trust-
building, and coordination costs
¡ Mistrust when collaborating in
competitively sensitive areas
¡ Clash of egos and company cultures
¡ Dealing with conflicting objectives, strategies, corporate values,
and ethical standards
¡ Becoming too dependent on another firm for essential expertise
over the long-term
23
¡ Tailoring products for big, emerging markets often
involves
¡ Making more than minor product changes and
¡ Becoming more familiar with local cultures
¡ Companies have to attract buyers with
bargain prices as well as better products
¡ Specially designed and/or specially
packaged products may be needed to
accommodate local market circumstances
¡ Management team must usually consist
of a mix of expatriate and local managers
Characteristics of Competing
in Emerging Foreign
Markets
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Strategic Options: How to Compete
in Emerging Country Markets
¡ Prepare to compete on the basis of low price
¡ Be prepared to modify aspects of
the company’s business model to
accommodate local circumstances
¡ Try to change the local market to better match the
way the company does business elsewhere
¡ Stay away from those emerging markets where it is
impractical or uneconomic to modify the company’s
business model to accommodate local circumstances
25
¡ If a local company has resources and capabilities that
it can transfer to operations in other countries, it can
launch a strategy aimed at
¡ Entering markets of other countries as rapidly as possible
¡ Shifting to a more globalized strategy
¡ Building brand recognition and a brand
image that extends to more and more
countries
¡ Gradually establishing the resources and
capabilities to go head-to-head against
large global rivals
Strategic Options for Local Companies:
Contend on a Global Level
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1
Session 10:
Strategies for
Stagnant or Declining Industry
IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch
1
Identifying Decline
• Showing financial trouble
o Margins below sustainable levels
o Inventories piling up, stock not moving at rates they did earlier
• Lack of innovation/ R&D
o Companies in the industry are risk averse
o Recycle rather than innovation is relied on
• Too much emphasis on past success/ reputation
o External business drivers vanishing
• Lack of transparency
• Talent moving away to other areas
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2
What spurs decline?
• Factors that could spur decline
o Technological disruptions
o Demographic changes
o Shift in customer needs
o Complementary products
o Cost of inputs
3
Strategies for Growth
• Organic growth or Inorganic through M&A
• JV or SA
• Porter (1980), states that the firm should
o evaluate competitors’ strengths, industry structure, potential barriers to exit, and the
firm’s own strengths in relation to competitors
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3
Porter’s – End game strategy
• “End-game strategies” in declining industries (Porter,
1980, 1983)
• The framework is built upon four strategies that can be
employed in order to cope with a declining industry
o Further investment in the industry to a complete exit
o Take a leadership role by aiming to be one of the last operating firms in the industry
o Niche itself into a specific segment within the industry
o Harvest investments by focusing on cash flow, or making a quick divestment and exit
the industry
5
End Game strategies
• Conditions of demand
o Better quality, lower price substitutes
o Changing customer preferences
o Shrinking consumer groups
o Cost of inputs or complementary products
• Competitor’s perception of demand
o Decline or rejuvenate – runaway bloodbath or hold on
• Rate and pattern of decline
o Rapid or erratic decline
• Nature of demand pockets
o cigars from regular to premium
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End Game strategies
• Exit barrier
o Types – complexities, indigestible, incongruent
o Contingent liabilities – labour settlements, land use, dismantling assets
• Inter-relatedness
• Access to financial markets
• Vertical integration
• Information gaps
o Bundled products hiding behind success of other units
• Managerial resistance
7
Leveraging strategies
• Strategy for shrinking industries usually focus on
divestment or harvest strategies, but managers should
consider two other alternatives - leadership and niche
as well
• Refresh and Rebrand
o Create a niche space – vinyl records, cigars
• Segmentation/ Fragmentation
• Harvest cash cow
o Identifying digestible and indigestible assets is the key
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5
Factors influencing Strategy
• External
o as the industry grows and ages, industry effects will have a stronger impact on firm
performance as the industry moves from heterogeneous to standardized procedures,
which is common in the decline stage
o Factors of Porter’s diamond
o Lamont et al. (1995) argue that in a munificent industry, i.e. where resources are
plenty, companies are independent of each other, whereas in an industry
characterized by scarce resources, the companies become more strategically
interdependent
o some declining industries are also characterized by destructive competitive behavior
9
Factors influencing Strategy
• Internal
o Follows RBV of strategy
o differences in firm performance could be explained by scarce, idiosyncratic resources and
capabilities
o argument that resources are scarce and heterogeneous puts a strong pressure on managers to
employ them successfully
o ability to forecast, continuous need to monitor the customer’s needs and appropriately
respond to opportunities and threats based on those needs
o Inter-relationships between firms
o identify themselves with the industry too much or fail to realize possible substitute products
(Porter, 1980)
o Companies that have been successful in declining industries have had managers who tended
to view decline as an opportunity rather than a threat (Harrigan & Porter, 1983)
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Growth Champions - Strategy
• In a study spread over one year
o Only 13% firms grew over 10 year period based on market share growth
o Over 90% firms cultivated growth using dynamic resource-allocation as well as M&A
o Executives who have enjoyed strong phases of growth tell us about a zealous growth
mind-set that gave them a crucial edge
Source: How growth champions thrive even in stagnating markets, Yuval Atsmon, August 30, 2017, McKinsey Quarterly
11
Declining Industry
• Growth in demand and profitability goes down
o Major reasons are changes in the tastes and preferences of customers,
o the emergence of sophisticated technology in the industry that has ushered in new uses of
products,
o customers have become tired of using the same types of products for a long time,
o substitute products have entered into the market with high success,
o technological substitution has taken place
o social changes have occurred (such as people are less using cigarettes due to more health
consciousness), or
o foreign competition (such as low-cost Chinese and Indian ball pens are pushing our ballpen
industry into decline)
o Profitability goes down mainly due to slackened demand for products and very high
competition among the producers.
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Declining Industry: Strategy Options
• Harvesting strategy
o harvest maximum possible amount of cash from the business
o Involves sacrificing market position in return for bigger near-term cash flows or
current profitability
o It may have to cut down the budget substantially
o Reinvestment is rarely made, new equipment is not purchased (rather old ones are
used as long as possible), and priority is given on the extensive use of existing
facilities of the firm.
o To obtain greater cash flows, advertising expenses are cut down, quality is reduced
carefully and less-essential customer services are curtailed.
13
Declining Industry: Strategy Options
• Divestiture strategy
o The firm may divest or sell off a portion of its assets like equipment, land, stock of
materials, etc.
o The cash proceeds can be used for improving the core business. Or, the firm may
dispose of the business entirely.
• Niche or Focus Strategy
o Any industry, whether emerging or maturing or declining, may have several niches (a
small segment of a market that generally remains unserved or inadequately served by
competitors).
o A firm in a declining industry can look for niche markets where it can operate a
business profitably. Some of these niche markets may be growing despite stagnation
in the industry as a whole.
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Declining Industry: Strategy Options
• Differentiation Strategy
o A firm can place more emphasis on the differentiation strategy of products based on quality
improvement and innovation.
o Differentiation can rejuvenate demand through alluring customers to the firm’s products
innovation-based differentiation is also helpful for a firm in a stagnant/declining industry
to survive easy imitation by the competitors.
• Low-Cost Strategy
o A firm may also follow a low-cost strategy by driving costs down.
o If the costs can be reduced continuously in an innovative way, it can help the firm improve
its profit margin and return-on-investment.
o Cost reductions may take the form of dropping less essential business-activities, outsourcing
some functions, redesigning internal business processes, consolidating unutilized
production facilities, closing down high-cost retail outlets, and pruning marginal products.
15
Mistakes to avoid ….
• Getting trapped in a profitless war of attrition
• Diverting too much cash out of the business too
quickly
• Being overly optimistic about the industry’s future and
spending too much on improvements in anticipation
that things will get better
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1
Session 11:
Strategies for
Emerging Industry
IIFT Delhi - MBA(IB), 2021-24 | Weekend Batch
1
Emerging Industry
• The most common definition of an “industry” holds that
it is a group of firms producing products that are close
substitutes for one another (Porter, 1980; Hitt et al.,
2009).
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Emerging Industry
• An emerging industry is an industry which is at its
early stage of development.
• It is an embryonic or’ infant industry.’ It is just
beginning to develop or emerge.
• Although growth potential in the emerging industry is
high, the actual growth at this stage is slow. Slow
growth is mainly attributed to customers’ unfamiliarity
with products.
• Other reasons usually include high prices due to the
producers’ inability to achieve economies of scale and
weak distribution channels.
3
Emerging Industry
• It is characterized by
o few competitors,
o high growth potential,
o the uncertainty of demand,
o the dominance of proprietary technology,
o wide differences in product quality,
o low entry barriers,
o difficulty in having ample supply of raw materials
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Emerging Industry
Characteristics
o Minimal competition
o Lots of growth potential
o High risk and high volatility
o High prices due to absence of economies of scale
o Low barriers to entry
Barriers for
o Lack of consumer awareness and customer loyalty
o Lack of financing
o Restrictions and regulations
o High cost of R&D
o Lack of suppliers
5
Challenges – Emerging Ind
• Doubts exist about the functioning, growth, and size of the market.
• The practices set at this point may define the industry even later and all this setting up is done by trial,
since no one has any experience
• Managers cannot make useful projections of sales and profits due to a
lack of historical data.
• Proprietary technology dominates the industry.
• Uncertainty prevails regarding the product attributes that may win
customer acceptance.
• Uniformity is difficult to find in product quality and product performance.
• Therefore, competition in the industry centres around each company’s strategic approach to technology,
product design, and marketing.
• Entry into the emerging industry is relatively easy. As a result,
financially and professionally strong companies may enter into the
industry if there is a high growth prospect.
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Challenges – Emerging Ind
• In an emerging industry, all buyers are first-time users of
products
• therefore, marketing managers must try to induce an initial purchase.
• Products are first-generation products (new).
• Thus, many potential customers defer their purchase until the quality improves.
• The firms in the emerging industry most often fail to attract
the suppliers of raw materials to gear up their production.
• This happens due to the immature stage of the industry. This creates hurdles in getting a
regular and adequate supply of raw materials.
• It could disrupt the existing industry and established
players in the market
o Mapping and managing customer expectations could be a challenge in a disrupted industry
7
Barriers for Emerging Industry
• Lack of consumer awareness and loyalty
• Lack of finance availability on manageable terms
• Lack of credible and capable suppliers
• Regulations
• High cost of research and development
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5
Strategy Options
1.A low-cost strategy is viable to discourage potential competitors from
entering the industry. Even a company can use price-cuts to attract
price-sensitive buyers.
2.Differentiation strategies may be adopted based on technological or
product superiority.
3.A company may adopt a cooperative strategy (strategic alliance) by
forming a partnership with key suppliers of materials and components.
4.A company may form Strategic affiance with other companies having
the technological expertise to outcompete strong competitors.
5.Acquisition strategy may be followed to acquire special skills or
capabilities so that the company can weaken the competitors based oh
technological superiority.
6.A company may enter into a joint venture agreement (if there are
financial constraints) to cover greater geographical areas or pursue
new customer groups.
9
Main Engines of Globalization
• Transnational corporations (TNCs)
• Transnational media organizations (TMCs)
• Intergovernmental organizations (IGOs)
• Non-governmental organizations (NGOs), and
• Alternative government organizations (AGOs).
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Globalization perspectives
• Westhuizen (2003) emphasizes that “globalization involves the
process by which most of the world's developed countries and
some of the developing countries aim to improve inter alia the
free flow of information, money, ideas, cooperation, detection,
exchange, technology, and trade between nations.”
• Khor (1995) argue that globalization is ‘‘what the third world
(developing) countries have for several centuries called
colonization.”
• Kelechi Ugwu & Charles Njoku (2014) argue that globalization
favors one side of the world called ‘stronger countries’ more
than the other side of the world called ‘weaker countries’.
11
+ve effects of Globalization
• Obaseki (2000) notes, globalization has positive
effects :
o Increase in specialization and efficiency leading to higher trade,
o Better quality products at reduced prices,
o Economics of scale in production, competitiveness and improvement, and
o Increase in managerial capabilities.
o Counters inflationary growth, and fiscal imbalances with approved real interest
rates, that is, it brings good prospects for investment and structural reforms
especially in transition economies.
o Loto (2011) stress that globalization opens and stabilizes the economy through
export strategy.
o Structural adjustment program (SAP) is one of the measures adopted as
liberation strategy to open up the economy and penetrate international market.
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-ve effects of Globalization
• It does not improve global welfare (Obaseki & Ojo,
1998)
o Differences in macroeconomic, sectoral and structural policies of countries have
resulted to varying degrees of benefits and looses of the rapid integration of
goods, services and financial sector across the globe
o Does not favor countries that have weak macroeconomic policies towards
financial and exchange rate stability.
o Policy measures should be applied to prevent banking crises to be able to
achieve current account convertibility through removal of non-tariff barriers to
trade to allow free flow of goods and services and factors of production.
13
Globalization
• Ten years ago, globalization seemed unstoppable.
o It was a Coke CEO, the late Roberto Goizueta, who declared in 1996: “The labels ‘international’ and
‘domestic’…no longer apply.” His globalization program, often summarized under the tagline “think
global, act global,” had included an unprecedented amount of standardization.
o By the time he passed away in 1997, Coca-Cola derived 67% of its revenues and 77% of its profits
from outside North America.
• By the end of 1999, when Douglas Daft took the reins, earnings had
slumped, and Coke’s stock had lost nearly one-third of its peak market
value—a loss of about $70 billion.
o Daft’s solution was an aggressive shift in the opposite direction. On taking over, he avowed,
“No one drinks globally. Local people get thirsty and…buy a locally made Coke.”
o Unfortunately, “local” didn’t seem to be any better a description of Coke’s market space than
“global.”
o On March 7, 2002, the Asian Wall Street Journalannounced: “After two years of lackluster
sales…the “think local, act local” mantra is gone. Oversight over marketing is returning to
Atlanta.”
14
