6302-Strategic Analysis.pdf

Glossary of SLM Lesson 1 Strategy the Science and Art of Creating Value Concept of Strategy The Greek word “strategos” is basis of origin of strategy, strategy is the combination of “Status and Ago”; it relates to the...

Glossary of SLM Lesson 1 Strategy the Science and Art of Creating Value Concept of Strategy The Greek word “strategos” is basis of origin of strategy, strategy is the combination of “Status and Ago”; it relates to the army movement. In other words, we can say that it was used by the armies to indicate movement of their troops. Different organizational activities are integrated by the strategy and allocating the scarce resources so as to achieve objectives. All such strategic decisions will on impact customers and other stack holders. There are various frameworks, such as BCG matrix and GE 9 Cell matrix and for analysing strategic choice. Strategy is about achieving competitive and delivering a unique value to the customer (Michael Porter). The shining examples are Southwest Airlines and IKEA furniture retailing, as well as Marks & Spencer. Strategy has been defined by different management philosophers, thinkers and practitioners. Strategy is used by the organization to attain the organization’s goals. Strategy can also be defined as “A general direction set for the company to achieve a desired state in the future. Strategy is the outcome of detailed strategic planning process”. Strategic Management Process Phase 1: Establishing strategic intent Phase 2: Formulation of different strategies Phase 3: Implementation of strategies Phase 4: Evaluation & control of strategies Page 1 of 38 Vision, Mission and Objectives Vision Vision is the first and most important element of strategic intents. It has been defined in many ways. Some of these definitions are as follows: ‘vision’ is future aspirations which lead to inspiration to be the best in one’s field of activity. Vision has to be “a realistic, credible, and attractive future for an organization.” There are several benefits of good such as they are inspiring and exhilarating, the creation of a common identity and a shared sense of purpose, experimentation and long-term thinking, foster risk-taking. Mission Mission defines the very existence of the organization. It answers three important questions: (i) Why is it in existence, (ii) What need of society it wants to fulfill, and (iii) What it wants to deliver a product or service. The organizations make a legitimate contribution to the society. Over a period of time several changes take place in environment, and management must restate the mission, and search for a new purpose or new mission to stay useful for society. Page 2 of 38 Objectives The accomplishment of the purpose or mission of an organization requires the formulation of a number of objectives. Achievement of the organizational objectives, in turn, requires formulating and fulfilling departmental and unit goals. Departmental objectives, both long-range and short- range, are formulated based on the respective long-range and short-range objectives of the organization. An objective indicates the result that the organization expects to achieve in the long run. It is an end result, the end point, something that you aim for and try to reach. It is a desired result towards which behaviour is directed in an organization. The emphasis in goals is on the measurement of progress toward the attainment of objectives. Goals have the following features. They:  Are derived from objectives,  Offer a standard for measuring performance,  Are expressed in concrete terms,  Are time-bound and work-oriented. Formulating Objectives The mission and directional course are converted into designated performance outcomes in the process of formulating objectives. Objectives represent a managerial commitment to achieve specified results in a specified period of time. An organization’s mission statement will be just window-dressing unless, it is translated into measurable and specific performance targets and managers are pressured to achieve these targets. Levels of Strategy Corporate level, Business level and Functional level Corporate Level Strategy The top level of strategic decision-making is the formulation of corporate level strategy. These strategies are also termed as grand strategies as they impact the whole organization. These strategies deal with defining the objective of the firm, allocation & acquisition of resources as well as coordination of strategies of different SBUs the organization may have. Big organization sometimes also involves management consultants or corporate in this task to get an external viewpoint. These strategies are always futuristic and innovative in nature. Strategic decisions are normally value-oriented, conceptual and less specific if we compare them with business/SBU or functional level. Page 3 of 38 Business-Level Strategy/SBU Level Strategy Many big organizations like Tata, Reliance etc. have different businesses and they have different set of customers or product and services and all cannot have the same or similar strategies. At business level are guided by the corporate strategies of the organization. The corporate-level strategies guide the SBU in defining its scope of operations as per the resources assigns to it by top management. Functional-Level Strategy It is related to one specific functional area such as marketing, finance human resource or production etc. and consists of different day-to-day activities involved in that functional area. The functional strategy involves providing objectives of that functional area and allocation of resources for its operations within that functional area. The objectives of these strategies is to be in alignment of Corporate and SBU objectives. Concept of Strategic Fit, Leverage and Stretch Strategic Fit Strategic fit deals with matching organizational resources to the environment in which it operates. The strategic fit is central to the strategy school of positioning, where techniques like SWOT analysis can be used to analyses and assess the organizational capabilities and environmental opportunities. Stretch Stretch is a misfit between resources and aspirations. In simple words, we can say, this is a gap between available resources and aspirations or expectations. Stretch is exactly the opposite to the idea of strategic fit. The concept of stretch was propounded by Gary Hamel and C. K. Prahalad. Page 4 of 38 The amount of stretch that is required by the organization follows from its strategic intent. It is also affected by the type of challenges faced by the organization to achieve the strategic intent if its strategic intent is to be realized. These can be ascertained by:  Conducting future forecasts and scenario building  Drawing comparisons or benchmarks based on external factors The idea behind ‘stretch’ being a strategy is that the leadership cannot be planned and requires a shared ambition. While setting out the goals and aspirations, the top management of the firm deliberately creates a gap between the resources available and the targets set. Leverage Leverage can be defined as the process or act of concentrating, accumulating, complimenting, conserving, and recovering resources in such a manner that a meagre (less or insufficient in amount) resource base is stretched to meet the aspirations that an organization dares to have. Companies like General Motors, Philips, and Nokia which were all market leaders with abundant resources, lost their market share against the challengers like Honda, Samsung, Sony, etc. Xerox successfully defended its market share against IBM but lost out to the much smaller Canon, which had only 10% of the market share. The reason behind Canon’s success was the change in the rules of the game prevailing in the copier industry. Balance Score Card Balanced Scorecard (BSC) is the most widely applied performance management system today, the balanced scorecard measures performance across a number of different perspectives—a financial perspective, a customer perspective, an internal business process perspective, and an innovation and learning perspective. The balance score card identifies four perspectives or key performance indicators as given below: The Innovation, Learning & Growth Perspective: The Internal Business Process Perspective The Customer Perspective The Financial Perspective Each of this perspective can be used individually, but using them in combination provides deeper insights and a balanced approach to strategy formulation. One perspective is not allowed to outweigh the other when the strength and weaknesses of an organization are assessed. Organizations have adapted the balanced scorecard to their particular external and internal circumstances. Both commercial and not for-profit organizations have successfully used the BSC framework. Page 5 of 38  Lesson 2 Environment Analysis Environmental analysis is an evolving technique that takes a 360-degree standpoint rather than focusing on a single domain to analyse the factors that affect the business environment. It is necessary for a business to translate the data into a form that can be utilised to establish goals and develop a plan for achieving them to reap the benefits of environmental analysis. Components of Environment Analysis The two fundamental components of an environmental analysis are internal and external influences. As a result of the knowledge that an organization’s internal environment comprises elements like its value system, objectives, framework, society, employees, labour groups, knowledge of technology, etc. On the contrary, a firm’s operations are influenced by various external factors. Internal Components  Financial situation.  Functions of goods and services.  Excellence in products and services External Components 1. Trends in the market and sector 2. Benefits and drawbacks of rivalry. 3. Clients, particularly customer service. 4. Supply of people and local labour markets. 5. Technological improvements that can simplify operations. 6. Economic activities that may have an impact on the organisation. 7. Legal and political climate. Process of Environmental Analysis  List the factors  Critically analyse the elements  Examining competitors  Take into account organisational implications  Establish a strategy  Put the strategy into action Page 6 of 38 Demand Analysis Companies that want to understand consumer demand for a certain product perform demand analysis research. Businesses typically use it to assess their ability to enter the market and make the anticipated profit. The management makes decisions regarding cost allocation, production, advertising, pricing, etc. during this phase. A company’s capacity to recognise and meet client needs determines whether it succeeds or fails. Objectives of Demand Analysis Analysing consumer opinion of a product Developing a price strategy Forecasting sales Developing a production strategy Process of Demand Analysis Determine the market Evaluation of the business cycle Develop a product that fills a certain need Establish your advantage Find out who your rivals are Competitor Analysis The antithesis of collaboration is competition. It occurs anytime at least two parties work towards an objective that cannot be shared or that each party wants separately rather than through cooperation and sharing An evaluation of the advantages and disadvantages of present and potential competitors is known as competitor analysis in marketing and strategic management. To spot opportunities and risks, this analysis gives both an offensive and a defensive strategic perspective. As opposed to this, many businesses rely on “informal impressions, conjectures, and intuition gained through the tidbits of information about competitors every manager continually receives.” Due to the lack of thorough competition research in traditional environmental scanning, many businesses risk having dangerous competitive blind spots. Factors of Competitor Analysis The following are the factors of Competitor analysis: Strategies : 1. Define your industry, 2. Find out your rivals, 3. Identify your target audience , 4. To rank the major success elements, 5. Weightings must equal one, 6. Determine the important success factors, 7. Score each rival according, Page 7 of 38  8. Divide the factor weighting by each matrix cell, Objectives The competitive analysis’s strategic justification is deceptively straightforward. A real source of competitive advantage is having in-depth information of competitors. Offering higher customer value in the target market for the company’s product or service is the foundation of competitive advantage. Second, by using a proactive approach to competitor profiling, the company can foresee how its competitors would strategically respond to its planned strategies, those of other competing enterprises, and changes in the external environment. Third, the firms’ strategic agility will be improved by this proactive knowledge. Strengths and weaknesses : New competitors most often emerge from: 1. Businesses engaged 2. Businesses that use comparable technology, 3. Focusing on your key market niche, 4. Companies offering similar items and those based in other regions 5. New businesses founded by former staff members Reaction Models Motivation – Drivers Motivation - Management presumptions Procedures – Tactics Abilities – Actions Macro Models and Industry Models Below are some of the key models utilised in the environmental analysis PESTEL Analysis PESTEL research provides a bird’s eye view of business activities and macro concerns that significantly impact the health of a specific industry or sector. Entrepreneurs and strategy creators can better comprehend their market using this environment research. Additionally, it helps safeguard the organization’s future status. Page 8 of 38 Political aspects : The political environment explains how governmental actions affect business operations. Political concerns must be overseen by businesses since they frequently get out of control. Political environment are looked at: 1. Tariffs and tax laws maintain the country’s stability, 2. Rules & Regulations for Entrance, Economic factors : The kind and volume of economic activity a firm engages in or runs its operations are discussed. It’s critical to consider factors like GDP, unemployment rate, exchange rate, and others. 1. The rate of exchange for different currencies, 2. Both monetary and fiscal policies, 3. Accessibility to Credit, Unemployment Rate, 4. Income of Potential Clients, 5. Inflation Rate, 6. Inflation Percentage. Page 9 of 38 Social influences : Businesses must be particularly aware of the norms, values, customs, cultures, linguistic abilities, tastes, and preferences of the individuals who inhabit this environment. 1. Education Level of Visitors. 2. Money Distributed. 3. Domestic structure. 4. Individual social interactions. 5. Demographic considerations. 6. Gender Effects on Culture. Technical aspects : Examples 1. Platform for contemporary technology. 2. technological advancement. 3. Rate of technological obsolescence. 4. Recent Discoveries. Environmental factors : Some of the main environmental influences are as follows: 1. How people see and interact with their surroundings. 2. Power consumption guidelines. 3. Laws Regarding Waste Disposal. 4. Environmental and meteorological conditions. 5. Local information Legal aspects But here are some legal things to think about: 1. Health and safety regulations. 2. Patent infringement. 3. Rules for Products and Services. 4. Occupational Guidelines. 5. Competitive Regulations. SWOT Analysis - Strengths - Weaknesses - Opportunities - Threats Page 10 of 38 Strenghts  Advantages does your business provide.  You can access exclusive or affordable resources that are unavailable to others  Clients in your industry do believe you excel at.  Traits make you appear to “win business.” Weaknesses  What could you alter?  What are you need to avoid?  What weaknesses will your economy most likely perceive you to have?  What factors cause the decline of your business? Opportunities  Promising prospects, you see  Intriguing trends are you aware of Threats  What difficulties do you face?  What are your competitors doing?  Is your career in danger as a result of technological advancement?  Have you experienced problems with bad debt or cash flow? GE-McKinsey Matrix General Electric was dissatisfied with the returns on its investments in the products it managed in the 1970s, which included a huge and complicated portfolio of unconnected items. Companies used to base their investment decisions on forecasts of future cash flows, market growth, or other future estimates, which was an unreliable way to allocate resources. Page 11 of 38 Industry Attractiveness This element relates to how easily the business unit can generate profits in the sector. Consider the company’s long-term growth potential, industry scale, profitability, entrance and exit hurdles, etc. while assessing it along this dimension. The vertical axis of the matrix, labelled “Industry Attractiveness,” is divided into three categories: Competitive Strength 1. Market share it controls. 2. Market share growth potential. 3. Brand recognition Business profit margins. 4. Customer commitment and satisfaction. 5. Originality of its goods or services. Segmentation Analysis The process of identifying distinct audience groups and creating the most successful strategies for connecting with and engaging those segments’ members is known as segmentation analysis. Customer Segmentation vs. Market Segmentation Page 12 of 38 Customer segmentation aims to divide customers based on various metrics or distinguishing characteristics. Your company may better understand the needs and preferences within a given client segment by using customer segmentation, and you can then figure out how to reach each segment in the most efficient way possible. Even though the terms market segmentation and customer segmentation are occasionally used synonymously, there are some significant differences between the two strategies. To generate groupings of clients with comparable traits, interests, regions, and other factors, target markets are segmented into more manageable, smaller categories. Strategic Groups Michael S. Hunt, a professor at Harvard, coined the phrase “strategic group” in his doctoral thesis report in 1972. He discovered during his research into the appliances business that there is fierce competition among the organizations that make up sub-categories. A group of businesses in a specific industry that employs a similar business model or set of strategies is referred to as a strategic group. These strategic organisations offer assistance to a particular industry sector. Based on their operating environment, industry threats, and opportunities, each strategic group is split. As a result, every business that offers services to a certain industry sector is referred to as a member of a single strategic group. Lesson 3 Organizational Resources and Capabilities Types and Nature of Resources and Capabilities Resources and capabilities are the fundamental building blocks of a firm’s strategy. Resources are inputs used by firms to create products and services. Resources create competences. Resources are scarce and limited. Resources also limit competencies because of developing certain types or levels of competences or capabilities. In strategic analysis, organizational resources can be classified into four main groups :- (i) Physical resources (ii) Financial resources (iii) Human resources (iv) Intangible resources Page 13 of 38 Competencies, Resources and Competitive Positions Resource Audit Resource audit is more of a management rather than a financial audit. The audit should start by assessing the existing levels of physical, financial, human and intangible resources. The audit should then examine or analyze alignments of resource levels with competence levels. The absence of resource analysis or audit may result in under utilization or wastage of resources. Capabilities Capabilities refer to a firm’s skill in using its resources (both tangibles and intangibles) to create goods and services. Both capabilities and competencies are used synonymously. Capabilities are a firm skill at using its resources to create goods and services; combination of procedures and expertise on which a firm relies to produce goods and services. Page 14 of 38 Distinctive capabilities/competencies are the capabilities that set a company apart from other companies. Core capabilities/competencies are those capabilities that are central to the main business operations of the company. Core capabilities are common to the company’s principal businesses and enable the company to generate new products and services in these businesses. Porter’s Value chain model The value chain concept provides a framework for doing organizational analysis. This concept was developed by Michael Porter. A value chain consists of a linked set of value creating activities with basic raw materials coming from the supplier, moving on to a series of value-added activities in producing and marketing a product/service and ending with distribution of goods to end users. Page 15 of 38 Components of Value Chain (i) organization structure, (ii) Culture and various functions like (iii) Finance (iv) Marketing, (v) Operations, (vi) Human resources and (vii) Information (viii) Systems. Starbucks Value Chain Analysis Transforming Resources into Capabilities Managers are expected to analyze the resources and capabilities carefully. The capabilities only these capabilities will drive the quality, innovation, operational efficiency, and reputation of the company’s business. Some of the key tools used are: (i) The resources and capability matrix. (ii) The significance of resource analysis. (iii) Evaluate the competitive advantage of resources - The VRINE test. (iv) Developing resources and capabilities into competitive advantage. (v) Best/Benchmarking practices. Page 16 of 38 Identifying and Appraising Resources and Capabilities Identifying resources and capabilities are important for the company. High performers all over the world are identified and their practices and processes are studied for benchmarking. There are two types of benchmarking done by the companies, i.e., external benchmarking and internal benchmarking. In external benchmarking, process, results and best practices of other Companies are studied. In the internal benchmarking, process, operations and processes of same organization are considered. Issue Priority Matrix Issue Priority matrix is technique which deals with large data and helps to identify and analyze significant developments in the external environment. Each development is examined for its intensity and impact on the business and the probability of such an impact on business. High power issues are those that have medium to high probability of impact. Thus, the issue priority matrix helps the strategists narrow down the issues requiring attention for strategic planning. Page 17 of 38 External Factor Analysis Summary (EFAS) External factor analysis focuses on how external factors, such as industry trends, affect a business and its success. The issues are divided into opportunities and threats and environmental appraisal is structured by using an External Factor Analysis Summary (EFAS). Gap Analysis The company uses gap analysis to compare the present performance with the planned or expected performance. A gap analysis may also be referred to as a needs analysis, needs assessment or need-gap analysis. A gap analysis process helps organizations determine how to achieve their business goals. For example, SWOT analysis is used as part of gap analysis. A SWOT analysis is very useful tool for assessing the performance gaps in a company. Page 18 of 38 Steps to a Gap analysis There are four important steps to a gap analysis : (i) Defining organizational goals, (ii) Benchmarking the present performance levels, (iii) Analyzing the gap, (iv) Compiling a gap report. SWOT Analysis A framework is to understand and analyze a company’s Strengths, Weaknesses, Opportunities and Threats. It is a tool that can help you to analyze what your company does best now and to devise a successful strategy for the future. Page 19 of 38 TOWS Matrix TOWS matrix can be defined as a framework to create, compare, decide and access business strategies. It stands for Threats, Opportunities, Weaknesses and Strengths. Main purpose of TOWS Analysis: 1. Reduce threats 2. Take advantage of opportunities 3. Exploit strengths 4. Remove weaknesses Page 20 of 38 Fishbone diagram A fishbone diagram is a visual way to look at cause and effect. It is a more structured approach than some other tools available for brainstorming causes of a problem. McKinsey 7S Framework The McKinsey 7S Model refers to a tool that analyzes a company’s “organizational design.” The goal of the model is to depict how effectiveness can be achieved in an organization through the interactions of seven key elements – Page 21 of 38   Structure,  Strategy,  Skill,  System,  Shared Values,  Style, and  Staff. The focus of the McKinsey 7S Model lies in the interconnectedness of the elements that are categorized by “Soft Ss” and “Hard Ss”, – implying that a domino effect exists when changing one element in order to maintain an effective balance. Applications of McKinsey 7S Model This model is used for organizational change and design. Operational and business strategies are formulated by applying the McKinsey 7S framework. Nadler-Tushman Model The Congruence Model was developed in the early 1980s by organizational theorists David A. Nadler and Michael L. Tushman. It’s a powerful tool for identifying the root causes of organizational performance issues and how the firm might fix them. Page 22 of 38 PESTEL Framework A PESTEL analysis is a framework or tool used by marketers to analyze and monitor the macro- environmental (external marketing environment) factors that have an impact on an organization, company or industry. A PESTEL analysis is an acronym for a tool used to identify the macro (external) forces facing an organization. The letters are Political, Economic, Social, Technological, Environmental and Legal. Page 23 of 38  Lesson 4 Competitive Advantage and Value Chain Analysis A company’s competitive advantage is an advantage over its rivals in terms of its goods, services, capabilities, strategies, etc., which enables it to outperform other businesses in the market in terms of sales, profit margins, and customer retention. A competitive advantage, then, is something that puts a business ahead of its rivals. A business has with a competitive advantage can generate more value for the company, its shareholders, and its clients. It becomes harder for competitors to catch up to the business the more sustainable the competitive advantage is. Companies must foster innovation and creativity throughout their operations to stand out from the competition. Finally, market segmentation sometimes referred to as focus, necessitates that businesses have a deeper understanding of the target market specific needs than their rivals. Core Competence A company’s core competencies are the specific knowledge and expertise that set it apart from its rivals. A corporation can obtain a distinct position in the market by combining of various resources, abilities, and knowledge. Core capabilities include technological know-how, skilled labour, supply routes and processes, consumer interaction management abilities, and so forth. Successful businesses have been able to create core skills that they use to increase profitability. Page 24 of 38 Difference between Competitive Advantage and Core Competencies Sustainability of Competitive Advantage In today’s scenario it is important to win the race before anyone else do. Sustainable competitive advantage works on the same notion that if your organisation work excellently with consistency than its competitors it would always outperform and attain core competency with continuous practice. Page 25 of 38   Analyzing Other Business  Giving excellent customer service  Focusing on customer problems  Continuing to innovate  Improving customer connections  Providing Excellent Speed  Caring about the environment  Creating Content Role of Innovation According to a study done by McKinsey, it is found that 84% of their top management people believe that their success depends on continuous innovation at their workplace. The organisation now do not look back to traditional methods to solve the problems, instead they look forward to those solutions that could be solved with some innovation and is at greater ease for its usage. It can occasionally be difficult to comprehend how innovations affect our society as a whole because organisations frequently collaborate with other organisations. Page 26 of 38 Macro : Innovation has emerged during the past few decades as a crucial tool for addressing social severe hazards and dangers. For instance, the rapid rise in CO2 emissions from the energy-driven use of fossil fuels since the Industrial Revolution has disrupted the global carbon cycle and contributed to global warming. Barriers to Change in Organisations Organisations needs to adapt to changes in the organisation in order to survive in the present market conditions. Change would occur to every organisation be it size of the firm (small, medium, large, MNC’s), to which sector they belong (Reits, Pharmaceuticals, Food, Chemicals etc.), the scope of the work in the organisations, or counting the employees working in the organisation. Page 27 of 38 Value Chain Analysis Value chain analysis is a tactical procedure that can boost profit margins and give businesses of all sizes a competitive edge. Businesses use this analysis to pinpoint opportunities to raise the value of particular production and sales operations. Profit is produced when the whole cost of making your product is less than the price you charge for it, and that premise makes sense. However, it’s typical to encounter businesses that don’t monitor every step of product development and lose out on chances to boost profit margins. Page 28 of 38 Primary activities and supported (or secondary) activities are divided into separate categories on the VCA chart. While secondary activities support primary activities, primary activities are centred on producing commodities and services. Primary Activities 1. Inbound logistics, 2. Operations, 3. Outbound Logistics, 4. Sales and marketing, 5. Service Apple’s Support Activities 1. Research and Technology Development 2. Human Resource Management Lesson 5 Generic Strategies Strategic analysis and management are crucial to corporate growth. They involve examining internal and external elements that affect an organization’s performance, making educated decisions, and developing successful strategies to gain competitive advantage. Page 29 of 38 Strategic analysis uses models and frameworks to make decisions. The BCG Matrix, GE-McKinsey Matrix, and PLC analysis are portfolio models. These models help companies review their portfolios, determine growth prospects and manage resources. Static and dynamic competitive advantage is also important in strategic analysis. Through comprehensive analysis, smart portfolio management, and new tactics, firms can beat competitors and achieve long-term success. Generic Strategies Generic Strategies or Porter’s Generic Strategies Established by Michael Porter to gain a competitive advantage in their particular sectors. There are three standard tactics: 1. Cost Leadership Strategy: This strategy strives to produce and distribute goods at the lowest possible cost while maintaining acceptable quality, 2. Differentiation Strategy: This strategy entails delivering clients goods or services that are viewed as superior in terms of quality, features, design or brand image to establish a unique and different value proposition for them. 3. Focus Strategy : This tactic entails focusing on a certain market niche or subset and customizing items or services to fit the group’s specific demands and preferences. The focus strategy has two sub-types: a. Cost-focused Strategy: It is providing goods or services to a certain market niche at a lower price than rivals, b. Differentiation Focus Strategy: This involves targeting a certainmarket segment with special and distinctive goods and services. Organizations can use the framework provided by these generic strategies to assess their market positioning and make strategic decisions. Before deciding on and adopting a particular generic strategy, firms should carefully evaluate their internal capabilities, market conditions and competitive dynamics competitive dynamics. Cost Based versus Differentiation Based Strategies Cost Strategies Using cost-based tactics, a company aims to increase profitability and obtain a competitive edge by lowering costs. Cost-based strategies include :- 1. Economies of scale 2. Cost minimization Page 30 of 38  3. Lean management 4. Outsourcing 5. Standardization Differentiation-based strategies Differentiation-based strategies are ones where a company concentrates on developing a special product or service that customers perceive as being superior in some sense. These tactics often entail investing in R&D, product design, marketing, and branding to generate a unique value proposition that distinguishes the firm from its rivals :- It includes :- 1. Innovation 2. Quality 3. Design 4. Branding 5. Customer Services Difference between Cost Based and Differentiation-Based Strategies Page 31 of 38 Cost Leadership and Focus Cost Leadership Strategy A business approach known as “cost leadership” entails lowering production costs within a market or industry while maintaining a reasonable degree of quality. Walmart has become the largest retailer in the world and has a sizable market share in the retail sector because to its highly effective cost leadership approach. Page 32 of 38 Cost Focus Strategy Cost focus strategy is a business strategy that entails focusing on a certain market segment or niche and providing goods or services at a lower price than rivals in that niche. An illustration of a cost-focused strategy is the international supermarket chain Aldi. Aldi concentrates on giving budget-conscious shoppers accessible shopping selections. They have a simple layout for their stores and a small selection of private-label products. Companies implementing a cost focus strategy can prosper by satisfying a niche market’s unique needs and effectively competing against larger, more diverse competitors by focusing on cost management, efficient operations, and giving value to their target market. Sources of Cost Advantage 1. Economies of scale: 2. Production efficiency: 3. Access to affordable inputs: 4. Outsourcing: 5. Technology: 6. Location: 7. Supply chain management optimization: Types of Differentiation Strategies 1. Product Differentiation: 2. Brand Differentiation: 3. Service Differentiation: 4. Channel Differentiation: 5. Price Differentiation: 6. Experiential Differentiation: 7. Process Differentiation: Broad Differentiation versus Focus Broad Differentiation Strategy : The goal of a broad differentiation strategy is to set a company’s goods and services apart from those of rivals in the entire market. The aim is a distinctive value offer that appeals to a broad spectrum of clients. For instance, Apple Inc. successfully implements a comprehensive differentiation strategy with its premium and creative goods like the iPhone, MacBook, and Apple Watch. Apple’s products stand out from rivals thanks to their sophisticated features, slick design, user-friendly interfaces, and device interoperability. Focus Differentiation Strategy: Page 33 of 38 With this strategy, the company focuses on differentiating inside a specified niche or market sector designated as its target market. The emphasis is on providing superior customer service to a certain consumer group’s demands and preferences. In order to choose between a focus differentiation strategy that targets a narrow niche and a broad differentiation approach that targets a large market, firms must evaluate their internal capabilities, resources and market dynamics. Blue Ocean Strategies. The Blue Ocean Strategy is a tactical strategy that tries to eliminate competition and create uncontested market space. There are numerous crucial steps in the analysis: 1. Industrial Analysis: 2. Value Curve Analysis 3. Identify Blue Ocean Opportunities 4. Value Innovation 5. Strategic Moves 6. Continuous Analysis and Adaptation Organizations that use the Blue Ocean Strategy in their strategic analysis can find untapped markets, set themselves apart from rivals, and generate new demand. Product and Market Diversification Strategies Corporations may use diversification techniques to grow their business and reduce risks in two different ways: through product diversity and through market diversification. In-depth examination of each tactic follows: Product Diversification Strategy It is the process of bringing new goods or services into the markets that an organization already serves in order to increase the range of products it offers. a). Related Product Diversification: b). Unrelated Product Diversification: c). New-to-the-World Product Diversification: Market Diversification Strategy Market diversification entails distributing existing goods or services into new markets. Market diversification generally comes in three types: (a) Geographic market diversification, (b) Demographic Market Diversification, (c) Psychographic Market Diversification, Page 34 of 38 When assessing the viability and potential success of plans for product and market diversification, businesses must take into account their own competencies, resources and market conditions. Portfolio Models Portfolio models, often referred to as portfolio analyses or portfolio planning, are strategic business tools used to evaluate and manage a company’s portfolio of goods, services, business divisions, or investments. Portfolio models are used in strategic analysis to acquire perceptions into the general health and composition of the portfolio, pinpoint areas of strength or weakness, and provide decision-making guidance for strategic planning. The following list of popular portfolio models for strategic analysis includes: 1. BCG Matrix (Boston Consulting Group Matrix): Based on a company’s products or business units’ relative market shares and market growth rates, the BCG Matrix divides the market into four quadrants. Stars, Cash Cows, Question Marks, and Dogs are among the quadrants. a) Stars: High-growth items or company divisions with a sizable market share. b) Cash Cows: Established goods or business divisions having a commanding market share in a sector with little growth. c) Question Marks: Goods or business segments that are expanding quickly but with little market penetration. d) Dogs: Items or business divisions with a little market share and slow growth. 2. GE-McKinsey Matrix: The GE-McKinsey Matrix evaluates business units or products based on their appeal and position in the marketplace. It considers various elements, including market attractiveness, competitiveness, industry attractiveness and business unit performance. Page 35 of 38 3. Product Life Cycle Analysis (PLC): The Product Life Cycle model analyses the various phases a product experiences throughout its lifespan, including introduction, growth, maturity, and decline. Page 36 of 38 4. Ansoff Matrix: By assessing how markets and products are related, the Ansoff Matrix focuses on growth strategies. Four tactical choices are offered: ( a ) Market Penetration: ( b ) Market Development: ( c ) Product Development ( d ) Diversification 5. McKinsey 75 Framework: Strategy, Structure, Systems, Shared Values, Skills, Style and Staff are the seven interconnected organizational components that the McKinsey 7S Framework investigates. In order to determine the organization’s overall performance and competitive advantage, this model analyses how these components align and interact. Page 37 of 38 Industry versus Product Life Cycle 1. Industry Life Cycle: The industry life cycle includes these four key phases: (a) Introduction: (b) Growth: (c) Maturity: (d) Decline: 2. Product Life Cycle Instead of emphasizing the industry, the Product Life Cycle (PLC) model concentrates on the various stages of a single goods or services. (a) Introduction: (b) Growth: (c) Maturity: (d) Decline: Static versus Dynamic Competitive Advantage 1. Static Competitive Advantage: A company’s present advantages over rivals are referred to as its static competitive advantage. These benefits are based on the company’s current assets, skills, competitive positioning or product/service attributes. It includes :- (a) Cost Advantage: (b) Differentiated Product/Service (c) Strong Brand Reputation: (d) Access to Important Distribution Channels: 2. Dynamic Competitive Advantage : This term describes a company’s capacity to continuously innovate, adapt, and stay one step ahead of the competition. It focuses on the company’s ability to adapt successfully to shifting consumer tastes, market conditions, technology developments and business interruption, It includes : (a) Continuous Innovation: (b) Agility and Adaptability: (c) Learning and Knowledge Management: (d) Collaborative Networks: This necessitates taking a pro-active approach to proactively scanning the external environment, keeping an eye on industry trends, investing in research and development, developing people and promoting a culture of constant innovation. Organizations can succeed long-term and surpass their rivals by combining static and dynamic competitive advantages. Page 38 of 38