SM

Strategy

Key (1993) sees the strategy of an organization as “the match between

its internal capabilities and its external relationships (with its
stakeholders: employees, customers, shareholders, suppliers.

Porter (1996) asserts that competitive strategy means deliberately

choosing a different set of activities to deliver a unique mix of value”
SM process
If strategy allows an org to match its resources and capabilities to the
needs of the external env in order to achieve comp advt
Then the process of bringing about the strategy is SM
SM is about:
• Analysing the situation facing the firm (ext env analysis)
• Formulating a strategy and
• Implementing that strategy
to achieve competitive advt over its rivals in the industry.
 Mission
Company’s mission is a statement about what the company's ultimate
goals, objectives are. What is its purpose in the world

Google’s Mission
Apple’s Mission
Vision

A short aspirational statement about the

future direction.
Apple’s vision
A good vision statement can be very powerful.

Strategic thinkers Hamilton, Prahlad coined the term strategic intent to

describe a special kind of stretched vision accompanied by strategic plan.
 Values
• It says to everyone- how we will behave as a company and as an
employee.
• Google’s values
• The value embodied will guide its choice and implementation of
strategic goals for the company. 
 Models of Strategy

Industrial Organization (I/O Model- Porter’s Positioning school derives

from this model)
Joe S. Bain developed a model in Industrial Organization
Economics which offers a causal theoretical explanation for firm
performance through economic conduct on incomplete markets.

Positioning school- according to Porter 1980 as seen from the competitive

environment , the industry characteristics are paramount, which is the industry
context in which the firm finds itself...
For Porter the attractiveness or profitability of an industry is determined by the
five forces framework. 
 Models of Strategy
Resource-Based View, was proposed by Jay Barney
Are there factors contained within each individual organisation which
accounts for differential firm performance in devising strategy the firms
main focus is on the firm specific factors of its own organisation.
Starting point is its internal environment. 
 SM Process
Strategic Intent and Environmental Analysis, Strategy Formulation,
Strategy Implementation and Strategic Evaluation
SM Process
 Environmental Analysis
It allows an org to evaluate its environment: 
1.External environment 
•Macro/General environment and 
•Competitive environment

2.Internal environment/attributes
 Macro/General Environment
Outermost layer is its macro environment. Macro environment consists of factors
(P,E,S,T,E,L) which may not have an immediate impact on the firm but have the
capacity to change in which the firm competes and even create new industries. 
• Political
• Economic
• Socio-cultural
• Technological
• Ecological
• Legal
 Limitations of five forces framework

● It is mostly static framework 

● It is based on the idea of competition for some surplus or value very
little attention is paid to actually how the value is created or to
innovation 
Internal analysis and competitive
advantage
There is something distinctive or unique about a company that gives it
a competitive advantage.
Competitive advantage comes from: 
● activities 
● resources and 
● capabilities
Internal analysis: Value chain Analysis
Activities can be represented and analysed by using value chain for the
manufacturing sector
Internal analysis: Value chain Analysis
Internal analysis: Value network
Activities can be represented and analysed by using a value network
for the services sector. It marks important set of activities and their
relationships with each other.
Internal analysis and competitive
advantage
Resources Resource based view who draws upon the resources and
capabilities that decide within an organisation or that an organisation
might want to develop in order to achieve sustainable competitive
advantage.
Internal analysis and competitive
advantage
Analysis of resources as the basis of competitive advantage has given
rise to what is called the resource-based view.
V-R-I (valuable, rare, inimitable) framework for analysing competitive
advantage
Internal analysis
Capability
• the capacity of the team of resources to perform some task or activity
• the capacity to perform a particular activity in a reliable and at least
minimally satisfactory manner. 
Internal analysis
Competencies
• efficient configuration of resources provides an organisation with
competencies.
• C K Prahlad and Hamel 1990, core competencies.
Competitive advantage
• The set of activities or resources or capabilities must help the
company to create value.
● How rare it is.
Sustainable competitive advantage
The firm’s internal attributes must be: 
Strategy Formulation
Corporate-level Strategies 
Business-level Strategies  
Functional level Strategies
Business-Strategy
 Business-level strategy addresses the question of:
How a firm will compete in a particular industry?
A generic strategy is a general way of positioning a firm within an
industry.
Focusing on generic strategies allows executives to concentrate on the
core elements of firms’ business-level strategies.
 Competitive Advantage:
Uniqueness
Competitive Advantage: Cost

Walmart’s cost leadership strategy Nordstrom builds

depends on attracting a large
its differentiation strategy around
Scope of Operations: Broad Target customer base and keeping prices
low by buying massive quantities of offering designer merchandise and
providing exceptional service.
goods from suppliers.

In using a focused cost leadership, Anthropologie follows a focused

Dollar General does not offer a full differentiation strategy by selling
Scope of Operations: Narrow array of consumer goods, but those unique (and pricey) women’s
Target
that it does offer are priced to apparel, accessories, and home
move. furnishings.
Cost leadership is one of the generic business strategies discussed by
Porter in 1980.
A firm following a cost leadership strategy attempts to earn higher
returns and competitive advantages through offering products or
services at the lowest prices in the industry.
The strategy requires the vigorous pursuit of cost minimization
techniques. Costs may be reduced through improved operating
efficiencies, production learning or scale economies, unique access to
raw material, or special relationships with suppliers, distributors, or
customers.
Cost leaders are often vertically integrated or integrated into high value
added, proprietary components and services. This capability allows
them to be the most efficient processors in at least one stage of the
value-added chain.
Furthermore, a cost leader firm frequently owns high relative market
share, enabling various scale advantages in purchasing or
manufacturing.
A firm following a cost leadership strategy offers products or services with
acceptable quality and features to a broad set of customers at a low price.
Ex. Payless ShoeSource, sells name-brand shoes at inexpensive prices. Its
low-price strategy is communicated to customers through advertising
slogans such as “Why pay more when you can Payless?” and “You could pay
more, but why?”

Walmart’s advertising slogans such as “Always Low Prices” and “Save Money.
Live Better” communicate Walmart’s emphasis on price slashing to potential
customers.
The ability to charge low prices and still make a profit is challenging.
Cost leaders manage to do so by emphasizing efficiency.
At Waffle House restaurants, for example, customers are served cheap
eats quickly to keep booths available for later customers. As part of the
effort to be efficient, most cost leaders spend little on advertising,
market research, or research and development.
 Cost Leadership
High profits can be enjoyed if a cost leader has a
high market share. An example is Kampgrounds
of America, a chain of nearly 500 low cost
Advantages camping franchises in the United States.
Low-cost firms such as many municipal golf
courses can withstand price wars because high-
priced competitors will not want to compete
directly with a more efficient rival.

If perceptions of quality become too low,

business will suffer.
Large volumes of sales are a must because
margins are slim.
Disadvantages The need to keep expenses low might lead cost
leaders to be late in detecting key environment
trends.
Low-cost firms’ emphasis on efficiency makes it
difficult for them to change quickly if needed.
Differentiation strategy is one of the generic business strategies
proposed by Porter in1980.
This strategy seeks to develop and offer products or services that are
perceived as being unique or superior in some way.
Approaches to differentiation can take many forms: product design,
brand image, technology, product features, distribution and service
characteristics, or other dimensions.
Catepillar Tractor, a manufacturer of heavy construction equipment,
provides an example of product differentiation. Catepillar is well-known
as a producer of very high quality, reliable machinery. In addition, their
dealer network and excellent spare parts availability make their
products even more attractive to buyers, who suffer heavy expenses
when equipment are unavailable.
Pursuit of a differentiation strategy usually requires investments in
product or process development, new technologies, market research,
and image building etc.
A famous cliché contends that “you get what you pay for.” This saying
captures the essence of a differentiation strategy.
A firm following a differentiation strategy attempts to convince
customers to pay a premium price for its good or services by providing
unique and desirable features.
The message that such a firm conveys to customers is that you will pay
a little bit more for our offerings, but you will receive a good value
overall because our offerings provide something special.
a firm is competing based on uniqueness rather than price and is
seeking to attract a broad market
Ex. Coleman camping equipment offers a good example. If camping
equipment such as sleeping bags, lanterns, and stoves fail during a
camping trip, the result will be, well, unhappy campers. Coleman’s
sleeping bags, lanterns, and stoves are renowned for their reliability
and durability. Cheaper brands are much more likely to have problems.
Lovers of the outdoors must pay more to purchase Coleman’s goods
than they would to obtain lesser brands, but having equipment that
you can count on to keep you warm and dry is worth a price premium
in the minds of most campers.
Ex. Morton has differentiated its salt by building a brand around its iconic
umbrella girl and its trademark slogan of “When it rains, it pours.” Would
the typical consumer be able to tell the difference between Morton Salt
and cheaper generic salt in a blind taste test? Not a chance. Yet Morton
succeeds in convincing customers to pay a little extra for its salt through
its brand-building efforts.

FedEx and Nike are two other companies that have done well at
communicating to customers that they provide differentiated offerings.
FedEx’s former slogan “When it absolutely, positively has to be there
overnight” highlights the commitment to speedy delivery that sets the
firm apart from competitors such as UPS and the US Postal Service. Nike
differentiates its athletic shoes and apparel through its iconic “swoosh”
logo as well as an intense emphasis on product innovation through
research and development.
Differentiation
Buyer loyalty is common among
handbag buyers. Many Chanel enjoys strong
individuals enjoy seeing–and margins because their well-
Advantages being seen with–a designer known name allows them to
logo on the products they buy charge a premium for their
such as the iconic C that is handbags.
shown on Coach bags.

Less-expensive bags from

retailers such as Target provide
enough of a trendy look to Imitations may steal customers,
Disadvantages satisfy many price-sensitive such as is common with knock-
buyers. These individuals will off handbags sold by street
choose to save their money by vendors.
avoiding expensive bags from
top-end designers.
A focused cost leadership strategy requires competing based on price
to target a narrow market. A firm that follows this strategy does not
necessarily charge the lowest prices in the industry. Instead, it charges
low prices relative to other firms that compete within the target
market.
Redbox, for example, uses vending machines placed outside grocery
stores and other retail outlets to rent DVDs of movies for $1. There are
ways to view movies even cheaper, such as through the flat-fee
streaming video subscriptions offered by Netflix. But among firms that
rent actual DVDs, Redbox, earlier, offered unparalleled levels of low
price and high convenience.
Another important point is that the nature of the narrow target market
varies across firms that use a focused cost leadership strategy. In some
cases, the target market is defined by demographics. Claire’s, for example,
seeks to appeal to young women by selling inexpensive jewelry, accessories,
and ear piercings. Claire’s use of a focused cost leadership strategy has been
very successful; the firm has more than three thousand locations and has
stores in 95 percent of US shopping malls.
In other cases, the target market is defined by the sales channel used to
reach customers. Most pizza shops offer sit-down service, delivery, or both.
In contrast, Papa Murphy’s sells pizzas that customers cook at home.
Because these inexpensive pizzas are baked at home rather than in the
store, the law allows Papa Murphy’s to accept food stamps as payment. This
allows Papa Murphy’s to attract customers that might not otherwise be able
to afford a prepared pizza.
A focused differentiation strategy requires offering unique features
that fulfill the demands of a narrow market. As with a focused low-cost
strategy, narrow markets are defined in different ways in different
settings.
Some firms using a focused differentiation strategy concentrate their
efforts on a particular sales channel, such as selling over the Internet
only. Others target particular demographic groups.
Ex Breezes Resorts, a company that caters to couples without children.
The firm operates seven tropical resorts where vacationers are
guaranteed that they will not be annoyed by loud and disruptive
children.
The dedication of Mercedes-Benz to cutting-edge technology, styling,
and safety innovations has made the firm’s vehicles prized by those
who are rich enough to afford them. This appeal has existing for many
decades. In 1970, acid-rocker Janis Joplin recorded a song called
“Mercedes Benz” that highlighted the automaker’s allure. Since then
Mercedes-Benz has used the song in several television commercials,
including during the 2011 Super Bowl.
 Focused Strategies
Advantages Disadvantages

•Limited demands exist for specialized goods and

•High prices can be charged. Recreational services, so every potential sale counts.
Equipment Incorporated (REI), for example, •The area of focus may be taken over by others or
commands a premium for their outdoor sporting even disappear over time. Many gun stores went out
goods and clothes that feature name brands such as of business after large retailers such as Walmart
The North Face and Marmot. started carrying an array of firearms.
•Firms using a focus strategy often develop great •Other firms may provide an even narrower focus.
expertise about the good or service being sold. An outdoor sporting goods store, for example, might
Thus, customers may gravitate toward a specialty lose business to a store that focuses solely on ski
camping shop in order to learn how to best take apparel because the latter can provide more
advantage of limited vacation time. guidance about how skiers can stay warm and avoid
broken bones.
In rare cases, firms are able to offer both low prices and unique
features that customers find desirable. These firms are following a
hybrid, integrated or dual strategy.
Firms that are not able to offer low prices or appealing unique features
are referred to as “stuck in the middle.”
Business strategies

Dual or Integrated Strategies- that simultaneously lowers cost and

increases customer value

Michael Porter - " stuck in the middle “

Hybrid Strategy
Business Strategies
Blue ocean strategy Kim and Mauborgne 2005,
Red ocean strategy