INDEX

Sr. No. Topic Pg. No.

1 Industry & Competition 2

2 Generic & Grand Strategies 9

Notes Complied By: Prof. Charmi Gala

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 Module 2: Industy & Competition, Competitive
Strategies
Industry:
 Industry is ‘a group of firms whose products have same and similar attributes such that
they compete for the same buyers.’
 Example, all paper manufacturers constitute the paper industry.

Industry and Competitive Analysis:

 It provides a way of thinking strategically about any industry's overall situation and
drawing conclusions about whether the industry represents an attractive investment for
company funds.
 The analysis entails examining a company's business in the context of a much wider
environment.
 Industry and competitive analysis can be done using a set of concepts and techniques
to get a clear fix on key industry traits, the intensity of competition, the drivers of
industry change, the market positions and strategies of rival companies, the keys to
competitive success, and the industry's profit outlook.
 Examples:
Competitive forces can be moderate in one industry and fierce, even cutthroat, in
another. Moreover, in some industries competition focuses on who has the best price,
while in others competition is centered on quality and reliability (as in monitors for
PCs and laptops) or product features and performance (as in mobile phones) or quick
service and convenience. (as in online shopping and fast foods) or brand reputation
(as in laundry detergents and soft drinks).

A. Dominant economic features of the industry:

 Industries differ significantly in their basic character and structure. Industry and
competitive analysis begins with an overview of the industry's dominant
economic features. The major economic factors to be considered are as follows:
1. Market size.
2. Scope of competitive rivalry (local, regional, national, international, or
global).
3. Market growth rate and position in the business life (early development,
rapid growth and takeoff, early maturity, maturity, saturation and stagnation,
decline).
4. Number of rivals and their relative sizes.
5. Small companies dominant companies?
6. The number of buyers and their relative sizes. Whether and to what extent
industry rivals have integrated backward and/or forward.
7. The types of distribution channels used to access consumers.
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 8. The pace of technological change in both production process innovation and
new product introductions.
9. Whether the products and services of rival firms are highly differentiated,
weakly differentiated, or essentially identical.
10. Whether companies can realize economies of scale in purchasing,
manufacturing, transportation, marketing, or advertising.
11. Whether key industry participants are clustered in a particular location, for
example, lock industry in Aligarh. Saris and diamonds in Surat, information
technology in Bangalore. Similarly, there is also concentration of business in
different countries on account of graphical and other reasons.
12. Whether certain industry activities are characterized by strong learning and
experience effects ("learning by doing") such that unit costs decline as
cumulative output grows.
13. Whether high rates of capacity utilization are crucial to achieving low-cost
production efficiency.
14. Capital requirements and the ease of entry and exit.
15. Whether industry profitability is above/below par.

B. Nature and strength of competition:

 One important component of industry and competitive analysis involves delving
into the industry's competitive process to discover what the main sources of
competitive pressure are and how strong each competitive force is.
 This analytical step is essential because managers cannot devise a successful
strategy without in-depth understanding of the industry's competitive character.
 Even though competitive pressures in various industries are never precisely the
same, the competitive process works similarly enough to use a common
analytical framework in gauging the nature and intensity of competitive forces.
 Porter’s five forces model is useful in understanding the competition.

C. Triggers of Change:
Driving Forces:
 The dominant forces that have a great influence on the changes that take
place in the competitive environment and the economy are called Driving Forces
(or Drivers or Triggers) of industry's change.
 The most dominant forces are called driving forces because they have the
biggest influence on what kinds of changes will take place in the industry's
structure and competitive environment.
 The Steps involved in Analyzing the Driving Forces involves:
a) identifying what the driving forces are, and
b) assessing their impact on the industry.

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 Items Examples
The internet and the new e- During the times of Covid – Small
commerce opportunities. business
Increasing globalization. Increased Business / Trade
Product innovation. Caravan – (Inbuilt Music Player)
Marketing innovation. Contests & Poll – Social Media
marketing

D. Identifying the Market Position of Rivals:

Strategic Group:
 A Strategic Group consists of rival Firms with similar competitive approaches
and positions in the market.
 A strategic group is a concept used in strategic management that groups
companies within an industry that have similar business models or similar
combinations of strategies.
 Thus it is a cluster of firms in an industry with similar competitive approaches
and market positions with the help of similar resources.
 Example, the restaurant industry can be divided into several strategic groups
including fast-food and fine-dining based on variables such as preparation
time, pricing, and presentation.
 The number of Strategic Groups in an industry varies with the strategies
pursued by the various sellers and their comparable market positions.

Strategic Group Mapping:

 Strategic group mapping is a technique for displaying the different markets or
competitive positions that rival firms occupy in the industry.
 It is a technique for revealing the competitive positions of industry participants
is strategic, which is useful analytical tool for comparing the market positions of
each firm separately or for grouping them into like positions when an industry
has so many competitors that it is not practical to examine each one in depth.

Steps:
The procedure for constructing a strategic group map and deciding which firms
belong in which strategic group is straightforward:
1. Identify the competitive characteristics that differentiate firms in the
industry typical variables are price/quality range (high, medium, low);
geographic coverage (local, regional, national, global); product-line
breadth (wide, narrow); use of distribution channels (one, some, all); and
degree of service offered ( limited, full).
2. Plot the firms on a two-variable map using pairs of these differentiating
characteristics

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 3. Assign firms that fall in about the same strategy space to the same
strategic group
4. Draw circles around each strategic group making the circles proportional to
the size of the group's respective share of total industry sales revenues.

E. Strategic Moves of a Rival: (Competitive Intelligence)

 A Company can outperform its rivals only by monitoring their actions,
understanding their strategies, and anticipating what moves they are likely
to make next.
 Competitive Intelligence about the strategies rivals are deploying, their latest
moves, their resource strengths and weaknesses, and the plans they have
announced is essential to anticipate the actions they are likely to take next, and
what bearing their moves might have on a Company's own best strategic moves.
 Competitive Intelligence can help a Company determine whether it needs to
defend against specific moves taken by rivals or whether those moves provide
an opening for a new offensive thrust.

F. Key factors for competitive success:

 An industry's Key Success Factors (KSFs) are those things that most affect
industry members' ability to prosper in the marketplace.
 Those are the particular strategy elements, product attributes, resources,
competencies, competitive capabilities, and business outcomes that spell the
difference between profit and loss and, ultimately, between competitive success
or failure. KSFs by their very nature are so important that all firms in the industry
must pay close attention to them - they are - the prerequisites for industry
success or.
 KSFs are the rules that shape whether a company will be financially and
competitively successful.
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  Key success factors vary from industry to industry and even from time to time
within the same industry as driving forces and competitive conditions change.
 Example:
Activity KSFs Purpose
Apparel appealing designs and to create buyer interest.
manufacturing, colour combinations.
low-cost manufacturing to permit attractive retail
efficiency pricing and ample profit
margins

Process of identifying the KSFs in the industry:

1. KSFs are determined based on elements like -
a. Basis on which the customers choose between competing brands of
Sellers,
b. Product attributes which are crucial in influencing Buyer behaviour,
c. Resources and competitive capabilities a Seller needs in order to be
successful, and
d. Way in which the Sellers achieve a sustainable competitive advantage.

G. Prospects and financial attractiveness of industry:

 The final step of industry and competitive analysis is to use the results of
analysis of previous six issues to draw conclusions about the relative
attractiveness or unattractiveness of the industry, both near-term and long-term.
The important factors to conclude on includes:
1. The industry's growth potential.
2. Whether competition currently permits adequate profitability and whether
competitive forces will become stronger or weaker.
3. Whether industry profitability will be favourably or unfavourably affected by
the prevailing driving forces.
4. The company's competitive position in the industry and whether its position
is likely to grow stronger or weaker. (Being a well-entrenched leader or
strongly positioned contender in an otherwise lackluster industry can still
produce good profitability; however, having to fight an uphill battle against
much stronger rivals can make an otherwise attractive industry unattractive).
5. The company's potential to capitalize on the vulnerabilities of weaker rivals
(perhaps converting an unattractive industry situation into a potentially
rewarding company opportunity).
6. Whether the company is able to defend against or counteract the factor that
make the industry unattractive.
7. The degrees of risk and uncertainty in the industry's future.
8. The severity of problems confronting the industry as a whole.

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 9. Whether continued participation in this industry adds importantly to the
firm's ability to be successful in other industries in which it may have
business interests.

Possible Decisions based on Industry Attractiveness and

unattractiveness:
a) Decisions if the industry is attractive:
1. Strengthen the long-term competitive positions in the business.
2. Expand sales efforts.
3. Invest in additional facilities and equipment as needed.

b) Decisions if the industry is unattractive:

1. Invest cautiously.
2. Look for ways to protect the long-term competitiveness & profitability
3. Acquire smaller Firms if the price is right
4. Diversification into more attractive business
5. Begin to look outside the industry for attractive diversification opportunities.

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 Generic Strategies & Grand Strategies
Michael Porter’s Generic Strategies:
According to Porter, strategies allow organizations to gain competitive advantage from
three different bases: cost leadership, differentiation, and focus. Porter calls these base
generic strategies. (Basic approaches to strategic planning that can be adopted by any firm
in any market or industry to improve its competitive performance. )

A. Cost Leadership Strategies:

 Cost Leadership, i.e. producing standardized
products at a very low per unit costs, for
consumers who are price-sensitive.
 This strategy is more effective when-
(a) Market comprises many price-sensitive Buyers.
(b) There are only very few ways to achieve
product differentiation.
(c) Buyers do not care much about differences from one brand to another brand,
(d) There are a large number of Buyers with significant bargaining power.
 Cost Leadership strategy aims to lower cost and underprice competitors, in order to
gain market share and sales.
 Some risks of pursuing Cost Leadership Strategy are-
a. Competitors may intimate the strategy, thus driving overall industry profits down,
b. Technological breakthroughs in the industry may make the strategy ineffective, or
c. Buyer interest may swing to other differentiating features besides price.
 Examples:
McDonald's has been extremely successful with this strategy by offering basic fast-
food meals at low prices. They are able to keep prices low through a division of
labor that allows it to hire and train inexperienced employees rather than trained
cooks.
Wal-Mart is able to achieve this strategy due to its large scale and efficient supply
chain. They source products from cheap domestic suppliers and from low-wage
foreign markets.

B. Differentiation Strategies:
 Successful differentiation can mean greater
product flexibility, greater compatibility,
lower costs, improved service, less
maintenance, greater convenience, or
more features.
 Product development is an example of a
strategy that offers the advantages of
differentiation.

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  However, there is also a risk of the competitors copying and following the similar
product.
It means to differentiate the products in some way in order to compete successfully.
 Examples of the successful use of a differentiation strategy are Hero Honda, Asian
Paints, Nike athletic shoes, Apple Computer, and Mercedes-Benz automobiles.
 A differentiation strategy is appropriate where the target customer segment is not
price-sensitive, the market is competitive or saturated, customers have very specific
needs which are possibly under-served, and the firm has unique resources and
capabilities which enable it to satisfy these needs in ways that are difficult to copy.
 These could include patents or other Intellectual Property (IP), unique technical
expertise (e.g. Apple's design skills or Pixar's animation prowess).
 Successful brand management also results in perceived uniqueness even when the
physical product is the same as competitors.
 Fashion brands rely heavily on this form of image differentiation.

C. Focus Strategies:
 Focus strategy is just what it sounds
like: concentrate on a particular
customer, product line, geographical
area, market niche, etc.
 A focus strategy is
usually employed where the company
knows its segment and has products to
competitively satisfy its needs.
 A focused strategy should target
market segments that are less vulnerable to substitutes or where a competition is
weakest to earn above-average return on investment. Focus can be based on cost
or differentiation strategy.
 In adopting a broad focus scope, the principle is the same: the firm must ascertain
the needs and wants of the mass market, and compete either on price (low cost) or
differentiation (quality, brand and customization) depending on its resources and
capabilities.
a. Wal Mart has a broad scope and adopts a cost leadership strategy in the mass
market.
b. Pixar also targets the mass market with its movies, but adopts a differentiation
strategy, using its unique capabilities in story-telling and animation to produce
signature animated movies that are hard to copy, and for which customers are
willing to pay to see and own.
c. Apple also targets the mass market with its iPhone and iPod products, but
combines this broad scope with a differentiation strategy based on design,
branding and user experience that enables it to charge a price premium due to
the perceived unavailability of close substitutes.

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 Grand / Directional Strategies:
 They are also known as Master Strategies or Business Strategies.
 According to William F Glueck and Lawrence R Jauch there are four generic ways in
which strategic alternatives can be considered. These are stability, expansion,
retrenchment and combinations.
A. Stability:
1) Meaning:
 A firm opting for stability strategy stays with the same business, same
product market posture and functions, maintaining same level of effort
as at present.
 It is to enhance functional efficiencies, through better utilization of resources
to earn the desired income and profits.
2) Features:
i. Stability strategy does not involve a redefinition of the business of the
corporation.
ii. It is basically a safety-oriented strategy.
iii. The risk is also less and it is a fairly frequently employed strategy.
iv. With the stability strategy, the firm has the benefit of concentrating its
resources and attention on the existing businesses/products and markets.
v. But the strategy does not permit the renewal process of bringing in fresh
investments and new products and markets for the firm.

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 3) Reasons for Stability Strategy:
i. It is less risky, involves less changes and people feel comfortable with
things as they are.
ii. The environment faced is relatively stable.
iii. Expansion may be perceived as being threatening.

4) Objectives:
The objectives of Stability Strategy are -
 to safeguard existing interests and strengths,
 to pursue well established and tested objectives,
 to continue the chosen path of business,
 to maintain operational efficiency on a sustainable basis,
 to consolidate the reigning position,
 to optimize returns on resources committed in the business.

B. Expansion:
1) Meaning:
Expansion strategy is the opposite of stability strategy. While in stability
strategy, rewards are limited, in expansion strategy they are very high. In the
matter of risks, too, the two are the opposites of each other.
2) Features:
i. Expansion strategy is the true growth strategy. A firm with a mammoth
growth ambition can meet its objective only through the expansion strategy.
ii. Expansion strategy involves a redefinition of the business of the
corporation.
iii. The process of renewal of the firm through fresh investments and new
businesses/products/markets is facilitated only by expansion strategy.
iv. Expansion strategy is a highly versatile strategy; it offers several
permutations and combinations for growth.
v. A firm opting for the expansion strategy can generate many alternatives
within the strategy by altering its propositions regarding products, markets
and functions and pick the one that suits it most.
3) Reasons:
i. When environment demands increase in pace of activity.
ii. Psychologically, strategists may feel more satisfied with the prospects of
growth from expansion;
iii. Increasing size may lead to more control over the market vis-a-vis
competitors.
iv. Advantages from the experience curve and scale of operations may accrue.

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Types of Expansion strategies:
Expansion strategy holds within its fold two major strategy routes:
i. Intensification:
 It is one of the growth strategies, the firm actually pursues for the growth.
 With intensification strategy, the firm pursues growth by working with its current
businesses.
 Intensification, in turn, encompasses three alternative routes:
a) Market penetration strategy
b) Market development strategy
c) Product development strategy

ii. Diversification:
 Diversification strategy involves expansion into new businesses that are outside
the current businesses and markets.
 Diversification endeavours can be related or unrelated to existing businesses of the
firm.
 Based on the nature and extent of their relationship to existing businesses,
diversification endeavours have been classified into four broad categories:
a) Vertically integrated diversification: (Vertical Integration):
b) Horizontally integrated diversification: (Horizontal Integration)
c) Concentric diversification
d) Conglomerate diversification

a) Vertically integrated diversification: (Vertical Integration):

 Vertically integrated diversification involves going into new businesses that are
related to the existing business of the firm.
 The firm remains vertically within the same process. It moves forward or
backward in the chain and enters specific product/process steps with the
intention of making them into new businesses for the firm.
 The characteristic feature of vertically integrated diversification is that here, the
firm does not jump outside the vertically linked product-process chain.
i. Forward Integration:
 It involves gaining increased ownership or increased control over the
distributors or the retailers. It gives more presence to the company in
the market.
 The company goes closer to the customers. The main objective is to
reduce the dependence on wholesalers and retailers.
 Example: BATA Shoes & Raymond’s has its company’s outlet in the
remotest area of the village.
ii. Backward Integration:
 In this strategy, the company moves towards its suppliers, i.e. it may tie
up with the supplier if raw materials or take over a running firm that
supplies raw materials, or may itself decide to manufacture raw materials.

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  Example: Hero Cycles has set up a subsidiary to manufacture cycle
wheels and tubes.
J.P. Morgan have a tie up with IBM to provide the techno-savvy
Solutions.

b) Horizontally integrated diversification: (Horizontal Integration):

 When a company enters into a new business which is closely related with the
existing line of business through the processes, technology or the markets, it is
known as Horizontal integration.
 Also when a company acquires or takes up another company from the same
industry manufacturing the same product.
 Example: A ready Made Garments manufacturer may enter in the business of
ladies garments.

c) Concentric diversification:
 In concentric diversification, too, the new products are connected to the firm's
existing process/technology. But the new products are not vertically linked to
the existing ones.
 They are not intermediates. They serve new functions in new markets.
 It involves diversification into such areas, which are indirectly related to the
existing businesses.
 Example: A Car Dealer may start a finance company to finance hire purchase of
cars.

d) Conglomerate diversification:
 It is totally unrelated diversification. In process/technology/function, there is no
connection between the new products and the existing ones.
 Conglomerate diversification has no common thread at all with the firm's
present position.
 It thus involves totally new area or business.
 Example: A Computer Software company may enter into insurance business.

C. Retrenchment:
1) Meaning:
 Divestment/ Retrenchment strategy involves retrenchment of some of the
activities in a given business of the firm or sell-out of some of the
businesses as such.
 Divestment strategy involves the sale or liquidation of a portion of business,
or a major division, profit centre or SBU.
 Divestment is usually a part of rehabilitation or restructuring plan and is
adopted when a turnaround has been attempted but has proved to be
unsuccessful.
 Like expansion strategy, divestment strategy, too, involves a redefinition of
the business of the corporation.
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  Compulsions for divestment can be many and varied, such as
 Obsolescence of product/process
 Business becoming unprofitable
 High competition
 Industry overcapacity
 Failure of strategy

2) Reasons:
i. The management no longer wishes to remain in business either partly or
wholly due to continuous losses and unavailability.
ii. The environment faced is threatening.
iii. Stability can be ensured by reallocation of resources from unprofitable to
profitable businesses
iv. A better alternative may be available for investment, causing a firm to divest
a part of its unprofitable businesses.
v. Severe Competition in the industry

3) Types:
i. Turnaround Strategies:
 Retrenchment may be done either internally or externally. For internal
retrenchment to take place, emphasis is laid on improving internal
efficiency, known as turnaround strategy.
 Turnaround means making the company profitable again. It is a
strategy which converts a loss-making unit into a profitable one. It is a
broader strategy which aims at improving the declining sales or market
share or profits.
 There are certain conditions or indicators which point out that a
turnaround is needed if the organization has to survive. These danger
signs are:
 Continuous losses.
 Declining market share
 Deterioration in physical facilities
 Uncompetitive products or services
 Mismanagement
 For turnaround strategies to be successful, it is imperative to focus on
the short and long-term financing needs as well as on strategic issues. A
workable action plan for turnaround should include:
a. Analysis of product, market, production processes, competition, and
market segment positioning.
b. Clear thinking about the market place and production logic.
c. Implementation of plans by target-setting, feedback, and remedial
action.

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  A set of ten elements that contribute to turnaround are:
i. Changes in the top management
ii. Initial credibility-building actions
iii. Neutralising external pressures
iv. Initial control
v. Identifying quick payoff activities
vi. Quick cost reductions
vii. Revenue generation
viii. Asset liquidation for generating cash
ix. Mobilization of the organizations
x. Better internal coordination.

ii. Liquidation strategy:

 A retrenchment strategy considered the most extreme and unattractive
is liquidation strategy, which involves closing down a firm and selling
its assets.
 It is considered as the last resort because it leads to serious
consequences such as loss of employment for workers and other
employees, termination of opportunities where a firm could pursue any
future activities, and the stigma of failure.
 Many small-scale units, proprietorship firms, and partnership ventures
liquidate frequently but medium-and large-sized companies rarely
liquidate in India.
 The company management, government, banks and financial
institutions, trade unions, suppliers and creditors, and other agencies are
extremely reluctant to take a decision, or ask, for liquidation.
 The firm cannot expect adequate compensation as most assets, being
unusable, are considered as scrap.

D. Combination Strategies:
 It is possible to adopt a mix of the above mentioned strategies to suit particular
situations.
 An enterprise may seek stability in some areas of activity, expansion in some and
retrenchment in the others. Retrenchment of ailing products followed by
stability and capped by expansion in some situations may be thought of.
 For some organizations, a strategy by diversification and/or acquisition may call
for a retrenchment in some obsolete product lines, production facilities and
plant locations.

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