01 Porters Generic Strategies and More
-
Upload
vinitshah90 -
Category
Documents
-
view
223 -
download
0
Transcript of 01 Porters Generic Strategies and More
-
8/7/2019 01 Porters Generic Strategies and More
1/34
Prof.Sushil\IITD\Session-VI 1
MANAGEMENT POLICY ANDSTRATEGY
SESSION - VI
Generic and GrandStrategiesProf. Sushil
Department of Management
StudiesIndian Institute of Technology,
DelhiINDIA
Email: [email protected]
-
8/7/2019 01 Porters Generic Strategies and More
2/34
Prof.Sushil\IITD\Session-VI 2
Generic Strategies
Differentiation
Low-costleadership
Focus
-
8/7/2019 01 Porters Generic Strategies and More
3/34
Prof.Sushil\IITD\Session-VI 3
PORTERS GENERIC STRATEGIES
1. CostLeadership
2.Differentiation
3 A. Cost Focus 3 B.
DifferentiationFocus
NarrowTarget
BroadTarget
DifferentiationLower Cost
Compet i t iveAdvantage
Competi t ive Score
-
8/7/2019 01 Porters Generic Strategies and More
4/34
Prof.Sushil\IITD\Session-VI 4
REQUIREMENTS FOR GENERICCOMPETITIVE STRATEGIES
Generic Commodity Required Common OrganizationalStrategy Skills and Resources RequirementsOverall cost Sustained capital investment Tight cost control
leadership access to capital Frequent, detailed controlreports
Process engineering skills Structured organizationand responsibilities
Intense supervision of labour Incentives based on
Products designed for ease meeting strictquantitative
Low-cost distribution system targets in manufactureDifferentiation Strong marketing abilities Strong coordination
Product engineering among functions in R&D,Creative flare product development, andmarketing
s
-
8/7/2019 01 Porters Generic Strategies and More
5/34
Prof.Sushil\IITD\Session-VI 5
REQUIREMENTS FOR GENERIC COMPETITIVESTRATEGIES
CONTD
Strong capability in basic Subjective measurement andresearch incentives instead of
quantitative measures Corporate reputation for Amenities to attract highly
quality or technological skilled labour, scientists, orleadership creative people
Long tradition in the industryor unique combination of skillsdrawn from other businesses
Strong cooperation fromchannels
Focus Combination of the above Combination of the
above policiespolicies directed at the directed at the regular strategicparticular strategic target target
s
-
8/7/2019 01 Porters Generic Strategies and More
6/34
Prof.Sushil\IITD\Session-VI 6
RISKS OF THE GENERIC STRATEGIES
Risks of Cost Leadership Risks of Differentiation Risk of Focus
Cost of leadership is not Differentiation is not The focus strategy issustained initiated
sustained: Competitors imitate The target segments Competitors imitate: Bases for differentiation becomes structurally
unattractives Technology changes becomes less imported to Structure erodess Other bases for cost buyers Demand disappears
leadership erodeProximity in differentiation Cost proximity is lost Broadly targetedis lost competitors overwhelm
the segment: The segments differences
from other segments narrow Theadvantages of a broad line increase
Cost focusers achieve Differentiation focusers New Focusers sub-segmentseven lower cost in segments achieve even greater the industry
differentiation in segments
s
-
8/7/2019 01 Porters Generic Strategies and More
7/34
Prof.Sushil\IITD\Session-VI 7
STAGE OF `INDUSTRY DEVELOPMENT
Keepingahead of thefield
CostleadershipRaise barr iersDeter competitors
Redefine scopeDivestperipheralsEncouragedepartures
Imitation at
lower costJoint v ent ures
Differentia
tion Focus
Differentiatio
nNewopportunities
Leader
Follower
Growth Maturity Decline
Strategicposition of organization
-
8/7/2019 01 Porters Generic Strategies and More
8/34
Prof.Sushil\IITD\Session-VI 8
Types of Grand Strategies
Consortia
Concentrated Growth
Market Development
Product Development
Innovation
Horizontal Integration
Vertical Integration
Concentric Diversification
Conglomerate Diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint Ventures
Strategic Alliances
-
8/7/2019 01 Porters Generic Strategies and More
9/34
Prof.Sushil\IITD\Session-VI 9
Characteristics of a ConcentratedGrowth Strategy
s Involves focusing resources on the profitable growthof a single product, in a single market, with a singledominant technology
s Rationale - Firm develops and exploits its expertise in adelimited competitive arena
s Determinants of competitive market success Ability to assess market needs Knowledge of buyer behavior Customer price sensitivity Effectiveness of promotion
-
8/7/2019 01 Porters Generic Strategies and More
10/34
Prof.Sushil\IITD\Session-VI 10
Conditions Favoring a ConcentratedGrowth Strategy
Firms industry is resistant to major technological advancements
Firms targeted markets are not product saturated
ufficiently distinctive to dissuade competitors in adjacent markets from
nputs are stable in price and quantity and available in amounts and at ti
Firms industry is stable
competitive advantages are based on efficient production or distributio
Success of market generalists
-
8/7/2019 01 Porters Generic Strategies and More
11/34
Prof.Sushil\IITD\Session-VI 11
Strategies of Market and ProductDevelopment
s Market development Consists of marketing present products, often with
only cosmetic modifications, to customers inrelated market areas by
s Adding channels of distribution ors
Changing content of advertising orpromotions Product development
Involves substantial modification of existingproducts or creation of new but related products
Based on penetrating existing markets bys Incorporating product modifications into
existing items ors Developing new products connected to
existing products
-
8/7/2019 01 Porters Generic Strategies and More
12/34
Prof.Sushil\IITD\Session-VI 12
Specific Options for Selected GrandStrategies
Concentration: Increasing use of present products in present
markets1. Increasing present customers rate of use:
a. Increasing size of purchaseb. Increasing rate of product obsolescencec. Advertising other uses
d. Giving price incentives for increased use2. Attracting competitors customersa. Establishing sharper brand differentiationb. Increasing promotional effortc. Initiating price cuts
3. Attracting nonusers to buy the producta. Inducing trial use through sampling, price incentives, and
so onb. Pricing up or downc. Advertising new uses
-
8/7/2019 01 Porters Generic Strategies and More
13/34
Prof.Sushil\IITD\Session-VI 13
Specific Options for Selected GrandStrategies (continued)
Market Development: Selling present products in new markets
1. Opening additional geographic marketsa. Regional expansion
b. National expansionc. International expansion2. Attracting other market segments
a. Developing product versions to appeal to other segments
b. Entering other channels of distributionc. Advertising in other media
-
8/7/2019 01 Porters Generic Strategies and More
14/34
Prof.Sushil\IITD\Session-VI 14
Specific Options for Selected GrandStrategies (concluded)
Product Development: Developing new products for present markets
1. Developing new product featuresa. Adapt (to other ideas, developments)b. Modify (change color, motion, sound, odor, form, shape)
c. Magnify (stronger, loner, thicker, extra value)d. Minify (smaller, shorter, higher e. Substitute (other ingredients, process, power)f. Rearrange (other patterns, layout, sequence, components)g. Reverse (inside out)h. Combine (blend, alloy, assortment, ensemble; combine
units, purposes, appeals, ideas)2. Developing quality variations3. Developing additional models and sizes (productproliferation)
-
8/7/2019 01 Porters Generic Strategies and More
15/34
Prof.Sushil\IITD\Session-VI 15
Innovation Strategy
Involves crea t ing a new product l ifecycle , t her eb y m aking similar exist ing
produ ct s obsole t e
-
8/7/2019 01 Porters Generic Strategies and More
16/34
Prof.Sushil\IITD\Session-VI 16
Strategies of Horizontal and VerticalIntegration
s Horizontal integration Based on growth via acquisition of one or
more similar firms operating at the samestage of the production-marketing chain
Involves eliminating competitors, providingacquiring firm with access to new markets
s Vertical integration
Involves acquiring firmss To supply acquiring firm with inputs - backward integration or
s Are customers for firms outputs - forward integration
-
8/7/2019 01 Porters Generic Strategies and More
17/34
Prof.Sushil\IITD\Session-VI 17
Acquisitions or mergers of suppliers or customer businesses are vertical integrationsvertical integrations
Acquisitions or mergers of competingbusinesses are horizontal integrationshorizontal integrations
Textile producer
Shirt manufacturer
Clothing store
Textile producer
Shirt manufacturer
Clothing store
Vertical and HorizontalIntegrations
-
8/7/2019 01 Porters Generic Strategies and More
18/34
Prof.Sushil\IITD\Session-VI 18
Motivations Related toDiversification Strategies
Increase growth rate of firm
Investment is better use of funds than using them for internal gro
Improve stability of earnings and sales
Balance or fill out product line
Diversify product line
Acquire a needed resource quickly
Achieve tax savings
Increase firms stock value
Increase efficiency and profitability
-
8/7/2019 01 Porters Generic Strategies and More
19/34
Prof.Sushil\IITD\Session-VI 19
Diversification Strategiess
Concentric diversification Involves acquisition of businesses related toacquiring firm in terms of technology,markets, or products
s Conglomerate diversification Involves acquisition of a business because it
represents a promising investment opportunity
Primary motivation is profit pattern of ventures Difference between the approaches
Concentric diversification emphasizescommonality whereas conglomeratediversification emphasizes profits for eachindividual unit
-
8/7/2019 01 Porters Generic Strategies and More
20/34
Prof.Sushil\IITD\Session-VI 20
Turnaround Strategy
Involves a concer t ed e ffort over aper iod of t im e t o for t ify a f irm s
dist inct ive com pet encies , ret urning i tt o prof it abi lit y
-
8/7/2019 01 Porters Generic Strategies and More
21/34
Prof.Sushil\IITD\Session-VI 21
Declining sales
or margins
Imminentbankruptcy
Low
High
Costreductio
n
Assetreduction
Efficiencymaintenanc
e
Entrepreneurialreconfiguration
S t a b i l i t y
R e c o v e r
y
Internalfactors
Externalfactors
Turnaround situation Turnaround responseCause Severity
Retrenchmentphase
Recovery phase
(operating)
(strategic)
A Model of the Turnaround Process
-
8/7/2019 01 Porters Generic Strategies and More
22/34
Prof.Sushil\IITD\Session-VI 22
Divestiture and LiquidationStrategies
s
Divestiture strategy Involves selling a firm or a major component of a
firm Reasons for divestiture
s Partial mismatches between acquired firmand parent firm
s Corporate financial needss Government antitrust action
s Liquidation strategy Involves selling parts of a firm, usually for its
tangible asset value and not as a going concerns
-
8/7/2019 01 Porters Generic Strategies and More
23/34
Prof.Sushil\IITD\Session-VI 23
The Strategy of Bankruptcy
s Two approaches Liquidation - Involves complete distribution
of a firms assets to creditors, most of whom receive a small fraction of amountowed
Reorganization - Involves creditorstemporarily freezing their claims while afirm reorganizes and rebuilds its operationsmore profitably
s Advantage of a reorganization bankruptcy
Proactive option offering maximumrepayment of a firms debt in the future if arecovery strategy is successful
-
8/7/2019 01 Porters Generic Strategies and More
24/34
Prof.Sushil\IITD\Session-VI 24
Corporate Combination Strategies
s Joint venture Involves establishing a third company (child),
operated for the benefit of the co-owners(parents)
s
Strategic alliance Involves creating a partnership between two ormore companies that contribute skills andexpertise to a cooperative project
s Exists for a defined periods
Does not involve the exchange of equitys Consortia, Keiretsus, and Chaebols Defined as large interlocking relationships
between businesses of an industry
-
8/7/2019 01 Porters Generic Strategies and More
25/34
Prof.Sushil\IITD\Session-VI 25
The Top Five Strategic Reasons forOutsourcing
1 . Im pr ove Busine ss Focus
2 . Access t o W orld -Class Capa bilit ie s
3 . Acceler at ed Reen ginee r ing Bene f i ts
4 . Sha re d Risks
5 . Fre e Resource s for Ot he r Purp ose s
-
8/7/2019 01 Porters Generic Strategies and More
26/34
Prof.Sushil\IITD\Session-VI 26
INDIAN BUSINESS HOUSESTATA GROUP
Group Overviews
s Indias largest business houses More than 85 companiess 39 listeds 8% of Indias market capitalizations 2.6 Million shareholderss 2,70,000 employeess Turnover Rs 343 billion (1996-1997)
-
8/7/2019 01 Porters Generic Strategies and More
27/34
Prof.Sushil\IITD\Session-VI 27
INDIAN BUSINESS HOUSESTATA GROUP Contd...
1996-97 Rs(Billion)
322
343302340
% change Over 1995-96
18.818
-7.1- 16
19
FinancialHighl ights
Assets
Turnover PBTPATExports
-
8/7/2019 01 Porters Generic Strategies and More
28/34
Prof.Sushil\IITD\Session-VI 28
INDIAN BUSINESS HOUSESTATA GROUP Contd...
s Metalss Automobiless Energys Engineerings Chemicalss Pharmaceuticals
s Consumer Productss Servicess Agro Industriess IT and Communications Exportss Finance
-
8/7/2019 01 Porters Generic Strategies and More
29/34
Prof.Sushil\IITD\Session-VI 29
INDIAN BUSINESS HOUSESTATA GROUP Contd...
Tata Heritages Jamsetji Tata
Started textile mill in 1877
Inspired steel and power industry Technical education and philanthropys JRD Tata
Pioneered civil aviation Funded Hom Bhabhas nuclear programme Guided the Tata group for over half a century
s Ratan Tata Present Chairman since 1991
s
-
8/7/2019 01 Porters Generic Strategies and More
30/34
Prof.Sushil\IITD\Session-VI 30
INDIAN BUSINESS HOUSESTATA GROUP Contd...
Holding Companiess Tata Sons
Founded by Jamsetji Tata
Promoted many of the present Tata companies 63% held by Tata philanthropic trustss Tata Industries
100% subsidiary of Tata Sons founded in 1945 Managing agency till 1970 Promoted new Tata companies in technology
based businessess Cross holdings among other Tata companiess
-
8/7/2019 01 Porters Generic Strategies and More
31/34
Prof.Sushil\IITD\Session-VI 31
INDIAN BUSINESS HOUSESTATA GROUP Contd...
Restructurings Prompted by post 1991 changing environments Need to identify and focus on core businessess Resistance from satraps
Russi Mody, Darbari Seth, Ajit Kerkars Shrink number of companies
From over 85 to about 30
s Shrink number of core businesses From about 25 to around 10 or 12
s Mergers and divestmentss McKinsey hired as a consultants
-
8/7/2019 01 Porters Generic Strategies and More
32/34
Prof.Sushil\IITD\Session-VI 32
INDIAN BUSINESS HOUSESTATA GROUP Contd...
Restructuring Strategys Keep and grow
Power, watches, metals, chemicals, telecom,hospitality, financial services, infotech,emerging services, infrastructure, automobiles
s Forge strategic tie ups Tea and beverages, retailing
s Remain only as strategic investors Luxury cars, infotech, printing, cosmetics
s Sell Refrigeration, paints, textiles, trading,
electronics, oil drilling, petrochemicals,pharma, specialty chemicals
-
8/7/2019 01 Porters Generic Strategies and More
33/34
Prof.Sushil\IITD\Session-VI 33
INDIAN BUSINESS HOUSESTATA GROUP Contd...
Recent Developmentss Voltas focus on air conditioning and
engineering business
Hive off pesticides business to RalchemPesticides (wholly owned subsidiary of Rallis -largest integrated agrochemical company inIndia)
s Electrolux Voltas - JV between Voltas and AB
Electrolux Refrigerators Washing machines Compressors for refrigerators
-
8/7/2019 01 Porters Generic Strategies and More
34/34
Prof Sushil\IITD\Session VI 34
INDIAN BUSINESS HOUSESTATA GROUP Contd...
Recent Developmentss Tata Tea focusing on global agro business
Manages 32 tea gardens in Sri Lanka
Adding tea gardens inTurkey Acquired a 9.5% stake in Asian Coffees Overseas Operations
Automobile assembly in Bangladesh Instant tea operations in the US Chain of hotels across the world Precision tooling operations in Singapore