STM Module 2B

7/30/2019 STM Module 2B

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Amity Business School

Competencies• A competency is a cross functional integration

and coordination of a capability

• A competency in new product development inone SBU may be the result of integrating MIS,

marketing, R&D and production capabilitieswithin that SBU.

• A core competency is a collection ofcompetencies that crosses divisional

boundaries, is widespread within thecorporation and is something with which thecorp can do exceedingly well




Core Competencies• Core competencies are communication,

involvement, and a deep commitment to workingacross divisional boundaries.

• Core competencies do not diminish with use.

Unlike physical assets, which do deteriorate overtime, competencies are enhanced as they areapplied & shared.

• But competencies still need to be nurtured andprotected.

• Competencies are the glue that binds existingbusinesses.




• They are also the engine for new businessdevelopment.

• Patterns of diversification & market entry may beguided by them, not just the attractiveness of the

markets.

• 3M-competency with sticky tapes. With businesses asdiverse as “Post-it” notes, magnetic tape, photographicfilms etc. the company has widely shared

competencies in substance, coating & adhesives & hasdevised various ways to combine them. It seems to bean extremely diversified portfolio of businesses butbelow it lie a few shared core competencies.

Core Competencies




Core Competencies• Companies like Canon, NEC and Honda may seemvery diverse but if we study the core competenciesunderlying them, disparate businesses becomecoherent.

• Canon’s core competencies in optics, imaging andmicroprocessor control have enabled it to enter,even dominate, markets as seemingly diverse ascopiers, laser printers, camera’s, image scanners

etc.• Cultivating core competencies does not mean

outspending rivals on research & development.




VRIO Framework• Barney in his VRIO Framework of analysisproposes four questions to evaluate a firm’sCompetencies

• Value – does it provide customer valueand competitive advantage?

• Rareness – does no other competitor possessit?

• Imitability – is it costly for others to imitate?• Organization – is the firm well organised to

exploit the competency?46




Competitive Advantage

• If answer to each of these questions is yes

for a particular competency, it isconsidered to be a distinctive competencewhich should give the firm a CompetitiveAdvantage

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Sustainable Competitive Advantage

• Two characteristics determine thesustainability of a firm’s competitiveadvantage

Durability – the rate at which a firm’s underlyingresources, capabilities or core competenciesdepreciate or become obsolete

Imitability – the rate at which a firm’s underlying

resources, capabilities or core competenciescan be duplicated by others

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PORTER’S FIVE FORCES MODEL

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1. THREAT OF NEW ENTRANTS• Powerful source of competition (New capacity &

product range)• Bigger the entrant - more severe the competition

• Limits prices, affects profitability

2. BARGAINING POWER OF CUSTOMERS• Groups/ cartels (Industrial products),

formal/informal groups,

• Pressure on price, quality, delivery• Affects cost & investment (demand by customers)





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3. BARGAINING POWER OF SUPPLIERS• Specialized product• Limited supply• Affects cost of raw materials Industry

attractiveness & profitability4. RIVALRY AMONG EXISTING PLAYERS• Influences price• Cost of competing in industry

• Production facilities - product development• Advertising, sales force etc.





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5. THREAT FROM THE SUBSTITUTES

• Price advantage

• Performance improvement

• Substantial investment - R&D

• Limits price & profitability




MARKET ANALYSIS

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Goal of Market Analysis

• To determine the attractiveness of amarket and to understand its evolvingopportunities and threats as they relate tothe strengths and weaknesses of the firm.




MARKET ANALYSIS

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Dimensions of Market Analysis• Market size (current and future)

• Market growth rate

• Market profitability• Industry cost structure

• Distribution channels

• Market trends• Key success factors




Market SizeThe size of the market can be evaluatedbased on:

• Present sales

• Potential sales (if expanded)

Some information sources for determiningmarket size:

• Government data

• Trade associations

• Financial data from major players

• Customer survey




Market Growth RateA simple means of forecasting the marketgrowth rate is to extrapolate (infer or estimate )historical data into the future. While this

method may provide a first-order estimate, itdoes not predict important turning points. Abetter method is to study growth drivers suchas demographic information and sales growth

in complementary products.




Ultimately, the maturity and decline stagesof the product life cycle will be reached.Some leading indicators of the declinephase include:

• Price pressure caused by competition

• Decrease in brand loyalty

• Emergence of substitute products

• Market saturation

• Lack of growth drivers




Market Profitability

While different firms in the market will

have different levels of profitability, theaverage profit potential for a market canbe used as a guideline for knowing howdifficult it is to make money in the market.




Industry Cost StructureThe cost structure is important for identifyingkey factors for success. To this end, Porter’svalue chain model is useful for determiningwhere value is added and for isolating the

costs.

The cost structure is also helpful for formulatingstrategies to develop a competitive advantage.For example, in some environments the

experience curve effect can be used to developa cost advantage over competitors.




Distribution ChannelsThe following aspects of the distribution system areuseful in a market analysis:

• Existing distribution channels – can be described by how direct they are to the

customer.

• Trends and emerging channels – new channels can offer the opportunity to develop a

competitive advantage.

• Channel power structure

– for example, in the case of a product having littlebrand equity, retailers have negotiating power overmanufacturers and can capture more margin.




Market TrendsChanges in the market are important becausethey often are the source of new opportunities

and threats. The relevant trends are industry-dependent, but some examples includechanges in price sensitivity, demand for variety,and level of emphasis on service and support.Regional trends may also be relevant.




Key Success Factors – Elements that are necessary for the firm to

achieve its marketing objectives.

few examples are:

– Access to essential unique resources

– Ability to achieve economies of scale

– Access to distribution channels

– Technological progress

It is important to consider that key success factors may change over time, especially as the product progresses

through its life cycle.




Competitor Analysis• In general, the stronger the competitive

forces,the lower is the profit potential.

• An unattractive industry has low entry

barriers, suppliers and buyers with strongbargaining positions, strong competitivethreats from product substitutes andintense rivalry among competitors.




• An attractive industry has just the oppositefeatures , like…High ROI for most of the players; a stable or

rising average industry return on capital

High barriers to entry, keeping out many newentrnatsCapacity at or below the level of demandReasonable or high market growthLittle or no threat from substitutes

Low bargaining power of the suppliers and buyers




• Competitor Intelligence• Corporate espionage – legal & ethical issues• Important competitor information:What are their major strengths & weakness

What are their major strategies & objectivesHow are they likely to respond to major

anticipated environmental changesVulnerability of their as well as our strategies –

anticipated counter strategies and their impact

Positioning of competitors’ products & servicesvis-a-vis ours




What key factors have been responsible in ourpresent competitive position in the industry andour control on them in future

Market share & profit rankings of majorcompetitors future forecasts and factors affecting

the sameRelative channel strengths and weaknesses

Relative supplier strengths and weaknesses andrelationships

Threat from substitute products and services

Relative technological(both manufacturing & IT)strengths and weaknesses




Competitor Analysis• Industry analysis and interpretationMarket size

Market growth rate

Capacity – surplus or shortage

Industry profitability

Entry/exit barriers

Mass market vs big ticket items

Technology

Capital requirementVertical integration




Scenario Analysis

Scenarios are detailed and plausibleviews of how the business environment

of an organisation might develop in thefuture based on groupings of keyenvironmental influences and drivers ofchange about which there is a high level

of uncertainty.




What is a Scenario?• Vocabulary:

- Scenario is an outline of a natural or expected course of events.

• Kahn and Weiner:- A hypothetical sequence of events constructed for the purpose of

focusing attention.• Porter

- An internally consistent view of what the future might turn out to be

• Ringland:- That part of strategic planning which relates to the tools and

technologies for managing the uncertainties of the future

• Schnaars:- Identify plausible future environments that the firm might face.




What is not a Scenario?• Scenario is not a forecast, neither a vision

• It does not seek numerical precision.It usually provides a more qualitative and contextualdescription of how the present will evolve into the

future.

• It is not assured.

Scenario analysis usually tries to identify a set of possible future, each of whose occurrence isplausible but not certain.




Scenario, Maleki70

Differences between scenarios, forecasts and visions




Scenario Analysis in Business

• 22% of “Fortune 1000”, were usingscenario analysis in the 1970s

• 75% of these firms adopted the approachafter the oil embargo in 1973

• It is essential to keep the number of

factors that are considered to a minimum.




Time Horizon• Scenario analysis has been used primarily in

long-term forecasting.• Most firms that used scenario analysis employed

5-year horizon.• But in Xerox 15-year

Shell, 15-year at least.• The content of scenario becomes progressively

more vague as the time horizon lengthens.• The ideal time horizon of scenario analysis is

specific to the industry, product or market underconsideration.




Historical Background• Herman Kahn: was writing scenarios as

far back as the 1950s.

• “Thinking the Unthinkable”

• Shell in 1970s.

• SRI (Stanford Research Institute): Future of

American Society until 2000.




The Number of Scenarios to Generate• Consensus is that three scenario are best.

Although two tend to be classified as “good-and-bad”, while more than three become

unmanageable in the hands of users.• Most often used three scenarios

- Best case scenario(most optimistic)- Worst case scenario(most pessimistic)

- Most likely scenario (most possible)




Arraying ScenariosScenarios are inevitably arrayed over someback-ground themes.

• Four background themes:1.Favorability to the Sponsor:

Selecting an optimistic and then an pessimistic.

“Surprise-free” or ‘baseline” scenario2.Probability of OccurrenceOne of the scenarios is labeled as “most likely”.Scenarios are possibilities, not probabilities.

3.Single, Dominant IssueSometimes there is a single dominant factor whoseoutcome is central to the item being forecast. Like

economy, government policy.




Arraying Scenarios4. Multiple Issues

In most business applications there is more than asingle unknown. There are many issues which

compete, combine and interact with one another tocharacterize the future; for example :economic expansion, environmental concern, andtechnological domination




Strategic Implications of Company Decisions

• Strategy and Decisions – mutual cause &effect relationship

• Programmed vs. Non Programmed

DecisionsRational – Analytical Approach

Intuitive – Visionary Approach

Satisfying Approach

Political Behavioral Approach

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Strategic Implications of Company Decisions

• Acquisition of Jaguar and Land Rover brands by Tata.• Britannia exiting Joint Venture with its French Partner.• Godrej Sara Lee joint venture

• Future Implications of possible acquisitions of SaraLee’s fertilizers business by Godrej• Future implications of a strategic tie-up between

Microsoft and Yahoo• Bajaj Renault Nissan’s three way joint venture to

produce ultra low cost car

• Videocon’s diversification into cellphone business

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Strategic Response to changes in

Business Environment• For any organization to live and survive, it is

important that it responds positively to itsenvironment and the changes in it. Thestrategic responses of an organizationenvironmental changes may be in followingways:

(i) Least Resistance• Least resistance is a type of response in which

an organization simply follows the demands ofthe environment as it is, without anyaggression or strategy formulation.

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• It just manages to survive by way of copingwith its changing external environments.Such an organization is not ambitious andconfident and is therefore called a goal-

maintaining unit.• Some organisations are very passive in their

behaviour and are solely guided by thesignals of the external environment.

• Such response is chosen because it is asimple path to maintaining basic goals.

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(ii) Proceed with Caution:

• It is a reactive type of response whereorganisations take intelligent steps to adapt

with the changing external environment.• These organisations monitor the changes in

that environment, analyze their impact ontheir own goals and activities and translate

their assessment in terms of specificstrategies for survival, stability and strength.

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(iii) Dynamic Response:

• It is a proactive type of response wherebusinesses regard the external environmentalforces as partially manageable and

controllable by their actions.• Not only do they recognize and ward off

threats, they convert threats intoopportunities.

• They are highly confident of their strengthsand conscious of their weaknesses.

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STM Module 2B

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