Implementing Yin-Yang
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WELCOME To ALL OF YOU –
(Strategy)
RAHUL JAIN
(Striving for excellence)
BCOM (H), PGPM, FCS
Strategy formulation ...
u
An organization must select any of innumerable
ways of seeking to attain its objectives.
u
Strategies define how organizations should
use their resources to meet their objectives.
u
Hence,
… strategies put constraints on employees to
focus activities on what the organization does
best or areas where it has an advantage over
competitors.
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Mission – Basic reason for existence
Mission: How do we intend to win in this
business?
Factors influencing Mission
u Stakeholders
u Internal resources and Power
u Values of top management
u Past development of firm
Business definition
u Products
u Markets
u Function (Technology and Processes)
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Vision- Yin Yang
Core Ideology (Core values and Purposes)
Envisioned Future (BHAG and vivid description)
A vision, is more encompassing. It answers the question, "What will
success look like?" It is the pursuit of this image of success that really
motivates people to work together.
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Starbucks’ Mission and Vision
Starbucks’ Mission
Starbucks’ mission is to “establish Starbucks as the premier purveyor of the finest
coffee in the world while maintaining our uncompromising principles as we
grow” (Starbucks Website, 2006, p.1).
Starbucks strategic plan to make its mission a reality is evidence by the company’s
rapid expansion worldwide. Starbucks has locations in all 50 States in the US,
plus the District of Columbia and Puerto Rico (Starbucks Company Fact Sheet,
2006). Starbucks can also be found in 36 countries outside the US (Starbucks
Company fact Sheet, 2006). Starbucks is committed to buying only certified
coffee in pursuit of selling the finest coffee.
Starbucks’ Vision
According to the company’s profile, (2006) its vision is to make Starbucks coffee the
most recognized and respected brand in the world by using high quality roast
beans to make coffee beverages along with other products. The company
wants to develop enthusiastically satisfied customers at all times. They want to
make positive contributions to their communities and their environment.
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A Diversified Company
Has Two Levels of Strategy
1. Business-Level Strategy
(Competitive Strategy)
How to create competitive advantage in each
business in which the company competes
- low cost
- focused low cost
- differentiation
- focused differentiation
- integrated low cost/differentiation
2. Corporate-Level Strategy
(Companywide Strategy)
How to create value for the corporation as a whole
Cost Leadership Strategy
Key Criteria
Standard Product
Compete Based on
Price:
– Low costs
– High volume
– Low margins
Achieving Low Costs
Controlling Cost
Drivers
Reconfiguring Value
Chain
Characteristics of Cost
Leader
Controlling Cost Drivers
1.
2.
3.
4.
5.
6.
7.
Economies of Scale / Capacity Utilization
Learning Curve Effects
Reduce Input Costs (monitor suppliers)
Economies of Scope
Consider Vertical Integration & Outsourcing
Process Engineering / Simplification
Minimize Overhead
How to obtain a Cost Advantage
1
Control Cost Drivers
2
Reconfigure the Value Chain as needed
Alter production process
Change in automation
New distribution channel
New advertising media
Direct sales in place of
indirect sales
New raw material
Forward integration
Backward integration
Change location relative
to suppliers or buyers
Technological changes
The Major
Risks involved
with a
Cost Leadership
Business Level
Strategy
Competitors imitate
Value Chain
Focus on efficiency causes Cost
Leader to overlook changes in
customer preferences
Examples of Cost Leadership
Nissan; Wal-Mart; Dell Computers, Koutons
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Differentiation Business Level Strategy
Key Criteria
Value provided by unique
features and value characteristics
Command premium price
High customer service
Superior quality
Prestige or exclusivity
Rapid innovation
Differentiation Business Level Strategy
Requirements
Value provided by
unique features and
value characteristics
Command premium price
*
Constant effort to differentiate products through:
Developing new systems
and processes
High customer service
Superior quality
*
Shaping perceptions through
advertising
Prestige or exclusivity
*
Product R&D capabilities
*
Maximize Human Resource
contributions through low
turnover and high motivation
Rapid innovation
Differentiation Business Level Strategy
Effectiveness with Differentiation grows out of
Value Chain activities
Examples:
Heineken beer
Raw materials
Steinway pianos
Raw materials & Workmanship
Mercedes Benz autos
Technology and Workmanship
Intel microprocessors
Technological superiority
Caterpillar tractors
Service buyers’ needs quickly
anywhere in the world
Focused Business Level Strategies
Focused
Business Level
Strategies
involve the
same basic
approach as
Broad Market
Strategies
Opportunities exist because:
*
Large firms overlook
small niches
*
Firm lacks resources to
compete industry-wide
*
Serve narrow market segment more effectively than
industry-wide competitors
*
Direct resources to certain value chain activities to
build competitive advantage
“Outfocused”
The Major
Risks involved
with a Focused
Differentiation
Business Level
Strategy
Large competitors enter
niche market
Preferences of niche market
change to those of broad
market
Focus
Examples of Differentiation Focus: any successful niche
retailers; (e.g. The Perfume Shop); or specialist
holiday operator (e.g. Carrier)
Strategy - Cost Focus
Here a business seeks a lower-cost advantage in just
on or a small number of market segments. The
product will be basic - perhaps a similar product to
the higher-priced and featured market leader, but
acceptable to sufficient consumers. Such products
are often called "me-too's".
Examples of Cost Focus: Many smaller retailers
featuring own-label or discounted label products.
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Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy:
Dual Strategic Emphasis:
•Upscale product
•Competitive pricing (“best value”)
Flexible Manufacturing Systems
Information Networks across multiple business
units
Total Quality Management (TQM)
Key Questions of Corporate Strategy
1. What businesses should the corporation
be in?
2. How should the corporate office manage
the array of business units?
Corporate Strategy is what makes the corporate whole
add up to more than the sum of its business unit parts
Levels and Types of Diversification
Low Levels of Diversification
Single business
> 95% of revenues from a single
business unit
Dominant business
Between 70% and 95% of revenues
from a single business unit
A
A
B
Moderate to High Levels of Diversification
Related constrained
Related linked (mixed)
< 70% of revenues from dominant
business, and only limited links exist
Very High Levels of Diversification
Unrelated-Diversified
A
< 70% of revenues from dominant
business; all businesses share product,
technological and distribution linkages
Business units not closely related
B
A
B
C
A
B
C
C
BCG Matrix – Product Portfolio
strategy
BCG MATRIX helps in determining the product portfolio
strategy of the organization. It leverages the
knowledge of the corporation to optimally utilize the
resources. Resources are channelized in the right
direction by appropriate product strategy.
The BCG matrix method is based on the product life
cycle theory that can be used to determine what
priorities should be given in the product portfolio of a
business unit. It involves rating products according
to their market share and market growth rate.
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BCG Matrix – Product Portfolio
strategy
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Industry Attractiveness- Porter 5
Forces
The five forces are environmental forces that impact on
a company’s ability to compete in a given market.
The purpose of five-forces analysis is to diagnose the
principal competitive pressures in a market and
assess how strong and important each one is.
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Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants
Threat for New Entrants
Economies of Scale
Barriers to
Entry
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent
of Scale
Government Policy
Expected Retaliation
Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants
Bargaining
Power of
Suppliers
Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Suppliers exert power
in the industry by:
* Threatening to raise
prices or to reduce quality
Powerful suppliers
can squeeze industry
profitability if firms
are unable to recover
cost increases
Supplier industry is dominated by a
few firms
Suppliers’ products have few substitutes
Buyer is not an important customer to
supplier
Suppliers’ product is an important
input to buyers’ product
Suppliers’ products are differentiated
Suppliers’ products have high
switching costs
Supplier poses credible threat of
forward integration
Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
Buyers are concentrated or purchases
are large relative to seller’s sales
Purchase accounts for a significant
fraction of supplier’s sales
Products are undifferentiated
Buyers face few switching costs
Buyers’ industry earns high profits
Buyer presents a credible threat of
backward integration
Product unimportant to quality
Buyer has full information
Buyers compete
with the supplying
industry by:
* Bargaining down prices
* Forcing higher quality
* Playing firms off of
each other
Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Threat of
Substitute
Products
Threat of Substitute Products
Keys to evaluate substitute products:
Products
with similar
function
limit the
prices firms
can charge
Products with improving
price/performance tradeoffs
relative to present industry
products
Example:
Electronic security systems in
place of security guards
Fax machines in place of
overnight mail delivery
Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Competing Firms
in Industry
Threat of
Substitute
Products
Bargaining
Power of
Buyers
Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position
Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions
Occurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but
may be costly to smaller competitors
Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors
High strategic stakes
High exit barriers
Following Up
The challenge for each company's management team
is to craft and execute a competitive strategy that
results in a respected brand image, keeps their
company in contention for global market leadership,
and produces good financial performance as
measured by earnings per share, return on equity
investment, stock price appreciation, and credit
rating.
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Assignment
Assignment for next class:
1) One page analysis on Indian retail Industry article
(Page 125 of the handout)
2) Key learnings
Website
www.learningfinancialmanagement.pbworks.com
Phone: 9811228852
Email: rahulkjain16@yahoo.co.in
Make a file for key learnings
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