UNIT-II- Competitive Advantage

PART-A

1. What is SBU? And SBA?

a) SBU-Strategic Business Unit
In business, a (SBU) is a profit center which focuses on product offering and market
segment. SBUs typically have a discrete marketing plan, analysis of competition, and
marketing campaign, even though they may be part of a larger business entity.
b) SBA- Small Business Administration
The Small Business Administration (SBA) is a United States government agency
that provides support to entrepreneurs and small businesses. The mission of the Small
Business Administration is "to maintain and strengthen the nation's economy by enabling
the establishment and viability of small businesses and by assisting in the economic
recovery of communities after disasters". The agency's activities are summarized as the
"3 Cs" of capital, contracts and counseling.

2. What is core competency?

 A core competency is a company's unique characteristic or capability that
provides a competitive advantage in the marketplace, delivers value to
customers, and contributes to continued organizational growth.
 Core competencies typically comprise fundamental knowledge, ability or
expertise in a specific subject area or skill set, allow a business to reach a wide
range of markets, and cannot be easily replicated by competitors.

Ref: searchcio.techtarget.com/definition/core-competency

3. What is competitive advantage?

 An advantage that a firm has over its competitors, allowing it to generate greater
sales or margins and/or retain more customers than its competition.

 There can be many types of competitive advantages including the firm's cost
structure, product offerings, distribution network and customer support.

Ref: http://www.investopedia.com/terms/c/competitive_advantage.

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4. What is PEST? And SAP analysis
PEST analysis
Political
a. Legislation and Regulation
b. International relations
Economic
c. Economic cycles
d. Currency rates
e. Capital, labor and commodity markets
Social
f. Demographics
g. Tastes
h. Environmental awareness
Technological
i. Process effect development
j. Product capability
SAP analysis
Strategic Portfolio Analysis is about deciding where best to focus the
organization’s finite resources in order to meet strategic objectives, considering the
business as a portfolio of activities and making trade-offs across the portfolio.

5. What are operating strategies?

Operations strategy is the total pattern of decisions which shape the long-term
capabilities of any type of operations and their contribution to the overall strategy.

1. Positioning the production system,-

A). Product Focused

B).Process Focused-

2. Focus of factories and service facilities

3. Product/Service design and development.

4. Technology selection and process development,

5. Allocation of resources to strategic alternatives

6. Facility planning.

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6. Mention the five forces in Michael E Porte model

7. Hyper competition.
 Hyper competition is rapid and dynamic competition characterized by
unsustainable advantage.
 It is the condition of rapid escalation of competition based on price-quality
positioning, competition to protect or invade established product or geographic
markets and competition based on deep pockets financial capital and the
creation of even deeper pocketed alliances.

8. List out building blocks of competitive advantage

 Superior quality
 Superior efficiency
 Superior customer
 Superior innovation

9. Define internal and external environment and its entities.

Internal environment:
In formulating a strategy, the strategic decision makers must also analyze
conditions internal to the organization. An internal analysis leads to a realistic company
profile, which is the determination of a firm's strategic competencies and weaknesses.
Factors involved in internal environment:
 Resources
 Structure
 Culture

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 External environment:
The external environments of an organization are those factors outside the
company that affect the company's ability to function. Some external elements can be
manipulated by company marketing, while others require the organization to make
adjustments.
Factors involved in external environment:
 Political
 Economical
 Social
 Technical
 Legal

Ref. smallbusiness.chron.com/five-components-organizations-external-environ...

10. What is sustained competitive advantage?

Competitive advantage exists when a particular company consistently outperforms
other companies in the same industry. A company is considered to be outperforming
others if profits are higher than the competition's profits. The competitive advantage is
thought to be stronger when it lasts for a longer period of time. Those companies who are
able to maintain a competitive advantage for many years are thought to have a
sustainable competitive advantage.

Ref:study.com/.../sustainable-competitive-advantage-definition-concept

11. What is environmental scanning?

Environmental scanning is one of the essential components of the global

environmental analysis.

 Environmental monitoring,

 environmental forecasting and

 environmental assessment

Complete the global environmental analysis.

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12. Why strategy alliances are formed?
 A strategic alliance is an agreement between two or more parties to pursue a set
of agreed upon objectives needed while remaining independent organizations.
 This form of cooperation lies between mergers and acquisitions and organic
growth. Strategic alliances occurs when two or more organizations join together
to pursue mutual benefits.

Ref. Wikipedia

13. Differentiate between competencies and core competencies.

Competencies:
Competencies refer to
 capabilities,
 abilities,
 skills,
 proficiencies,
 Expertise and experience. .

Core competencies:

. A core competency should allow a company to expand into new end markets as
well as provide a significant benefit to customers. It should also be hard for
competitors to replicate.

14. “Continuous innovation is key for competitive advantage” - discuss.

A firm has over its competitors, allowing it to generate greater sales or margins
and/or retain more customers than its competition. So the continuous innovation is key
for competitive advantage because through the continuous innovation a firm can
successfully attain the competitive advantage.

15. Differentiate business level with corporate level strategy .

Business level strategy:
The definition of business strategy is a long term plan of action designed to
achieve a particular goal or set of goals or objectives.
Strategy is management's game plan for strengthening the performance of the
enterprise.

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 Corporate level strategy:
Corporate level strategy covers the strategic scope of the organization as a whole.
For most organizations, the corporate strategic plan is the only strategic plan required.

16. Explain briefly about industry analysis.

.
 Industry analysis involves reviewing the economic, political and market factors
that influence the way the industry develops.
 Major factors can include the power wielded by suppliers and buyers, the
condition of competitors, and the likelihood of new market entrants.

Ref:http://www.businessdictionary.com/definition/industry-
analysis.html#ixzz3oO2lvj9O

17. What is national competitive advantage?

A country may provide a competitive advantage for a company need to identify

national factors in order to determine

a. Where most significant competitors will come from

b. Where to locate production activities

Michael Porter indentified four attributes of a national or country-specific

environment that have an important impact on the global competitiveness of companies
located within the nation.

 Factor endowments
 Demand conditions
 Relating and supporting industries
 Firm strategy, structure, and rivalry

Ref: Hill and Jones

18. Explain differentiation strategy.

 Differentiation strategy is an approach that a firm takes in order to develop a
product or service that offers unique and distinctive characteristics that customers
appreciate and think are better than those that are offered by competitors.

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  It's a way for a business to distinguish itself from the competition and, if
successful, allows a business the opportunity to charge a premium for the good or
service.

19. What are the stages in industry evolution?

 Embryonic
 Growth
 Shakeout
 Mature
 Decline

Ref: Hill and Jones

20. Explain globalization and industry structure

Globalization refers to the changes in the world where we are moving away from
self-contained countries and toward a more integrated world. Globalization of business
is the change in a business from a company associated with a single country to one that
operates in multiple countries.

Industry structure designed to fulfill a specific function in industry or to support

or house equipment, raw materials, or communication lines. In modern industrial
construction, more than 25 percent of the total cost of construction and installation work
is attributed to industrial structures

Ref:http://www.businessdictionary.com/definition/industrystructure.html#ixzz3oU8cusQx

21. Define strategic group

A strategic group consists of those rivals with similar competitive approaches in an
industry
Strategic groups in Pharmaceutical Industry
1. Proprietary Group
 Merck
 Pfizer
 Eli Lilly

2. Generic Group

 Forest labs
 Carter Wallace
 ICN

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22. Define resources and capability
Resources:
A resource is an asset, competency, process, skill or knowledge. Resource may
classified as tangible such as land, building, plant and machinery and intangible such as
brand names, reputation patents, know-how and R&D. Resources are financial,
physical, human, technological and organizational in nature.
Capability:
Capability is the inherent capacity or potential for an organization to use its
strengths and overcome its weakness in order to exploit the opportunities and face the
threats in its external environment.

However, to make the best use of their available resources, organizations require
capabilities. Such capabilities also come in many different forms.

They may, for example, be the command of a particular material

 Technology,
 High-level marketing skills,
 Effective product development processes,
 An able treasury function or an aptitude in introducing new production
processes.

23. What is ETOP?

Environmental Threat Opportunity Profile.

Environmental analysis of a company leads to an Environmental Threat Opportunity
Profile (ETOP) which when juxtaposed against the strengths & weaknesses of the
company helps in strategic formulation.

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Part-B

1. Explain the porters five forces model to analyze competitive forces in an

industry environment. Apply for any industry and company of your choice
& suggest a suitable strategy?

Porter five forces analysis is a framework to analyze the level of competition within an
industry and business strategy development. It draws upon industrial organization (IO)
economics to derive five forces that determine the competitive intensity and therefore
attractiveness of an Industry. Attractiveness in this context refers to the overall industry
profitability. An "unattractive" industry is one in which the combination of these five forces acts
to drive down overall profitability. A very unattractive industry would be one approaching "pure
competition", in which available profits for all firms are driven to normal profit. This analysis is
associated with its principal innovator Porter of Harvard University.

Threat of new entrants

Profitable markets that yield high returns will attract new firms. This results in many new
entrants, which eventually will decrease profitability for all firms in the industry. Unless the
entry of new firms can be blocked by incumbents (which in business refers to the largest
company in a certain industry, for instance, in telecommunications, the traditional phone

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company, typically called the "incumbent operator"), the abnormal profit rate will trend towards
zero (perfect competition).

Threat of substitute products or services

The existence of products outside of the realm of the common product boundaries
increases the propensity of customers to switch to alternatives. For example, tap water might be
considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased
marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas
increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks),
albeit while giving Pepsi a larger slice at Coke's expense. Another example is the substitute of
traditional phone with a smart phone.

Bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs: the ability
of customers to put the firm under pressure, which also affects the customer's sensitivity to price
changes. Firms can take measures to reduce buyer power, such as implementing a loyalty
program. The buyer power is high if the buyer has many alternatives. The buyer power is low if
they act independently e.g. If a large number of customers will act with each other and ask to
make prices low the company will have no other choice because of large number of customers
pressure.

Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of
raw materials, components, labor, and services (such as expertise) to the firm can be a source of
power over the firm when there are few substitutes. If you are making biscuits and there is only
one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse
to work with the firm or charge excessively high prices for unique resources.

Reference:

Google-Wikipedia

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 2. Explain the four generic building blocks of competitive advantage. How
to achieve this?

The building blocks of competitive advantage are efficiency, quality, innovation, and
customer responsiveness. These building blocks are generic in that they provide four basic ways
to lower cost and achieve differentiation. Any firm can adopt these no matter what industry it is
in or what product or service it provides. Efficiency is based on the cost of inputs required to
produce a given output. The more efficient a firm, the lower the cost of its inputs required to
produce a given output. Efficiency helps a firm attain a low-cost competitive advantage.

Cost leadership strategy

The goal of cost leadership strategy is to offer products or services at the lowest cost in
the industry. The challenge of this strategy is to earn a suitable profit for the company, rather
than operating at loss and draining profitability from all market players. Companies such
as Walmart succeed with this strategy by featuring low prices on key items on which customers
are price-aware, while selling other merchandise at less aggressive discounts. Products are to be
created at the lowest cost in the industry.

Differentiation strategy

The goal of differentiation strategy is to provide a variety of products, services, or

features to consumers that competitors are not yet offering or are unable to offer. This strategy
gives a direct advantage to the company which is able to provide a unique product or service that
none of its competitors are able to offer. An example is Dell which launched mass-
customizations on computers to fit consumers' needs.

Innovation strategy

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 Porter describes innovation strategy as determining how, and to what degree, firms use
innovation to deliver a unique mix of value and achieve competitive advantage. [9] The goal of
innovation strategy is to leapfrog other market players by the introduction of completely new or
notably better products or services. This strategy is typical for technology start-up companies
which often intend to "disrupt" the existing marketplace, obsolete the current market entries with
a breakthrough product offering. It is harder for more established companies to pursue this
strategy because their product offering has achieved market acceptance. Apple has been a
notable example of using this strategy with its introduction of iPod personal music players, and
iPad tablets..

Superior Efficiency:

A business simply a device for transforming inputs into outputs. Inputs are basic factors
of production such as labor, land capital, management and technical know-how. Out puts are the
goods and services that the business produces. The simplest measure of efficiency is quantity of
inputs that it takes to produce a given output, that is efficiency=outputs/inputs. The more
efficient a company is, the fewer the inputs required to produce a given output. For example, if it
takes General Motors thirty hours of employee time to assemble a car and it takes Ford twenty-
five hours, we can say that ford is more efficient than GM.

Superior Quality:

A product can be thought of as a bundle of attributes. For example, the attributes of

many physical products include the form, features, performance, durability, reliability, style, and
design of the product. A product is said to have superior quality when customers perceive there
to be greater value in the attributes of a specific product, compared to the same attributes in rival
products.

Superior customer responsiveness:

To achieve a superior responsiveness to customers, a company must be able to do a better

job than competitors of identifying and satisfying its customers’ needs. Customers will then
place more value on its products, creating a differentiation based on competitive advantage.
Improving the quality of company’s product offering is consistent with achieving
responsiveness, as is developing new products with features that existing products lack. In other
words, achieving superior quality and innovation is integral to achieving superior responsiveness
to customers.

Reference –Wikipedia and Hill and Jones

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3. Briefly discuss the five generic business level strategies.
An organization's core competencies should be focused on satisfying customer needs or
preferences in order to achieve above average returns. This is done through Business-level
strategies. Business level strategies detail actions taken to provide value to customers and
gain a competitive advantage by exploiting core competencies in specific, individual product
or service markets. Business-level strategy is concerned with a firm's position in an industry,
relative to competitors and to the five forces of competition.

Business-Level Strategies

There are four generic strategies that are used to help organizations establish a competitive
advantage over industry rivals. Firms may also choose to compete across a broad market or a
focused market. We also briefly discuss a fifth business level strategy called an integrated
strategy.

1. Cost Leadership – Organizations compete for a wide customer based on price. Price is based
on internal efficiency in order to have a margin that will sustain above average returns and cost
to the customer so that customers will purchase your product/service. Works well when
product/service is standardized, can have generic goods that are acceptable to many customers,
and can offer the lowest price. Continuous efforts to lower costs relative to competitors is
necessary in order to successfully be a cost leader. This can include:

 Building state of art efficient facilities (may make it costly for competition to imitate)

 Maintain tight control over production and overhead costs

 Minimize cost of sales, R&D, and service.

2. Differentiation - Value is provided to customers through unique features and characteristics

of an organization's products rather than by the lowest price. This is done through high quality,
features, high customer service, rapid product innovation, advanced technological features,
image management, etc. (Some companies that follow this strategy: Rolex, Intel, Ralph Lauren)

Create Value by:

 Lowering Buyers' Costs – Higher quality means less breakdowns, quicker response to
problems.

 Raising Buyers' Performance – Buyer may improve performance, have higher level of
enjoyment.

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  Sustainability – Creating barriers by perceptions of uniqueness and reputation, creating
high switching costs through differentiation and uniqueness.

3. Focused Low Cost- Organizations not only compete on price, but also select a small segment
of the market to provide goods and services to. For example a company that sells only to the U.S.
government.

4. Focused Differentiation - Organizations not only compete based on differentiation, but also
select a small segment of the market to provide goods and services.

Focused Strategies - Strategies that seek to serve the needs of a particular customer segment
(e.g., federal gov't).

Companies that use focused strategies may be able serve the smaller segment (e.g.
business travelers) better than competitors who have a wider base of customers. This is
especially true when special needs make it difficult for industry-wide competitors to serve the
needs of this group of customers. By serving a segment that was previously poorly segmented an
organization has unique capability to serve niche.

Risks of Using Focused Strategies:

 Maybe out focused by competitors (even smaller segment)

 Segment may become of interest to broad market firm(s)

5. Using an Integrated Low-Cost/differentiation strategy

This new strategy may become more popular as global competition increases. Firms that use
this strategy may see improvement in their ability to:

 Adaptability to environmental changes.

 Learn new skills and technologies

 More effectively leverage core competencies across business units and products lines
which should enable the firm to produce produces with differentiated features at lower
costs.

Thus the customer realizes value based both on product features and a low price. Southwest
airlines is one example of a company that does uses this strategy.

Reference : www.albany.edu/faculty/es8949/bmgt481/lecture4.html

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4. What are the industry dominant economic features that desire business
strategy?

Industry’s Dominant Economic Features

Identification of industry’s dominant economic features is very important for analyzing a

company’s industry’s and competitive environment. It also provides an overview of the over all
landscape of industry. So basically it helps the organization to know the different kind of
strategic moves that industry members are likely to employ. Some of the important industry’s
dominant economic features are given below.

1. Market size and growth rate

Market size refers to the total number of firms operating in the industry. It is also
important to know whether the industry is growing, static or declining. It depends upon the
position of industry in the business life cycle i.e. early development, rapid growth, early
maturity, maturity, stagnation, and decline.

2. Number of rivals

Organizations should also know whether the industry contains too many small rivals or is
it dominated by a few large firms. Similarly they should also know about the various
developments in the industry such as mergers and acquisitions etc.

3. Scope of competitive rivalry

Scope of competitive rivalry is an important factor for the organizations to know about
the level of competition. Industry members must know about the nature of future competition.
For example if a company realizes that its future success depends upon diversification, product
development and market expansion, then it must start planning from the very first day.

4. Buyer needs and requirements

Industry members must take into consideration the need and taste of final buyers as well
as the middlemen. So, basically organizations have to do a lot of periodic research in order to
know the major shifts in buyer’s needs and requirements. They should also know the about the
various factors affecting consumer behavior.

5. Degree of product differentiation

Product differentiation is another important factor for analyzing the overall industry
situation. If all the products of industry are not fully differentiated then it will increase

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competition among the members of industry. In such case prices of the products will be low and
the new entrants will find it difficult to compete with the existing firms.

6. Product innovation

Product innovation can be used as a measure to know the dominant industry features. If
the industry is characterized by rapid product innovation and short product life cycle then the
research and development is very important for the success of an organization. In such cases,
members of the industry must come up with new products to compete effectively.

7. Pace of technological change

If the industry is characterized by rapid pace of technological change then the art of the
state technology is imperative for the success of organizations. For example Industry of mobile
phones requires rapid changes in the technology in order to meet the changing consumer
demands.

8. Vertical integration

It is important to know whether the competitors in the industry are partially or fully
integrated. Similarly the competitive advantages and disadvantages of fully, partially and non
integrated firms should be taken into consideration. Vertical integration can cause potential cost
of production differences.

9. Economies of scale

Organizations must also know about the different economies of scale in purchasing,
manufacturing, and other activities. They should analyze whether the companies with high scale
operations has any cost advantage or not. Any reduction in the cost of production leads to higher
competitiveness which ultimately results higher profits.

Reference: Educating People for Tomorrow

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5. Discuss distinctive competencies. How will you develop a sustainable
competitive advantage for the company? Give example .

Definition

A distinctive competency is a competency unique to a business organization, a

competency superior in some aspect than the competencies of other organizations, which enables
the production of a unique value proposition in the function of the business. A distinctive
competency is the basis for the development of an unassailable competitive advantage. The
uniqueness differentiates this competency from all others, whether a core competency or simply
a competency.

Leader's responsibility regarding competency -- ""...the task of building special

values and a distinctive competence into the organization is a prime function of leadership.""
Source: Selznick, 1957, pp 27.

Sources of distinctive competency --Distinctive competencies, the basis for competitive

advantage, can come from technology, industry position, market relations, cost, business
processes, manufacturing processes, people, customer satisfaction, or just being first.

Distinctive competencies

Details relative to each distinctive competency are provided, along with the implications
of each and some examples.

Price/Cost.

A firm competing on a price/cost basis is able to provide consumers with an in-demand

product at a price that is competitively lower than that offered by firms producing the same or
similar good/service. In order to compete on a price basis, the firm must be able to produce the
product at a lesser cost or be willing to accept a smaller profit margin. Firms with this
competency are generally in a position to mass produce the product or service, thereby giving the
firm economies of scale that drive the production cost per unit down considerably.

Quality

David Garvin lists eight dimensions of quality as follows:

 Performance. Performance refers to a product's primary operating characteristics. For an

automobile this could mean fast acceleration, easy handling, a smooth ride or good gas
mileage. For a television it could mean bright color, clarity, sound quality or number of
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 channels it can receive. For a service this could merely mean attention to details or
prompt service.

 Conformance. Conformance is the degree to which a product's design and operating

characteristics meet predetermined standards. When a manufacturer utilizing coils of
steel receives a shipment from the mill, it checks the width of the coil, the gauge
(thickness) of the steel, the weight of the coil, and puts a sample on a Rockwell hardness
tester to check to ensure that the specified hardness has been provided. Receiving
inspection will also check to see if specified characteristics are met (e.g., hot-rolled,
pickled, and oiled). Services may have conformance requirements when it comes to
repair, processing, accuracy, timeliness, and errors.

 Features. Features are the bells and whistles of a product or service. In other words,
characteristics that supplement the basic function of the product or service. Desirable, but
not absolutely necessary, features on a VCR include four heads, slow-motion capability,
stereo or surround sound, split screens or inset screens, and 365-day programming ability.
Service examples include free drinks on an airline flight or free delivery of flowers.

 Durability. Durability is defined as mean time until replacement. In other words, how
long does the product last before it is worn out or has to be replaced because repair is
impossible? For some items, such as light bulbs, repair is impossible and replacement is
the only available option. Durability may be had by use of longer life materials or
improved technology processes in manufacturing. One would expect home appliances
such as refrigerators, washer and dryers, and vacuum cleaners to last for many years. One
would also hope that a product that represents a significant investment, such as an
automobile, would have durability as a primary characteristic of quality.

 Reliability. Reliability refers to a product's mean time until failure or between failures. In
other words, the time until a product breaks down and has to be repaired, but not
replaced. This is an important feature for products that have expensive downtime and
maintenance. Businesses depend on this characteristic for items such as delivery trucks
and vans, farm equipment and copy machines since their failure could conceivably shut
down the business altogether.

 Serviceability. Serviceability is defined by speed, courtesy, competence and ease of

repair. This is can be an extremely important characteristic as witnessed by the
proliferation of toll-free hot lines for customer service. A number of years ago, a major
television manufacturer advertised that its product had its "works in a box." This meant
that the television set was assembled out of modular units. Whenever there were
problems with the set, a repairman making a house call simply had to replace the problem
module, making the product easily and quickly serviceable.

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  Aesthetics. A product's looks, feel, smell, sound, or taste are its aesthetic qualities. Since
these characteristics are strictly subjective and captive to preference, it is virtually
impossible to please everyone on this dimension.

 Perceived Quality. Perceived quality is usually inferred from various tangible and
intangible aspects of the product. Many consumers assume products made in Japan are
inherently of high quality due to the reputation of Japanese manufacturers, whereas 50
years ago, the perception was the complete opposite. Other characteristics such as high
price or pleasing aesthetics may imply quality.

Service

Service can be defined in a number of ways. Superior service can be characterized by the
term customer service or it could mean rapid delivery, on-time delivery, or convenient location.

Flexibility

Firms may compete on their ability to provide either flexibility of the product or volume.
Firms that can easily accept engineering changes (changes in the product) offer a strategic
advantage to their customers. This can also apply to services. A number of years ago, a well-
known fast food restaurant advertised "hold the pickles, hold the lettuce, special orders don't
upset us," which meant that ordering a non-standardized version of the product would not slow
down the delivery process. Also, some firms are able to absorb wide fluctuations in volume
allowing customers with erratic demand the luxury of not holding excessive inventories in
anticipation of change in demand.

Tradeoffs

Firms usually focus on one distinctive competency (rarely more than two). For some
competencies there are tradeoffs involved. An automobile manufacturer producing a product that
is considered to be of high quality (leather seats, real wood trim, and an outstanding service
package) will not be able to compete on a cost/price basis as the cost of manufacture prohibits it.
An automotive parts house would like to keep their customers happy by offering the lowest
prices possible

Ref: Operations Strategy - organization, system, examples, advantages, type, company, business,
system, Key success factors, Distinctive competencies, Order winners/qualifiers, The need for an
operations strategyhttp://www.referenceforbusiness.com/management/Ob-Or/Operations-
Strategy.html#ixzz0wwDhVONB

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6. Discuss the steps in organization analysis or Internal Environmental
analysis. Give example.

An internal environmental analysis is an extensive review of all aspects of a company's

operations, internal guidance and mission. Aspects of operations typically reviewed are
marketing strategy, production capacity, and the company's vision and leadership. All of these
things are examined with a critical eye to uncover those aspects that may be problematic, yet go
unnoticed in daily operations. Nonprofit organizations may also conduct a similar analysis.

Inventory assessment:

Company management typically initiates this internal analysis in an effort to identify

areas of risk and opportunity. Top-level management conducts an inventory to assess strengths
and weaknesses in the overall functioning of the organization. It is usually an exhaustive review
with a goal of identifying and rectifying those internal factors that are limiting the company's
growth. The internal environmental analysis is in contrast to an external analysis, which would
be concerned with the macro business environment.

Human resource management:

An objective look at the firm’s staffing is usually at the forefront of an internal

environmental analysis, since human resources are key to optimal business performance. The
firm’s human capital likely will be inventoried. Managers will probably conduct a review of total
staffing capabilities, assessing the depth of talent and management experience currently onboard.

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 The company's internal workplace culture, and how that may have shifted over time from
its original mission and goals, will likely be assessed. Sometimes a company will use an outside
firm to conduct the analysis. Such a move may occur, when the company wants an outside,
objective view of the internal inner workings of the company.

Performance review:

In contrast to a staff performance review, the internal environmental analysis does not
typically assess the company's human resources with an eye toward a particular individual's
performance. That type of assessment would be considered part of regular human resource
management. Instead, the sum total of the company's human capital would likely be considered
as a major asset. An internal environmental analysis looks at staffing in terms of managerial
competency and overall staffing needs on an organizational level. Areas of weakness, and
departments that are understaffed or staffed with under qualified or overqualified employees
would probably be noted.

Environmental assessment

An internal environmental assessment is also conducted in order to diagnose areas of

underutilization, functions that may be redundant, and areas of underdeveloped opportunities.
Existing and forecasted financial resources of a company are also reviewed in the analysis.
Available capital is compared to anticipated needs for expansion and capital improvements. How
the organization is governed, and how well that is working for the company at the current stage
of operations will likely be included in the review. The company's location and public reputation
are also considered.

Ref: Wikipedia

7. Discuss about the external environment

External environment

The external environments of an organization are those factors outside the company that
affect the company's ability to function. Some external elements can be manipulated by
company marketing, while others require the organization to make adjustments .

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External environment factors

PESTEL analysis stands for "Political, Economic, Social, and Technological, Environmental and
Legal analysis". It is a part of the external analysis when conducting a strategic analysis or doing
market research and gives a certain overview of the different macro environmental factors that
the company has to take into consideration.

Political factors or how and to what degree a government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labour law, environmental law,
trade restrictions, tariffs, and political stability. Political factors may also include goods and
services which the government wants to provide or be provided (merit goods) and those that the
government does not want to be provide. Furthermore, governments have great influence on the
health, education, and infrastructure of a nation.

Economic factors include economic growth, interest rates, exchange rates and the
inflation rate. These factors have major impacts on how businesses operate and make decisions.
For example, interest rates affect a firm's cost of capital and therefore to what extent a business
grows and expands. Exchange rates affect the costs of exporting goods and the supply and price
of imported goods.

Social factors include the cultural aspects and include health consciousness, population
growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors
affect the demand for a company's products and how that company operates. For example, an
ageing population may imply a smaller and less-willing workforce (thus increasing the cost of
labor).

Technological factors include ecological and environmental aspects, such as R&D

activity, automation, technology incentives and the rate of technological change. They can
determine barriers to entry, minimum efficient production level and influence outsourcing
decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

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 Environmental factors include weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and insurance.Furthermore, growing
awareness to climate change is affecting how companies operate and the products they offer--it is
both creating new markets and diminishing or destroying existing ones.

Legal factors include discrimination law, consumer law, antitrust law,

employment law, and health and safety law. These factors can affect how a company operates, its
costs, and the demand for its products.

Ref: Wikipedia

9. Describe the steps in industry analysis for automobile industry.

What is an Industry

An industry is a collection of firms offering goods or services that are close substitutes of each
other. Alternatively, an industry consists of firms that directly compete with each other. For the
purpose of industry analysis, an industry can be defined rather broadly (the beverage industry) or
more precisely (the carbonated soft drink industry).

Meaning of Industry analysis:

An industry analysis is a business function completed by business owners and other

individuals to assess the current business environment. This analysis helps businesses understand
various economic pieces of the marketplace and how these various pieces may be used to gain a
competitive advantage. Although business owners may conduct an industry analysis according to
their specific needs, a few basic standards exist for conducting this important business function.

Characteristics of industry analysis: (explain the following in detail)

 Number of firm
 Level and pattern of promotional expenditure.
 Rate and nature of technology competition
 Relative size of the firm
 Consumer preference for the product
 Gate of demand growth
 Extent of product differentiation
 Price behavior of leading firms
 Scale of production
 Buyer switching cost

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Automobile industry

Automobile industry is the business of producing and selling self-powered vehicles,

including passenger cars, trucks, farm equipment, and other commercial vehicles. By allowing
consumers to commute long distances for work, shopping, and entertainment, the auto industry
has encouraged the development of an extensive road system, made possible the growth of
suburbs and shopping centers around major cities, and played a key role in the growth of
ancillary industries, such as the oil and travel businesses. The auto industry has become one of
the largest purchasers of many key industrial products, such as steel. The large number of people
the industry employs has made it a key determinant of economic growth.

About Top Automobile Companies in India

Tata Motors

Tata Motors is the largest automobile company of Asia headquartered in Mumbai, India.
Annual Projected revenue for 2010-11 is US$ 27.629 billion. It also occupies the number one
position in commercial car segment. Tata Motors enjoys 31.2% of market share in the multi-
utility vehicles, which in luxury car segment, it has 6.4% market share. Most of the Tata Motors'
vehicles are sold predominantly in India and over 4 million vehicles have been produced
domestically within India.

Tata sold 52,531 units of vehicles during September 2009, comparing to 49,647 units
during September 2008 (a growth of 6%). In domestic market, Tata Motors sold 49,650 units
during the same period, comparing to 45,234 units in September 2008

Maruti Suzuki India Limited (MSIL) -

Maruti Suzuki India is an undisputed leader in the Indian automobile industry. Started
its journey in February 1981 as Maurti Udyog Limited, the company created history in the Indian
automobile market with its hugely popular four-wheeler model Maruti 800. The company
became the first Indian automobile company to manufacture one million vehicles in 1994. The
company became Maruti Suzuki India Limited on September 17, 2007.

Maruti's average revenue for the year ending 2010-11 is US$7.13 billion. Maruti sold
83,306 units of vehicles in September 2009, comparing to 71,000 units in the same month in
the previous year (with a growth rate of 17.3%). It also exported 11,712 units during September
2009, comparing to 6,318 units in the same month in the previous year (with a growth rate of
85.4%).

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Hyundai Motor India Limited (HMIL) -

Hyundai Motor India Limited, founded in 1998 and a subsidiary of Korean auto giant
Hyundai Motor Company, is the second largest car manufacturer in India. It is also country's
largest passenger car exporter. Hyundai Motor came very close to the hearts of the Indian auto
lovers through its flagship model Santro.

After the recession, Hyundai Motor saw a growth rate of 25% in the domestic market.
During September 2009, HMIL sold 53,804 units, comparing to 46,218 units during September
2008. In the domestic market, it sold 27,803 units in September 2009, comparing to 22,311
during September 2008. The overseas sales during the same period also grew up 9% as it sold
26,001 units in September 2009, comparing to 23,907 units during the same month in the
previous year.

Mahindra & Mahindra Limited (M&M)

Mahindra &Mahindra Limited is another auto-giant in India. A part of the Mahindra

Group, M&M is the largest SUV maker in the country. In September 2009, M&M registered a
domestic sale of record 26,921 units, comparing to 22,729 units in September 2008 (with an
increase of 18.4%). On the other hand, it sold 15,296 units of UV in the same period comparing
to 10,641 units in September 2008 (with a whooping growth of 43.7%).

General Motors India Private Limited (GM India)-

General Motors India Private Limited is another top player in Indian automobile
industry. A wholly-owned subsidiary of the auto giant General Motors, GM India saw a Y-o-Y
sales growth of 49% in September 2009 with a sale of 7,654 units, comparing to 5,154 units in
September 2008.

Hero MotoCorp Limited

In 2010, When Honda decided to move out of the joint venture, Hero Group bought
the shares held by Honda. Subsequently, in August 2011 the company was renamed Hero
MotoCorp with a new corporate identity.

Hero Honda Motors Limited, the joint venture between Hero Group and Honda,
was the biggest two-wheeler manufacturers in the world. It shook the Indian two-wheeler market
with its famous model Hero Honda Splendor, which became the largest selling motorcycle in the
world. It consistently sold more than 1 million units of Splendors every year.

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In 2008-09, Hero Honda sold about 3.28 million bikes and registered a net profit of ` 1281.7
crore. It sold 4,01,290 units of two-wheeler in September 2009, comparing to 3,85,262 in
September 2008. It already sold 11,83,235 units of two-wheelers in Q2 of FY10 with a growth
rate of 21.7% against the corresponding period of the previous year.

Bajaj Auto

Bajaj Auto is the second largest two-wheeler manufacturer in India. It is also the fourth
largest two and three-wheeler maker in the world. In September 2009, Bajaj Auto sold 249,795
units of two-wheelers, comparing to 218,494 units in September 2008 (with a growth rate of
14.3%). During September 2009, it also registered a growth of 12.4% in the domestic two-
wheeler sales and 19.9% in two-wheeler export.

Honda Cars India Limited

Honda Siel Cars India Limited, a joint venture between the Japanese auto giant Honda
Motor Company Limited and the Indian company Siel Limited, started its operation in December
1995. In September 2009, HSCI sold 5,794 units, comparing to 3,104 units in September 2008
(with a growth rate of 86.7%).

Ref: http://business.mapsofindia.com/automobile/top-automobile-
companies.html#sthash.VJeE3kY5.dpuf

10. Discuss the internal strategic factors for organizational analysis.

Strategic management is the managerial responsibility to achieve competitive advantage

through optimizing internal resources while capturing external opportunities and avoiding
external threats. This requires carefully crafting a structure, series of objectives, mission, vision,
and operational plan. Recognizing the way in which internally developed organizational
attributes will interact with the external competitive environment is central to successfully
implementing a given strategy—and thus creating profitability.

Internal Conditions

The internal conditions are many and varied depending on the organization (just as the
external factors in any given industry will be). However, management has some strategic control
over how these various internal conditions interact. The achievement of synergy in this process

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derives competitive advantage. While different businesses have different internal conditions, it is
easiest to view these potential attributes as generalized categories.

A value chain is a common tool used to identify each moving part. It is a useful mind
map for management to fill in during the derivation of internal strengths and weakness. A value
chain includes supports activities and primary activities, each with its own components.

Supports Activities

 Firm infrastructure: the organizational structure, mission, hierarchy and upper

management

 Human resource management: the skills embedded in the organization through human
resources

 Technology: the technological strengths and weaknesses (such as patents, machinery, IT,
etc.)

 Procurement: a measure of assets, inventory, and sourcing

Primary Activities

 Inbound logistics: deriving inputs for operational process

 Operations: running inputs through organizational operations

 Outbound logistics: shipping, warehousing, and inventorying final products

 Marketing and sales: building a brand, selling products, and identifying retail strategies
and opportunities

 Service: following up with customers to ensure satisfaction, provide and fulfill

warranties, etc.

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Michael Porter's value chain

This model, created by Michael Porter, demonstrates how support and primary activities add up
to potential margins (and potential competitive advantage).

Ref. www.boundless.com › ... › Strategic Management › Strategic Management

11. Explain National competitive advantage?

National Competitive Advantage Theory

Economist Michael Porter, a Harvard University professor and advisor for both the public
and private sectors, first defined national competitive advantage (NCA) in his 1990 book “The
Competitive Advantage of Nations.” Also known as the Porter Competitive Advantage, NCA is
basically an evaluation of how competitively a nation participates in international markets. Porter
offers a diamond-shaped diagram to outline the framework of four key factors that can modify
four ingredients to become more competitive. The four ingredients are the availability of
resources, the information used in deciding which opportunities to pursue for the company, the
goals of individuals in companies, and the innovation and investment pressure on companies.

Four attributes of National Competitive Advantage:

 Factor endowments

 Demand condition

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  Relating and supporting industries

 Firm strategy, structure, and rivalry

Factor Conditions

Factor conditions are general sets of factors that make a nation competitive. These factors
can be anything from human resources and material resources to infrastructure and the quality of
research at universities. Although a nation may have an abundance of factor conditions (i.e. low-
cost labor and lush vegetation), the usage of these factors is more important than their mere
existence. Likewise, when a nation lacks a factor, they use innovation to make up for it, which
usually leads to an increase in NCA. For example, Japan is a small nation that lacks enough land
fit for agriculture; in order to make up for this and become more competitive in the international
markets, however, Japan has exploited its wealth of human resources to become a global leader
in technology.

Demand Conditions

Demand conditions describe the home demand of a product or service belonging to a

specific company. Home demand is determined by a number of factors, which include customer
needs and wants and a company’s capacity and growth rate, as well as the tools used to share
domestic preferences with foreign markets. Demand conditions are important because a NCA
will arise when domestic demand outweighs foreign demand, since companies tend to devote

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more time to developing products that are in demand locally rather than abroad. For example, if
there is a high demand for the iPhone in the U.S., Apple will be more willing to work on
improving its design and thus do better in not only the U.S. market, but the international market
as well.

Related and Supporting Industries

A nation will have more NCA when its internationally competitive supplying industries
are prosperous and lead to the prosperity of its related and supporting industries. The success of
competitive supplying industries will promote innovation and globalization of other closely
related industries. For example, the success of the automobile industry not only benefits the
industries of its suppliers (e.g. metal, leather, rubber), but also industries that are directly linked
to automobiles (e.g. car insurance).

Firm Strategy, Structure, and Rivalry

The establishment, organization, and management of local companies determine

domestic competition and leads to the fluctuation of NCA. This is where many nations’
companies differ due to the cultural variances from one country to the next. Companies that are
family-owned or have a family-business structure will behave differently than publicly quoted
companies when it comes to local and international competition. Furthermore, local rivalry is
incredibly advantageous to NCA; this is because high local rivalry spurs innovation and
improvement, and thus promotes a national competitive advantage. For example, the rivalry
between I -phones and Androids in the Smartphone market is healthy because this incites
innovation on either side and makes both companies key players in providing the U.S. with a
high-ranking NCA.

Ref: internationalrelationsonline.com/national-competitive-advantage-theory/

12. Explain Strategic Groups

Strategic groups

• Companies do not compete against all companies in an industry

• Companies compete against several other companies that follow similar strategies

• A strategic group consists of those rivals with similar competitive approaches in an

industry

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STEP 1: Identify competitive characteristics that differentiate firms in an industry from one
another

STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics

STEP 3: Assign firms that fall in about the same strategy space to same strategic group

STEP 4: Draw circles around each group, making circles proportional to size of group’s
respective share of total industry sales

Strategic group within industries

• Companies significantly differ from each other with respect to the way they strategically
position their products in the market.

Such factors are

• Distribution channels they use

• The market segments they serve

• The quality of their products

• Technological leadership

• Customer service

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 • Pricing policy

• Advertising policy

• Promotions

A company in which each company follows the same basic product positioning strategy as
the other company in the group, but different from that followed by companies in other
group. These different from that followed by companies in other groups. These different
groups are known as strategic groups.

In pharmaceutical industry

Proprietary group

• Heavy R&D spending

• Blockbuster drugs

• High risk & high return strategy

• It is expensive and failures are high

• Only one out of every 10 drugs approved by US

• Successful drug have high return – patented for 20 years

• Merck, Pfizer, Elli Lilly

• (Y=prices charged, X=R&D spending)

Generic Group

 Forest labs
 Carter Wallace
 ICN

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Role of mobility barriers

• Porter’s five forces open up greater opportunities and present fewer threats for those
groups.

• Some strategic group where 5 forces are weaker and profits can be made easily. Sensing
the opportunity, they might contemplate changing their positioning approach.

Here only mobility barriers come

• Barriers to entry in to a group (generic to proprietary)

• Barriers to exit from a company’s existing group.

• Overtime companies in different groups develop different cost structures and skills

• Different pricing options and choices.

Ref: Hills and Jones , Google-images for Strategic group

13. Resources and capabilities?

Definition of Resources:

A resource is an asset, competency , process skill o knowledge. Resource may be

classified as tangible such as land buildings, plant and machinery and intangible such as brand
names, reputation, patents, know-how and R&D. Resources are financial, physical, human,
technological and organizational in nature. A resource is a strength which provides the company
with competitive advantage and it has the potential to do well compare to competitors.

Types of Resources:

 Tangible Resources
 Intangible Resources

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Tangible Resources:

As tangible resources, a firm’s borrowing capacity and status of its plant and equipment
are visible. The value of many tangible resources can be established through financial
statements, but these statements do not account for the value of all of a firm’s sources of
competitive advantage typically is not fully reflected on corporate financial statements. The
value of tangible resources is also constrained because they are difficult to leverage – it is
difficult to derive additional business or value from a tangible resource.

Intangible Resources:

These are superior and more potent source of core competencies. In fact in the global
economy,” the success of a corporation lies more in its intellectual and systems capabilities than
in its physical assets. Moreover, the capacity to manage human intellect- and to convert it into
useful products and services- is fast becoming the critical executive skill of the age”.

Definition of capabilities:

"Capability Management" is the approach to the management of an organization,

typically a business organization or firm, based on the "theory of the firm" as a collection of
capabilities that may be exercised to earn revenues in the marketplace and compete with other
firms in the industry. "Capability Management" seeks to manage the stock of capabilities within
the firm to ensure its position in the industry and its ongoing profitability and survival.

Structure of a Capability -or- Dimensions of a Core Capability

Leonard analyzes the nature of a (business) capability and concludes that core capabilities
"comprise at least four interdependent dimensions" (pp. 19) as follows:

1. Physical technical systems - machinery, databases, software systems etc.

2. Managerial systems - systems for the management of operations, including operation of

technical systems

3. Skills and Knowledge (systems) - systems for the maintenance of personal and team
skills and knowledge

4. Values and Norms - systems for the regulation of behaviors and objectives in
organizations

Dimensions of a Core Capability

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 Around this complex of systems that realize a core capability Leonard situates a loop
"Capability-Creating Activities" that comprise "Shared Problem Solving" and encompass Present
and Future and Internal and External Perspectives (see Leonard, 1995, chapter 3). This capability
development loop, is considered a system of organizational learning (knowledge-creating and
knowledge-diffusing activities) and comprises the following activities:

1. Problem Solving (in the context of the PRESENT)

2. Implementing and Integrating (in the INTERNAL context)

3. Experimenting (in the context of the FUTURE)

4. Importing Knowledge (from the EXTERNAL context)

Dynamic Capabilities Theory

The Leonard model of a Capability is a dynamic model at the micro-level; focused on the
detailed mechanisms for development and change of individual capabilities. Building on the
work of Hamel and Prahalad, and others David Teece and colleagues developed a macro-level
theory of Dynamic capabilities and framework for their management.

The Dynamic Capabilities Theory also refers to notions of coherence, congruence and
complementary assets across the firms portfolio of assets, routines, competencies and
capabilities. This has resonances with similar notions of coherence in System-of-Systems
Engineering and in Enterprise Architecture.

Capability vs. process

A process is how the capability is executed. Much of the reengineering revolution or

Business process reengineering focused on how to redesign business processes.

Business vs. organizational capability

An organization capability refers to the potential of the people in an organization and

their cooperation to get things done.[6] The way leaders foster shared mindset, talent, change,
accountability, and collaboration across boundaries define the company's culture and leadership
edge.

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Capability vs. competency

Dave Ulrich makes a distinction between capabilities and competencies: individuals have

Competencies while organizations have capabilities. Both competencies and capabilities have
technical and social elements.

Individual Organization

Technical Functional Competencies Business Capabilities

Social Leadership Competencies Organizational Capabilities

Capability value contribution

Building of the earlier type of work logic, Accelare added a distinction in assessment of the
capabilities necessary to operative the business by examining the financial impact as well as the
customer impact.

Figure 3: Capability value contribution to strategy

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Gap analysis and heat maps

A capability gap assessment can be portrayed in a heat map.

 A heat map is a visualization of which capabilities required attention.

 A heat index is calculated using effectiveness and efficiency scores and the gap between
targeted and actual performance; high heat (red/orange) in the gap column suggests
investment.

Capability value contribution helps stack rank investments, for example advantage capabilities
with high heat move to the top of the agenda, followed by business essential capabilities with
large inefficiencies.

STRATEGIC MANAGEMENT

UNIT-II- Competitive Advantage

JEGADHEESWARI.P 2014-2016

DEPARTMENT OF MANAGEMENT SCIENCES

HINDUSTHAN INSTITUTE OF TECHNOLOGY

COIMBATORE-32

VERSION 2015

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