Implementing Yin-Yang

WELCOME To ALL OF YOU – (Strategy) RAHUL JAIN (Striving for excellence) BCOM (H), PGPM, FCS

Strategy formulation ... An organization must select any of innumerable ways of seeking to attain its objectives. Strategies define how organizations should use their resources to meet their objectives. Hence, … strategies put constraints on employees to focus activities on what the organization does best or areas where it has an advantage over competitors.

Mission – Basic reason for existence Mission: How do we intend to win in this business? Factors influencing Mission Stakeholders Internal resources and Power Values of top management Past development of firm Business definition Products Markets Function (Technology and Processes)

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.

Starbucks’ Mission and Vision 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.

Has Two Levels of Strategy A Diversified Company Has Two Levels of Strategy - low cost - differentiation - integrated low cost/differentiation - focused low cost - focused differentiation How to create competitive advantage in each business in which the company competes 1. Business-Level Strategy (Competitive Strategy) How to create value for the corporation as a whole 2. Corporate-Level Strategy (Companywide Strategy) 7

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 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 as needed Value Chain Alter production process New raw material Change in automation Forward integration New distribution channel Backward integration New advertising media Change location relative to suppliers or buyers Direct sales in place of indirect sales 36

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 51

Examples of Cost Leadership Nissan; Wal-Mart; Dell Computers

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 59

Differentiation Business Level Strategy Requirements Value provided by unique features and value characteristics Constant effort to differ-entiate products through: Command premium price * Developing new systems and processes High customer service Shaping perceptions through advertising * Superior quality * Product R&D capabilities Prestige or exclusivity Maximize Human Resource contributions through low turnover and high motivation * Rapid innovation 64

Effectiveness with Differentiation grows out of Value Chain activities 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 Service buyers’ needs quickly anywhere in the world Caterpillar tractors 76

Opportunities exist because: 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 * 94

The Major Risks involved with a Focused “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 100

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.

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) 103

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 11

Levels and Types of Diversification Low Levels of Diversification Single business > 95% of revenues from a single business unit A Dominant business Between 70% and 95% of revenues from a single business unit B A Moderate to High Levels of Diversification < 70% of revenues from dominant business; all businesses share product, technological and distribution linkages Related constrained A B C Related linked (mixed) < 70% of revenues from dominant business, and only limited links exist A B C Very High Levels of Diversification Unrelated-Diversified Business units not closely related A B C 15

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.

BCG Matrix – Product Portfolio strategy

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.

Porter’s Five Forces Model of Competition Threat of New Entrants 11

Threat for New Entrants Government Policy Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Barriers to Entry Expected Retaliation 12

Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers 14

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 15

Bargaining Power of Buyers Porter’s Five Forces Model of Competition Threat of New Entrants Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers 17

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 18

Bargaining Power of Suppliers Bargaining Power of Buyers Porter’s Five Forces Model of Competition Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products 20

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 21

Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Threat of Substitute Products 23

Rivalry Among Existing Competitors Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Making new product introductions Increasing consumer warranties or service 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 25

Rivalry Among Existing Competitors Cutthroat competition is more likely to occur when: Numerous or equally balanced competitors Slow growth industry High fixed costs Lack of differentiation or switching costs High storage costs Capacity added in large increments High strategic stakes High exit barriers Diverse competitors 26