Business Differentiation & Integration

The new survival mantra- Sandip De

Theory of Absolute Advantage

According to Adam Smith (1776)Adam Smith (1776), Trade between organizations is possible, when one organization is more efficient than another in the production of a commodity or provision of a service, but less efficient than the other organization in producing a second commodity or provision of a second service, then both the organization can gain by each specializing on the subject of advantage and exchange a part of the same with another organization subjected to disadvantage.

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Theory of Comparative Advantage

According to David Ricardo (1817)David Ricardo (1817), Trade between organizations is possible, even when one organization is less efficient than another in the production of both commodity or provision of both service. The organization will specialize in producing the commodity or provision of the service, with less disadvantage and exchange a part of the same with another organization subjected to more disadvantage.

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Theory of Competitive Advantage

According to Michel Porter (1979)Michel Porter (1979),A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Comparative advantage can lead countries to specialize in exporting primary goods and raw materials that trap countries in low-wage economies due to terms of trade, but Competitive Advantage attempts to correct this issue by stressing maximizing scale economies in goods and services that garner premium prices

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The Era is of Competition• Competitive advantage occurs when an organization

acquires or develops an attribute or combination of attributes that allows it to outperform its competitors by performing at a higher level than others in the same industry or market. These attributes can include access to natural resources, such as high grade ores or inexpensive power, or access to highly trained and skilled personnel human resources. New technologies such as robotics and information technology either to be included as a part of the product, or to assist making it.

• A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player.

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The Era is of Competition ….• Successfully implemented strategies will lift a firm to

superior performance by facilitating the firm with competitive advantage to outperform current or potential players.

• Competitive advantage provides the understanding that resources held by a firm and the business strategy will have a profound impact on generating competitive advantage.

• Business strategy is the tool that manipulates the resources and create competitive advantage, hence, viable business strategy may not be adequate unless it possess control over unique resources that has the ability to create such a unique advantage.

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Deciding Factor of Competitive Advantage

Deciding factor of firms competitive advantage are:•Business strategy•Strength and Weakness•Opportunities and Threats due to–PEST (Political, Economic, Social & Technological) Constraints–5 Forces (Supplier, Customer, Competitors, New Entrants and Substitutes) Behaviour–Acquired and Free available Resources (Human, Mechanism and Machine, Fund and Materials)

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Deciding Factor of Competitive Advantage …

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Generic Strategy for Competitive Advantage

•Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. •Generic strategies are called so as they can be used for any kind of business•Depends on–analyzing the Competitive Forces In An IndustryCompetitive Forces In An Industry–the extent of the Scope Of A Businesses' Activities Scope Of A Businesses' Activities

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Generic Strategy

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Scope of Product Differentiation

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Generic Strategy: Differentiation • This strategy involves selecting one or more criteria used by

buyers in a market - and then positioning the business uniquely to meet those criteria.

• This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer.

• Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.

• Examples of Differentiation Strategy: Maruti Zen, WagonR, Swift, Desire

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Generic Strategy: Cost Leadership• Business thrives for lowering the cost of

production & distribution, so can price lower than competitors and win large market share.

• Firms pursuing this must have – unique resources and – must be good in engineering, procurement,

processing and physical distribution• But in current scenario by adopting the strategy

of competing for lower cost actually hurts the profitability of Firm.

• Examples: RIM in the era of 2002-2005.

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Generic Strategy: Focus

• Focuses on narrow market segment• Uses the above 2 strategies as per competition• Example: Mobile service provider like, DOCOMO,

providing calling dependent plan.• Though combination of both strategies was said

to reduce competitive advantage but in the market of WAR, this is the strategy actually followed by all competitors can be called as Differentiation – Integration StrategyDifferentiation – Integration Strategy

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Differentiation - Integration

In this competition era Differentiation – Integration strategy is Required because •Hyper competition

– (Focuses is now on increasing and retaining Market Share eg. DOCOMO, Vodafone)

•Globalization – (Justdial going global)

•Effective MIS availability – (CRM, SCM, ERP)

•Open Access to Resource – (Cost of Entry is Low and Substitute available readily, so choosing

multiple option serves better)

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Differentiation – Integration …In this competition era Differentiation – Integration strategy is Required because •Diverse opportunity

– (Airtel - MSP, DSP, DTH-TV, Retail, Infrastructure)•Strategic Partners availability

– (More and more entrepreneurs are coming up to provide at low cost and hence possibility of Outsourcing is increasing)

• Availability of Fund– (Venture Funds, Angel Funds, Financial Institutions, Stock

Market)•Business Sustainability

– (Multiple Option and hence risk mitigation)

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Differentiation – Integration …

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Differentiation – Integration …Differentiation – Integration strategy can be achieved by•Diversification –(Portfolio formulation, and reducing the risk associated to one)–(RelianceADAG – works on the theme to provide for customers all needs, it is MSP, DSP, IT & General Infrastructure SP, Retail, DTH-TV, Finance & Asset Management, Power, HR, Call-Car, etc.)

•Integration –(Through MIS, SOA-SW Oriented Architecture, IMS-IP Multimedia Sys)–(RelianceADAG – as functions are integrated so, they have access to ground level information as well as functional level)

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Conclusion/ Key Observation• All strategies are market driven and hence we

cannot comment a strategy being perfect.• Risk can be reduced by diversification in multiple

industry.• Risk of industry is to be calculated on basis of – Revenue Realizable– Exit Cost– Bargain power of Customer

• If diversification is not integrated then its just a waste of money.

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Thank you

Questions ????

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