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STRATEGIC MKTG RURAL

MKTGMBA 4TH SEM NOTES

05/03/2013

DIEMD ABAD

ISHWAR RAJPUT

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Strategic Management Process - Meaning, Steps and Components

The strategic management process means defining the organizations strategy. It is also definedas the process by which managers make a choice of a set of strategies for the organization thatwill enable it to achieve better performance. Strategic management is a continuous process thatappraises the business and industries in which the organization is involved; appraises its

competitors; and fixes goals to meet all the present and future competitors and then reassesses

each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing the

internal and external factors influencing an organization. After executing the environmental

analysis process, management should evaluate it on a continuous basis and strive to improve

it.

2.Strategy Formulation- Strategy formulation is the process of deciding best course of

action for accomplishing organizational objectives and hence achieving organizational

purpose. After conducting environment scanning, managers formulate corporate, business

and functional strategies.

3.Strategy Implementation- Strategy implementation implies making the strategy work as

intended or putting the organizations chosen strategy into action. Strategy implementation

includes designing the organizations structure, distributing resources, developing decision

making process, and managing human resources.

4.Strategy Evaluation- Strategy evaluation is the final step of strategy management

process. The key strategy evaluation activities are: appraising internal and external factors

that are the root of present strategies, measuring performance, and taking remedial /

corrective actions. Evaluation makes sure that the organizational strategy as well as its

implementation meets the organizational objectives.

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These components are steps that are carried, in chronological order, when creating a newstrategic management plan. Present businesses that have already created a strategic managementplan will revert to these steps as per the situations requirement, so as to make essential changes.

Components of Strategic Management Process

Strategic managementis an ongoing process. Therefore, it must be realized that each componentinteracts with the other components and that this interaction often happens in chorus.

Characteristics of Strategic Management:

1. Strategy often makes the difference between success and failure of a firm.

Strategic management is a branch of management that studies how to organize the structure of afirm, what products the firm should sell, how it should position itself in the marketplace, where itshould get its supplies and whether it needs to differentiate or compete on costs. Strategicmanagement also deals with other issues, such as human resources policies, employeecompensation plans, competitiveness and productivity. A course in strategic management is apart of many MBA programs.

2. Long-Term Issueso Strategic management deals primarily with long-term issues that may or may not have an

immediate effect. For example, investing in theeducationof the company's work force may yieldno immediate effect in terms of higher productivity. Still, in the long run, their education willresult in higher productivity, and therefore enhanced profits.

Competitive Advantageo Strategic management helps managers find new sources of sustainable competitive advantage.

Executives that apply the principles of strategic management in their work continuously try todeliver products or services cheaper, produce greater customer satisfaction and make employeesmore satisfied with theirjobs.

Effect on Operations

o Good strategic management always has a sizable effect on operational issues. For example, adecision to link pay to performance will result in operational decisions being more effective asemployees try harder at their jobs. Operational decisions include decisions that deal withquestions such as how to sell to certain customers or whether to open a credit line to them.Operational decisions are made in the lower echelons of the organizational hierarchy.

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o Managing the organization in a strategicfashionrequires that the interests of shareholders be putat the heart of all issues. Whether the question at hand is expansion into a new market ornegotiating mergers and acquisitions, shareholder value should be at the core at all times.

Companys strategy and its business model:

People will always stress that having a well researched business plan is key before you start yourbusiness. Although creating a business plan is often an important step in the evolution of abusiness, particularly if you need financing or you are not experienced at running a business, it isnot necessarily the essential first step. There are two key elements that should be completed priorto the business plan:

The business model The strategy

What is a Business Model?

While the word model often stirs up images of mathematical formulas, a business model is infact a story of how a business works. In general terms, a business model is the method of doingbusiness by which a company can generate revenue. Both start-up ventures and establishedcompanies take new products and services to the market through a venture shaped by a specificbusiness model. In their paper, The Role of the Business Model in Capturing Value fromInnovation,

Henry Chesbrough and Richard S. Rosenbloom outlined the six basic elements of a

business model:

1. Articulate the value propositionthe value created to users by using the product2. Identify the market segmentto whom and for what purpose is the product useful;

specify how revenue is generated by the firm.3. Define the value chainthe sequence of activities and information required to allow a

company to design, produce, market, deliver and support its product or service.4. Estimate the cost structure and profit potentialusing the value chain and value

proposition identified.5. Describe the position of the firm with the value networklink suppliers, customers,

complementors and competitors.6. Formulate the competitive strategyhow will you gain and hold your competitive

advantage over competitors or potential new entrants.

Joan Magretta in her article Why Business Models Matter took the concept of the business modela little further. Magretta suggests every business model needs to pass two critical tests, thenarrative test and the numbers test. The narrative test must tell a good story and explain how thebusiness works, who is the customer, what do they value and how a company can deliver valueto the customer. The numbers test means your profit and loss assumptions must add up. At themost basic level, if your model doesnt work, then your model has failed one of the two tests.

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To begin the modeling process you need to articulate a value proposition on the product orservice being provided. The model must then describe the target market. The customer will thenvalue the product on its ability to reduce costs, solve a problem or create new solutions. Amarket focus is needed to identify what product attributes need to be targeted and how to resolveproduct trade-offs such as quality versus cost. You also need to identify how much to charge and

how the customer will pay.

Think of business modeling as the managerial equivalent of the scientific method - you start witha hypothesis, which you then test in action and revise when necessary. The business model alsoplays a part of a planning tool by focusing managements on how all the elements and activitiesof the business work together as a whole. At the end of the day, the business model should becondensed onto one page consisting of: a diagram outlining how the business generates revenue,how cash flows through the business and how the product flows through the business and; anarrative describing the product/ service components, financial projections or other importantelements not captured in the diagram.

Business Models and Strategy

It is important to note that completing a business model does not constitute strategic planning.Strategic planning factors in the one thing a business model doesnt; competition.

What is strategy?

According to the Collins English Dictionary, strategy is a particular long-term plan for success".For our purposes, we will consider the essence of strategy as a formula for coping with thecompetition. Competitive strategy is about being different and the goal for a corporate strategy isto find a position in the industry where the company is unique and can defend itself against

market forces. To do this the company must choose a set of activities that can deliver a uniquemix of value.

Market Forces and Strategy

The determination of a strategy is rooted in determining how a company stacks up against basicmarket forces, how it can defend itself against these forces and how it can influence these forces.Fortunately, Michael E. Porter in his article How Competitive Forces Shape Strategy definedthese market forces for us. Known as Porters 5 forces they consist of:

1. The industrythis is the jockeying for position among current competitors, this canconsists of price competition, new product introduction or advertising slugfests.2. The threat of new entrants - the seriousness of the threat of entry depends on thebarriers to entry and reaction from existing companies. There are 6 major barriers toentry: 1) economies of scale 2) product differentiation 3) capital requirements 4) costdisadvantages independent of size 5) access to distribution channels 6) governmentpolicy. A new company will generally have second thoughts about entering an industry ifthe incumbent has substantial resources to fight back, the incumbent seems likely to cutprices or industry growth is slow.

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3. The threat of substitute products/services - substitutes can place a ceiling on pricesthat are charged and limit the potential of an industry.

4. The bargaining power of suppliers - suppliers can squeeze profitability by increasingprices or lowering the quality of the goods.

5. The bargaining power of buyers (customers) - customers can force down prices,demand better quality, more service or play competitors off on each other.

Once you assess how the market forces are affecting competition in your industry and theirunderlying causes, you can identify the underlying strength and weaknesses of your company,determine where it stands against each force and then determine a plan of action. Plans of actionmay include:

Positioning the companymatch your strengths and weaknesses to the companysindustry, build defenses against competitive forces or find a position in the industrywhere forces are the weakest. You need to know your companys capabilities and the

causes of the competitive forces

Influencing the balancetake the offensive, for example innovative marketing can raisebrand identification or differentiate the product. Exploiting industry changean evolution of an industry can bring changes in

competition. For example, in an industry life-cycle growth rates change and/or productdifferentiation declines; anticipate shifts in the factors underlying these forces andrespond to them.

The framework for analyzing the industry and developing a strategy provides the road map foranswering the question what is the potential of this business?"

Reconciling the Business Model and Strategy

I will use a short example to illustrate the difference between a business model and strategy.Although you may think that Wal-Mart pioneered a new business model on its road to success,the reality is that the model was really no different than the one Kmart was using at the time. Butit was what Sam Walton chose to do differently than Kmart, such as focusing on small towns asopposed to large cities and everyday low prices, that was the real reason for his success.Although Sam Waltons model was the same as Kmart's, his unique strategy made him a success.

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SWOT Analysis

SWOT analysis is a tool for auditing an organization and it environment. It is the first stage ofplanning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses,opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities andthreats are external factors.

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planningprocess. Environmental factors internal to the firm usually can be classified as strengths (S) orweaknesses (W), and those external to the firm can be classified as opportunities (O) or threats(T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources andcapabilities to the competitive environment in which it operates. As such, it is instrumental instrategy formulation and selection. The following diagram shows how a SWOT analysis fits intoan environmental scan:

SWOT Analysis Framework

Environmental Scan

/ \

Internal Analysis External Analysis/ \ / \

Strengths Weaknesses Opportunities Threats

|

SWOT Matrix

Strengths

A firm's strengths are its resources and capabilities that can be used as a basis for developing

acompetitive advantage. Examples of such strengths include:

patents strong brand names good reputation among customers cost advantages from proprietary know-how exclusive access to high grade natural resources favorable access to distribution networks

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Weaknesses

The absence of certain strengths may be viewed as a weakness. For example, each of thefollowing may be considered weaknesses:

lack of patent protection

a weak brand name poor reputation among customers high cost structure lack of access to the best natural resources lack of access to key distribution channels

In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has alarge amount of manufacturing capacity. While this capacity may be considered a strength thatcompetitors do not share, it also may be a considered a weakness if the large investment inmanufacturing capacity prevents the firm from reacting quickly to changes in the strategic

environment.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit and growth.Some examples of such opportunities include:

an unfulfilled customer need arrival of new technologies loosening of regulations removal of international trade barriers

Threats

Changes in the external environmental also may present threats to the firm. Some examples ofsuch threats include:

shifts in consumer tastes away from the firm's products emergence of substitute products new regulations increased trade barriers

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have abetter chance at developing a competitive advantage by identifying a fit between the firm'sstrengths and upcoming opportunities. In some cases, the firm can overcome a weakness in orderto prepare itself to pursue a compelling opportunity.

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To develop strategies that take into account the SWOT profile, a matrix of these factors can beconstructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

SWOT / TOWS Matrix

Strengths Weaknesses

Opportunities S-O strategies W-O strategies

Threats S-T strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the company's strengths.

W-O strategies overcome weaknesses to pursue opportunities. S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability

to external threats. W-T strategies establish a defensive plan to prevent the firm's weaknesses from making

it highly susceptible to external threats.

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Strategy Formulation:

INTRODUCTION

It is useful to consider strategy formulation as part of a strategic management process that

comprises three phases:

1.Diagnosis,2.formulation, and3.Implementation.

Strategic management is an ongoing process to develop and revise future-oriented strategies that

allow an organization to achieve its objectives, considering its capabilities, constraints, and the

environment in which it operates.

Formulation, the second phase in the strategic management process, produces a clear

set of recommendations, with supporting justification, that revise as necessary the mission andobjectives of the organization, and supply the strategies for accomplishing them. In formulation,

we are trying to modify the current objectives and strategies in ways to make the organization

more successful. This includes trying to create "sustainable" competitive advantages -- although

most competitive advantages are eroded steadily by the efforts of competitors.

The remainder of this chapter focuses on strategy formulation, and is organized into six

sections:

Three Aspects of Strategy Formulation,

Corporate-Level Strategy, Competitive Strategy, Functional Strategy, Choosing Strategies, andTroublesome Strategies.

THREE ASPECTS OF STRATEGY FORMULATION:

The following three aspects or levels of strategy formulation, each with a different focus, need to

be dealt with in the formulation phase of strategic management. The three sets of

recommendations must be internally consistent and fit together in a mutually supportive manner

that forms an integrated hierarchy of strategy, in the order given.

Corporate Level Strategy: In this aspect of strategy, we are concerned with broad decisions

about the total organization's scope and direction. Basically, we consider what changes should

be made in our growth objective and strategy for achieving it, the lines of business we are in, and

how these lines of business fit together.

It is useful to think of three components of corporate level strategy:

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(a) Growth or directional strategy (what should be our growth objective, ranging from

retrenchment through stability to varying degrees of growth - and how do we accomplish

this)

(b) Portfolio strategy (what should be our portfolio of lines of business, which

implicitly requires reconsidering how much concentration or diversification we shouldhave), and

(c) Parenting strategy (how we allocate resources and manage capabilities and

activities across the portfolio -- where do we put special emphasis, and how much do we

integrate our various lines of business).

Competitive Strategy (often called Business Level Strategy): This involves deciding how the

company will compete within each line of business (LOB) or strategic business unit (SBU).

Functional Strategy: These more localized and shorter-horizon strategies deal with how each

functional area and unit will carry out its functional activities to be effective and maximize

resource productivity.

CORPORATE LEVEL STRATEGY

This comprises the overall strategy elements for the corporation as a whole, the grand strategy, if

you please. Corporate strategy involves four kinds of initiatives:

* Making the necessary moves to establish positions in different businesses and achieve

an appropriate amount and kind of diversification. A key part of corporate strategy is

making decisions on how many, what types, and which specific lines of business the

company should be in. This may involve deciding to increase or decrease the amount

and breadth of diversification. It may involve closing out some LOB's (lines of

business), adding others, and/or changing emphasis among LOB's.

* Initiating actions to boost the combined performance of the businesses the company has

diversified into: This may involve vigorously pursuing rapid-growth strategies in the

most promising LOB's, keeping the other core businesses healthy, initiating turnaround

efforts in weak-performing LOB's with promise, and dropping LOB's that are no longer

attractive or don't fit into the corporation's overall plans. It also may involve supplying

financial, managerial, and other resources, or acquiring and/or merging other companies

with an existing LOB.

* Pursuing ways to capture valuable cross-business strategic fits and turn them into

competitive advantages -- especially transferring and sharing related technology,

procurement leverage, operating facilities, distribution channels, and/or customers.

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* Establishing investment priorities and moving more corporate resources into the most

attractive LOB's.

It is useful to organize the corporate level strategy considerations and initiatives into a

framework with

The following three main strategy components: growth, portfolio, and parenting. These

are discussed in the next three sections.

What Should be Our Growth Objective and Strategies?

Growth objectives can range from drastic retrenchment through aggressive growth.

Organizational leaders need to revisit and make decisions about the growth objectives and

the fundamental strategies the organization will use to achieve them. There are forces that tend

to push top decision-makers toward a growth stance even when a company is in trouble and

should not be trying to grow, for example bonuses, stock options, fame, ego. Leaders need toresist such temptations and select a growth strategy stance that is appropriate for the organization

and its situation. Stability and retrenchment strategies are underutilized.

Some of the major strategic alternatives for each of the primary growth stances

(retrenchment, stability, and growth) are summarized in the following three sub-sections.

Growth Strategies

All growth strategies can be classified into one of two fundamental categories: concentration

within existing industries ordiversification into other lines of business or industries. When a

company's current industries are attractive, have good growth potential, and do not face seriousthreats, concentrating resources in the existing industries makes good sense. Diversification

tends to have greater risks, but is an appropriate option when a company's current industries have

little growth potential or are unattractive in other ways. When an industry consolidates and

becomes mature, unless there are other markets to seek (for example other international

markets), a company may have no choice for growth but diversification.

There are two basic concentration strategies, vertical integration and horizontal growth.

Diversification strategies can be divided into related (or concentric) and unrelated

(conglomerate) diversification. Each of the resulting four core categories of strategy alternatives

can be achieved internally through investment and development, or externally through mergers,acquisitions, and/or strategic alliances -- thus producing eight major growth strategy categories.

Comments about each of the four core categories are outlined below, followed by some

key points about mergers, acquisitions, and strategic alliances.

1. Vertical Integration: This type of strategy can be a good one if the company has a strong

competitive position in a growing, attractive industry. A company can grow by taking over

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functions earlier in the value chain that were previously provided by suppliers or other

organizations ("backward integration"). This strategy can have advantages, e.g., in cost,

stability and quality of components, and making operations more difficult for competitors.

However, it also reduces flexibility, raises exit barriers for the company to leave that industry,

and prevents the company from seeking the best and latest components from suppliers competing

for their business.

A company also can grow by taking over functions forward in the value chain previously

provided by final manufacturers, distributors, or retailers ("forward integration"). This strategy

provides more control over such things as final products/services and distribution, but may

involve new critical success factors that the parent company may not be able to master and

deliver. For example, being a world-class manufacturer does not make a company an effective

retailer.

Some writers claim that backward integration is usually more profitable than forward

integration, although this does not have general support. In any case, many companies havemoved toward less vertical integration (especially backward, but also forward) during the last

decade or so, replacing significant amounts of previous vertical integration with outsourcing and

various forms of strategic alliances.

2. Horizontal Growth: This strategy alternative category involves expanding the company's

existing products into other locations and/or market segments, or increasing the range of

products/services offered to current markets, or a combination of both. It amounts to expanding

sideways at the point(s) in the value chain that the company is currently engaged in. One of the

primary advantages of this alternative is being able to choose from a fairly continuous range of

choices, from modest extensions of present products/markets to major expansions -- each withcorresponding amounts of cost and risk.

3. Related Diversification (aka Concentric Diversification): In this alternative, a company

expands into a related industry, one having synergy with the company's existing lines of

business, creating a situation in which the existing and new lines of business share and gain

special advantages from commonalities such as technology, customers, distribution, location,

product or manufacturing similarities, and government access. This is often an appropriate

corporate strategy when a company has a strong competitive position and distinctive

competencies, but its existing industry is not very attractive.

4. Unrelated Diversification (aka Conglomerate Diversification): This fourth major category

of corporate strategy alternatives for growth involves diversifying into a line of business

unrelated to the current ones. The reasons to consider this alternative are primarily seeking more

attractive opportunities for growth in which to invest available funds (in contrast to rather

unattractive opportunities in existing industries), risk reduction, and/or preparing to exit an

existing line of business (for example, one in the decline stage of the product life cycle). Further,

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this may be an appropriate strategy when, not only the present industry is unattractive, but the

company lacks outstanding competencies that it could transfer to related products or industries.

However, because it is difficult to manage and excel in unrelated business units, it can be

difficult to realize the hoped-for value added.

Mergers, Acquisitions, and Strategic Alliances: Each of the four growth strategy categoriesjust discussed can be carried out internally or externally, through mergers, acquisitions, and/or

strategic alliances. Of course, there also can be a mixture of internal and external actions.

Various forms of strategic alliances, mergers, and acquisitions have emerged and are used

extensively in many industries today. They are used particularly to bridge resource and

technology gaps, and to obtain expertise and market positions more quickly than could be done

through internal development. They are particularly necessary and potentially useful when a

company wishes to enter a new industry, new markets, and/or new parts of the world.

Despite their extensive use, a large share of alliances, mergers, and acquisitions fall farshort of expected benefits or are outright failures. For example, one study published in Business

Week in 1999 found that 61 percent of alliances were either outright failures or "limping along."

Research on mergers and acquisitions includes a Mercer Management Consulting study of all

mergers from 1990 to 1996 which found that nearly half "destroyed" shareholder value; an A. T.

Kearney study of 115 multibillion-dollar, global mergers between 1993 and 1996 where 58

percent failed to create "substantial returns for shareholders" in the form of dividends and stock

price appreciation; and a Price-Waterhouse-Coopers study of 97 acquisitions over $500 million

from 1994 to 1997 in which two-thirds of the buyer's stocks dropped on announcement of the

transaction and a third of these were still lagging a year later.

Many reasons for the problematic record have been cited, including paying too much,

unrealistic expectations, inadequate due diligence, and conflicting corporate cultures; however,

the most powerful contributor to success or failure is inadequate attention to the merger

integration process. Although the lawyers and investment bankers may consider a deal done

when the papers are signed and they receive their fees, this should be merely an incident in a

multi-year process of integration that began before the signing and continues far beyond.

Stability Strategies

There are a number of circumstances in which the most appropriate growth stance for a company

is stability, rather than growth. Often, this may be used for a relatively short period, after which

further growth is planned. Such circumstances usually involve a reasonable successful company,

combined with circumstances that either permit a period of comfortable coasting or suggest a

pause or caution. Three alternatives are outlined below, in which the actual strategy actions are

similar, but differing primarily in the circumstances motivating the choice of a stability strategy

and in the intentions for future strategic actions.

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1. Pause and Then Proceed: This stability strategy alternative (essentially a timeout) may be

appropriate in either of two situations: (a) the need for an opportunity to rest, digest, and

consolidate after growth or some turbulent events - before continuing a growth strategy, or (b) an

uncertain or hostile environment in which it is prudent to stay in a "holding pattern" until there is

change in or more clarity about the future in the environment.

2. No Change: This alternative could be a cop-out, representing indecision or timidity in

making a choice for change. Alternatively, it may be a comfortable, even long-term strategy in a

mature, rather stable environment, e.g., a small business in a small town with few competitors.

3. Grab Profits While You Can: This is a non-recommended strategy to try to mask a

deteriorating situation by artificially supporting profits or their appearance, or otherwise trying to

act as though the problems will go away. It is an unstable, temporary strategy in a worsening

situation, usually chosen either to try to delay letting stakeholders know how bad things are or to

extract personal gain before things collapse. Recent terrible examples in the USA are Enron and

WorldCom.

Retrenchment Strategies

Turnaround: This strategy, dealing with a company in serious trouble, attempts to resuscitate

or revive the company through a combination of contraction (general, major cutbacks in size and

costs) and consolidation (creating and stabilizing a smaller, leaner company). Although difficult,

when done very effectively it can succeed in both retaining enough key employees and

revitalizing the company.

Captive Company Strategy: This strategy involves giving up independence in exchange for

some security by becoming another company's sole supplier, distributor, or a dependent

subsidiary.

Sell Out: If a company in a weak position is unable or unlikely to succeed with a turnaround or

captive company strategy, it has few choices other than to try to find a buyer and sell itself (or

divest, if part of a diversified corporation).

Liquidation: When a company has been unsuccessful in or has none of the previous three

strategic alternatives available, the only remaining alternative is liquidation, often involving a

bankruptcy. There is a modest advantage of a voluntary liquidation over bankruptcy in that the

board and top management make the decisions rather than turning them over to a court, whichoften ignores stockholders' interests.

COMPETITIVE (BUSINESS LEVEL) STRATEGY

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In this second aspect of a company's strategy, the focus is on how to compete successfully in

each of the lines of business the company has chosen to engage in. The central thrust is how to

build and improve the company's competitive position for each of its lines of business. A

company has competitive advantage whenever it can attract customers and defend against

competitive forces better than its rivals. Companies want to develop competitive advantages that

have some sustainability (although the typical term "sustainable competitive advantage" is

usually only true dynamically, as a firm works to continue it). Successful competitive strategies

usually involve building uniquely strong or distinctive competencies in one or several areas

crucial to success and using them to maintain a competitive edge over rivals. Some examples of

distinctive competencies are superior technology and/or product features, better manufacturing

technology and skills, superior sales and distribution capabilities, and better customer service and

convenience.

Competitive strategy is about being different. It means deliberately choosing to perform

activities differently or to perform different activities than rivals to deliver a unique mix of

value. (Michael E. Porter) The essence of strategy lies in creating tomorrow's competitive

advantages faster than competitors mimic the ones you possess today. (Gary Hamel & C. K.

Prahalad)

We will consider competitive strategy by using Porter's four generic strategies (Porter 1980,

1985) as the fundamental choices, and then adding various competitive tactics.

Porter's Four Generic Competitive Strategies

He argues that a business needs to make two fundamental decisions in establishing its

competitive advantage: (a) whether to compete primarily on price (he says "cost," which isnecessary to sustain competitive prices, but price is what the customer responds to) or to compete

through providing some distinctive points of differentiation that justify higher prices, and (b)

how broad a market target it will aim at (its competitive scope). These two choices define the

following four generic competitive strategies. which he argues cover the fundamental range of

choices. A fifth strategy alternative (best-cost provider) is added by some sources, although not

by Porter, and is included below:

1. Overall Price (Cost) Leadership: appealing to a broad cross-section of the market by

providing products or services at the lowest price. This requires being the overall low-cost

provider of the products or services (e.g., Costco, among retail stores, and Hyundai, amongautomobile manufacturers). Implementing this strategy successfully requires continual,

exceptional efforts to reduce costs -- without excluding product features and services that buyers

consider essential. It also requires achieving cost advantages in ways that are hard for

competitors to copy or match. Some conditions that tend to make this strategy an attractive

choice are:

* The industry's product is much the same from seller to seller

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* The marketplace is dominated by price competition, with highly price-sensitive buyers

* There are few ways to achieve product differentiation that have much value to buyers

* Most buyers use product in same ways -- common user requirements

* Switching costs for buyers are low

* Buyers are large and have significant bargaining power

2. Differentiation: appealing to a broad cross-section of the market through offering

differentiating features that make customers willing to pay premium prices, e.g., superior

technology, quality, prestige, special features, service, convenience (examples are Nordstrom

and Lexus). Success with this type of strategy requires differentiation features that are hard or

expensive for competitors to duplicate. Sustainable differentiation usually comes from

advantages in core competencies, unique company resources or capabilities, and superior

management of value chain activities. Some conditions that tend to favor differentiationstrategies are:

* There are multiple ways to differentiate the product/service that buyers think have

substantial value

* Buyers have different needs or uses of the product/service

* Product innovations and technological change are rapid and competition emphasizes the

latest product features

* Not many rivals are following a similar differentiation strategy

3. Price (Cost) Focus: a market niche strategy, concentrating on a narrow customer segment

and competing with lowest prices, which, again, requires having lower cost structure than

competitors (e.g., a single, small shop on a side-street in a town, in which they will order

electronic equipment at low prices, or the cheapest automobile made in the former Bulgaria).

Some conditions that tend to favor focus (either price or differentiation focus) are:

* The business is new and/or has modest resources

* The company lacks the capability to go after a wider part of the total market

* Buyers' needs or uses of the item are diverse; there are many different niches and

segments in the industry

* Buyer segments differ widely in size, growth rate, profitability, and intensity in the five

competitive forces, making some segments more attractive than others

* Industry leaders don't see the niche as crucial to their own success

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* Few or no other rivals are attempting to specialize in the same target segment

4. Differentiation Focus: a second market niche strategy, concentrating on a narrow customer

segment and competing through differentiating features (e.g., a high-fashion women's clothing

boutique in Paris, or Ferrari).

Best-Cost Provider Strategy: (although not one of Porter's basic four strategies, this strategy is

mentioned by a number of other writers.) This is a strategy of trying to give customers the best

cost/value combination, by incorporating key good-or-better product characteristics at a lower

cost than competitors. This strategy is a mixture or hybrid of low-price and differentiation, and

targets a segment of value-conscious buyers that is usually larger than a market niche, but

smaller than a broad market. Successful implementation of this strategy requires the company to

have the resources, skills, capabilities (and possibly luck) to incorporate up-scale features at

lower cost than competitors.

This strategy could be attractive in markets that have both variety in buyer needs that makedifferentiation common and where large numbers of buyers are sensitive to both price and value.

Porter might argue that this strategy is often temporary, and that a business should choose and

achieve one of the four generic competitive strategies above. Otherwise, the business is stuck in

the middle of the competitive marketplace and will be out-performed by competitors who choose

and excel in one of the fundamental strategies. His argument is analogous to the threats to a

tennis player who is standing at the service line, rather than near the baseline or getting to the

net. However, others present examples of companies (e.g., Honda and Toyota) who seem to be

able to pursue successfully a best-cost provider strategy, with stability.

Competitive Tactics

Although a choice of one of the generic competitive strategies discussed in the previous section

provides the foundation for a business strategy, there are many variations and elaborations.

Among these are various tactics that may be useful (in general, tactics are shorter in time horizon

and narrower in scope than strategies). This section deals with competitive tactics, while the

following section discusses cooperative tactics.

Two categories of competitive tactics are those dealing with timing (when to enter a

market) and market location (where and how to enter and/or defend).

Timing Tactics: When to make a strategic move is often as important as what move to

make. We often speak of first-movers (i.e., the first to provide a product or service), second-

movers or rapid followers, and late movers (wait-and-see). Each tactic can have advantages and

disadvantages.

Being a first-mover can have major strategic advantages when: (a) doing so builds an

important image and reputation with buyers; (b) early adoption of new technologies, different

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components, exclusive distribution channels, etc. can produce cost and/or other advantages over

rivals; (c) first-time customers remain strongly loyal in making repeat purchases; and (d) moving

first makes entry and imitation by competitors hard or unlikely.

However, being a second- or late-mover isn't necessarily a disadvantage. There are cases

in which the first-mover's skills, technology, and strategies are easily copied or even surpassedby later-movers, allowing them to catch or pass the first-mover in a relatively short period, while

having the advantage of minimizing risks by waiting until a new market is established.

Sometimes, there are advantages to being a skillful follower rather than a first-mover, e.g., when:

(a) being a first-mover is more costly than imitating and only modest experience curve benefits

accrue to the leader (followers can end up with lower costs than the first-mover under some

conditions); (b) the products of an innovator are somewhat primitive and do not live up to buyer

expectations, thus allowing a clever follower to win buyers away from the leader with better

performing products; (c) technology is advancing rapidly, giving fast followers the opening to

leapfrog a first-mover's products with more attractive and full-featured second- and third-

generation products; and (d) the first-mover ignores market segments that can be picked up

easily.

Market Location Tactics: These fall conveniently into offensive and defensive tactics.

Offensive tactics are designed to take market share from a competitor, while defensive tactics

attempt to keep a competitor from taking away some of our present market share, under the

onslaught of offensive tactics by the competitor. Some offensive tactics are:

* Frontal Assault: going head-to-head with the competitor, matching each other in every

way. To be successful, the attacker must have superior resources and be willing to

continue longer than the company attacked.

* Flanking Maneuver: attacking a part of the market where the competitor is weak. To

be successful, the attacker must be patient and willing to carefully expand out of the

relatively undefended market niche or else face retaliation by an established competitor.

* Encirclement: usually evolving from the previous two, encirclement involves

encircling and pushing over the competitor's position in terms of greater product variety

and/or serving more markets. This requires a wide variety of abilities and resources

necessary to attack multiple market segments.

* Bypass Attack: attempting to cut the market out from under the established defender by

offering a new, superior type of produce that makes the competitor's product

unnecessary or undesirable.

* Guerrilla Warfare: using a "hit and run" attack on a competitor, with small, intermittent

assaults on different market segments. This offers the possibility for even a small firm

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to make some gains without seriously threatening a large, established competitor and

evoking some form of retaliation.

Some Defensive Tactics are:

* Raise Structural Barriers: block avenues challengers can take in mounting anoffensive

* Increase Expected Retaliation: signal challengers that there is threat of strong

retaliation if they attack

* Reduce Inducement for Attacks: e.g., lower profits to make things less attractive

(including use of accounting techniques to obscure true profitability). Keeping prices

very low gives a new entrant little profit incentive to enter.

The general experience is that any competitive advantage currently held will eventually be

eroded by the actions of competent, resourceful competitors. Therefore, to sustain its initialadvantage, a firm must use both defensive and offensive strategies, in elaborating on its basic

competitive strategy.

Cooperative Strategies

Another group of "competitive" tactics involve cooperation among companies. These

could be grouped under the heading of various types of strategic alliances, which have been

discussed to some extent under Corporate Level growth strategies. These involve an agreement

or alliance between two or more businesses formed to achieve strategically significant objectives

that are mutually beneficial. Some are very short-term; others are longer-term and may be the

first stage of an eventual merger between the companies.

Some of the reasons for strategic alliances are to: obtain/share technology, share

manufacturing capabilities and facilities, share access to specific markets, reduce

financial/political/market risks, and achieve other competitive advantages not otherwise

available. There could be considered a continuum of types of strategic alliances, ranging from:

(a) mutual service consortiums (e.g., similar companies in similar industries pool their resources

to develop something that is too expensive alone), (b) licensing arrangements, (c) joint ventures

(an independent business entity formed by two or more companies to accomplish certain things,

with allocated ownership, operational responsibilities, and financial risks and rewards), (d)

value-chain partnerships (e.g., just-in-time supplier relationships, and out-sourcing of major

value-chain functions).

FUNCTIONAL STRATEGIES

Functional strategies are relatively short-term activities that each functional area within a

company will carry out to implement the broader, longer-term corporate level and business level

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strategies. Each functional area has a number of strategy choices, that interact with and must be

consistent with the overall company strategies.

Three basic characteristics distinguish functional strategies from corporate level and

business level strategies:

Shorter time horizon, greater specificity, and primary involvement of operating managers.

A few examples follow of functional strategy topics for the major functional areas of marketing,

finance, production/operations, research and development, and human resources management.

Each area needs to deal with sourcing strategy, i.e., what should be done in-house and what

should be outsourced?

Marketing strategy deals with product/service choices and features, pricing strategy, markets to

be targeted, distribution, and promotion considerations. Financial strategies include decisions

about capital acquisition, capital allocation, dividend policy, and investment and working capital

management. The production or operations functional strategies address choices about how andwhere the products or services will be manufactured or delivered, technology to be used,

management of resources, plus purchasing and relationships with suppliers. For firms in high-

tech industries, R&D strategy may be so central that many of the decisions will be made at the

business or even corporate level, for example the role of technology in the company's

competitive strategy, including choices between being a technology leader or follower.

However, there will remain more specific decisions that are part of R&D functional strategy,

such as the relative emphasis between product and process R&D, how new technology will be

obtained (internal development vs. external through purchasing, acquisition, licensing, alliances,

etc.), and degree of centralization for R&D activities. Human resources functional strategy

includes many topics, typically recommended by the human resources department, but manyrequiring top management approval. Examples are job categories and descriptions; pay and

benefits; recruiting, selection, and orientation; career development and training; evaluation and

incentive systems; policies and discipline; and management/executive selection processes.

CHOOSING THE BEST STRATEGY ALTERNATIVES

Decision making is a complex subject, worthy of a chapter or book of its own. This section can

only offer a few suggestions. Among the many sources for additional information, I recommend

Harrison (1999), McCall & Kaplan (1990), and Williams (2002). Here are some factors to

consider when choosing among alternative strategies:

* It is important to get as clear as possible about objectives and decision criteria (what

makes a decision a "good" one?)

* The primary answer to the previous question, and therefore a vital criterion, is that the

chosen strategies must be effective in addressing the "critical issues" the company faces

at this time

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* They must be consistent with the mission and other strategies of the organization

* They need to be consistent with external environment factors, including realistic

assessments of the competitive environment and trends

* They fit the company's product life cycle position and market attractiveness/competitivestrength situation

* They must be capable of being implemented effectively and efficiently, including being

realistic with respect to the company's resources

* The risks must be acceptable and in line with the potential rewards

* It is important to match strategy to the other aspects of the situation, including: (a) size,

stage, and growth rate of industry; (b) industry characteristics, including fragmentation,

importance of technology, commodity product orientation, international features; and

(c) company position (dominant leader, leader, aggressive challenger, follower, weak,"stuck in the middle")

* Consider stakeholder analysis and other people-related factors (e.g., internal and

external pressures, risk propensity, and needs and desires of important decision-makers)

* Sometimes it is helpful to do scenario construction, e.g., cases with optimistic, most

likely, and pessimistic assumptions.

Steps in Strategy Formulation Process

Strategy formulation refers to the process of choosing the most appropriate course of action for

the realization of organizational goals and objectives and thereby achieving the organizational

vision. The process of strategy formulation basically involves six main steps. Though these

steps do not follow a rigid chronological order, however they are very rational and can be easily

followed in this order.

1. Setting Organizations objectives - The key component of any strategy statement is toset the long-term objectives of the organization. It is known that strategy is generally a

medium for realization of organizational objectives. Objectives stress the state of being

there whereas Strategy stresses upon the process of reaching there. Strategy includes boththe fixation of objectives as well the medium to be used to realize those objectives. Thus,

strategy is a wider term which believes in the manner of deployment of resources so as to

achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which influence

the selection of objectives must be analyzed before the selection of objectives. Once the

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objectives and the factors influencing strategic decisions have been determined, it is easy

to take strategic decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the generaleconomic and industrial environment in which the organization operates. This includes a

review of the organizations competitive position. It is essential to conduct a qualitative

and quantitative review of an organizations existing product line.

The purpose of such a review is to make sure that the factors important for competitive

success in the market can be discovered so that the management can identify their own

strengths and weaknesses as well as their competitors strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of

competitors moves and actions so as to discover probable opportunities of threats to its

market or supply sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix thequantitative target values for some of the organizational objectives. The idea behind this

is to compare with long term customers, so as to evaluate the contribution that might be

made by various product zones or operating departments.

4. Aiming in context with the divisional plans - In this step, the contributions made byeach department or division or product category within the organization is identified and

accordingly strategic planning is done for each sub-unit. This requires a careful analysis

of macroeconomic trends.

5. Performance Analysis - Performance analysis includes discovering and analyzing thegap between the planned or desired performance. A critical evaluation of the

organizations past performance, present condition and the desired future conditions must

be done by the organization. This critical evaluation identifies the degree of gap that

persists between the actual reality and the long-term aspirations of the organization. An

attempt is made by the organization to estimate its probable future condition if the current

trends persist.

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6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course ofaction is actually chosen after considering organizational goals, organizational strengths,

potential and limitations as well as the external opportunities.

10 steps in strategy formulation:

There are several ways astrategycan be designed for a company. However some methods are

better than the others. Here are 10 steps which guide you in deciding the strategy of your

company.

Steps 1 to 5 mainly involve internal or external research as well as very long term strategy

making (Strategies made in the first 5 steps affect the whole life cycle of the company)

1) Write aVisionStatement A vision statement (crisp and to the point) is a must for

developing a strategy. Exploring and deciding on the vision of the company gives you clarity on

the main objectives of the company.

2)MissionStatement - Decide a Mission statement for the company. This mission statement

would actually determine the methodology of the company in reaching its vision, its purposes

and its philosophy behind its goals.

3) Define the company profile - The company profile needs to be comprehensive which further

clears the goals of the organization. What would be the strengths of the company, capabilities,

management. In essence mention everything you can about the company. This helps in

transparency while deciding the strategy.

4) Study the External environment No strategy can be complete without taking into

consideration the effect that external environment has on businesses. Thus an in depth study on

external environment is necessary and the same should be mentioned in the strategy report.

5) The 5th step involves matching all three Mission statement, Company profile and the

external environment such that they are in sync to achieve the vision of the company.

From here on, Step 6 to 10 involve decision making based on the research as well as the

decisions taken for the company in the previous steps. The last steps are more inclined towards

implementation.

6) Deciding the actions for accomplishing the mission of the organization

7) Selecting long term strategies which will be most effective

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8) Deciding on short term strategies arising from the long term ones such that these short term

strategies too are in sync with the mission and vision statement

9) Deciding the budget and resource allocation according to the short term strategy

10) Implementation of the strategies along with pre decided review system along with

measures to maintain control and a fallback short term plan.

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Why is Concise Communication Important for DevelopingEffective Strategic Leadership?

Concise communication is essential for the success of any organization and is especiallyimportant to develop effective strategic leadership. The focus of strategic leadership is to build

and maintain a sustainable competitive advantage for the organization, according to Ralph Stacy,author of "Learning as an Activity of Interdependent People." Concise communication issignificant in developing effective strategic leadership, as it is typically the responsibility ofleaders to translate the desires of those at the upper echelons of the organization to those at thebottom.

1. Strategic Managemento The strategic planning process is a common method used to develop and maintain a sustainable

competitive advantage for an organization. In the strategic planning process, organizationalleaders develop a mission statement for the organization, explaining its reason for existence.Managers and leaders must then develop strategies to meet this purpose. The development of

effective strategic leadership is vital to the success of the strategic planning process, and concisecommunication is an essential element of this development.

Alignment

o Strategic leadership typically involves the alignment of the day-to-day work activities with theorganization's mission statement using strategic leadership. Concise communication is essentialto the success of any strategic management plan. For operational activities to align with themission statement, strategic leaders must ensure that workers maintain a clear understanding ofthat mission statement. Senior managers must encourage the clarification of expectations soworkers' understanding of what is expected of them measures up to strategic leadership metrics.

Sender/Receiver Communication Modelo One of the most essential tasks of the strategic leader is to communicate organizational strategies

to those who will implement them. Concise communication is a vital element in this process. Thesender/receiver communication model is a useful tool for developing these core competencieswithin strategic leaders. Every communication involves a sender and a receiver. For strategicleaders to be truly effective, they must understand the importance of concise communications toensure the messages they send to workers are received in the manner intended.

Leaders vs. Managers

o While not all leaders are necessarily managers, it is essential that all managers be properlydeveloped to provide effective strategic leadership for the organization. Warren Bennis, author of

"On Becoming a Leader," describes several differences between leaders and managers. Forexample, managers are administrators, while leaders are innovators. Managers focus oncompleting tasks, while leaders focus on people. Concise communication is an essential tool ofthe effective leader.

Institutionalizing the strategic structure:

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Institutionalization of Strategy:

The first basic action that is required for putting a strategy into operation is its

institutionalization. Since strategy does not become either acceptable or effective by virtue of

being well designed and clearly announced, the successful implementation of strategy requiresthat the strategy framer acts as its promoter and defender. Often strategy choice becomes a

personal choice of the strategist because his personality variables become an influential factor in

strategy formulation. Thus, it becomes a personal strategy of the strategist. Therefore, there is an

urgent need for the institutionalization of strategy because without it, the strategy is subject to

being undermined. Therefore, it is the role of the strategist to present the strategy to the members

of the organization in a way that appeals to them and brings their support. This will put

organizational people to feel that it is their own strategy rather than the strategy imposed on

them. Such a feeling creates commitment so essential for making strategy successful.

FORMUTING FUNCTIONAL STRATEGY

Recall from Chapter 4 that functional strategy provides an action plan for strategy

implementation at the level of the work group and individual. It puts corporate and business

strategy into operation by defining the activities needed for implementation.

Depending on the specific strategy to be implemented, functional strategy nay need to be

formulated by a variety of work groups within the organization Consider, for example, the

functional strategies that would be necessary if Coca-Cola decided to develop a new line of fruit

juices. The research and development department would have to develop a formula; the

marketing department would have to conduct taste tests, develop promotional campaigns, and

identify the appropriate distribution channels; and the production department would have topurchase new equipment and perhaps build new facilities to produce the fruit juice line. Table

5.4 outlines just a few of the functional strategies necessary to introduce a new line of fruitjuices.

The most significant challenge lies in coordinating the activities of the various work groups that

must work together to implement the strategy. The strategies must be consistent both within each

functional area of the business (such as the marketing department) and between functional areas

(such as the marketing department and the production department).48 For example, if Coca-

Cola's new fruit juice line is to be priced at a premium level, it must be promoted to buyers who

desire a premium product and distributed through channels that reach those buyers. These

marketing decisions must be consistent. Further, the production department must purchase high-

quality raw materials and produce a product that is worthy of a premium price. Without

consistency within and between the work groups of the organization, the implementation processis sure to fail.

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EVERY BUSINESS UNIT DEVELOPS FUNCTIONAL STRATEGIES FOR EACH

MAJOR DEPARTMENT

MARKETING STRATEGY FINANCIAL STRATEGY RESEARCH & DEVELOPMENT STRATEGY OPERATIONS STRATEGY PURCHASING STRATEGY LOGISTICS STRATEGY HUMAN RESOURCES STRATEGY INFORMATION TECHNOLOGY STRATEGY

BASIC MARKET-PRODUCT STRATEGIES: THE CUSTOMER-PRODUCTDECISION:

MARKETING STRATEGIES: THE CUSTOMER-PRODUCT DECISION:

MARKET PENETRATION STRATEGY

(Stay in current markets with existing products)

INCREASE RATE OF PURCHASE/CONSUMPTION

ATTRACT RIVALS CUSTOMERS

BUY OUT RIVALS

CONVERT NON-USERS INTO CURRENT USERS

MARKET DEVELOPMENT STRATEGY

(Find new markets for current products)

ENTER NEW GEOGRAPHICAL MARKETS

FIND NEW USES FOR EXISTING PRODUCTS

FIND NEW TARGET MARKETS

PRODUCT DEVELOPMENT STRATEGY

(Develop new products for existing markets)

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IMPROVE FEATURES

IMPROVE QUALITY/RELIABILITY/DURABILITY

ENHANCE AESTHETICS/STYLING

ADD MODELS

DIVERSIFICATION STRATEGY

(Develop new products for new markets)

THE 4 PS OF MARKETING:

MARKETING MIX ISSUESProduct Strategy

Specifying the exact product or service to be offered New orexisting product? for new or existing customers?

Promotion Strategy

How the product or service is to be communicated to customers

Push - spend $$$ on promotions and discounts to push products Pull - spend $ to build brand awareness so consumers will ask for it byname

Channel or Place Strategy

Selecting the method for distributing the product or service Distribute through dealer networks or through mass merchandisers? Sell directly to consumers through own stores or through internet?

Price Strategy

Establishing a price for the product or service Skim pricing (high) when you are a pioneer Penetration pricing (low) builds market shares Dynamic pricing (prices vary frequently) based on demand/availability

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FINANCIAL MANAGEMENT STRATEGIES:

CAPITAL ACQUISITIONS

Debt Leverage, Stock Sales, & Gains from Operations Equity financing is preferred forrelated diversification Debt financing is preferred forunrelated diversification Leveraged buyouts (LBOs) make the acquired firm pay off the debt

CAN WE GROW BY RELYING ON ONLY INTERNAL CASH FLOWS?

DO STOCK SALES DILUTE OWNERSHIP CONTROL?

DOES A LARGE DEBT RATIO CRIPPLE FUTURE GROWTH?

DOES STRONG LEVERAGE BOOST EARNINGS PER SHARE?

DOES HIGH DEBT DETER TAKEOVER ATTEMPTS?

DO MOST LBOs UNDERPERFORM 3-4 YEARS AFTER THE BUYOUT?

RESOURCE ALLOCATIONS

Dividends, Stock Price, & Reinvestment Reinvest earnings in fast-growing companies Keeping the stockholders contented with consistent dividends Use of stock splits ( or reverses) to maintain high stock prices Tracking stockkeeps interest in company, but doesnt allow takeover

RESEARCH & DEVELOPMENT STRATEGIES:

LEVEL OF INNOVATION Pioneer (Leader) v. Copy Cat (Follower)

Technological leadership fits well with differentiation A follower strategy makes sense with cost-leader strategies Are we better at finding applications and customer adaptations than

actually inventing something really new? Different types of R & D (basic, product, process)

Where is the firms historic expertise / advantage? How competent are the R & D Personnel?

ACQUISITION OF TECHNOLOGY Internally developed v. acquired from outside

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Technology Scouts Strategic Technology Alliances Acquire minority stake in promising high-tech ventures

OPERATIONS STRATEGIES:

MANUFACTURING LOCATION Internal Production v. Outsourcing Domestic Plants v. International Locations

SYSTEM LAYOUT Product v. Process Layouts

Job Shops v. Mass Production Job shop/small batch production fits well with a differentiation strategy Continuous production / dedicated transfer lines helps achieve cost

leadership Use of robots and CAD/CAM v. Labor intense manufacturing

Modular Manufacturing and just-in-time delivery of sub-assemblies Continuous improvement systems lower costs and increase qualityPURCHASING STRATEGIES:

SOURCING COMPONENTS AND SUPPLIESWHERE CAN THE HIGHEST QUALITY COMPONENTS BE FOUND?

Outsourcing (our firm buys everything) Buying on the Open Market (Spot) (prices fluctuate)

Long-Term Contracts with Multiple Suppliers (low bid) Sole Sourcing (only one supplier) improves quality Parallel Sourcing (two suppliers) provides protection

Backward Integration (our firm has an ownership stake in the suppliers we use) Quasi-integration (minority ownership position in a supplier) Tapered (produce some of what we need, but not all) Full (produce all of our own needs)

Use of Component Inventories v. Just-in-time supply deliveryLOGISTICS STRATEGIES:

DO WE HAVE GOODS THAT MUST BE TRANSPORTED OR DELIVERED?

TYPE OF MATERIALS TRANSPORTED (Bulky or Compact?) Raw Materials, Supplies, & Components Finished Goods

BEST MODE OF TRANSPORTATION AIR RAIL

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TRUCK BARGE

DO WE WANT DEPENDABILITY, LOW COST, OR HIGH QUALITY SERVICE?

OUTSOURCE TRANSPORTATION OR DO IT YOURSELF? CONTRACT WITH OTHERS Use Multiple Shippers v. Just One (UPS)? Consider batch deliveries v. Just-in-time arrangements?

OWNERSHIP IN DISTRIBUTION CHAIN Quasi Tapered Full

HUMAN RESOURCES STRATEGIES:

TALENT ACQUISITION Recruit from Outside v. Internal Development Require experienced, highly-skilled workers v. we will train you Offer top dollar wages & benefits v. mentoring and a career

WORK ARRANGEMENTS Individual Jobs v. Team Positions Narrowly-defined jobs v. Positions with discretion and autonomy On-premises Work v. Telecommuting Options

MOTIVATION & APPRAISAL Extrinsic v. Intrinsic Reward Systems Assessment for development v. assessment for rewards

Incentives for ideas & originality v. incentives for conformity?

INFORMATION SYSTEMS STRATEGIES:

WORKER PRODUCTIVITY & CONNECTIVITY

Employees can be networked together across the globe Instant translation software for global firms Follow the Sun Managementpass projects on to the next team

SALES & INVENTORY MANAGEMENT

Internet sales and development of customer databases Instant sales reports allow immediate inventory reorders

SHIPPING & TRACKING GOODS

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FEDEX PowerShip softwarestores addresses, prints labels, etc. Tracking the progress of package shipmentFEDEX & UPS

WHICH FUNCTIONS CAN WE OUTSOURCE?

GLOBAL OUTSOURCINGINCREASES EFFICIENCY & QUALITY Averages 9% reduction in costs and 15% increase in capacity and quality Up to 70% of Boeing planes are outsourced..built in just 4 mos v. 1 year

AMA SURVEY -- 94% OUTSOURCE AT LEAST ONE ACTIVITY 78% General & Administrative activities 77% Human Resources 66% Transportation & Distribution 63% Information Systems 56% Manufacturing

51% Marketing 18% Finance & Accounting

25% were disappointed in their outsourcing results

51% brought the outsourced activity back in-house

MOST LIKELY ACTIVITIES TO OUTSOURCE Customer Service Bookkeeping/Financial/Clerical Sales/Telemarketing

Software Programming Mailroom

OUTSOURCING DISADVANTAGES:

CUSTOMER COMPLAINTS & UNEXPECTED DELAYS LOCKED INTO LONG-TERM CONTRACTS THAT ARENT COMPETITIVE THE FIRM DOESNT LEARN NEW SKILLS & DEVELOP CORE COMPETENCIES

A SURVEY OF 129 OUTSOURCING FIRMS

Half of the projects undertaken failed to achieve the anticipated savings

Software produced in India had 10% more bugs than comparable US projects

SEVEN MAJOR OUTSOURCING ERRORS

Outsourcing activities that shouldnt be outsourced Failed to keep core activities in-house

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Selecting the wrong vendor Picked a vendor that wasnt trustworthy, or who lacks state-of-the art processes

Writing a poor contract Balance of power favors the vendorlocked in over a long period of time

Overlooking personnel issuesmy area of expertise was outsourced!

Losing Control over the Outsourced ActivityWere at their mercy! Overlooking the hidden costs ofoutsourcingTransaction fees? Failing to plan an exit strategyHow can we reverse out of this deal?

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MEANING AND DEFINITION OF RURAL MARKETINGThe term rural marketing used to be an umbrella term for the people who dealt with ruralpeople in one way or other. This term got a separate meaning and importance after the economicrevaluation in Indian after 1990. So, before venturing into the other aspects of rural marketing letus discuss the development of this area in different parts which is briefly explained here.

Part I (Before 1960): Rural marketing referred to selling of rural products in rural and urbanareas and agricultural inputs in rural markets. It was treated as synonymous to agriculturalmarketing. Agricultural produces like food grains and industrial inputs like cotton, oil seeds,sugarcane etc. occupied the central place of discussion during this period.

Part II (1960 to 1990): In this era, green revolution resulted from scientific farming andtransferred many of the poor villages into prosperous business centers. As a result, the demandfor agricultural inputs went up especially in terms of wheats and paddies. Better irrigationfacilities, soil testing, use of high yield variety seeds, fertilizers, pesticides and deployment ofmachinery like powder tillers, harvesters, threshers etc. changed the rural scenario. In thiscontext, marketing of agricultural inputs took the importance. Two separate areas of activities

had emerged- during this period marketing of agricultural inputs and the conventionalAgricultural Marketing.

Part III (After Mid 1990s): The products which were not given attention so far during the twoearlier phases were that of marketing of household consumables and durables to the ruralmarkets due to obvious reasons. The economic conditions of the country were as such that therural people were not in a position to buy these kinds of products. Secondly, our market was in aclose shape and we newer allowed companies (foreign) to operate in Indian market. Ruralmarketing represented the emergent distinct activity of attracting and serving rural markets tofulfill the needs and wants of persons, households and occupations of rural people. As a result ofthe above analysis, we are in a position to define rural marketing Rural marketing can be seen

as a function which manages all those activities involved in assessing, stimulating and convertingthe purchasing power into an effective demand for specific products and services, and movingthem to the people in rural area to create satisfaction and a standard of living for them andthereby achieves the goals of the organization.

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NATURE AND CHARACTERISTICS OF RURAL MARKETThere goes a saying that the proof of the pudding lies in the eating.So also the proof of all production lies in consumption/marketing. With the rapid pace oftechnological improvement and increase in peoples buying capacity, more and better goods andservices now are in continuous demand. The liberalization and globalization of the Indian

economy have given an added advantage to sophisticated production, proliferation and massdistribution of goods and services. In terms of the number of people, the Indian rural market isalmost twice as large as the entire market of the USA or that of the USSR. Agriculture is main source of income. The income is seasonal in nature. It is fluctuating also as it depends on crop production. Though large, the rural market is geographically scattered. It shows linguistic, religious and cultural diversities and economic disparities. The market is undeveloped, as the people who constitute it still lack adequate purchasingpower. It is largely agricultural oriented, with poor standard of living, low-per capital income, andsocio-cultural backwardness.

It exhibits sharper and varied regional preferences with distinct predilections, habit patterns andbehaviorual characteristics. Rural marketing process is both a catalyst as well as an outcome of the general ruraldevelopment process. Initiation and management of social and economic change in the ruralsector is the core of the rural marketing process. It becomes in this process both benefactor andbeneficiary.

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SIGNIFICANCE OF THE RURAL MARKETSIf you meet a sales executive today and ask which market he would prefer to serve, theimmediate answer would be, Rural Markets as they are still unexploited. A number of factorshave been recognized as responsible for the rural market boom. Some of them are:1. Increase in population, and hence increase in demand. The rural population in 1971 was 43.80

crores, which increased to 50.20 crores in 1981, 60.21 crores in 1991 and 66.0 crores in 2001.2. A marked increase in the rural income due to agrarian prosperity.3. Large inflow of investment for rural development programmes from government and othersources.4. Increased contact of rural people with their urban counterparts due to development of transportand a wide communication network.5. Increase in literacy and educational level among rural folks, and the resultant inclination tolead sophisticated lives.6. Inflow of foreign remittances and foreign made goods in rural areas.7. Changes in the land tenure system causing a structural change in the ownership pattern andconsequent changes in the buying behaviour.

FACTORS CONTRIBUTING TO THE CHANGE IN THE RURALMARKET

Green revolutionThe substantial attention accorded to agriculture during the successive five-year plans has helpedin improving agricultural productivity. Adoption of new agronomic practices, selectivemechanisation, multiple cropping, inclusion of cash crops and development of allied activitieslike dairy, fisheries and other commercial activities have helped in increasing disposable incomeof rural consumers. Over 75 percent villages in India have been electrified. There is also a shiftfrom rain dependence to irrigation. Farmers are getting high return for their cash and food crops.In the whole process, the dependence on seasonality has reduced, and in return there has beenincreasing disposable income. By observing this scenario, Indias one ofthe biggest giant

Hindustan Lever Ltd. has entered into rural market for more penetration through the operationBharat. Since December 1999,HLL has reached out to 35,000 villages, 22 million households and spentRs. 20 crore. This has been one of the largest sampling exercises in recent times conducted by abig business house.

Emerging Role of Bio-Tech. in Indian Agriculture SectorIt is evident from the facts that Indian agriculture is trailing in terms of yield when comparedwith leading countries of the world.Countries like USA, Canada, Israel and Germany have achieved high yield in agricultureproduction but countries like India, Brazil and Nigeria are having agriculture yield much lowerthan international average. The major difference created in this respect is the use of the

applications of bio-technology.

Rural communicationAround 50 percent of the villages are today connected by all weather roads and can be accessedthroughout the year. But there are states, which are almost 100 percent connected with the metalroads. Networking besides enhancing the mobility of rural consumers has increased theirexposure to products and services.

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Development programmesThe five-year plans have witnessed massive investments in rural areas in terms of number ofdevelopment programmes implemented by the central and state Government. These programmeshave generated incomes to ruralites and helped them to change their life-styles. Some of these

programmes are: Intensive Agricultural District Programme (IADP- Package Programme) Intensive Agricultural Area Programme (IAAP) High Yielding Varieties Programme (HYVP- Green Revolution) Drought Prone Areas Programme (DPAP) Small Farmers Development Agency (SFDA) Hill Area Development Programme Operation Flood I, II and III (White Revolution) Fisheries Development (Blue Revolution) Integrated Rural Development Programme (IRDP) Jawahar Rojgar Yojna (JRY).

PROBLEMS IN RURAL MARKETINGThere are many problems to be tackled in rural marketing, despite rapid strides in thedevelopment of the rural sector. Some of the common problems are discussed below:

Transportation: Transportation is an important aspect in the process of movement of productsfrom urban production centers to remote villages. The transportation infrastructure is extremelypoor in rural India. Due to this reason, most of the villages are not accessible to the marketingman.Communication: Marketing communication in rural markets suffers from a variety of

constraints. The literacy rate among the rural consumers is very low. Print media, therefore, havelimited scope in the rural context. Apart from low levels of literacy, the tradition-bound nature ofrural people, their cultural barriers and their overall economic backwardness add to thedifficulties of the communication task.

Availability of appropriate media: It has been estimated that all organized media in the countryput together can reach only 30 per cent of the rural population of India. The print media coversonly 18 per cent of the rural population. The radio network, in theory, covers 90 per cent.But, actual listenership is much less. TV is popular, and is an ideal medium for communicatingwith the rural masses.

Warehousing: A storage function is necessary because production and consumption cyclesrarely match. Many agricultural commodities are produced seasonally, whereas demand for themis continuous. The storage function overcomes discrepancies in desired quantities and timing. Inwarehousing too, there are special problems in the rural context.

Rural markets and sales management: Rural marketing involves a greater amount of personalselling effort compared to urban marketing.

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The rural salesman must also be able to guide the rural customers in the choice of the products. Ithas been observed that rural salesmen do not properly motivate rural consumers.

Inadequate banking and credit facilities: In rural markets, distribution is also handicapped dueto lack of adequate banking and credit facilities. The rural outlets require banking support to

enable remittances, to get replenishment of stocks, to facilitate credit transactions in general, andto obtain credit support from the bank.

Market segmentation in rural markets: Market segmentation is the process of dividing thetotal market into a number of sub-markets.The heterogeneous market is broken up into a numberof relatively homogeneous units. Market segmentation is as important in rural marketing as it isin urban marketing. Most firms assume that rural markets are homogeneous. It is unwise on thepart of these firms to assume that the rural market can be served with the same product, price andpromotion combination.

Branding: The brand is the surest means of conveying quality to rural consumers. Day by day,

though national brands are getting popular, local brands are also playing a significant role inrural areas.This may be due to illiteracy, ignorance and low purchasing power of rural consumers. It hasbeen observed that there is greater dissatisfaction among the rural consumers with regard toselling of low quality duplicate brands, particularly soaps, creams, clothes, etc. whose prices areoften half of those of national brands, but sold at prices on par or slightly les than the prices ofnational brands. Local brands are becoming popular in rural markets in spite of their lowerquality.

Packaging: As far as packaging is concerned, as a general rule, smaller packages are morepopular in the rural areas. At present, all essential products are not available in villages in smallerpackaging. The lower income group consumers are not able to purchase large and medium sizepackaged goods. It is also found that the labeling on the package is not in the local language.This is a major constraint to rural consumers understanding the product characteristics.

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Strategies regarding product positioning:

Product positioning plays a very crucial role. Marketer has to position their products afterunderstanding the unique characteristics of the rural market en