Chapter 2 Business Strategy

2.
Business Strategy:
An Introduction to Market
Driven Strategy
Introduction to Business
Strategy
Business strategy can be defined as long-term organizational
policies that a company forms in order to do business.

To succeed, different business organizations formulate and
adopt various business policies.
Basis of Policies Formulations:
type of industry, choice of product, expansion or contraction
of production from one line of product to another line,

adoption of new technology, launching of new products,
managing employees with new type of employment contract.
Two Approaches to Business Strategy

a) Market Driven Strategy,
b) Resource Driven Strategy.
A)MARKET DRIVEN STRATEGY: it suggests that much of the
differences in performance between 2 firms in on account of
their doing business in different industries.
- each industries have their own characteristics; like
Industry with high entry barrier & low dependency on monopoly
supplier or on few large customer are likely to provide more ROI.
Low entry barrier with superior profit will attract more new
players.
How Barriers can be created by an organisation?
On other hand with few supplier & more buyer decrease
Profitability of an org.
A business org. always face competition from their competitors.

BUSINESS COMPETES IN 2 MARKETS:
A)Product Market,
B)Factor Market
All organizations keep their watch on their competitors move
and on the basis of it they make their reactive strategies.
At conceptual level, strategic planning may be considered as a
sseries of decisions with respect to
- what goods to produce inside, what goods to buy from
outside, which market to choose to sale its
manufactured goods???
Organization will have many alternatives for each of these
decisions.
Ex: Entrepreneur who want to do start business of Cycle.
Organization strategy is also affected by many industrial
& environmental factors.
FORMULATION OF MARKET
DRIVEN STRATEGY
As we have seen the different factors influencing business org.

When a company goes by Market Driven Strategy it takes these
environmental forces as given & tries to adopt a policy to maximize its
business goal.
This approach assumes that one single player cannot change
environmental set up.
These environmental forces provides 100s of opportunities, it should
choose its business product line in such a way that their effects are
minimal.
1st Task organization has to do is Carry out their SWOT ANALYSIS
5 Stages to Formulate
Strategy
1. Understanding company Vision,
Mission, and objectives.
2. Analyzing the environmental factors.
3. Identifying company competitiveness
positions.
4. Assessing company capabilities.
5. Examining the strategic options
available.
1. Understanding company Vision, Mission, and Objectives:

Organizational VISION express the companys
Long-Term Goal.
Companys MISSION Statements provides the
purpose for which it exists & what it would like to
do in future.
it will also give the restrictive criteria of their
operations.
It also reflects Short & Long term objectives in both
quantitative & qualitative terms, and sometime it
also highlights Philosophy & Value System.
Companys OBJETIVES sets a general guidelines to
its managers & other employees as to how they
should work & what they should work for to reach
its long-term action
2. Analyzing Environmental
Factors
Environmental Scanning is most critical stage in strategic
planning process of an orgn.

There are many agents / environ. Factors which affect
company.
How this changes occurred in these factors can not be
judged
&
No
orgn.
has
much
control
over
the
environmental factors.
Due to lack of Control, most of business considered
them as opportunity or threats.

It require knowledge about it & provide to allocate org.
resources.
2.1 Steps of Environmental Scanning
a. Auditing of Environmental Influences: Listing out

forces & their strengths / degree that affects business.
b. Identify & Understand dynamism or volatility of

the forces.
c. Mapping
the
Structure
competitors in industry.
of
Industry:
position
of
A. Auditing of Environmental
Influences:
There are 4 institutional forces of environment but they may be

sub categories.
But all these factors will not equally import ants for all companies.
EX: A bicycle manufacturing company, regulatory forces not that
much
critical,
but
it
will
be
more
critical
to
chemical
&
Pharmaceutical industry.
So as an business you have to identify important environmental
forces which affects business org.
HOW BUSINESS CAN IDENTIFY THOSE FACTORS?????
Orgn. Can identify by way of relates/interaction with such factors.
EX:
EX if company regularly high low-skilled worker from the market, it
may be quite vulnerable to any change in government regulation
regarding minimum wages for such worker.
B. Identify & Understand

dynamism or volatility of the
forces.
Profit based as well as NGOs, relates with its environment through

various interaction & exchange processes.
This exchange may happen by way of manpower, goods, and service.
Through exchange process which give indication of companys

dependency on particular set of environment influences.
Due to compositions, some forces may change quickly & some may
change slowly.
EX: change in societal expectation on orgn will change the way of hiring,
voluntary turnover, or firing process.
EX: an org. which has strong link with capital market is likely to sensitive
to any change in gov. policy of money supply & interest rates.
To understand dynamism of the forces, one should list

out the linkage between org. & its environment along with their
time dependency.
Another Important to understand it is that.

- a strategy of Doing Nothing may run strategy than a
costly strategic exercise.
- Unstable Environment may get lot of infromation which are
useful for short period only..
C. Mapping industry Structure:
Apart from institutional factors, competitors and collaborators

are to be considered as a force that company should think
when formulating any strategic plan.
Thus, the structure of an industry & nature of the competitors

be considered when making strategic plans.
Immediate environmental factors have direct & strong effect on

profitability & long run growth of a firm.
We learn Porters Five Force Model to Understand the

Structure of Industry OR Industry analysis.
i) Threats Of Entry:
How easy is it for a new player to enter my business

space?
If these entry barriers are low, than what

consequences???
Entry barrier is must to for continuous high profitability of an industry.
Entry Barriers are of various kinds:

- Regulatory forces: Small scale sector & no private player in defense business.
- Large size of Plant & Distribution of orgn.: Automobile & petroleum
Refineries.
- Requirement of large financial capital: Tata Nano invest 1500 cores.
- Proprietary right over mineral deposits; technology:

Office, Intel.
Microsoft over MS
ii) Power of suppliers:

Big orgn. Relies on many other org. for supply of raw materials & parts &
components needed to manufacture final products.
Availability of steady raw materials is essential requirement for long term
success of company.
Mere availability of technology will not ensure the
continuous operations.
When a manufacturer buys a lot its manufacturing requirements from a single
supplier it can be vulnerable to suppliers strategic moves or failures.
So, many org. go for multiple suppliers.
Knowing buyers dependency, a supplier may raise the cost of raw materials
OR they will start its business by way of forward integration. EX: Gionee
Mobile Manufacturer.
Example: In 2006, Steal Authority of India (SAIL) went for acquiring coal
mines overseas because it wanted to insulate itself from the irregular coal
supply from Coal India.
iii) Power of Buyers:

When a large part of a companys output is sold to only one or a few
buyers, it can be vulnerable to strategic intents of the buyers.
EX: if you build infrastructure & distribution network according to
buyer needs than it can not change.
Examples:
a) NTPC sells a lot of its power outputs to State Electricity Boards (SEB).
But most SEBs are poor pay masters. SEBs sickness was affecting the
health of NTPC quite badly.
b)
Burn Standard and Company Ltd, Braithewaite and Co Ltd and

Jessop Construction Ltd were faithful suppliers of wagons to Indian
Railway for many years. After economic liberalization, Indian Railway
went for more diversified suppliers that led to sickness of those loyal
wagon suppliers of 1960s and 1970s!
iv) Threats of Substitutes:

How easy is it for an existing competitor to come out with a
substitute product that you have just launched as a new
innovation?
Example:
During the later part of last century Indian pharmaceutical industry had
lots of medicinal formulations with very similar therapeutic values. This
affected serious investment in development of drugs in India.
What will be the prospect Consequences on

our business if you will find the substitute
products for our business?
V) Rivalry among existing

players
How many players are operating in the industry and how keenly
are they watching each other?
High rivalry among the players will make them to go for

excessive expenditure on product promotion and customer
relations raising to their annual operating cost which
ultimately is likely to cut into their actual profits.
EX: Media war between coke & Pepsi.
Promotional Policy adopted by HUL & PG.
A new Entrepreneur could just stop at this stage to make
its strategic policy.
3.
Identifying
Competitive Position:
Company
Environ. Scanning needs to be done before deciding in

which industry one should do business.
Environmental Scanning provides static analysis about
companies position in industry.
industry
2 angles are available to check market position of an
organization:
- how total market size of a product is changing with time,
- which group of products it belongs to.
Total market share for product will be different for
different Product Life Cycle Stage
2nd Way of Doing Analysis is STRATEGIC GROUP
ANALYSIS
4. Assessing Company
Capabilities:
Knowing competitive position of firm will provide an idea about
kind of opportunities & threats a new entrepreneur is likely to
face.
These opportunities will only captured only and only when
organization poses certain internal capabilities, functional
strengths, strengths & weakness.
Organizational Capability Analysis is the assessment of
this internal resource strengths of a company.
3 Techniques are their to do it:

a) Resource Positions
b) Company Internal Value Chain
c) Efficiency in Resource Allocation or product Portfolio Analysis
a) Resource Positions
It means getting an idea about the stock & verities of resources available with
company.
These resources are classified in to 2 categories:
Tangible Resources &
Intangible Resources of an organization.

Intangible Assets can not be quantified as tangible assets.
Intangible Assets may further classified in : Human and Non-Human
resources.
Human Resources are: KSAs of Employees, a skilled inventory can be
built using the employees work, academic, training background, and HRIS can
be used.
Non-Human Resources are: company work culture, good will, brand name,
patents.
This intangible assets require to sustain in the competitive environment.
B) Company Internal Value

Chain
c) Efficiency in Resource
Allocation or Product
portfolio Analysis
5. Examining the Strategic

Options Available
Cost Leadership:
When product from all manufacturers appear same to the
customers, then every manufacturer will try to capture the market
by selling at the lowest cost.
Example: primary education, basic banking

or health care service for common citizens.
In 2006, there was craze among Indian Cement manufacturers for

captive power plant because power from state grid cost Rs 3.5 to
Rs 4.5 per KWH while that from captive
Differentiation:
When the product has many special characteristics, a
manufacturer
may
try
to
do
business
with
those
customers who like those characteristics more than other

characteristics.
Example:
Maruti, Indica and Honda City are all cars but Maruti
is known for its fuel efficiency, Indica is known for its
suspension and Honda City is known for its looks!
And, there are different people who prefer these
characteristics of a car.
Focus:
Instead
of
segmenting
the
total
market
based
on
product
characteristics, this strategy is based on segmentation of the product

market based on geography location, customer income, education,
industry etc. A manufacturer will do business in one of the other
market.
Example: Newspapers in Kolkata

There are English papers The Telegraph, The Statesman, the Times of
India and a few others;

Then
there are Bengali newspapers e.g. Anandabazar Patrika,
Barthaman, Satyayug then there are Hindi news papers e.g. Sanmarg.
Do you think all of them give the same headline for their respective
papers? Most likely not. They are different because they are catering
to the news appetite of different markets.
Key learning
Product markets are heterogeneous. Different companies

choose to do their businesses in different product markets.
Different product markets can be broadly classified into

different industries.
Profitability of an industry depend on presence of entry
barrier, power of suppliers, power of buyers, threat of
substitutes and rivalry among the existing players.
A business organizations may choose to adopt any one of the
three generic strategies viz. cost leadership, differentiation
and focus.

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2.

policies that a company forms in order to do business.

of production from one line of product to another line,

Two Approaches to Business Strategy

A business org. always face competition from their competitors.

As we have seen the different factors influencing business org.

1. Understanding company Vision, Mission, and Objectives:

Environmental Scanning is most critical stage in strategic

planning process of an orgn.

them as opportunity or threats.

2.1 Steps of Environmental Scanning

a. Auditing of Environmental Influences: Listing out

b. Identify & Understand dynamism or volatility of

There are 4 institutional forces of environment but they may be

B. Identify & Understand

Profit based as well as NGOs, relates with its environment through

This exchange may happen by way of manpower, goods, and service.

Through exchange process which give indication of companys

To understand dynamism of the forces, one should list

Another Important to understand it is that.

C. Mapping industry Structure:

Apart from institutional factors, competitors and collaborators

Thus, the structure of an industry & nature of the competitors

Immediate environmental factors have direct & strong effect on

We learn Porters Five Force Model to Understand the

How easy is it for a new player to enter my business

If these entry barriers are low, than what

Entry barrier is must to for continuous high profitability of an industry.

Entry Barriers are of various kinds:

- Proprietary right over mineral deposits; technology:

ii) Power of suppliers:

Mere availability of technology will not ensure the

iii) Power of Buyers:

Burn Standard and Company Ltd, Braithewaite and Co Ltd and

iv) Threats of Substitutes:

What will be the prospect Consequences on

V) Rivalry among existing

High rivalry among the players will make them to go for

Environ. Scanning needs to be done before deciding in

3 Techniques are their to do it:

Tangible Resources &

Intangible Resources of an organization.

B) Company Internal Value

5. Examining the Strategic

Example: primary education, basic banking

In 2006, there was craze among Indian Cement manufacturers for

customers who like those characteristics more than other

characteristics, this strategy is based on segmentation of the product

Example: Newspapers in Kolkata

India and a few others;

there are Bengali newspapers e.g. Anandabazar Patrika,

Product markets are heterogeneous. Different companies

Different product markets can be broadly classified into

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