1 (a)Introduction

8/6/2019 1 (a)Introduction

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Business Terms &Business Terms &

ConceptsConcepts


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Some Basic DefinitionsSome Basic Definitions

AnAn organizationorganization is a group of people within someis a group of people within somestructure who possess a common objective, usuallystructure who possess a common objective, usuallyexpressed in a mission statement.expressed in a mission statement. Organizations may be:Organizations may be:

for profitfor profit notnot--forfor--profitprofit

AA marketmarket is a place (real or virtual) where potentialis a place (real or virtual) where potentialsellers and buyers meet to exchange resources (whichsellers and buyers meet to exchange resources (whichmay be money, products, services, etc.).may be money, products, services, etc.).

AnAn industryindustry is a group of organizations competing in ais a group of organizations competing in apredefined market under similar bases of competitionpredefined market under similar bases of competition


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Organization and EnvironmentOrganization and Environment

An organization operates within anAn organization operates within an

environment that is in a constant state ofenvironment that is in a constant state of

changechange Too often we hear of change and itsToo often we hear of change and its

effects, but exactly what can change?effects, but exactly what can change?


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Global

The General

Environment

The Organization and ItsThe Organization and Its

EnvironmentEnvironment

Figure 3-4Management (5th ed.)

Robbinsand CoulterPrentice Hall

SuppliersPublic

pressuregroups

Government

Competitors

Customers

The SpecificEnvironment

The

Organization


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Objective(s) of the FirmObjective(s) of the Firm

What is the objective of the firm?What is the objective of the firm?

Maximize shareholder wealthMaximize shareholder wealth

Generate above average economic rents (profits)Generate above average economic rents (profits)

Shareholder: Someone who holds stockShareholder: Someone who holds stock

(ownership) in the firm.(ownership) in the firm.

StakeholderStakeholder: Anyone who possesses an interest: Anyone who possesses an interestin the firms activities (govt., public pressurein the firms activities (govt., public pressure

groups, alumni, students, etc.)groups, alumni, students, etc.)


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StrategyStrategy

To meet the organizations objective, managersTo meet the organizations objective, managers

craft a strategy. Whats a strategy?craft a strategy. Whats a strategy?

The science of planning and directing largeThe science of planning and directing large--scalescale

operations, of maneuvering forces into the mostoperations, of maneuvering forces into the mostadvantageous position.advantageous position.

A strategy is a plan to deploy scarce resources.A strategy is a plan to deploy scarce resources.

(Simpler)(Simpler)

Levels of strategy:Levels of strategy: Corporate (Portfolio management)Corporate (Portfolio management)

Business (Generate sustainable competitiveBusiness (Generate sustainable competitive

advantage)advantage)

Functional (Support the business level strategy)Functional (Support the business level strategy)


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CorporateCorporate--Level StrategyLevel Strategy

Diversification: the minimization of cash flowDiversification: the minimization of cash flow

variancevariance

IntegrationIntegration

Forward integration (one type of vertical):Forward integration (one type of vertical):

Gaining ownership or increased control over distributors orGaining ownership or increased control over distributors or

retailers Backward integration (the other):retailers Backward integration (the other):

Gaining ownership or increased control over suppliersGaining ownership or increased control over suppliers

Horizontal integrationHorizontal integration Seeking ownership or increased control over competitorsSeeking ownership or increased control over competitors

(Amazon buys BestBookBuys.Com)(Amazon buys BestBookBuys.Com)


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BusinessBusiness--Level StrategyLevel Strategy

The primary objective of businessThe primary objective of business--levellevel

strategy is to create sources of sustainablestrategy is to create sources of sustainable

competitive advantage.competitive advantage.

OK what is sustainable competitiveOK what is sustainable competitive

advantage?advantage?


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General Bases of CompetitionGeneral Bases of Competition

A basis of competition is a dimension uponA basis of competition is a dimension upon

which companies choose to compete, e.g.,which companies choose to compete, e.g.,

PricePrice

QualityQuality

DeliveryDelivery

ServiceService

InnovationInnovation

KnowledgeKnowledge

Others?Others?


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Sustainable CompetitiveSustainable Competitive

AdvantageAdvantageAnAn assetasset is anything the firm owns oris anything the firm owns or

controls.controls.

Types of assets:Types of assets: PhysicalPhysical: plant equipment, location, access to raw: plant equipment, location, access to raw

materialsmaterials

HumanHuman: training, experience, judgment, decision: training, experience, judgment, decision--

making skills, intelligence, relationships, knowledgemaking skills, intelligence, relationships, knowledge OrganizationalOrganizational: Culture, formal reporting structures,: Culture, formal reporting structures,

control systems, coordinating systems, informalcontrol systems, coordinating systems, informal

relationshipsrelationships


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Sustainable CompetitiveSustainable Competitive

AdvantageAdvantage A capability is usually considered a bundle of assets orA capability is usually considered a bundle of assets or

resources to perform a business process (which isresources to perform a business process (which is

composed of individual activities)composed of individual activities)

E.g. The product development process involves product design,E.g. The product development process involves product design,new product launch in production, process debugging, etc.new product launch in production, process debugging, etc.

All firms have capabilities. However, a firm will usuallyAll firms have capabilities. However, a firm will usuallyfocus on certain capabilities consistent with its strategy.focus on certain capabilities consistent with its strategy.

For example, a firm pursuing a differentiation strategy wouldFor example, a firm pursuing a differentiation strategy would

focus on new product development. A firm focusing on a lowfocus on new product development. A firm focusing on a lowcost strategy would focus on improving manufacturing processcost strategy would focus on improving manufacturing processefficiency.efficiency.

The firms most important capabilities are calledThe firms most important capabilities are called

competencies.competencies.


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Competencies vs. CoreCompetencies vs. Core

Competencies vs. DistinctiveCompetencies vs. Distinctive

CompetenciesCompetencies AA competencycompetencyis anis an internal capabilityinternal capability

that a company performsthat a company performs betterbetterthan otherthan otherinternal capabilities.internal capabilities.

AA core competencycore competencyis a wellis a well--performedperformedinternal capability that isinternal capability that is centralcentral,, notnotperipheral, to a companysperipheral, to a companys strategy,strategy,competitiveness, and profitabilitycompetitiveness, and profitability..

AA distinctive competencedistinctive competence is ais acompetitively valuable capabilitycompetitively valuable capabilitythat athat acompanycompanyperforms better than its rivalsperforms better than its rivals..


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Where are we?Where are we?

We are discussing sustainable competitiveWe are discussing sustainable competitiveadvantage. Here we are now:advantage. Here we are now:

AssetsAssetsCapabilitiesCapabilitiesCompetenciesCompetenciesCompetitive AdvantageCompetitive Advantage

Next is competitive advantage.Next is competitive advantage. A competitive advantage is simply an advantage youA competitive advantage is simply an advantage you

have over your competitors.have over your competitors.

A competitive advantage is a special type ofA competitive advantage is a special type ofcompetency that will produce competitive advantagecompetency that will produce competitive advantage

provided:provided:A) it producesvalue forthe organization,andA) it producesvalue forthe organization,and

B) it doesthis inawaythat cannot easilybe pursued byB) it doesthis inawaythat cannot easilybe pursued bycompetitorscompetitors..


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BUSINESSENVIRONMENTANDBUSINESSENVIRONMENTANDCOMPETITIONANALYSISCOMPETITIONANALYSIS

CONTINUOUSLY CHANGING BUSINESSCONTINUOUSLY CHANGING BUSINESS

ENVIRONMENT.ENVIRONMENT.

TO HAVE A COMPETITIVE ADVANTAGE: ATO HAVE A COMPETITIVE ADVANTAGE: A

NEWNEW MANTRAMANTRA FOR INDIAN COMPANIESFOR INDIAN COMPANIES


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BUSINESS ENVIRONMENT ISBUSINESS ENVIRONMENT ISDYNAMICDYNAMIC

ITS ELEMENTS ALWAYS KEEP ONITS ELEMENTS ALWAYS KEEP ON

CHANGINGCHANGING


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BUSINESS ENVIRONMENTBUSINESS ENVIRONMENT

WHY IT IS ESSENTIAL FOR A BUSINESSWHY IT IS ESSENTIAL FOR A BUSINESSENTERPRISE?ENTERPRISE?


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WHAT ISBUSINESSWHAT ISBUSINESS

ENVIRONMENT?ENVIRONMENT?ITISDEFINED ASTHEPROCESSBY WHICHTHEITISDEFINED ASTHEPROCESSBY WHICHTHESTRATEGISTSMONITORSTRATEGISTSMONITOR

oo ECONOMICECONOMIC

oo GOVERNMENTALGOVERNMENTALoo LEGALLEGAL

oo MARKETINGMARKETING

oo COMPETITIVECOMPETITIVE

oo TECHNOLOGICALTECHNOLOGICAL

oo SOCIAL SETTINGSSOCIAL SETTINGS

TODETERMINEOPPORTUNITIESANDTHREATSTODETERMINEOPPORTUNITIESANDTHREATSTOTHEIRENTERPRISESTOTHEIRENTERPRISES


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SWOTANALYSISSWOTANALYSIS

EVERY ENTERPRISE MUSTUNDERTAKE SWOTSWOTTO ANALYZ

BUSINESS ENVIRONMEMT


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PROSPECTSPROSPECTSFOR A BUSINESS IS AFOR A BUSINESS IS A

FUNCTION OFFUNCTION OF

RESOURCESRESOURCES

AND AN ANALYSIS OF BUSINESSAND AN ANALYSIS OF BUSINESSENVIRONMENTENVIRONMENT


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EXTERNAL FACTORS ARE BEYOND THEEXTERNAL FACTORS ARE BEYOND THE

CONTROL OF THE BUSINESS ENTERPRISECONTROL OF THE BUSINESS ENTERPRISE

ITSITSSUCCESSSUCCESSDEPENDS ON ITSDEPENDS ON ITS

ADAPTABILITY TO THE EXTERNALADAPTABILITY TO THE EXTERNAL

ENVIRONMENT THAT IS ITS ABILITYENVIRONMENT THAT IS ITS ABILITY

TO PROPERLY DESIGN AND ADJUSTTO PROPERLY DESIGN AND ADJUST

INTERNAL FACTORS AND TAKEINTERNAL FACTORS AND TAKE

ADVANTAGE OF THESEADVANTAGE OF THESE

OPPORTUNITIES AND COMBAT THEOPPORTUNITIES AND COMBAT THETHREATS IN THE EXTERNALTHREATS IN THE EXTERNAL

ENVIRONMENTENVIRONMENT


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EVERY BUSINESS IS CONFRONTEDEVERY BUSINESS IS CONFRONTED

WITHWITH

CONTROLLABLE FACTORSCONTROLLABLE FACTORS

( INTERNAL FACTORS)( INTERNAL FACTORS)

UNCONTROLLABLE FACTORSUNCONTROLLABLE FACTORS

(EXTERNAL FACTORS)(EXTERNAL FACTORS)


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FACTORSINFLUENCINGFACTORSINFLUENCING

BUSINESSENVIRONMENTBUSINESSENVIRONMENT

MACRO FACTORSMACRO FACTORS

MICRO FACTORSMICRO FACTORS


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DEMOGRAPHIC ENVIRONMENTDEMOGRAPHIC ENVIRONMENT

TECHNOLOGICAL ENVIRONMENTTECHNOLOGICAL ENVIRONMENT

INTERNATIONAL ENVIRONMENTINTERNATIONAL ENVIRONMENT


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MICRO FACTORSMICRO FACTORS

SUPPLIERSSUPPLIERS

CONSUMERSCONSUMERS

COMPETITIONCOMPETITIONMARKETINGINTERMEDIARIESMARKETINGINTERMEDIARIES

MEDIAMEDIA


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BUSINESS ENVIRONMENT:BUSINESS ENVIRONMENT:

AN EMERGINGS

CENARIOAN EMERGINGS

CENARIO GLOBALGLOBAL

POLITICAL AND ECONOMIC ENVIRONMENTPOLITICAL AND ECONOMIC ENVIRONMENT

NATIONALNATIONAL

REGIONAL ECONOMIC GROUPINGSREGIONAL ECONOMIC GROUPINGS

GOVT. SUPPORT,GOVT. SUPPORT,

ECONOMIC AND COMPETITIVE ENVIRONMENTECONOMIC AND COMPETITIVE ENVIRONMENT

DEMOGRAPHIC AND SOCIAL ENVIRONMENTDEMOGRAPHIC AND SOCIAL ENVIRONMENT

EMERGENCE OF RURAL MARKETS TEMERGENCE OF RURAL MARKETS T


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EMERGINGTRENDSEMERGINGTRENDS

WITH GROWING COMPETITION,WITH GROWING COMPETITION,PRODUCT DIFFERENTIATION WOULDPRODUCT DIFFERENTIATION WOULDBECOME MORE IMPORTANTBECOME MORE IMPORTANT

GROWING COMPETITION WILLGROWING COMPETITION WILLINCREASE THE IMPORTANCE OFINCREASE THE IMPORTANCE OFAUGMENTEDAUGMENTED PRODUCTPRODUCT


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MORE ATTENTION TO THE PRODUCTMORE ATTENTION TO THE PRODUCT

QUALITY AND SERVICING BY THEQUALITY AND SERVICING BY THE

COMPANIES.COMPANIES.

MORE DIRECT MARKETINGMORE DIRECT MARKETING

SOCIETAL MARKETING WOULD GAINSOCIETAL MARKETING WOULD GAIN

IMPORTANCEIMPORTANCE


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ABUNDANT ENTREPRENEURIAL CHANCES

ABUNDANT ENTREPRENEURIAL CHANCES

THROUGH FAST GROWINGTHROUGH FAST GROWING SERVICESSERVICESSECTORSECTOR

VARIETY OF PRODUCTS AND PRODUCTVARIETY OF PRODUCTS AND PRODUCTAVAILABILITY WILL SIGNIFICANTLY INCREASE,AVAILABILITY WILL SIGNIFICANTLY INCREASE,SUBSTANTIALLY INCREASING THESUBSTANTIALLY INCREASING THE CONSUMERCONSUMER

CHOICECHOICE INDIAN BUSINESSESSHALL BECOME MOREINDIAN BUSINESSESSHALL BECOME MOREINTEGRATEDINTEGRATED WITH THE GLOBAL BUSINESSESWITH THE GLOBAL BUSINESSES


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POORPOORCOMPANIESCOMPANIESIGNOREIGNORE

COMPETITIONCOMPETITION


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AVERAGE FIRMSAVERAGE FIRMS

FOLLOWFOLLOW

THEIRTHEIRCOMPETITORSCOMPETITORS


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TO DEFEND AND INCREASE THETO DEFEND AND INCREASE THE

MARKET

VAL

UEMARKET

VAL

UE, THE COMPANIE

SIN, THE COMPANIE

SININDIAINDIA

MUS

T PROVE THAT THEY CANMUS

T PROVE THAT THEY CANGRO

WGRO

WPROFITABLYPROFITABLY


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WHAT IS THE BASIS FORWHAT IS THE BASIS FOR COMPETITION?COMPETITION?

IN A NETWORKED AND GLOBALIZED WORLDIN A NETWORKED AND GLOBALIZED WORLD

CREATIONCREATION

AND APPLICATIONOFKNOWLEDGEAND APPLICATIONOFKNOWLEDGE

ARE OF PRIME IMPORTANCEARE OF PRIME IMPORTANCE CREATIONCREATIONANDANDAPPLICATIONAPPLICATIONOFOF

KNOWLEDGE ARE PROCESSES DRIVEN BYKNOWLEDGE ARE PROCESSES DRIVEN BY

HUMANCAPITALHUMANCAPITAL


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TO ENSURE COMPETITIVE ADVANTAGE INTO ENSURE COMPETITIVE ADVANTAGE IN

THEIR BUS

INESS

OPERATIONS

ON ATHEIR BUS

INESS

OPERATIONS

ON A LONG

LONG

TERMTERMBASISBASIS

THE COMPANIES MUST LOOK TO BUILD NEWTHE COMPANIES MUST LOOK TO BUILD NEWCAPABILITIES THAT CAN POSITION THEMCAPABILITIES THAT CAN POSITION THEM

ASASWINNERSWINNERS


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WHATARETHECAPABILITIES?WHATARETHECAPABILITIES?

OPERATIONAL

SKILLS

PRIVILEGED

ASSETS SPECIAL

RELATIONSHIPS

GROWTH

ENABLING

SKILLS

CAPABILITIESCAPABILITIES


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OPERATIONAL SKILLSOPERATIONAL SKILLS

REFER TO COMPANYS ABILITY TOREFER TO COMPANYS ABILITY TO

OUTDO ITS

COMPETITORS

INOUTDO ITS

COMPETITORS

INACTIVITIESACTIVITIESCRITICALCRITICAL TO SUCCESS INTO SUCCESS IN

INDUSTRYINDUSTRY


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EXAMPLES:EXAMPLES:

R&DR&D

SUPERIORPRODUCTDESIGNSUPERIORPRODUCTDESIGN LOW COSTMANUFACTURINGLOW COSTMANUFACTURING

/SOURCING/SOURCING

DISTRIBUTIONDISTRIBUTION

BRANDMANAGEMENTBRANDMANAGEMENT SUPPLY CHAINMANAGEMENTSUPPLY CHAINMANAGEMENT

LOGISTICSLOGISTICS


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PRIVILEGEDASSETSPRIVILEGEDASSETS

ARE PHYSICAL OR INTANGIBLE ASSETSARE PHYSICAL OR INTANGIBLE ASSETSTHAT CONFER COMPETITIVE ADVANTAGETHAT CONFER COMPETITIVE ADVANTAGE

ON THE COMPANY AND HARD TOON THE COMPANY AND HARD TOREPLICATEREPLICATE

INFRASTRUCTUREINFRASTRUCTURE

DISTRIBUTIONNETWORKSDISTRIBUTIONNETWORKS

INTELLECTUAL PROPERTYINTELLECTUAL PROPERTY BRAND ANDREPUTATIONBRAND ANDREPUTATION

CUSTOMERINFORMATIONCUSTOMERINFORMATION


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SPECIAL RELATIONSHIPSSPECIAL RELATIONSHIPS

CAN PROVIDE SPECIAL ACCESS TOCAN PROVIDE SPECIAL ACCESS TONEW MARKETS AND SUPPLEMENT ANNEW MARKETS AND SUPPLEMENT AN

ORGANIZATIONS CAPABILITIES:ORGANIZATIONS CAPABILITIES:


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TO ANALYSE THECOMPETITION THE COMPANY MUSTTO ANALYSE THECOMPETITION THE COMPANY MUST

TAKE THE FOLLOWING STEPSTAKE THE FOLLOWING STEPS

1. ANALYSIS OF COMPETITIVE FORCES

2. IDENTIFY COMPETITORS

3. ANALYZE COMPETITORS

4. DESIGN COMPETITIVE INTELLIGENCE SYSTEM

5. DESIGN COMPETITIVE STRATEGIES


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MARKET

CHALLENGER

MARKET

NICHER


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HYPOTHETICAL MARKETSTRUCTUREHYPOTHETICAL MARKETSTRUCTURE

MARKET LEADERMARKET LEADER

40%40%

MARKET CHALLENGERMARKET CHALLENGER

30%30%

MARKET FOLLOWERMARKET FOLLOWER

20%20%

MARKETNICHERSMARKETNICHERS

10%1

0%

Documents

1 (a)Introduction