BUS489 Strategy For Business

Course Development Team
Head of Programme : Assoc Prof Huong Ha

Course Developer(s) : Prof Sundaram Janakiramanan
Technical Writer : Lynn Lim, ETP
Video Production : Chin Gui Pei & Xavier Woo, PO
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permission in writing from the Educational Technology & Production, Singapore
University of Social Sciences.
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How to cite this Study Guide (APA):

Janakiramanan, S. (2020). BUS489 Strategy for business (study guide). Singapore:
Singapore University of Social Sciences.
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Table of Contents

Table of Contents
Course Guide
1. Welcome.................................................................................................................. CG-2
2. Course Description and Aims............................................................................ CG-3
3. Learning Outcomes.............................................................................................. CG-7
4. Learning Material................................................................................................. CG-8
5. Assessment Overview.......................................................................................... CG-9
6. Course Schedule.................................................................................................. CG-11
7. Learning Mode.................................................................................................... CG-12
Study Unit 1: Introduction to Strategy

Learning Outcomes................................................................................................. SU1-2
Overview................................................................................................................... SU1-3
Chapter 1: Introduction to Strategy...................................................................... SU1-4
Study Unit 2: Environmental Analysis

Overview................................................................................................................... SU2-3
Chapter 2: Environmental Analysis...................................................................... SU2-4
Study Unit 3: Industry Analysis

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Table of Contents
Overview................................................................................................................... SU3-3
Chapter 3: Industry Analysis................................................................................. SU3-4
Study Unit 4: Competitive Analysis

Overview................................................................................................................... SU4-3
Chapter 4: Competitive Analysis.......................................................................... SU4-4
Study Unit 5: Internal and Capabilities Analysis

Overview................................................................................................................... SU5-3
Chapter 5: Internal and Capabilities Analysis.................................................... SU5-4
Study Unit 6: Gathering Strategic Intelligence

Overview................................................................................................................... SU6-3
Chapter 6: Gathering Strategic Intelligence......................................................... SU6-4
Study Unit 7: Corporate Level Strategies

Overview................................................................................................................... SU7-3
Chapter 7: Corporate Level Strategies.................................................................. SU7-4
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Table of Contents
Study Unit 8: Business Level Strategies

Overview................................................................................................................... SU8-3
Chapter 8: Business Level Strategies.................................................................... SU8-4
Study Unit 9: International and Global Strategy

Overview................................................................................................................... SU9-3
Chapter 9: International and Global Strategy..................................................... SU9-4
Study Unit 10: Growth Strategies

Learning Outcomes............................................................................................... SU10-2
Overview................................................................................................................. SU10-3
Chapter 10: Growth Strategies............................................................................. SU10-4
Study Unit 11: Strategy Development

Overview................................................................................................................. SU11-3
Chapter 11: Strategy Development...................................................................... SU11-4
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Table of Contents
Study Unit 12: Strategy Evaluation and Implementation

Overview................................................................................................................. SU12-3
Chapter 12: Strategy Evaluation and Implementation..................................... SU12-4
Conclusion............................................................................................................ SU12-19
iv
List of Lesson Recordings
Study Unit 1 Introduction Part 1............................................................................... SU1-4
Study Unit 1 Introduction Part 2............................................................................... SU1-5
Study Unit 1 Introduction Part 3............................................................................. SU1-10
Study Unit 1 Introduction Part 4............................................................................. SU1-13
Study Unit 2 Environmental Analysis Part 1........................................................... SU2-5
Study Unit 2 Environmental Analysis Part 2......................................................... SU2-10
Study Unit 2 Environmental Analysis Part 3......................................................... SU2-15
Study Unit 3 Industry Analysis Part 1...................................................................... SU3-4
Study Unit 3 Industry Analysis Part 2...................................................................... SU3-7
Study Unit 3 Industry Analysis Part 3.................................................................... SU3-10
Study Unit 4 Competitive Analysis Part 1............................................................... SU4-5
Study Unit 4 Competitive Analysis Part 2............................................................... SU4-8
Study Unit 4 Competitive Analysis Part 3............................................................. SU4-11
Study Unit 5 Internal and Capabilities Analysis Part 1.......................................... SU5-4
Study Unit 5 Internal and Capabilities Analysis Part 2.......................................... SU5-7
Study Unit 5 Internal and Capabilities Analysis Part 3........................................ SU5-12
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Study Unit 5 Internal and Capabilities Analysis Part 4........................................ SU5-15
Study Unit 6 Gathering Strategic Intelligence Part 1.............................................. SU6-4
Study Unit 7 Corporate Level Strategies Part 1....................................................... SU7-4
Study Unit 7 Corporate Level Strategies Part 5..................................................... SU7-11
Study Unit 7 Corporate Level Strategies Part 6..................................................... SU7-13
Study Unit 8 Business Level Strategies Part 1......................................................... SU8-4
Study Unit 8 Business Level Strategies Part 2......................................................... SU8-6
Study Unit 8 Business Level Strategies Part 3........................................................ SU8-10
Study Unit 9 International and Global Strategy Part 1........................................... SU9-4
Study Unit 9 International and Global Strategy Part 2........................................... SU9-8
Study Unit 9 International and Global Strategy Part 3......................................... SU9-10
Study Unit 9 International and Global Strategy Part 4......................................... SU9-12
Study Unit 10 Growth Strategies Part 1.................................................................. SU10-4
vi
Study Unit 10 Growth Strategies Part 2.................................................................. SU10-5
Study Unit 10 Growth Strategies Part 3................................................................ SU10-11
Study Unit 11 Strategy Development Part 1........................................................... SU11-4
Study Unit 11 Strategy Development Part 2........................................................... SU11-9
Study Unit 12 Strategy Evaluation and Implementation Part 1.......................... SU12-4
Study Unit 12 Strategy Evaluation and Implementation Part 2.......................... SU12-7
Study Unit 12 Strategy Evaluation and Implementation Part 3........................ SU12-13
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Course
Guide
Strategy for Business

BUS489 Course Guide
1. Welcome
Presenter: Lam Chen Meng
This streaming video requires Internet connection. Access it via Wi-Fi to

avoid incurring data charges on your personal mobile plan.
Click here to watch the video. i
Welcome to the course BUS489 Strategy for Business, a 10 credit unit (CU) course.
This Study Guide will be your personal learning resource to take you through the course
learning journey. The guide is divided into two main sections – the Course Guide and
Study Units.
The Course Guide describes the structure for the entire course and provides you with an
overview of the Study Units. It serves as a roadmap of the different learning components
within the course. This Course Guide contains important information regarding the
course learning outcomes, learning materials and resources, assessment breakdown and
additional course information.
i
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IntroVideo/BUS489_Intro_Video.mp4
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BUS489 Course Guide
2. Course Description and Aims
BUS489 Strategy for Business aims to provide the students with the analytical,
formulation, and implementation tools related to strategic management of business
organisations. In rapidly changing competitive landscapes, managers must develop the
ability to continuously create new core competencies and directions for the company and
think in a cross-functional and holistic manner. At the same time, they must seek action-
oriented, implementable solutions, align strategies with the firm’s vision and values and
be aware of associated risks.
This course will integrate the concepts covered in previous courses with those learnt in
this course, so that the students can understand and evaluate strategic business issues. The
course trains the students in Strategic Analysis, Choices of Strategy and Implementation
of Strategy.
To achieve this, the course uses case studies that allow students to evaluate real-world
business situations and make decisions.
Course Structure
This course is a 10-credit unit course presented over 12 weeks.
There are Twelve Study Units in this course. The following provides an overview of each
Study Unit.
Study Unit 1 – Introduction to Strategy

The success or failure of any business organisation depends on the strategic responses
undertaken by the management in a changing world. The changes in the environment in
which a company operates, the changing needs of customers, and changes in the strategies
followed by competitors affect the way the business should operate. The management
should consider appropriate strategic responses to these changes taking into account the
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BUS489 Course Guide
internal capabilities within the organisation. This study unit provides an introduction to
strategy and strategy formulation process.
Study Unit 2 – Environmental Analysis

All business organisations operate in a world where there are a number of factors in the
business environment. These factors are usually beyond the control of the management
and changes in these factors can have considerable impact on the performance of the
company. Therefore, it is necessary to identify the environmental factors that will affect the
performance and analyse the impact if there are changes in the environmental factors. The
environmental analysis will lead to the identification of new opportunities and threats that
may have influence on the business. The company can then come up with strategies to take
advantage of the opportunities and mitigate the threats identified in the environmental
analysis.
Study Unit 3 – Industry Analysis
The prospects of a company will depend on the structure of the industry in which it
operates. Industry structure is usually identified through an analysis of Porter’s Five
Forces. It is also necessary to know the possible changes in the industry structure. Industry
life-cycle analysis and analysis of the competitive nature of the industry will provide
inputs to the firm as to how the company can formulate strategies to be competitive in the
industry.
Study Unit 4 – Competitive Analysis

While environmental analysis and industry analysis enable the analyst to identify
opportunities and threats, these are common for all firms in that industry. To form
appropriate strategies, it is necessary to identify the customer group that the firm should
concentrate on and assess the reasons why the customers are using the product. In
addition, it is important to know the current and potential competitors as well as their
strengths and weaknesses. The characteristics of the markets will provide the input
needed to come up with developing key success factors to compete effectively.
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BUS489 Course Guide
Study Unit 5 – Internal and Capabilities Analysis
The opportunities and threats identified through environmental analysis, industry

analysis and competitive analysis can be handled only if the company has the resources,
competencies and capabilities for the same. The resources and competencies can be
assessed through internal analysis while capabilities can be assessed through capabilities
analysis.
Study Unit 6 – Gathering Strategic Intelligence

competencies and capabilities for the same. In order to conduct environmental analysis,
industry analysis, competitive analysis, and internal analysis, it is necessary to identify
the sources from which needed information can be obtained.
Study Unit 7 – Corporate Level Strategies

Corporate level strategies provide the direction for the firm as a whole. This Study Unit
addresses issues in the formulation of corporate strategies. The approaches to corporate
level strategy formulation are also discussed.
Study Unit 8 – Business Level Strategies

In earlier Study Units, it has been shown that environmental analysis, industry
analysis and competitive analysis help in identifying opportunities and threats of the
Strategic Business Units (SBUs) of a corporation. To address these opportunities and
threats, appropriate business level strategies will be needed. Hence, it is important to
formulate appropriate business level strategies that will provide sustainable competitive
advantages.
Study Unit 9 – International and Global Strategy

Increasing globalisation has provided opportunities for companies to expand
internationally. Unless companies form clear strategies when entering into international
market and develop appropriate resources and competencies to compete in these overseas
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BUS489 Course Guide
markets, they will not succeed in their endeavour. In this Study Unit, the various forms
of international strategies are discussed.
Study Unit 10 – Growth Strategies
It is necessary for companies to grow in order to maintain sustainability in the long run.
A company can grow through concentrating on its existing products and markets, or
through creating new products and markets, or via diversification. It can also form blue
ocean strategies.
Study Unit 11 – Strategy Development
In developing strategies, it is important to know the process of strategy development in

the organisation. In some organisations, the strategy will come from top down where the
top management provide the guidelines for strategy, and the strategic planning committee
will develop the appropriate strategy according to the guidelines. In some organisations,
the strategy can also come from the business units based on the opportunities which
will become the organisational strategic direction. This Study Unit discusses the different
approaches to strategy development.
Study Unit 12 – Strategy Evaluation and Implementation
In developing strategy, there may be different options to accomplish the strategy. For
example, differentiation strategy could be based on either quality or distribution channel.
These are called as strategic options or strategic alternatives. Once the strategic options
are developed, it is necessary to find the best strategic option that will fit the needs
and capabilities of the organisation. This requires evaluation of the various strategic
options. After identifying the strategy that is best for the organisation, the next step is to
implement the strategy. The implementation requires that appropriate changes are made
in the organisation, its structure, people, systems and culture.
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BUS489 Course Guide
3. Learning Outcomes
Knowledge & Understanding (Theory Component)
By the end of this course, you should be able to:

1. Examine business issues and evaluate business competitiveness using analysis
techniques that are commonly applied in strategic planning.
2. Evaluate the external factors affecting the business.
3. Appraise the internal factors affecting the business.
4. Formulate business-level strategies.
5. Assess competitive rivalry and predict the likelihood of attack and response.
6. Implement corporate-level strategies.
7. Propose a suitable international strategy to gain entry into the global market.
8. Inspect the implications of cooperative strategies and other strategic options.
9. Analyse different case scenarios.
Key Skills (Practical Component)
By the end of this course, you should be able to:

1. Construct case arguments in teams, acquiring team building and team
management skills.
2. Demonstrate well developed written proficiency
3. Practise oral presentation skills
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BUS489 Course Guide
4. Learning Material
The following is a list of the required learning materials to complete this course.
Required Textbook(s)
. (n.d.).
none
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BUS489 Course Guide
5. Assessment Overview
The overall assessment weighting for this course is as follows:
Assessment Description Weight Allocation
Assignment 1 Pre-course quiz 10%
Assignment 2 Group-Based Assignment 01 18%
Group-Based Assignment 02 18%
TOTAL 100%
The following section provides important information regarding Assessments.
Continuous Assessment:
a. There will be continuous assessment in the form of case analysis and

presentation. The course will be conducted over a semester with six sessions and
structured as follows:
Session 1: Introductory case analysis (not graded)

Session 2: Case Analysis 1 (graded)
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BUS489 Course Guide

Session 6: Case Analysis/Competition 5 (graded)
Passing Mark:
To successfully pass the course, you must obtain a minimum passing mark of 40 percent
for the combined assessments. For detailed information on the Course grading policy,
please refer to The Student Handbook (‘Award of Grades’ section under Assessment and
Examination Regulations). The Student Handbook is available from the Student Portal.
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BUS489 Course Guide
6. Course Schedule
To help monitor your study progress, you should pay special attention to your
Course Schedule. It contains study unit related activities including Assignments, Self-
assessments, etc. Please refer to the Course Timetable in the Student Portal for the updated
Course Schedule.
Note: You should always make it a point to check the Student Portal for any
announcements and latest updates.
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BUS489 Course Guide
7. Learning Mode
The learning process for this course is structured along the following lines of learning:
a. Self-study guided by the study guide units. Independent study will require at
least 3 hours per week.
b. Working on assignments in groups.
c. Classroom Seminar sessions (4 hours each session, 6 sessions in total).
iStudyGuide
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bookmarks, note-taking and highlight sections of the guide.
Interaction with Instructor and Fellow Students
Although flexible learning – learning at your own pace, space and time – is a hallmark
at SUSS, you are encouraged to engage your instructor and fellow students in online
discussion forums. Sharing of ideas through meaningful debates will help broaden your
learning and crystallise your thinking.
Academic Integrity
As a student of SUSS, it is expected that you adhere to the academic standards stipulated
in The Student Handbook, which contains important information regarding academic
policies, academic integrity and course administration. It is necessary that you read and
understand the information stipulated in the Student Handbook, prior to embarking on
the course.
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1
Study
Unit
Introduction to Strategy
BUS489 Introduction to Strategy
Learning Outcomes
At the end of this unit, you are expected to:

• Appraise the role of strategy in a business organisation
• Identify the issues in strategic management
• Distinguish between corporate level strategy and business level strategy
• Differentiate internal analysis and external analysis
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Overview
The success or failure of any business organisation depends on the strategic responses
undertaken by the management in a changing world. The changes in the environment in
which a company operates, the changing needs of customers, changes in the strategies
followed by competitors affect the way the business should operate. The management
should consider appropriate strategic responses to these changes taking into account the
internal capabilities within the organisation. This study unit provides an introduction to
strategy and strategy formulation process.
SU1-3
Chapter 1: Introduction to Strategy
Lesson Recording
Study Unit 1 Introduction Part 1
Pan Am was the leading airline for a long time. It was incorporated in 1927 and was a
pioneer in airline travel defining the service level for all of the airlines and was the first
airline to introduce computer reservation system. However, it filed for bankruptcy in 1991
and was taken over by Delta Airlines.
Ford motor company was the pioneer in developing automobiles. The first car was a basic
model called Model T with black colour and it was a single model for everyone. Currently
Ford is not ranked as number one even in the United States. For that matter, all American
automobiles cater to only about 25% to 30% of the demand by Americans.
Southwest Airlines is the most profitable airline in the world at the current time. While
most of the airlines are struggling to maintain their position, Southwest’s position
is improving. Interestingly, many low cost airlines in Europe and Asia are copying
Southwest Airlines.
Amazon started off with online book shop and expanded to other products that are sold
online. Though it started in USA, it has moved to many other countries and its market
capitalisation has gone beyond that of the leading retailer, Walmart.
These examples show that some companies are able to thrive while some companies have
problems maintaining their position and survival. The future of companies depends, to a
large extent, on the ability of the manager to analyse the business environment, to make
strategic choices and support these choices with appropriate strategic initiatives.
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In order to identify, select and implement strategies, decision makers will have to
understand the concepts, methods and procedures through which they can improve the
quality of strategic decision making.
1.1 Concept of Business Strategy

There is no single definition of business strategy. Different authors provide different
definitions. For example, Alfred Chandler’s definition is based on determination of
goals and objectives to allocation of resources. Michael Porter’s definition is based on
deliberate choices, differences and competition. Very often, companies make ad hoc
decisions as circumstances change and over time, they become strategic decisions. In
order to understand strategy, it is important to consider the basic principle under which a
business is started. When a business is started, it is expected that the business will last for
a long time. Thus, the strategic decisions should provide for long-term sustainability of
the business. Thus, we would define strategy as decisions that would provide long-term
sustainability of the business.
Long term sustainability requires that the business is able to at least maintain its
profitability over a long term. In addition, it will strive to increase its profitability,
enter into activities that would provide growth in revenue as well as profits. This can
be accomplished through new product development, entering new markets, improving
competitive position etc.
Lesson Recording
1.2 Elements of Business Strategy

Though a number of elements need to be considered in strategy formulation, the following
six elements provide the basics of strategy.
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1. The market in which the business is to compete

The scope of the business is determined by
a. The products or services the business offers or not to offer

b. The market segment it chooses to serve or not to serve
c. The competitors it chooses to compete with or to avoid
It is important to consider where the company does not want to enter. If a

competitor is too strong and is the market leader, it may be difficult to compete
effectively against that competitor and it will be worthwhile considering a niche
market segment where this company has competitive advantage by competing
with products that provide unique advantages to the customers in that segment.
Thus, a company need not compete in all markets and it has to choose the
markets to compete in.
2. Level of investment
The alternatives in determining the level of investment are:
a. Invest in growth,
b. Invest to maintain current position,
c. Minimising investment to reap and maximize profits, and
d. Liquidating or divesting parts of business to exit the market.
It is also important to decide on the appropriate investment which has to be

aligned with the strategy of the business in the future. In case there are growth
opportunities, the firm will have to plan for investment in additional assets that
would support the growth. In addition to the consideration of the future, it also
needs to consider the current operations. If the company requires that it would
require additional funds for maintaining the current operations, it has to make
arrangements for getting the funds. If the current operations are in declining
stage, it may decide either to exit the market or may even decide to liquidate this
business.
3. Functional area strategies
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Functional area strategies would provide tools to compete effectively. The major
functional areas include marketing, production, distribution, and information
technology.
a. Marketing Strategy
Marketing strategy is formulated to develop competitive advantage in

the market and includes segmentation, product line, communication,
and pricing strategies.
Segmentation strategy – How to determine the market to be served?

- This strategy is used to define the target market for the company.
The market can be segmented based on age, gender, income and other
demographic variables or based on geographical location. Microsoft
offers student version, Home version and Pro version targeting
different needs of users. Toys ‘R’ Us uses the target market of children
clothing and toys and accessories.
Product line strategy – Should the company continue with just the
product or service it currently offers or should it introduce other
products? - For example, Gillette has been introducing a new range
of razor blades through continuous product innovation even though
this may result in cannibalisation. Apple introduced Apple Watch to
complement the i-Phone.
Communication messaging strategy – How should the message about

the product or service be communicated to the customers? - This deals
with communicating the strengths of the product or service to the
current and prospective consumers. The message and communication
should provide details of the value that is created for the customers
through the use of the product or service. In the past, the main channels
of communications were print media, audio media or visual media.
With the increasing popularity of social networks such as Facebook and
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Twitter, many companies are having their own forums and Facebook
pages to communicate directly with customers.
Pricing strategy – How should the company decide on the pricing of the
product or service? - The main criterion in pricing a product or service
is based on how it creates value to customers. Customers always look
at a product or service based on “value for money.” One of the issues
company faces is that many consumers are not aware of all aspects of
the product or service and hence are not able to appreciate the full value
it provides. For example, novice consumers buying a smart phone may
not be aware of some of the features such as Bluetooth and hence may
not appreciate the full value. Thus, pricing strategy is to be combined
with communication messaging strategy to make the customers to be
fully informative.
b. Distribution strategy
In formulating the distribution strategy, the company decides on how
the product or service is distributed to the customers. The major
question in forming distribution strategy is “Should the company
use the regular wholesaler-retailer chain to distribute the product or
should a new distribution channel be considered?” Dell entered the
personal computer market by bypassing the retailer concept and used
the telephone for receiving orders directly from the customers. In the
past, the main distribution channel of airline tickets was through travel
agents. However, after the advent of internet, the tickets are offered for
purchase through the website of the airline.
c. Production strategy – How should the product or service be
produced?
Formulation of production strategy requires an understanding of the
production process, the technological development and regulatory
environment. This deals with the whole set of activities in the
production of a product or service from sourcing the raw materials, and
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choosing the most appropriate and efficient production method. The

components used in the product could be produced in-house or could
be outsourced. In choosing the production method, the technological
development and regulatory environment should be considered. Many
manufacturing industries use computer-assisted methods. Broadband
services are being changed from cable enabled to fiber-optic enabled.
Power generation can be done using fossil-fuel, or, nuclear fuel. With
tough regulation by governments on pollution control measures, the
company should choose appropriate methods.
d. Information technology strategy – How to utilise the information
technology?
The world has moved to adopt information technology at a very fast
pace in the past decades. Up to date information is available through the
Internet on almost everything. One aspect of information technology
strategy looks at what information needs to be collected and how it is
to be disseminated to relevant parties.
e. Global strategy – Should the company enter into international
markets?
Globalisation is the norm in the 21st century. With increased
globalisation, the issues faced by businesses have become complex. The
major issues are in global strategy are:
a. Should the business go global attracting customers from other
countries?
b. If yes, which countries should be targeted upon?
c. How should the business enter the foreign market?
4. Allocation of resources
Financial resources which are generated internally or raised externally as well as
non-financial resources such as plant and equipment and human capital need to
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be allocated across different product or service lines and across various business
units. This is especially true for small businesses which are short or resources.
5. Increasing capability
The key to obtaining long term sustainability is to have capability to meet the
needs. If a business is expected to grow, it will require additional resources such
as plant and equipment and additional financial resources. It will also require
experienced personnel with appropriate qualification. If capability among
workers is not currently available, steps can be taken to provide additional
training and if necessary, new people can be hired.
6. Developing synergistic efforts
When a company has multiple divisions, a company can create value by having
business units that support and complement each other. Synergy is one of the
main criteria when a company wants to engage in mergers and acquisitions.
The main idea is to develop appropriate strategy in each of the above in order to
develop strategic competencies that provide sustainable competitive advantage.
Lesson Recording
1.3 Strategic Thrust

There are a number of strategies that a business could follow. The usual strategies
commonly used are:
• Low cost strategy
• Differentiation strategy
• Focus strategy
• Pre-emptive strategy
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Low Cost Strategy

In low cost strategy, a business strives to achieve a sustainable cost advantage in a
product or service. This may happen due to favourable access to raw materials or due to
sophisticated equipment used. A low cost strategy does not imply low prices. The price
is determined on the market conditions. For a company that has low cost, it provides
flexibility to the company in pricing the product or service. For a given competitive price,
low cost will increase profits. However, it is to be noted that this advantage should not be
such that it can copied by the competitors.
Differentiation Strategy
In this strategy, a business provides a product or service that is differentiated from others
by providing value to the customers. This value could be in the form of performance,
quality, prestige, features, after-sales service or reliability. For example, Ford lost to
General Motors when General Motors differentiated by offering bigger luxurious cars
compared to the uniform model T-cars offered by Ford. Southwest Airlines differentiated
by offering point-to-point services with quick turnaround and efficient service.
Focus Strategy
Focus strategy deals with focusing the business on a relatively small buyer group or
a restricted line of business or a niche business. It is possible for focus strategy to be
used along with low cost or differentiation strategy. Example of focus strategy would be
Mothercare which caters only to would-be mothers. Rolex watches are targeted at very
rich individuals who crave prestige.
Pre-emptive strategy
A pre-emptive strategy is to enter a business area that provides a first mover advantage
and makes competitors unable to duplicate or counter this. For example, Sony walkman
ruled the mobile music industry for a long time before it was overtaken by i-Pods.
These strategies are explained in detail in Study Unit 8. Even though these are generic
strategies, there can be many other strategies a business can follow. Some of these other
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strategies are: innovation strategies, global strategies, strategies based on technology etc.
1.4 Orientation of Strategy

Strategy formulation needs to be differentiated from planning. Almost all companies enter
into planning exercises usually for a period of 1 year to 5 years. The difference between
planning and strategy formulation is that there are rapid changes that take place in the
external environment of the business and these cannot be taken into account in regular
planning cycle.
Strategic management is proactive and future oriented. Even though a business can just
accept the changes in the environment and make decisions for competing in changed
environment, it can also take active role in causing changes in the external environment.
Through appropriate product or service offering, a company can change the customer
needs. Similarly, it can also force technology development. This is the crux of strategic
management.
The managers in charge of strategy should have a clear understanding of how their
industry may change in the next 5 to 10 years and develop a strategy to compete in this
changing industry. They should concentrate more on innovation and growth rather than
on operational efficiency.
1.5 Strategy Formulation – A Framework

While strategy deals with long term sustainability of the business, it does not mean a
singular focus on the future in formulating strategy. Strategy formulation can be classified
into three levels.
Level 1 strategy deals with current operations. The idea in Level 1 strategy formulation
is to either maintain or improve the current line of business. This can be done through
functional area strategies. Functional area strategies require thorough analysis of the
performance of each functional area to come up with decisions to make necessary changes
so that performance of current operations is improved.
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Level 2 strategy deals with new activities the business has already identified. The idea in
Level 2 strategies is to improve the profitability and provide for growth.
Level 3 strategy deals with future possibilities for the business. It could come through
Research and Development.
Strategic move from Level 1 strategy to Level 3 strategy can be explained through Sony. It
started with transistor radio, moved to audio cassettes with boom boxes, then to Walkman
with audio cassettes, and then to audio CDs. They were the pioneers in making audio
CDs.
Lesson Recording
Corporate Level and Business Level Strategies

Sometimes, strategy is also differentiated as corporate level and business level strategy.
Businesses can be classified as consisting of a single business unit or a business with
multiple business units. For example, Starhub can be considered to have multiple business
units such as mobile phones and broadband. In addition, it has personal division and
business division. In this case, each business unit will be called strategic business unit.
A company such as Sheng Siong is a single business unit company even though it has
multiple stores, as it operates a store which sells mainly grocery items. Samsung is a
conglomerate with business in different industries such as consumer electronics, home
appliances, construction, and life insurance. SIA Group operates airlines in different
segments such as Singapore Airlines, Silk Air and Scoot. On the other hand, Southwest
Airlines operates only as one unit.
When a business has different business units, each unit should have the capabilities and
competitive advantages to compete with competitors. At the same time, the activities of
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each business unit should be formulated so that they correspond to the vision, mission
and objectives of the company as a whole.
The business level strategies provide:

• the vision for the business as a whole as to which direction to grow
• the various businesses it may enter
• the businesses it may exit
• the generic strategy that the company as a whole would like to follow
• the allocation of resources to various business units.
The corporate level strategies help in developing the image for the company as a whole
which can be used for developing brand name and associations.
The business level strategies, on the other hand, deal with developing the capabilities and
competencies needed to compete in that business. These typically include the functional
level strategies such as production, marketing, and distribution. These strategies are
developed mainly to improve or maintain the current operations. Business level strategies
may also be developed for entering into activities that are currently evident and are
relevant to the business unit.
For a company that operates only a single business unit, such as Southwest Airlines
or a retailer such as Robinsons, corporate level strategy and business level strategy are
the same and are formed at the corporate level. When there are multiple business units,
strategy development process depends on the degree of centralisation. If the company
is fully centralised, both corporate level strategies and business level strategies are
developed by the corporate board. In this, business units may develop the strategy but
it is the board that approves the final strategy. In a fully decentralised organisation with
complete autonomy given to the business units, business level strategies are developed
at the business unit level. However, these business level strategies need to conform to the
strategic direction provided by the corporate level strategy.
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Corporate level strategies are discussed in Study Unit 7 and business level strategies are
described in Study Unit 8. Other strategies such as international strategies and growth
strategies are covered in Study Unit 9 and 10 respectively.
1.6 Strategy Model

The strategic issues involved can be included in a simple model called strategy model. It
consists of understanding the strategic position, assessing strategic choices and managing
strategy in action. These three are interconnected. This model provides the essential
concepts and techniques that will provide answers to strategic questions and thus provide
a way to formulating strategies.
Strategic Position
Strategic position refers to the overall intended objectives and approach to creating value
to customers better than that of the competitors. Once a given strategic position is taken
through appropriate strategies, it should be communicated to all the staff clearly so that
all parts of the business can be operating toward the firm’s stated vision, mission, and
objectives.
Strategic position deals with the status of the company at the current time and where
it wants to go in the future. The strategic position depends on influence of external
environment on the business and whether the business has the capacity internally to tackle
the changes in environment.
The external environment can be described in terms of business environment, the

industries in which the company operates, and the competitive environment which
includes the customers, competition, and the market it serves. The internal capacity can
be analysed in the form of capability of resources, objective of the company and the
organisational culture.
Environmental Analysis is described in Study Unit 1, followed by Industry Analysis in

Study Unit 3, and Competitive Analysis in Study Unit 4. Internal and Capability Analysis
is covered in Study Unit 5.
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Strategic Choices
Based on the analysis of external factors and internal capabilities, there could be a number
of strategic choices that achieve the strategic objectives. For business level strategy that
looks into current operations, a number of alternatives may be available such as different
distribution channels. Similarly, there may be a number of alternative choices for corporate
level strategy. The task is to choose the appropriate strategy among all available strategies
to decide the one that will provide the best results.
Strategy in Action
Strategy in action provides an outline of the procedures for strategy formulation and
implementation. This will include:
a. Strategy development process

Different organisations may follow different processes to develop both corporate
level and business level strategies. The strategy development process depends
on the type of organisation and the style of the leader. The strategy can be
developed deliberately through a systematic strategy planning process or the
ultimate strategy may develop over time. The strategy development process is
described in Study Unit 11.
b. Strategy performance and evaluation
When strategies are developed, it is important to assess whether the strategy will
be successful. The main criteria used are:
i. Is the strategy feasible?
ii. Does the organisation have the capability?
iii. Does the strategy coincide with objectives?
iv. Can the strategy be imitated by competitors?
v. Is the strategy acceptable to all stakeholders?
c. Organisation– Is the current organisation structure suitable for strategy

implementation? If not, what changes are needed?
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d. Leadership and change management - A strategy can be successfully

implemented only if each person in the organisation is able to understand the
changes that are likely to happen in the organisation and support these changes.
This requires a strong leadership and an efficient change management system.
Thus, prerequisite for effective strategy implementation is leadership.
The strategy evaluation and implementation are discussed in Study Unit 12.
1.7 Strategic Management

An ideal strategic management system would aid the management to make strategic
decisions as well as to create strategic visions. A strategic decision involves the creation,
change or retention of a strategy. Normally a strategic decision has a long time frame.
A strategic vision provides the vision of a future strategy or sets of strategies. The
realisation of an optimal strategy may involve a delay because the firm is not currently
ready or the emerging conditions are not yet in place. A vision will provide direction and
purpose for interim strategies and strategic activities.
The role of strategic management is not limited to selecting from the set of alternatives. It
also includes the selection or alternatives. Much of the effort in strategic management is
concentrated on identifying alternatives.
The strategy identification and selection is the output of external analysis and internal
analysis. External analysis examines the various factors external to an organisation. In
general, an organisation has little control over the external factors, though it may be
possible for an organisation to influence changes in the external factors. The analysis of
external factors would identify opportunities, threats, trends, strategic uncertainties and
strategic choices. An opportunity is a trend or event that could lead to a significant change
in sales and profit provided appropriate strategic response is given. A threat is a trend or
event that will result in a significant downward change in sales and profit which can be
avoided through appropriate strategic response.
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Once opportunities and threats are identified, the appropriate strategic response should
consider the important factors within the organisation. This is done through internal
analysis. The internal analysis looks at the current capabilities in the organisation and
whether the current capabilities would suffice to meet the strategic responses. If the
capabilities are lacking, the organisation could look for ways to improve the current
capabilities.
The following analyses would form the thrust of external analysis:

• Customer analysis
• Competitor analysis
• Market and industry analysis
• Environmental analysis
Internal analysis will be conducted as performance analysis, capability analysis, and

determinants of strategic options.
In summary, external analysis will identify opportunities, threats, trends, and strategic
uncertainties while internal analysis will assess strategic strengths, weaknesses, problems,
constraints, and uncertainties.
Based on external and internal analysis, strategy alternatives can be identified. The next
step is to select the appropriate strategy that matches the strategic capabilities. Once the
strategy is implemented, it is necessary to review the strategy periodically and revise it if
necessary.
1.8 Advantages of Strategic Management

• Precipitate the consideration of strategic choices: changes in external environment
will create opportunities and threats and hence timely and appropriate responses
need to be generated. The questions to be tackled are: what strategic issues are faced
and what strategic options should be considered.
• Force a long-term view: Most managers are concerned about short-term issues
and results. It could be because their compensation is based on short term results.
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However, concentrating on short term results could lead to strategic error affecting
long-term sustainability.
• Help in strategic analysis and decision making: Use available models, concepts
and methodologies to collect and analyse information that will aid in addressing
difficult strategic decisions.
• Provide a strategic management and combat system: Focusing on assets and
competencies associated with strategic thrust will provide the basis for managing
a business strategically.
• Provide communication and coordination system: A successful implementation
of strategy requires that all the personnel in the business are made aware of the
rationale for such a move which requires a good communication and coordination
system within the business.
• Help a business cope with change: In a rapidly changing world with unpredictable
movements in the environment, strategy would likely change the way the business
operates and hence it is necessary to develop a change management system.
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2
Study
Unit
Environmental Analysis
BUS489 Environmental Analysis
Learning Outcomes

• Identify the environmental factors that will impact on the performance of the
company
• Analyse the impact of changes in environmental factors on the performance of the
company
• Analyse the opportunities and the threats for the company caused by changes in
the environmental factors
• Develop appropriate strategies based on impact analysis and scenario analysis
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Overview
All business organisations operate in a world where there are a number of factors in the
business environment. These factors are usually beyond the control of the management
and changes in these factors can have considerable impact on the performance of the
company. Therefore, it is necessary to identify the environmental factors that will affect the
performance and analyse the impact if there are changes in the environmental factors. The
environmental analysis will lead to the identification of new opportunities and threats that
may have influence on the business. The company can then come up with strategies to take
advantage of the opportunities and mitigate the threats identified in the environmental
analysis.
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Chapter 2: Environmental Analysis
In Study Unit 1, we introduced Pan Am which was the leading airline in the world. It
filed for bankruptcy in 1991 and was subsequently acquired by Delta Airlines. The major
problem was that the Management did not anticipate changes in the external environment
and did not have appropriate strategic responses to deal with such changes. Pan Am was
operating mainly from Kennedy Airport in New York, Miami and Los Angeles. It also used
wide bodied aircrafts that provide comfort for the travellers. It was a pure international
airline and had to depend on other domestic airlines for passengers from various parts
of USA. Until 1978, the airline industry was strictly regulated as either international or
domestic airlines. The first problem arose in 1973 when the oil crisis hit. With escalating
oil prices, air travel became expensive. Flying the wide bodied planes was not profitable.
Pan Am could not replace the wide bodied planes with smaller planes. Though the oil
crisis was unexpected and many industries suffered because it, Pan Am did not have a
strategic response to meet this crisis. In 1978, US deregulated the airline industry resulting
in US domestic airlines given licence to fly internationally. This resulted in lesser number
of domestic passengers taking Pan Am since it is easier to fly the same airline on domestic
and international routes. In order to improve their operations, the domestic airlines
started using hub and spoke system. When Pan Am finally acquired National Airlines for
domestic travel, they used only point-to-point system which resulted in lower capacity
utilisation. Thus, it started losing money in domestic sector. Pan Am's Management did
not anticipate deregulation and did not have appropriate strategic response. Moreover,
the Lockerbie accident in which a Pan Am flight was destroyed through a terrorist attack
caused the customers to move away from Pan Am because it was feared that terrorists
would target Pan Am flights. The Pan Am's Management did not have any strategic
response to this either.
This example shows that there are factors outside the control of the Management and it is
necessary for the Management to anticipate such changes and have strategic responses to
meet the challenges as a result of these changes.
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Lesson Recording
Study Unit 2 Environmental Analysis Part 1
2.1 Importance of Environmental Analysis

The environment in which a company operates is continuously changing. These changes
are beyond the control of the Management most of the time. On some occasions, a business
can induce changes to the external environment such as introducing new technology
or new products, etc. In general, external environment is outside the control of the
Management, and these changes can present challenges which are generally called threats.
Unless the company has appropriate strategic response to these threats, it will face
problems.
Some changes in the environment can present opportunities for companies. For example,
increased regulation by countries to protect the environment can be opportunities for
companies to develop new technologies or products that facilitate better environmental
protection. For example, Philips has come up with LED bulbs which can be used in the
regular non LED sockets and which does not require any special fitting.
The purpose of environmental analysis is to identify such opportunities and threats and
come up with strategic responses to deal with them.
Environmental analysis is undertaken to study changes in the following:

• Political landscape
• Economic situation
• Social factors
• Technological advances
• Ecological considerations
• Legal environment.
Very often, this is referred to as the PESTEL framework of analysis.
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2.2 Political Landscape

Consider the impact on companies if President Trump is successful in limiting
immigration work passes. Currently, many US companies use temporary workers for a
period of 3 to 6 months from other countries as a cost reduction measure. If this comes
into force, companies should develop strategic responses to replace these temporary
workers with American workers and at the same time control costs. Exit of Britain from
European Union has provided challenges for European companies based in U.K. Political
risk is one of the factors considered by companies in international expansion. Political
risk may manifest in terms of control on expropriation of profits, import quota and
import tariff. A political system that is stable and free of corruption and low level of
bureaucracy will nurture companies. Analysis of political landscape requires study of the
current political system and anticipating the changes in the system. Companies should
develop strategic responses based on their anticipation. It is more difficult to anticipate
changes in political landscape especially for multinational companies which operate in
many countries. Because of this, any strategic response should be flexible so that it can be
changed if unanticipated changes in either political landscape or legal environment take
place.
2.3 Economic Situation

Economic situation plays an important role in decision-making of businesses. In general,
most companies do well if the economic conditions are improving. An improving
economy means that there will be more employment opportunities, thus decreasing
unemployment rate. With more people employed, there will be higher disposable income
in the hands of people which will increase the demand for products and services. On the
other hand, if the economy is expected to shrink, the opposite will happen with lower
demand for products and services. A firm should carefully plan for both types of economic
situations with appropriate strategy.
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There are a few considerations in analysing the economy. First, the changes in the economy
do not affect all the companies in a similar manner. Some industries might see a huge
increase in sales if the economy is at peak while some industries may see only a small
increase in sales. Therefore, it is important for management to discern the relationship
between the changes in economic conditions and changes in revenue and profit. Second,
it is very difficult to forecast how the economy will change. This is especially true is
the globalised context. For example, the economy of Singapore is closely related to the
economy of its major trading partners. If the economy of USA or China or Europe starts
shrinking, it will also cause a decline in the economic situation of Singapore. In addition,
if a company is multinational with presence in many countries, its performance will be
affected by changes in the economy of many countries.
During economic analysis, the following should be considered:

a. At what stage of the economic cycle is the economy currently in? – Economic
cycle hoes through trough (where the economic growth, which is usually termed
as GDP growth, is very low or even negative) to peak (where the economic
growth is very high). As it moves from trough to peak, it is called improvement
in economy. On the contrary, a movement from peak to trough shows a declining
economy.
b. What are the efforts taken by the government to manage the economic situation?
Both trough and peak are not desirable. If the economy hits trough, it will lead to
higher unemployment, lower disposable income, lower demand for goods and
services and lower investment by businesses. Often, the governments take steps
to stimulate the economy by changing the interest rate, increasing government
spending and offering incentives for businesses to increase investment. If the
economy hits peak, the disposable income is high and unemployment is low.
There will be high inflation which will affect people in the low income group.
The government will take steps to decrease the inflation rate, often by increasing
the interest rate which can increase the cost of investment for businesses.
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It is not necessary that the government will act only if the economy hits
the trough or the peak. If the government believes that the economy is not
growing at a desired rate causing an increase in unemployment rate or the
economy is experiencing an inflation which is more than what is appropriate,
the government can take action.
c. What is the impact of changes in the economic condition to the company
performance? In general, industries can be classified into 4 categories based on
their performance and economic conditions:
i. Growth industries – These industries tend to be new industries with
few competitors. The total demand for products and services offered
by these industries are not fully met by the existing competitors.
Thus, there is an increasing demand for products and services and
this demand continues even when the economy is heading down. The
strategy for companies in this industry would be to assess when the
demand will reach the supply. It will be based on possible new entrants
to the industry. The company’s strategy will be based on how to take
advantage of this excess demand.
ii. Defensive industries – These are usually mature industries where
revenue is not affected much because of changes in the economy. Even
if the economy improves towards peak, the increase in revenue will
be minimal. Example of such an industry will be the utility industry
where demand, in general, is independent of economic condition. The
strategy of companies in this industry would be to maintain its current
market share or increase the market share. Often, these companies also
enter into innovation whereby they provide additional complementary
products or services which would increase the demand.
iii. Cyclic industries – These are industries whose performance is linked
to economic conditions. In general, when the economic conditions
improve, the performance of these companies also improves and vice
versa. The strategies for companies in this industry would be based
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on the ability to alter the capacity based on the anticipated economic

conditions.
iv. Seasonal industries – These are industries whose sales are subject
to seasonal fluctuations. The major industry subject to seasonal
fluctuation is the retail industry whose sales are likely to be high during
holiday season. For companies in this industry, the strategy would be
to concentrate on increasing the sales during low season.
Thus economic situation requires one to clearly understand the relationship between
company performance and the changes in economic condition. While it is difficult
to forecast the economic condition in the future, analysis can still be done based on
information available. The key information that helps in forecasting future economic
conditions are the various indicators as listed below:
A. Leading Indicators
• Average weekly hours of manufacturing workers
• Average weekly initial claims for unemployment
• Real value of manufacturer’s new orders for consumer goods and
materials
• Index of consumer expectations
• Index of stock market
• Real money supply, M2 (which includes money in circulation, short term
time deposits in banks and 24-hour money market funds)
• Interest rate spread, defined as, long-term bond yield less short-term inter-
bank rate
B. Coincident Indicators
• Number of employees in non agricultural sector
• Disposable income
• Index of industrial production
C. Lagging Indicators
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• Average duration of unemployment

• Ratio of trade inventory to sales
• Average prime rate
• Commercial and industrial loans outstanding
• Ratio of consumer credit outstanding to personal income
• Change in consumer price index.
The leading indicators predict what the future economy is likely to be. If these indicators
are increasing the economy is expected to improve. The coincident indicators change with
the economy at the current time. It is generally believed that the economy will improve
only if both leading indicators and coincident indicators are increasing with coincident
indicators rising faster than leading indicators. Lagging indicators indicate changes in
these indicators after changes in the economy have taken place. If economy is improving,
the lagging indicators would also increase.
Though these indicators may provide an idea about the direction of movement of the
economy, it will not provide the accurate measurement of changes in the economy. There
are many economists who provide the forecast of the economic growth, and the World
Bank periodically publishes economic forecast of different countries.
Lesson Recording
2.4 Social Factors

The social factors include culture and demographics. Changes in cultural norms and
attitudes as well as changes in demographic makeup may pose to be opportunities or
threats.
Culture
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Culture can be defined as “set of shared attitudes, values, goals and practices that
characterises the society.” For any business, it is important to understand the culture in
which it operates as well as to understand changes that are either taking place or expected
to take place. For example, when Kentucky Fried Chicken entered China with the slogan
“Finger licking good” there were immediate lash backs as finger licking is considered as
rude in China.
In some circumstances, it is also possible for companies to influence the culture in order
to capture market. For instance, Starbucks created a coffee culture, not only in the US but
globally.
Culture also changes continuously. For example, with more women entering the
workforce globally, there are a large number of two-earner families that find it difficult to
cook at home regularly. This has led to large number of companies in the fast food business
and ready-to-eat meal business.
Some of the other trends that have evolved, to name a few, are:
• Increased conscious to physical well-being leading to demand for gym, health club,
etc.
• Increased trend towards partying, especially among young adults, leading to
karaoke clubs, bars, etc.
• Men grooming salons
• Online shopping
• Social networking
Companies should identify such trends and form strategies that will fulfil the needs
created by such trends.
Demographics
Demographic trends are also important and relevant in strategy formulation. The most
important demographic variables are age, income, gender and ethnicity.
Age
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Age demographics has changed considerably over the past 20 years. With falling birth
rates, the world is moving towards an ageing population. This change in demographics
in terms of age opens up opportunities. Senior citizen care is a flourishing business now.
Many pharmaceutical companies are engaging in R & D to develop products catering to
the older generation.
At the same time, it remains relevant to cater to the needs of other age groups. Toys "R"
us is mainly catering to young children and teenagers. Starbucks originated targeting
individuals between 18 and 21 by providing ambience and meeting place. Apparel
companies target youngsters by having dresses with appropriate fashion. Thus a business
can choose strategies to target appropriate age groups.
Gender
Gender is another demographic dimension to be considered. Typically females tend to
outlive males. In many societies there may also be gender imbalance in the population.
Thus companies can target either gender or unisex with changing cultural aspects.
Cosmetic companies can target either young women or older women or both. Many
companies have changed their advertising strategy to attract women. Instead of showing
young, pretty women, advertisements now use middle aged women so that most women
can identify themselves with the women portrayed in the advertisement.
Similarly, companies can also target men or young adults based on the culture. Even
though Apple’s iPhones are used by all, it is mainly targeted at young adults who
download music from iTunes and are always seen with earphones tucked in their ears.
Income
Income of individuals impacts on purchasing decision. Those with higher level of income
are likely to spend more on luxury goods and services. These are the people who are
likely to have golf clubs memberships, go on cruises, use Lamborghinis or Rolls Royce,
wear Rolex watches etc. The businesses can focus on the target segment based on income.
For example, discount retailer such as Walmart targets lower income families while
department stores such as Macy’s target relatively more affluent families. In Singapore
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context, ‘The Marketplace’ supermarket targets the more affluent customers while ‘Giant
hypermart’ targets the less affluent customers.
Ethnicity
Ethnicity can also be an important element. With globalisation, transnational migration
has increased. In America, Hispanic and Asian population has been increasing presenting
opportunities for companies to target these ethnic groups. Many supermarkets have aisles
of ethnic-centric grocery items catering to people of different ethnicity.
2.5 Technological Advances

Technology has played an important role in the development of business. Businesses have
thrived on anticipating technological changes or by inducing technological changes. On
the flip side, many businesses failed because they could not cope up with such changes.
Consider IBM. IBM is synonymous with computers. When computers were invented,
they were mainframe computers which could do calculations at very great speed. These
computers were operated using programming languages such as FORTRAN, COBOL, etc.
These were no standard programmes and users will have to write their own programme
to run the computer. Thus the use of mainframe computers was limited to government,
businesses, academic institutions and research institutions.
For most individuals, the only need was for writing letters, papers, etc., which was done
by typewriters. The problem with typewriters was that if one makes a mistake, the whole
page has to be retyped. A technological advancement was achieved when the typewriters
came with memory that could store a small part of the document. The storage capacity
was very small and could not be used for long documents.
This called for a new technology. Digital Electronics Corporation (DEC) used the computer
storage technology to come up with the first word processing machine and they called
it a computer. This used a 16-bit technology and had limited application. The belief in
DEC at that time was that computers are substitutes for typewriters and for that 16-bit is
sufficient.
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Apple took the concept seriously and came up with their version of computer using 32-bit
technology and with a lot of graphics added. This Apple Mac could produce documents
with graphics attached, and could also be used to play computer games. The original
games were invented by Atari to be played with Atari playstation on a television.
IBM realised that there is an opportunity in personal computer business and came up with
IBM personal computer. Since IBM was a pioneer in mainframe computers, they had the
hardware design but they needed a software or operating system to run the computer. IBM
believed that hardware is the main component and was not willing to invest in software
development. It outsourced software development to Microsoft who came up with MS-
DOS operating system. IBM also gave up the license to Microsoft. By providing license to
Microsoft, IBM paved the way for other companies such as HP, Compaq, and Dell who
started to design their own computers by using Microsoft software. Thus, one can say that
IBM did not anticipate the changes that occurred in the computer industry and ultimately
selling their personal computer business to Lenovo.
Apple struggled for some time with the apple computers. Though they improved their
software, they could not compete with other competitors who were using software from
Microsoft. Microsoft was fast in developing application software such as MS-Word, MS-
Excel, MS-PowerPoint etc. which could not be used in Apple computers because of
incompatibility. Finally they had to approach Microsoft to make these software to be
apple-compatible.
At this juncture, Apple identified an opportunity and took advantage of it. With the
Internet becoming popular, music downloading sites such as Napster came into picture.
The cost of membership in Napster was very low compared to buying a CD. Many
downloaded music using Napster. However, it was considered to be illegal. To make it
legal, Apple introduced the iPod and iTunes. For a nominal cost, users can download
only the songs they needed onto the iPod from iTunes store to listen. This was supported
by the music industry as some of the revenue from iTunes was passed back to the
album producers and musicians. Apple subsequently went onto developing the iPad and
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the iPhone. This example shows how Apple is more adept in leveraging technological
advancement compared to IBM.
Technological advancement is not only relevant for products but also services. For
example, various airlines use the Internet to offer online ticket booking and check-in.
Lesson Recording
2.6 Ecological Considerations

With global warming and hole in ozone layers, general public as well as the governments
are increasingly concerned with how the ecology or the environment is likely to be
affected. Many regulations have been passed requiring companies to go green. A recent
study has indicated that more than 60% of the respondents prefer to buy products
and services from companies that have instituted green initiatives. Thus, any strategy
formulation need to consider how the company can participate in this “Go Green”
movement and disseminate this information clearly. Many companies are now banning
the use of plastic bags and use paper bags. Companies with caustic effluents are now
taking steps to come up with methods for environmentally safe disposal of such effluents.
2.7 Legal Environment

Possible changes in legislation should also be anticipated. In many cases, it may be easier
to forecast changes in legislation as it takes time for a proposal to be passed into law and
hence easier to formulate strategic responses to changes in legislation.
The impact of legal environment can have a big influence on the operations of the business.
Many countries are imposing tougher fuel emission standards on auto industry and the
auto companies need to be on their alert and come up with strategies to meet these
standards. The countries also enact legislation on pollution control which affects fossil-
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fuel based power plants. A successful company is one that has sound strategy to anticipate
changes in regulatory environment.
Another example would be Air Asia. It started off as a low cost airline serving only
small cities in Malaysia. The airline regulations stipulate that an international airline
cannot have domestic flights. To counter this, Air Asia has subsidiaries such as Air Asia
(Thailand) and Air Asia (India).
Even though political and legal environment impacts many businesses, very often
companies are able to influence the political process in order to avoid tough legislation.
One of the biggest power wielding groups in the USA is the lobbying group which tries
to influence the congressmen and senators whenever new legislation is envisaged.
2.8 Strategic Uncertainties

A key construct in environmental analysis is the strategic uncertainty. A strategic
uncertainty is a future trend or event that has inherent unpredictability. Information
gathering and additional analysis will not be able to reduce the uncertainty. To be
manageable, these are grouped into logical clusters or themes. Then importance of each
cluster can be assessed to set priorities with respect to information gathering and analysis.
These are carried out by impact analysis and scenario analysis.
Impact Analysis
The extent to which a strategic uncertainty should be monitored and analysed depends on
its impact and immediacy. The impact of a strategic uncertainty may be related to either
the current business or to the future events. The impact of a strategic uncertainty may
be related to the extent to which it involves trends or events that will impact existing
or potential business unit. The immediacy of a strategic uncertainty is related to the
probability that the trend or event will occur, and the time frame in which it will occur.
For example, consider a company that currently sells imported beer. It is considering
the start of a microbrewery whose future prospects are uncertain. Thus trends in the
microbrewery market can impact on the current business of selling the imported beer.
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The impact of strategic uncertainty depends on the on the importance of the impacted
business unit to the frim. The impact on sales, profits, and costs should be analysed in
detail to deal with this strategic uncertainty.
There may be uncertainties which have large impact but low probability of occurring. In
such a case, it may not be prudent to conduct further analysis. Similarly if trend or event
is expected to occur far in the future, it may be of little concern.
After a trend or event crystallises, a firm need to develop a reaction strategy. If the available
reaction time is inadequate, it is necessary to anticipate emerging trends and events better.
Example of Emirates Airlines to deal with the ban of electronic equipment in flights to
the United States shows how fast the reaction strategy was developed. Emirates Airlines
allows the passengers in economy class to use their equipment until they board the plane
and collects and wraps them at the gate to return to the passenger after they arrive the
U.S. airport. The passengers in the business class and first class are offered a loaner laptop
with thumb drive to enable them to work during the flight.
Scenario Analysis
Any strategy should be creative, that is, the companies should come up with new and
effective strategies and also view existing strategies from different perspectives.
• Should a company go ahead with a new plant or should it purchase an existing
company?
• Should the company manage each business unit in the same manner or in a different
manner?
Analysis considering different scenarios will lead to either a new strategy which is
completely different from the current strategy or it may lead to changes in the current
strategy. Scenario analysis helps to deal with complex environments with many relevant
trends and events interacting with and affecting one another. They also help deal with
uncertainty.
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Strategic uncertainties will drive the scenario development. The impact analysis will
identify the uncertainty that has the largest impact. For example, a ski resort operator will
be dealing with the uncertainty of weather. The scenarios in this case would be very little
snowfall, moderate snowfall and heavy snowfall.
Once the scenarios are identified, the next step is to identify the impact of each of the
scenarios identified on the business. It is often estimated either as pessimistic, most likely
or optimistic and appropriate strategies are developed to deal with each scenario. The next
step is to assess the likelihood of each of the scenario occurring. If the likelihood of any one
scenario occurring is very small, the company can ignore that scenario and concentrate on
the scenarios that are likely to occur with higher probability.
The final step is to conduct a regret analysis. In regret analysis, the expected outcome of
each strategy is compared if the wrong scenario occurs. This provides an estimate of the
riskiness of the strategy. If this can be quantified, one can arrive at the regret quantitatively,
based on the regret function for each strategy and for each scenario, and appropriate
strategy can be developed.
In summary, environmental analysis is conducted with the objective of identifying

opportunities and threats. If the changes in the environmental factors are anticipated,
strategies can be developed to handle such anticipated changes. If the changes are
unanticipated, the company should quickly develop appropriate strategies to handle the
situation. The company should also look for ways in which it can induce or influence
changes in the environmental factors with appropriate strategies.
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3
Study
Unit
Industry Analysis
BUS489 Industry Analysis
Learning Outcomes

• Identify the structure of the industry in which the company is operating
• Analyse the impact of changes in the industry on the performance of the company
• Analyse the opportunities and the threats for the company caused by changes in
the industry
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Overview
The prospects of a company will depend on the structure of the industry in which it
operates. Industry structure is usually identified through an analysis of Porter’s Five
Forces. It is also necessary to know the possible changes in the industry structure. Industry
life-cycle analysis and analysis of the competitive nature of the industry will provide
inputs to the firm as to how the company can formulate strategies to be competitive in the
industry.
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Chapter 3: Industry Analysis
The environmental analysis described in Study Unit 2 will result in opportunities and
threats, and these opportunities and threats are for all the companies which are engaged
in similar line of business. However, the impact of the environment analysis will not be
the same on all companies.
Lesson Recording
Study Unit 3 Industry Analysis Part 1
In general, one can loosely say that companies which are in the same line of business
belong to a particular industry. Thus all car manufacturers will belong to the auto industry.
However, each industry is likely to have different sub-classification. For example, auto
industry may be classified into economy or small car segment, medium-sized car segment,
luxury car segment, SUV segment, 4-wheel drive segment, etc. The environment is likely
to have different impact on each segment. For example, in a rich economy, the luxury car
segment is likely to do better than in a poor economy.
Thus, it is important to analyse the industry in which a company operates so that strategic
decisions can be made to position the company with respect to their competitors.
Michael Porter’s Five Forces Framework is a widely used approach to evaluate the
structure of an industry.
3.1 Porter’s Five Forces Framework

According to Michael Porter, the attractiveness of an industry can be arrived at by looking
at Five Forces, namely:
1. Threat of New Entrants
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2. Threat of Substitutes
3. Power of Buyers
4. Power of Suppliers
5. Extent of Rivalry in the Industry
An industry is deemed to be less attractive when these forces are considered to be high.
It is to be noted that this concept of Five Forces is developed by Michael Porter in the
1970s. Since then, there have been a lot of changes in the world. First, globalisation has
caused a rethinking of the definition of competitive space. Technological developments
have caused the definition of industry to be meaningless and companies move from one
industry to another with products suitable for the new industry. While the Five Forces
Framework is presented here, it is important to be mindful of the changes that have since
occurred which rendered industry structure to be less stable.
3.2 Threat of New Entrants

The Threat of New Entrants assesses the ease of difficulty for a new player to enter the
industry and compete effectively with existing players.
Threat of New Entrants deals with the ability of a new company to enter the competitive
landscape. The following factors are traditionally considered in evaluating the Threats of
New Entrants.
Scale of operations is one factor to consider when assessing the Threat of New Entrants.
Some businesses require large amount of investment as well as large volume of production
and sales to be profitable. For example, auto manufacturing requires heavy investment
and also large number of cars to be sold to cover the fixed costs of production. Given
the large scale of operation, the companies must achieve economies of scale in order to
be competitive. Thus, new companies are typically unable to have such economies of
scale and are deterred from entering such industry. Similar observation can be made in
the service sector too. For example, Broadband Internet Services Providers require heavy
investment in servers and other hardware and software. Hence it is difficult for new
companies to enter such industry.
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In the retail sector, the investment needed to enter the industry is relatively lower. The
main investment will be in inventory which will turn itself over to provide continuous
flow of cash over time. However, for big retailers with multiple stores, such as Robinsons,
the investment can be quite high as they need to invest in stores and fixtures.
With the rise of globalisation, competition can come from foreign companies too. In the
pharmaceutical industry, companies from all over the world compete against each other
globally.
Another threat to entry would be the possibility of differentiating the product. The product
that is produced and sold can be either a brand name product, or a product protected
by patent rights or it could be considered as a commodity product. It is difficult to
differentiate a commodity product. The Threat of New Entrants can be negated only if
the existing companies have other advantages such as economies of scale or enjoy low
cost advantage. For example, steel is a commodity product since there is no difference in
the quality of steel produced by different companies. Since it requires huge investment to
produce steel, there are limited number of steel producers in the world. However, some
steel companies may have an advantage in terms of cost if they own coal mines and iron
ore mines instead of purchasing from other mines. If the brand names are important in
customer decisions, it is difficult for a new entrant to develop a brand name quickly to
become a threat to existing companies. However, it is quite likely that a company with an
established brand name in another industry can enter this industry with ease. Sony with
its brand name established in consumer electronic equipment dealing with entertainment
entered the computer industry with laptops.
Legislation can also play an important role in keeping competitors away. Many
developing countries put a limit on the foreign ownership of the firms in certain industries.
This deters foreign companies from entering domestic markets, and this is done to protect
domestic companies. Similarly, a government could impose import quota or tariff on
certain products to deter foreign companies to compete with local companies.
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Lesson Recording
3.3 Threat of Substitutes

According to Porter, substitutes are products or services that offer a similar benefit to
an industry’s product or services. For example, travelling by car or travelling by train
can be considered as substitute for airline travel. Consider an individual travelling from
Singapore to Kuala Lumpur (KL). Though it takes only about 45 minutes to travel by air, it
may actually take 5 to 6 hours to travel from Singapore to KL city centre by air travel. On
the other hand, it may also take 5 to 6 hours to travel from Singapore to KL city centre by
car. Thus, airlines offering services between KL and Singapore should consider car travel
as a competition.
With the introduction of camera into smart phones, smart phones have become substitutes
for cameras. Camera companies such as Nikon have to compete not only with other
camera companies such as Canon, but also with smart phone companies such as Apple
and Samsung.
Thus, it is important to identify not only the current competitors offering similar products
and services in the same industry but also competition from other products and services
that offer similar benefits.
3.4 Power of Buyers

Buyers are those that directly acquire the products and services of the industry. It is to
be noted that buyers need not be the ultimate consumers. Consider an example from
the television sets manufactured by Sony. Though you may be the ultimate consumer
purchasing the Sony television set, the buyer of the television set from Sony’s point of
view will be Best Denki. The strategy of Sony with respect to distribution and pricing will
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be based on Best Denki and not you as the ultimate consumer. Strategy formulation with
respect to the buyer is important because it is the buyer that is purchasing directly from
the television set producer (i.e. Sony) and not the ultimate consumers.
The power of buyers also depends on the concentration of buyers and switching costs.
Switching cost refers to the cost to buyers if they switch from one producer to another
producer. If the switching costs are low, it will be very easy to move from one producer
to another which increases the power of buyers. For example, a customer needing mobile
phone services can use either Starhub or Singtel. If there are no restrictions on moving
from one to another, the customers can be powerful. In order to introduce switching costs,
both companies require long term contracts and if any customer were to break the contract,
there will be penalties.
Another way is to remove the middleman or engage in disintermediation. This can

be done by offering the product or service to the ultimate customer directly. This has
been accomplished by airline companies effectively. All airlines have their own online
reservation system whereby travellers can buy their tickets directly from the airline.
Through this, the airlines have eliminated the dominant role of travel agents.
Another area in which the product is directly pitched towards ultimate consumers is in
medical devices as well as medicine. In the past, the pharmaceutical companies had to
first convince the medical professional to prescribe the medicine. Thus, doctors were the
immediate intermediary and ultimate consumers were directed by doctors to purchase
the appropriate equipment or medicine. Norvis Nordisk decided to skip the doctors and
approach the ultimate users who had diabetes and required insulin. They came up with
Novopen which can be carried as a pen and with an injection needle, and the user could
inject themselves when needed. Medical devices such as blood pressure monitors are now
available, and ultimate customers can purchase them without using recommendation of
doctors. Companies such as Apple and Samsung have their own stores and reach out to
customers directly instead of using other retailer network.
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3.5 Power of Suppliers

Sometimes, the suppliers can also influence the strategy of a company. Since companies
need to purchase material and services that are needed in the production of service or a
product, the influence of the supplier can have an impact on the cost. The material and
services provided by the supplier can include raw materials, utilities, equipment, labour
as well as sources of finance. The power of supplier can be high especially if there are
only few suppliers. When there are only few suppliers, it would be very difficult for a
company to negotiate favourable terms. In addition, there is a possibility of collusion
among these few suppliers. For example, there are relatively few iron ore producers who
provide the iron ore to large number of steel companies. This also applies in the case of
crude oil suppliers. If a company requires a competent person to conduct research, it may
find a very small pool of people who may qualify. In this case, the company has very little
negotiating power.
While talking about power of buyers we discussed how intermediaries can have power
over companies. Similarly, suppliers can also exercise their power to gain a better
negotiation if they are able to disintermediate the value chain.
One way to manage the suppliers is to own the suppliers. Many steel producers also own
iron ore mines as well as coal mines. As far as possible, companies can look for vertical
integration with suppliers especially when power of suppliers is high.
3.6 Extent of Rivalry

The Extent of Rivalry in the industry should also be analysed. Competitive Rivalry is
defined by Porter as the rivalry between existing players in the industry. When companies
offering similar product and services serve the same market, these companies are said
to compete against each other. In Singapore for example, M1, Starhub and Singtel are
competitors in the mobile phone services industry. NTUC Fairprice, Sheng Siong and
Cold Storage are competitors in the grocery supermarkets segment. When the market
is dominated by two or three companies accounting for a majority market share, the
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market is concentrated and it will be very difficult for a new entrant to break into the
industry. In such situation, a new entrant may choose a market segment that has been
ignored by the dominant companies in order to enter the industry. An example is the
low-cost airlines which competed on low-cost and attracted customers who required
low level of service, which has traditionally been ignored by major airline companies.
Another example is companies that deal only in organic foods and are able to attract
health conscious customers and create a niche for themselves in the grocery supermarket
industry segment. The Extent of Rivalry will depend on the type of industry which is
described in section 3.8.
Lesson Recording
3.7 Industry Life-cycle

Industry life-cycle provides an idea about how the industry structure can change over
time. No industry remains stagnant. As the prospects for companies in the industry
improves, it is likely that more competitors would enter the industry. In addition,
technological advances could change the way the industry operates. Consider the movie
entertainment industry. It started off with still shots, then moved to silent movies, black
and white talkies to colour movies, and now 3D movies. Similarly, audio industry started
with radio, transistor radios providing mobility, Walkman radios, Walkman with audio
cassettes and Walkman with audio CDs, and now online streaming of music played
using iPods, iPads, and smart phones. Thus, it is important for an organisation to
foresee possible technological advances and seize the opportunities. Sometimes, it is also
necessary to come up with innovation that would change the nature of the industry.
Failure to cope with changes in the industry can lead to problems in the company. When
cellular phone technology came up, the name synonymous with cell phone was Nokia.
However, the cell phone moved from just ordinary phone to smart phone and Nokia was
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too late in embracing the changes. Nokia is no longer around and the cell phone market
is now dominated by Apple and Samsung.
Industry life-cycle starts with the Development stage. This stage is an experimental stage.
New product or service has been designed and offered to consumers. Typically, there are
only a very few players with highly differentiated products. During this phase, investment
needed may be high but revenue and profit will be low because of low adoption by
consumers.
Once the product or service is considered valuable by consumers, demand would start
increasing and the existing companies may not have the capacity to fulfil the demand.
This stage is known as Rapid Growth stage. In this stage, the existing companies are
likely to increase their capacity which will call for large investments. But, the revenue and
profit will also grow rapidly because there is unmet demand. This stage is ripe for other
competitors to enter the market and existing companies should be aware of the possible
competitors and formulate strategies either to deter the new competition or to strengthen
their capabilities to meet the increased competition.
As the existing companies increase the capacity and new competitors enter industry, the
supply will start to increase in order to meet demand. This stage is known as the Growth
stage. During this stage, revenues and profit will still increase but at a moderate rate.
Companies with better strategies to provide value to the customers will thrive and those
who fail to provide the value are likely to exit.
The next stage is the Maturity stage in which there are no incentives for new entrants to
enter the market as sales are stable. In this stage, only those companies that provide value
for money will survive.
The final stage in industry life-cycle is the Decline stage where the revenue and profit
will start decreasing. This will happen because there are better products that satisfy the
same need. For example, in the photography industry, Kodak was leading with its Kodak
films. However, the industry shifted from films to digital photography and Kodak is no
longer around. Similarly, if one looks at the watch industry, until the Japanese came up
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with digital watches, Swiss manufacturers were ruling the industry with analog watches.
Nowadays, it is almost impossible to find any analog watch.
It is important for any company to understand the stage in which the industry is at and
what forces would change the stage. Many companies come up with strategies so that the
industry continues in the same stage. Moreover, the industry may be in normal growth
stage but a company in the industry may still be in rapid growth stage because its product
or service is highly differentiated and sought after by the customers. Companies should
also strive to prolong the growth through appropriate strategies such as innovation.
3.8 Types of Industries

Based on the competitive nature of the industry, the industry can be classified into four
types.
1. Monopolistic industry – A monopolistic industry is one in which there is only one
major player. If the industry is monopolistic, the company enjoys great power
over consumers and suppliers. This may arise because of economies of scale or
because of network effects.
2. Oligopolistic industry – This is an industry where a few firms dominate. There
will be limited rivalry. Airbus and Boeing are the major commercial aircraft
manufacturers. Oligopolistic industry is highly profitable but it depends on the
competitive strategy adopted.
3. Hypercompetitive industry – In such an industry, the competition is severe as
there are many competing players. The emphasis is often on having continuous
innovation, expensive marketing initiatives and aggressive price cuts. The idea
in this industry is to drive out competitors.
4. Perfectly competitive industry – In a perfect competition, the threat of entry
or exit is low and no single company will be able to make huge profits. The
products or service in this industry will be uniform with no differentiation and
the price will be determined in a global setting. For example, gold, oil, steel and
other metals are priced in US dollars on a global scale. Those companies that can
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control the cost so that they can make profit will survive. Thus the major strategy
of companies in a perfectly competitive industry will be centred on cost cutting.
Industry analysis will provide an idea about the competitive nature of the industry and
also provide information about the current status as well as possible changes in the
industry structure. This information is essential in formulating appropriate strategies.
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4
Study
Unit
Competitive Analysis
BUS489 Competitive Analysis
Learning Outcomes

• Appraise the role of competitive analysis in strategy formulation
• Identify the issues in customer analysis
• Conduct competitor analysis
• Analyse the market and market potential
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Overview
While environmental analysis and industry analysis enable the analyst to identify
opportunities and threats, these are common for all firms in that industry. To form
appropriate strategies, it is necessary to identify the customer group that the firm should
concentrate on and assess the reasons why the customers are using the product. In
addition, it is important to know the current and potential competitors as well as their
strengths and weaknesses. The characteristics of the markets will provide the input
needed to come up with developing key success factors to compete effectively.
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Chapter 4: Competitive Analysis
Xerox was the leading manufacturer of photocopiers. In fact, Xerox came to be the generic
name for photocopying as people would say, “Please Xerox it.” However, currently
Canon is the leading copier company. How did it happen? Canon was able to analyse
customer needs, market structure and competition and took a strategic position to gain
advantage in the photocopier industry. In the early days of photocopier industry, the target
customer groups were big businesses which had large photocopying volume. Xerox built
big photocopiers which can handle this large volume. These photocopiers were leased
out to businesses whereby Xerox will do the maintenance and repairs and businesses
would pay annual leasing charges plus charges based on usage. This market structure
left out small businesses as a small business could not afford to lease such big machines.
Canon, through customer analysis, market analysis and competitor analysis identified an
opportunity. This opportunity was based on the needs of small businesses. Canon came
up with small desktop photocopiers. Since Canon was already a pioneer in photographic
equipment, they could move into photocopier industry because the technology for both
industries are similar. Canon started selling these desktop photocopier outright and also
set up service centres which would take care of maintenance and repair. Canon was aware
that Xerox would not be able to compete in this segment because their overhead was large
and hence could not enter this segment at a comparable price. Once Canon established
itself in the desktop photocopier segment, it then moved upwards to manufacture big
photocopiers and attacked Xerox in its turf. Canon’s success took Xerox by surprise as
it entered the industry through a segment which was ignored by Xerox. Xerox had not
conducted a thorough analysis of the customer needs, market structure and competition.
There are many other examples that can explain the advantages of conducting competitive
analysis. Those companies that identify opportunities through a well-defined competitive
analysis will thrive while those companies that do not put effort in competitive analysis
will find their fortunes dwindling.
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This Study Unit will provide details of the issues that should be considered in conducting
competitive analysis.
Competitive analysis will start with analysing customer needs and perceptions, then
analysing the market for the product and services and finally the competitive landscape.
Lesson Recording
Study Unit 4 Competitive Analysis Part 1
4.1 Customer Analysis

Customer analysis is undertaken to get a clear understanding of the customers. It can
be divided into an understanding of how customers can be grouped into segments, an
analysis of customer motivation, and an exploration of unmet needs.
4.1.1 Segmentation
Very often, segmentation is the key to developing a sustainable competitive advantage. It
is important for a firm to define the segment in which the company has the competitive
advantage. For example, Canon photocopier concentrated on the “small business”
segment, leaving the big photocopier segment to Xerox.
Strategically, segmentation means identifying particular customer groups that share

similar needs, demands and behaviour. A segmentation strategy couples the identified
segments with a program to deliver a competitive offering to those segments. The
development of a successful segmentation strategy requires the conceptualisation,
development, and evaluation of a competitive offering.
Identification of segments is a very difficult task because a market can be divided into
segments based on a variety of variables. It is important that as many variables as can
be defined should be considered so that an important variable is not missed out. The
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variables selected should be based on their ability to identify segments for which different
strategies can be pursued.
It is also necessary that the segment is large enough to support a unique strategy. In
addition, the strategy should be effective such that it is cost-efficient in the segment. Some
of the variables that can be used for segmentation are listed below. The segmentation
can be done on the basis of customer characteristics or product or service related
characteristics. Following are some variables of customer characteristics:
• Geographic – Walmart used this segmentation and set up stores located in small
communities, which were largely ignored by other discount retailers such as K-
Mart or Target.
• Type of Business – A service company may orient its services to cater to
restaurants only, whereas another company providing similar service may cater to
manufacturing firms instead.
• Size of the firm – Xerox targeted the large firms while Canon targeted small
businesses.
• Lifestyle – The yuppies are likely to buy sports cars whereas a faily-oriented person
may go for family sedans.
• Gender – Beauty salons may focus on serving men only, women only, or both
genders.
• Age – Kids meals in restaurants, clothing & other accessories catering only to
children (e.g. Toys“R”Us).
• Occupation – Computer software catering to the needs of lawyers.
Product related characteristics would segment the markets based on:

• User type – Sellers of home appliances may target two different segments, i.e. home
builder or home owner. Home builders may choose appliances with basic functions
whereas home owners may look for appliances with additional features.
• Usage – Frequent users and those who use rarely. Many companies have instituted
loyalty programs for frequent users.
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• Benefits sought – Health conscious diners looking for organic ingredients in their
food versus diners not looking for anything special.
• Price sensitivity – Budget hotels target those who are price sensitive, while luxury
hotels target those who are less prices sensitive.
• Competitor – Users of products offered by competitors, e.g. Colgate toothpaste vs
Crest toothpaste.
• Brand loyalty – Those committed to iPhones and those committed to Samsung
smartphones.
Customer characteristics can be a useful criterion for segmentation. There are a number
of bakeries in each neighbourhood serving the needs of the people living in the
neighbourhoods based on their tastes and preferences. Customer characteristics and
demographics can define segments that provide for strategic opportunities such as single
parents, professional women, young girls, elderly and ethnic population such as Chinese,
Malay, Indian, Eurasian, etc. For example, there are restaurants serving food targeting at
particular ethnic group or multiple ethnic groups.
For example, with an ageing population, Marriot has started to target the elderly
population segment with nursing and life-care retirement communities for the elderly,
capitalising on their skill in running hotels, restaurants and food service.
Once segments are identified, the next step is to decide which of these segments should
be concentrated on. It may be beneficial to concentrate on a single segment using focus
strategy, or the business may decide to serve many segments at the same time. Some
companies utilise focus strategy to start with and after gaining experience, may move
to other segments. This was successfully done by Walmart which started with stores in
small communities and then moved onto bigger towns and cities. Currently, Walmart has
also expanded globally. Canon started with the small business segment and moved on to
medium sized and large businesses.
These are some businesses which continue to serve the same segment because of
their unique advantage. Toys”R”Us concentrates only on toys and other accessories for
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children. Toyota continuously concentrated on the small car segment but moved into the
luxury car segment with Lexus. They did not call it as Toyota Lexus, but just Lexus in
order to differentiate between Toyota for the small car segment and Lexus for the luxury
car segment.
General Motors entered the auto market with different brand names catering to different
consumer segments. These include Chevrolet for price-conscious buyers, Cadillac for the
high-end customers and Oldsmobile, Pontiac and Buick for other well-defined segments
in between. These brands were clearly defined and were not associated with General
Motors. However, all these brands have lost their special status and are now collectively
called as cars by General Motors and have lost their competitive edge.
Lesson Recording
4.1.2 Customer Motivation

After identifying customer segments, the next step is to consider customer motivation. In
analysing customer motivation, the relevant questions are:
a. For what purpose are customers using the product or service?
b. Does the motivation differ across market segments?
The company should understand the motivation of the customer segments and form an
appropriate strategy. Best Buy which is a leading consumer electronics retailer has sales
staff who are well informed with respect to product usage and specifications. This has
helped to increase sales from customers who have very little knowledge about consumer
electronics products and need assistance in choosing the appropriate products for their
needs.
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Knowing certain customer motivation helps to define strategy. If the motivation in

purchasing a car is for safety, then an appropriate strategy of the company would be to
include as many safety feature as possible. However, some customer motivation would
not lead directly to strategy. One example of such motivation would be to have reliable and
uninterrupted public transport services. Public transport operators should be concerned
with how they can provide such reliable and uninterrupted service.
Identifying Motivation
Motivation can be identified through customer interviews. It can be individual interviews
or group interviews. The idea in these interviews is to identify the motivation of customers
in purchasing a product or service. These interviews could result in a list of large number
of motivations. The next task is to cluster these motivations into groups or subgroups. The
motives are then structured into hierarchy with the most general and strategic motives at
the top and the more specific and tactical motives at the bottom.
Another task in analysis of motivation is to decide the relative importance of the

motivations. For example, how would an airline passenger trade off between efficient
service and price? Another approach will be to identify which judgments will lead to
purchase decisions. For example, the purchase of cereal for family could be based on what
children like, instead of qualities such as nutritional benefits.
The last task in analysing motivation is to define the strategy, which will be based on
the motivation of customers in their purchase decision as well as other factors such as
competitor’s strategies. The strategy should also consider how feasible and practical the
strategy is, and whether the company has the capabilities to pursue the strategy.
Customer Relationship Management

Customers should be treated as active partners in the buying process, rather than passive
targets of product development and advertising. Managers can do the following to achieve
this:
• Encourage active dialogue with customers - Customers can be asked to provide
feedback on the product or service as well as what motivated them to purchase.
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• Mobilise customer communities – Social networks and Forums can be used

effectively. An example would be “Apple users’ forum” where the Apple users can
provide inputs on the product design and use.
• Manage customer diversity – This is particularly true in technology products
which consist of a wide range of IT savviness among the customers. There are
well informed and experienced customers who need little assistance in product
or service selection. There are also customers who are not IT-savvy and require
considerable assistance in selection and use of the product or service.
• Co-creating personalised experiences – The Company may allow customers to
design the product rather than choose those that are already designed. For example,
an online florist can allow the customers to choose what flowers should be included
in a bouquet and what vase should be used.
4.1.3 Exploring Unmet Needs

An unmet need is a customer need that has not been met by existing product offerings.
For example, until 1914, the main mode of transportation was horse ridden carriages
which were very slow. The customers required some other modes of transportation which
is more efficient than horse ridden carriages. This unmet need was fulfilled by Ford
with the model-T automobile. In a similar manner, the usual mode of transportation for
transatlantic voyage was the ships which were again slow. The customers required faster
mode of transportation, and this unmet need was fulfilled by air transportation.
Unmet needs are strategically important because they represent opportunities for
companies to increase the market share, break into a market, or create new markets. They
can also represent threats to incumbent firms as competitors may fulfil the unmet needs
and dilute the market share of incumbent firms.
Sometimes, customers may not be aware of their unmet needs because they are used to
the limitations of existing products and services Unmet needs that are not obvious may
be more difficult to identify but they also offer greater opportunities as incumbent firms
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are often less able to respond to these unmet needs. The ability to think out–of-the-box or
creative thinking is a key challenge in addressing unmet needs.
Creative thinking process is based on three principles. First, ideas should not be evaluated
when they are first proposed. Instead, all ideas should be laid out and the attractiveness
of each one is evaluated together to select the best idea. Second, the problem should
be approached from different mental and physical perspectives. Third, there should be
mechanism in place to implement the most promising idea.
Such creative thinking process paves the way to success for companies such as Walt
Disney, Apple, Sony, and Samsung to name a few. Walt Disney took advantage of the
popularity of its cartoon characters in creating the theme parks such as Disneyland and
Disneyworld. Apple came up with creative products such as iPods, iPads and iPhones.
In summary, customer analysis will provide information as to:

i. which of the target segment the company should focus on,
ii. understand why the customers are using the product and service and make
efforts to satisfy their motivation, and
iii. creatively develop products or services which would address the unmet needs
of the customers.
Lesson Recording
4.2 Competitor Analysis

Competitor analysis is central to any company’s strategy formulation. Unless the
managers understand the nature of competition and the strategies used by competitors,
they cannot formulate appropriate strategies to compete effectively.
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Competitor analysis starts with identifying current and potential competitors. After the
competitors are identified, the focus will shift to understanding the nature of competition
and competitors’ strategies.
4.2.1 Identifying Competitors

In many cases, major competitors can be easily identified. For example, Coca Cola
competes mainly with Pepsi Cola while there may be many other small cola companies.
In banking sector, major competitors in Singapore are DBS, OCBC and UOB though there
are a number of foreign banks, such as Citibank, which also compete in the same industry.
When competitors are easily identified, the analysis will have to be in-depth and with
insight. Most of these competitors will often use the same business model and have the
same assumptions about customer needs. Thus, the strategy to compete effectively in
this competitive market is to do similar things in a better manner, and usually the main
focus will be on price or fees and charges. However, in many markets, traditional business
model is disappearing fast and customer priorities are changing.
The strategic challenge facing the firms is to detect, understand and participate in new
competitive forms as they emerge. It is no longer viable to use old business models which
used to result in continuous profitability. Firms need to be sensitive to new business forms
by studying them as they emerge. One way is to expand the analysis to include more
non-traditional competitors. The analysis of indirect non-traditional competitors is done
depending on the degree to which they represent an immediate threat or opportunity.
Non-traditional competitors can be identified by looking at the perspective of customers.

The perspective to take is to examine the various alternatives available to the customer
before purchasing a given product.
Another approach is to examine product usage associations. For each product, the
customers can be asked to identify a list of use situations or applications. For each use
context, they can name all the products that are appropriate. Then for each use context,
they can be asked to list all the products that are appropriate for the use situation. For
example, when the weather is extremely hot, the customer can use fans, air coolers or air
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conditioners. Thus competitors for a company that manufactures air conditioners are not
only the other manufacturers of air conditioners but also manufacturers of air coolers and
fans.
In order to understand the competitive environment, one can look at the alternatives
available to the customers and how appropriate the product or service is from the use
context.
4.2.2 Strategic Groups

The competitive structure of the industry can be understood through identification of the
strategic group. A strategic group is a group of firms that:
• pursue similar competitive strategies, such as distribution channel, communication
and price / quality position
• have similar characteristics such as size
• have similar assets and competencies such as brand associations, global presence
or research and development.
In the auto industry, strategic groups can be identified as:

• Small and medium sized cars segment, which include Suzuki, Toyota, Nissan, Ford,
Hyundai etc.
• Luxury cars segment, which includes BMW, Mercedes-Benz.
• Premium cars segment, which includes Rolls Royce, Lamborghini, Ferrari, Bentley.
• SUV cars segment, which includes Toyota, BMW.
• 4-wheel drive cars segment, which includes Subaru, Jeep.
Each strategic group has mobility barriers that inhibit or prevent businesses from moving
from one strategic group to another. For example, the Suzuki brand is associated with
small and medium sized cars and it will be very difficult to disassociate this perception
from consumers’ mind even if it starts to sell luxury or premium cars. Toyota moved into
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the luxury cars segment with the Lexus brand, enabling the disassociation with the Toyota
brand. BMW moved into small and medium sized cars segment with the BMW Mini, but
kept the prices high so that it belonged to luxury cars segment.
A sustainable competitive advantage can be developed by pursuing a strategy of

developing assets and competencies that create barriers to competitors. One way to
develop a sustainable competitive advantage is to pursue a strategy that is protected
from competition by assets and competencies that present barriers to competitors. Dell’s
strategy of marketing directly to customers through telephone and through internet
developed assets and competencies to support their direct channel. Other competitors like
Compaq could not change their strategy of selling through retailers.
The strategic group concept makes competitive analysis more manageable. Instead of
analysing all competitors dealing with similar products or services, the analysis considers
only companies that belong to the same strategic group.
The selection of a strategy and its supporting assets and competencies will often require
selecting or creating a strategic group. Through this, a company is determining the group
of companies that it would like to compete with.
4.2.3 Identifying Potential Competitors

In addition to the current competitors, it is also important to consider potential
competitors. New competitors might enter due to the following reasons:
• Market Expansion – Firms operating in different geographic regions and different
countries may become potential competitors. The American auto market was
dominated mainly by General Motors, Ford, and Chrysler. However, when the oil
crisis hit the world in 1973, Japanese cars became competitors of these American
cars.
• Product Expansion – Companies concentrating on a single business may expand
through a product in another industry. For example, Canon, primarily a camera
manufacturer, expanded into the photocopier industry.
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• Backward Integration – Customers could also become potential sources of

competition. For example, an auto manufacturing company like Ford may acquire
manufacturers of components such as tyres. In this case, Ford will become a
potential competitor in the tyre industry.
• Forward integration – Potential competition can come from suppliers who enter the
market as the margins are attractive. For example, Intel is entering the consumer
market with end-user products.
• Export of assets and competencies – A competitor who lacks assets and
competencies at the current time can increase the assets and competencies either
through own efforts or through merger with other companies and can emerge as
a major competitor.
Lesson Recording
4.2.4 Understanding Competitors

Understanding the competitors and their activities will be beneficial. By understanding
the strengths, strategies and weaknesses of the competitor, the company can explore
opportunities and threats. A decision on strategic alternatives may be based on the ability
to forecast the likely reaction of key competitors. It will also provide an idea about strategic
uncertainties that requires monitoring.
Competitor actions are influenced by:

• Size, growth and profitability – The growth of sales and market share are indicators
for evaluating a competitors’ business strategy. Companies which have strong
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market position and have strong growth in sales are strong competitors. A
profitable business will have better access to capital for investment.
• Image and positioning – In order to determine the position of a company, the
image and brand personality of its major competitors is examined. A competitor’s
weakness on some attributes or traits can be an opportunity for the company
to differentiate and develop an advantaged position. On the other hand, a
competitor’s strength in some important dimensions can pose a challenge for the
company to exceed them. Competitor image and positioning information can be
deduced by studying the products, advertising, packaging and actions. In addition,
a customer research would provide an understanding of the relative positioning of
the various competitors.
• Competitors’ objectives and commitments – Knowledge of competitors’ objectives
can help to forecast whether strategic changes are likely or not. Their objectives of
market share, sales growth, profitability as well as willingness to invest will provide
information in helping a company to set its strategy.
• Current and past strategies – It is important to review the current as well as the
past strategies of the competitors. In particular, emphasis will be made on past
strategies that failed as these past experience will deter the company to try the same
strategy again. If a competitor is planning development of new product or new
market, it can aid in anticipating future growth directions. If the strategy of the
competitor’s strategy is Differentiation, the basis used for differentiation should be
further analysed. If it uses Focus strategy, the niche market it is dealing with should
be identified. If it is Low-cost strategy, the basis on which it is able to sustain this
strategy should be analysed.
• Competitor organisation and culture – It is important to get information on the
background and experience of top management as it can indicate its course of
future action. Organisation culture, its structure, systems and people will impact
on its strategy. A highly structured organisation with tight controls is less likely to
shift to an aggressive, market oriented strategy. An organisation that emphasises
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innovation and risk-taking is less likely to change into product refinement and cost
reduction program.
• Cost structure – The understanding of the cost structure, especially if the competitor
adopts a Low-cost strategy, can provide an idea about its future pricing strategy and
whether it can continue to follow the same strategy. Information relating to variable
costs and fixed costs, sales level, number of plants, relative costs of raw material,
amount of investment in plant and equipment are all useful in understanding the
cost structure of a competitor.
• Exit Barriers – These barriers are crucial for a company to exit from the business
and thus indicate their likely commitment. The exit barriers will be high if a firm
has any or all of the following:
i. specialised assets for which there is no ready alternative market
ii. long-term labour agreements
iii. long-term leases
iv. good relationship with other business units through shared facilities, the
brand name, distribution channels etc.
4.2.5 Assessing Competitor Strengths and Weaknesses

It is also necessary to assess the strengths and weaknesses of the competitor as this
assessment will provide insight as to the firm’s ability to pursue various strategies. Once
the competitor’s strengths and weaknesses are identified, strategies to put the strength
of the firm against the weakness of the competitors can be developed. Strategies that can
reduce or neutralise the strength of the competitor can also be formulated.
Analysing strengths and weaknesses will cover the following:

a. What are the relevant assets and competencies?
b. Why is this business successful?
c. How does the company meet the customer needs?
d. What aspects of the customer needs are met?
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e. Which part of the value chain provides the competitive advantage?
The value chain can be also be used to identify the strengths and weaknesses of
competitors. The value chain comprises activities that create value for the company and
customers, which include primary and secondary value activities.
Primary value activities are:

• Inbound logistics that deals with warehousing.
• Operations that deal with the process of transforming inputs into the final product.
• Outbound logistics which includes order processing and distribution.
• Marketing and sales which includes communication, pricing and channel
management.
• Service which includes installation, repairs and parts.
Secondary value activities are:

• Procurement procedures and information systems
• Technology development dealing with product and/or process improvement
• Human resource management dealing with hiring, training and compensation
• Infrastructure dealing with general management, finance, accounting, quality
management.
Lesson Recording
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4.3 Market Analysis

Once customer analysis and competitor analysis are completed, the next step is to conduct
market analysis. The outcome of market analysis would be a set of strategic judgements
about a market or a submarket and its dynamics. One of the major considerations in
market analysis is to determine the attractiveness of the market or submarket to current
and potential participants. The frame of reference in market analysis is “all participants.”
For any particular firm, whether a market is appropriate or not will depend on the firm's
strengths and weakness and how these match up with competitors.
Another consideration in market analysis is to understand the dynamics of the market.

The dynamics will include key success factors, trends, threats, opportunities and strategic
uncertainties.
The market analysis would cover the following dimensions:

• Actual and potential market size
• Market growth
• Market profitability
• Cost structure
• Distribution system
• Trends and development
• Key success factor
4.3.1 Market Size

The identification of total market size is relevant for strategy formulation. If the market
size is big, the company can form strategies to capture a certain percentage of the total
market. If the market size is very small, careful consideration will have to be given to
decide whether to enter the market or not.
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In addition, it may be necessary to look at the submarkets. For example, the auto industry
market consists of different submarkets such as small and medium, luxury, premium, SUV,
and 4-wheel drive. Thus, the decision may be whether to enter a submarket or not.
In addition to the current market size, it is also useful to consider the potential market
size. For a hospital, change in the age distribution leading to larger number of elderly will
provide an expanded market. In addition, new usage for a product, new user group, or
more frequent usage of a product can also expand the market size.
4.3.2 Market Growth

It is also important to consider the potential for growth of the market size. Growth
generally means more sales and profit even without increasing market share. On the other
hand, declining market can mean reduced sales and price pressure in order to maintain
the revenue.
Conventional wisdom suggests that a company should invest in a growing market and
divest or even exit in a declining market. But in reality, the reverse could be more
rewarding. A growing market also involves considerable risks. Unless appropriate risk
mitigating strategies are in place, investing in a growing market can lead to problems. In
a declining market, those firms which do not possess the needed competencies will exit
the market and this will reduce the competitive nature of the market, enabling surviving
companies to perform well.
4.3.3 Market Profitability Analysis

Market profitability analysis will be based on the industry life cycle, type of industry, and
the competitive nature of the industry which were covered in Study Unit 2. Generally,
market will be profitable if it is in the Growth stage of the life-cycle with low competitive
rivalry and high barriers to entry and the competition is less.
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4.3.4 Cost Structure

Cost structure of a market can lead to identifying the key success factors. The value
chain analysis can help to indicate where value is added to the product or service. The
proportion of value-add attributed to one value chain stage can be so important that a key
success factor can be associated with that stage. It is possible that firms will try to maintain
the lowest cost possible for a highly value-add stage in the value chain.
It is also important to anticipate changes in key success factors. The key success factor of
Mustafa is its ability to source merchandise from various countries and have the suppliers
ship the goods to Mustafa only when they need it. Through this, Mustafa is able to provide
a range of products to suit the needs of the customers and avoid the necessity of having
a warehouse.
4.3.5 Distribution Systems

Analysis of distribution system addresses questions such as what are the alternative
channels, what channels are growing in importance, and who has the power in the
channel.
4.3.6 Market Trends

For a firm to formulate appropriate strategies, it is important to identify the market trends.
The market trend analysis focuses on change and identify what is important. The trend
for health consciousness has reduced the demand for carbonated drinks. These also lead
to objection over the food in fast food restaurants, calling them as junk food. If this trend
continues, these companies will have to re-formulate their existing strategies.
In summary, competitive analysis provides information as to why customers purchase a

product or service, who are the competitors fulfilling the needs, what are the strengths and
weaknesses of the competitors, and the market structure in which the firm is operating.
The results of this analysis would provide inputs for strategy formulation.
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5
Study
Unit
Internal and Capabilities Analysis

BUS489 Internal and Capabilities Analysis
Learning Outcomes

• Appraise the role of internal and capabilities analysis in strategy formulation
• Analyse the company to identify the distinctive capabilities
• Identify the strengths and weaknesses of the company
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Overview

competencies and capabilities for the same. The resources and competencies can be
assessed through internal analysis while capabilities can be assessed through capabilities
analysis.
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Chapter 5: Internal and Capabilities Analysis
Microwave ovens for residential uses were first introduced by Amana in 1971 in the USA
using magnetron technology. This technology was soon adopted by Japanese companies
such as Sharp and they were able to come up with cheaper solutions. The Japanese
microwave oven subsequently dominated the market. In 1977, Samsung wanted to enter
the microwave oven business. The first two prototypes it developed melted down,
requiring Samsung to redesign the product again and again. In 1980, J. C. Penney placed
an order with Samsung to produce microwave ovens for them with the condition that
it is 25 percent less expensive than existing ones. This caused Samsung to redesign its
microwave oven once again. By the late 1980s, it was producing more than 4 million units
per year and had acquired about 35 percent of the U.S. market. Through redesign of its
microwave oven, Samsung was building up its capability.
Lesson Recording
Study Unit 5 Internal and Capabilities Analysis Part 1
In Study Units 2, 3 and 4, the external analysis based on environment, industry, customer
motivation and competition showed the external threats and opportunities. However,
appropriate strategies have to be developed based on internal objectives, strengths and
capabilities of the firm as well. Understanding a business in depth is the goal of internal
analysis. Internal analysis is similar to competitor analysis but the focus is on the firm
rather than external competitors. The internal analysis is based on specific, current
information of the firm such as sales, profit, costs, organisational structure, management
style and other factors.
Strategy can be developed for the firm as a whole or for a group of business units, or for
a single business unit or part of a business unit. Thus internal analysis is to be conducted
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at each of these levels. Analysis will differ for each level in terms of emphasis and content
but the structure remains the same. The goal is to identify the organisational strengths and
weaknesses with the aim to develop strategies to exploit the strengths and correcting or
compensating for the weaknesses.
5.1 Financial Performance Analysis

Financial performance analysis concentrates on profitability and sales. If the performance
is unsatisfactory or if it is deteriorating, it may require a change in strategy. Even if the
performance is not declining, careful considerations must be made to understand how it
can be improved. This financial performance analysis is central to the strategic decision
of how much to invest or disinvest.
Analysis of current financials, measures of sales and profitability will indicate changes in
market viability of a product line and the ability of the firm to produce competitively. It
can also indicate the success of past strategies and can help in evaluating whether a change
in strategy is warranted.
Many firms have a target for sales and profitability as key elements of their objective.
Objectives such as market share, social responsibility, employee welfare, product quality
and research and development can also be used to evaluate the current strategy.
Sales and Market Share

Sales and market share provide an indication of how the customers regard the products
or services the firm offers. If the relative value of the products or services from the
customer point of view changes, sales and market share will be affected. On the other
hand, increased sales may mean that the customer base has grown. If the customers are
loyal, it may indicate stability in future sales. Increased market share can provide the
potential to gain strategic competitive advantage such as economies of scale. However
sales can be affected by short-term actions such as promotions offered by the firm as well
as the actions of competitors. Thus, it is necessary to separate changes in sales that are
caused by tactical actions from those that represent fundamental changes in the value
delivered to the customers.
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Profitability
Profit and profitability are indicators of business performance. The usual measure of
profitability is given by return on assets which is calculated as the amount of profit
earned per dollar of investment in assets, or ROA = Profits/Assets. Better information
about usage of assets can be obtained by decomposing ROA as, ROA = Profit/Sales *
Sales/Assets. The first term known as net profit margin provides an indication of the
efficiency of cost control within the organisation, whereas the second term known as asset
utilisation provides a measure of sales generated per unit investment. If the profit margin
is decreasing, it may call for an examination of changes in the various cost elements, and
the strategy will be to improve the cost control by either changing the supplier of reducing
the cost of marketing, etc. If asset utilisation is decreasing, it means that the company has
more assets than needed to generate the given level of sales. The status of all assets need
to be examined and if necessary, some of the assets may be disposed off.
In assessing profit and profitability, caution must be applied. The profit may be affected
by non-cash expenses such as depreciation. The total assets may not include the value of
intangible assets such as patents and brand equity.
Some companies use the measure of economic value added (EVA) which provides an
estimate of increase in the value to the shareholders. Shareholder value can be increased
through:
• reducing costs or increasing sales without additional capital investment
• investing in high-return products
• reducing the cost of raising funds through appropriate level of debt
• using less assets and hence lower working capital required. This can be done
through better inventory control and better management of accounts receivables.
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Lesson Recording
The issue in increasing shareholder value is to forecast future stream of profit and
investment needed over a long-term. Unfortunately, it is very difficult to predict the future.
Therefore many companies take a short-term view and expect that if the profits increase
in the short term, it is more likely that long-term profits will also increase. Thus it is
very difficult to embrace strategies that concentrate on long term value creation if short-
term profits are affected because of the strategy. Some companies do this successfully
by including real options that would be taken up in the future if short-term profits are
increasing.
A reduction in investment can also pose problems. If a company has some obsolete
equipment or has overcapacity, it can either shut down some plant or dispose off the
assets to reduce investments. Investment can also be decreased through outsourcing.
However, the company should be careful in seeing that the quality of the product from
the outsourcing meets the requisite standards.
However, concentrating on the objective of shareholder value will reduce the

concentration on other stakeholders such as employees, suppliers and customers who all
contribute towards long-term sustainability. Thus due care should be taken to balance the
concentration on shareholder value and concentration on value to be maintained for other
stakeholders.
In general, concentrating on profitability measures tend to be short-term in nature which

may result in the reduction of investment in new products and brand development that
will have long-term payoffs. Therefore it is necessary to develop performance measures
that will reflect long-term sustainability. The focus should be on assets and competencies
that form the basis for current and future strategies and the competitive advantages.
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5.2 Performance Measures Reflecting Long-Term Profitability

These measures often include:
• customer satisfaction / brand loyalty
• product service / brand loyalty
• brand / name associations
• relative cost structure
• new product activity
• manager / employee performance
Customer Satisfaction / Brand Loyalty
Even though sales and market share are useful, they are only crude indicators of how
customers really feel about a firm. These are crude because they are affected by competitor
action and market fluctuation. Customer satisfaction and brand loyalty are more sensitive
measures that also have diagnostic value. If customers face problems in using a product
or service, they are likely to change brands or firms. The most important information will
come from those customers who decide to leave a brand or the firm. Exit interviews with
these customers will be of great value to identify issues the firm should tackle. In addition,
the size and intensity of firm should be assessed. These measures can be tracked over time
and compared with those of competitors.
Product and Service Quality
Product or service quality and its components should be critically and objectively
compared with that of the competitor and with customer expectations and needs. The
relevant questions are:
• How good a value is this product or service to the customers?
• Can this firm deliver superior performance?
• How does this product or service compare with those of competitors?
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• How will this product or service compare if the competitor comes up with
innovation?
The product and service quality will be based on many dimensions and will differ from
industry to industry. A car manufacturer can assess quality based on durability, features,
repairability, and ability to perform as per specification. A bank is usually concerned with
accuracy of transactions and quality of customer experience. A business that requires
better marketing of a good product line is different from one that has inherent deficiencies
in its product or service.
Brand / Firm Associations

A firm also needs to assess what customers think about a brand or the firm and what
association they make of it. For example, Apple is considered as an innovator and
producer of quality equipment. Walmart is associated with discount retailing while Macy's
is associated with prestige. Perceived quality may be different from actual quality as
perceived quality is based on retailer type, pricing strategy, packaging, and advertising.
Typically it is perceived that a higher price means better quality. Products sold in specialty
shops are perceived to be of better quality than if it were sold in discount shops. Such
associations can be strategic assets for a firm.
Relative Cost
If the strategy is to achieve a cost advantage, a careful analysis of the cost of a product or
service and its components will be critical. It is also necessary to tear down competitor's
products and analyse their systems in detail.
If the cost of a component is both more expensive and inferior compared to the
competition, a change in strategy may be warranted. However, the analysis should be
done with a view to identify the importance of this component on customer satisfaction.
If a component that is inferior has little impact on the customer value, there need not be
any change. A value analysis, in which a component's value to the customer is quantified,
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can suggest that a superior component can support a price increase even though it costs
more. If the component is inferior, it can be de-emphasised.
New Product Activity

New product activity should be closely monitored. The major question with respect to
new product activity is "Can the company effect better product performance and market
position?" Having a good R & D team that has the capability to generate a stream of new
products and having the capability to obtain the patent rights is not sufficient. What is
important is the ability of the firm to bring the innovation into the marketplace.
Manager / Employee Performance

The key to long-term sustainability is the people who must implement strategies. There
should be sufficient human resources in place to support current and future strategies. If
there are gaps, they should be filled with correct people. It is also necessary to see how
well the human resources are nurtured. One of the indicators of how well the people are
nurtured can be arrived at through the percentage of persons leaving the organisation
periodically.
5.3 Determination of Strategic Options

There could be a number of strategic choices that achieve the strategic objectives. For
business level strategy that looks into current operations, a number of alternatives may
be available such as different distribution channels. Similarly, there may be a number
of alternative choices for corporate level strategy. The task is to choose the appropriate
strategy among all available strategies to decide the one that will provide the best results.
The following five elements will impact on the strategic options a firm can have:
• Past and current strategies
• Strategic problems
• Organisational capabilities and constraints
• Financial capabilities and constraints
• Strengths and weaknesses
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Past and Current Strategies

In an attempt to sort out new options, it is necessary to make an accurate profile of past
and current strategies. Sometimes, a strategy may evolve into something very different
from what is assumed. A firm may position itself as an innovator and spend heavily on
R&D. However, the analysis of its operations may instead indicate that its success is based
on its manufacturing strength and economies of scale.
Strategic Problems
Strategic problem is a problem that has strategic implications. For example, an auto
manufacturer may find that the customers are complaining about the engine getting
overheated. In this case, the cars are recalled so that the parts can be replaced with a
redesigned component to address this problem.
A strategic problem is different from a weakness or liability which is caused by absence of

an asset or competence. Businesses can cope with the absence of an asset or competence
by changing the strategies. Strategic problems, on the other hand, need to be addressed
aggressively and corrected even if the fix is difficult and expensive.
Organisational Capability and Constraint

The elements of an internal organisation include structure, systems, people and culture,
which can be important sources of strengths as well as weaknesses. 3M has a very flexible
and entrepreneurial structure and has grown through innovations and new businesses.
Texas Instrument’s structure and system supports engineering and manufacturing which
are its strengths. However, Texas Instrument has a weakness in its consumer products.
The elements of an internal organisation can affect the cost and even the feasibility of
some strategy. There should be a good fit between the strategy and the elements of the
internal organisation. If the strategy does not fit in with the current internal organisational
elements, it may be very expensive or even impossible to implement a new strategy.
Financial Resources and Constraints

One strategic decision for most organisations is the amount of investment it needs to make.
A basic consideration is the firm's ability to raise the needed funds. A financial analysis to
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determine probable, actual and potential sources and uses of funds will aid in determining
the financial resources. Funds may be raised through internal operations, or through debt
or through equity. An analysis of balance sheet will aid in deciding which of these options
are suitable.
If a company has multiple business unit, an analysis of how much support the parent firm
can provide to each individual business unit should also be conducted.
Organisational Strengths and Weaknesses

The key purpose of internal analysis is to identify the strengths and weaknesses of an
organisation based on assets and competencies.
Lesson Recording
5.4 Capabilities Analysis

Some companies are able to thrive while some companies find it difficult to survive. For
example, in the auto industry, BMW has been consistently successful while Ford and
General Motors are finding it difficult to sustain their competitive position. This shows
that the relative performance of any company in a given industry is not only affected by
the environmental factors but also the differences in their company-specific capabilities in
terms of the resources and competencies they possess.
It is accepted that organisations have different strategic capabilities, and it can be

difficult for one organisation to either achieve or copy the capabilities of another. Thus
managers should clearly understand how their organisations are different from their
competitors and how to use this difference to achieve competitive advantage and superior
performance. The competitive advantage and superior performance can generally be
traced to the distinctiveness of their strategic capabilities.
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5.4.1 Strategic Capability

Strategic capabilities are capabilities of an organisation that lead to its long-term
sustainability and provide competitive advantage. In order to analyse the capabilities, it
is important to understand what competencies result from the different resources that an
organisation possesses. For example, plant and equipment are resources used by most
companies. The competencies associated with these resources can be the utilisation of
plant and equipment, productivity of workers, marketing of products, etc.
5.4.2 Dynamic Capability

A company cannot sustain over a long term with the capabilities it currently has. As
was seen in Study Units 2, 3, and 4, there are changes that take place continuously
in the environment and the competitive landscape. Thus, a firm needs to develop
new capabilities to develop competencies that are needed to compete in the changing
landscape. These are termed as dynamic capabilities, and these dynamic capabilities can
be created through sensing, seizing and reconfiguring.
Sensing means that a firm must continuously explore opportunities across various markets
and technologies. Identifying customer needs and unmet needs are examples of sensing
activities.
Seizing means that the company should seize the sensed opportunity by coming up with
new products or services or processes fast ahead of competitors.
Reconfiguring means that the company should engage in acquiring new capabilities and
investments. If necessary, it must discard its old capabilities.
5.4.3 Threshold and Distinctive Capabilities

In order to compete effectively, an organisation must have a minimum level of capability.
This minimum level is known as the threshold capability. In order to achieve superior
position, the organisation should strive to obtain capabilities beyond the threshold
capability. Many start-up companies fail because they are not able to raise resources
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that are needed, or have the competencies to compete with established companies. It is
important to realise that the level of threshold capabilities will change over time due to
changes in the environment and competitive landscape. Moreover, a company that does
not develop its technological capability will not survive in an industry where there is
continuous change in technology.
While threshold capabilities are needed to compete in the market, they do not
provide competitive advantage or superior performance. In order to have a sustainable
competitive advantage, it is necessary to develop distinctive capabilities which are
difficult for competitors to imitate. As an example of distinctive capability is having a
following of loyal customers, for a brand such as Apple.
5.4.4 VRIO Analysis

In order to identify whether the company has any distinctive capability, VRIO analysis is
applied. VRIO represents:
• Value of Strategic Capability
• Rarity
• Inimitability
• Organisation Support
Value of Strategic Capability

Strategic capabilities are valuable only when they create a product or service that is of
value to the customers and if and only if they generate higher revenues or lower costs or
both. This will depend on the ability to take advantage of opportunities and neutralising
threats, providing value to customers and having a low cost. IKEA is able to come up with
new designs of furniture which provide value to customers, and IKEA is able to sell at a
lower cost compared to its competitors.
Rarity
If the capabilities of all competitors are similar in nature, then it cannot be called a
competitive advantage. If all competitors have similar capabilities, it is easy to respond
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quickly if one of the firms comes up with a strategic initiative. For example, one company
installed air bags as safety measure in a car and all competitors followed suit. On the
other hand, rare capabilities are those possessed uniquely by one firm. A company that
has rare capability gets a competitive advantage that is longer-lasting. A company that
has patented products or services will be a rare capability. Companies that have highly
qualified researchers engaged in R&D can also be a rare capability if such skills and human
resources are absent among competitors. However, care must be taken to see that what
is rare may not be rare in the future. Thus, it is necessary for a firm to consider other
capabilities to remain sustainable.
Inimitability
It is not sufficient to have a strategic capability that provides value to the customers
and rare. For this capability to be a distinctive capability that would provide competitive
advantage, it must be inimitable, that is, it should not be easy for competitors to imitate
this capability. If a firm has distinctive marketing skills, they are distinctive only if they
cannot be copied by the competitors or they would be too expensive to copy. The barriers
to imitation lie in linkages among activities, skills and people. The resources, per se, can
be easily obtained. Competitive advantage arises in the way resources are deployed and
managed on the basis of certain competencies.
Organisational Support
The organisation should be suitably organised to sustain and support the distinctive
capabilities. The organisational structure, processes, systems and culture should be
designed to develop and sustain such distinctive capabilities.
Lesson Recording
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5.5 Diagnosing Organisational Capabilities

It is quite likely that most organisations have superior capabilities but these may not be
truly understood by the managers. In order to identify the capabilities the firm has as
compared to its competitors, benchmarking, and value chain analysis are used.
5.5.1 Benchmarking
Benchmarking is used to understand how a firm matches up to the competitors. The
benchmarking will focus on standards of products or services, financial performance and
organisational capabilities. Benchmarking can be done at the industry level, in which
performance is compared with those of other firms in the same industry. Alternatively,
it can also be done across industries (which is known as best-in-class benchmarking) by
comparing the performance of the firm with others across different industries. An issue
with industry comparison is that the whole industry may be performing poorly, and this
firm may assume they are doing slightly better which is not really satisfactory.
Best-in-class benchmarking involves comparing the capabilities or performance

irrespective of the industry in which these firms are doing best. For example, Southwest
Airlines benchmarked its refuelling time by sharing the process used in Formula One
Grand Prix motor racing pit stops.
The idea in benchmarking is to study the performance of other firms and review the
capabilities underlying their performance. However, benchmarking does not provide the
underlying reasons for better or poorer performance. In addition, benchmarking does not
allow for creating distinctive capability as the aim in benchmarking is to reach the level
or performance of those firms that are benchmarked against.
5.5.2 Value Chain Analysis

The value chain describes the activities within an organisation that create a product or
service. It can also be considered as the set of inter-organisational links and relationships
that are necessary to create a product or service. It is important for the managers to
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understand clearly as to which of the activities create value to the customers and which
are not.
The concept of value chain was introduced in Study Unit 4. In this Study Unit, we
will discuss how value chain analysis can be used to understand strategic position and
capabilities. The value chain analysis can aid the managers to understand if there is a
cluster of activities that provide benefit to customers. For example, a business could be
very good in marketing and sales and may not be as good in procurement and operations.
The value chain analysis can also be used in the VRIO context. It can identify value
creating activities that are important to meet customer needs and how they can be further
developed. It can also identify the value creation activities that are rare or whether these
activities are similar to those of the competitors. It will also explain whether these activities
can be imitated. The organisation structure can be examined to see whether any part of
the value chain supports or facilitates value creation in other sections of the value chain.
The value chain analysis can also help to assess the cost and value of the activities by:
• Identifying a set of value activities
• Determining the relative importance of activity internally
• Deciding on the relative importance of activities externally
• Examining where and how costs can be reduced
5.6 Managing Strategic Capability

In order to compete effectively and have long-term sustainability, it is important to have
strategic capabilities that would be distinctive. Thus managers need to create and extend
strategic capabilities after they have been diagnosed through benchmarking and value
chain analysis. This can be accomplished through internal capability development and/
or external capability development.
Internal capability development can be achieved through:
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• Creating and/or upgrading the capability either through building or recombining

capabilities.
• Building systems to promote entrepreneurial skills and capability innovation.
• Leveraging on capabilities in another area.
External capability development can be done through acquisition, alliance formation or

through joint ventures.
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6
Study
Unit
Gathering Strategic Intelligence

BUS489 Gathering Strategic Intelligence
Learning Outcomes

• Appraise the role of strategic intelligence
• Identify the various sources of information
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Overview

competencies and capabilities for the same. In order to conduct environmental analysis,
industry analysis, competitive analysis, and internal analysis, it is necessary to identify
the sources from which needed information can be obtained.
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Chapter 6: Gathering Strategic Intelligence
Lesson Recording
Study Unit 6 Gathering Strategic Intelligence Part 1
In Study Unit 2, environmental analysis was explained. Study Unit 3 dealt with industry
analysis. Competitive analysis was covered in Study Unit 4. These analyses would indicate
the possible opportunities for the firm as well as threats that may emerge. In order to
take advantage of opportunities and neutralise the threats, the company should have the
requisite assets and competencies and should have the capabilities to compete effectively
in the new external environment. This is accomplished through internal analysis described
in Study Unit 5.
In order to conduct these analyses, it is necessary to collect relevant data which can be
termed as strategic intelligence. There are a number of sources that provide such data
and with the advent of Internet, there could be a large number of sources. However, care
must be taken in using a particular source. The data should be credible, reliable, relevant,
and substantiated. The source will be credible if it is responsible for creating the data.
For example, the data provided by the government or government agencies on economic
growth, unemployment, inflation, etc. will be credible. The data must also be relevant
to the purpose of the analysis. The government may have statistical data on more than
100 different series and it is the responsibility of the intelligence gatherer to choose the
relevant data set. Data should also be reliable. Industry forecasts by industry experts will
be more reliable than forecast provided by media. The data also must be substantiated.
This is particularly true in the case of Internet sites. There are many sites that provide
data, which are unsubstantiated without mentioning the source from which the data was
obtained.
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In this Study Unit, we will discuss the various sources from which data can be collected.
6.1 Sources of Economic Information

Most of the economic information is provided by the government departments and
agencies and private companies. Some sources provide data at no cost while some sources
offer fee based services. International agencies such as World Bank, Bank for International
Settlements (BIS), and World Trade Organization have data on many countries. The
governments of many countries provide data specific to their countries and this data
can be obtained from country sites providing such statistics. The data provided by these
agencies include:
• National income
• GDP
• Personal income
• Corporate profits
• Balance of payments
• Exports and imports
• Employment and unemployment
• Productivity
• Consumer Confidence Index
• Economic indicators
• Economic projections and forecasts
• Census data including demographics
• Country reports
The internet sources that provide economic data are listed below:
• Bureau of Economic Analysis (BEA) http://www.bea.gov/
• Bureau of Labor Statistics (BLS) http://www.bls.gov/
• Conference Board http://www.conference-board.org/data/
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• Congressional Budget Office (CBO) http://www.cbo.gov/

• EconData (INFORUM) http://www.inforum.umd.edu/econdata/econdata.html
• Economagic http://www.Economagic.com
• FRED (Federal Reserve Economic Data) https://fred.stlouisfed.org/
• NationMaster.com http://www.nationmaster.com/
• NBER Data Library http://www.nber.org/data/
• Quandl http://www.quandl.com/
• Survey of Professional Forecasters http://www.philadelphiafed.org/research-
and-data/real-time-center/survey-of-professional-forecasters/
• Consensus Economics http://www.consensuseconomics.com/
• AllThatStats.com http://allthatstats.com/en/
• EcoWin Pro http://www.ecowin.com/
• EIU CountryData https://store.eiu.com/product/countrydata/
• CIA World Factbook https://www.cia.gov/library/publications/the-world-
factbook/
• CountryWatch.com http://www.countrywatch.com/
• Bank for International Settlements (BIS) http://www.bis.org/
• U.N. Statistics Division https://unstats.un.org/home/
• World Trade Organization (WTO) http://www.wto.org
• World Bank http://www.worldbank.org/
Lesson Recording
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6.2 Sources of Industry Analysis

The data required for industry analysis is typically in the form of reports. These reports
are provided by government organisations as well as private companies. These reports
include the current state of the industry, and developments taking place in the industry.
Some reports also show the opportunities available in the industry.
The internet sources to collect industry information are listed below:

• U.S. Census Sector Data https://www.census.gov/econ/isp/
• Euromonitor Passport http://go.euromonitor.com/passport.html
• Factiva https://www.dowjones.com/products/factiva/
• Gale Business Collection http://www.gale.com/c/business-collection
• IHS Markit https://www.ihs.com/about/index.html
• EMIS Professional https://www.emis.com/professional
• Roubini Global Economics (RGE Monitor) https://continuummonitor.com/
• Ernst & Young Industry Reports https://www.ey.com/en_gl/what-we-do
Lesson Recording
6.3 Competitor Analysis

Sources of information to analyse competitors include:
Advertising
Advertisements of competitors will provide information about their products and
pricing. An idea about the advertisement budget can be formed by looking at the
frequency of advertisements and the media in which these advertisements appear.
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Usually, advertisements appear in regular media as well as in magazines related to that

industry. When a competitor places an advertisement in a publication belonging to a
different industry, it is an indication that the competitor is planning to move to a new
market segment. Advertisements will also indicate the image the competitor is trying to
create and the strategic position the competitor wants to take in the industry.
Sales Brochures
Sales brochures contain relevant and pertinent information about the product. One can
understand the emphasis the competitors are placing on the features and benefits that
create value for the customers. If there are significant changes in the brochure, it may
indicate that the competitor is planning a new strategy.
Newspaper and Magazine Articles

Coverage of the competitor companies in newspapers and magazines provides
information such as the future plan, new product introduction, and innovations that are
being planned. Product reviews in magazines can provide information about the strengths
and weaknesses of the product.
Databases
There are a number of databases which provide a profile of the companies. The profile
will have information on assets, gross earnings, revenues and other relevant information.
Some databases also provide financial ratios for many companies. The major databases
are:
• Dun & Bradstreet Million Dollar Database Directory http://mergentmddi.com/
• Almanac of Business and Industrial Financial Ratios
• Dun & Bradstreet Industry Norms and Key Business Ratios http://
www.mergent.com/solutions/research/key-business-ratios-(kbr)
• RMA Annual Statement Studies http://www.rmahq.org/annual-statement-
studies/
Annual Reports
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Annual reports of competitors provide a wealth of information such as financial

information, sales volume, and market share. In addition, the Chairman’s report will
provide details of the performance in the past year as well as what the company is
planning for the future.
Employees
Employees within the company can be sources of getting competitor information. Sales
people have access to sales brochures and price quotes of the competitors. By conversing
with customers, the sale people can understand the problems as well as the benefits
while using competitors’ products. Other employees may interact with the workers from
competitor firms in trade meetings and conferences. Another source could be the workers
who worked in competitor firms previously.
Using Direct Observation

The competitor actions can be understood by observing directly. It can be accomplished
by visiting the competitors’ stores or showroom, calling their service number to see how
they respond to customer issues, and if necessary, the competitors’ product can be bought
and used for reverse engineering.
Competitors’ Social Networks and Forums

A visit to the social network site and the forum site of the competitors will also be useful.
Through such visit, one can obtain comments from the customers of the competitors which
can give useful information.
6.4 Internal Analysis

Internal analysis will be conducted similar to competitor analysis. The information about
the company and how the product and services are valued in the market in comparison
to the competitors’ products can be obtained using the information in Section 6.3.
6.5 Capability Analysis

Capability analysis is conducted through capability audit. Capability audit specifies the
various capabilities needed and questions are posed with respect to each capability.
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• Talent - Are our employees capable of delivering the strategy?

• Speed - How fast is the company moving to face challenges?
• Shared mind-set and coherent brand identity - How strong is the culture in relation
to shared values and norms?
• Accountability - Does the organisation structure clearly define responsibility and
accountability?
• Collaboration - Is the company able to make use of synergy among the various
business units?
• Learning - How efficient is the company in developing new ideas?
• Leadership - Is the current leadership capable of directing managers to deliver
results?
• Customer - How well is the company developing customer relationship?
• Innovation - How capable is the company in innovating in product, strategy,
channel, service and administration?
• Efficiency - How efficient is the company in managing systems, processes, and
people?
The answers to these questions will assess the business unit’s performance in each
organisational capability. The answers are given a score from 0 to 10, with 0 if the answer
is “not in place” and 10 if “it is in place“. Capabilities are then ranked in terms of
improvement needed from highest priority to lowest priority.
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7
Study
Unit
Corporate Level Strategies

BUS489 Corporate Level Strategies
Learning Outcomes

• Appraise the role of developing sustainable competitive advantages
• Discuss the need for creating synergy among business units
• Differentiate strategic vision and strategic opportunism
• Identify the strengths and weaknesses of the company
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Overview
Corporate level strategies provide the direction for the firm as a whole. This Study Unit
addresses issues in the formulation of corporate strategies. The approaches to corporate
level strategy formulation are also discussed.
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Chapter 7: Corporate Level Strategies
Lesson Recording
Study Unit 7 Corporate Level Strategies Part 1
Corporate level strategies are relevant to companies that have multiple business units, and
the performance of the company as a whole will depend on the performance of individual
business units. For example, SIA Group consists of Singapore Airlines, Silk Air, Scoot,
Tiger Airways and SIA Cargo and SIA Engineering. When SIA Group decided to acquire
a share of Tiger Airways, it was a corporate strategy to gain a foothold into the low cost
airline industry. Similarly, the introduction of Scoot was also part of its corporate strategy.
Another example is Tata & Sons, the largest firm in India. Its business spans across steel,
auto, consultancy, tea, chemicals, power, telecommunication and retail industries. Though
each of these units operates independently, the overall direction for these business units
is provided by the corporate strategy of Tata & Sons.
While each individual business unit concerns itself with strategies to compete effectively
in the market it serves, corporate level strategies deal with choices concerning different
business or markets. These choices may include:
a. Which are the new businesses to enter into?
b. What should be the mode of entry into the new business?
c. Should the company exit from any of the current business?
d. How should the resources be allocated among the various business units?
e. How should the synergy among the business units be harnessed?
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The scope of an organisation is central to corporate strategy.
7.1 Sustainable Competitive Advantage

The major purpose of corporate level strategy is to develop Sustainable Competitive
Advantage (SCA). It is necessary that an organisation develops strategy to create its own
SCA and also neutralises the SCA of competitors.
Any strategy to create sustainable competitive advantage should be:

a. supported by resources and competencies
b. employed in the market that will value the strategy, or would create value to the
customers
c. such that competitors cannot easily match or neutralise the SCA.
In addition, an effective SCA should have the following characteristics:

• It should be substantial. A slight edge over existing competitors may not be
sufficient to provide an advantage that will affect the market place. Similarly, if the
company offers a marginally superior product, it may not be adequately valued by
the market.
• It should be sustainable in the face of changes in the environmental factors and
competitor actions. For example, technological advances may cause a product to
become a past commodity.
• It should be developed into viable business attributes that will influence customers.
For example, Maytag, an appliance manufacturer, was able to promote itself
as "reliability" company through advertising supported by product design and
product performance.
SCA can take different forms and some of these are listed below:
• Reputation for quality
• Customer service / product support
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• Name recognition
• Low cost production
• Product line breadth
• Continuing product innovation
• Low price / high value offering
• Knowledge of business
• Effective sales force
• Technical superiority
• Effective advertising
• Good distributor relationship.
It is not necessary that an organisation will have only one SCA. It is important to develop
as many SCAs as possible to gain competitive advantage. This is because it will be difficult
for a competitor to neutralise many SCAs at the same time.
Lesson Recording
7.2 Strategic Thrust

A strategic thrust, also called generic business strategy or strategic orientation, is a concept
that classifies business approaches towards obtaining an SCA into groups with common
theme. The common strategic thrusts are:
• Differentiation
• Low cost
• Focus
• Pre-emption
• Synergy
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In addition to these common strategic thrusts, there could be others such as being
innovative, thinking globally, having an entrepreneurial style, and exploiting information
technology.
These strategic thrusts would drive the strategies of each business unit. When a company
has a number of business units, different business units can engage in different strategic
thrusts based on the nature of the market and competition. These generic thrusts will be
covered in Study Unit 8 under Business Level Strategies.
Thrust on thinking globally will be discussed in Study Unit 9 under International and
Global Strategy.
Thrust on innovative and entrepreneurial style will be discussed in Study Unit 10 under
Growth Strategy.
7.3 Role of Synergy

One of the most important concepts in corporate level strategy is the role of synergy.
Synergy between the various Strategic Business Units (SBUs) can generate a truly
Sustainable Competitive Advantage (SCA) for the company as it will be difficult for
competitors to duplicate.
For example, Sony showcases television sets, movie theatres and sound equipment
together in many shops which provides an integrated package that has the cumulative
impact of reinforcing Sony's reputation of providing high quality and technologically
advanced entertainment.
Synergy means that the performance of different SBUs using different market strategies
but operating together will be superior to the same SBUs operating independently. For
example, the two business units can share the same distributional channels. In terms of
products, positive synergy means that offering a set of products will generate a higher
return over time. Apple offers compatibility in iPhones and Apple Watches. As a result
of synergy, combined SBUs will have higher customer value and thus increased sales,
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lower operating costs and reduced investment. Generally, synergy can be harnessed by
exploiting some commonality between the operations of two SBUs, such as:
• Customers and customer application providing a complete solution
• Sales force or channel of distribution
• Brand name and its image
• Facilities used for manufacturing, offices and warehousing
• R&D efforts
• Staff and operating systems, and
• Marketing and market research
7.4 Alliances
Alliances are co-operation with other businesses, and the purpose of forming alliances
is to get instant synergy for both partners. In the airline industry, alliances are common.
The major advantages of such alliances include the ability to get seamless travel, and
transferring frequent fliers awards. Alliances can also result in instant synergy. Google and
Amazon have a large number of alliances to reach their goals of driving internet traffic.
Lesson Recording
7.5 Core Assets and Competencies

Core resources and competencies are the assets and competencies that can become the
competitive basis for many of its businesses. The core competency can be a synergistic
advantage. It is important to look at the whole firm to identify the competencies instead
of looking only at a single business unit. Core competencies consolidate the firm-wide
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technologies and skills into a coherent thrust. A core resource such as brand name or
distribution channel will extend to all business units.
7.6 Capabilities
The key building blocks of business strategy are not products and markets but rather
capabilities to take advantage of opportunities and neutralising threat. The capabilities
are developed through designing efficient business processes. Investment in building and
managing a process that outperforms competition and can be applied across business
units will lead to competitive advantage. Thus strategy formulation should identify the
most important processes within the firm, specify target performance levels, develop
criteria to measure performance and relate performance to achieving superior customer
value and competitive advantage.
One process can be new product development and introduction process. The process of
developing new cars has been reduced from five years to three years by the automobile
firms in Japan, and this process takes into account the needs of the market. Another
process that merits consideration is the order and logistics process in retailing. For
example, through improvements in order and logistics process, warehouse innovations,
and computer ordering process, Walmart has developed huge cost and inventory
handling advantages.
It is to be noted that strategic investment in people and system are needed to develop
superior capabilities in processes.
Lesson Recording
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7.7 Strategic Vision and Strategic Opportunism

There are two approaches to the development of successful strategies and sustainable
competitive advantages, namely, strategic vision and strategic opportunism.
7.7.1 Strategic Vision

Strategic vision takes a long-term perspective, focusing on the future in terms of
both strategy development and supporting analysis. Strategic opportunism is based on
strategies that make sense today with the belief that the best way to have the right strategy
in place tomorrow is to have it right today.
Strategic vision requires a clear future strategy, a clearly specified competitive market
place, functional area strategies and competitive advantage and organisational support
to realise the strategy in terms of resources and competencies to implement the strategy.
Strategic vision provides a sense of purpose. For example, when it was first started, the
strategic vision of Air Asia was to be the leading low cost airline. Though it suffered losses
in its first two years of existence, Air Asia has since grown to increase its passengers load
and the number of flights it operated.
A strategic vision provides a forward looking long-term (two to five years depending on
the industry) perspective on a future state of the organisation. It requires a leader who
has the charisma and personality to take the vision to all stakeholders, both inside and
outside the organisation. Strategic vision can take many forms. For example, Corning's
vision is to be a synergistic, technology driven firm. Sharp’s vision is to succeed by being
a technological innovator.
7.7.2 Strategic Opportunism

Strategic opportunism focuses on the present. It is based on the assumption that changes
in the environment are unpredictable and hence it will not be useful to target the future.
Thus, the firm should develop a strategic advantage for the present time in order to be
successful in the future.
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There are some advantages to strategic opportunism. For example, General Mills brought
cereal brands such as Oatmeal Crisp to appeal to current tastes or trend. Strategic
opportunism also tends to generate vitality and energy that can be healthy especially if
the business has decentralised R&D that generates a stream of new products that suit
the current trends and customer needs. 3M creates new businesses continuously after
evaluation of their prospects at the current time.
Strategic vision and strategic opportunism are two different concepts that require different
organisational set ups. Strategic vision emphasise on commitment, building resources and
capabilities, and the presence of a charismatic leader that is supported by a centralised
and top down structure. In strategic opportunism, the orientation is towards flexibility,
adaptability, ability for fast response that is often enabled by a decentralised organisational
structure and an entrepreneurial organisational culture. Strategic opportunism is the
ability to remain focused on long-term objectives while staying flexible enough to solve
day-to-day problems and seize new emerging opportunities. However the two are not
mutually exclusive as strategic opportunism can co-exist with strategic vision such that
strategic opportunism conforms to the strategic vision of the company.
Lesson Recording
7.8 Strategic Stubbornness and Strategic Drift

Though both strategic vision and strategic opportunism can provide competitive
advantages, there are risks associated with each approach. The risk associated with
strategic vision is termed as strategic stubbornness while the risk associated with strategic
opportunities is termed as strategic drift.
Strategic stubbornness may arise due to implementation barriers, faulty assumptions of

the future, or paradigm shift. Implementation barriers refer to the inability of the firm
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to implement the strategy even though the picture of the future may be substantially
accurate. For example, when video cassette recorders were introduced, Sony tried its best
to have its own version, known as "beta", to be the industry standard but failed against
their VHS (Video Home System) of the competitors.
Faulty assumption is when a company mistakenly assumes that extra value is created for
the customers. For example, American Express came up with the idea of being a one-stop
financial services firm but failed because it assumed that one-stop financial services would
be appreciated by the customers. However, the customers preferred specialist advice and
turned to specialists providing different services, and the initiative of American Express
failed.
Paradigm shift occurs when the nature of business changes due to changes in technology
or competition. For example, the computer industry moved from mainframes to personal
computers in the 1980s. However, IBM was no longer able to leverage its strength in
mainframe computers when the industry shifted to using personal computers.
Paradigm can be changed by introducing new operating models. The model of purchasing
and consuming canned coffee in supermarkets was changed by Starbucks, thus affecting
the sales of canned coffee manufacturers such as Folgers and Maxwell House. Dell
changed the way computers are bought by businesses and individuals. When paradigm
shifts, the new paradigm is dominated by new firms or firms that are considered to be
insignificant by established players prior to the paradigm shift.
Another important element is organisational stubbornness. Typically, success of any firm

tends to reinforce old vision and efforts to do better by reducing costs and improving
service. These operational improvements tend to mask shifts in strategic vision. For
example, Japanese firms have a "winning by working harder" policy which discourages
change and makes the whole industry unprofitable.
It is also very difficult to change organisational culture, especially when an organisation

has successfully developed and nurtured the culture to suit the old vision.
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Strategic drift can arise when a company follows strategic opportunism. Strategic
opportunism requires that investments are made incrementally as and when new
opportunities arise. A firm can find itself in a position where it lacks the needed assets
and competencies to thrive. Sometimes an opportunity may be short lived but may be
mistaken by the management to be one with staying power. In such cases, the strategy
will not pay off as the strategy does not suit the environment or the business.
7.9 Dynamic Vision

A dynamic vision is one that can change in anticipation of emerging paradigm shifts. This
is very difficult but if it can be done effectively, it can lead to considerable success. The
vision of Swiss watchmakers was to be the best in the world. When Japanese firm Casio
entered the market with a low priced digital watches, there was a paradigm shift. The
vision of Swiss manufacturers changed to becoming leaders in digital watches and they
accomplished through Swatch.
In order to change the vision, the organisations need to have the will to change. It should
have the ability to anticipate paradigm shifts and create new vision via insightful and
forward looking strategic analysis, as well as change the organisation, especially the
culture.
Lesson Recording
7.10 Strategic Intent

It is not sufficient just to have a strategic vision. There should be strategic intent. Strategic
intent couples strategic vision with a sustained obsession to make the strategy to succeed
at all levels of the organisation. For strategic intent to achieve a successful strategy, it
should have the following characteristics:
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1. Recognise the essence of winning. For example, Coca-Cola's strategic intent is

the objective of putting a coke within arms-reach of every consumer in the world
through distribution.
2. Have a continuous effort to identify and develop new SCAs or to improve
existing SCA. Asking questions about the SCAs needed in the next year or two
years will help to address this.
3. Willingness to do things differently.
Strategic intent provides a long-term drive to develop SCAs that can be essential to
success. It has the capability to elevate and extend an organisation, helping it to reach
levels that it would otherwise not attain.
7.11 Strategic Flexibility

In strategic intent, the focus is on the commitment to attaining a SCA. In dynamic
industries, SCA may be a moving target that is difficult to achieve because of the many
uncertainties. In such cases, there should be strategic flexibility so that the business can
be ready to seize opportunities as they emerge.
Strategic flexibility, that is, the ability to adjust or develop strategies in response to internal
or external changes can be achieved through participation in multiple product-markets
and technologies. Having resource slack and creating an organisation system and culture
that support the change are also key to having strategic flexibility.
Participation in multi-product market and technology implies that the firm already has
experience in many areas. If the demand is expected to change towards a new product-
market or a new technology is to emerge, the firm can just expand its current product-
market rather than starting from zero. Investing in underused assets can also provide
strategic flexibility. One option is to have large cash balances that can be used swiftly to
seize emerging opportunities or address problem areas.
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Corporate level strategies deal with the direction in which the whole group should
proceed based on the strategic vision. It is important that business level strategies are
linked to corporate level strategy so that the strategic vision and intent can be maintained.
Business level strategies are discussed in Study Unit 8.
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8
Study
Unit
Business Level Strategies

BUS489 Business Level Strategies
Learning Outcomes

• Appraise the role of business level strategies
• Analyse the distinctive capabilities of a business unit to decide on the appropriate
strategy
• Identify the strengths and weaknesses of each of the business level strategy
SU8-2
Overview
In earlier Study Units, it has been shown that environmental analysis, industry
analysis and competitive analysis help in identifying opportunities and threats of the
Strategic Business Units (SBUs) of a corporation. To address these opportunities and
threats, appropriate business level strategies will be needed. Hence, it is important to
formulate appropriate business level strategies that will provide sustainable competitive
advantages.
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Chapter 8: Business Level Strategies
Lesson Recording
Study Unit 8 Business Level Strategies Part 1
Toyota has four divisions, or SBUs, namely, Cars and Minivans, Trucks, Crossovers and
SUVs, Hybrids and FCVs. Under corporate level strategies, Toyota will provide strategic
vision for the company and will develop strategies for developing and maintaining the
brand, entering new markets, and developing new series of transport such as electric cars.
The individual SBUs will have to form strategies to decide the appropriate method of
production, distribution, and marketing. These will be called business level strategies.
These business level strategies should be in line with the corporate level strategy. The
strength of one SBU can be shared with other SBUs which will form synergy, and taking
advantage of synergy will form the core of corporate level strategy. Thus business level
strategies are developed for each strategic business unit. The major issue for any business
unit is choosing the strategy it should pursue in its market that will provide competitive
advantage. Through the strategies chosen, the business unit should be able to develop
competencies that will achieve this objective. Building the Toyota brand as a competitive
advantage will be part of the corporate level strategy. At the same time, Toyota may
develop sub-brands such as Corolla or Lexus, or Land Cruiser which are based on the
competitive advantage of the SBU. Note that brand development can take place for the
corporation as a whole as well as for each business unit if necessary. Another example
of creating sub-brands is Proctor and Gamble. It has developed its corporate brand name
as well as brand names for individual business units such as Downy, fabric softener, and
Crest toothpaste.
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Competitive strategies are concerned with how a business unit gains competitive
advantages in the market it chooses to serve. Competitive advantage means that the
business unit is able to create products and services that provide customer value that is
more superior than that provided by its competitors, and in a manner such that the profit
generated for the business unit exceeds the costs of producing the value.
There are two underlying features of competitive strategy. First, the business unit must
ensure that customers are able to realise the value provided by the business unit and thus
are prepared to pay a price as determined by the business unit. For example, many airlines
provide business class services which cost about 2 to 3 times more than the fare charged
for economy class. There are customers who understand the superior level of comfort
and service provided in the business class and thus are willing to pay a higher price for
it. Second, the business unit should be able to create greater value than its competitors.
Singapore Airlines is considered to be one of the best in providing business class service
and hence business class fares for Singapore Airlines is higher than the fare for other
airlines.
The business unit can use a number of generic strategies. Generic strategies are standard
strategies that are used by different firms across diverse industries, and they provide a
basis for gaining competitive advantage and can be used by all firms. However, the way
to achieve this competitive advantage can vary among the firms based on the structure
of business unit. For example, a company that has excellent relationship with suppliers
may be able to reduce the cost of materials while the competitor may not have the same
advantage.
Generic strategies can be grouped as:

• Cost leadership or low cost strategy
• Differentiation strategy
• Focus strategy
• Preemptive strategy
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Lesson Recording
8.1 Cost Leadership or Low Cost Strategy

Low cost can be obtained in many ways. It can be obtained through:
• No-frills product / service
• Product design
• Operations
• Scale economies
• Experience curve
8.1.1 No-frills Products / Services

Offering simple products or services without adding any extras or frills can result in lower
costs. Low cost airlines such as Air Asia are able to offer low fare by not serving any food
onboard, imposing separate charges for check-in baggage, and prior seat allocation. If a
customer requires these additional services, he or she will be charged extra.
The goal is to generate a no-frills cost advantage. Such cost advantage can be sustainable
under two conditions. The first condition is when competitors cannot easily stop offering
their regular services as their customers have come to expect it. The second condition is
when the operations of the competitors and their facilities are so tightly integrated in the
delivery of such services that it cannot be changed easily.
A potential risk for such no-frills is that competitors may add just a few features and
position themselves against a no-frills firm. Tiger Airlines that flies between Singapore
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and India offer a no-frills fare that allows only a free baggage allowance of 10 kilograms.
Jet Airways which is a full service airline, restructured its service from Singapore to India
to compete with low cost airlines such as Tiger Airways, Air Asia and Scoot. It offers free
allowance of 30 kilograms for check-in baggage and also provides in-flight entertainment.
The fare difference is only a little, enabling Jet Airways to be successful in competing
against the low cost airlines.
8.1.2 Product Design

Product design can also afford cost advantages. IKEA uses particle board for furniture
making as opposed to solid wood. This lowers the cost of their products, enabling to
capture a big share of the furniture market. Japanese manufacturers often reduce costs
by designing reliable, simple products consisting of relatively few, readily available parts
instead of customised parts.
Product downsizing is another approach in maintaining a cost leadership strategy. For

example, when the price of Cocoa increased, Hershey reduced the size of its chocolate bar.
8.1.3 Operations
A firm can achieve cost advantages through having appropriate resources and
competencies in operations. These can be based on access to raw materials, low cost
distribution, cost of labour, government subsidies, location, innovation, automation, and
purchase of inexpensive capital equipment, and reduction of overhead.
In order to obtain cost advantages in production, the value chain analysis will be useful.
By looking at the value chain, high cost components can be eliminated or reduced by
changing the way the business operates. Dell reduced significant costs of using retail
channels by selecting direct sales to customers.
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8.1.4 Scale Economics

Scale economics refer to efficiencies associated with size. Fixed costs such as advertising,
market research, sales force overhead, R&D and facilities upkeep and maintenance can be
shared by many units thus reducing the unit cost.
8.1.5 Experience Curve

Experience curve means that costs will decline as a firm accumulates experience in
building a product. The experience curve may be caused by learning, technological
improvements in production and/or product redesign methods.
As people learn to do tasks faster and more efficiently through repetition, they gain
experience. Installation of new machinery, information systems or capital equipment to
improve production can affect costs considerably. As experience accumulates, people
will learn to use these equipment to full capacity and may even modify it to extend
its performance. Product improvements often come from workers as they can come up
with product simplifications from their experience of producing the product. Instead of
using rivets, the production can be simplified by using screws which can be done faster,
provided that product performance is not affected. The existence of experiences curve
will add value to the product or service in the form of reduced costs or better product
performance.
However, there are issues with the experience curve concept. When several products share
a component, such as a motor, that component will have higher volume and thus advance
along the experience curve faster as compared to other components. In instances where
a product consists of many components, there may also be many experience curves to
analyse.
The cost advantage from experience curve does not occur automatically. It must be
purposefully pursued through efficiency-improvement goals, quality circles, product
design targets, and equipment upgrading.
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If technology or market changes, the experience curve can become obsolete. In 1950s and
1960s, milk was sold in glass bottles. With a large number of bottles being produced,
experience curve kicked in, resulting in reduction in the unit cost of the bottles. However,
when the sale of milk moved to plastic bottles and cans and later to wax cartons, it
eliminated glass bottles completely causing the effect of experience curve to become
obsolete.
A key to strategy development is recognising when the experience curve model will
apply. If it is a mature industry, the experience curve will be less useful as it becomes
flat. If the value added through low cost or product improvement is low, the experience
curve will have little effect. Classic examples on the relevance of the experience curve
are in continuous-process manufacturing such as semi-conductors, or capital-intensive
industries such as steel.
Very often it is mistakenly understood that the experience curve will translate to lower
costs and higher market shares so that the business can stay ahead of the experience
curve. Between 1908 and 1923, Ford Motor Company relied on the experience curve
advantage that they enjoyed from their assembly line manufacturing of the Model T car to
achieve cost leadership. Ford’s single-minded focus on cost reduction led to its subsequent
downfall. Even though consumer demand shifted to other car models, Ford responded
by deepening the experience curve advantage they enjoyed, making it harder for them to
change their assembly line to manufacture different model of cars that were demanded
by consumers.
Thus over reliance on strategy based on experience curve and cost reduction can lead to
problems of long-term survival.
8.1.6 Low Cost Culture

A successful low cost strategy is multi-faceted with costs attacked on several fronts and
supported by a cost-oriented culture. Top management, rewards systems, structure and
culture all must stress cost reduction, and commitment is required at all levels.
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Low cost strategy implies that the company is able to produce the product or service at the
lowest cost possible at the current time. Steps have to be taken to reduce the cost further
in the future. However, it does not mean that it is also a low price strategy. The price of
the product or service will be decided based on the competitive nature of the market, and
a low cost strategy gives the advantage of flexibility in pricing in relation to competitor
pricing. It can set the price of the product or service at the same level or slightly lower
to the price of the competitor, and with low cost structure, it can earn a higher profit.
Furthermore, in the case of price wars, companies with low cost can survive longer.
Low cost, low price strategy cannot be applied on its own. It has to be applied with other
competitive advantages, such as quality. A small business competing only on low cost,
low price strategy may lose to a large business if the large business is willing to take losses
for a short term by lowering its price in order to drive out the small size competition.
Lesson Recording
8.2 Differentiation Strategy

A differentiation strategy is one in which a product offering is different from that of one
or more competitors in a way that is valued by the customers. The value added should
affect customer choice and ultimate satisfaction.
There are many ways to differentiate. It is possible for a company to produce a product or
service that performs better than that offered by competitors. It is also possible to include
extra product or feature in the offering. Differentiation can be done in many ways as
shown below:
• Ingredient or component:
◦ Mercedes uses better materials both in the body and in the interior compared
to most of their competitors
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• Product offering:
◦ Pringles offer a package that protects the potato chips
• Combining products:
◦ Cannon's 3-in-1 printer capable of printing, fax facility and scanning
documents.
• Added services:
◦ Singapore Airlines offers lounges as well as limo services to business class
travellers
• Breadth of product line:
◦ Amazon offers a one-stop shopping experience
◦ Sony has complete set of home entertainment system
• Service backup:
◦ Saturn is a new car brand developed by General Motors as an autonomous
unit. Saturn provides a high level of dealer service, in part because it has a
well-designed dealer network and in part because the car was designed from
a service point of view
• Channel:
◦ Red Envelope, an online gift company, provides quality and original gifts on
the Internet.
• Design:
◦ Translucent iMac Apple computer
◦ Volkswagen Beetle
8.2.1 Successful Differentiation Strategies

There are a number of ways to differentiate. A successful differentiation strategy has three
characteristics, namely, generate customer value, provide perceived value, and be difficult
to copy.
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Generate Customer Value

Any differentiation strategy needs to add value to the customer. A distinction should be
made between apparent value and actual value. Apparent value is not usually valued by
the customer. For instance, customers value excellence and competency from investment
managers and not the apparent value of one-stop financial services. Thus, differentiation
strategy should be developed from the customer's perspective rather than from the
company’s perspective. The basis of differentiation should reduce cost and increase
customer satisfaction. These information can be collected through appropriately designed
market research. The research should be designed towards the understanding of the
customer. Market research should also identify whether price premium is justified based
on the value added.
Provide Perceived Value

It is not sufficient to provide value to customers. It is necessary that the value is perceived
by the customer. If not, the problem could lie in the effectiveness of communicating the
value to the customers. For example, customers may not be aware that McDonald’s had
stopped using tallow for frying french fries, or, that Subaru has the best braking system
among cars. The reason for these may be because customers may not have been exposed
to such information or the information has not been communicated in a memorable and
believable way.
One way to help make the message to be more memorable, meaningful and believable
is branding. One-click is a brand name that helps Amazon communicate a key
differentiating feature and also supports its strategic position of delivering an efficient,
pleasant experience. When a customer places the first order and enters a payment method
and shipping address, the 1-Click ordering is automatically enabled. For subsequent
purchases, the order will be automatically charged to the payment method and shipped
to the address associated with the 1-Click settings.
Sometimes the customer will not be able to evaluate the added value. Consider the
skill of a dentist. The customer is not able to evaluate this without investing significant
time and effort. Instead of investigating, the customer will look for signals such as the
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professionalism of the dentist's front office services. Thus a firm's task is to manage the
cues or signals. The qualification and experience of the dentist and customer reviews can
be included in the webpage which provides information to customers.
Be Difficult to Copy
The point of differentiation must be sustainable. A company offering 24-hour support
services is not differentiating itself as this can easily be copied by competitors, especially
if this is considered to be a value-add to customers. Thus, a challenge is in developing a
sustainable differentiation strategy that is hard to copy.
When the point of differentiation involves a total organisational effort with a complex
set of resources and competencies, it will be difficult and costly to copy. A creative
organisation with heavy R&D investment is difficult to copy.
Competitors will be deterred from copying if it involves risk. If a company creates a

number of bases of differentiation, the competitors will find it difficult to duplicate all.
Saturn has a system of no-haggle pricing, a reliable gear, safety features, and a committed
company. Duplicating only one or two of those aspects will be inadequate.
High investment needed to generate a value added may discourage competitors from
copying. A company with multiple product lines may have some elements that are
unprofitable. But if those unprofitable lines offer certain value add that their competitors
find it hard or unprofitable to provide, then it may be sustainable, For instance, an airline
may continue to fly on some unprofitable routes even because it is valued by customers
to be an airline that has the widest coverage and connections.
Lesson Recording
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8.3 Focus Strategy

A focus strategy, whether it involves differentiation low cost, or both, concentrates on one
part of the market or product line. Focus strategies have the following advantages:
• Avoid strategy dilution or distraction
• Reduce competitive pressures
• Compete with limited resources
• Bypass competitor's assets and/or competencies
• Provide positioning strategy
In a focus strategy, the internal investments, programs and culture are all directed
toward a single end, and there will be commitment on the part of every one in the
organisation. This commitment will result in developing resources, competencies, and
functional strategies that meet the market needs. Instead of a focus strategy, if the company
enters with multiple product line or markets, adjustments have to be made in advertising,
distribution, manufacturing and so on, which may result in the dilution of competitive
advantages and associated entry barriers. Toys"R"Us and Victoria Secret have been more
successful than department stores and others that are spared thin with many other product
lines. A business that lacks the resources to compete in a broad product market should
focus in order to generate the impact needed to compete effectively.
Focus strategy also provides the potential to bypass resources and competencies of the
competitors. In the packaged food industry such as cereals, a key success factor has been
to establish brand names and effective distribution channels. There are firms that produce
cereal as private-label manufacturers that cost much lesser and are able to thrive by
pitching their product to cost conscious customers. Major manufacturers cannot enter the
private label market without compromising their own brands’ image.
A focus strategy enables a company to obtain identity which makes it easier to develop
its brand and thus provides a positioning device. Apple, though it belongs to electronics
industry, focuses only on electronic communication devices.
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Another approach to develop a focus strategy is to target a particular segment of the

market. For example, Big Size clothing retailer caters only to those who need large sizes.
Another example is Harley Davidson which focuses on bikers who want powerful, macho
motorcycles.
Yet another approach to developing a focus strategy is to focus on particular geographic

location. Products and services can be customised to cater to the targeted geographic
area. A local beer company can use local humour and dialects and local promotions in
its marketing efforts. The resulting competitive advantage cannot be matched by national
brands.
Lesson Recording
8.4 Preemptive Move

A preemptive move is an implementation of a new strategy to a business area so as to
generate a resource or competency that the competitors are unable to duplicate or counter.
A sustainable first mover advantage can result from preemptive move such as developing
technological leaderships and/or customer switching costs. For example, when a retailer
gains access to a set of prime locations in a community, other competing retailers will find
it harder to break into the community. Such first mover advantage requires active and
continuous investment and management in order for it to be sustainable.
Preemptive move can also be directed at products, production systems, customers or

distribution and service systems.
The first product introduced in a market can enjoy substantial first-mover advantage.
Microsoft and Intel have created strong first-mover positions as their products have
become the industry standard. To maintain their leadership position, they have also
invested continuously to improve and upgrade their products. For instance, Microsoft
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have developed their operating systems over the years from MSDos to Windows 2000 to
Windows 7 to Windows 10. Such strategy is about making continuous preemptive moves
to frustrate competitors trying to catch up.
When a firm pioneers a production process that is effective in reducing costs, enhancing
quality, or both, an SCA is created. Japanese firms have achieved this in many industries.
The success of these companies is due to their commitment to keep investing and
improving over time such that it is difficult for their competitors to catch up. Another
approach is to aggressively expand capacity to discourage competitors from entering the
market.
First movers can also develop customer loyalty by creating switching costs. The idea is to
help the customer in being familiar with the first mover's product or service so that there
is no incentive for the customer to switch to something different. It can be achieved by
tying down customers with long-term contracts or other schemes.
Implementing the Preemptive Move

First, a preemptive move means doing something novel. One cannot get there by copying
and improving on strategies that are already in place. Innovation is thus required. Second,
the preemptive move often involves substantial commitment of resources which implies
substantial risk. It is such substantial commitment that renders the resulting advantage
to be sustainable as competitors are deterred by the substantial investment to challenge
the incumbent. Third, a successful first mover advantage assumes that a competitor will
be inhibited from duplicating and countering. For example, a competitor's quality brand
could be cannibalised and weakened if it introduced lower-priced brand as a reaction to a
preemptive move at the low-end of the market. For example, if Ben and Jerry introduces
new low priced ice creams to compete against a private label ice cream it would damage
the brand of Ben and Jerry.
A competitor might be committed to an existing distribution system or manufacturing

process and thus be reluctant to follow a first mover.
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When new products are introduced, the prices tend to be high and the target markets
are limited to small segments and specialised applications. The first video recorder was
conceptualised by Ampex which sold it for $50,000. At such a high price, very few people
could afford the same and the market size remains small. Pre-empting the mass market
with the same product will provide economies of scale, and companies can enter the
market at a low price and enjoy first mover advantage. This was done by Sony and
Matsushita who took the vision to mass market and sold them at $500 to capture the mass
market. Other examples are the Timex in watches, Kodak in films, and Gillette in razors,
which were sold the mass market.
Lesson Recording
In conclusion, business level strategies are used by business units to develop competitive
advantages. The generic business level strategies are cost leadership, differentiation focus
and preemptive strategy.
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9
Study
Unit
International and Global Strategy

BUS489 International and Global Strategy
Learning Outcomes

• Appraise the need for international strategy
• Identify the issues in formulation of international strategy
• Distinguish between various types of international strategy
• Analyse the role of strategic alliances
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Overview
Increasing globalisation has provided opportunities for companies to expand

internationally. Unless companies form clear strategies when entering into international
market and develop appropriate resources and competencies to compete in these overseas
markets, they will not succeed in their endeavour. In this Study Unit, the various forms of
international strategies are discussed.
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Chapter 9: International and Global Strategy
Lesson Recording
Study Unit 9 International and Global Strategy Part 1
International trade has been in vogue for a long time. Goods manufactured in one country
were being sent to other countries for consumption. Until the advent of modern politics
in the early 1900s, there were no controls over the movement of goods. However, many
governments started adopting control measures such as import quota and import tariffs
which acted as barriers to international trade. Since 1980s, there has been a change in
the way international trade is conducted. Many countries have entered into free trade
agreements. These agreements could be bilateral or multilateral. For example, the North
American Free Trade Agreement (NAFTA) enables free trade between USA, Canada and
Mexico. The European Union enables free trade between the members of European Union.
ASEAN enables free trade among its members.
In addition to the free trade agreements, deregulation in the economies of many countries
spurred international trade. China opened up its economy in 1970s and India in 1990s
which resulted in many foreign companies to enter into these countries with investment
and production facilities. The break-up of Berlin Wall in 1989 removed the barriers in East
European countries, expanding the world market.
Many companies now have multinational presence. Names such as IBM, Coca Cola,
Disney, Google, Twitter, Facebook, BMW, Sony, and Samsung are universally recognised.
Many of these companies started off as purely domestic and slowly expanded into
other countries. The challenge for a successful domestic company when it decides to go
international is to develop appropriate strategies and transfer the strategic capabilities
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gained in the domestic market to the international markets, often with some degree of
adaptation. This Study Unit deals with international strategies.
9.1 Formulation of International Strategy

Formulation of international strategy requires identification of drivers that underpin the
strategy, and the advantages for going global. These may be based on geographical and/
or firm-specific factors. Once these are understood, an appropriate international strategy
can be formed. The strategy would indicate the markets to be selected and the mode of
entry into these markets.
Though globalisation has opened up many new markets, it is to be noted that

opportunities may not be available in all industries and in all markets. For example, the
defense industry is generally highly regulated and often restricts direct foreign players
from participating. Countries may also restrict foreign firms from entering into certain
industries in order to protect the domestic companies. The markets may also not be
homogenous across the whole world as each market has different cultures and varying
needs. Thus it is important to carefully assess prevalent trends in each market. The scope
for international expansion depends on market characteristics, cost structure, political and
legal landscape, and competitive structure.
The process of internationalisation can be facilitated if market characteristics are

homogenous. It means that customer needs and tastes are similar across different markets.
When countries deregulated the banking industry, banks such as Citibank and HSBC
moved into many countries as banking needs are largely similar across different markets.
Some companies treat the customers as global customers. This can be seen among auto
parts manufacturers who supply standard parts to car manufacturers in different parts of
the world, such as Toyota, General Motors, Tata Motors, and BMW. Internationalisation
is facilitated when marketing programs are transferrable across countries, as can be seen
from the case of Coca Cola.
When a company goes international, its costs can be reduced considerably. Increased
volume from selling in more markets overseas can result in economies of scale.
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Hence, companies from smaller countries, such as Switzerland or Sweden, expand into
international markets as their domestic markets are small. For example, Nokia had
realised most of its sales from international markets. Similarly, Novo Nordisk, based in
Denmark, has most of its revenue from other countries.
Internationalisation also provides the advantage of locating different value chain activities
in different countries, based on the country-specific advantages that can be reaped. For
instance, Nike has its design department based in Oregon, USA, and its production
facilities located in low labour cost countries such as China, Vietnam, Indonesia and
Thailand.
From a political and legal point of view, internationalisation is facilitated when there are
reduction of barriers to trade and investment. Thus, free trade agreements are known to
promote internationalisation. Technological standardisation among countries also helped
companies to access more markets with technology that adopts a same standard.
International strategy has become important from the competitive nature of international
markets. When the competitor follows an international strategy, international strategy
becomes a necessity for the company. If a company is following different strategies for
different markets, it will be inferior to a competitor company that has an international
strategy since it provides flexibility to the competitor.
9.2 Locational Advantage

A company can only go international if it has developed corresponding strategic
capabilities. In general, a company entering a new market has to compete with established
local companies. These local companies tend to have better knowledge about the market
and customers, as well as strong supply chain network. Thus, a foreign entrant has to
develop considerable competitive advantages to overcome local competitors. Although
Tesco, a leading supermarket chain from the UK, entered the US market with an
investment of about £ 1 billion, it ended up exiting the market after 7 years as it was unable
to develop the necessary competitive advantages against established supermarket chains
in the US.
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It is important to understand the source of competitive advantages enjoyed by local

companies. Porter's Diamond provides a framework to understand such locational
advantage. According to Porter, locational advantage stems from factors of production,
demand, related and supporting industries, and firm strategy, structure and rivalry.
Factors of production for a national firm can become a competitive advantage in

international markets. Factors of production include land, labour, equipment and capital.
For example, low cost labour in countries such as China and Vietnam is a form of
competitive advantage for these countries as many international firms tend to locate their
labour intensive activities in these countries.
The nature of domestic customers can also be a source of competitive advantage. If

the domestic customers have sophisticated demand, the experience of the company in
meeting the demands of these customers will help the company in other markets too. The
major fashion designers are from France taking advantage of the nature of French people
towards fashion, and this newly designed fashion is also used in other countries.
Related and supporting industries tend to form as clusters in many areas. For example,
many major financial institutions are clustered in New York City; auto companies with
auto parts manufacturers are clustered around Detroit; and companies dealing with
hardware, software, research, venture capital are clustered around Silicon Valley. This also
results in locational advantage.
The characteristics of strategy, industry structure and rivalries in different countries can
also be a source of competitive advantage. The main strategy of Japanese companies is to
produce high quality goods at a low cost to compete effectively. These companies have
been able to translate their experience into international markets.
To enter into a new international market and compete with the existing local players, a
company needs to do an analysis of the new international market. It will also need to
examine its current capability and consider if it has the needed capabilities to enter the
new international market. If the needed capabilities are missing, plans should be made to
develop these capabilities to support its entry into the new international market.
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Value chain analysis is another tool that can help in developing an international strategy.
Through a value chain analysis, a firm can understand which would be the activities that
create value to its customers, as well as the costs associated with these activities. The firm
can then purchase services and components from the most value-for-money supplier from
around the world. For example, Walmart sources its supply from low cost countries such
as China, India and Vietnam. Many companies have also relocated their call centres from
India to the Philippines as the cost of call centres services got more expensive in India than
in the Philippines.
Lesson Recording
9.3 International Strategies

A firm can increase its capability to compete through the strategic location of its
plants as well as strategic global sourcing. These are the focus of international strategy.
International strategies should be balanced between pressures for global integration and
local responsiveness. In order to gain efficiency in its operations, it will be necessary to go
for global integration that requires coordination of activities across countries. However,
firms also have to respond to local needs, being cognizant of local values and attitudes,
cultures, and legal system. Thus international strategies should be based on the extent to
which products and services can be standardised across national boundaries while still
catering to the needs of specific national markets. For example, McDonald does not serve
beef patties in India. CNN in Asia covers Asia news in addition to broadcasting news from
the US and Europe. Thus, firms have to choose appropriate strategies that match their
strengths and weaknesses and external opportunities and threats.
Though there are a number of strategies that can be pursued, the four generic international
strategies are export strategy, multi-domestic strategy, global strategy and transnational
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strategy. The four strategies in relation to the level of local responsiveness and global
integration can be explained as in the following table.
Local Responsiveness Global Integration
Export Stratgey Weak Weak
Multi-domestic Strategy Strong Weak
Global Strategy Weak Strong
Transnational Strategy Strong Strong
9.3.1 Export Strategy

Export strategy means that the product or service will be produced in home country and
sold in other countries. This strategy is based on leveraging home country capabilities,
innovation and products. Companies with distinctive capabilities, strong reputation and
brand names will follow this strategy successfully. Awareness of the company and the
perceived quality of the product or service by the customers in the country are essential
for the success of export strategy. Many companies such as Apple, Samsung, and Toyota
started with export strategy. It is also applicable in Internet service. Google has its research
and development and core architecture for its internet services in California and uses
it internationally with minor adaptations with local languages and alphabets. However,
there are downsides to this approach. The company still has home country views which
may not be suitable for another country. It is also possible that there could be strong
local competitors with local knowledge. For example, Baidu in China and Naver in Korea
present strong challenges to Google because of their superior local knowledge.
9.3.2 Multi-domestic Strategy

Multi-domestic strategy is used when local responsiveness is very important. The
company will provide different products or service offerings, and operation in each
destination country will be based on local market conditions and consumer preferences
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of the destination country. Each destination country is considered as an independent unit

with considerable autonomy given to the country manager. There is little coordination
between the different country units. This strategy is useful when there is little or no
efficiency gains from integration and/or when there are more benefits to be gained
from adapting to local conditions and preferences. Companies in the food and consumer
product industry are likely to follow this strategy because local needs and preferences are
significant. For example, when Ford entered the Indian market with production facilities
in Chennai, they used their American design for the cars. However, the performance
of these American designed cars were poor on the Indian roads. It was found that the
conditions of the road in India were completely different from that in America. In the
end, Ford had to redesign the under-chassis and suspension system to suit the Indian
roads. In another example, Frito Lay, a snack manufacturer, supplies localised version of
its global products to cater to local tastes. In addition, they produce entirely new products
to suit individual market. The disadvantage of this strategy is the increased cost due
to production inefficiencies from the need to customise and adapt to local needs and
preferences. Moreover, there could be huge variations in products and services across
different markets which can affect the overall brand name and reputation.
Lesson Recording
9.3.3 Global Strategy

A global strategy means that the company will follow the same strategy in all
the international markets it serves. Sometimes, there may be slight modification for
some particular countries. A global strategy is different from a multi-domestic or
Multinational strategy in which separate strategies are developed for different countries
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and implemented autonomously. A global strategy, in contrast, is conceived and

implemented in a worldwide setting and involves the following decisions:
a. In which countries should products be marketed and at what market share level
for each country?
b. To what extent should the products be standardised across countries?
c. Where should the value-added activities, such as production, service and
research, be located?
d. To what extent should the brand name and marketing activities, such as brand
position, advertising and pricing, be standardized across countries?
e. Should competitive moves in individual countries be part of a global strategy?
If so, what should that strategy be?
A global strategy can result in a strategic advantage or neutralisation of a competitor's

advantage. The advantage arises as products or marketing programs developed for one
market can be used in another. There may also be cost advantages from economies of
scale generated by the global market or from access to low-cost labour or materials.
Operating in various countries can lead to increased flexibility as well as meaningful
sustainable competitive advantage. Investment and operations can be shifted to respond
to threats and developments emerging throughout the world or to counter competitors
that are similarly structured. For example, IKEA uses the global strategy where product
standardisation and design takes place at Sweden and marketed to all countries with some
local adaptation. Coca Cola also follows a global strategy offering similar products in all
countries. Many technological companies such as Apple, Sony, Canon, and Samsung also
adopt a global strategy.
9.3.4 Transnational Strategy

This is a very complex strategy. It aims to combine both multi-domestic and global
strategies. A transnational business conducts operations in several countries with varying
degrees of coordination and integration of strategy and operations. A transnational
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strategy combines global reach, coordination of operations and leverage of unique

advantages of local markets to drive sales, market share and profit growth.
Transnational strategy involves operating in different world markets, designing

responsive organisational structures and establishing value-added activities that exploit
national similarities and differences. Transnational strategy can be thought of as
iterations of organisational learning and performance improvements. The foundation of
a transnational strategy is a global vision, but with customised implementation for local
markets and regions.
Though these four strategies are discussed separately, they can be overlapped. Some
companies may opt for export strategy in some countries while using multi-domestic in
other countries. The choice will depend on the level of global integration needs and the
level of local responsive needs.
Sometimes, the strategy may not be towards a single country but towards a region and
instead of a pure global strategy, they may choose different regional strategies. Regions are
treated as relatively homogenous markets with value chain activities concentrated within
them. Many companies form strategies based on regions such as the European Union,
Asia Pacific, South East Asia, and the Middle East.
Lesson Recording
9.4 Market Selection

It is very important to decide on the market that the company wants to enter because
it will determine the capabilities and competitive advantages that it needs to develop.
Not all countries are equally attractive. Entering a country without a careful study of its
attractiveness may cause the company to invest a great deal of money and effort, only to
find that the country is unattractive subsequently, wasting money and efforts.
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The first step in understanding the attractiveness of a market is to conduct

external analysis. Environmental analysis using PESTEL framework will indicate the
attractiveness of the market. Industry analysis, customer analysis and market analysis will
then provide details of the capabilities needed to compete in the market.
Ghemawat’s CAGE framework is often used for this purpose. His theory is based on the
match between the country being considered and the firm. For example, Australia and
Canada are likely to be a better match for UK companies because these countries belong
to the British Commonwealth and the business practices are similar. Similarly, a Spanish
company may be a closer match for South American countries because of the similar
culture. CAGE framework addresses the match using cultural distance, administrative
distance, geographical distance and economic distance.
Cultural distance relates to differences in language, ethnicity, religion, and social values.
This measures how similar the culture of the country in question is to the firm’s home
country. If there is a huge difference, it may be very difficult to develop the capabilities
needed. This distance can be reduced somewhat through cooperation with local partners.
Administrative distance relates to incompatible administrative, political or legal systems.

Many American companies were reluctant to enter into China because of a different
administrative and legal system. Political differences can also play an important role.
An American company will find it very difficult to enter into Africa for reasons such as
unstable government and corruption.
Geographical distance is based on the size, infrastructure and telecommunications

facilities. As any company tries to leverage its capabilities in the home market, a country
with poor infrastructure or communication facilities will not be a good target. It is
unwise for Singtel to enter into an African country which has poor telecommunication
infrastructure.
Economic or wealth distance measures rich/poor differences as well as differences in

cost or quality of natural resources, financial resources, human resources, infrastructure,
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information or knowledge. About 60% of the world population lives below the poverty
line, and many companies neglect this big market. By concentrating on the bottom of the
pyramid market, companies will be able to garner a large market. For example, Unilever
Hindustan has developed a water filter that makes water safe for drinking. To capture the
bottom of the pyramid market, Unilever has designed a lower capacity filter and priced
it lower such that it will be affordable to the low income. The success of this filter has
allowed Unilever to introduce water filters to other parts of Asia and Eastern Europe.
In addition to the market characteristics, the nature of the competition should also be
analysed. The questions to be considered include:
• Are the competitors purely local competitors or established international
companies?
• What will be the likely reaction of these competitors in defending their market?
A competitor’s reaction will be based on how important that market is. The clout of the
competitors also needs to be studied by looking at their market share, and connections
to other local players such as retailers and suppliers. Caution is necessary if one of the
competitors is an international company as it may retaliate in other markets where this
firm is operating.
9.5 Entry Modes

After selecting the country to enter, it is important to decide the route in which it will
enter. Different entry modes will require different degrees of resource commitment. The
usual modes of entry are:
• Exporting
• Contractual arrangements through licensing and franchising to local parties
• Joint ventures
• Wholly owned subsidiaries through green field investment or through acquisitions.
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In general, some companies expand their presence in a country in stages. They generally
start with exporting and then move on through licensing, joint ventures and finally
forming subsidiaries. This process helps the managers to build market knowledge and
capabilities. Toyota entered into the American market through exports before it started its
own manufacturing plant.
However, there are companies that start off as an international firm because they need to
be international in order to survive. For example, Twitter and Instagram internationalised
from being small start-ups.
Multinationals from emerging countries also move quickly. The Chinese multinational
company, Haier, now has factories in Italy and the USA, in addition to factories in Asian
countries. Haier became skilled at producing white goods, and transferred these skills to
their manufacturing bases around the world. Many Chinese companies use acquisition as
the entry mode. The same is true of Indian companies such as pharmaceutical company
Ranbaxy, and Tata Motors which have all gone international through acquisition.
The entry mode also depends on the breadth of competitive advantages that the firm
possesses. If it needs to leverage on capabilities of local partners, the obvious route would
be through joint ventures.
9.6 Strategic Alliances

Strategic alliances play an important role in global strategies as most firms lack the
key success factors required for entering into new markets. Remedying this deficiency
internally may require excessive time and resources. When there are strategic uncertainties
in operating in other countries, strategic alliances is a better alternative.
In the Japanese market, IBM used alliances with Ricoh to distribute low-end computers,
with Nippon Steel to offer system integration services, with Fuji Bank to offer financial
system marketing, with OMRON to offer computer integrated manufacturing, and with
NTT to offer value-added networks. Toyota entered into a joint venture with General
Motors to set up a manufacturing plant that uses the design of Toyota and the distribution
channel of General Motors to increase its presence in the United States.
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A strategic alliance is a collaboration leveraging the strengths of two or more organisations

to achieve strategic goals. It involves long-term commitment. It also implies that
participating companies will contribute and adapt needed resources or competencies to
the collaboration, and these resources and competencies will be maintained over time. The
results of the collaboration should have strategic value and contribute to a viable venture
that will withstand competitive attack and environmental changes.
A strategic alliance provides the potential to accomplish a strategic objective or task

quickly, inexpensively, and with a relatively high prospect for success.
A strategic alliance can take many forms from a loose informal agreement to a formal
joint venture. The most informal arrangement might be trying to work together, such as
selling one’s products through another firm’s distribution channel. The more informal
the arrangement is, the faster it can be implemented and the more flexible it will be. As
conditions change, the alliance can be adjusted. The issue with informal arrangement is
the possible lack of commitment.
A formal joint venture involves equity and comprehensive legal documents. When equity
is involved, there could be concerns over control, return on investment and having a fair
percentage share of the venture.
Strategic alliances are motivated by a desire to achieve some of the benefits of a

global strategy such as generating scale economies, gaining access to new markets, and
overcoming trade barriers. For example, JVC designs and manufactures video cameras
and has a relationship with Thompson to sell them in European markets. In another
example, Nippon Steel supplied the technology and capital while Inland Steel supplied
the local knowledge when they jointly built an advanced cold steel mill in Indiana. This
also helped to overcome the import quota restrictions on Nippon Steel in entering into the
US market.
A strategic alliance can also help to fill out a product line to serve market niches. Ford’s
alliance with Mazda resulted in Ford using Mazda products in Ford cars and Ford having
access to Mazda’s markets in the Far East. It can also assist in gaining access to low-cost
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manufacturing facilities, such as what General Electric did when it sourced its microwave
ovens from Samsung.
Even if an alliance is strategically sound, there can be a number of operational problems.

Business systems, people, culture and structures need to be aligned and synced. Japanese
managers tend to use consensus building decision process, while American and European
managers do not follow this. The interests of the two parties may not match because the
styles and objectives are incompatible.
In order to enhance the chances of a successful alliance, it should provide gains to both
partners at the current time as well as in the future. The structure of the alliance should
deal with various differences in the companies. There should also be some flexibility and
capacity to change.
9.7 Global Branding

McDonald’s, Visa, Pringles, Sony, IBM, Nike, Heineken an Disney are all global brands
with business in many countries and are easily recognisable in all markets. Even though
these are global brands, they are not identical in all markets. McDonald’s has different
menus, advertisements and retail structure in different countries. Pringles uses different
flavours in different countries, and advertisements are tailored to local culture. Heineken
is a premium beer in all countries except in its home country, i.e. the Netherlands.
A global brand can achieve significant economies of scale. The task of developing a
website, a promotion or a sponsorship will be more cost effective when spread over a
number of countries.
Cross market exposure produces efficiencies. Customers who travel can get exposed to
the brand in many different countries. Such exposure is very important for travel related
products such as credit cards, airlines and hotels.
A challenge in managing global brands is to develop a clean, well-articulated brand

identity and to find ways to make that identity a driver of all brand building activities.
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Creating a worldwide brand is easier to manage than creating a brand applicable to

specific countries as it can cause confusion among people, particularly travellers.
The key to building a global brand is to find a position that will work in all markets. Sprite
has the same position globally – honest, no hype, refreshing taste.
Some brands take generic positions which can also work well. A brand is generic
if it does not add any special attribute. Its name signifies the various attributes
it stands for. High Premium brands such as Mercedes, Heineken and Tiffany’s can
cross geographical boundaries because the self-expressive benefits involved apply in
most cultures. “American” position of brands such as Coke, Levi’s & KFC will work
everywhere. A purely functional benefit such as Pamper’s “dry, happy baby” can be used
in multiple markets.
It is necessary to reposition the brand when conditions change. HSBC had been using the
slogan “World’s local bank” from 2002, and this resulted in HSBC being recognised as an
international bank. However, when the financial crisis hit in 2008, HSBC had to undertake
a number of cost cutting measures which included exiting from many countries. The
management recognised that HSBC cannot be recognised as an international bank when
they pulled out of many countries. They decided in 2011 to reposition the bank with the
slogan “Building Blocks of Ambition” accompanied by pictures showing three scenarios:
a young couple planning to buy a new home, a small business planning on overseas
expansion, and a CEO of a multinational company planning to enter a new market. The
emphasis is on the services provided by the bank. Since these ambitions are universal,
they are able to position themselves in all markets.
Many firms try to globalise their brand but it may not be feasible or optimal. First,
economics of scale and scope may not actually exist. To establish a brand on a global scale,
appropriate advertising and promotional materials will have to be developed. Even an
excellent global agency or other communication expert who design these promotional
materials may not be able to execute exceptionally well in all countries. The brand team
may not have the right people with the needed creativity or execution skills. Moreover,
the fundamental differences in different markets may cause the global brand to be not
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optimal. This can occur because of different market shares, different brand images, or
different customer motivations.
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10
Study
Unit
Growth Strategies
BUS489 Growth Strategies
Learning Outcomes

• Appraise the role of growth in organisation
• Evaluate the various growth strategies that a firm can undertake
• Differentiate related and unrelated diversification
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Overview
It is necessary for companies to grow in order to maintain sustainability in the long run.
A company can grow through concentrating on its existing products and markets, or
through creating new products and markets, or via diversification. It can also form blue
ocean strategies.
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Chapter 10: Growth Strategies
Lesson Recording
Study Unit 10 Growth Strategies Part 1
Many firms concentrate on improving the current performance. This is done by

downsizing, restructuring, redeploying resources, and reducing costs. As companies
proceed along these lines, it will soon reach the stage of diminishing returns. Downsizing
can lead to decreased motivation among workers, and there may not be sufficient
resources available if any growth opportunity arises. This has changed the way of thinking
among the firms. The way to improve performance will be through emphasis on growth.
Growth provides the potential for increased profitability and at the same time, introduces
vitality to an organisation by providing challenges and rewards. A focus on growth,
however, does not mean that operational efficiency is ignored. Both operational efficiency
and emphasis on growth are needed for long-term sustainability.
There are a number of ways to grow. The following list, though not exhaustive, provides
some possible avenues of growth:
a. Growth in existing product markets through
• increasing the market share
• increasing the product usage
b. Growth in existing product market through new product development
c. Growth through developing new markets for existing products
d. Growth through vertical integration
e. Growth through diversification involving new products and new markets
f. Growth through the creation of blue ocean strategies
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Lesson Recording
10.1 Growth in Existing Product Markets

Concentrating on existing products to look for growth is advantageous because the
company is already established in the market and has a base on which it can further
expand. The company has relevant experience, knowledge and resources already in place.
Growth can be achieved through acquisition of a competitor company, increasing market
share, and increasing product usage among customers.
A company can grow in the existing product market by acquiring another company which
is also serving the same market with similar products or services. The competing company
may have some competitive advantages such as good R&D capabilities and may lack
the resources to expand further. In this case, the acquisition will provide additional key
resources as well result in a higher market share. For example, DBS acquired POSB which
increased the customer base for DBS.
10.1.1 Increasing Market Share

A company should be careful in formulating strategies to increase market share. A
programme based on tactical actions such as advertising, promotion or price reductions
may result in a gain in market share but it would only be transitory and could be expensive
and unprofitable. In order to gain a more permanent share, the company will have
to come up with strategies that deliver solid values to customers which would create
customer satisfaction and loyalty. This can be achieved through developing the assets and
competencies needed to deliver these values.
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Some companies pursue the strategy of increasing market share by focusing on

competitors and their customers. For example, Starhub may provide discounts and other
rewards for new customers, drawing customers from Singtel and M1. However, this
approach could be expensive and risky because competitors may react and develop
strategies to retaliate. Thus, strategies should be formed to increase the loyalty of existing
customers which would result in long-term sustainability.
10.1.2 Increasing Product Usage

As strategies to increase market share may cause competitors to retaliate, an alternative
is to take innovative steps to increase usage among existing customers, which is less
threatening to competitors.
In trying to increase the product usage, it is important to find answers to questions such as:
• Why is the product or service not used more?
• What barriers are preventing increased usage?
• Who are the light users and how can they be influenced?
• How to deal with heavy users?
It is more advantageous to target heavy users. It is comparatively easy to make heavy users
use the product more through rewards than to target light users. Banks provide reward
points for the use of credit cards and these points could be used to purchase goods or
services at no cost. Airlines have frequent flier miles, which could be used for free travel
and other benefits.
Light users should not be ignored either. By understanding why these users are not using
the product more, appropriate strategies could be developed. A study by a coffee company
showed that light users were in their early twenties. To attract them, the coffee company
introduced flavours such as vanilla and Swiss chocolate almond.
Usage can be increased through many strategies as discussed below:
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• Provide reminder communications – Awareness or recall of a brand is the driving

force in purchasing a product. People may not think of using or buying a product
unless there are some form of cognitive trigger or reminders. For example,
GNC sends birthday greetings with discounts for products purchased during the
birthday month. Volkswagen sends reminder emails or SMS when the car is due
for service. NUH sends SMS reminders when a person has an appointment to see
a specialist.
• Position for regular or frequent use – To increasing the traffic on websites, it is
important that the contents are constantly updated. This is particularly true for
websites such as cnn.com or bbc.com that provide news. The image of a product
can change from that for occasional to frequent usage by a repositioning campaign.
Clinique’s “twice-a day” moisturiser represents efforts to change the perception of
the product. Book-of-the-month clubs can turn infrequent purchasers into once a
month purchasers.
• Make the use easier – Packages that can be placed directly in a microwave oven
makes usage easier. Websites can be designed to make navigation easier and
simpler.
• Provide incentives – Incentives can be used to increase frequency of consumption.
Promotions such as double mileage trips offered by airlines to frequent fliers will
increase the usage. A fast food restaurant can offer drinks at a discounted price if
purchased with a meal. Incentives should be structured such that usage is increased
without creating price competition.
• Reduce undesirable consequences of frequent use – Some people might believe that
frequent use of shampoo may not be healthy. By developing a product that is gentle
for a daily use might alleviate this worry and thus increase the usage. Low-calorie
or gluten free or lactose free labels can increase the usage when sought by customers
with such special needs.
• Revitalise the brand – A leading brand may become stale over time. A brand that
had great appeal to parents when they were growing up might no longer appeal to
their children. Thus, a brand has to be revitalised so that the target market is able
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to appreciate the value of the brand. Abercrombie and Fitch started off as a store
where gentlemen might go to buy clothes for hunting. Realising that the market
can be large if they could attract young adults to the shop, they redesigned the
stores and employed younger sales people. They also displayed trendy clothes in
an interesting way with contemporary music playing on the premises of the store.
• Create new applications for existing product users – An example is Jell-O, which
began strictly as a dessert, but had major sales growth when it was found that it
could be used in Jell-O salads. Another example is Arm & Hammer baking soda.
Besides being a baking essential, it was positioned as a product to be used as a
refrigerator deodoriser.
10.2 Product Development for the Existing Market

Product development can occur in many different ways. It could be done through the
introduction of additional product features, the development of new generation products,
and the development of new products for the existing market.
10.2.1 Adding Product Features

Having the right feature either in the product itself or in packaging can change the
competitive dynamics. The yogurt market was strongly contested between Yoplait and
Dannon. Yoplait added a new feature to the yoghurt packaging and came up with Go-
gurt, yogurt in a tube that kids could slurp up. Yoplait followed up with an adult version
with different flavours, known as Yoplait Express. Another example is that an automobile
firm could add a sunroof option that could help it to penetrate the existing market.
The additional features can represent visible growth opportunities as long as they add
value to the customers. However, they will take up resources, and competitors may come
up with their own versions of new features. Thus caution must be applied in selecting
and implementing additional features. Sometimes customers may demand a version for a
special purpose. Such development can result in increased sales and even in the evolution
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of new products. However, this approach works well only if the customer need is clear
and there is a strong opportunity for growth.
10.2.2 Developing New Generation of Products

Yamaha, a leading piano maker, was facing a declining market. To counter this, they
developed Disklavier which in addition to playing like a piano, included an electronic
control system which allows a performance to be recorded and stored on a disk. Through
this, Yamaha revitalised the business that was declining.
An established market player has to be aware of innovations that could be used in the
existing market place. Often, they focus on improving costs, quality and service for their
existing offerings which leaves little time and effort to explore a totally new technology.
10.2.3 New Products for Existing Markets

One approach to having growth is to exploit the strength of a firm in terms of marketing
or distribution by adding products that are compatible and yet different from existing
products so as to cater to the existing customer base. Synergy is usually obtained in part by
having commonality in distribution, marketing, brand name and identity. One example
is Lenox, a company that has expertise in making fine chinaware, expanded into other
products such as jewellery and giftware. Amazon started as an online book store, and it
has added more products to provide ease of shopping for customers and economies of
scale for their marketing and operational fixed costs.
A major route for product expansion is brand extension, that is, exploiting a brand with
strong awareness and associations by extending into another product category. Gerber,
known for making ready to eat baby food targets the same market with clothes for
babies under the brand name Gerber Baby Clothes. Similarly, Duracell, the battery maker,
introduced flashlight Durabeam that is pitched towards users of battery. Managers must
make sure that such extensions fit the brand, provide helpful associations, and do not
damage or dilute the brand.
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Very often, synergy may be illusory. A company may believe that the competitive edge in
their current product can be transferred to a new product which would create synergy. For
example, the company may feel that its expertise in distribution of the current product line
can also be used successfully in the new product. However, the nature of the new product
may demand different a distribution channel in which the company has no experience. For
example, Anheuser-Busch, a premium beer producer expanded into other beverages lines
such as Dewey Stevens Premium Wine Cooler and several other wines. It thought it would
use its strength in distribution to the liquor dealers to provide synergy. Unfortunately,
wines are usually distributed through supermarkets and not liquor retailers. This resulted
in problems in the wine business.
Customer acceptance is also an important criterion for new product development. Coca-
Cola introduced New Coke which was the reformulation of Coco-Cola in 1985 and was
renamed as Coke II in 1992. The American public’s reaction to this change was negative,
and Coke II was a failure.
Product line expansion should consider the following questions:

a. Will customers benefit from a system capability or service convenience made
possible by a broad product line? If the product line is expanded to provide a
total system, it should be analysed as to whether this system capability increases
value to the customers. Many computers are sold with software and printers,
thus providing a whole system. Customers may not only want the whole system
but also system support. When printers came in with 3-in-1 capability, many
customers did not want this system because there was no need for them to use
the fax or the scanner.
b. Do potential manufacturing, marketing or distribution cost efficiencies exist
and form an expanded product line? If the costs of manufacturing, marketing
and distribution costs can be shared among the products, experience curve and
scale effects will reduce the total costs. Schwinn’s decision to enter into exercise
bikes was based on the shared cost. Schwinn is a well-known mountain bicycle
manufacturer and Schwinn bikes are used in races. Using the brand name and
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quality of bikes, they were able to enter into making exercise bikes using the
same facilities which reduced costs.
c. Can resources or competencies be applied to product line expansion? The
most important resource is the brand name. Apple is effectively using the
brand name in iPad, iPhone and Apple watches. However, resources and
competencies may not work in new contexts. For example, Quaker Oats bought
Gatorade in 1987 and was able to successfully market Gatorade by developing
competencies in distribution. In 1994, it acquired Snapple for $1.7 billion aiming
to leverage the marketing competencies developed in Gatorade. However,
Gatorade’s competencies did not work for Snapple causing Snapple acquisition
by Gatorade’s parent firm Quaker Oats to be a failure. Quaker Oats sold Snapple
for 4,300 million in 1997.
Lesson Recording
10.3 Market Development Using Existing Products

It is also possible to increase growth by using existing products to enter into new markets
which may require only minor adaptations. The same expertise and technology and
sometimes, the same plant and operations facility can be used. There will be potential for
synergy, which can reduce investment and operating costs.
10.3.1 Expanding Geographically

Geographic expansion may involve moving from regional operation to a national
operation, or moving into another region, or expanding to another country. KFC,
McDonalds, GE, IBM, and VISA have successfully expanded internationally. Walmart
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moved from Rogers, Arkansas, a small town to other small towns in other states.
It then started stores in bigger cities to go national before expanding internationally.
When expanding geographically, there will be significant investments in logistics and
distribution infrastructure, organisation building, and adaptation.
10.3.2 Expanding into New Market Segments

A firm can grow by moving into new market segments. There are many ways to define
new segments to target:
• Usage – Non-users can be an attractive target. An electronics firm could target those
who do not own an audio system.
• Distribution channel – A firm can reach new segments by opening up a second or
third channel of distribution. A retailer, in addition to the store, can open an online
store or engage in direct sales through sales people visiting customers. A distributor
like Avon who sell their products to customers directly through sales people can
use distribution in supermarket under another brand name.
• Age – A firm can modify its products to suit customers in another age segment.
Johnson & Johnson’s baby shampoo was positioned towards elderly customers who
needed a gentler hair wash product.
• Attribute preference – Different customers may prefer different attributes from the
product. While a professional carpenter would like to have more sophisticated
attributes, a Do-It-Yourself would like to have attributes that are easy to understand
and use. An instrumentation firm might extend to include more precise equipment
to serve a segment that needs greater accuracy.
• Application defined market – The company may target segments based on the
application of the product or service. Colgate has a variety of tooth pasted catering
to cavity prevention, whitening of teeth, gum protection, etc.
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Sometimes, looking at markets in a different way will uncover a useful segment. It is

important to identify a segment that is not being served well such as fashion needs of older
people. Segments where the brand can provide value to customers should be sought.
10.3.3 Evaluating Market Expansion Alternatives

Apart from examining synergy, additional considerations in evaluating market expansion
alternatives are:
• Is the market attractive? Market is attractive if consumers would value the product
or service. It would also depend on whether the company is able to neutralise the
assets and competencies of the competitors.
• Does the move make strategic sense? Compaq bailed out of its printer business
despite having a superior product as it was unlikely for them to beat HP, who was
then the leading brand for printer. Subsequently, HP acquired Compaq.
• Can the business be adapted to new markets? A distribution channel or promotion
that is suitable in a particular market may not be suitable in another market.
• Can current resources and competencies be transferred to a new business
environment? Proctor & Gamble concentrates on consumer goods such as cleaning
agents, personal care and hygienic products and has developed considerable
marketing and distribution skills. However, it failed to capitalise on its marketing
and distribution resources in its efforts to market soft drinks. It bought Crush
International in 1980, a soft-drink manufacturer in Canada and had to exit in 1987
because it could not manage the soft drinks business.
Instead of copying an existing business model to a new market, a carefully thought out
strategy for a new market is important. When Federal Express into entered the European
market with the same mode it used in the USA, it ran into problems. First, Federal Express
could not use its hub & spoke system in Europe because of regulatory roadblocks and
had to acquire firms with related abilities. This resulted in a hodge-podge system. Second,
Federal Express lost the first mover advantage because DHL had already employed
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Federal Express model with appropriate adaptation to suit European conditions. Third, a
reliance on English language and decision to impose a pickup deadline of 5 p.m. in Spain
where people work until 8 p.m. created implementation problems.
10.4 Growth through Vertical Integration

Vertical integration provides another potential growth direction. Vertical integration could
be either forward integration or backward integration. Forward integration occurs when
a firm moves upstream such as a manufacturer buying a retail chain to market its goods.
Backward integration is moving downstream such as a manufacturer investing in a raw
material source.
Vertical integration provides benefits such as:

• Access to supply or demand
• Control of quality of product or service
• Entry into an attractive business area.
However, it introduces the risk of having to manage a very different business.
In cases where the access to raw material is critical, backward integration can reduce the
risk of non-availability of raw materials. For example, Hindustan Steel of India acquired
coal mines in Australia to circumvent the problem of non-availability of good quality coal
needed in steel making. In another example, Amazon.com backward vertically integrated
when it became not only a bookseller but a book publisher. Booksellers set the price
at which Amazon.com can buy a book from them. This in turn limits the amount that
Amazon.com can charge a customer for a book and still make a profit. If Amazon.com
publishes the book itself, it can acquire its books cheaper, as its publishing arm does
not need to produce a profit as an independent publisher would. Additionally, while a
publisher normally would sell its books to a variety of booksellers, Amazon can choose
whether to sell the books it publishes to other bookstores or sell its books only through
Amazon.com. In this way, it can control competition for its books and the price it can
charge for them.
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A company engages in forward integration when it merges with or purchases an

organisation involved in the distribution of its products. The purchase of DirectTV by
News Corporation in 2003 is an example of a forward integration through acquisition.
DirectTV is a satellite TV company, and the purchase of DirectTV enabled News
Corporation to use it as a medium to distribute more of its news, movies and television
shows by managing the process itself.
It may be necessary to enter into vertical integration to gain sufficient control over a
product or service to maintain the differentiation strategy. A company that differentiates
based on quality would require the vital component be made with precision. If the existing
suppliers are not be able to provide this quality, the company can consider acquiring the
supplier and changing the production technology to make this precision part provide a
solution. Sony developed the video cassette recorders in beta format while the competitors
developed the same using VHS format. Sony was not able to push the beta format
as standard, and VHS format became the standard for video cassette recorders. Movie
producers allowed the movies to be produced using the VHS format, and Sony was not
able to benefit from its video cassette recorders. To gain substantial control over supplier
decisions, Sony acquired Columbia Pictures, Tri-star pictures and Columbia Pictures
Television.
Vertical integration presents the risk of having to manage a different business as the
company may not have the required resources and competencies needed in the new
business. PepsiCo acquired KFC and Taco Bell, having these restaurants to sell Pepsi Cola
and not Coca Cola. However, it found that running a restaurant business is different from
the cola business and subsequently exited the restaurant business.
Vertical integration also results in reduced strategic flexibility. If the market declines, exit
barriers are also raised because when one operation becomes dependent on another, it
becomes very difficult to exit from only one of the operations.
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Lesson Recording
10.5 Growth Through Diversification

There are stories of tobacco firm buying frozen food company, cola firm entering into
the wine business, chemical company going into swimming pool supply business, photo-
film company acquiring pharmaceutical company and aerospace firm venturing into
automobile parts manufacturing. These are all examples of diversification strategies
which are opportunities for growth and revitalisation. However, diversification also
entails substantial risks as the firm has to operate unfamiliar businesses in new context.
A company can enter into product markets different from those in which it is currently
engaged through diversification strategy. Diversification can involve either new products,
or new markets or both. It can be implemented through acquisition or merger or as a new
business venture.
Diversification can be either related diversification or unrelated diversification. Related

diversification means that the new business area has meaningful commonalities with the
existing core business. These commonalities provide the potential to generate synergies
based on exchange of resources and competencies. Meaningful commonalties can involve
sharing of:
• Customers and customer applications
• Sales force or channel of distribution
• Brand name or image
• Facilities used for manufacturing, office or warehousing
• R&D efforts
• Marketing and market research.
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Product expansion growth strategy and market expansion strategies are usually related
diversification. Vertical integration is an unrelated diversification because there is usually
no commonality.
10.5.1 Exporting or Exchanging Resources and Competencies

When related diversification is accomplished through internal expansion, the goal is
usually to export the current resources and competencies into the other business. When
diversification is done through acquisition or merger, the goal is usually to combine two
sets of complementary resources and competencies, with one party contributing to what
the other party lacks. The resources and competencies can be analysed to identify real
strengths that are exportable to another business area. Some of the exportable assets are
brand name, marketing skills, sales and distribution capacity, manufacturing skills and
R&D capabilities. Once the exportable assets and competencies are identified, the next step
is to find a business area where these can be applied to generate a competitive advantage.
Sometimes, diversification takes place because the company found that some resources
are under-utilised. For example, a tax firm with excess office space that is not being used
may enter into offering legal services. A cookie manufacturer may start making muffins
with excess capacity available. However caution needs to be exercised because assets
and competencies may require adaptations when applied to new business area. When
acquisitions are involved, two organisations with different systems, people, and culture
will have to be merged, presenting integration issues and challenges.
10.5.2 Brand Name

One common exportable resource is a strong, established brand name which is a name
with visibility, associations, perceived quality, and loyalty among a customer group. The
brand name can make the task of establishing a new product more feasible and efficient
because it makes it easier to develop awareness, trust and interest. Firms such as Sony, HP,
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IBM, Siemens, GE, Disney, Samsung and other strong brand name businesses have built
large, diverse businesses around their brand.
Disney has been leveraging its brand in multiple businesses. Disney was founded in
1920s as a carton company with Mickey Mouse as its initial asset. It built Disneyland in
California in the 1950s and launched a television show by the name Disney. This strategy
changed the brand to become richer and deeper than before as it was no longer viewed as
a cartoon company. It extended the theme park to Florida, Paris, Japan and Hong Kong.
It has established its own retail stores and also operates a cruise ship. All these ventures
deliver an experience that goes far beyond watching cartoons. The Disney channel is one
of the strongest TV channels available.
The success of Disney can be attributed to the company’s understanding of what the
company stands for – magical family entertainment executed with consistent excellence.
When Disney went into making movies for the adult audience, it did so under the
name Touchstone pictures and not Disney. However, once the market had accepted this
transition, new movies for adult audience were also produced under the Disney brand
name. Disney actively manages a number of sub-brands such as Mickey Mouse, Donald
Duck, The Matterhorn, and the song “It’s a small world”, and film characters such as
Mary Poppins and Lion King. Disney also understands synergy across the businesses. For
example, it is also involved in promotions at fast-food chains.
This example shows that brand extension is based on three questions, and each must be
answered in the affirmative for brand extension to be viable:
• Does the brand fit the new product context? Kleenex found it difficult to extend to
non-paper products, while Tata Group has business in steel, auto, communication,
hotels and other businesses leveraging the value of brand name Tata. There are
two aspects of brand name, namely brand association and brand awareness. Brand
association is how the customers associate the brand name in their mind, while
brand awareness refers to the ability of the consumer to recall the brand at the time
of purchase. In the case of Kleenex, the brand name has been associated with paper
products and it would be very difficult to change this association. However, Tata
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branded itself as an organisation known for quality and innovation and there was
no association to a particular product or product line.
• Does the brand add value to the offering of the new product class? Pillsbury’s
microwave popcorn became an instant success when it was introduced. However,
when established popcorn brand Orville Radenbacher entered the microwave
popcorn business, it garnered a large market share even though it entered the
market late. The name Pillsbury did not have sufficient value in the popcorn
business as Pillsbury is originally involved in biscuits and cookies, and flour
businesses.
• Will the extension enhance the brand name and image? Any brand extension should
not damage the brand. When Gap, the apparel retailer, introduced a discount chain
of stores with the name Gap Warehouse, it damaged their brand image. Hence,
they subsequently changed the brand name to Old Navy. In another example,
ITC in India was originally started by the British with the name Imperial Tobacco
Company. After Indian independence in 1947, it was acquired by Indians and
the name was changed to India Tobacco Company. With increased concern about
smoking and impact on health, the tobacco business started declining and they
wanted to grow into other industries. As tobacco was part of its brand, they
rebranded itself as just ITC to create a more wholesome brand image. They have
since diversified successfully in hotels, retail, and snack foods.
Sometimes, a company creates sub-brands or endorsed brands when it believes the

existing brand may have wrong associations. Lexus was a sub-brand used by Toyota to
enter into premium segment of automobile market. Intel went with Pentium Zeon sub-
brand to serve high-end server microprocessor.
An endorsed brand is a new brand supported by the original brand name. Marriott
entered the business hotel segment through the brand name Courtyard by Marriott. This
represented an endorsement from Marriott that the service in Courtyard hotels will be
similar to that of Marriott hotels.
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10.5.3 Marketing Skills

A company may enter into diversification to supplement its marketing skills. Black and
Decker had an aggressive new product program and effective consumer marketing,
customer service and dealer relations. It acquired Ernhart which produced door locks and
outdoor lighting and lacked marketing skills.
It is not easy to apply marketing skills to a new market. Although Philip Morris successful
marketed the Miller Lite Beer, it failed to market 7-Up successfully and had to sell it to
PepsiCo subsequently.
10.5.4 Mirage of Synergy

The major purpose of diversification is harnessing synergy. However, in reality, there
may not be any synergy at all or the synergy cannot be realised even if it exists. An
example where there may not be any synergy is the case of General Foods buying Burger
Chef, a large chain of 700 fast food restaurants on the assumption that synergy exists
between them given that both were in the food business. However, General Foods had
no experience in running a restaurant and the acquisition resulted in negative synergy. In
another example, Daimler-Benz and Chrysler merged but different organisational systems
and cultures between them inhibited synergies from being realised.
10.5.5 Unrelated Diversification

In unrelated diversification, there are no commonalities in resources and competencies
of the two organisations, and the rationale for such diversification is based on financial
motives.
First, unrelated diversification can help to balance the cash flows of strategic business
units. A company that has investment opportunities but lacks funds may acquire a cash
cow, or a cash cow with abundant cash but little opportunity for growth may acquire
companies with growth opportunities.
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Second, when the core business is declining, it may be better to enter into another attractive
business which has good growth prospects. For example, ITC entered into the retail
business and snack business as revenue from its tobacco business started to decline.
Third, the motivation may also be to reduce risk. Due to heavy reliance on a single
product line, a company may decide to diversify such risk by entering into other
product lines or industries. Hershey, a chocolate company, acquired Skinner Macaroni
Company to diversify the risk of the declining chocolate business due to increasing health
consciousness in the society.
Lesson Recording
10.6 Blue Ocean Strategies

Consider the circus industry. The main players were Barnum & Bailey and Ringling
Brothers and the cost of running a circus was very high, requiring a large audience in order
to be successful. The power of suppliers was high because the star acrobats could demand
higher compensation. The power of buyers was very strong because the audience needed
a strong performance with star performers and the routine entertainment provided by
the circuses. There were also many substitutes ranging from sporting events to home
entertainment. Children preferred computer games and play stations to watching circus.
In addition, animal activists were creating a movement against circus using animals. The
circus industry was declining and going towards extinction and was the least attractive
industry to enter. However, this was not the opinion of Mr. Guy Laliberte, an accordion
player, stilt walker, and fire-eater from Canada. He created Cirque du Soleil which has
performed in many cities and many countries and has become successful as a leading
circus company. What Cirque du Soleil did was to create a new market space that was
uncontested and thus made the competition irrelevant. It appealed to a new group of
customers which included adults and corporate clients who were willing to pay a price
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much higher than they would pay for a new type of entertainment experience. The idea
behind the success of Cirque du Soleil was that the “only way to beat the competition is
to stop trying to beat the competition.” This is called a blue ocean strategy. The strategies
used in industries with tough competition are referred to as red ocean strategies. The
colour red denotes the bloodshed that happens when the competitors are fighting for
market share. A blue ocean, on the hand, has no competitors, and the blue ocean strategy
is to identify such an uncontested market space. Many industries start with a blue ocean
strategy and develop further by creating additional blue ocean strategies.
Blue oceans are defined by untapped market space, creating demand which provide
opportunities for highly profitable growth. Some blue oceans are created beyond the
existing industry boundaries, while most are created within the current industries by
expanding the boundaries of the industry.
Creating blue oceans is a strategic move. Ford’s Model T-car opened the way for auto
industry. DEC’s personal computer started the personal computer industry. A successful
blue ocean strategy not only can improve the performance of the company but can also
create multi-million market space in a new industry.
Southwest Airlines created a blue ocean by creating another segment in airline travel,
called the low cost airline segment. Southwest Airlines was started in 1966 by Rollin King
and Herbert Kelleher in Dallas, Texas. The only mode of travel between cities within Texas
was by driving and it took considerable time. For example, the distance from Austin to
Dallas was 195 miles and would take about 3 hours to drive. King and Kelleher felt that
they could compete against car travel by offering air travel with no frills and pricing
the air ticket close to the cost of driving a car. This turned out to be a huge success. Its
strategy is to have a low cost, excellent service, frequent point-to-point service with quick
turnaround at gates. To have a low cost, it uses only Boeing 737, and does not provide any
frills such as seat selection, in-flight meals, or lounge services. From 1975 to 1977, it was
operating only within Texas. In 1977, it introduced flights to adjacent states. In 2017, it has
more than 700 Boeing 737 planes with an average of 6 trips per plane. It now serves 101
destinations and eight adjacent countries. The other airlines could not copy this model in
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1966 because point-to-point system was not efficient for them for long haul flights and
had to use the hub and spoke system to improve efficiency. They also had variety of
planes which increased the maintenance costs as different planes require different parts
whereas in the case of Southwest Airlines, it does not need an elaborate inventory of spare
parts. With this competitive advantage and excellent service, Southwest Airlines is now
able to compete effectively with other airlines. The model of Southwest Airlines has been
successfully used by Easyjet and RyanAir in Europe, Air Asia in Malaysia, and Jet Star in
Australia, Indigo in India, to name a few.
10.6.1 Value Innovation

The cornerstone of blue ocean strategy is value innovation. The focus is not on beating the
competition but to make the competition irrelevant by creating a leap in value for buyers
and the company, thereby opening up a new uncontested market space. Value innovation
places equal emphasis on creating value and innovation. There are many technological
innovations which have failed because they did not create value for the customers. Blue
ocean strategy pursues differentiation and low cost strategies simultaneously.
In the earlier example, Cirque du Soleil combined the circus and theatre by understanding
that the customers of circus are generally children and the customers of theatre are adults.
Thus, it was positioned as family entertainment catering both to children and adults. Since
there were no competitors, they did not have to compete for hiring performers and could
follow a low cost strategy.
The objectives of low cost and differentiation strategy can be approached by looking at
the following questions:
• Which of the factors that the industry takes for granted can be eliminated?
• Which factors should be reduced well below the industry’s standard?
• Which factors should be raised well above the industry’s standard?
• Which factors that the industry has never offered should be created?
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In the case of Cirque du Soleil, it eliminated star performers, animal acts, and multiple
show arenas. It reduced fun and humour, thrill and danger. It, however, successfully
crafted a unique theme, which includes refined environment, multiple productions,
artistic music and dance.
In blue ocean strategy, the competitors are not benchmarked; instead it requires a
search for alternatives. A good blue ocean strategy has three characteristics, namely,
focus, divergence, and a compelling tag line. Each strategy should have a focus and
the company’s strategic profile should clearly show the focus. Southwest Airlines
emphasises friendly service, speed and frequent point-to-point departures. Using this
focus, Southwest Airlines has been able to price against travel by car transportation; it
does not make extra investments in meals, lounges, and seating choices. It uses the same
model airplanes which makes it easy in maintenance and servicing.
Divergence means that the strategy is unique and diverges from the strategies of
competitors. At the time Southwest Airlines was started, for the flights from Dallas to
Austin, there were other airlines with flights to Dallas and Austin but they were not point
to point. If one were to take United Airlines flights, they will have to go from Dallas to
Cincinnati with a flight time of about 1 hour, and wait for the flight from Cincinnati to
Austin. Thus, the total time of travel could be about 4 hours, whereas Southwest Airlines
could take passengers from Dallas to Austin in about 30 minutes. The hub and spoke
system is used to increase the capacity utilisation in all the flights. The airlines may
have some point-to-point service between cities that have high passenger traffic. If the
passenger traffic between cities is low, it would be meaningful to club all those going to a
particular city from many cities. This is the idea behind hub and spoke system. Passengers
from many cities will be brought to the hub and then they will be transferred to the fight
going to different cities. This is more cost efficient for the airlines. Southwest Airlines’
strategy is unique in the sense it provides point-to-point service, thus decreasing the time
taken to travel. Southwest Airlines used only cities which were close by and where air
travel will be appreciated.
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A good strategy should have a compelling tagline. For Southwest Airlines, it could be
“The speed of a plane at the price of a car travel – whenever you need it”. A good tagline
should not only deliver a clear message but also should advertise an offering truthfully
or else customers will lose trust and interest.
Lesson Recording
10.6.2 Ways to Create Blue Ocean Strategies

There are many ways in which a blue ocean can be identified and appropriate strategies
can be developed to take advantage of this blue ocean.
10.6.2.1 Look Across Different Industries

Most firms compete not only with firms in their own industry but also with companies
in other industries that produce alternative products and services. Alternatives include
products or services that have different functions and forms but the same purpose.
Cinemas and restaurants both cater to the same function which is to enjoy a night out.
Golden Village with their Gold Class have combined both of these to enjoy success. Gold
Class provides ultimate luxury movie viewing with a private lounge and plush electronic
viewer seats. It also provides a sophisticated club ambience, serving a wide variety of fine
food and top wine list. They are all equipped with call buttons for faster and more discreet
service.
One of the examples is NetJets which created fractional jet ownership. For big businesses
which require frequent travel for its executives at short notice, buying a private jet is
very expensive, while taking a regular airline using business class travel is inconvenient.
NetJets provides the ease of private jet travel by the business executives through fractional
ownership of private jets. NetJets requires only 4 hours’ notice before the actual travel.
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NetJets opened up a blue ocean wherein customers get the convenience and speed of a
private jet with a low fixed cost and low variable cost of commercial airline travel.
10.6.2.2 Look Across Strategic Groups Within Industries

Strategic groups include companies that follow similar strategies. Strategic groups
are usually differentiated through price and performance. Most companies focus on
improving their performance within the strategic groups. However, customers may be
willing to trade up or down to another strategic group if the factors that affect their
decision to move up or down can be identified, and such circumstances can open up new
opportunities.
In the fitness industry, there are two distinct strategic groups, namely, traditional health
clubs, and companies that provide videos for home exercise programs. Home exercise
programs are pitched towards women who want to do exercises by copying the moves
shown in the video which uses celebrities such as Jane Fonda. Traditional health clubs
provide all exercise equipment and also have fitness trainers who can guide and train
members. The investment in these clubs are high and hence membership fees in these
clubs are also high. A Texas based company combined these two groups to form Curves,
a fitness club for women. It provided a health club atmosphere with limited equipment
and also provided facilities to watch the exercise videos. The investment by the company
was very low, resulting in low membership fees. It started in 1992 and expanded to many
cities across USA and internationally through franchises.
10.6.2.3 Looking Across the Chain of Buyers

In most industries, the immediate buyer may be different from the actual users and in
many cases, there may be influences of the immediate buyer on the selection of products
and services by the actual users. It is quite likely that the definition of value created by
the company could be different among these two groups. Consider the housing industry
in Singapore. The housing units are built by developers using materials and providing
the home appliances they believe to be of value. However, the homeowners who buy
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these housing units may not appreciate the value provided by the builders. That is why,
the home remodelling industry in Singapore is thriving. Thus, there are opportunities for
companies to directly look at the actual users rather than the immediate buyers.
This was done by Novo Nordisk in the treatment of diabetes. It by-passed the medical
professionals and offered user-friendly insulin delivery solution directly to users through
NovoPen which was improvised later by Innovo, an integrated electronic memory and
cartridge based delivery system.
Bloomberg changed the way financial information was sold to customers. While Reuters
and Telerate were concentrating on corporate buyers, Bloomberg targeted the actual users
such as traders and analysts and became the leader among information providers.
10.6.2.4 Look Across Complementary Product and Service Offerings

Customers would prefer a total solution when they choose a product or service. A simple
way to do this is to think about what happens before, during, and after the product
or service is used. Many malls provide free valet parking services to attract customers.
Emirates Airlines provides limousine service to first class travellers. Singapore Airlines
offers free tours to those who have long transit period. Computers are sold with operating
and application software along with the hardware. In addition, libraries and book shops
offer special areas to read quietly and also have coffee bars to provide a total solution to
the visitors.
10.6.2.5 Look Across Functional or Emotional Appeal to Buyers

A product or service is created to satisfy either functional needs or emotional needs.
Typically, emotionally oriented industries offer many extras that add to price without
increasing functionality. These extras can easily be stripped away to reduce cost which can
attract more customers. In a similar manner, functionally oriented industries can introduce
a dose of emotions in their product or service to create new demand.
An example of adding emotional component to functionality is Swatch. Confronted with

digital watches from Japanese watchmakers such as Casio and Timex who were able to
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sell their watches at a low price, Swiss watch manufacturers had to counter this challenge.
The Swiss watch manufacturers formed an alliance and designed Swatch watches which
would also provide a fashionable and emotional appeal. Swatch watches come in different
colours and with interchangeable straps which satisfy the fashion needs.
In another example, QB House in Japan had changed the haircutting industry from
emotional to purely functional one. They eliminated the traditional hot towels, shoulder
massages and tea and coffee and reduced the time to get a haircut from more than one
hour to just 10 minutes at a lower cost.
10.6.2.6 Look Across Time

All industries are affected by trends in the external environment. Instead of waiting for
a trend to develop and take actions to keep up with the trend, one can understand how
the trend will affect value to customers. This understanding will help the company to
adapt the business model to benefit from the trend. The company should concentrate on
trends that affect the business, which are irreversible, and have a decisive trend. Apple
used this approach effectively. In 1990s, a number of music file sharing companies such
as Napster, Kazaa and Limewire emerged. Consumers who wanted to download music
from the internet could join these companies as members and could download the music
to be used in their MP3 players. Recording industries and performers identified this as
illegal and tried to stop this practice with little success. Apple capitalised on this decisive
trend with a conceptualised iTunes music store in 1999 and launched the store in 2001.
In agreement with major music companies, iTunes allowed legal, easy-to-use and flexible
song downloads at a very low cost. To facilitate listening the music downloaded, they also
designed the iPods which were also marketed in 2001.
Blue ocean strategies help create new market space with little or no competition and
provide a first mover advantage.
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11
Study
Unit
Strategy Development
BUS489 Strategy Development
Learning Outcomes

• Appraise the process of strategy formulation
• Distinguish between deliberate strategy and emergent strategy
• Differentiate internal analysis and external analysis
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Overview
In developing strategies, it is important to know the process of strategy development in

the organisation. In some organisations, the strategy will come from top down where the
top management provide the guidelines for strategy, and the strategic planning committee
will develop the appropriate strategy according to the guidelines. In some organisations,
the strategy can also come from the business units based on the opportunities which
will become the organisational strategic direction. This Study Unit discusses the different
approaches to strategy development.
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Chapter 11: Strategy Development
Zara is a Spanish clothing and accessories retailer. Its first store, which was founded in
1975, featured low-price lookalike products of popular, higher-end clothing fashions. In
1980, Zara changed the design, manufacturing, and distribution process to reduce lead
times and react to new trends in a quicker way. The improvements included the use of
information technologies and the use groups of designers instead of individuals. In 1988,
it started international expansion. Currently there are over 2,100 Zara stores located across
88 countries. Zara’s strategy includes:
• selecting the most expensive real estate locations to open its flagship stores,
• designing products based on consumer trends
• creating responsive supply chains that ship new products to stores twice a week
• introducing RFID technology which allows for better inventory management
• embracing fully toxic-free production
• shortening the product lifecycle to meet consumer preferences with design of a new
product being done within 4 to 5 weeks.
Lesson Recording
Study Unit 11 Strategy Development Part 1
In Study Units 2 to 10, we saw the various strategic choices available to companies
based on the opportunities, threats, and sustainable competitive advantages. However,
the question that has not been answered so far is “How are strategies developed?”
Strategy can be developed in two different ways in an organisation. They are deliberate
strategy development, and emergent strategy development. The eventual strategy that
the company follows, also known as the realised strategy, is influenced by both the
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deliberate strategy and the emergent strategy. These two can be related to the strategic
vision and strategic opportunism discussed in Study Unit 7. While Study unit 7 described
the concepts of strategic vision and strategic opportunism, it did not explain how
strategies are developed within the organisation. In this Study Unit, the process of strategy
development will be discussed.
11.1 Deliberate Strategy Development

Deliberate strategy development is done through intentional strategy formulation or
planning. The intention of the strategic leader such as the Chairman of the Board will
provide the direction for the company in deliberate strategy development. Sometimes,
deliberate strategy is also developed through a process of strategic planning that involves
the management. The external shareholders may also influence the deliberate strategy.
Strategic leaders have a great influence on the company’s strategy. Their personality or
reputation will play a major role in strategy development. In small businesses, it is often
seen that the owner or the CEO provides the strategic vision for the company. For example,
the strategic leader for Virgin group is Richard Bronson, and for Tata Group in India, the
strategic leader is Ratan Tata. Steve Jobs was the strategic leader for Apple and after he
resigned, Apple started having problems. Steve Jobs had to come back to get Apple back
on its feet. A chief executive such as Mark Zuckerberg of Facebook or Michael O’Leary of
Ryanair could also be strategic leaders of their respective companies.
Sir Richard Bronson of Virgin group which controls over 400 companies has his
personality influencing strategy in all Virgin enterprises. His personality is characterised
as daring, and risk-taking. His rationale for starting Virgin Airlines is stated by him as
“My interest in life comes from setting myself huge, apparently unachievable challenges
and trying to rise above them ... from the perspective of wanting to live life to the full, I
felt that I had to attempt it.” This attitude is reflected in the strategies he had developed
for all the companies in that group. His daring personality can be seen from his travel
around the globe in hot air balloons, and his record breaking crossing of English Channel
in an amphibious vehicle. Branson is also known for his preference of casual clothing
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both at home and the workplace. On his dislike of ties, he says "I have been carrying out
a lifelong campaign to say bye to the tie. Most people in business dress the same and
that contributes to them acting the same. Wearing a tie really can restrict new ideas and
innovative thoughts – not to mention breath!"
Mr. Ratan Tata of Tata Group has succeeded using his reputation as a strategic leader.
He was appointed as the CEO of Tata Group in 1991. There were comments of nepotism
when he was chosen and his efforts were resisted by many senior managers who had a
long career with Tata Group companies and held powerful positions. As the first measure,
Ratan Tata started replacing the senior managers and required that all operational units
report to the Group office. He concentrated on building the Tata brand with emphasis on
innovation. Through his strategy, he was able to streamline operations to create synergy
among the operating units. He was responsible for overseas acquisitions such as Tetley tea
by Tata tea, Jaguar Land Rover by Tata Motors and Corus Steel by Tata Steel. All this turned
Tata Group into a multinational company with a substantial portion of its sales coming
from more than 100 countries. While Ratan Tata named Cyrus Mistry as his successor,
Ratan Tata’s reputation was still associated with Tata Group and Cyrus Mistry resigned
with a comment that he could no longer work as a shadow to Ratan Tata.
Deliberate strategies can be dictated by an individual, especially when it is an owner-

managed firm in which the individual controls all aspects of the business directly. The
advantage of such leadership is that adaptation of strategy will be fast. In addition, the
strategy can be sharp, innovative and unorthodox which makes it difficult for competitors
to imitate. Before Michael Dell entered the computer industry, computer manufacturers
such as IBM, Compaq and Hewlett Packard were using the retailer network to market
the computers. These computers were standardised and IBM may sell standardised
computers with different specifications, and the customers can choose any one of the
computers that he wants. There was no way to buy customised computers with the
specifications that the customer wants. Since the distribution was through retailers, these
companies also had to keep inventory of computers to be sent to the retailers. Dell
visualised the opportunity of selling customised computers and used direct marketing to
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the customers who could order customised computers through phone or fax. Dell also
promised 24 hour technical support through phone as well as at-home service if needed.
This strategy was difficult for competitors to follow because of their commitment to sales
through retailers and a large inventory they had to keep.
The strategic leader may come up with an overall mission, vision, or strategic intent that
motivates others and can help in developing a more detailed strategy. For example, IKEA’s
founder Ingvar Kamprad created the vision “To create a better everyday life for the many”
which continues to guide subsequent managers and staff of IKEA.
The key role of the leader is to weigh different views of strategy within the organisation
and make a decision in a timely manner, invest key resources into key markets, and ensure
the entire firm follows this direction.
11.2 Strategic Planning System

Strategies can also be developed through strategic planning, which is a systematic analysis
and exploration of strategic choices based on opportunities, threats, and capabilities that
provide sustainable competitive advantages. The strategic planning cycle consists of the
following steps:
• Initial guidelines – These are assumptions about the external environment and the
overall priorities, guidelines and expectations received from the corporate group.
• Business level planning – Business units or divisions prepare strategic plans
based on the initial guidelines to present to the corporate group. Corporate group
executives will discuss these plans with the head of the business unit. The business
unit can then revise the original plans based on these discussions.
• Corporate level planning – The corporate plan aggregates the business level plans,
and the corporate coordinating team will be in charge of the coordination across
the company. Once the corporate plan is ready, it will be presented to the Board to
seek endorsement and approval.
• During implementation, the strategy will be monitored based on financial and
strategic targets and key strategic priorities.
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Usually there is a planning horizon of about 3 to 5 years. In cases where capital investment
is heavy and the environmental is fairly stable, it can even extend to 10 years. The
purpose of strategic planning is more of a discovery-driven approach rather than finding
the right answer. The emphasis will be on questioning and challenging in order to
evaluate the various strategy options. Strategic planning systems will often be needed
to coordinate strategies of different business units to ensure alignment with the overall
corporate strategy. It is also important that the strategy is communicated throughout the
organisation, to ensure that the purpose and objectives of the strategy are made known. In
addition, strategic milestones can be developed to compare and review the performance
and progress.
However, there are issues in employing a strategic planning system. Managers may
be seen as managing strategy rather than developing strategy. Strategy is not the
same as plan, and it provides direction for the company. Sometimes, strategy may be
misunderstood as a budgetary process requiring financial forecasts rather than thinking
about the implications of the forecast. Very often, strategic planning is outsourced to
consultants because the business unit managers are too busy with day-to-day operations.
Though these consultants may be experts, they do not belong to the firm and hence
have no intimate knowledge of the company structure and culture. Their strategic
recommendations, while sound, are far removed from reality. Sometimes, the focus
may be on the details of the analysis, missing the strategic issues facing the firm. It is
also possible that people contribute only to a certain part of the strategic analysis and
hence do not understand the full implication of the strategy. This is particularly true
in multinational companies where different business units may come up with strategies
that do not correspond to the intended overall corporate strategy. Highly centralised and
rigid planning process can inhibit innovation. Thus, care must be taken in setting up a
formalised strategy planning system.
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11.3 Externally Imposed Strategy

Sometimes, a strategy for a firm may be imposed by powerful external stakeholders.
For example, the government may dictate a particular strategic direction for public
sector organisations. As the government possesses extensive regulatory powers over
certain industries, it may impose certain strategy upon private firms in the industry
too. A multinational company entering into a developing economy may be subject to
governmental regulation in that country in respect of repatriation of funds, or restriction
from entering into alliances or joint ventures with a local party. Venture capitalists may
also be restricted from funding certain firms.
Lesson Recording
Study Unit 11 Strategy Development Part 2
11.4 Emergent Strategy Development

In some companies, strategies may emerge on the basis of a series of decisions whose
pattern becomes clear over time. These are called emergent strategies. In emergent
strategy development, it is not the plan that created the strategy but the strategy that
created the plan. Emergent strategy may be developed through logical incrementalism, or
as an outcome of political processes, or as a continuity of earlier strategy, or as a product
of organisational systems.
11.4.1 Logical Incrementalism

The basis of logical incrementalism can be understood from the analogy of chess. The
goal in chess is to achieve victory by capturing the king of the opponent. The first player
starts with a strategic move assuming a countermove by the opponent. If the expected
countermove materialises, the next move will be based on the initially planned strategy.
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However, when the countermove is unexpected, a new strategy has to be developed. Since
any attempt to predict the moves by the competitor is almost impossible, the players limit
themselves to working on probabilities of moves that are near and not too far ahead. Thus,
in logical incrementalism, strategies are created for immediate and near future, rather than
by looking at long-term.
Strategy development using logical incrementalism is based on environmental

uncertainty. It will be very difficult to assess the long term impact of environmental
uncertainty and hence, managers try to be sensitive to environmental signals by
concentrating on constant environmental scanning throughout the organisation. This can
be traced to the strategic opportunism discussed in Study Unit 7.
Logical incrementalism may also apply when there is reluctance to specify objectives
too early as this may inhibit innovation and experimentation. Therefore, general goals
and objectives are stated rather than precise objectives to enable the managers to move
towards the precise objectives incrementally. Very often, the companies may experiment
with different strategic options before coming up with the choice that forms the strategic
thrust.
Under logical incrementalism, strategy development is deliberate and relies on

organisational subsystems to sense what is happening in the environment and try out
ideas through experimentation. Continual testing and gradual strategy implementation
provide improved quality of information for decision making. Since change will be
gradual, the possibility of creating and developing a commitment to change throughout
the organisation is increased. There is knowledge sharing among the various managers
about the feasibility of a course of action. If the environment is expected to change
continually, there will be corresponding changes in the strategy to suit the changed
environment.
This type of process is suitable for an organisation that is capable of continual regeneration
from the variety of knowledge, experience, and skills within a culture that encourages
questioning and challenge.
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11.4.2 Strategy as Outcome of Political Process

In most companies, there will be power politics occurring between executives or between
executives and the stakeholders. In such case, power politics may lead to strategy
development. In this way of developing strategy, the rational and analytic processes
associated with strategy development may not be as objective as they appear as the final
strategy may be based on the ambition of powerful people or groups. For instance, it
is also possible that the pursuit of current strategy has enabled certain individuals or
groups to gain power. In the event that significant changes in strategy occur, their current
power may be threatened and they may leverage their current power position to steer the
strategy towards reinforcing their powerful position. Thus, the resultant strategy may be
a compromise solution which may be an adaptation of the current strategy.
In spite of the disadvantages of strategy development as a political process, there could

be advantages too. The conflicting views can be a source of new ideas or challenges to the
old ways of doing things. New ideas may be supported or opposed by different players
who will argue over what is the best idea or the best way forward. Thus, there may not
be any good and innovative strategic ideas unless such conflicts happen.
11.4.3 Strategy as Continuity

Very often, companies continue with an existing strategy especially if it is successful. Thus,
one way of explaining emergent strategy is that managers seek to maintain a continuing
strategy. The strategy of a company may develop on the basis of a series of strategic moves
with each being a slight improvement over the previous. For example, a company may
come up with an innovative product with initial success. This initial success may move
the company into newer markets and then diversify into related products. Thus, each
strategic move is based on the success of the previous strategic moves such that over time,
it becomes established as the strategy.
Firms may also be constrained by the organisational culture to follow a particular strategy.
If the organisational culture is hierarchical with rigorous control, it will often inhibit
innovation and strategy development in a new direction.
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11.4.4 Strategy as the Product of Systems

Instead of looking at strategy development based on foresights and anticipation by the
top management, it can be seen as the outcome of managers at much lower levels making
sense of and dealing with problems and opportunities by applying established ways of
doing things. Though it is similar to logical incrementalism, there will be less emphasis
on experimentation. The emphasis will be on the influence of systems and routines with
which managers are familiar and which guide and constrain their decisions. Systems and
routines provide solutions that managers can draw on when faced with problems. If there
is a downturn in the market, strategies have to be developed to tackle the situation. It
is likely that the marketing manager may come up with solutions in the form of sales
promotion while an accountant might instead view it as a situation requiring stricter
controls and cost cutting. When the company is planning the strategy, the solutions
provided by different mangers based on their expertise will be taken into account.
This explanation of strategy development de-emphasises top down strategic planning

and suggests that strategies are developed as accumulation of local decisions strongly
influenced by local context. These local decisions can then be utilised to formulate a clear
strategy in the form of a strategic plan.
11.5 Strategy Development in Different Contexts

We have discussed the different ways in which strategy can be developed and the
importance for managers to understand these processes. In addition, organisations
differ in size, form and complexity and also face different environments. Thus different
processes of developing strategies will be appropriate at different circumstances.
If an organisation is operating in an environment that is easily understood and there are

no changes anticipated, the strategy development process can be simple. If environmental
changes occur, it could be predictable and an extensive analysis of the environment
will provide clues about the likely changes. In such conditions, the likelihood is that
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past experiences and prior decisions have a material influence. In this case, the strategic
planning approach will work very well.
In dynamic conditions, the managers need to consider the environment in the future and
not just the past. They can use scenario analysis or alternatively, they can utilise rely
active sensing of environmental changes at the more junior levels of organisations through
officers who have more direct interaction with the changes that are taking place.
When an organisation operates in a complex environment where changes in the

environment are difficult to comprehend, it may seek structural solutions. One possible
solution would be sub-divide the organisation into business units where managers have
more specific expertise and responsibilities for strategic decision making within those
units.
11.6 Managing Deliberate and Emergent Strategies

It is likely that certain aspects of deliberate strategy are not materialised. It could be
because:
• The environment has changed and the managers believe that the strategy as
planned should not be put into effect;
• The strategy proves to be unworkable or unacceptable in practice;
• The emergent strategy dominates.
It can also happen that the managers may come up with a deliberate strategy based on
strategic planning but the organisation may be following a different strategy in reality. For
example, the strategy suggested is to have excellent customer service but the company
operates call centres that do not solve customer problems and instead lead to customer
frustration. It is necessary for the top management to understand the extent of the
difference between what is intended and what is actually happening. Mangers need to
take steps to see that the deliberate strategy is actually being realised.
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The process of strategy development that gives rise to emergent strategies may be rooted
in organisational systems and culture. The resource allocation processes can be changed.
The political process needs to be analysed and managed. The norms, routines and culture
need to be challenged and changes are to be made when necessary. Having a clear
organisational mission and vision would facilitate the bottom-up strategy development.
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12
Study
Unit
Strategy Evaluation and

Implementation
BUS489 Strategy Evaluation and Implementation
Learning Outcomes

• Appraise the role of strategy evaluation
• Identify the approaches to evaluate strategies
• Analyse the issues to be considered in implementing the strategy
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Overview
In developing strategy, there may be different options to accomplish the strategy. For
example, differentiation strategy could be based on either quality or distribution channel.
These are called as strategic options or strategic alternatives. Once the strategic options
are developed, it is necessary to find the best strategic option that will fit the needs
and capabilities of the organisation. This requires evaluation of the various strategic
options. After identifying the strategy that is best for the organisation, the next step is to
implement the strategy. The implementation requires that appropriate changes are made
in the organisation, its structure, people, systems and culture.
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Chapter 12: Strategy Evaluation and Implementation
A strategy that is developed needs to be evaluated in terms of how well it will impact the
performance of the company. Different strategic options will be examined in this context,
and the one that offers the best strategic fit will be chosen. Once the strategy is chosen, the
next step is implementation.
Lesson Recording
Study Unit 12 Strategy Evaluation and Implementation Part 1
12.1 Evaluating Strategies

In order to evaluate strategic options, it is first necessary to identify which aspect of
the organisational performance need to be addressed so that appropriate performance
measures can be identified. Once the performance measures are decided upon, a gap
analysis will be conducted to determine what factors cause the actual performance to be
different from the target performance and the strategic option that best fills the gap will
be chosen.
12.1.1 Organisational Performance

Many criteria can be used to measure organisational performance. Two approaches are
usually used to analyse performance, namely, direct economic performance and overall
organisational effectiveness.
Economic performance are measures of success in terms of economic outcomes. This

includes performance in the product markets such as sales growth and market share.
Accounting measures such as profitability, net profit margin and return on invested capital
are used to measure financial performance. Performance can also be measured from the
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financial market perspective by looking at share price and the changes in share price.
However, these measures could be interrelated. For example, market share might have
increased through reduced prices, which then decreases the net profit margin. Sometimes,
the sales might grow and the return on invested capital might increase but the share price
may drop. Thus, a single measure is not sufficient to measure the economic performance
but an overall analysis of all measures will lead to a unified direction.
Organisational effectiveness is analysed through measures reflecting internal operating

efficiency and measures relevant to external stakeholders such as employees and
customers. The usual broad measures of effectiveness are assessed through the Balanced
Scorecard approach. The Balanced Scorecard approach considers the customer perspective
using measures such as customer satisfaction or product quality; the internal business
perspective using productivity measures; the innovation and learning perspective,
measuring new product introduction and employee skills; as well as the financial
perspective that is focused on profitability and share price.
Another technique to measure organisational effectiveness is the Triple Bottom Line

approach. It uses economic measures such as sales, profit and share price, social measures
such as employee training, health and safety and contributions to local community,
and environmental measures such as pollution control and recycling effort. The idea in
measuring organisational effectiveness is to look at factors that support the long-term
sustainability of the firm.
12.1.2 Performance Comparisons

Any measure used to evaluate organisational performance should be compared to some
target. Targets are set by the management and could be expressed in terms of vision,
mission or specific objectives. The share price is related to earning target. If the company
misses the earning target, the share price will drop and can lead to the dismissal of the
CEO or CFO.
Performance can also be compared across time to see whether the performance is
improving or declining. Any improvement may indicate the current strategy is working.
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If the performance is declining, it may indicate that the strategy should be changed.
However, performance comparison over time has to be done with caution. In the ever
changing world, good performance in the past does not guarantee good performance in
the future. Even if the performance is improving, the current strategy should be examined
in the context of changed environment and appropriate modifications should be made.
Performance can also be compared against comparable organisations. The usual method is
benchmarking. Benchmarking can be done against the industry, or against peer companies
in the industry or against the best-in-kind across all industries. The idea in benchmarking
is to achieve the same level of performance as the best company against whom it is
benchmarked. For example, a utility company may benchmark its billing system against
an insurance company.
12.1.3 Gap Analysis

In gap analysis, the company compares its actual performance or projected performance
against the desired performance. This actual performance analysis will identify
performance shortfalls or gaps. By analysing the projected performance against the
desired performance, the company can identify likely future problems. The size of the gap
will provide the extent to which the strategy needs to be changed.
12.1.4 Complexities in Performance Analysis

Economic measures as well as organisational effectiveness measures are interdependent
as improvement of one measure may show a decline in the other. In addition to this
interdependency, there are other sources of complexity. Very often, organisations tend
to manipulate outcomes in order to meet key performance indicators. A company may
book sales orders early to meet short term targets. Organisations can also manage
performance perceptions and expectations. In the financial market, the share price is
affected by analysts’ recommendation based on the expectations about the performance of
the company. CEOs can interpret strategies and results in a favourable light even though
the actual results could be unfavourable so that the stock price is not adversely affected.
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The importance of performance measures can change over time. With much emphasis
made on corporate social responsibility (CSR), the measures of CSR could be more
important than economic measures. Thus, a careful analysis of the performance and the
underlying strategy should be performed.
Lesson Recording
12.2 Evaluation of Strategic Choices

Though there could be a number of parameters over which the new strategies can be
evaluated, the commonly used parameters are suitability, acceptability, and feasibility.
12.2.1 Suitability
Suitability examines how effectively the strategy deals with key opportunities and threats
that the organisation faces. At the most basic level, a suitability analysis involves the
assessment of the extent to which a proposed strategy exploits the opportunities, avoids
the threats, capitalises on the organisation’s strengths and remedies its weaknesses.
The concept of suitability analysis has been explained in earlier Study Units. Study Units
2, 3 and 4 dealt with external factors that affect the company and how analysis of the
external factors will result in identifying opportunities and threats. Study Unit 5 dealt
with internal analysis and capability analysis through which the organisational strengths
and weaknesses as well strategic capabilities could be found. There may be many strategic
options which were discussed in Study Units 8, 9 and 10. The organisation will have to
then decide which of these strategic options is the most suitable. A start-up company may
want to decide whether it should concentrate in a single geographic area, or go nationally,
or go global. A company may have come up with a new product and may be looking
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for the suitable market to introduce and launch the product. The task is to decide on the
strategy that is the most suitable so that it provides for long term sustainability.
There are many methods to evaluate the suitability of strategies. The most commonly
used methods are ranking, screening through scenarios, screening for bases of competitive
advantage, and analysing through decision-tree approach.
12.2.1.1 Ranking
In the ranking method, possible strategies are assessed against key factors relating to the
strategic position of the organisation and a score or ranking is arrived at for each option.
The major advantage of this approach is that it forces an analysis of the implication and
impacts of specific key factors on specific strategic options. Key factors are the company’s
competencies required in the competitive market. This method removes the unconscious
bias of each individual manager. The key questions in relation to key factors are the
environment in which the strategy is to be employed and the capability needed to compete
in that environment. For example, if diversification is one of the options, the relevant
environment could be a declining core business or new opportunities in other business.
Capabilities needed are resources and competencies that provide competitive advantage
in the new arena. Score will be provided based on how well the current capabilities match
the needs for the new environment. If a number of factors are considered, weights can be
assigned to each factor and a weighted average score will be used in ranking. One of the
factors could be the possible reaction of competitors which may have a profound impact
on the strategy.
12.2.1.2 Screening Through Scenarios

In this method, strategies are evaluated against various possible scenarios. For example,
one can consider the various economic scenarios such as good economic growth, moderate
growth or economic decline. Analysis is then done to evaluate how each strategy will
perform under each of these scenarios. Strategies that can still work under different
scenarios will be preferred over strategies that can only work under a specific scenario.
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Sometimes, if more than one strategy are found to work in different scenarios, one of them
can be chosen while the other is kept as a standby.
12.2.1.3 Screening for Bases of Competitive Advantage

In order to compete effectively in any market, the firm must possess strategic capabilities.
Various strategies can be analysed to identify the strategic capabilities that underpin
each strategy. These identified strategic capabilities can then be evaluated against the
VRIO criteria introduced in Study Unit 5. The strategy with the most strategic capabilities
satisfying the VRIO criteria analysis will be preferred.
12.2.1.4 Decision Tree Analysis

Decision trees are used to assess the strategic options against a list of key factors. Options
are eliminated and preferred options emerge by progressively assessing them against
some or criteria which the strategy must meet. The tree starts with the most important
criteria first, and then the next important criteria is chosen and the tree continues. The
strategy which meets all criteria will be chosen. The drawback of this method is that the
question of whether a criterion is met or not is answered by a simple yes or no, and hence
does not allow for a variety of options which may exist within the strategy.
12.2.2 Acceptability
Acceptability is concerned with whether the expected performance outcomes of the
proposed strategy meet the expectation of the stakeholders. This is based on risk, returns
and reaction of stakeholders.
12.2.2.1 Risk
Risk examines the extent to which the strategic outcomes are unpredictable and
concentrates more on the possible negative outcomes. Risk is considered to be high
when there is high level of uncertainty In order to deal with risk, companies often have
established acceptable levels of risk. Formal risk assessments are incorporated into the
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business plans as well as in investment appraisals. The type of risk examined is not only
pertaining to financial risk, but also other types of risks such as reputation and brand
image. Sensitivity analysis, financial risk analysis, and breakeven analysis are some of the
methods to conduct risk analysis.
In sensitivity analysis, each of the important assumptions is questioned and challenged.

The aim is to identify how sensitive the predicted performance will be to each of these
assumptions. For example, if one of the assumptions is a growth in the market of 3%,
sensitivity analysis will test the outcomes if the market growth is 3%, more than 3%
and less than 3%. Sensitivity analysis is different from a scenario analysis. In sensitivity
analysis, changes in each variable are studied keeping other variables constant, whereas
scenario analysis examines different scenarios with changes in a group of variables.
In terms of financial risk, a company should assess its strategies to ensure that key financial
obligations necessary for survival are met. For example, a strategy that requires high
level of debt in the capital structure presents more risk. Another measure of financial
risk is short term liquidity. Sufficient liquidity is needed to make timely payments and
avoid additional financial charges. Many companies could be very profitable but still fail
because of liquidity problems. The strategy chosen should ensure adequate liquidity.
Another analysis of financial risk includes break-even analysis. Break-even point is the
level of sales at which the company will recover its fixed costs and variable costs. Break-
even analysis can thus be used to assess the risks associated with different pricing
strategies.
12.2.2.2 Returns
Returns relate to the financial effectiveness of the strategy. There are a number of measures
of returns, namely, Return on Capital Employed (ROCE), payback period, and discounted
cash flow using net present value and internal rate of return. There are no absolute
standards as to what is good return or bad return. It would depend on the industry,
country, as well the stakeholders. Since the performance of the strategy is based on certain
assumptions, there is thus a risk of the returns not being realised when these assumptions
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no longer hold true. Hence, a sensitivity analysis will indicate whether the returns are
adequate based on different confidence level on the assumptions.
Sometimes, returns are analysed from the shareholder view point to answer the question
“which of these strategies are likely to increase the shareholder value.” There are two
common measures. One measure is the Total Shareholder Return, which is calculated as
the increase in share price plus the dividends received for the price paid to buy the shares.
The other measure is the Total Shareholder Return in Any Year = (Price at end of the
year + dividends during the year) / share price at the beginning of the year. However,
such analysis is not applicable for privately held companies. In addition, such analysis
has little strategic value as the share prices can increase or decrease due to factors other
than company specific factors.
Another approach to assess returns is to conduct Cost Benefit Analysis (CBA). In CBA,
the cost underlying each strategy and the benefit of each strategy are compared and
the strategy that has the highest benefit in relation to cost is more advantageous. The
advantage of this method is that the managers are forced to be explicit about the various
factors that influence strategic choices even though some of the costs and benefits cannot
be quantified.
It is often valuable to consider strategies as a series of real options, that is, opportunities
at a particular point in time as the strategy takes shape. In some strategies, it may take
some years before the success of the strategy becomes clear, during this period, they may
be new opportunities arising, which are called the real options. In evaluating a strategy,
the possibility of real options created by the strategy should also be considered.
Another measure often used is known as the Economic Value Added (EVA). If the
operating profit after tax is greater than the cost of raising funds, EVA is positive and
the shareholder value increases. This measure automatically takes into account the risks
because the cost of capital is calculated as the risk-adjusted cost. However, concentrating
on shareholder value is based on short term performance and strategies that concentrate
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on producing shareholder value may not result in long term sustainability. In addition, it
ignores other stakeholders. To avoid this, stakeholder value analysis is suggested.
12.2.2.3 Reaction of Stakeholders

Stakeholders include owners, bankers, regulators, employees, local community, and
customers. Each may react differently to the proposed strategy. It is important to evaluate
the strategy to see whether the company has the capability to meet the expectation of
these varied stakeholders. For example, if a proposed strategy calls for restructuring of the
capital structure through issue of new shares, it may not appeal to existing shareholders.
On the other hand, if the company increases the debt ratio, it may not appeal to the
bankers. Regulators may limit the flexibility of the strategy in terms of diversification
or pricing. Employees and their unions may resist strategic moves of relocation or
divestment as this may result in job losses. The local community interest in pollution
control, ethics, and social responsibility will also have an impact on strategy. Customers
may resist some strategies if it makes them difficult to understand the value created.
12.3 Feasibility
Feasibility is concerned with whether a strategy will work in practice, or whether the
company has the capabilities to deliver a strategy. The company should have the resources
and competencies existing in the organisation at the current time to implement the
strategy. If it does not have them now, the company should be able to obtain them. The
focus will be in the area of financial resources, human resources and resource integration.
Financial feasibility requires the company to generate cash flow statements which would
include cash flow needed for implementing the strategy and cash flow generated during
the strategy shown with the timing of the cash flow. If the company needs additional cash
during this period, there needs to be plans to obtain the needed funds. The funding source
will depend on the current financial situation. Thus, there should be a financial component
to any strategy.
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Human resource feasibility is based on how well the competencies are embedded in the
skills, knowledge and experience of people in the organisation. For a strategy to succeed,
the people should have the required competencies, and the organisational system should
support those people to fit to the strategy. If the competencies are not currently available,
they must be developed internally or obtained externally.
The feasibility of the proposed strategy depends on the management of many resource
areas such as people, finance, buildings, information, technology and resources provided
by suppliers and partners. Thus, they should be integrated effectively for the success of
the strategy.
Lesson Recording
12.4 Implementation of Strategies

Korvette’s started as a luggage and appliances discount shop in Manhattan New York.
By 1962, it became a profitable discount chain with dozen of stores. Its initial success
prompted an aggressive growth strategy which turned out to be a disaster. The firm
wanted growth through increasing the number of stores and number of cities, and through
product line expansion. K-Mart had expanded using the same strategy successfully.
However, the problem in the case of Korvette was in implementation. It was not supported
by the right people, structure, systems or culture. The personnel lacked the expertise
to handle new product areas. The centralised structure did not adapt well to multiple
cities and product lines. The system was not sophisticated enough to handle the added
complexity. In 1966, the firm dissolved.
Organisational risks and necessary changes in the organisation needed to implement the
strategy should be carefully analysed before its implementation.
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The organisation can be described by structure, systems, people, and culture.

Consideration of these components can help a company identify actual and potential
implementation problems as well as to determine how its organisation would adapt to
new strategy.
12.4.1 Structure
Structure defines lines of authority and communication. It specifies the mechanism by
which organisational tasks and programs are accomplished. A key structural dimension
is the degree of centralisation. A completely centralised organisation will have centralised
functional groups in marketing, sales, production, engineering, R & D, personnel, and
administration. Centralisation will maximise economies of scale and synergies across the
organisation. It is most appropriate when there are a limited number of closely related
product lines.
A decentralised organisation will have autonomous business units based on product or

market groupings with the ability to adeptly develop strategies in response to the needs of
the market they serve. Decentralisation has been the key to success of firms such as 3M and
HP because it provides focused performance assessment, places business strategies close
to the market, and allows innovation with a minimum of bureaucracy. Decentralisation
can cause inefficiencies and duplications, and it may be difficult to achieve economies of
scale or synergies across different business units. Communications needs and efforts to
coordinate branding strategies or market research can create strains and add costs that
defeat the purpose of decentralisation.
There are companies which fall in the middle of full centralisation and complete
decentralisation. Functional units such as advertising or production can be organised by
product or market. A division may share the same sales force with another division. A
matrix organisation is one in which a manager might report both to a functional manager
and to a divisional manager.
An important strategic issue is thus to determine whether a new business will fit into
the existing organisational structure. When General Motors came up with the car Saturn
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model, it decided that Saturn will survive only if it started as a separate organisation
unburdened by the culture and union contracts at General Motors.
12.4.2 Systems
Several management systems such as planning and budgeting, accounting, information,
measurement and reward are strategically relevant. Systems that have worked well may
no longer be feasible with a new strategy. For example, information system, technology,
databases, models and expert systems which are developed for a previous strategy may
no longer be feasible for a new strategy.
Similarly, measurement and reward system are used to drive behaviour and they have to
be structured to facilitate strategy implementation. Appropriate performance measures
and reward system should be introduced to facilitate the implementation of the strategy.
12.4.3 People
Successful implementation of strategy requires complementing organisational
competency, which in turn is imbued by certain people and individuals. Thus, it is
important to know the number of people, the level of experience, depth, and the skills that
are needed in the various functional areas such as marketing, manufacturing, and finance.
If the strategy requires capabilities not already available in the organisation, it will be
necessary to obtain them. It can be done through make, buy, or convert approaches.
The make approach is based on developing a broad managerial or technical base by

hiring and grooming workers to ensure that these people fit with the organisation. The
issue with this approach is that it will take considerable time. The buy approach means
bringing experienced people from outside the organisation. It is the immediate solution
when a dramatic change in strategy is to be implemented. However, it involves the risk
of bringing people who are accustomed to different systems and culture together. The
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convert approach means that the entire workforce will be converted to support the new
strategy. The problem is that the existing people may not have the requisite expertise need
for the new strategy. Many strategies of acquisition have failed because old staff could not
adapt to a new context.
Strategy implementation can also be affected by the level of motivation among the
employees. Motivation is enhanced if employees are empowered to accomplish their
goals even when a departure from the routine response is required. For example, the
housekeeping person may find a phone has been left behind when a customer vacated
the hotel room. The protocol in such cases is that the finder is deposits the found item
in the “lost and found” office of the hotel. However, if the person who found it is
empowered to call one of the contacts in the phone to inform the person who lost the
phone, the motivation level in the organisation will increase as the employees would
feel important. Motivation is also enhanced when employees are linked to the corporate
culture and objectives. Some companies accomplish these links by providing titles such
as host (Disney), crew member (McDonald’s), and associate (Robinsons).
12.4.4 Organisational Culture

Organisational culture involves three elements:
• A set of shared values or dominant beliefs that defines an organisation’s priorities,
• A set norms of behaviour, and
• Symbols or symbolic activities used to develop and nurture those shared values
and norms.
Shared values underlie a culture by specifying what is important. In a strong culture, the
values will be widely accepted and virtually everyone will adopt and practice the shared
values. If all employees accept the shared value, a key resource or competency is created
which will become a competitive advantage. An advertising agency can claim “we will
be the most creative advertising agency.” It can be an operational focus such as friendly
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service. It can also be an organisational output such as 100 percent customer satisfaction.
A culture must be strong enough to develop norms of behaviour which are informal
rules that influence decisions and actions throughout an organisation by suggesting what
is appropriate and what is not. Behavioural norms can vary on two dimensions: the
intensity or amount of approval/disapproval attached to an expectation, and the degree
of consensus or consistency with which a norm is shared. When both of these exist, strong
culture develops. Norms encourage behaviour that is consistent with shared values.
Consider a company that focuses on zero defect. The company has been able to get the
employees to accept this as shared value. In this case, the company does not have to use
any quality control inspectors. The norm in the company would be that each production
line person will be responsible for the quality of his output and for keeping the work area
clean. For this to work, the company should have a strong culture.
12.4.5 Obtaining Strategic Congruence

A strategy must match the structure, systems, people, and culture. If an inconsistency
exists, the implementation of the strategy will be affected. The concept of organisational
congruence suggests that the interaction between organisational components should be
considered.
Below sets forth questions that assess the congruence of a strategy with the structure,
systems, people, and culture of a firm:
Structure
• Is the organisation structure centralised or decentralised?
• What are the channels of communication?
Systems
• What type of planning system is in place?
• How is performance evaluated?
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• How do product and information flow?
People
• What are the skills, knowledge, and expertise of the employees?
• What is their depth and quality?
• What are their attitudes towards the firm and their jobs?
Culture
• Does the culture create visible and accepted shared values?
• Are the employees committed to the shared values
• What are the norms of behaviour?
• What is the dominant management style?
• How is conflict resolved?
Strategy
• Does the new strategy fit into the organisation’s vision, mission and objectives?
• Can the new strategy be included in the strategic plan and can it be adequately
funded?
• Would the systems and culture support the new strategy?
• Are there any organisational changes needed for the new strategy to succeed?
• Are these organisational feasible and how will they impact the organisational
performance?
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Conclusion
Developing a good strategy is necessary for long term sustainability of a company.

Strategies need to be developed for the company as a whole which would provide the
direction in which the company should proceed. This is known as corporate level strategy.
Once the corporate level strategy is developed, appropriate strategies for each business
unit will be developed. The purpose of formulating business level strategies is to obtain
assets and competencies that will provide competitive advantages to the business unit.
Business level strategies are generic strategies such as low cost, differentiation, focus
and pre-emption. Corporate level strategies include international strategies and growth
strategies.
In order to formulate strategies, it is necessary to understand the changes in the external

factors that can impact on the performance of the company. The external factors can be
classified as environmental factors, industry factors, customer factors, competitive factors,
and market factors. Strategy formulation requires the collection and analysis of these
factors. The analysis of external factors would identify opportunities for the company
as well as possible threats that it may face. The ability of a company to take up the
opportunities and neutralise the threats will depend on the assets and competencies the
company has as well the capabilities that provide competitive advantages. This is done
through internal analysis in which the company’s current performance as well as the
existing capabilities are analysed.
There may be a number of choices called as strategic options that emerge, and the company
needs to evaluate the various strategic options and choose the one that will match the
objectives and capabilities. The organisation structure, system, people and culture will
have to be analysed to see that the organisation is capable of following the strategy. If not,
appropriate changes should be made.
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BUS489 Strategy For Business

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Course Development Team

Head of Programme : Assoc Prof Huong Ha

© 2020 Singapore University of Social Sciences. All rights reserved.

Educational Technology & Production

How to cite this Study Guide (APA):

Singapore University of Social Sciences.

Build S1.0.5, T1.5.21

2. Course Description and Aims............................................................................ CG-3

3. Learning Outcomes.............................................................................................. CG-7

4. Learning Material................................................................................................. CG-8

5. Assessment Overview.......................................................................................... CG-9

7. Learning Mode.................................................................................................... CG-12

Study Unit 1: Introduction to Strategy

Chapter 1: Introduction to Strategy...................................................................... SU1-4

Study Unit 2: Environmental Analysis

Chapter 2: Environmental Analysis...................................................................... SU2-4

Study Unit 3: Industry Analysis

Chapter 3: Industry Analysis................................................................................. SU3-4

Study Unit 4: Competitive Analysis

Chapter 4: Competitive Analysis.......................................................................... SU4-4

Study Unit 5: Internal and Capabilities Analysis

Chapter 5: Internal and Capabilities Analysis.................................................... SU5-4

Study Unit 6: Gathering Strategic Intelligence

Chapter 6: Gathering Strategic Intelligence......................................................... SU6-4

Study Unit 7: Corporate Level Strategies

Chapter 7: Corporate Level Strategies.................................................................. SU7-4

Study Unit 8: Business Level Strategies

Chapter 8: Business Level Strategies.................................................................... SU8-4

Study Unit 9: International and Global Strategy

Chapter 9: International and Global Strategy..................................................... SU9-4

Study Unit 10: Growth Strategies

Study Unit 11: Strategy Development

Study Unit 12: Strategy Evaluation and Implementation

Chapter 12: Strategy Evaluation and Implementation..................................... SU12-4

List of Lesson Recordings

Study Unit 1 Introduction Part 1............................................................................... SU1-4

Study Unit 1 Introduction Part 2............................................................................... SU1-5

Study Unit 1 Introduction Part 3............................................................................. SU1-10

Study Unit 1 Introduction Part 4............................................................................. SU1-13

Study Unit 2 Environmental Analysis Part 1........................................................... SU2-5

Study Unit 2 Environmental Analysis Part 2......................................................... SU2-10

Study Unit 2 Environmental Analysis Part 3......................................................... SU2-15

Study Unit 3 Industry Analysis Part 1...................................................................... SU3-4

Study Unit 3 Industry Analysis Part 2...................................................................... SU3-7

Study Unit 3 Industry Analysis Part 3.................................................................... SU3-10

Study Unit 4 Competitive Analysis Part 1............................................................... SU4-5

Study Unit 4 Competitive Analysis Part 2............................................................... SU4-8

Study Unit 4 Competitive Analysis Part 3............................................................. SU4-11

Study Unit 4 Competitive Analysis Part 4............................................................. SU4-15

Study Unit 4 Competitive Analysis Part 5............................................................. SU4-18

Study Unit 5 Internal and Capabilities Analysis Part 1.......................................... SU5-4

Study Unit 5 Internal and Capabilities Analysis Part 2.......................................... SU5-7

Study Unit 5 Internal and Capabilities Analysis Part 3........................................ SU5-12

Study Unit 5 Internal and Capabilities Analysis Part 4........................................ SU5-15

Study Unit 6 Gathering Strategic Intelligence Part 1.............................................. SU6-4

Study Unit 6 Gathering Strategic Intelligence Part 2.............................................. SU6-6

Study Unit 6 Gathering Strategic Intelligence Part 3.............................................. SU6-7

Study Unit 7 Corporate Level Strategies Part 1....................................................... SU7-4

Study Unit 7 Corporate Level Strategies Part 2....................................................... SU7-6

Study Unit 7 Corporate Level Strategies Part 3....................................................... SU7-8

Study Unit 7 Corporate Level Strategies Part 4....................................................... SU7-9

Study Unit 7 Corporate Level Strategies Part 5..................................................... SU7-11

Study Unit 7 Corporate Level Strategies Part 6..................................................... SU7-13