1.

Experience curve -

The concept of experience curve was first introduced by Boston Consulting Group (BCG) in the 1960s
while analyzing cost behavior in companies. Bruce Henderson, the group’s founder, led a study into
a leading manufacturer of semiconductors to analyze the relationship between cost behavior and
production quantity. The research found that when the manufacturer doubled the volume of
production, there was a 25% decline in the overall cost of manufacturing.

Boston Consulting Group defined the relationship as “experience curve,” where a company gains
more experience by producing more of a particular product. Additional research conducted by BCG
in the late 1960s and early 1970s revealed that the experience curve effect for various industries
ranged between 10% and 25%.

When representing an experience curve on a graph, the cost per unit of production is plotted on the
Y-axis, while the cumulative production quantity is plotted on the X-axis. The unit cost of production
includes the cost incurred by the company to add value to the product but excludes the cost of
purchasing the materials.

The curve shows that as the company increases its overall cumulative production quantity, the unit
costs decline at a constant rate. The decline goes on without limit and is surprisingly consistent, even
from one industry to another. In some cases, the absence of experience in some industries may be
viewed as an outcome of mismanagement.

Based on the research conducted by BSG, we can deduce that the experience curve of lower unit
costs tends to become stronger for large businesses that are market leaders in their respective
industries.

2. 3 levels of SMP Corporate Level Strategy

Corporate strategies are the top-level of strategy in an organization.

The corporate strategy defines the organization’s overall direction and the high-level ideas of how to
move towards it. These plans are usually created by a select strategy group such as the CEO and the
top management.

A corporate strategy is generally broader than the other strategy levels. Strategies at this level are
more conceptual and futuristic than business and functional level strategies. They usually span a 3-5
year period.

A corporate strategic plan generally encompasses:

The vision for the organization

The company’s values

The Strategic Focus areas

The strategic objectives

The most important KPIs

The business-level strategy is the second tier in the strategy hierarchy.

Sitting under the corporate strategy, the business strategy is a means to achieve the goals of a
specific business unit in the organization.

One thing to note, implementing this strategy level is only useful for organizations with multiple
business units. An organization with multiple business units may sell products and services or may
sell multiple products/services in different industries.

Functional Level Strategy

This is the level at the operating end of an organization.

At the functional level of strategy, decisions made by employees are often described as tactical
decisions. They are concerned with how the various functions of an organization contribute to the
other strategy levels.

These functions can include marketing, finance, manufacturing, human resources, and more.

Functional strategy deals with a fairly restrictive plan. It gives the objectives for each specific
function.

In simple terms, this is the strategy that will inform the day-to-day work of employees and will
ultimately keep your organization moving in the right direction. The functional strategy level is
probably the most important level of strategy.

This is because, without functional strategies, your organization can quickly lose traction and “get
stuck” while competition moves forward.

3. Porters 5 force model

1. Competition in the Industry

The first of the Five Forces refers to the number of competitors and their ability to undercut a
company. The larger the number of competitors, along with the number of equivalent products and
services they offer, the lesser the power of a company.

Suppliers and buyers seek out a company's competition if they are able to offer a better deal or
lower prices. Conversely, when competitive rivalry is low, a company has greater power to charge
higher prices and set the terms of deals to achieve higher sales and profits.

2. Potential of New Entrants Into an Industry

A company's power is also affected by the force of new entrants into its market. The less time and
money it costs for a competitor to enter a company's market and be an effective competitor, the
more an established company's position could be significantly weakened.

An industry with strong barriers to entry is ideal for existing companies within that industry since the
company would be able to charge higher prices and negotiate better terms.
3. Power of Suppliers

The next factor in the Porter model addresses how easily suppliers can drive up the cost of inputs. It
is affected by the number of suppliers of key inputs of a good or service, how unique these inputs
are, and how much it would cost a company to switch to another supplier. The fewer suppliers to an
industry, the more a company would depend on a supplier.

As a result, the supplier has more power and can drive up input costs and push for other advantages
in trade. On the other hand, when there are many suppliers or low switching costs between rival
suppliers, a company can keep its input costs lower and enhance its profits.

4. Power of Customers

The ability that customers have to drive prices lower or their level of power is one of the Five Forces.
It is affected by how many buyers or customers a company has, how significant each customer is,
and how much it would cost a company to find new customers or markets for its output.

A smaller and more powerful client base means that each customer has more power to negotiate for
lower prices and better deals. A company that has many, smaller, independent customers will have
an easier time charging higher prices to increase profitability.

5. Threat of substitutes

The last of the Five Forces focuses on substitutes. Substitute goods or services that can be used in
place of a company's products or services pose a threat. Companies that produce goods or services
for which there are no close substitutes will have more power to increase prices and lock in
favorable terms. When close substitutes are available, customers will have the option to forgo
buying a company's product, and a company's power can be weakened.

4. Offensive and defensive

- Competitive strategies can be divided into the offensive and the defensive. Companies pursuing
offensive strategies directly target competitors from which they want to capture market share. In
contrast, defensive strategies are used to discourage or turn back an offensive strategy on the part
of the competitor.

There are a number of ways in which a company can pursue an offensive strategy:

1Direct attack: It can slash prices, introduce new features, launch comparison advertisements
unfavourable to the competition, or go after parts of the market that the competition has served
poorly. For smaller companies, such strategies can be accompanied by low-cost guerrilla marketing
campaigns designed to attract attention.

2. End-run: Companies can avoid direct competition but still pursue an offensive attack by going into
unoccupied markets or countries that have been ignored completely by the rest of the industry.
3. Pre-emption: Sometimes the first company into a market gains a position from which later
entrants cannot dislodge it. The first company into a market can secure relationships with the best
suppliers, it can acquire the best locations, and it can target and build relationships with the best
customers.

4. Acquisition: A truly aggressive company with deep pockets can eliminate a rival simply by
purchasing it. Acquiring a company in a foreign market can also bring with it a position in the
marketplace, geographic coverage, and established relationships. Even so, such a strategy is complex
and expensive, and it should not be pursued unless it can be shown to be contributing to the firm’s
bottom line. It may also run afoul of local competitive or anti-monopoly legislation.

On the other side, there are also a number of defensive strategies that managers can adopt to
deflect attacks from competitors.

1. Exclusion: One way of defending a position is to set up exclusive arrangements with key suppliers
in the market. Such exclusive arrangements can block the access of rivals to the best suppliers,
sources or partners.

2. Pricing: A simple strategy is to match any price cuts by the competition with similar discounts, as
long as the price war does not get out of hand and ruin both sides.

3. Features: Adding new features or capabilities can be a positive and appealing way of countering a
competitive challenge.

4.Service: A company can respond to competitor price-cuts or new features by emphasizing after-
sales service or warranties, implicitly demonstrating that it stands by the superiority of its products.

5. Advertising: A strong public campaign demonstrating commitment to the market, confidence in

6.Counter-parry: Companies respond to an attack in their own market from a foreign competitor by
moving into the competitor’s home market. This can draw off resources and blunt the initial foray.
When Fujitsu entered the American market, Kodak responded by marketing in Japan. Goodyear
responded to Michelin in North America by marketing in Europe. To do this effectively, the new
entry has to establish itself as a good corporate citizen in the new environment. Companies will
participate in community and family oriented events to position themselves as friendly and familiar
rather than foreign and aggressive.

5.Strategic Analysis and Choice

Strategy analysis and choice focuses on generating and evaluating alternative strategies, as well as
on selecting strategies to pursue. Strategy analysis and choice seeks to determine alternative
courses of action that could best enable the firm to achieve its mission and objectives.

The firm’s present strategies, objectives, and mission together with the external and internal audit
information, provide a basis for generating and evaluating feasible alternative strategies. The
alternative strategies represent incremental steps that move the firm from its current position to a
desired future state.

Alternative strategies are derived from the firm’s vision, mission, objectives, external audit, and
internal audit and are consistent with past strategies that have worked well. The strategic analysis
discusses the analytical techniques in two stages i.e. techniques applicable at corporate level and
then techniques used for business-level strategies.

6. Grand Strategy Matrix

-The Grand Strategy Matrix has become a popular tool for formulating feasible strategies, along with
the SWOT Analysis, SPACE Matrix, BCG Matrix, and IE Matrix. Grand strategy matrix is the
instrument for creating alternative and different strategies for the organization. All companies and
divisions can be positioned in one of the Grand Strategy Matrix’s four strategy quadrants. The Grand
Strategy Matrix is based on two dimensions: competitive position and market growth. Data needed
for positioning SBUs in the matrix is derived from the portfolio analysis. This matrix offers feasible
strategies for a company to consider which are listed in sequential order of attractiveness in each
quadrant of the matrix.

DIAGRAM.......

1. Quadrant I (Strong Competitive Position and Rapid Market Growth) – Firms located in Quadrant I
of the Grand Strategy Matrix are in an excellent strategic position. The first quadrant refers to the
firms or divisions with strong competitive base and operating in fast moving growth markets. Such
firms or divisions are better to adopt and pursue strategies such as market development, market
penetration, product development etc. The idea behind is to focus and make the current
competitive base stronger. In case such firms possess readily available resources they can move on
to integration strategies but should never be at the cost of diverting attention from current strong
competitive base.

2. Quadrant II (Weak Competitive Position and Rapid Market Growth) – Firms positioned in
Quadrant II need to evaluate their present approach to the marketplace seriously. Although their
industry is growing, they are unable to compete effectively, and they need to determine why the
firm’s current approach is ineffectual and how the company can best change to improve its
competitiveness. The suitable strategies for such firms are to develop the products, markets, and to
penetrate into the markets. Because Quadrant II firms are in a rapid-market-growth industry, an
intensive strategy (as opposed to integrative or diversification) is usually the first option that should
be considered.

3.Quadrant III (Weak Competitive Position and Slow Market Growth) – The firms fall in this
quadrant compete in slow-growth industries and have weak competitive positions. These firms must
make some drastic changes quickly to avoid further demise and possible liquidation. Extensive cost
and asset reduction (retrenchment) should be pursued first. An alternative strategy is to shift
resources away from the current business into different areas. If all else fails, the final options for
Quadrant III businesses are divestiture or liquidation.

4.Quadrant IV (Strong Competitive Position and Slow Market Growth) – Finally, Quadrant IV
businesses have a strong competitive position but are in a slow-growth industry. Such firms are
better to go into related or unrelated integration in order to create a vast market for products and
services. These firms also have the strength to launch diversified programs into more promising
growth areas. Quadrant IV firms have characteristically high cash flow levels and limited internal
growth needs and often can pursue concentric, horizontal, or conglomerate diversification
successfully. Quadrant IV firms also may pursue joint ventures
7. Directional Policy Matrix

The Shell Directional Policy Matrix (DPM) is another refinement upon the Boston Consulting Group
(BCG) Matrix. Along the horizontal axis are prospects for business sector profitability, and along the
vertical axis is a company’s competitive capability. Business sector profitability includes the size of
the market, expected growth, lack of competition, profit margins within the market and other
favorable political and socio-economic conditions. On the other hand company’s competitive
capability is determined by the sales volume, the products reputation, reliability of service and
competitive pricing. As with the GE Business Screen the location of a Strategic Business Unit (SBU) in
any cell of the matrix implies different strategic decisions. However decisions often span options and
in practice the zones are an irregular shape and do not tend to be accommodated by box shapes.
Instead they blend into each other.

DIAGRAM

Each of the zones in Shell’s Directional Policy Matrix is described as follows:

1. Divest: SBU’s running in losses with uncertain cash flows. They should be divested as the situation
is not likely to improve in the near future. These liquidate or move thee assets.

2. Phased withdrawal: SBU’s with weak competitive position in a low growth market with very little
chance of generating cash flows. They should be phased out gradually. The cash realized should be
invested in more profitable ventures.

3.Double or quit: Gamble on potential major SBU’s for the future. Either invests more to use the
prospects presented by the market or else better to quit the business.

4.Custodial: SBU’s are just like a cash cow, milk it and do not commit any more resources. The
corporate has to bear with the situation by getting help from other SBU’s or get out of the scene so
as to focus more on other attractive business.

5.Try harder: SBU’s could be vulnerable over a longer period of time, but fine for now. They need
additional resources to strength their capabilities. The corporate try harder to exploit the business
prospects thoroughly.

6.Cash Generator: Even more like a cash cow, milk here for expansion elsewhere. SBU’s may
continue their operations, at least for generating strong cash flows and satisfactory profits. No
further investments are made.

7.Growth: Grow the market by focusing just enough resources here. These SBU’s need funds to
support product innovations, R&D activities etc.

8.Market Leadership: Major resources are focused upon the SBU. It must receive top priority.

8.Product Life cycle Matrix in Strategic Management

The product life cycle portfolio matrix is specifically designed to deal with the criticisms that the BCG
matrix ignores products that are new, and that it overlooks markets with a negative growth rate, i.e.
markets that are in decline. Because of this, the product life cycle portfolio matrix includes a specific
focus on the growth and maturity stages of the product life cycle in developing the portfolio
technique. However, the same assumptions that underlie both the conventional product life cycle
experience curves and the BCG growth/share matrix are also built into this model. These
assumptions, which we have already witnessed, are repeated:

- Products have finite life spans. They enter the market, pass through a period of growth, reach a
stage of maturity, subsequently move into a period of decline and finally disappear.

-Strategic objectives and marketing strategy should match the market growth rate changes to take
advantage of the challenges and opportunities as the product goes through the different stages.

-For most mass-produced products, costs of production are closely linked to experience (volume).
Hence, for most types of products, the unit cost goes down as volume increases.

-Expenditures – investment in plant and equipment and marketing expenses are directly related to
rate of growth. Consequently, products in growth markets will use more resources than products in
mature markets.

-Margins and the cash generated are positively related to share of the market. Products with high
relative share of the market will be more profitable than products with low shares.

-When the maturity stage is reached, products with high market share generate a stream of cash
greater than that needed to support them in the market. This cash is available for investment in
other products or in research and development to create new products.

8.What is Retrenchment Strategy ?

Retrenchment is a corporate strategy that aims to decrease the scale of operations of the company.
It can also involve cutting down the expenditure of the company so that it becomes financially
viable. It can involve reducing the number of product lines or businesses, withdrawing from certain
geographical markets so that the company becomes financially sustainable.

For example, HUL has reduced the number of brands in its portfolio in the past so that the resulting
"power brands" contribute more meaningfully to the company's profitability. A retrenchment
strategy often helps the company from making a turnaround, as all the unprofitable businesses are
pruned and removed.

1. Turnaround Strategy :

Turnaround as the name suggests means reversing an adverse trend. The basic goal of turnaround is
to change a company from a loss making and under performing enterprise into one with acceptable
levels of profitability, liquidity and cash flow. A turnaround strategy implies the management of an
under performing company in terms of its management, funding etc., and turns it into a profitable
one.

In order to manage the turnaround strategy, a company needs to overcome the reasons of under
performance, to rectify the financial troubles achieve financial progress, regain the confidence of the
various stakeholders and also overcome adverse situations prevalent in its internal and external
environments. The turnaround strategy requires an improvement in the efficiency of the company. It
is most effective when it is done at a stage when the problems of the company are visible to all but
not on an alarming stage. The two main aspects of a successful turnaround strategy are contraction
and consolidation.
9. Corporate strategies examples

These three corporate strategies examples can be applied to specific periods in a business'
existence:

Growth: To expand the business and increase profits

Stability: To maintain current business operations

Renewal: To revive an ailing business

1. Growth

Growth strategies include a number of approaches from cost leadership and product differentiation
to horizontal or vertical integration. The approach a business takes should be governed by detailed
corporate strategic planning.

1.Cost leadership: Ikea and McDonalds are global brands famed for their competitive pricing. This
approach can be difficult to maintain due to changing market conditions and businesses need to
constantly re-evaluate costs at every layer of the business. But the pay-off can be significant as is
clear from these two massive brands.

2.Product differentiation: Both Lush and Apple have been successful in differentiating their products
in competitive markets. Cosmetic retailer Lush is renowned for its ethical products and corporate
social responsibility while Apple has captured market share with its sleek, user-friendly designs.

3.Horizontal integration: Acquiring businesses that complement your own is a good way to expand
into new markets or capture increased market share. With its acquisition of Instagram in 2012 for $1
billion, Facebook cemented its place as the market-leading social media platform. Similarly, Disney's
acquisition of Pixar and Marvel have helped it grow its audience dramatically.

4.Vertical integration: This approach allows a business to control layers of its business, from
manufacturing to distribution. Global coffee brand Starbucks has acquired businesses at every step
of its supply chain, allowing it to control the quality of its product and reap the benefits of each level.

2. Stability

With this corporate strategy, organizations are simply maintaining the status quo. They continue to
follow the same path with no plans to diversify or grow the business. Rather, they are focused on
building the organization at a steady pace. This is a useful strategy to employ following a period of
expansion when a company can assess the business and determine a way forward or future strategy.

3. Renewal

When an organization is facing challenging circumstances part of the corporate strategic planning
will involve retrenchment or turnaround. These approaches could include selling part of the business
or spinning it off, and in cases where the very future of the company is at risk, creating a leaner
business through lay-offs and other dramatic cost-cutting exercises.

The goal of this strategy is to get the organization back in shape and ready to proceed to either a
stability or growth phase.