Business strategies - Growth strategies

1. Business strategies- Growth strategies By K Hari Krishnan. BE.,MBA., VIT Business School Email : hari_anith@yahoo.co.in 27.12.2006 Session 1

2. Five Competitive Forces Threat of New Entrants Bargaining Power of Suppliers Rivalry Among Existing Competitors Threat of Substitutes Bargaining Power of Customers

3. Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products

4. The purpose of Five-Forces Analysis • The five forces are environmental forces that impact on a company’s ability to compete in a given market. • The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

5. Porter’s Five Forces Model of Competition Threat of New Entrants Threat of New Entrants

6. Economies of Scale Product Differentiation Barriers to Entry Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Threat of New Entrants Expected Retaliation

7. Porter’s Five Forces Model of Competition Bargaining Power of Suppliers Threat of New Entrants Threat of New Entrants

8. Supplier industry is dominated by a few firms Suppliers exert power in the industry by: Suppliers’ products have few substitutes * Threatening to raise prices or to reduce quality Buyer is not an important customer to supplier Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration Bargaining Power of Suppliers Suppliers are likely to be powerful if:

9. Porter’s Five Forces Model of Competition Bargaining Power of Buyers Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers

10. Buyers are concentrated or purchases are large relative to seller’s sales Buyers compete with the supplying industry by: Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated * Bargaining down prices * Forcing higher quality Buyers face few switching costs * Playing firms off of Buyers’ industry earns low profits each other Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information Bargaining Power of Buyers Buyer groups are likely to be powerful if:

11. Porter’s Five Forces Model of Competition Threat of Substitute Products Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers

12. Products with similar functionlimit the prices firms can charge Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery Threat of Substitute Products Keys to evaluate substitute products:

13. Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products

14. Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service Making new product introductions Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors Rivalry Among Existing Competitors

15. Numerous or equally balanced competitors Slow growth industry High fixed costs High storage costs Lack of differentiation or switching costs Capacity added in large increments Diverse competitors High strategic stakes High exit barriers Rivalry Among Existing Competitors Cutthroatcompetition is more likely to occur when:

16. The Five Forces are Unique to Your Industry • Five-Forces Analysis is a framework for analyzing a particular industry. • Yet, the five forces affect all the other businesses in that industry.

17. Growth • Internal • External • Licensing • Franchising • Strategic Alliance • Joint venture • Merger & Acquisitions • Green field ventures

18. Concentration growth • If a company’s current product lines have real growth potential. • Growing firms in a growing industry tend to choose these strategies • Vertical • Forward integration • Assuming a function previously provided by distributors • Backward integration • Assuming a function previously provided by a supplier • Horizontal • Extending product variants and scope of operations into other territories

19. Concentric growth • Related diversification • Entering into related businesses opportunities for • Transferring competitively valuable expertise, technological know-how and other capabilities from one business to another. • Combining related activities to reduced cost • Achieving economies of scope • Exploiting well known common brand name / contact • Achieving synergy 1+ 2 > 3 • Examples – Rolls royce – Aircraft , Automobiles eng • GE – electrical appliances , captive power gensets, energy generation / diesel locomotives

20. Conglomerate growth • Un-related diversification • Diversifying into an industry unrelated to its current one. • Future growth given importance • To spread the business risk • Ex – TATA : steel / Automobile / IT / Tea / FMCG / Life Style / Publishing / Power & energy • ITC – Cigarettes / FMCG/ Packaging • King fisher – Hard Drinks / Airlines • Wipro – FMCG/ IT / Electricals • Godreg – Machine tools / FMCG

21. Turn Around • Turn around management refers to the management measures that reverse the negative trends in the performance indicators of the company (ie) turn a sick company back to a healthy one.

22. Indicators for the need of Turn around • Persistence negative cash flow • Declining Market Share • Deterioration in physical facilities

23. Elements that contribute to a Turn around • Changes in Top management • To initiate credibility action • Neutralizing external pressure • Initial control / cost control • Revenue generation thru liquidation of Non-performing assets • Better co-ordination

24. Thank U !! best wishes to become Business leaders