What is your understanding of business strategy?

LEVELS OF STRATEGY

- Middle and lower-level managers too must be involved in the strategic-planning process to the extent possible

- Large Firms: Four levels – Corporate(CEO), divisional (President, executive vice president), functional (CFO, CIM, HRM, CMO) and operational (Plant manager, regional sales manager)

- Small Firms: Three levels – Company, functional and operational

MICHAEL PORTERS FIVE GENERIC STRATEGIES

Michael argues that three basic strategies that allow organisation to gain competitive advantage over others are Cost Leadership, Differentiation and Focus.

Cost leadership – Type 1 – low cost:  offering product/ service to wide range of customer at lowest price available in the market

Cost leadership – Type 2 – best value: offering product /service to wide range of customer at best price-value available in the market

Differentiation – producing unique product industry wide, for price insensitive customers. Example Brembo brakes. Italian company. The bigger the brakes the expensive they are.

Focus – Type 4 - : offering product / service to small group of customers at lowest possible price in the market

Focus – type 5: offering product /service to a small group of customers at best price-value available in the market

Q1 RELATIONSHIP WITH SUPPLIERS

Examples of companies: Nudie’s relations with suppliers (farmers). Farmers supply to your competitors like Aldi, Coles as well. There is a chance that you may run out of supplies and your competitors take advantage of the situation. Nudies has five suppliers. Nudie will keep good relations with the suppliers who provide it fresh food for juice which is its key success factor. This way Nudie will maintain competitive advantage. Ways Nudie will maintain good relations with its suppliers are:

Always pay on time, Provide adequate lead times, Personalize the relationship, Share information

Let's briefly look at all the ways suppliers can impact your company.

Quality: Supplier components can positively or negatively affect the quality of your product. Higher quality increases customer satisfaction and decreases returns, which adds cash to your bottom line.

Timeliness: Their timely deliveries are crucial to how customers view your reliability. A quick turnaround can become the key to minimizing your inventory, which in turn translates to less risk of inventory obsolescence and lower cash needs.

Competitiveness: They can give you the one-up on your competition based on their pricing, quality, reliability, technological breakthroughs and knowledge of industry trends.

Innovation: Suppliers can make major contributions to your new product development. Remember, they live their product more than you do; they're working to be on the cutting edge of innovation for their product. The good ones will understand your company, its industry and needs, and can help you tweak your new idea.

Finance: If you've proven to be a considerate, loyal and paying customer, you may be able to tap into your suppliers for additional financing once you hit growth mode--or if you run into a cash crunch. That financing may take the form of postponed debt, extended terms on new purchases, a loan, or an investment in your company.

Q2 - DIVERSIFICATION

Diversification is a corporate strategy to enter into a new market or industry which the business is not currently in, whilst also creating a new product for that new market.

ANSOF’S PRODUCT / MARKET MARRIX
	Product
Markets		Present	New
	Present	Market Penetration	Product Development
	New	Market Development	Diversification

Ansoff pointed out that a diversification strategy stands apart from the other three strategies. Whereas, the first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, the diversification usually requires a company to acquire new skills and knowledge in product development as well as new insights into market behaviour simultaneously. This not only requires the acquisition of new skills and knowledge, but also requires the company to acquire new resources including new technologies and new facilities, which exposes the organisation to higher levels of risk.

RELATED DIVERSIFICATION - when a business adds or expands its existing product lines or markets.
RELATED DIVERSIFICATION FAILURES - the diversification analysis under-estimates the cost of some of the softer issues: change management, integrating two cultures, handling employees. Layoffs and terminations, promotions, and even recruitment. And on the other side, the diversification analysis might over-estimate the benefits to be gained in synergies.

UNRELATED DIVERSIFICATION - when a business adds new, or unrelated, product lines or markets. For e.g. small phone company going into television or radio business. No direct fit with the existing business. Why unrelated diversification? Cost efficiencies, acquisition might provide an offsetting cash flow during seasonal lull.

INNOVATION STRATEGY- The goal of Innovation Strategy is to leapfrog other market players via the introduction of completely new or notably better products or services. It is harder for more established companies to pursue this strategy because their product offering has achieved market acceptance.

OPERATIONAL EFFECTIVE STRATEGY – is to perform internal business activities better than competitors, making the company easier or more pleasurable to do the business with than other market choices. 

Q3- CROSS BORDER ALLIANCES

Cross-border alliances are used by organizations to strengthen and maintain their position in the market place. It involves two or more firms headquartered in different countries agreeing to cooperate as partners in an arrangement that's expected to benefit both firms. In other words, cross-border alliances can be defined as partnerships that are formed between two or more firms from different countries for the purpose of pursuing mutual interests through sharing their resources and capabilities (Doz & Hamel, 1998; Yan & Lou, 2001). Most of the time, it is seen as relatively fast and efficient way to expand into new markets and incorporate new technologies but the success of cross-border alliances cannot be assured. It appears that it has become a common way for firms to successfully compete without growing and expanding by having deals that result in cross-border alliances (CBAs). CBAs mean differently according to industry. In insurance, cross-border alliances provide means to move to new markets while in other industries like pharmaceuticals and software technology and other small enterprises developing new products, they may enter into alliances with larger firms that can help them manufacture and distribute their products. Examples Swiss cheese and Sneakers. Swiss cheese supplies of cheese come from Switzerland, USA and Holland. This helps in storing long term strategic supply of raw material. Sneakers Peanuts come from South African company AGRU SOUTH AFRICS and its caramel comes from Australia. This is cross border alliance of Sneaker with South African Company.

Why CBA? When you lack in the resources and skills for which you need to make an alliance across the border.

Q4 – STRATGY AND TACTICS

Strategy is a plan of action designed to achieve an objective. Long term plan based on the business vision, designed to achieve corporate strategy, commit most of the business’ resources. Strategy tells you how you are going to get there. The overall direction you are going to take. For example: inform customers about health fare through loyalty program.

Operational day to day decisions. Tend to be short term, responding to opportunities & threat. Often influenced by functional objectives, commit less resources. For example; Tag Heuer. Any changes in the design of watches is considered as operational improvement and hence is tactical decision whereas diversifying in other accessories business such as Cufflinks is the drastic strategic change in the line of existing business.

Value increasing strategy - strategy that successes in enhancing the profitability and market control
Value decreasing strategy - opposite of value increasing strategy
Value Neutral – Does not enhance the existing position of the company

Q5 – CORPORATE STRATEGY

It is a sum of vertical integration, diversification, acquisition, alliances and networks, global strategy i.e. competing around the world.