1

2

A

PROJECT REPORT

ON

Business strategy

S.K. School of Business Management

Hemchandracharya North Gujarat University, Patan

Submitted To: - Ms. Jyoti Ghanchi

Submitted By: -

Minakshi Hirani (10)

Jalpesh Mehta (15)

Amit Prajapati (40)

3

Types of strategy

4

1.Business strategy

Business strategy is primarily concerned with how a company will approach the marketplace - where to play and how to win. Where to play answers questions like, which customer segments will we target, which geographies will we cover, and what products and services will we bring to market. How to win answers questions like, how will we position ourselves against our competitors, what capabilities will we employ to differentiate us from the competition, and what unique approaches will we apply to create new markets.

Senior managers typically create business strategy. After it is created, business architects play an important role in clarifying the strategy, creating tighter alignment among different strategies, and communicating the business strategy across and down the organization in a clear and consistent fashion. Executives are just beginning to bring advanced, highly credible business architecture practices into the strategy discussions early to provide tools, models, and facilitation that enable better strategy development.

5

2.Operational strategy

Operational strategy is primarily concerned with accurately translating the business strategy into a cohesive and actionable implementation plan. This strategy answers the questions, which capabilities need to be created or enhanced, what technologies do we need, which processes need improvement, and do we have the people we need.

The vast majority of business architects are currently working in the operational strategy domain reaching up into the business strategy domain for direction. They work from the middle out to bring clarity and cohesiveness to the organization’s operating model typically working vertically within a single business unit while resolving issues at the business unit boundaries. More mature business architecture practices work in multiple verticals or move from one vertical to another creating common business architecture patterns.

3.Transformational strategy

Transformational strategy is seen less often as it represents the wholesale transformation of an entire business or organization. This type of strategy goes beyond typical business strategy in that it requires radical and highly disruptive changes in people, process, and technology. Few organizations go down this path willingly.

Transformational strategy is generally the domain of Human Resources, organizational development, and consultants. These efforts are incredibly complex and can experience significant benefit from applying business architecture discipline though it is rare to see business architects playing a significant role here.

6

Different Types of Strategies in Business

A small business starts out as a newcomer to its market, either trying to take some market share from other competitors or to carve out a new market in which it can dominate. In an existing market, this requires a business owner to astutely assess market conditions. Then a company will either try to differentiate from competitors or achieve costs that are below those of

7

competitors to secure a competitive advantage. There are different strategies a business owner can try to these goals.

1.Structuralist Strategies

You can build the strategy for your small business by arranging operations so they fit existing market conditions.

For example,

you might structure the way you order products or materials using existing supply chains, adopting the ways that suppliers already send products to your competitors. This is a more rigid model, which may not be desired if you want to experiment with how best to create the infrastructure for your company.

2.Cost Leadership Strategies

Cost leadership means establishing a business network so that your cost for producing a product is less than the product cost of all competitors. You become a cost leader. However, this strategy may not work in markets in which many consumers pay more for a preferred brand.

For example,

consumers may prefer to pay hundreds of dollars for an iPhone, rather than less for an inexpensive but less well-known brand.

3.Differentiation Strategies

There are ways to differentiate your product from competitors' products so that your business can create a competitive advantage. You can try to differentiate at least one characteristic of a product that is known to be important to most buyers while keeping the other characteristics of a product -- and their costs -- controlled or in line with competitors' costs for those same characteristics.

8

For example,

You also can determine whether you will reduce costs in your primary activities, such as production or delivery of products, or in your secondary activities, such as purchasing or human resources functions.

4.Focused Approaches Strategies

There are focused approaches for either product differentiation or cost leadership that target a smaller section of a market. This must be a market big enough for companies to compete in different price ranges.

For example,

This might be the difference between targeting a coffee shop to attract customers who pay more than $3 for a cup of coffee, like Starbucks, or in a budget range, like Dunkin' Donuts and McDonald's. Some local coffee shop owners might believe they are focused on lowering their costs below Starbucks in the higher-priced coffee market, but they won't be able to use the same economy of scale to keep their costs down. However, they could differentiate by giving their coffee shop a decidedly more local feel than a Starbucks store can achieve.

9

Internal Growth and External Growth Strategies

I. Internal Growth Strategies

10

A. Expansion:

Business expansion refers to raising the market share, sales revenue and profit of the present product or services. The business can be expanded through product development, market development, expanding the line of product etc.

Expansion leads to better utilisation of the resources and to face the competition efficiently. Business expansion provides economics of large-scale operations.

Business can be expanded through:-

a. Market penetration strategy:

This strategy involves selling existing products to existing markets. To penetrate and capture the market, a firm may cut prices, improve distribution network, increase promotional activities etc.

Examples:

RIL in textile yarn& intermediates,

Itc in cigarettes etc.

b. Market Development strategy:

This strategy involves extending existing products to new market. This strategy aims at reaching new customer segments or expansion into new geographic areas. Market development aims to increase sales by capturing new market area.

11

Examples:

Mcd in Mahesana

c. Product Development strategy:

This strategy involves developing new products for existing markets or for new markets. Product development means making some modifications in the existing product to give value to the customers for their purchase.

Examples:

ITC Bhadrachalam Paper mill devloped specially

B. Diversification Strategies:

Diversification is another form of internal growth strategy. The purpose of diversification is to allow the company to enter new lines of business that are different from current operations.

There are four types of diversification:

a) Vertical diversification

b) Horizontal diversification

c) Concentric diversification

d) Conglomerate diversification

A) Vertical Diversification

Vertical diversification is also called as vertical integration. In vertical integration new products or services are added which are complementary to the present product line or service. The purpose of vertical diversification is to

12

improve economic and marketing ability of the firm. Vertical diversification includes:

i. Backward integration:

In backward integration, the company expands its business activities in such a way that it moves backward of its present line of business.

Example:

Despite of being the leaders in Textiles, to strengthen his Position, Dhirubhai Ambani decided to integrate backwards and produce fibres. PSF ( Polyester staple fiber)

ii. Forward integration:

In forward integration, the company expands its activities in such a way that it moves ahead of its present line of business.

Example:

New Zealand based Natural health care products company Comvita purchased its Hong Kong distributor Green Life Ltd. And thus achieved forward integration by having access to greenlife’s retail stores, sales staff and in store promoters.

B) Horizontal Diversification:

Horizontal diversification involves addition of parallel products to the existing product line. For example: A company, manufacturing refrigerator may enter into manufacturing air conditioners. The purpose of horizontal diversification is to expand market area and to cut down competition.

13

Example:

Manufacturing firm with work shop

C) Concentric diversification:

When a firm diversifies into business, which is related with its present business it is called concentric diversification. It is an extreme form of horizontal diversification. For example: Car dealer may start a finance company to finance hire purchase of cars.

D) Conglomerate diversification:

When a firm diversifies into business, which is not related to its existing business both in terms of marketing and technology it is called conglomerate diversification.

For example,

It involves totally a new area of business. There is no relation between the new product and the existing product.

II. External Growth Strategies:

14

1.Foreign Collaboration:

Collaboration means cooperation. It means coming together. Collaboration is the act of working jointly. It is a process where two people or organisation comes together for the achievement of common goal.

With the advent of globalisation, foreign trade and foreign investments are encouraged to increase the volume of trade. This concept gave rise to foreign collaboration to acquire expertise in the manufacturing process, gain technical know-how and market or promote the products or services to the foreign countries.

For example,

Foreign collaboration is an agreement or contract between companies or government of domestic country and foreign country to achieve a common objective. Foreign collaboration is a business structure formed by two or more parties for a specific purpose.

It is collaboration where the domestic firm and the foreign firm join hands together to achieve a common goal. Foreign collaboration helps in removing financial, technological and managerial gap in the developing countries. It is recognised as an important supplement for development of the country and for securing scientific and technical know-how.

2.New Markets

An effective idea for growth is entering new markets. If you have access to more customers, you can sell more products. You can target new markets by opening additional retail locations, adding an online presence, selling internationally or reaching new types of customers.

15

For example,

In each case, you have to define the segments of the new markets you intend to target, identify the needs of the potential customers as they relate to what you are selling, promote your products to them and make it convenient for them to buy your products.

2.1.Market Penetration

Market penetration is another of the four growth strategies of the Product-Market Growth Matrix as defined by Ansoff. Market penetration occurs when a company penetrates a market in which current products already exist.

2.2.Market Development Strategy

Market development strategy entails expanding the potential market through new users or new uses for a product. New users can be defined as new geographic segments, new demographic segments, new institutional segments, or new psychographic segments. Another way to expand sales is through new uses for the product.

3.New Products

Another way to increase business volume is to focus on your products. If you have many different products for sale, you can increase total sales. Sales growth is based on a broadening of your product lines and on product diversification. Broadening a line means you can offer related products to each customer. Product diversification lets you offer different products to different customers, depending on customer preferences and characteristics.

3.1New Product Development

In business and engineering, new product development (NPD) is the complete process of bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (that is, something physical you can touch) or intangible (like a service, experience, or belief).

16

3.2Acquisition

Sometimes the fastest way to gain new markets or diversify your product range is to buy a company that competes with you or is active in a related field. Company acquisition is risky because it means making a large investment; the benefits depend on how well you can integrate the new business into your own operations. It can be an effective growth strategy if your acquisition target occupies the markets into which you want to diversify.

3.3Merger

An equally risky but less costly growth strategy is a merger with a related or competing business. Ideally, the merger takes place between companies that bring equal value to the table and results in a larger, more competitive business that has the potential for improved performance. The lower financial cost of a merger comes with a corresponding loss of control: You share ownership with others after a merger.

3.4Partnership

A growth strategy based on entering into partnerships with qualified companies brings with it the advantages of a merger or acquisition without the high cost or loss of control. You might partner with a foreign distributor to access the market where he is based or partner with a company making accessories for your own products. The partnership agreement specifies the areas where you intend to cooperate,

For example,

In a promotional campaign or shared sales channels. While the risks and costs are lower, partnership also means you have to share the benefits.

17

4.Strategies with High Strategic Value

4.1People Strategies

Recruiting and hiring the best people is usually a Critical strategy (because it forecloses the opportunity to hire someone else), though some hires have greater potential to impact an organization than others.  For instance, hiring a new CEO will likely be a Board of Directors most Critical strategy of the year; hiring additional members of the leadership team might still be a Critical strategy.  Hiring a new payroll manager, however, at best is more of a Cumulative strategy as the potential payoff of such strategy is not nearly as high.

One common mistake of organizations is that often over-emphasis resume or technical skills over interpersonal skills, character, and general likeability.  An organization will never be great if employees don’t like the other employees that work there.

In addition to hiring the best people, organizations should be committed to developing their people (through mentoring, training, education, delegation of good assignment, development plans, etc.), doubly so in respect to their current and future leaders and triply so in regards to a few hand-selected Critical leaders.

Sometimes overlooked, though equally important to hiring the best, is actually firing the worst performers in an organization.  Too often leaders put off having honest and frank conversations with a few “bad egg” individuals.  While people should be given some chance to correct behavior, they need not be given many chances.  You cannot overestimate the damage one individual can do to an organization.  Even if they aren’t causing major problems, they are taking a space that could be filled by a problem-free contributor or even a star performer.

By identifying and progressively moving the weakest performers out the organization, the organization strengthens its key assets – its people.  Incidentally, this is why governments are totally inefficient, instead of firing people that should be fired, they give them jobs and pensions.

18

While the following statements border on flippancy, Mitt Romney’s quote is actually part of the reason he is an effective executive leader:  “I like being able to fire people who provide services to me … You know, if someone doesn’t give me a good service that I need, I want to say, I’m going to go get someone else to provide that service to me.”

4.2Managing Resources Strategies

Critical or Cumulative strategies usually involve obtaining, preserving, and deploying resources effectively.  Obtaining additional resources is usually an important strategy, which is why college president and politicians must be excellent fund-raisers.  In addition, resources must be obtained regardless of whether they come from within (budget and head count allocations) or without (grants, revenue, contributions) the organization.  The failure to obtain resources can lead to disaster or stagnation within an organization or department.