Business Terms &
Concepts
Some Basic Definitions
An organization is a group of people within some
structure who possess a common objective, usually
expressed in a mission statement.
Organizations may be:
• for profit
• not-for-profit
A market is a place (real or virtual) where potential
sellers and buyers meet to exchange resources (which
may be money, products, services, etc.).
An industry is a group of organizations competing in a
predefined market under similar bases of competition
Organization and Environment
An organization operates within an
environment that is in a constant state of
change
Too often we hear of change and its
effects, but exactly what can change?
The Organization and Its
Environment
Global The Specific
Environment
Po
mi Suppliers
liti
o
Public
on
c
al
Ec
pressure
groups
The
Organization Customers
Government
Te
Competitors
ch
no
al
lo
ci
The General
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Figure 3-4
S o
ca
Management (5th ed.)
Robbins and Coulter
Environment
l
Prentice Hall
Objective(s) of the Firm
What is the objective of the firm?
Maximize shareholder wealth
Generate above average economic rents (profits)
Shareholder: Someone who holds stock
(ownership) in the firm.
Stakeholder: Anyone who possesses an interest
in the firm’s activities (govt., public pressure
groups, alumni, students, etc.)
Strategy
To meet the organization’s objective, managers craft
a strategy. What’s a strategy?
The science of planning and directing large-scale
operations, of maneuvering forces into the most
advantageous position.
A strategy is a plan to deploy scarce resources. (Simpler)
Levels of strategy:
Corporate (Portfolio management)
Business (Generate sustainable competitive advantage)
Functional (Support the business level strategy)
Corporate-Level Strategy
Diversification: the minimization of cash flow
variance
Integration
Forward integration (one type of vertical):
• Gaining ownership or increased control over distributors or
retailers Backward integration (the other):
• Gaining ownership or increased control over suppliers
Horizontal integration
• Seeking ownership or increased control over competitors
(Amazon buys BestBookBuys.Com)
Business-Level Strategy
The primary objective of business-level
strategy is to create sources of sustainable
competitive advantage.
OK… what is sustainable competitive
advantage?
General Bases of Competition
A “basis of competition’ is a dimension upon
which companies choose to compete, e.g.,
• Price
• Quality
• Delivery
• Service
• Innovation
• Knowledge
• Others?
Sustainable Competitive Advantage
An asset is anything the firm owns or
controls.
Types of assets:
Physical: plant equipment, location, access to raw
materials
Human: training, experience, judgment, decision-
making skills, intelligence, relationships, knowledge
Organizational: Culture, formal reporting structures,
control systems, coordinating systems, informal
relationships
Sustainable Competitive Advantage
A capability is usually considered a “bundle” of assets or
resources to perform a business process (which is
composed of individual activities)
E.g. The product development process involves product design, new
product launch in production, process debugging, etc.
All firms have capabilities. However, a firm will usually focus
on certain capabilities consistent with its strategy.
For example, a firm pursuing a differentiation strategy would focus on
new product development. A firm focusing on a low cost strategy
would focus on improving manufacturing process efficiency.
The firm’s most important capabilities are called
competencies.
Competencies vs. Core
Competencies vs. Distinctive
Competencies
A competency is an internal capability that a
company performs better than other internal
capabilities.
A core competency is a well-performed internal
capability that is central, not peripheral, to a
company’s strategy, competitiveness, and
profitability.
A distinctive competence is a competitively
valuable capability that a company performs
better than its rivals.
Where are we?
We are discussing sustainable competitive
advantage. Here we are now:
AssetsCapabilitiesCompetenciesCompetitive Advantage
Next is competitive advantage.
A competitive advantage is simply an advantage you
have over your competitors.
A competitive advantage is a special type of
competency that will produce competitive advantage
provided:
A) it produces value for the organization, and
B) it does this in a way that cannot easily be pursued by
competitors.
BUSINESS ENVIRONMENT AND
COMPETITION ANALYSIS
CONTINUOUSLY CHANGING BUSINESS
ENVIRONMENT.
TO HAVE A COMPETITIVE ADVANTAGE: A
NEW MANTRA FOR INDIAN COMPANIES
BUSINESS ENVIRONMENT IS DYNAMIC
ITS ELEMENTS ALWAYS KEEP ON
CHANGING
BUSINESS ENVIRONMENT
WHY IT IS ESSENTIAL FOR A BUSINESS
ENTERPRISE?
WHAT IS BUSINESS
ENVIRONMENT?
IT IS DEFINED AS THE PROCESS BY WHICH THE
STRATEGISTS MONITOR
o ECONOMIC
o GOVERNMENTAL
o LEGAL
o MARKETING
o COMPETITIVE
o TECHNOLOGICAL
o SOCIAL SETTINGS
TO DETERMINE OPPORTUNITIES AND THREATS TO
THEIR ENTERPRISES
SWOT ANALYSIS
EVERY ENTERPRISE MUST
UNDERTAKE SWOT TO ANALYZ
BUSINESS ENVIRONMEMT
PROSPECTS FOR A BUSINESS IS A
FUNCTION OF
RESOURCES
AND AN ANALYSIS OF BUSINESS
ENVIRONMENT
EXTERNAL FACTORS ARE BEYOND THE
CONTROL OF THE BUSINESS ENTERPRISE
ITS SUCCESS DEPENDS ON ITS
ADAPTABILITY TO THE EXTERNAL
ENVIRONMENT THAT IS ITS ABILITY
TO PROPERLY DESIGN AND ADJUST
INTERNAL FACTORS AND TAKE
ADVANTAGE OF THESE
OPPORTUNITIES AND COMBAT THE
THREATS IN THE EXTERNAL
ENVIRONMENT
EVERY BUSINESS IS CONFRONTED
WITH
CONTROLLABLE FACTORS
( INTERNAL FACTORS)
UNCONTROLLABLE FACTORS
(EXTERNAL FACTORS)
FACTORS INFLUENCING
BUSINESS ENVIRONMENT
MACRO FACTORS
MICRO FACTORS
MACRO FACTORS
NATIONAL INCOME INDICATORS
INVESTMENT RULES AND
REGULATIONS
MONETARY AND FISCAL POLICIES
POLITICAL AND GOVERNMENTAL
ENVIRONMENT
SOCIO-CULTURAL ENVIRONMENT
DEMOGRAPHIC ENVIRONMENT
TECHNOLOGICAL ENVIRONMENT
INTERNATIONAL ENVIRONMENT
MICRO FACTORS
SUPPLIERS
CONSUMERS
COMPETITION
MARKETING INTERMEDIARIES
MEDIA
TECHNIQUES OF ANALYSIS
ANALYSIS OF BUSINESS ENVIRONMENT
VERBAL AND FORECASTING
WRITTEN SEARCH SPYING AND
INFORMATION AND SCANNING FORMAL
STUDIES
BUSINESS ENVIRONMENT:
AN EMERGING SCENARIO
GLOBAL
POLITICAL AND ECONOMIC ENVIRONMENT
NATIONAL
REGIONAL ECONOMIC GROUPINGS
GOVT. SUPPORT,
ECONOMIC AND COMPETITIVE ENVIRONMENT
DEMOGRAPHIC AND SOCIAL ENVIRONMENT
EMERGENCE OF RURAL MARKETS T
EMERGING TRENDS
WITH GROWING COMPETITION,
PRODUCT DIFFERENTIATION WOULD
BECOME MORE IMPORTANT
GROWING COMPETITION WILL
INCREASE THE IMPORTANCE OF
AUGMENTED PRODUCT
MORE ATTENTION TO THE PRODUCT
QUALITY AND SERVICING BY THE
COMPANIES.
MORE DIRECT MARKETING
SOCIETAL MARKETING WOULD GAIN
IMPORTANCE
ABUNDANT ENTREPRENEURIAL CHANCES
THROUGH FAST GROWING SERVICES SECTOR
VARIETY OF PRODUCTS AND PRODUCT
AVAILABILITY WILL SIGNIFICANTLY INCREASE,
SUBSTANTIALLY INCREASING THE CONSUMER
CHOICE
INDIAN BUSINESSES SHALL BECOME MORE
INTEGRATED WITH THE GLOBAL BUSINESSES
POOR COMPANIES IGNORE
POOR COMPANIES IGNORE
COMPETITION
COMPETITION
AVERAGE FIRMS FOLLOW
AVERAGE FIRMS FOLLOW
THEIR
THEIR COMPETITORS
COMPETITORS
WINNING FIRMS LEAD
WINNING FIRMS LEAD THEIR
THEIR
COMPETITORS
COMPETITORS
TO DEFEND AND INCREASE THE
MARKET VALUE, THE COMPANIES IN
INDIA
MUST PROVE THAT THEY CAN GROW
PROFITABLY
WHAT IS THE BASIS FOR COMPETITION?
IN A NETWORKED AND GLOBALIZED WORLD
CREATION
AND APPLICATION OF KNOWLEDGE
ARE OF PRIME IMPORTANCE
CREATION AND APPLICATION OF KNOWLEDGE
ARE PROCESSES DRIVEN BY HUMAN CAPITAL
TO ENSURE COMPETITIVE ADVANTAGE IN
THEIR BUSINESS OPERATIONS ON A LONG
TERM BASIS
THE COMPANIES MUST LOOK TO BUILD NEW
CAPABILITIES THAT CAN POSITION THEM
AS WINNERS
WHAT ARE THE CAPABILITIES?
PRIVILEGED
ASSETS SPECIAL
RELATIONSHIPS
OPERATIONAL
SKILLS
CAPABILITIES
GROWTH
ENABLING
SKILLS
OPERATIONAL SKILLS
REFER TO COMPANY’S ABILITY TO
OUTDO ITS COMPETITORS IN
ACTIVITIES CRITICAL TO SUCCESS IN
INDUSTRY
EXAMPLES:
R&D
SUPERIOR PRODUCT DESIGN
LOW COST MANUFACTURING
/SOURCING
DISTRIBUTION
BRAND MANAGEMENT
SUPPLY CHAIN MANAGEMENT
LOGISTICS
GROWTH ENABLING SKILLS
ENHANCE CAPACITY FOR GROWTH IN
AREAS SUCH AS:
FINANCE
ACQUISITION
POST MERGER MANAGEMENT
RISK MANAGEMENT
PRIVILEGED ASSETS
ARE PHYSICAL OR INTANGIBLE ASSETS
THAT CONFER COMPETITIVE ADVANTAGE
ON THE COMPANY AND HARD TO
REPLICATE
INFRASTRUCTURE
DISTRIBUTION NETWORKS
INTELLECTUAL PROPERTY
BRAND AND REPUTATION
CUSTOMER INFORMATION
SPECIAL RELATIONSHIPS
CAN PROVIDE SPECIAL ACCESS TO
NEW MARKETS AND SUPPLEMENT AN
ORGANIZATION’S CAPABILITIES:
TO ANALYSE THECOMPETITION THE COMPANY MUST
TAKE THE FOLLOWING STEPS
1.
1. ANALYSIS
ANALYSISOF
OFCOMPETITIVE
COMPETITIVEFORCES
FORCES
2.
2. IDENTIFY
IDENTIFYCOMPETITORS
COMPETITORS
3.
3. ANALYZE
ANALYZECOMPETITORS
COMPETITORS
4.
4. DESIGN
DESIGNCOMPETITIVE
COMPETITIVEINTELLIGENCE
INTELLIGENCESYSTEM
SYSTEM
5.
5. DESIGN
DESIGNCOMPETITIVE
COMPETITIVESTRATEGIES
STRATEGIES
D ER
LEA
T
RKE
MA
MARKET
MARKET NICHER
CHALLENGER ET R
ARK WE
M LLO
FO
HYPOTHETICAL MARKET STRUCTURE
MARKET LEADER
40%
MARKET CHALLENGER
30%
MARKET FOLLOWER
20%
MARKET NICHERS
10%
