STRATEGIC MANAGEMENT-nibm 2nd Sem Assignment

7/23/2019 STRATEGIC MANAGEMENT-nibm 2nd Sem Assignment

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STRATEGIC MANAGEMENT

Qn. 2. Strategic Management

Select an appropriate generic strategy to position your printing

business unit in its competitive environment (map the

environment primarily as a pattern of competitive pressures

from rivals, suppliers, buyers, entrants and substitutes).



INTRODUCTION

Michael Porter’s five-force model describes strategy as taking

actions that create defendable positions in an industry. In general,

the strategy can be offensive or defensive with respect to competitive

forces. Defensive strategies take the structure of the industry as

given, and position the company to match its strengths and

weaknesses to it. In contract, offensive strategies are designed to do

more than simply cope with each of the competitive forces; they are

meant to alter the underlying cause of such forces, thereby altering

the competitive environment itself. There are many specific

strategies of each type and identifying which is best depends on the

circumstances.

Porter’s Generic Strategies

Businesses can secure a sustainable competitive advantage by

adopting one of three generic strategies. Michael Porter identified a

fourth strategy "middle of the road" strategy, which although adopted

by some businesses, is unlikely to create a competitive advantage.

Cost Leadership Strategy: The organisation aims to drive cost

down for all production elements from the sourcing of materials, to

labour costs. To achieve cost leadership a business will usually need

large scale production so that they can benefit from "economies of

scale". Large scale production means that the business will need to

appeal to a broad part of the market. For this reason a cost

leadership strategy is a broad scope strategy.

Differentiation Strategy:Porter asserts that businesses can

stand out from their competitors by developing a differentiation

strategy. With a differentiation strategy the business develops

product or service features which are different from competitors and



appeal to customers including functionality, customer support and

product quality. A differentiation strategy is known as a broad scope

strategy because the business is hoping that their businessdifferentiation strategy, will appeal to a broad section of the market.

New concepts which allow for differentiation can be protected

through patents and other intellectual property rights; however

patents have a certain life span and organisation always face the

danger that their idea which gives them a competitive advantage will

be copied in one form or another.

Niche Strategy:Under a focus strategy a business focuses its

effort on one particular segment of the market and aims to become

well known for providing products/services for that segment. They

form a competitive advantage by catering for the specific needs and

wants of their niche market. Once a firm has decided which market

segment they will aim their products at, Porter said they have the

option to pursue a cost leadership strategy or a differentiation strategy

to suit that segment. A focus strategy is known as a narrow scope

strategy because the business is focusing on a narrow (specific)

segment of the market.

Stuck In The Middle strategy:Some businesses will attempt to

adopt all three strategies; cost leadership, differentiation and niche

(focus). A business adopting all three strategies is known as "stuck in

the middle". They have no clear business strategy and are attempting

to be everything to everyone. This is likely to increase running costs

and cause confusion, as it is difficult to please all sectors of the

market. Middle of the road businesses usually does the worst in their

industry because they are not concentrating on one business

strength.



STRATEGIC POSITIONING OF PRINTING BUSINESS

Strategic management of a printing business is an ongoing

process that evaluates and controls the business. It assesses its

competitors and sets goals and strategies to meet all existing and

potential competitors; and then reassesses each strategy regularly to

determine how it has been implemented and whether it has

succeeded or needs replacement by a new strategy to meet changed

circumstances of printing business, viz., new competitive pressures

from rivals, suppliers, buyers, entrants and substitutes.

I. Competitive Rivalry: If there is a hazard from a rival

product the firm will have to improve the performance of their

products by reducing costs and therefore prices and by

differentiation. If there is intense rivalry in an industry, it will

encourage businesses to engage in Price wars, Investment in

innovation & new products, and Intensive promotion.

Competition among rival firms of printing business drives

profits to zero. But competition is not perfect and firms are not

unsophisticated passive price takers. Rather, firms strive for a

competitive advantage over their rivals. The intensity of rivalry

among firms varies across industries, and strategic analysts are

interested in these differences. A high concentration ratio indicates

that a high concentration of market share is held by the largest firms

- the industry is concentrated. With only a few firms holding a large

market share, the competitive landscape is less competitive (closer to

a monopoly). A low concentration ratio indicates that the industry is

characterized by many rivals, none of which has a significant market

share. These fragmented markets are said to be competitive. The

concentration ratio is not the only available measure; the trend is to



define industries in terms that convey more information than

distribution of market share.

In trailing a lead over its rivals, a printing business firm canopt from several competitive moves:

• Changing prices:- raising or lowering printing prices to gain a

temporary advantage.

• Product differentiation improvisation- Improving features,

implementing innovations in the printing process and book

publishing.

• Channels of distribution: using creatively:- Using vertical

integration or using a distribution channel that is novel to the

industry. For example, Higgins Bothams starts its own book

publishing outlet for its books, as a printing business manager i’ll

use the direct selling technique popularly known as pre-publication

booking for ultimate customer.

• Exploiting relationships with suppliers: - For example, a free gift for

suppliers who sells a target of books. Or can give discount to

specific customers for a printing higher than specific number of

copies.

The intensity of rivalry is influenced by the following industry

characteristics:

A larger number of printing business firms increases rivalry

because more firms must compete for the same customers and

resources. The rivalry intensifies if the firms have similar market share,

leading to a struggle for market leadership. High fixed costs result in an

economy of scale effect that increases rivalry. When total costs are

mostly fixed costs, the firm must produce near capacity to attain the

lowest unit costs. Since the firm must sell this large quantity of



product, high levels of production lead to a fight for market share and

results in increased rivalry.

Slow market growth causes printing firms to fight for marketshare. In a growing market, firms are able to improve revenues simply

because of the expanding market. High storage costs of printed

materials can cause a producer to sell goods as soon as possible. If

other producers are attempting to unload at the same time, competition

for customers intensifies. Low switching costs increases rivalry. When a

customer can freely switch from one product or service to another there

is a greater struggle to capture customers. Strategic stakes are high

when a firm is losing market position or has potential for great gains.

This intensifies rivalry.

Low levels of product differentiation are associated with higher

levels of rivalry. Brand identification, on the other hand, tends to

constrain rivalry. High exit barriers place a high cost on abandoning

the product. The firm must compete. High exit barriers cause a firm to

remain in an industry, even when the venture is not profitable. A

common exit barrier is asset specificity. When the plant and equipment

required for manufacturing a product is highly specialized, these assets

cannot easily be sold to other buyers in another industry

A diversity of rivals with different cultures, histories, and

philosophies make an industry unstable. There is greater possibility for

mavericks and for misjudging rival's moves. Rivalry is volatile and can

be intense. Industry shakeout can do a lot to the printing industry. A

growing market and the potential for high profits induce new firms to

enter a market and incumbent firms to increase production. A point is

reached where the industry becomes crowded with competitors, and

demand cannot support the new entrants and the resulting increased

supply. The industry may become crowded if its growth rate slows and



the market becomes saturated, creating a situation of excess capacity

with too many goods chasing too few buyers. A shakeout ensues, with

intense competition, price wars, and company failures. A stable market will not have more than three significant competitors, and the largest

competitor will have no more than four times the market share of the

smallest.

Porter’s Five Forces

Porter’s five forces help to identify where power lies in a

business situation. This is useful both in understanding the

strength of an organisation’s current competitive position, and the

strength of a position that an organisation may look to move into.

The five forces are:

1. Supplier power. It is an assessment of how easy it is for

suppliers to drive up prices. This is driven by the: number of

suppliers of each essential input; uniqueness of their product or

service; relative size and strength of the supplier; and cost of

switching from one supplier to another.

2. Buyer power.It assesses how easy it is for buyers to drive

prices down. This is driven by the: number of buyers in the market;

importance of each individual buyer to the organisation; and cost to

the buyer of switching from one supplier to another. If a business

has just a few powerful buyers, they are often able to dictate terms.

3. Competitive rivalry. The main driver is the number and

capability of competitors in the market. Many competitors, offering

undifferentiated products and services, will reduce market

attractiveness.

4. Threat of substitution. Where close substitute products

exist in a market, it increases the likelihood of customers switching



to alternatives in response to price increases. This reduces both the

power of suppliers and the attractiveness of the market.

5. Threat of new entry.Profitable markets attract new

entrants, which erodes profitability. Unless incumbents have strong

and durable barriers to entry, for example, patents, economies of

scale, capital requirements or government policies, then profitability

will decline to a competitive rate.

II. Threat of Substitutes: A product's price elasticity is

affected by substitute products - as more substitutes becomeavailable, the demand becomes more elastic since customers have

more alternatives. A close substitute product constrains the ability of

firms in an industry to raise prices.

III. Buyer Power: Buyer power refers to the pressure

consumers can exert on businesses to get them to provide higher

quality products, better customer service, and lower prices. When

analyzing the bargaining power of buyers, the industry analysis is

being conducted from the perspective of the seller.

IV. Supplier Power: A printing business requires raw

materials – reem of papers, ink, and other supplies. This

requirement leads to buyer-supplier relationships between the

industry and the firms that provide it the raw materials used to

create products. Suppliers, if powerful, can exert an influence on the

producing industry, such as selling raw materials at a high price to

capture some of the industry's profits. Supplier concentration

importance of volume to supplier differentiation of inputs impact of

inputs on cost or differentiation switching costs of firms in the

industry presence of substitute inputs threat of forward integration

cost relative to total purchases in printing industry.



V. Threat of Entry:It is not only incumbent rivals that pose a

threat to firms in printing industry; the possibility that new firms

may enter the industry also affects competition. Any firm should be

able to enter and exit a market, and if free entry and exit exists, then

profits always should be nominal. In reality, however, industries

possess characteristics that protect the high profit levels of firms in

the market and inhibit additional rivals from entering the market.

These are barriers to entry.

Barriers to entry are more than the normal equilibrium

adjustments that markets typically make. For example, when

industry profits increase, we would expect additional firms to enter

the market to take advantage of the high profit levels, over time

driving down profits for all firms in the industry. When profits

decrease, we would expect some firms to exit the market thus

restoring market equilibrium. Falling prices, or the expectation that

future prices will fall, deters rivals from entering a market.

POSITIONING OF PRINTING BUSINESS

For positing our printing business we should go by the trends

of market which are mentioned below:-

Lower cost per page: Advances in both digital and

conventional offset printing technology are lowering the cost per

page for new printers. Info-Trends projects that the decline in cost

per page will average 10 percent per year. As the cost of color

printing has dropped, spot color is starting to replace previously all

black-and-white print jobs.

Transition to digital technology: Digital presses have become

the norm in commercial printing; industry growth is coming almost

entirely from digital printing. The commercial printing industry is



shifting to faster production of smaller order quantities with more

color, the major benefit of digital printing over offset and other

printing methods. While digital inkjet printers began at the smallend of printers, technology is increasingly able to make digital

printers with greater capacity.

Transition to service business: Commercial printing has

traditionally been a manufacturing industry. While it maintains its

manufacturing focus, it's evolving into a service business. Smaller

printing runs, subject to customer changes, edits, and faster

deadlines, are becoming the norm. Almost all industry growth comes

from companies with digital printing capabilities, able to respond to

smaller runs and changing customer needs quickly.

Industry consolidation:Industry consolidations are driven by

technology shifts and companies seeking to grow by expanding into

new geographic markets through acquisitions. Most consolidations

are private companies, losing value and unable to keep up

technologically, selling to another private firm. Small, family-run

printers are least likely to be able to afford digital printing

technology and the investment it requires.

Competitive Landscape: Demand depends largely on the

advertising and product needs of business customers. The

profitability of individual companies is closely linked to effective

sales operations. Digital technology is changing the competitive

landscape of the commercial printing market. Prices for digital color

pages are falling below offset printing prices and companies who fall

behind in the shift to digital printing are at risk.

Products, Operations & Technology: Commercial printers

produce magazines, phone books, labels, advertising brochures,



catalogs, newspaper inserts, direct mail marketing pieces, corporate

reports and other financial printing, training manuals, promotional

materials, and business forms. Most commercial printers offer fourdistinct services: design and other prepress services; actual printing;

finishing (including folding, cutting, and binding); and fulfillment,

which includes packing, storing, and shipping (often on a "just-in-

time" basis).

Sales & Marketing: The largest single market for printing

services is advertising, for newspaper inserts, magazines, and direct

mail materials. Although some work may be done regularly for large

customers under long-term contracts (magazines, product catalogs,

and phone books), most is on a project basis, often after a bidding

process. Work may be episodic and many printers keep extra presses

to meet anticipated peak demands. Marketing is usually done by a

traditional sales force calling on potential customers.

Finance & Regulation:Commercial printers generally keep low

material inventories and don't require inventory financing.

Receivables are generally collected within 60 days, and are

sometimes financed. Equipment is often financed, or is leased.

Presses have become more expensive, though more versatile,

because of computerized controls and enhancements. Some printers

have difficulty maintaining adequate workplace air quality

standards, and emit pollutants into the air, mainly because of

solvents in ink and the solvents used to clean ink from printing

plates. Some printers also generate toxic wastes because of inks and

solvents.

Human Resources: Production personnel in commercial

printing plants include employees with special skills in operating



complicated machines, and lower-paid, relatively unskilled workers.

The number of people employed in commercial printing has been

declining in the last five years, as more of the work has becomeautomated. The industry’s annual injury rate is comparable to the

national average for all industries.

Enhancement of website will give an extra mileage to

positioning the printing business. Employee training is also

important because trained employees are more confident, productive

and resilient. Understanding our competencies and forging of

strategic alliances are most helpful. Through the analysis of cost, we

can trim the cost. Optimizing our advertising efforts and building a

strong sales force are also help us to position our printing business

fruitfully.

CONCLUSION

The most important aim of developing competitive marketingstrategies consists of structuring and maintaining a sustainable

competitive lead for an organization over others within the same

industry. Strategic launching and positioning of printing business

requires incongruous qualities and skills in dealing with the

inconsistent demand of situation. To position our printing business

we should form a positioning strategy by mapping the environment

of competitive pressures from rivals, suppliers, buyers, entrants and

substitutes. Based on the mapping we should sketch for a brighter

future. Planning begins with evaluating inner strengths, weaknesses,

opportunities and threats. Internal assessment in concert with an

environmental check of the competitive landscape will smooth the

progress of us to accomplish an improved place.

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STRATEGIC MANAGEMENT-nibm 2nd Sem Assignment