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).
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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
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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.
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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
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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
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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
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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
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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.
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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
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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,
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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
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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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