The Art of War by Sun Tzu (circa 500 B.C.)
The Art of War “ The art of war is of vital importance to the state. It is a matter of life and death , a road either to safety or to ruin. Hence under no circumstances can it be neglected ”
The Art of War high
The maturity plateau
Market
Market acclivity
growth
low
Market declivity
Embryonic markets few
many
few
Number of players As long as resources are constrained there will be conflict to control them.
The five rings of strategy
The Moral Law Right to market (XEROX FOR DOCUMENTATION LEADERSHIP)
The Heaven the externals
The Earth the internals
Conditions of nature such as cold , heat, seasons etc.
Actuals like distance, chances of life & death, etc
(MKT. STRUCTURE,
(RESOURCE & STRETCH CONDITIONS)
ENTRY & EXIT BARRIERS ETC..)
The Commander A virtuous leader (FUTURIST LEADER HLL’S LEADERSHIP)
The Method & discipline Control over expenditure in the army (CONTROL ON COST , THE LEAN MEAN BUSINESS)
The Seven Questions . . .
Or the Modern Day “SWOT”
What Does It Take to Win? (1) The ancient SWOT Which of the sovereigns is imbued with the moral law ? HLL ...THE ROAD AHEAD
The modern SWOT Which leader has capability to assess the basket of opportunity for future business (design v/s default)
THE SNOWBALLING EFFECT
Horizon 3 INCREMENTAL VALUE ADDITION TO BUSINESS
Horizon 2 Horizon1
NOW
FUTURE
What Does It Take to Win? (2) The ancient SWOT Which of the two generals has the most ability ?
The modern SWOT Which firm has more understanding of its “core
competencies” resources
ability
learning
ability is translation of effort
“ firms capability to do what they know the best”
What Does It Take to Win? (3) The ancient SWOT
With whom lie the advantages of heaven and earth ? Market knowledge Market exploitation capability
Competitive advantage areas
The modern SWOT heaven - exogenous variables Which firm knows the operating conditions with respect to - the nature of the market ( pace) - the structure of the market ( players) - competitive behaviour earth - endogenous variables Which firm uses the competitive advantages it enjoys in a situation and how best can it select competition for attack on this basis
What Does It Take to Win? (4) The ancient SWOT
On which side is discipline more strongly enforced ?
The modern SWOT Which firm has the “winning structure” - which firm has a high level of “strategic intent” as main activity focus “BMW” - BEAT MATSUSHITA WHATEVER - Sony “We try harder”- Avis
What Does It Take to Win? (5) The ancient SWOT Which army is stronger ?
The modern SWOT Which firm has the right configuration of assets that can create a competitive advantage for itself in the marketplace
- HLL has a very accommodating value chain in terms of out bound logistics & distribution . - dry chain - (assortment of products) - cold chain ( to be strengthened)
What Does It Take to Win? (6) The ancient SWOT
The modern SWOT Which firm relies on the
On which side are officers and men more highly trained ?
driving force of the “brain power” of its employees
High
Level and Depth of intellectual skill
Visionaries planners implementers
low High
low
Training adding value
What Does It Take to Win? (7) The ancient SWOT In which army there is greater constancy regarding reward and punishment ?
The modern SWOT Where is motivation and drive the highest ? What is the collective will of the
interaction
constancy of treatment
firm to win and at what cost ? Is positive motivation used more
Peak motivation
than negative motivation ? Does the management periodically
sentiments
activity
check the motivational levels for the motivation quotient
What Does It Take to Win? “by the means of these seven considerations I can forecast victory or defeat”
Apologies for war & The sheathed sword
Why is war raged ? Conflict is for . . . The ancient paradigm - natural resources - wealth - strategic locations for control - buffer space between actual & pseudo state The modern paradigm - market space - increase ROI on Brands - posting technologies \ products in sunrise markets (market seeding) - creation of flanker brand markets
What is the cost of war ? “the object of war is victory . . . not lengthy campaign” “The best marketing wars are those that are short and swift”
Hi
Competitor controlled
Highest cost “war of attrition”
(firm to limit damage by pocket wars)
Competitor’s staying power
Firm controlled
? Lo
(firm to inflict maximum damage at minimum cost)
Hi Firm’s staying power
The Sheathed Sword “tofight fightand andconquer conquer is isnot notsupreme supremeexcellence excellence ....;; “to supremeexcellence excellenceconsists consistsin inbreaking breakingthe theenemy’s enemy’s ......supreme resistancewithout without fighting fighting .. ....”” resistance
““ ......the thebest best thing thingof of all allis isto totake takethe theenemy’s enemy’scountry country whole wholeand andintact intact ......to to shatter shatter and anddestroy destroyis isnot notso sogood” good”
The Sheathed Sword . . .
illustrative
Player ‘A’ will gain if he
Player B
advertises . Player ‘B’ will gain if he
Do not Advertise advertise
does not advertise, BUT FOR THIS player ‘A’ HAS TO PLAY
to “ADVERTISE” is much higher than player B’s commitment of “DO NOT ADVERTISE” Player ‘A’ breaks player B’s WILL TO FIGHT and forces player ‘B’ to ADVERTISE
2 15
20
“DO NOT ADVERTISE” However player A’s commitment
5
Advertise
Player A Do not advertise
8 6
10 18
(Tv’s . . the Blurred Picture) . . .
illustrative
“market strangulation ” TV’s market on size
Products colour
P1
25”
21”
X
Colour & remote
P2
x x
Colour , remote & surround sound
P3
x HI
14” ‘Y’ follows a costly growth path if it goes in the 14” market
y X ME
LO
MARKET PROFITABILITY Market profitability = (cost of providing value < price that can be charged)
‘X’ strategy - could be two fold a) ‘Y’ should exit business (extra market space) b) ‘Y’ should only create market opportunities for ‘X’ by sharing cost of market development for ‘X’ products in the future
The Sheathed Sword … the principle of mass IT IS THE RULE OF WAR THAT IF OUR FORCES ARE . . . TEN TO ENEMY’S ONE
IF FIVE IS TO ONE
SURROUND HIM
OFFER BATTLE
IF TWICE AS NUMEROUS
DIVIDE OUR ARMY IN TWO
However , when you surround an enemy , leave a outlet free .
Deny The Enemy The Credible Threat Of Fighting To Death
The Sheathed Sword . . . Soapy Soap “Offer battle”
low
Henko Surfmatic
Surf power
volume
Surf ultra Surf
Arial I - phase
“surround”
Wheel Nirma
high
“divide army in two”
Unbranded - yellow powder market low value
high
The Dance Of Moves DEFENSIVE
PROACTIVE OFFENSIVE MOVE DEFENSIVE
REACTIVE OFFENSIVE
The Anatomy Of Moves MENTALITY OF PLAYER OFFENSIVE DEFENSIVE
PROACTIVE
STANCE OF PLAYER
REACTIVE
“Early Bird Strategy” Wants To Win By Clear Aggression
“Slice By Slice’ Wants To Win By Controlled Aggression
“Pre - Emptive Strategy” Player Wants To Limit Opponent Advance Aggressively
“Wait -n- Watch” Wants To Control The Game Through Delaying The First Move
The offensive capability Capability to create offensive moves • resources to generate multiple and cost - effective options • market power ( differentiation /switching costs) • harnessing speed & the element of surprise • offensive mentality ( not risk shy ) • competitor capability to serve market • excess capacity - capacity browbeating
What are offensive strategies ? low
Variety in options (speed x surprise )
same
high
“attack narrow ground” guerrilla- AKAI - Buy back scheme, price bundling
“frontal- head - on” SAMSUNG - side cut Picture
Point of competition contact
different
“create broad multiples” flank- Cadbury’s Gems v/s peppermint “by - pass” Toshiba - DVD + VCD high over National/ Sony
“market encirclement” HLL - Food division v/s individual salt, ketchup etc. companies
The Sheathed Sword . . . “if our position is : • matched
“we can offer battle”
• slightly inferior in number
• quite unequal in every way
“we can flee from him” “we can avoid the enemy”
The Sheathed Sword . . . The Small Car Landscape PHASE - I “TALL BOY” “MPFIS”
FORCES SLIGHTLY UNEQUAL - FLEE FROM THE ENEMY
Price for perceived value
ZEN
SANTRO MATIZ PHASE - II PRICE DROP POSITIONING UNALTERED
IF FORCES MATCHED - OFFER BATTLE
MUL- 800
Dominant design
FORCES UNEQUAL - AVOID HIM
Uniqueness Style / features
High Uniqueness
The defense Capability to create defensive moves • knowledge of resource structures and its stretch limits • distinctive segment harnessing power (customer specialist , product specialist etc.) • defensive mentality ( risk averse - market protective) • competitor capability to serve market
How much , how far , how long can you defend ? Consistency in defense creates stronger credibility over volatile offense
The defense paradox OFFENSE WEAK STRONG
DEFENSE
“Defend To Grow” [Low Risk, No Incremental Returns]
“Lose All” WEAK
STRONG
“Create Grow Defend” [Lo Risk , Hi Return] “Attack To Grow ” [Hi Risk Taker , Also High Gains]
Strong Defense Is Good Offense
The defense . . . A firm’s perspective ? Variety in options (speed x surprise )
low
high
same Contraction defense “withdraw” Standard 2000
Point of competition contact
Preemptive defense Pepsi dropping price when Coke entered the market
Position defense “build strength” around product ‘Dettol’- colour unchanged
Strong flanker Counteroffensive defense-
Amul - Cheese flank for Butter v/s Britannia
“RESPOND WHEN ATTACKED”
Zen - world car
different
Mobile defense “new domain”- Pepsi in juice “Tropicana”
The Five Essentials of Victory . . .
The Five Essentials of Victory I) “he will win who knows when to fight and when not to . . .” It also signifies a players ability to assess the payoff of each strategic move The options . . . • High profit v/s high market share • Deep penetration of existing markets v/s developing markets • profit goals v/s non profit goals • high growth v/s low risk
Which pay-off . . .
(i)
The Value of the Resource The Chances of Winning a Resource The Costs Involved in Winning The Costs of Losing The Chance of a Loss Payoff (E) = (benefit from a win ) - ( cost of loss) Payoff (E) = {(chance of win) * resource value } + {(chance of loss ) * cost of loss } Payoff (E) = {(chance of win) *(resource value - cost of win)} + {(chance of loss ) * cost of loss}
Under peculiar conditions if the strategy incurs no cost of winning and there is no chance of losing (the chance of winning becomes 1.0 ) , the entire equation for payoff reduces to the value of the resource
The Five Essentials of Victory II) “he will win who knows how to handle superior and inferior forces” - there is nothing as perfect business Identify the elements in the value chain as the drivers for business growth - optimally exploit them to secure competitive advantages
Inbound ` logistics
Outbound ` ` operations logistics
Marketing ` & Dist.
SALES ` & SERVICE
HLL’s Core capability in dry chain distribution extended to cold chain Santro & Matiz do not advertise national service connectivity
The Five Essentials of Victory III) “he will win whose army is animated by the same spirit throughout the ranks”
involvement
“ownership culture” “strategic intent”
“shared learning”
The Five Essentials of Victory IV) “he will win who, prepared himself , waits to take the enemy unprepared” Increase competitor fatigue By doing
By avoiding
a) combat preparedness
a) being ill prepared for combat
b) attack when preparedness
b) attack when competitor
is at peak c) attack when competitor is off - guard
preparedness is at peak c) attack when competitor is on high - alert
The Five Essentials of Victory
(…iv) Maggi considered Noodles &
HLL
Ketchup as flagship brands.
KISSAN
Soups were not main product / brand.
TOP RAMEN
Knorr took this opportunity and
Ketchup
focussed on the market creating and sustaining perception that “ thicker was better”
Noodles CADBURY’S
MAGGI
NESTLE
Soups
Knorr
“attack when enemy is off guard”
The Five Essentials of Victory V) “he will win who has military capacity and is not interfered with by the sovereign” The conditions of strategizing are best left to the general on the Battle field Capability
strategy Opportunity
Knowledge
Company hiring professional CEO’s rather than family scions heading the company e.g.: Brar as CEO for Ranbaxy
Strategy Insight or the Art of Thinking
Weak Points & Strong “On moving early”
“ whoever is first in the field and awaits the coming of the enemy will be fresh for the fight . . . whoever is second in the field has to hasten to battle will arrive exhausted”
Early Mover . . . the Philosophy
vedi vini vici I came
I saw
I conquered
The Market Pace high Market velocity (speed of change) low
Software Consumer electronics
Cement/ steel etc low
high Effort required to manage (flexibility , innovation ,etc.)
highest
Early Mover . . . the Payoff Player’s Speed slow good “better late then never”
fast
“business @ speed of thought”
Quality of player “lost world”
bad
“marry in haste , repent at leisure
Markets & the Strategy of Moves Competitor mobility high low
Potential of creating value for first mover high
low
• “over crowded” markets be follower than leader
•“out of shape” markets laggard entry
• “share risk ” markets simultaneous entry
• “ opportunity ” markets only be first
The Players Value innovator (pioneer)
first
Market entry
Value adapter (migrator)
high
Market margins on differentiation
Value imitator (settlers)
low
last 0
years
n
(Time spent for value generation in market)
Weak Points & Strong “on will”
“a clever combatant imposes his will on the enemy but does not allow the enemy’s will to be imposed on him”
Power Situations . . . What to Lever Firm’s market dominance high low low
Firm’s technology dominance
“market power” create market webs after the dominant design has settled
“lead market” high
marketing & technology
“follow the market” “technology power” create the dominant design& strategically partner to launch product in market
Weak Points & Strong . . .
illustrative
Sony LG - introduces FLAT SCREEN
Do not Introduce Introduce flat screen flat screen
T.V. and creates an advertising hype which makes SONY to launch the same type of TV as it fears market
LG
rejection -
SONY will not introduce the FLAT SCREEN first . If
LG
not respond then the loss is high (-10)
Introduce flat screen
does
Do not Introduce flat screen
25 100
10 25 0
-10 25
0
What Makes Strength ? Drivers Size of operations Geographical expanse Technology uniqueness Market pockets controlled (market size in specific product market)
Imposition of will
Imposition of Will . . . the Whitest White TIME MARKETS NOW
MARKETS THEN
HLL’s EFFORT TO CHANGE PRODUCT BOUNDARIES
Without fluoride Fluoride Dental cream Dominant product
DENTAL CREAM
GEL
COLGATE’s DEFINITION OF BUSINESS
Emerging Dominant design
How does size matter ? Market acceptability is build up by • quality • market perception created by advertising by Du Pont
Dominance in
technology &
size
Du Pont
Tynex
Toothbrush bristles
Du Pont . . . The back seat market driver High Technology driven brand
Du Pont • VIRTUAL MONOPOLY • CONTROL OVER MARKET • NO END USER INTERFACE
“back seat driver” High Volume evacuation priority
High Price insensitivity Oral- B, HLL, Colgate etc.. • Intense Competition • Image Differentiation • Same Technology • Individual Customer Segments e.g.: Age
“the hot seat”
High Image driven Brand
Weak Points & Strong “on attack”
“for should should aa enemy enemy strengthen strengthen his his van van ,, he he will will “for weaken his his rear, rear, weaken should he he strengthen strengthen his his rear rear ,, he he will will weaken weaken his his should van, van, should he he strengthen strengthen his his left left his his right right will will weaken weaken ,, should should he he strengthen strengthen his his right right his his left left will will weaken, weaken, should should he he seed seed reinforcements reinforcements everywhere everywhere he he will will should be weak weak everywhere” everywhere” be
Variety the Spice of Attack Attack areas
Weapons
SINGLE BRAND
SINGLE POINT DIFFERENTIATORS
MULTI BRANDS
MULTI - POINT DIFFERENTIATORS
Variety . . . the Spice of Attack SINGLE POINT DIFFERENTIATORS
SINGLE BRAND
MULTI BRANDS
ROBIN BLEACH WHITENERS
LUX - BEAUTY DOVE - SKIN
MULTI - POINT DIFFERENTIATORS DETTOL THE FOUR WAYS
PERK - THODSI PET PUJA PICNIC - SOLID SNACK
ANY TIME & ANYWHERE FOOD
Change , Alter , Confuse . . . I-I- PHASE PHASE
ODOUR
SAVLON
IIII- PHASE PHASE
DETTOL 4 - USES SKIN BURN
SHAVING FIRST AID SAVLON 2 - BENEFITS
DETTOL
BATHING
NAPPY WASH
Change , Alter , Confuse . . . HIGH
SAVLON
STRATEGIZE TO CREATE PERCEPTION THAT SAVLON HAS HIGHEST BENEFITS
IDENTIFICATION OF COMPARITIVE PRODUCT/ BRAND BENEFITS STRATEGIZE TO CONTAIN PERCEPTION THAT DETTOL IS A MULTI- EFFORT
DETTOL
BRAND
LOW LOW
Uses
⇔
Benefits
IDENTIFICATION OF USES
HIGH
Weak Points & Strong . . . The Principle of Focus “on competencies”
“ we can form a united single body , while the enemy will be split into factions . . . hence there will be one body pitted against the parts of a body . . . ”
The Cross Subsidized Business The four faces of diversification . . Take your pick
Gains from diversifying Divided Divided
Multiplied
Hedge
Activate
(min-max)
(max-min)
Risk from diversifying Multiplied
avoid
Contemplate (max- max)
The TISCO saga . . . TISCO • a life time learning in steel • good & clean business • deep pockets player • ambition to grow
Diversification opportunity in using slag to be carried forward as a value (cost reducing ) additive in manufacturing cement STRATEGY
CROSS SUBSIDIZATION Front end objective recycle and synergize Back end objective improve profit pockets for TISCO
The TISCO saga . . . The result
TISCO’s OLD LEARNING
LOW VOLUME - HIGH VALUE BUSINESS - TO - BUSINESS
TISCO’s NEW LEARNING
HIGH VOLUME - LOW VALUE INDIVIDUAL CUSTOMER
The Value TISCO Created In Inbound Logistics & Operation Was Negated By The High Cost Of Creating New Business Networks & New Business Learning . . . CEMENT WAS HIVED OFF IN TIME
Strategy And Tactics . . . “on strategy & tactics”
“all men can see are the tactics by which I conquer . . . what none can see is the strategy from which it evolves.” “Movement begets action ,and action results in movement”
Strategy And Tactics . . . “on strategy & tactics”
strategy - rule that tells a player which action to take given the information set strategy set - the set of strategies available to player Dimensions of strategic application strategy deals with wide spaces (the overall market perspective) strategy deals with longer time frames (time horizon planning) strategy deals with deployment / movement of large forces (concerns with resource allocation & optimization )
Tactics Tacticsdeals dealswith withthe theopposite opposite
Strategy & Tactics . . . The TV Story
Akai’s core tactics - attack low end of the market - Redefine Price - Value equation - Simple & No Frills product - “dealer push” to gain volume
What is the strategy?
Strategy & Tactics . . . The TV Story
Cost leadership
Strategy & Tactics . . . “on repetition”
“do not repeat the tactics which have gained you one victory, but let your method be regulated by infinite variety”
Play mixed strategies
Strategy & Tactics . . . Akai’s Changing Tactical Effort Akai- market entry - the “Japanese” Connection
low
Akai- advertisement for building ‘recall’
Akai- buy back scheme for TV’s Market penetration
Akai- 2 TV’s for one Akai- buy back scheme in certain pocket areas Akai- brand advertising “Akai cross bundling” - TV’s and other products / accessories at a low price
high
Akai- mobile repair van ? ? ?
Strategy & Tactics . . .
Akai’s strategy
Cost leadership
Akai’s core tactics
Build volume leadership to reduce costs
Akai’s tactical efforts
“Buy back scheme” and low price to ease customer fatigue
Maneuvering “Let your rapidity be that of the wind , your compactness that of the forest in raiding and plundering be like fire , in immovability like a mountain , let your plans be dark and impenetrable as night, and when you move , fall like a thunderbolt”
Strategic maneuvering is putting one’s army into the most favorable position engaging the enemy at a disadvantage and depriving him of freedom of movement
Maneuvering . . . Shift resources • economies of scale • economies of scope
Maneuverability
Markets • cater new product markets • trade up and trade down with existing market strengths
Representation • positioning as product • positioning as company
Asset Maneuvering . . . The HLL strategy CREATE BRANDS
THE VIRTUAL ORGANISATION
HLL’s MARKET POWER
Asset Block roce generating capability
CHEMICAL PROCESSES/ QUALITY CONTROL
“SWEAT ASSETS” “OUTSOURCE”
Maneuvering . . . Markets & Competition illustrative
(MULTI - MARKET BUSINESS)
HP
IF CANON RETALIATES IT MAY LOOSE GRIP OVER THE COPIER MARKET
CANON TEKTRONIX
XEROX
+
(CURRENT MKT.SH- 30% COLOUR PRINTER) • SOLID INK PRINTERS • COLOUR PRINTERS • XEROX TO DOUBLE CAPACITY OF DEALERS
XEROX MANEUVERING OUT OF THE TIGHT COPIER MARKET. IT WANTS TO MOVE AWAY FROM A COPIER-CENTRIC COMPANY TO A PRINTER- CENTRIC COMPANY
Maneuvering . . . The positioning game It is all geometry . . The strategies for player ‘A’ Proximity of competitors’ offer from ideal value Distant Near (B) Distant
Proximity of firm’s offer from ideal value (A)
“all work and no play” strive to create differentiation
“seize first mover advantage” B
B Ideal
A
“head - on positioning” no gain move - hold on
A
Ideal
“winner all the way” no sweat B
B Near
Ideal
A
Ideal
A
Variation in Tactics
Tactical Moves “There are . . . roads which must be not followed, towns which must not be besieged, armies that must not be attacked, positions that must not be contested . . .”
The cost of the move . . . Walk carefully Impact of competitor power high
low
realistic
“flank” “flee”
Competitor retaliation possibility
unrealistic
“Pocket impact” selected area attack
“dodge” “play cautiously” avoid competitor interest markets
“attack”
Tactics . . . Avoid majority fallacy
illustrative
HYUNDAI HYUNDAI
To Avoid The “TRAGEDY OF COMMONS” Maruti Decides To Target The Midsize Segment . . . Which Is Precisely What Hyundai Thinks Of Doing And Hence Both Of Them INCREASE LOSS
Target small Target mid- size car car
-200
Target small car
- 200
200 100
MARUTI MARUTI Target mid- size car
100 200
-300 -300
Do not eye the same market as competition . . . gains may be less
Tactics . . .The Cussons challenge Cussons wanted to occupy Top - End soap market
Top market dominated by HLL , P&G , Specialty Brands
Cussons evaluated problem of low sale as low market penetration
Purchased brands viz. : Ezee , Trilo & Key to access new geographies & create own network of stockist / dealers
Cussons failed as . . .
• volume management was not Cussons forte • brands had no synergies with main line Cussons
Tactics . . . ““ .. .. .when .when in in difficult difficult country country ,, do do not not encamp. encamp.
.. .. .. In In country country where where high high roads roads intersect intersect ,, join join hands hands with with allies allies .. .. ..
.. .. .. only only fight fight in in desperate desperate positions.” positions.”
Tactics . . . . . .when in difficult country , do not encamp” Donot nottread treadin inmarkets marketsthat that -Do
still have have to tobe beproven provenin interms termsof of promise promiseto to •• still businessto tocreate create value valueon onaasustainable sustainablebasis basis business (theelectric electriccar) car) (the marketsthat that may maystore storepromise promise but butare aretoo toodynamic dynamic •• markets tocreate create aa sizeable sizeablecustomer customer stock stock(software) (software) to
Can the Fire Be Dowsed . . . Cease Fire illustrative
Real value - cease fire • launched with fanfare • high response for the
Sales units
Sales spurt
launch • strong carry for a short time • collapse in demand as market perceived need as non - existent.
time
Tactics . . . “In country where high roads intersect , join hands with allies . . .” New markets • market could grow in size • markets have diversity in them • each diverse opening is a sizeable opportunity • markets can have high early mover advantages
• On intersecting highway spaces seek partners especially if the market opens up in several directions. • Use strength of an alliance to serve market pockets and create a case of “ bottling up”markets which are wide spread and different - (Pocket PC - PALM ) Microsoft will
work with HP , Casio, and Compaq to make hand held machines
How long will it last . . .? Alliance player’s long term view of the alliance relative to partner Rewarding
Draining
Rewarding
Alliance player’s short term view of the alliance relative to partner Draining
“champion alliances”
“enjoy while it lasts”
“pushed” by hope
“doomed”
Tactics . . .Of Warfare . . . only fight in desperate positions.” Offer battle when : 1) your market offering and strengths are matching competitor 2) you cannot exit the market easily 3) you cannot avoid the enemy you cannot migrate to other propositions of value in the same market 4) benefit of holding market patch > cost of waging conflict
Tactics . . . of warfare “we should not rely on the enemy not attacking ; but rather on the fact that we have made our position unassailable” competitors
collaborators
FIRM’s CONTROL OVER . . .
customers
community
The 5 Sins . . . The sins . . .
Market parallel . . .
• recklessness , which leads to destruction
• price wars that cut into profit pockets
• cowardice , which leads to capture • hasty temper, which can be provoked by insults
• Brand sell out / market surrender • proliferation of brands to corner the new entrant
• delicacy of honour which is sensitive to shame
• hold on to a high price when the price - image equation has changed
• over concern for your soldiers
• too much of “brand insulation” by weak flankers
The 5 Sins . . .price retaliation
illustrative
Coke Price cuts Price hold
The “Pricing Dilemma” WHAT DOES HAPPEN ?
5
Price cuts
Pepsi
5
0 20
20 Price hold
0
15 15
The Terrain
The Terrain “ the natural formation of the country is the soldier’s best ally”
Survival of the firm
The Natural competition
Other Entry & Exit barriers
The Terrain . . . Mountains
Political system , state structure , taxation, investment policies, trade union activities etc.
Rivers
Economies of scope , technology barriers, cost of technology, cost of patents etc.
Valleys/ Gorges
Protectible know-how , proprietary learning , markets that offer plentiful opportunities for attack and escape etc.
Mounds / hillocks
Vantage points, in terms of supplier/ vendor control, deciding market boundary, cost points for operations etc.
Winds
Market currents, natural competitive momentum of the market place , accepted norm of effort etc.
The Terrain . . . some barriers Entry barriers
Exit barriers
• proprietary skills
• asset specificity
• technology platforms
• low ROI
• capital adequacy
• obsolete technology
• market life cycle
• high cost edifice
• competitors cost
• market cycle in
structures
the decline stage
• the “profit promise”
with no takers for
• scale diseconomies
business
• government levies
The Terrain . . . the six grounds
“we may distinguish six types of terrain : • accessible ground , • entangling ground • temporizing ground • narrow passes & precipitous heights • positions at great distance from the enemy”
The Terrain . . . accessible ground
“ground “ground that that can can be be freely freely traversed traversed by by both both sides sides is is called called accessible accessible ground ground .. .. .. .. .. .. occupy occupy raised raised sunny sunny spots spots ,, carefully carefully guard guard your your line line of of supply supply .. .. .. then then you you would would fight fight to to your your advantage” advantage”
The Terrain . . . the market perspective Competing firms’ capability to provide differentiation HIGH
LOW
Product category differentiation
HIGH
The toothbrush market
Easy entry Costly exit
Costly entry Costly exit
LOW DIFFERENTIATION
LOW Easy entry & Easy exit equal opportunity of exiting or remaining in the market
Costly entry Easy exit
The Terrain . . . accessible ground “seek sunny spots . . . hold on to your supplies” tryfor forlow lowcost cost differentiation differentiation to togain gainvolume volume ••try inthis thismarket market in occupyrelatively relativelyhigher higher return returnsegments segments ••occupy reducecost cost of oftechnology technologyby byusing usingdominant dominant designs designs ••reduce tryto toadapt adapt rather rather than thaninnovate innovate ••try
The Terrain . . . accessible ground
“ . . . hold on to your supplies” high
high niche
Value generating capability per unit
Differentiated players
Customer need specificity
Mass markets “Volume Driven Heroes” BARON has tied up with TCL for CKD’s which will sell as Baron despite the AIWA arrangement
low high
Volume from segment
low low
The Terrain . . . entangling ground “ . . .ground which can be easily abandoned but is hard to reoccupy is called entangling ground” Markets may be abandoned as they have • profit
structures which are not lucrative
• cost structures that are high • the “unlearnt customer” (markets are not developed) • inherent contradictions with core business lines • no promise for future
The Terrain . . . entangling ground . . . However these markets are difficult to capture once vacated big
Perceived value of opportunity relative to cost
Perception of firms who realized opportunity HP,Compaq, IBM etc
Xerox perception of opportunity in computers
small low high Cost structure of opportunity relative to value
The Terrain . . . temporizing ground
““ when when the the position position is is such such that that neither neither side side will will gain gain by by making making the the first first move move ,, itit is is called called temporizing temporizing ground ground and and the the situation situation remains remains in in aa deadlock deadlock ““
The Terrain . . . temporizing ground
illustrative
Any unilateral move attempted to increase the value to business will alter the dynamics of industry cost Firm Firm -- Y Y DO NOT ALTER PRODUCT DESIGN
No firm will play
DO NOT ALTER PRODUCT DESIGN
first as there will be benefit only if the other firm follows
ALTER PRODUCT DESIGN
1 3
0 0
Firm Firm -- X X ALTER PRODUCT DESIGN
0 0
3 1
The Terrain . . . temporizing ground Implications of the “move” Gain to industry of the move low high Gain to business of move
low
high Competitive moves
Co-operative moves
(AGGRESSIVE DIFFERENTIATION)
(MARKET DEVELOPMENT)
Stalemate (INCREASE INDUSTRY COST - CUSTOMER BRIBES WHICH CAN BE COPIED)
False moves (mistakes) (WRONG PRODUCT FOR THE MARKET)
The Terrain . . . narrow passes and precipitous heights ““ .. .. .. With With regard regard to to narrow narrow passes passes ,, ifif you you can can occupy occupy them them first first ,, let let them them be be strongly strongly garrisoned garrisoned and and await await the the arrival arrival of of the the enemy enemy .. .” .” With regard regard to to precipitous precipitous heights, heights, ifif you you are are ““ .. .. .. With beforehand with with your your adversary adversary ,, you you should should occupy occupy beforehand the raised raised sunny sunny spots spots ,, and and wait wait for for him him there” there” the
The Terrain . . . narrow passes & precipitating heights
High entry & low exit barriers • market often has low and few entrants as cost of entry is high • high uniqueness of technology or differentiation sought • market may have high stable returns • markets are controlled by a few players who pace & develop it • substitutes may make good business
“Patenting” product innovation Alter processes to reduce cost- “Dr. Reddy’s”
Hold on to critical resource - Microsoft has lowest labour turnover
Dominate high return markets
The Terrain . . . Great distances from your enemy “ if you are situated at a great distance from the enemy,and the strength of the two armies is equal , it is not easy to provoke a battle” Great Distance = Poor visibility
“The generic market”
The Terrain . . . great distances Degree of distinctiveness of the category (product / brand) high low many
Multiple choice markets
Generic markets
Number of substitutes available (product/brand)
Crafted markets few
Uncultivated markets
The Terrain . . . Not all competition is my competition
Blurred (indirect)
Generic competition (SUBSTITUES) price competition
Competition source
Product competition function competition
Brand competition value competition
Clear (direct)
high
low Competitive pressure
The Terrain . . . great distances List all credible sources of competition Identify key drivers which can cause competitive tensions Identify key competitors affected and their strength Gauge competitive response to certain moves EXAMINE OWN CAPABILITIES
Assess pay - off and . . . attack
The Terrain . . . “ do not climb heights to fight” Do not do what goes against natural law - wait for competition to come to your terms . . . Further it is difficult to climb and compete at the same time Market acceptability “me- too” options
Competition redefinition of business
= “climb heights” =
“ . . . and fight”
The Terrain . . . “GEOMETRICAL STRATEGY’ PLAY SAFE WITH XEROX
VALUE POSITIONING
LOW
HIGH
LOW XBS - RENTING OUT EQUIPMENT FOR COPYING ALSO DIGITISED AND STORED INFORMATION OF KARNATAKA
PRICE POSITIONING
HIGH COURT
CANON
HIGH
XEROX XEROX BUSINESS SERVICE
The Nine Situations & Attack by Fire
The nine situations “the art of war recognizes nine varieties of grounds . . .”
• facile ground • contentious ground • open ground • dispersive ground • ground of intersecting highways • hemmed - in - ground • serious ground • difficult ground • desperate ground
The nine situations & the GE Grid Business strengths
hi hi Market Market attractiveness attractiveness
Facile ground
Contentious ground
“halt not” - attack is best defense new uses/users/ technology
“equal market opportunity” - product/ market specialist
Dispersive ground
me
“fighting on own territory” dominate by “maxi- min” strategy Serious ground
lo
me
Intersecting highways “ alliance”
Difficult ground
“fortifications in mountains , forest deep ground” & gorges- minimize gather in plunder investment, focus “keep steady march”
lo Open ground “wide markets” no blockage of competitor -settle in markets not important to leader
Hemmed ground “large number of our men can be crushed by a small enemy force” - strategize
Desperate ground “fight till you die”
Attack By Fire “NEVER VENTURE VENTURE ,, NEVER NEVER WIN” WIN” “NEVER “THE END END JUSTIFY JUSTIFY THE THE MEANS” MEANS” “THE IFYOU YOUHAVE HAVETHE THECAPABILITY CAPABILITYUSE USEIT IT IF
THE FOLLOWING ARE 5 MAJOR WAYS OF ATTACKING BY FIRE
Attack by Fire . . .
(1)
“set fire to the enemy’s camp , and kill the soldiers” ENCOURAGE COMPETITOR MANPOWER TO LEAVE / CHANGE
COMPETITIVE TARGET
MANPOWER RESOURCE OF THE COMPETITOR
IMPROVE YOUR MANPOWER AS “CRITICAL RESOURCE” BETTER THAN THE COMPETITOR (THE HP WAY)
PEPSI V/S COKE - FOR POACHING ITS EMPLOYEES
Attack By Fire . . . “ . . . the second is to burn enemy supplies”
Study what the strength of the competitor if it is
inbound logistics than strategize to reduce this strength . . .
(2)
Attack By Fire . . .
( . . .2)
you can can .. .. .. THEN THEN DO DO IfIf you
SStop topcompetitor’s competitor’ssupply supplyby byarm armtwisting twistingthe theSupplier Supplier youare arealso alsoTHAT THATSAME SAMESUPPLIER’S SUPPLIER’S major majorbuyer buyer ififyou
IIncrease ncreasecost costof ofcompetitor’s competitor’ssupplier supplierby byraising raisingindustry industry expectationcost costof ofserving servingthat thatsegment segment expectation (CaptainCook Cook wheat wheatgrain grainquality qualitywould wouldraise raiseexpectation expectationfor for (Captain otheratta attasuppliers suppliers--e.g.: e.g.:Annapurna Annapurna )) other
TTryrytotocontrol controlcompetitor competitorsupply supplysources sourcesby bybuying buying themor orleasing leasingthem themover overlong longperiods periods them (Cementcompanies companieslocking lockingmining miningland landfor forlime limedeposits) deposits) (Cement
Attack By Fire . . . “ . . . the third to burn enemy equipment” Redefine technology - raise bandwidth , create technology power • control market through raising product performance by building new features - Light Adjustment Screen TV's
• increase “customer ease” by saving customer fatigue - LG - Volume Adjustment Across Channels
(3)
Attack By Fire . . .
“change market equilibrium”
The • faster • better • cheaper . . . Offer • seeking differentiation in the product design rather than the technology
( . . .3)
“recreate market equilibrium”
“Breakthrough” technologies The • faster • better • cheaper • newer
. . . offer
Attack By Fire . . .
( . . .4)
“ . . . the fourth to burn enemy storehouses” Identify the competitor’s power house of force
It can be • physical resource
Select the most
• intellectual capital
vulnerable area
• reputation • technological work base
and attack
Attack By fire . . .
( . . .5)
“the last one is to burn enemy’s weapons . . .” Attack areas
•brand v/s brand
• Surfmatic v/s Henko
• brand v/s product
• Samsung TV v/s Round Tube
• substitutes
• industrial consumables - sorbitol v/s glycerin for pharmaceuticals
Attack By Fire . . . “In order to carry out an attack , we must have means available . . . the material for raising fire should be kept in readiness”
“ . . . Now an army may be likened to water , for just as flowing water avoids the heights and hastens to the lowlands , so an army avoids strengths and strikes weakness”
Attack By Fire . . . to attack or not to attack
Attack when • you are the strongest • your opponent is at his weakest
Avoid attacking when Assess the credibility • your opponent is his strongest • you are at your weakest
of the competitors response . . .
Attack By Fire . . . Risk dominance test
illustrative
Players strategic options will depend on their opponents choices Coke Coke
There are two strategic equilibria , However increasing
Increase advertising
Slash price
49
0
Increase advertising
99 Pepsi Pepsi
advertising appears more realistic.
0 0
Slash price
0
51 1
Attack By fire . . . In attacking with fire , one should be prepared to meet five developments
• when fire breaks out inside . . . respond with an attack from outside
- strike when the competition is at its weakest • competition has internal contradictions • competition is confused Strike when minimum resources are to be spend for maximum result
MUL attacked PAL when the latter had financial problems and its Industrial Relations track record was lowest. PAL had lost will to fight. - circa 1984
Attack By fire . . . • if there is a fire , but enemy soldiers are quiet , bide your time and do not attack . . .
- “beware of false fires” create networks that source accurate information about the competitor and use it. Hyundai & Daewoo did not attack MUL head on in the management crisis years as MUL in the market place was • unified as a operation • had not reduced its market clout over vendors / customers
Attack By fire . . .
• when flames reach their height . . . follow with attack . . .
• attack when sufficient damage has been done HLL strongly attacked Colgate with Pepsodent when Colgate was busy tackling the GEL wars . HLL with stratagem also broke the Colgate “Ring of Confidence” and made it launch a brand outside its umbrella cover
Attack By fire . . . • . . . do not always wait for the fire to break . . . but deliver your attack at a favorable moment . . .
• attack when you are strongest and even if there is competitive retaliation you can repulse it SONY changed viewing technology to “TRINITRON”
Attack By fire . . . • strategize to create market
• . . . When you start a a fire , be to windward of it . Do not attack from leeward”
opportunity IN changing market dynamics i.e.: imaging today is digitalised and in the future it may be only “soft copy” driven .
Kodak should “contract product lines” and should not invest heavily in the “film rolls” business as a progressive strategy
The Use of Spies
The use of spies . . .
“ If you know the enemy and know yourself , you need not fear the result of a thousand battles . If you know yourself but not the enemy , for every victory gained you will suffer defeat. If you know neither the enemy nor yourself , you will succumb in every battle…”
The use of spies . . . STRATEGIC INFORMATION HI
SPECIALISED INFORMATION FULL- SCALE ESPIONAGE
QUALITY OF INFORMATION TRIVIA
GENERALISED INFORMATION
LO QUANTITY OF INFORMATION HI
Decision
Event
Payoff x Probability
The use of spies . . . STRATEGIC INFORMATION LEVEL OF INFORMATION SYMMETRICAL PERFECT
VALUE OF INFORMATION
UTOPIA PERFECT STRATEGIC DECISION
ASYMMETRICAL
DOMINANT DECISIONS
MIN- MAX DECISIONS IMPERFECT
STRATEGIC STRATEGICINFORMATION INFORMATIONHAS HASPOWER POWERTO TOALTER ALTERTHE THENATURE NATUREOF OFOUTCOME OUTCOME
Spies . . . The philosophy of espionage
“an army without spies is like a man without ears or eyes . . . To remain in ignorance of the adversary’s condition simply because one grudges the outlay of silver in honours and emoluments , is the height of inhumanity” “ hostile armies may face each other for years striving for victory which is decided in a single day ”
Spies . . . “Be subtle ,be subtle, use all kinds of spies for your work ”
Identify target acquisition companies
Determine the competitor’s corporate strategy
Monitor product innovations & introductions
Uses of competitive intelligence
Keep track of key competitor employees
Provide financial information on a firm
Identify key corporate R & D activity
Spies . . . Sources of competitive espionage disclosure disclosuremade madeby bycompetitors competitorsemployees employees market market surveys surveys reports reportsfrom fromsales salespeople people&&purchasing purchasingagents agents false falsejob jobinterviews interviewswith withcompetitors competitorsemployees employees false falsenegotiations negotiationswith withcompetitor competitorfor forlicense license bribing bribingcompetitor competitoremployees, employees, purchase purchaseagents agentsetc. etc. Competitor Competitorwire wiretapping tapping blackmail blackmailof of key keyemployees employees theft theftof ofdrawing drawing,,samples samples,,documents documentsetc. etc. planting planting your your agent agent on onthe thecompetitors competitorspayroll payroll
Spies,spies . . . Spies everywhere
The ancients 1) LOCAL SPIES
The contemporaries DEALERS , RETAILERS, WHOLESALERS
2) INWARD SPIES
OFFICALS OF THE FIRM
3) CONVERTED SPIES
USE COMPETITORS DEALERS , RETAILERS TO SPREAD FALSE INFORMATION ABOUT YOUR MOVES
4) DOOMED SPIES
DOUBLE AGENTS , BRINGING INFORMATION BACK AND FORTH BETWEEN THE PLAYERS
5) SURVIVING SPIES`
INSIDER WITH A LONG LIFE
Spies . . . Sources of competitive espionage very high Inward spies Reliability of information
reasonably high short
Converted spies
Surviving spies Doomed spies
Local spies
Life span of activity
long
. . . SOME PRINCIPLES OF STRATEGY
THE PRINCIPLE OF OBJECTIVE
“Move not not unless unless you you see see advantage advantage ,, use use not not “Move your troops troops unless unless there there is is something something to to be be your gained ;; fight fight not not .. .. .. unless unless the the position position is is gained critical” critical” No ruler ruler should should put put his his troops troops into into the the field field to to ““ No gratify himself, himself, never never attack attack aa kingdom kingdom out out of of gratify rage …” …” rage
The principle of objective . . . “ Identify what you seek . . . Seek what you identify” FIRM’S MAY SEEK NOT ONLY
• Viable markets • The future growth prospects of the market • Beating / curtailing competition • Synergy with business goals • Utilization of resources
BUT ALSO
• Creating future competitive advantages on a sustainable basis • Maneuverability of assets
IDENTIFYING OPPORTUNITY . . . SEEKING OBJECTIVES
Identification of customer low
(DEMOGRAPHICS)
high Focus Brand markets ( exclusive markets )
Identification of value
Power Brand markets ( high differentiators )
(PSYCHOGRAPHICS)
low
Me-too Brand markets ( low differentiators )
high
The Kellogg's story . . . India operations What does Kellogg's see in today ?
• non - developed markets • small markets • plentiful traditional alternatives • strong cultural mooring • additive pressures - milk
now
What does Kellogg's see in tomorrow?
• “generation seeding” future markets • “big player in growing” market • heavy profit chunks & virtual absence of competition
future
The principle of the offensive The principle of the offensive …the thehighest highestform formof ofgeneralship generalshipis isto tobalk balkthe theenemy’s enemy’splan plan;; ““… thenext nextbest bestis isto toprevent preventthe thejunction junctionof ofthe theenemy’s enemy’sforces forces;; the thenext nextin inorder orderis isto toattack attackthe theenemy’s enemy’sarmy armyin inthe thefield field;; the andthe theworst worstpolicy policyis isto tobesiege besiegewalled walledcities” cities” and tosecure secureourselves ourselvesagainst againstdefeat defeatlies liesin inour ourown ownhands hands,, ““to butthe theopportunity opportunityof ofdefeating defeatingthe theenemy enemyis isprovided providedby by but theenemy enemyhimself” himself” the
Being offensive . . . “balk the enemy’s plan” - Preempt competition e.g.:- raise warring signals of increase in your capacity for competitive entry - Mahindra & Mahindra for tractors
“prevent junction of enemy’s forces” - Offensive Conflict - make competitor weak in leveraging core competencies e.g.:- Stress areas for competition that increases his cost for conflict - HLL could not leverage its capability of customer learning of the “low end market” and hence delayed introduction of WHEEL, Nirma made conditions for HLL difficult
“ . . . attack enemy on the field . . .’ Head on warfare e.g.:- Top Ramen Nissan Noodles V/S Maggi
Being offensive . . . “ . . . and the worst policy is to besiege walled cities” never attack well fortified brands . . . If there is a choice
- contract brands or product lines whose ROCE is not attractive because - they are in least profitable markets - the cost of competition leaves wafer thin profit margins
Gain from conflict relative to cost low
high
Cost of conflict relative to gains
prevent junction of enemy forces
Balk enemy
low
Frontal attack
Fortified cities
Being offensive . . . “ to secure ourselves against defeat lies in our own hands , but the opportunity of defeating the enemy is provided by the enemy himself” HLL introduced WHEEL after NIRMA had taken control of the lower end of the market
Mistakes done by competitor
Competition Inactivity
Maggi introduced changes in 2 Minute Noodles by making them Macaroni shaped and yet maintaining them as noodles
Principle of secrecy onthe theday daythat that you youtake takeup upcommand command,,block blockthe the ““on frontier passes passes,,destroy destroythe theofficial officialtallies tallies,, frontier andstop stopthe thepassage passageof ofall allemissaries” emissaries” and
Hemust must be beable ableto tomystify mystifyhis hisofficers officersand andmen menby by ““......He false reports reportsand andappearances appearances ....By Byaltering alteringhis his false arrangementshe hekeeps keepsthe theenemy enemywithout without definite definite arrangements knowledge““ knowledge
Secrecy . . . Ensure that the moves you make in the market place are not leaked . . . Ensure the moves you are not going to make are leaked . . . as the moves you are going to make Protect innovations
Give very little time to competition for a thoughtful response .
OR PLAY PLAY THE THE HANGMAN’S HANGMAN’S PARADOX PARADOX
secrecy . . .
“ forewarned is forearmed” Secrecy has to be maintained about . . .
• costs structures • resources • markets • strategies “SECRECY BUILDS SURPRISE”
THE INDICA STORY . . . PRICE UNDER WRAPS HIGH
PLAYER CAPABILITY OF PREDATORY PRICING
Maruti Udyog Limited
SANTRO, MATIZ & OTHERS LOW
Indica decided to keep price a secret
RELATIVE MARKET SHARE
HIGH
MUL perceived Indica as threat. Soon after the price was announced MUL slashed prices of the 800 model making intentions clear . . . However Indica’s bookings were done .
The principle of surprise “ All warfare is deception” “ …hence , when able to attack , we must seem unable , when using our forces , we must seem inactive , when we are near , we must make the enemy believe we are far away, when we are far away , we must make him believe we are near” PLAY THE LIAR’S PARADOX “if he is telling the truth, he is lying , if he is lying , he’s telling the truth”
Deception & surprise . . . Surprise can be . . . Create technological offensives , spring new products - 3M Increase product level by innovation , change market dynamics - SATURN HAS FLEXIBLE STEERING WHEELS Open up market niches which the competitor has ignored - CUSTOMIZED Jeans from LEVI’S
Surprises are surprises
Coke RELAUNCH, INDIA
SKU - GLASS BOTTLE
MARKET RUMORS WERE PEPSI PURCHASED COKE’S BOTTLES FROM THE OPEN MARKET AND SMASHED THEM
The principle of combination
““ ......in inchariot chariotfighting fighting,,when whenten tenor ormore morechariots chariotshave have been beentaken taken,,those thoseshould shouldbe berewarded rewarded who whotook tookfirst first ...... and andthe thechariots chariots mingled mingledand andused usedin inconjunction conjunctionwith with ours ours..This Thisis iscalled called,,using usingthe theconquered conquered foe foeto toaugment augment one’s one’sstrength” strength”
combination In Inmergers mergers &&acquisitions acquisitionslook lookout outfor forthe thestrength strength of ofthe thealliance alliancein interms termsof of -- strength strengthof ofindividual individual brands brands&& -- combined combinedpower power of ofall allthe thebrands brands use usethe thebrands brandson onthe thebasis basisof oftheir their strength strength,,do do not not kill killthem themonly onlybecause becausethey theywere werecompeting competing brands brandsonce. once.
Coca - cola retaining Thums up
The logic of combination Brand or no brand POTENTIAL OF GENERATING VALUE IN THE SEGMENT HIGH
SINGLE BRAND COSTS OF MAINTAINING BRANDS
DO NOTHING ( COSTS OF CHANGE MAY EXCEED BENEFITS)
LOW LOW
UMBRELLA UMBRELLA BRAND BRAND WITH WITH SUB SUB BRANDS BRANDS
MULTIPLE INDEPENDENT BRANDS HIGH
Thums up
combination • Thums up had brand image • Well entrenched brand • Was competing well in certain markets against Pepsi
Pepsi The Challenger
THUMS UP PARLE’S Flagship The acquisition Phase - I Secure bottling facility/ plants Phase - II Drop Thums up & Create volumes for Coke
COCA COLA The LEADER
Global dominance strategy Who has more fizz . . .?
Combination . . The winning ways
Coke’s strategy
ThumsUp
for Thums up
Pepsi The Challenger
• extend product • extend profits
• follow competition • follow customer
COCA COLA The LEADER
Coke wants to be seen as a independent player without controversies “market leaders do not react” Coke uses Thums Up to retaliate
IN PEACE TIMES PREPARE FOR WAR . . . IN WAR PREPARE FOR PEACE SINCE ANCIENT TIMES IT HAS BEEN KNOWN THAT
. . . THE TRUE OBJECT OF WAR IS PEACE
THANK YOU
