A look at India's Consumer Electronics Industry - II

Porter’s Five Forces Model
Although the Indian Consumer electronics market is highly competitive, the high growth rates that it promises make it a good industry to enter.

• Rivalry among existing firms: Moderate
• Bargaining power of Customers: Moderate to high
• Bargaining power of suppliers: Low
• Threat of new entrants: Low to Moderate
• Threat of substitutes: Low

Threat of New Entrants

Capital Requirements and Economies of Scale:

In the case of retail stores, there is lack of good distribution network and lack of knowledge of consumer buying patterns which calls for large investment in distribution channels and research to improve the reach.
Economies of scale is required in as there are large fixed costs associated with setting up a manufacturing plant as there are problems of under-developed infrastructure, erratic supply of water and electricity in many areas, a high cost of capital and continuous up gradation of technical and managerial skills.

Supply Chain Issues:

The existence of too many intermediaries in the supply chain coupled with issues in logistics, management of POS data, pilferage and distribution and inventory management, eats away the profits of the retailer, making it unattractive for new entrants.

Product Differentiation:

Though the awareness is increasing amongst the Indian consumers, retailers and manufacturers are unable to increase brand loyalty. The Indian consumer is very price sensitive and hence he keeps hoping from one place to another, hunting for good deals.
Switching costs vary amongst the electronic categories. For instance, the switching costs in mobile phones are high, as consumers who are used to one brand find it difficult to use another brand. However, for televisions, cameras, and even laptops, consumers are ready to try new brands based on price for features offered and service quality or reputation of the brand.

Government Policy:

By encouraging manufacturing zones and improving the infrastructure, the government is developing the entire manufacturing sector, which will help in boosting the electronics production in India, which has traditionally been a very small slice of the overall manufacturing segment. While the government is trying to encourage the growth of the retail and manufacturing industries in India, there are some policies which need to be looked at.

·         The duty structure for electronics adds up to 30% which is a significant amount. This is mainly due to the multiple tax structure which consists of 12% VAT, 8% excise, 4% Goods and Service Tax, 2% Central Sales Tax and Local taxes.

·         The FDI policy limits to 51% stake for foreign investors, which forces foreign retailers to use franchise arrangements, and in the manufacturing sector, the FDI is 100% favouring foreign investors.

·         Existence of the grey market due to poor government regulations to keep counterfeits at bay coupled with the lack of consumer knowledge and legal recourse encourages manufacturers to churn out spurious products which can lead to lost sales of the tune of 10-15%.

·         Red tapes and bribery in the Indian government system is also a stumbling block for new retailers or manufacturers.

Taking into consideration the positives and negatives, India still offers a good chance for new entrants and hence the threat is considered to be low to moderate.
Bargaining Power of Buyers

With the emergence of new channels like the internet, auction sites like rediff.com,  the general consumer (buyers) who usually purchase electronic goods from electronic retailers, hypermarts, music and book stores, can easily compare prices and go for the best deals in town. Though the better brands can command a higher price, buyers are constantly comparing prices, service quality and product features and hence commands a moderate to high power in this industry.

Large chain stores like Tata Croma, E-Zone have distinct advantage over the smaller stand alone stores as they can demand good discounts suppliers. As brands play an important role in the electronics market, the retailers find it difficult to integrate backwards to produce their own electronic goods as in the case of private food labels. Considering the market dynamics and the size of the market, the buyers have moderate to high power in the consumer electronics industry.

Bargaining power of suppliers
The biggest threat is the trend of large suppliers integrating forward as in the case of Dell, Apple, Nokia, by setting up their own retail outlets. However, in the Indian electronic context, there are a large number of suppliers in the market who face overcapacities, poor distribution, large duties, and declining margins and hence the bargaining power for suppliers is less and competitive pricing comes into play. With more companies setting up the manufacturing plants in India, like Nokia in the south, the bargaining power of suppliers is definitely low to medium. Product differentiation is more and more difficult in the consumer electronics industry and the existence of cheap Chinese suppliers also adds woes to the suppliers.
Intensity of Rivalry amongst existing players

There are few key players in the consumer electronic market, but as they are part of big Indian business groups, they have a lot of muscle power and hence the intensity of rivalry can be placed at a mid level. Though factors such as high transport and storage costs, lack of differentiation, large investments, and low switching costs tend to intensify the rivalry, the fact that the market is only at the nascent stage with promises of high growth rates of 16% coupled with the diverse needs of customer groups, and an untapped rural market; the existing players seem to be enjoying a relatively low rivalry.

Threat of Substitutes
The threat of substitutes for the manufacturers of these electronic goods is medium to high unlike the case of white goods. As new technology enters the market at increasing pace, the manufacturers and retailers need to understand the consumer needs. For instance the VCR was replaced by the DVD player which will soon be replaced by a Blue Ray Player. The incorporation of camera in the mobile phones is definitely a threat to the camera market. Hence product innovations in this segment are very high and players in this industry need to mindful of this.

               Now let us look at the key growth drivers and challenges of the industry.
Key Drivers:

·         Young Population with rising incomes

45% of the Indian population is below 25 years which accounts to close to 500 million consumers (18+) of which 230 million are in Urban India. With the rising incomes and education levels, the discretionary expenditure is increasing.

·         Availability of Easy Credit Options

With all the major players offering easy EMI schemes and with the increased penetration of Credit cards,  the Indian consumers now have an easier access to consumer electronics

·         Changing Consumption Patterns

Gone are the times when people bought electronics with the intension of using it for years together. With increasing speed of innovations and as new technologies come in, the Indian consumer wants the latest and the best. Now mobile phones are changed every year, laptops once in 2 years ,etc. People want to be trendy and are becoming gizmo frenzy.

·         Falling Prices of Consumer Electronics

With new models, products and more competition, prices are being driven even further down. Especially in the mobile phone segment, prices fall as much 20% after 6 months after introduction.

Challenges

·         Price Wars

With the increase in price wars due to the entry of new players in the market and increase in manufacturing capacity by some original manufacturers, the profitability and margins of the companies are adversely affected. Hence companies need to increase focus on product / store differentiation to address various segmental specific needs

·         Lack of Distribution Networks and Logistics Management

Getting stock into a store in India is a massive challenge given the poor city roads and complex intra city transportation regulations , high cost of moving goods between starts, inefficient storage ( e.g. small store backrooms owing to expensive real estate). It is of utmost importance to design an efficient network. Transportation, including railway systems, highways has to meet global standards. Airport capacities, power supply, warehouse facilities and timely distribution are other areas which need to be enhanced.  The distribution network is also highly fragmented and is very poor in semi-urban and rural areas.

·         Presence of Gray Market in Consumer Electronics

Presence of gray market in consumer electronics products, especially in DVD player, music players is definitely eating into the sales of the retailers. Counterfeit products are present across a wide range of products.

·         Increasing Awareness of the Indian Consumers

 With the increase in access to Internet information, and availability of wide range of choices, consumers have become quite smart. They want the product that is easy-to-handle, good in quality and low in price. Most importantly, consumers want some guarantee for the product that they are buying. The role of electronic companies doesn't end on the sale of the product, but continues till the end of guarantee period.

·         Trained manpower shortage in India

There is lack of talent in consumer electronics retailing. Retailers need to spend heavily on training its sales force to match the expectations of the Indian consumers both in terms of technical knowledge and soft skills.


Well, that was the consumer electronics industry in the Indian context. Until next time.

Cheers!!!
Signing off,
Shauvik.

A look at India's Consumer Electronics Industry - I

India’s nominal GDP was US$1.17trn in 2008. Average annual GDP growth of 6.5% is predicted by
BMI to 2013. With the population forecast to increase from an estimated 1.19bn in 2008 to 1.27bn by
2013, GDP per capita is expected to expand by nearly 59% by the end of the forecast period, to reach a projected US$1,563. Consumer spending per capita is assumed for a rise from US$594 in 2008 to US$1,105 in 2013. The growth in the overall retail market will be driven, in large part, by the explosion in the organised retail market. Organised retail refers to the familiar Western concept of chain outlets, department stores, supermarkets, etc. According to Investment Commission of India (ICI) data, this segment accounted for US$12.1bn of sales in 2006, or 4.6% of the total retail segment. The forecast is that organised retail sales will reach US$76.2bn by 2013, representing 10.7% of the total and generating employment for some 2.5 million people in various retail operations and over 10 million additional work forces in retail support activities including contract production & processing, supply chain & logistics, retail real estate development & management etc.

                   The Organized Retail Penetration (ORP) is the highest in footwear with 22 per cent followed by clothing.  Organised consumer durables retail is very low at around 5 %. This shows a growing opportunity in this sector.

                  According to a McKinsey 2005 report, while Food and Grocery took the highest share of wallet, and electronics took only a mere 5%, the proportion of spending on electronics was definite bound to increase by 2015 and also the growth rate for the share of organised retail in the electronics segment was set to increase from 15% to a astounding 45% in 2015. Non - food categories will lead the shift to organized retail.

                   In general consumer electronics refers to a variety of electronic equipment used by private customers. This industry can be divided into many segments:

1. ‘Traditional’ Consumer Electronics: audio and video equipment

2. Computing Devices: Computers, Calculators, Laptops

3. White Goods: Household /Domestic Appliances such as washing machines, irons, vacuum cleaners, grinders, etc

4. Personal Care: Hair Dryers, shavers, electric toothbrushes.

In addition to this, the emergence of telecommunication has lead to the convergence of mobile technology into the consumer electronics industry and hence this paper will only deal with traditional consumer electronics, mobile phones and computing devices which can be termed as Brown Goods as per industry definitions.

                               Out of the electronics industry in India, the consumer electronics segment is one of the biggest markets. The consumer electronics industry comprises of communication devices, computing devices, audio, video and gaming products. Televisions, music players, digital players, cameras, laptops, PCs, mobile handsets and accessories, gaming consoles commonly fall into the consumer electronic category. In 2008, the market size was estimated to be $22 billion and growing. With the growing population in India, exceeding 1 billion, the consumer electronic Industry is all geared up for fast growth in the coming years.  The predicted figure for the consumer electronic market by 2013 is around $46 billion, growing at a compound annual growth rate (CAGR) of 16%. This astounding growth is due to many factors, the major ones including

·         Rising disposable incomes coupled with increasing consumer exposure

·         Increase in manufacturing in the local grounds

·         Credit/Financing schemes which make purchase easy

·         Growing competition , leading to better deals

·         Increased reach due to better distribution networks

Taking a look at the individual segments in the consumer electronics segment, we can broadly classify them as:

1. Computers: According to Business Monitor India Report, the computers (laptops, desktops and accessories) market took up a share of 33% of the consumer electronics wallet in 2008. It also states that with the prices of PCs coming down by nearly half, the sales went up from $5.8bn in 2008 to $6.0bn in 2009. It’s very interesting to note that the current PC penetration is only 2% and this leads to excellent growth opportunities with a predicted CAGR of 13% for the period 2009 to 2013.

2. Audio, Video and Gaming Devices: The audio, video and gaming devices take up close to one – third of the wallet share in the consumer electronics segment. This segment is set to grow at 22% CAGR from 2009 reaching US $15 in 2013. The main product in this group is Television, with new technology such as Plasma TVs entering the market and cricket being the main attraction for most Indians, the Indian Premier League, Common Wealth Games 2010 are all helping in boosting the drive for upgrades.

3. Mobile handsets: The largest chunk of the consumer electronic market goes to the mobile handsets and accessories with 37% of Indian spending in 2008.  With the telecommunication boom and lower call rates, the handset market is poised to grow at 19% compounded annually and reach a staggering figure of about 380 million units by 2013. The mobile penetration in the rural market is 15% and is the most as compared to other categories. In the future, most vendors will definitely target the 3 tier cities and rural customers.

Well, that was the industry overview. Coming up next, the Porters five forces analysis for this industry. Until then,

Cheers!!!

Signing off,

Shauvik.

The magic of Mr. Porter

Companies operate in a wider perspective. They are required to perform strategic decisions ate every stage of the process of operations. The context of the competitive strategy of any company is to maintain a symbiosis between its internal and external environment. However, the external environment is dynamic and changes with technology. To align the internal structure of the company with its environment, it becomes imperative for the company to analyse its environment and to do that we have various models in place. Porter's five forces model is one such model wherein we can do an industry wide analysis of the various growth drivers, the level of competition and other factors regarding demand and supply.
          
Porter’s 5 forces model is one of the most recognized framework for the analysis of business strategy. Porter, the guru of modern day business strategy, used theoretical frameworks derived from Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. This theoretical framework, based on 5 forces, describes the attributes of an attractive industry and thus suggests when opportunities will be greater, and threats less, in these of industries.
Attractiveness in this context refers to the overall industry profitability and also reflects upon the profitability of the firm under analysis. An “unattractive” industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching “pure competition”, from the perspective of pure industrial economics theory.

This model comprises of an analysis dependent on 4 entities external to the firm and the fifth force: the Industry structure. These forces are defined as follows:

1. The threat of the entry of new competitors
2. The intensity of competitive rivalry
3. The threat of substitute products or services
4. The bargaining power of customers
5. The bargaining power of suppliers

A detailed explanation of what these forces comprise of is provided in the diagrammatic representation of these 5 forces next.



Now, let us go about explaining each and every force in a certain detail.

Threat of New Entrants

New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include
- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- The likelihood of retaliation from existing industry players.

Threat of Substitutes

The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on:

- Buyers' willingness to substitute
- The relative price and performance of substitutes
- The costs of switching to substitutes

Bargaining Power of Suppliers

Suppliers are the businesses that supply materials & other products into the industry.

The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. The bargaining power of suppliers will be high when:

- There are many buyers and few dominant suppliers
- There are undifferentiated, highly valued products
- Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets)
- Buyers do not threaten to integrate backwards into supply
- The industry is not a key customer group to the suppliers

Bargaining Power of Buyers

Buyers are the people / organisations who create demand in an industry

The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry
- Products are standardised
- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyer's industry
- The industry is not a key supplying group for buyers

Intensity of Rivalry

The intensity of rivalry between competitors in an industry will depend on:

- The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry.

Before we draw the curtains, let us see what the sorcerer himself has to say on this:

Brilliant, isn't it? That's all for now. Until next time.

Cheers!!!
Signing off,
Shauvik.

The Balanced Scorecard

In the beginning was darkness. We went to work, did our job (well or otherwise) and went home - day in and day out. We did not have to worry about targets, annual assessments, metric-driven incentives, etc. Aahh… life was simple back then.
                         Then there came light. Bosses everywhere cast envious eyes towards our transatlantic cousins whose ambition was to increase production and efficiency year-by-year. Like eager younger siblings we trailed behind them on the (sometimes) thorny path to enlightenment.
                          Early Metric-Driven Incentives - MDIs - were (generally) focused on the financial aspects of an organization by either claiming to increase profit margins or reduce costs. They were not always successful, for instance driving down costs could sometimes be at the expense of quality, staff (lost expertise) or even losing some of your customer base.
                           From these MDIs evolved the T-Rex of performance measurement for organizations and processes in the 21st century - the Balanced Scorecard.

What exactly is a Balanced Scorecard?
                             A definition often quoted is: 'A strategic planning and management system used to align business activities to the vision statement of an organization'. More cynically, and in some cases realistically, a Balanced Scorecard attempts to translate the sometimes vague, pious hopes of a company's vision/mission statement into the practicalities of managing the business better at every level.
          A Balanced Scorecard approach is to take a holistic view of an organization and co-ordinate MDIs so that efficiencies are experienced by all departments and in a joined-up fashion.
To embark on the Balanced Scorecard path an organization first must know (and understand) the following:

• The company's mission statement
• The company's strategic plan/vision

Then

• The financial status of the organization
• How the organization is currently structured and operating
• The level of expertise of their employees
• Customer satisfaction level

The following table indicates what areas may be looked at for improvement (the areas are not exhaustive and are often company-specific):

Department	Areas
Finance	Return On Investment Cash Flow Return on Capital Employed Financial Results (Quarterly/Yearly)
Internal Business Processes	Number of activities per function Duplicate activities across functions Process alignment (is the right process in the right department?) Process bottlenecks Process automation
Learning & Growth	Is there the correct level of expertise for the job? Employee turnover Job satisfaction Training/Learning opportunities
Customer	Delivery performance to customer Quality performance for customer Customer satisfaction rate Customer percentage of market Customer retention rate

Once an organization has analysed the specific and quantifiable results of the above, they should be ready to utilise the Balanced Scorecard approach to improve the areas where they are deficient.
The metrics set up also must be SMART (commonly, Specific, Measurable, Achievable, Realistic and Timely) - you cannot improve on what you can't measure! Metrics must also be aligned with the company's strategic plan.
                    A Balanced Scorecard approach generally has four perspectives:

1. Financial
2. Internal business processes
3. Learning & Growth (human focus, or learning and development)
4. Customer

Each of the four perspectives is inter-dependent - improvement in just one area is not necessarily a recipe for success in the other areas.
                

                  
                   
Implementing the Balanced Scorecard system company-wide should be the key to the successful realisation of the strategic plan/vision.
                          A Balanced Scorecard should result in:

• Improved processes
• Motivated/educated employees
• Enhanced information systems
• Monitored progress
• Greater customer satisfaction
• Increased financial usage  

                            It is of no use to anyone if only the top management keep the objectives in their drawers/cupboards and guard them like the Holy Grail. Feedback is essential and should be ongoing and contributed to by everyone within the organization. And it should be borne in mind that Balanced Scorecards do not necessarily enable better decision-making!!

Cheers!!!
Signing off,
Shauvik. 

Uniqueness of Strategies

Once a strategy is revealed, why cant competitors take advantage of its success and engage in imitations??? ... The answer lies in trade-off and fit.

              Inconsistencies which arise when the reputation or image of a business leading to conflict are the trade-offs between the different positions of the firm.
Trade-offs can arise when:

1. There is a mismatch between the images of different products. The image in the minds of the consumer must not clash with the products it is offering. Consider the case of Ponds. Pond’s, the popular brand of face cream, didn’t prove to be quite so popular when it applied its name to toothpaste. In a blind test environment, people were not able to differentiate Pond’s toothpaste from that of Colgate.
  However, when the Pond’s name and imagery were attached to the toothpaste, no-one was interested. Although Pond’s had successfully extended its brand before (into soap products, for instance), these extensions had all been linked by a similar fragrance. The main attribute of a toothpaste is taste, this mismatch between taste and fragrance created a dissonance in the minds of consumers. To most people Ponds was something to do with fragrance and freshness and used for external application only.

2. The product or service features are incompatible. A company producing high quality luxury goods would find it difficult to produce cheaper goods for mass markets all of a sudden. The source of problems would be numerous, with logistics, customer support and finding new sources of raw material, among the many associated with reducing costs as the company would have sophisticated levels of production and support processes meant to deliver quality rather than quantity. The reason that a Louis Vuitton cannot create stores like Pantaloons overnight is because its products must remain unique and exclusive.

3. There is a limit on international co-ordination, measurement, motivations and control. Trying to achieve different objectives from the same set of resources can lead to a clash. The Air Deccan - Kingfisher merger brought the ownership of the two airlines under one control but they still operate as separate entities since their service lines are very distinct.

Now, that we have seen what a company cannot do, lets look at the other aspect of strategy called Fit.

Fit is seen as the system of activities, processes and changes in a business which should be compatible and mutually reinforcing. Let us look at what Michael Porter had to say about fit.

Fit Drives Both Competitive Advantage and Sustainability. Although fit among activities is generic and applies to many companies, the most valuable fit is strategy-specific because it enhances a position’s uniqueness and amplifies trade-offs. There are three types of fit, which are not mutually exclusive:

1. First-order fit: Simple consistency between each activity (function) and the overall
strategy. Consistency ensures that the competitive advantages of activities cumulate
and do not erode or cancel themselves out. Further, consistency makes it easier to
communicate the strategy to customers, employees, and shareholders, and
improves implementation through single-mindedness in the corporation.

2. Second-order fit: Occurs when activities are reinforcing.

3. Third-order fit: Goes beyond activity reinforcement to what Porter refers to as
optimization of effort. Coordination and information exchange across activities to
eliminate redundancy and minimize wasted effort are the most basic types of effort
optimization.

Strategic fit is fundamental not only to competitive advantage but also to the sustainability of that advantage because it is harder for a competitor to match an array of interlocked activities than it is merely to replicate an individual activity. Additionally, fit among activities creates pressures and incentives to improve operational effectiveness, which makes imitation even harder.
So, basically it is this uniqueness of strategy that enables a firm to create value, capture value and sustain value.

Cheers!!!
Signing off,
Shauvik.
 

Competing to be the best or Unique???

Businesses have to take millions of decisions concerning their production, combination of products, rsource allocation, priority issues and a host of other factors. What binds these decisions in a schema of logical order, is called the strategy of the firm.
                However, we need to understand that there is a differenec between strategy and operational effectiveness. Operational Effectiveness is applying the best practices available for optimal utilization of resources. Its basically doing similar things in a better way. Strategic Positioning on the other hand is creating a unique and valuable position, involving a different set of activities. The difference, basically, lies in the way the company looks at increasing shareholder wealth. If it wants to reduce costs, it has to gain more efficiency in terms of resource utilization, acquiring raw materials and usage of better technology. However, the positioning of the organization does not change to that extent throughout this exercise.On the other hand, if the company wants to focus on generating greater sales through awareness and promotion in the consumer segments that it targets, then it has to go for strategic positioning.

Traditional Strategy “Operational Effectiveness”	Today’s Strategy “Strategic Processes”
Create a defendable position	Enable dynamic strategic repositioning
Acquire or build valuable assets	Facilitate employee detection & reaction to change
Widely allocate resources to assets	Enable managers to mobilize & reconfigure resources
Perform activities faster or with fewer defects	Perform different activities or activities in different ways
RESULTS	RESULTS
Sustained competitive advantage	Organizational agility
Long-term performance	Capturing market resources faster than the competition

                       Traditional models of strategy can be problematic as managers often pay too much for acquisitions, business strategies are quickly outdated, and competitive advantage is rarely sustained for more than a few years. Particularly in today’s volatile markets, it is difficult to create a defendable position and organizations must instead strive toward strategic positioning, a sustainable competitive advantage that makes an organization distinct by performing different activities from rivals or performing similar activities in different ways. Strategic positioning can be realized by focusing on a few key strategic processes and supporting those underlying processes with simple rules and strategic principles.

              Positioning is partly a product game and partly a mind game. You need to create an image that product X offered by company Y is indispensable - at least in the minds of the consumer.

Underlying strategic processes that identify how strategic positioning will be accomplished include:

·         Variety-Based Positioning- Focusing on a single product or service that is a mainstay of the organization

For over 50 years Fevicol in India has focused solely on the production of adhesives. As a result, they control almost ½ of the adhesives market in India. Likewise, the Birla Sunlife Insurance, a player in the insurance industry, focuses on it superior fund management capabilities so that it can deliver better returns on its investment-linked products, giving it success in this industry.

·         Needs-Based Positioning- Serving most or all of the needs of a particular group of customers

Big Bazaar, the largest retailer in India, seeks to meet all the shopping needs of its target customer, middle class buyers who want variety at competitive prices. In contrast, some organizations focus on serving the needs of a particular customer. For example, assigning one sophisticated account officer for every 14 families, Bessemer Trust Company (a private banking organization) targets families with a minimum of $5 million in investable assets who want capital preservation combined with wealth accumulation. Citibank’s private bank, on the other hand, serves clients with minimum assets of about $250,000 who want convenient access to loans and refer customers to Citibank specialists for other services.

·         Access-Based Positioning- Configuring activities to reach customers who are accessible in different ways (i.e., Rural vs. urban, small vs. large, or densely rather than sparsely situated customers)

PVR Cinemas operates movie theaters exclusively in tier-I cities and Metros. PVR Gold Class has more comfortable seats, a lavish theatre and service-at-seat but at a higher price. It is for the more affluent, comfort-loving movie-goers while the PVR multiplex with 80-100 seats is available for the more price sensitive consumers

                        Strategy is the way of creating value and sustaining it through the evolution process. Every aspect of their operation aims to improve and change in a way that would enable them to create a sustainable competitive advantage and benchmark the industrial processes to create a strong fundamental base for the company.

                       Which then leads us to the question – What makes these positions or strategies unique? For the answer, a small wait for the next post.

Cheers!!!
Signing off,
Shauvik

Look Out-of-the-box

Innovation has become the buzzword of the 21st century. Newer products, newer markets, newer technologies and novel ideas and business models - well, you cant expect a more "strategic fit", can you?? But saying "we need to innovate" and "creating a successful innovation" are two entirely different things.
            More so, because, conscious and unconscious assumptions govern our decision making directly or indirectly. So what do we do? How do we break the mould? The answer lies in looking for ideas from uncommon domains, ideas which often have the power to reshape the world. Imagine creating a building based on the architectutal style of termites. Weird, isn't it? But architect Mike Pearce did exactly that. And the site of experimentation - Zimbabwe. A building without air conditioning but a super efficient ventilation system to maintain constant temperatures. This is what we call the Medici Effect, after an Italian family which supported and enhanced creativity during Renaissance. So, basically what are the drivers behind the success of Medici Effect:
    1. Movement of people
    2. Convergence of scientific disciplines
    3. Leap in computational power
            If an architect can think of building a structure without an AC, it was because he did not see anything untoward in accepting the confluence of zoology and architecture. It is this power of association leading to uniqueness that is the cornerstone of the Medici effect. And this uniqueness is the source of sustainable competitive advantage.
            Ask Volvo, one of the largest utility vehicle manufacturers. They have initiated research on a new collision control system that draws its inspiration from, guess what, grasshoppers. Do grasshoppers collide when they fly in swarms? No. That is the mystery that they are trying to unravel and implement that to create automobiles with increased safety for the passenger. So, the mind has to be opened for influx of all sorts of ideas.
           Strategy doesnt mean that ideas have to come from a Peter Drucker or Michael Porter. It means opening your eyes to a world of possibilities.

A small video, where we see Frannk Johannson - author of the book "The medici effect" deliberating on the topic. Happy viewing!!!!

Signing off,

Cheers!!!

Shauvik

The Beginning

Apprehensive, Nervous and slightly confused. No, don't get me wrong, I am not taking a sneak peek into the mind of a prospective interview candidate. These are my feelings as I get down to the business of putting my thoughts to a blog.
                      Seems very funny that as we human beings have progressed, is it that we have fallen into the habit of not being very comfortable expressing ourselves through words??? Maybe. Or maybe that the spectre of verbosity in a blog is what is scaring me. Anyways, what ought to be done should be done.
So lets dive into the world called "Strategy".
                      Born in time, brought up by vision and nurtured by technology, change has become the one constant thing in the world of today. Our lives are being shaped by the continuous process of transformation that is being at play throughout. As the venerable Peter Drucker said - "Every few hundred years in Western History occurs a sharp tranformation .... its paradigm, its basic values, .... its key institutions". However today, the change is happening even faster. The question then remains as to "WHY DO WE NEED STRATEGY when we are not sure of the MACRO-ENVIRONMENT?"
To know this, we first need to understand what strategy is: Here's what Michael Porter has to say about strategy.

So that is what is strategy. Its not about a company's decision to insource or outsource or spend a certain amount on new product development. Its about how an organization can create a unique and sustainable positioning worthwhile to gain and maintain a competitive advantage. And that is why, even in this deluge of change, organizations still need to develop a strategy to be and remain competitive.
                    Of course, before it decides on its strategy, it needs to have a clear idea of its mission and vision, its goals and objectives and only then can it decide on a strategy.
                    Here again, is a source of confusion for many organizations. Well, these days having mission and vision statements is sort of cool, but how many of them actually understand the difference between them. Lets start with the mission first - A mission is the purpose of the organization; it is what the organization does in the present. Whereas, the vision of an organization is something starkly different - It is what the company strives to achieve in the future, more of an aspirational goal than perfunctory.
This will perhaps enhance clarity:

                     So, that is what is meant by "Strategy" - An amalgamation of steps to create a unique and sustainable advantage through managing the 4C's - Company, Customer, Competition and Context. Thats all for now. Until Next time.

Signing off
Cheers!!!!!!
Shauvik