CHAPTER-4-BUSINESS-STRATEGIES_20241010_124908_0000.pdf

BUSINESS STRATEGIEW

1. CHAPTER 4:
BUSINESS
STRATEGIES

2. In this chapter, we will discuss value
chain analysis and the different types
of business strategies. These include
growth strategies, competitive
strategies,life cycle strategies, stability
strategies and turn around strategies.

3. Value Chain Analysis
Value chain is a general term that refers to a sequence
of interlinked undertakings that an organization
operating in a specific industry engages in. It looks at
every phase of the business from the time of
procurement of raw materials to the time its product
reaches its eventual end users or consumers. The value
chain concept is concretized in supply chain
management. Here, value creation is greatly
emphasized.

4. Organization
Supply Management
•Sourcing and Ordering
•Inventory Management
Logistics
•Warehousing
•Scheduling
•Transportation
•Delivery
Marketing and Sales
•Promotion
•Selling
Production/Operations
•Manufacturing
•Assembly
Figure 4.1: Supply Chain Management

5. SUPPLY MANAGEMENT
Supply management is now a popular term used for
purchasing which has formerly termed as procurement. It
is a key business function that is responsible for:
1. Identifying material and service needs.
2. Locating and selecting supplier; negotiating and closing
contracts
3. Acquiring the needed materials, services and
equipment
4. Monitoring inventory stock keeping units, and
5. Tracking supplier performance.

6. Sourcing and Ordering
Following are the steps to take when an organization needs to source out raw materials or
parts :
1. Specify the need clearly by writing down the details. Normally, the stock keeping unit
(SKU) is coded with brief but complete details like date, identification number, the
originating department, the account to be charged, complete description of the raw
materials service,date needed, any special instructions, and signature of authorized
person making the request
2.Identify and analyze possible sources of supply. Generally, more than one supplier
should be considered
3. Ask potential suppliers for their respective quotations, proposals and bids.
4.Compare and evaluate documents, then select the suppliers. Both buyers and suppliers
agree and determine the terms of the contract.
5. Prepare ,place, follow up and expedite the purchase order (PO). The purchase order is
written requisition placement to purchase supplies
6. Confirm that the order placed has actually arrived in good condition and at the
quantity.
7. Lastly, invoice clearing and payment follows.

7. In sourcing and ordering, value is generated when
supplier relationships are created and managed in
delivering quality products, delivering on time,
delivering at competitive prices, providing good
service back-up when needed, and keeping
promises.

8. INVENTORY MANAGEMENT
Another facet of supply management is inventory management.
The role of inventory is to buffer uncertainty. It includes all
purchased materials and goods, partially completed materials and
component parts, and finished goods. There are four broad
categories of inventories.
1. All unprocessed purchased input or raw materials for
manufacturing
2. Work-in-process (WIP)
3. Finished goods includes all completed products for shipment.
4. Maintenance , repair, and operating supplies (MRO).

9. INVENTORY MODELS
Inventory management is ordering the right quantity of SKU's at minimum costs.
Inventory costs is the sum total of ordering costs and carrying costs. Ordering costs
(set-up costs) are variable costs associated with placing an order with the supplier
like managerial and clerical costs in preparing the purchase, while carrying costs
(holding costs) are costs incurred for holding inventory in storage like handling
charges, warehousing expenses, insurance, pilferage, shrinkage, taxes and costs of
capital .
The value of inventory management is evidently reflected in the minimization of
costs. This is achieved when organizations develop efficient ways of procuring their
raw materials like accurately forecasting demand and ordering in bulk to avail of
quantity of discounts. Reducting in carrying costs lower handling costs, storage
expenses and costs of capital. Optimum ordering of stocks increases efficiency while
scheduled purchases contribute to decrease in inventory costs.

10. PRODUCTIONS AND OPERATIONS
Productions and operations are processes that transform operational input into
output to satisfy consumer needs and requirements. This transformational
process consist of manufacturing and assembly.
Transformational
process
Input Output
Figure 4.2 Production and Operations Model

11. MANUFACTURING
A process of producing goods using people or machine
resources. It commonly refers to industrial production
where raw materials is converted into finished goods.
ASSEMBLY
Is the process of putting together raw materials into a desired
Quality raw materials and parts, efficient production layouts and
processes, and employees with skills and motivation are
essential to effective transformational processes.

12. THE LOGISTICS CIRCLE
1. Warehousing is the function of physically packing goods or merchandises in a
building, room or any space for temporary storage. While these items are stocked
in storerooms, they are timetabled for release to customers or buyers.
2. Scheduling is the act of organizing these inventory units and booking them for
delivery.
3. Dispatching products are for transfer; this may include posting, mailing,
shipping out, transmitting, forwarding, or releasing commodities.
4. Transportation scheduling and other logistics are necessary to make
dispatching cost efficient. The goal is to minimize transportation cost. Therefore,
considerations have to be prioritized in terms of location site, ease, or gravity of
traffic, safety,and oabor requirements.
5. Delivery to the specified site is undertaken. It closes the entire logistics circle.

13. MARKETING AND SALES
Products are produced and services are rendered for ultimate release to
customers. Therefore there is a need to market these merchandise to
interested buyers. Companies can adopt different modes of marketing to
attract and sell to customers. They can study the unique purchasing
patterns of buyers and determine what will translate their desire for the
products into the actual purchase. Aside from coming up with good and
distinct products, businesses can offer competitive pricing like special
offers, quantity discounts,and volume sales among others. They can
aggressively promote their products through advertisments in
newspapers, magazines, radio, television and other forms of promotional
mediums.

14. GROWTH STRATEGIES
Growth strategy is a mode adopted by an organization to achieve its main objectives of
increasing in volume and turnover. Growth strategies can be internal or integrative.
INTERNAL GROWTH STRATEGIES
are approaches adopted within the company. These broad growth strategies can be any of
the following:
1. Market Penetration suggests that for an organization to increase its growth, market
penetration can be actualized by selling more of its current products / services to its
current customers or buyers. For example, if we are selling a six-pack of coca-cola, then we
can push for a 12-pack, or 24-pack, and so on.
2. Market Development is the process where a company can sell more of its current
products by seeking and tapping new markets. For example, if a company has a chicken fast-
food chain in Luzon, then it can open new outlet in Visayas and eventually, in Mindanao.

15. 3. Product Development is an internal growth strategy where the company sells
"new" products to an existing market. In this strategy, there is a need for the
company to be more creative in coming up with differentiated products or
services. The product and services need not be in new its truest essence but
instead, may be result in product/ service enhancement, redesign or reinvention.
For example, a company develops a versatile shampoo product that can be used
without wetting the hair .
4. Diversification is a product/service mix growth strategy that involves creating
differentiated products for new customers. In short, it is a "new" products for new
customers. Oftentimes, it is going to products/services area that is NOT related to
one's current business operations. For example, an aircraft manufacturer can
diversify and go into the restaurant business or accounting firm can manufacture
a new robot pilot for airline companies.

16. COMPETITIVE STRATEGIES
Competitive strategies are long-term action plans prepared with the end goal of
directing how the organization will survive and compete. These strategies are
formulated to help an organization gain competitive advantage after evaluating and
comparing their strengths and weaknesses against their competitors.
• Low-cost Leadership Strategy its objective is to offer products and services at the
lowest costs possible in the industry. For example Cebu Pacific Airlines uses the lower-
cost leadership strategy to capture the broadest reach of airtraveling customers by
offering airfares at low prices.
•Broad Differentiation Strategy its objective is provide a variety of products, services
or products/service features that competitors do not offer or are not able to offer to
consumers. For example, a mobile phone with television feature is a broad
differentiation strategy. This is true of fast food with playgrounds like slides and see-
saws.

17. • Best-cost Provider Strategy this strategy is a combination of low-cost leadership and
broad differentiation strategy. It is implemented when the company give its customers
more value for money by emphasizing both lower-cost products with unique features.
For example, Baclaran increases its customer base by selling varied, wide-ranged
numbers and low-cost products in a large quantities.
• Focused/market-niche Lower Cost Strategy this strategy is implemented when an
organization concentrates on a limited market segment and create a market niche
based on lower costs. For example, specialized audio and video equipment store that
sells only these two types of products. Being dedicated, the store can purchase stocks
in bulk, avail on price discounts and therefore, sell at low prices.
• Focused/market niche Differentiation Strategy this strategy is implemented when an
organizations concentrates in a limited market segment and create a market niche based
on differentiated features like design, utility and practicality. An example of this strategy
is Rolex watch. Rolex has an elite clientele base, it sells limited editions of watches. One
look and one can immediately say that the person is wearing a Rolex watch. Cost, design,
and branding are distinct features of Rolex watch.

18. OTHER COMPETITIVE STRATEGIES
1. INNOVATION STRATEGY. Its goal is to radically catapult or leapfrog the organization by
intoducing completely new and differentiated products and services that gives an
organization a competitive posturing.
2.OPERATIONAL EFFECTIVENESS STRATEGY. The objective of an operational
effectiveness strategy is to make an organization perform better by making the structure
lean, streamlining wasteful and inefficient processes, harnessing better facility and
equipment maintenance, and increasing work force productivity.
3. ECONOMIES OF SCALE. When applied as competitive strategy, economies of scale
lowers costs because of volume. In other words, the more a product/service is produced,
the lower the costs are for producing the product and rendering services.
4. TECHNOLOGY STRATEGY. Technology can be applied system -wise through digital
integration. As organizations realize the benefits of going digital, they aggressively pursue
this thrust. Functional activities like accounting, marketing, purchasing, human resource
management, production, and operations are interconnected using enterprise resource
planning.

19. LIFE CYCLE STRATEGIES
In the context of the horizontal boundaries of the firm, it is worth reviewing the product life
cycle. The life cycle of any product /service refers to the lifespan that a commodity/service
undergoes from its introduction stage to its growth, maturity, and decline stages.
• The introduction stage is the period of launching the product/service for acceptance. In
this phase, the product/service is new; hence, there is a need to create awareness.
•The growth stage is the phase where the product/service gains acceptance by the
consumers. In this phase, sales and profit slowly increase and emphasis is now in continuous
market development and improvement. Competitions become more challenging.
• The maturity stage is the period where the product has reached its penultimate level. Here,
the established product tends to remain steady and the number of competitors increases.
Although sales and profits generally reach their peak, it is in this phase where the
organization should start reinventing its products/services to maintain their current levels.
• The decline stage is the period where the product/service begins to reach or is reaching its
lowest point. Here, sales and profits decline and price competition is intense.

20. STABILITY STRATEGIES
For an organizations that are doing fine or doing better in their
existing businesses, they may choose not to implement any growth
strategy. They may not want to apply any competitive strategy and
hence, decide to keep the status quo. Not adopting any growth or
competitive strategy is a choice tthat organizations make. Stable
with their current businesses, some organizations are comfortable
with their current market niche and any loud strategy may attract
the attention of competitors.
RETRENCHMENT STRATEGIES
Sometimes, companies encounter serious difficulties. When a
company's survival is threatened or when it is not competing
effectively, it is usually takes time to sit down and review its current
situation. There are different nodes of dealing with this situation.

21. 1. Liquidation is the most radical action a company takes when the
company is losing money and thus, is further compounded by a disinterest
on the part of the stockholders to do anything more to save it. It such
cases, the business may be terminated and its assets sold.
2. Divestment is implemented when a company consistently fails to reach
the set objectives or when a company does not fit well in the organization.
Thus, stockholders would preferably sell or set as a separate corporation.
3. A turnaround strategy is adopted when the organization has reached a
significant level of non-performance, non- productivity, demoralization,
and unprofitability, and therefore, has to implement restorative strategies.
Once an organization decides to continue, turnaround strategies are
implemented. In this strategy, the organizations should focus on the
following areas:

22. Turnaround
Strategy
Finances
Infrastructure
Production and
Operations
Products and
servicesClimate and
Culture

23. a. Climate and Culture. The toughest and most challenging area for any organization
understanding a turnaround strategy is the climate and culture. With generally
demoralized and uncertain workforce, employees feel a certain ambiguity and
hesitancy. Aside from job security, they are unsure how the new CEO will manage the
organization. Essentially, the strategy is to first study the organization and audit job
descriptions of each of the employees vis-a-vis their functionality in their
departments or business units. After in-depth study is done, certain people strategies
can be adopted.
b. Products and Services. A review of the products offered and services rendered is
needed; ask questions like what products/services are marketable in the industry,
which of these products and services need some improvements or major redesign,
and what distinct features can be introduced to attract buyers.
c. Production and Operations. In the implementation of turnaround strategies, this is
the easiest phase to sort out and manage. The CEO can look into the processes of the
organization, determine which process is redundant and defective, and undertake
piecemeal improvements.

24. d. Infrastructure. Turnaround strategies can easily achieve significant
improvements when the infrastructure is correctly assessed and
appropriate interventions are introduced or reinforced.Technology is
the best infrastructure strategy that can bring about radical
improvements. An organization seeking to turn itself around can look at
its infrastructure and system and implement needed step-ups and
enhancements.
e. Finances. When an organization needs a turnaround strategy, it is
because its finances are waving a "red flag". This mean that the
organization is losing money or is marginally profitable, causing
concerns to investors. Once the aspects of climate and culture,
products and services, production and operations, and infrastructure
have been adequately confronted and substantial interventions have
been successfully implemented, the financial aspect will take care of
itself.