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 TEST 3 – 15 / 02 / 2024
SUGGESTED ANSWER

ANS 1 [ 5 MARKS ]

Mendelow suggests that one should analyse stakeholder groups based on Power
(the ability to influence organisation strategy or resources) and Interest (how
interested they are in the organisation succeeding).
The categorisation of stakeholders into four groups by
Mendelow’s;

 KEEP SATISFIED Stakeholders: High power, less interested people -

Organisation should put in enough work with these people to keep them
satisfied with their intended information on a regular basis. For example,
banks, government, customers, etc.

 KEY PLAYERS Stakeholders: High power, highly interested people -

Organisation’s aim should be to fully engage this group of stakeholders,
making the greatest efforts to satisfy them, take their advice, build actions
and keep them informed with all information on a regular basis. For example,
Shareholders, CEO, Board of Directors, etc.

 LOW PRIORITY Stakeholders: Low power, less interested people -

Organisation should only monitor them with no actions to satisfy their
expectations. Strategically, minimal efforts should be spent on this group of
stakeholders while keeping an eye to check if their levels of interest or power
change. For example, business magazines, media houses, etc.

 KEEP INFORMED Stakeholders: Low power, highly interested people -

Organisation should adequately inform this group of people and
communicate with them to ensure that no major issues arise. This audiences
can also help with real time feedbacks and areas of improvement for an
organisation. For example, employees, vendors, suppliers, legal experts, etc.
ANS 2 [ 5 MARKS ]

According to Porter, strategies allow organizations to gain competitive

advantage from three different bases: cost leadership, differentiation,
and focus. Porter called these base generic strategies.
ABC Ltd. has opted for the Differentiation Strategy. The company has
invested a huge amount in R & D and developed a formula for
manufacturing sugar-free beverages to give the customer value and
quality. They are pioneers and serve specific customer needs that are
not met by other companies in the industry. The new product has been
accepted by a class of customers. Differentiated and unique sugar
free beverages enable ABC Ltd. to charge relatively higher for its
products, hence making higher profits and maintaining its competitive
position in the market.
Sugar free beverage of ABC Ltd. is being accepted widely by a class of
customers. Differentiation strategy is aimed at a broad mass market and
involves the creation of a product or service that is perceived by the
customers as unique. The uniqueness can be associated with product
design, brand image, features, technology, and dealer network or
customer service.

Achieving Differentiation Strategy

To achieve differentiation, following strategies are generally adopted by

an organization:
1. Offer utility to the customers and match products with their tastes
and preferences.
2. Elevate/Improve performance of the product.
3. Offer a high-quality product/service for buyer satisfaction.
4. Rapid product innovation to keep up with dynamic environment.
5. Taking steps to enhance brand image and brand value.
6. Fixing product prices based on the unique features of product and
buying capacity of the customer.

ANS 3 [ 5 MARKS ]

Four specific criteria of sustainable competitive advantage that firms can

use to determine those capabilities that are core competencies.
Capabilities that are valuable, rare, costly to imitate, and non
substitutable are core competencies.

i. Valuable: Valuable capabilities are the ones that allow the firm to
exploit opportunities or avert the threats in its external
environment. A firm created value for customers by effectively
using capabilities to exploit opportunities. Finance companies
build a valuable competence in financial services. In addition, to
make such competencies as financial services highly successful
requires placing the right people in the right jobs. Human capital is
important in creating value for customers.

ii. Rare: Core competencies are very rare capabilities and very few of
the competitors possess these. Capabilities possessed by many
rivals are unlikely to be sources of competitive advantage for any
one of them. Competitive advantage results only when firms
develop and exploit valuable capabilities that differ from those
shared with competitors.

iii. Costly to imitate: Costly to imitate means such capabilities that

competing firms are unable to develop easily.

iv. Non-substitutable: Capabilities that do not have strategic

equivalents are called non-substitutable capabilities. This final
criterion for a capability to be a source of competitive advantage is
that there must be no strategically equivalent valuable resources
that are themselves either not rare or imitable.

ANS 4 [ 5 MARKS ]

The sustainability of competitive advantage and a firm’s ability to earn profits from
its competitive advantage depends upon four major characteristics of resources
and capabilities:

i. Durability: The period over which a competitive advantage is sustained

depends in part on the rate at which a firm’s resources and capabilities
deteriorate. In industries where the rate of product innovation is fast, product
patents are quite likely to become obsolete. Similarly, capabilities which are
the result of the management expertise of the CEO are also vulnerable to his
or her retirement or departure. On the other hand, many consumer brand
names have a highly durable appeal.

ii. Transferability: Even if the resources and capabilities on which a competitive

advantage is based are durable, it is likely to be eroded by competition from
rivals. The ability of rivals to attack position of competitive advantage relies
on their gaining access to the necessary resources and capabilities. The easier
it is to transfer resources and capabilities between companies, the less
sustainable will be the competitive advantage which is based on them.

iii. Imitability: If resources and capabilities cannot be purchased by a would-be

imitator, then they must be built from scratch. How easily and quickly can the
competitors build the resources and capabilities on which a firm’s competitive
advantage is based? This is the true test of imitability. For example, In
financial services, innovations lack legal protection and are easily copied. Here
again the complexity of many organizational capabilities can provide a degree
of competitive defense. Where capabilities require networks of organizational
routines, whose effectiveness depends on the corporate culture, imitation is
difficult.
iv. Appropriability: Appropriability refers to the ability of the firm’s owners to
appropriate the returns on its resource base. Even where resources and
capabilities are capable of offering sustainable advantage, there is an issue as
to who receives the returns on these resources. This means, that rewards are
directed to from where the funds were invested, rather than creating an
advantage with no actual reward to people to invested capital.

ANS 5 [ 5 MARKS ]

A tool to study the market positions of rival companies by grouping them into
like positions is strategic group mapping. Grouping competitors is useful when
there are many competitors such that it is not practical to examine each one
in-depth. In the given scenario there are thirteen competitors.

A strategic group consists of those rival firms which have similar competitive
approaches and positions in the market.

The procedure for constructing a strategic group map and deciding which
firms belong in which strategic group is as follows:

 Identify the competitive characteristics that differentiate firms in the

industry typical variables that are price/quality range (high, medium,
low); geographic coverage (local, regional, national, global); degree of
vertical integration (none, partial, full); product-line breadth (wide,
narrow); use of distribution channels (one, some, all); and degree of
service offered (no-frills, limited, full).

 Plot the firms on a two-variable map using pairs of these differentiating

characteristics.

 Assign firms that fall in about the same strategy space to the same
strategic group.

 Draw circles around each strategic group making the circles

proportional to the size of the group's respective share of total industry
sales revenues.

ANS 6 [ 5 MARKS ]

Bata shoes is trying to use differentiation. This strategy is aimed at broad

mass market and involves the creation of a product or service that is
perceived by the customers as unique. The uniqueness can be associated with
product design, brand image, features, technology, dealer network or
customer service. Because of differentiation, the business can charge a
premium for its product.

A differentiation strategy has definite advantages as it may help to remain

profitable even with rivalry, new entrants, suppliers’ power, substitute
products, and buyers’ power.

i. Rivalry: Brand loyalty acts as a safeguard against competitors. It means

that customers will be less sensitive to price increases, as long as the
firm can satisfy the needs of its customers.

ii. Buyers: They do not negotiate for price as they get special features and
also, they have fewer options in the market.

iii. Suppliers: Because differentiators charge a premium price, they can

afford to absorb higher costs of supplies and customers are willing to
pay extra too.

iv. New entrants: Innovative features are expensive to copy. So, new
entrants generally avoid these features because it is tough for them to
provide the same product with special features at a comparable price.

v. Substitutes: Substitute products can’t replace differentiated products

which have high brand value and enjoy customer loyalty.

ANS 7 [ 5 MARKS ]

An important component of strategic thinking requires the generation of a

series of strategic alternatives, or choices of future strategies to pursue, given
the company’s internal strengths and weaknesses and its external
opportunities and threats. The comparison of strengths, weaknesses,
opportunities, and threats is normally referred to as SWOT analysis.

Strength: Strength is an inherent capability of the organization which

it can use to gain strategic advantage over its competitors.

Weakness: A weakness is an inherent limitation or constraint of the

organization which creates strategic disadvantage to it.

Opportunity: An opportunity is a favourable condition in the

organisation’s environment which enables it to strengthen its position.

Threat: A threat is an unfavourable condition in the organisation’s

environment which causes a risk for, or damage to, the organisation’s
position.

SWOT analysis helps managers to craft a business model (or models) that will
allow a company to gain a competitive advantage in its industry (or industries).
Competitive advantage leads to increased profitability, and this maximizes a
company’s chances of surviving in the fast-changing, competitive
environment.

Key reasons for SWOT analysis are:

 It provides a logical framework.
It presents a comparative account.
It guides the strategist in strategy identification.

ANS 8 [ 5 MARKS ]

A core competence is a unique strength of an organization which may not be

shared by others. Core competencies are those capabilities that are critical to
a business achieving competitive advantage. In order to qualify as a core
competence, the competency should differentiate the business from any other
similar businesses. A core competency for a firm is whatever it does is highly
beneficial to the organisation.

‘Value for Money’ is the leader on account of its ability to keep costs low. The
cost advantage that ‘Value for Money’ has created for itself has allowed the
retailer to price goods lower than competitors. The core competency in this
case is derived from the company’s ability to generate large sales volume,
allowing the company to remain profitable with low profit margin.

MCQ SOLUTIONS [ 1 MARKS EACH ]

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