Chapter 2

1. Corporate governance refers to the informal and formal relationships between the
corporate sector and its stakeholders, and the impact of the corporate sector on society in
general.
It deals with the way an organization aligns its own goals with those of its stakeholders and
manages its relationship with both its internal and external stakeholders.

2. Discipline
Transparency
Independence
Accountability
Responsibility
Fairness
Social responsibility

3. They must give strategic direction to the organization

Appoint the chief executive officer (CEO)
Retain control over the organisation
Monitor management in implementing formulated plans and strategies
Ensure that the organization complies with all relevant laws, regulations and codes of
business practice
They should identify and monitor the non-financial aspects relevant to the organization and
communicate with both internal and external stakeholders openly and promptly
They must identify the key risk areas as well as the key performance indicators of the
organization and monitor these regularly

4. Risk management
The board is responsible for the entire process of risk management. The board has to set
risk strategy policies, which should be clearly communicated to all employees
Sustainability reporting
Every organization report at least annually on the nature and extent of its social,
transformation, ethical, safety, health and environmental management policies and
practices.
Relationship and communication with shareholders
Organisations should constructively engage with institutional investors to ensure mutual
understanding of objectives

5. It is based on the concept that organizations have a duty to serve not only the
financial interests of shareholders, but also the interests of society. In a world that
is becoming increasingly globalised with interlinked networks of relationships,
organizations are expected to serve society as they do not operate in a vacuum.
They are dependent on society and cannot be separated from it.

6. Corporate social responsibility can therefore be described as organizational

decision making linked to ethical values, compliance with legal requirements, and
respect for communities and the environment
An organisation’s right to exist depends on its environment and society
 National legislation threatens increase regulation if organizations do not meet
changing social standards.
A responsive corporate policy may enhance an organisation’s long-term
profitability and sustainability.

7. Environmental responsibility: The earth’s ability to sustain life, and therefore

economic activity, is threatened by the way resources are extracted, processed,
transported and dispose of. However, only corporations have the resources,
technology, global reach and motivation to address the problem of explosive
population growth through sustainable development.
Sustainable development: Is defined as development that meets the needs of the
present generation without compromising the ability of future generations to meet
their own needs.

8. It embraces the economic, environmental and social aspects of an organization’s

activities, therefore organizations will also report on matters such as the effect on
the environment of the product or service produced by the organization
(environmental issues), and the values, ethics and relationships with the
stakeholders (social issues), as well as financial matters (economic issues).
Reporting on the triple line approach is referred to as sustainability reporting.

9. Understand the purpose of stakeholder engagement: Stakeholder engagement should be

a proactive process with the aim of including stakeholders in strategic decision making, not
a reactive process to protect a corporate reputation in times of crises.
Map all stakeholders: All stakeholders and their relationship to the organization, as well as
the interrelationships between the various stakeholders, should be analyzed and mapped.
Link sustainability issues to core stakeholder engagement: Stakeholder engagement on
sustainability issues should not the separated from stakeholder engagement on issues such
as strategic decision making.
Go deeper than research: Stakeholder engagement should not be a linear process where the
organization simply researches its stakeholders, but a participative process where
stakeholders should be encouraged to interact and consult with the representatives of the
organization.
Select the most appropriate methods: Accessing stakeholders will differ from stakeholder
group to stakeholder group, and the method the organization chooses to engage with its
stakeholders should take into consideration the characteristics of the group in question.
Deal with conflicting stakeholder demands: The demands and expectations of the different
stakeholders will often be conflicting, and each stakeholder group will have different
priorities.
Stakeholder engagement informs reporting: The stakeholder engagement process should
be linked to the organization’s sustainability reporting.

10. Shareholders: Dividends, Capital growth, Safe investment

Employees: Job security, compensation, job satisfaction
Competitors: Fair business practices, ethical competition
General Community: Fair employment, socially and environmentally responsible
actions, No discrimination
Government: Taxes, employment skills development, BEE
 Media and Press: Transparent and honest reporting
Suppliers: Regular payments, continuity of business, long-term relationships
Customers: High quality products, good service, value
Financial institution: Interest, security of loans

11. Corporate governance is seen as an element of corporate citizenship, and corporate

citizenship is used as the collective umbrella term for issues such as corporate
social responsibility, HIV/AIDS, transformation and stakeholder engagement.
Corporate governance deals with the internal checks, balances and systems and
values of the organisation and that corporate citizenship deals with the external
relationships of the organization and its impact on society.

12. If a country does not have a reputation for strong corporate governance practices,
capital will flow elsewhere. If a country opts for lax accounting and reporting
standards, capital will flow elsewhere. All enterprises in a country – regardless of
how steadfast a particular company’s practices may be – suffer the consequences.

13. A vision statement is often considered to be the first step in the strategy
formulation and strategic management processes. The vision statement answers the
question: “What do we want to become?” and serves as the road map of the
organization. A vision statement is a dream that focuses on a desirable future and
is often referred to as being an enduring promise.

14. As many managers as possible should give input into the creation of a vision
statement. Secondly, a vision statement should be achievable in the long term,
otherwise it may lose its value to motivate. It is also important to bear in mind that
developing a vision statement is an exercise in thinking creatively about the future
direction of the organization, and not only developing a catchy slogan. Lastly, once
a vision statement has been achieved, it loses its power and has to be redeveloped
to ensure continued focus on a desirable future.

15. The mission statement is an enduring statement of purpose that distinguishes an

organization from other similar ones. The first focal point is the purpose, which
addresses the reason for the organisation’s existence. Secondly, it identifies the
organisation’s strategy in terms of the nature of the business, its competitive
positioning in terms of other organizations and the source of its competitive
advantage. Thirdly, it also refers to the organisation’s behaviour standards and
culture in terms of the way it does business. The fourth focus area of the mission
statement is about the values, beliefs and moral principles that support the
behavioral standards.

16. Product/service, market and technology: They specify the basic product or service
of the organization, the primary market and the principal technology used for the
production or delivery of the products and services. These form the core
components of the mission statement.
Survival, growth and profitability: They deal with the economic goals of the
organization. Organisations survive through growth and profitability.
 The philosophy of the organization: An organization’s philosophy reflects its
beliefs, values, aspirations, priorities and commitment in terms of how the
organization will be managed.
Public image: An organization can use its mission statement to instill a positive
image of itself, especially in cases where it may have had a negative image in the
past.
Organisational self-concept: It deals with an organization’s ability to know itself.
An organisation’s ability to survive in the long term would be severely limited if it
did not know its own capabilities and limits.
Customers and quality: Customers, as a component of the mission statement,
imply three dimensions – the identification of customer groups; customer needs;
and skills or competencies required to satisfy these.
17. As many managers as possible should be involved in the formulation of a mission
statement. On the one hand this ensures a variety of views form different
perspectives; on the other hand it creates a sense of ownership. It also ensures that
all managers have the same understanding of the organisation’s strategic direction.
The process of developing a mission statement should create an emotional bond
and sense of mission between the organization and its employees. The mission
should be communicated to all internal and external stakeholders of the
organization.

CHAPTER 3

2. An organization cannot decide on a specific strategic direction to follow if it does

not know what it can and cannot do, and what assets it has and does not have.
When an organization is able to match what it can do with what it might do, this
allows the organization to develop its vision or strategic intent, to pursue its
strategic mission, and to select and implement its strategies.

3. See the copy

4. Strength: It is a resource or a capability that the organization has which is an

advantage relative to what competitors have. This is an important issue – a
resource and/or capability can only be a strength in the sense that it offers a
distinctive competence that give the organization a competitive advantage.
Weakness: This term refers to the lack of, or deficiency in, a resource that
represents a relative disadvantage to an organization in comparison to what
competitors have. Limited financial resources, poor marketing skills, poor after-
sales service and negateive organizational culture may be examples of weaknesses.
Opportunity: This term refers to a favourable situation in the organisation’s
external (market and macro) environment. A decrease in the interest rate can be
seen as an opportunity for an organization that still has a loan obligation.
Threat: This is an unfavourable situation in the organization’s external
environment. Again, the organization does not have any control over what is
happering in the external environment but, for instance, an increase in the interest
 rat (economic macro environment) is a major threat for the cash flow of an
organization with a big loan.

5. The focus on the external environment may be too narrow

It is perhaps a static assessment – a one-shot view of a moving target.
The strengths that are identified may perhaps not lead to an advantage.
It may lead to an overemphasis of a single feature or strength and disregard other
important factors that might lead to competitive success.

6. Tangible
Resources: Financial, physical and technological
Tools: Capital equipment, Cash flow, Technically advanced equipment
Intangible
Resources: Human, innovation and reputation resources
Tools: Brand equity, brand recognition, knowledge and skills of employees

7. Capabilities are actually the glue that emerges over time and binds the organization
together. We can say then that organizational capabilities are the complex network
of processes and skills that determine how efficiently and effectively the inputs in
the organization will be transformed into outputs. By themselves resources are not
productive – they must be processed or used in some way to draw the value out of
them. The foundation, then, of many organisations’ capabilities lies in the skills
and knowledge of the employees and often in their functional expertise. The
essence of capabilities is the human capital of the organization. As employees do
their work, combining the tangible and intangible resources within the structure of
the organizational processes, they actually accumulate knowledge and experience
about how to create value from the resources for the organization and turn them
into possible core competencies or distinctive organizational capabilities.

8. Value
Superior resources
Scarcity
Inimitability
Capacity to exploit the resource

9. The product is unique and/or different.

The product is cheaper than that of competitors.
The organization has the ability to respond to the customer’s needs very quickly.

10. Logistics: This is associated with the receiving, storing and distributing of inputs
to the product; and all the issues related to the distribution of the product or service
to the customers. How, and how effectively and efficiently are the raw materials
handled and warehoused; and how effectively and efficiently are the finished
products handled and and warehoused; and how effectively and efficiently are
products and services delived to customers.
Operations: These activities include all those that are associated with the
transformation of the inputs into the final product. Questions to answer in this
regard are: How efficient is the layout of the manufacturing plant? Is a production
control system in place and how effective and efficient is it? What is the level of
automation?
Marketing: Customers must buy the final products and services. This activity
refers to the inducements used to get customers to make the purchases. What is the
level of marketing and competency in terms of sales? Is market research effective
in terms of identifying the customer’s needs? What is the situation and
effectiveness of the marketing strategy in terms of the four Ps (product, promotion,
place and price) How successful is trhe organization in creating brand loyalty in
customers?
Customer service: There are some basic activities that the organization must
undertake to make sure the value of the product is maintained, such as installation,
repair, training, the supply of parts and perhaps product adjustment. How effective
and efficient are the customer services the organization provides? What guarantees
and warranties are offered to the customers? Does the organization listen to the
complaints of customers and then act upon them?
Procurement: This activity refers to the function of purchasing inputs. It can be
perceived that there is an overlap between this activity and the primary one known
as input logistics. This support activity, however, refers to the actions that can be
taken to optimize the quality and speed of the procurement of inputs, and not to the
inputs themselves. Questions that should be answered include: Are the resources
procured at the lowest possible cost and acceptable quality levels? Are sound
relationships being established with suppliers?
HR: The importance of this activity cannot be overemphasized, because the
recruitment, selection, training and compensation of employees will affect all levels
in the organization. The issues that are important in terms of this activity will
include the following: How effective are the human resource management
procedures? What is the level of employee motivation? What can be done to
ensure a quality work environment?
Admin: It is important to achieve the overall goals of the organization. That is
why there must be a certain general administration and organizational infrastructure
in place, for example effective and efficient planning systems. The issues that
should be addressed are: Are all the value chain activities coordinated and
itegrated throughout the organizational value chain? What are the relationships
with all the stakeholders of the organization? What systems are in place to ensure a
good public image and reputation?
Technological Development: Technology is important for all activities. The
technologies used include the different processes and equipment throughout the
entire value chain. Questions that should be addressed include: What is the level
and quality of technological development? What is the ability of the technological
activities to meet the critical deadlines? Is there a culture in the organization that
enhances creativity and innovation?
Financial management: Porter did not originally include this activity in the value
chain. It is, however, important that sound financial practices be in place
throughout the value chain. All activities must adhere to effective financial
recording and control. The issues that should be addressed are: Are all the value
activities recorded according to sound financial principles as described in GAAP
(general accepted accounting practices)? What systems are in place to ensure
effective financial recording?
 11. A method that can be used to conduct an internal audit is through the construction
of an Internal Factor Evaluation Matrix (IFE Matrix). This evaluates the major
strengths and weaknesses in the different functional areas. This could also be
regarded as a summary of the internal factors identified in previous internal
analysis methods. It is far more important to understand why the internal factors
are selected as strengths and weaknesses, than to rely solely on the actual number
that is arrived at.

12. An effective and simple approach to internal environmental analysis is to conduct

an internal audit using a functional approach. The usual business functions in
almost all organizations are finance and accounting, marketing, production,
purchasing, corporate communications (public relations), human resources and
administration. Research and development may also be added.

CHAPTER 4

1. Scanning: Early signals of environmental changes and trends are identified.

Monitoring: Meaning of environmental changes and trends is detected through
ongoing observation.
Forecasting: Based on monitored changes and trends, projections of anticipated
outcomes are developed.
Assessing: The timing and importance of environmental changes and trends for
organisations’ strategies and their management are determined.

2. The macro, industry and market environments

3. To achieve strategic competiteveness.

4. The Gini coefficient is a measure of the inequality of a distribution, a value of 0

expressing total equality and a value of 1 maximal inequality.The impact of income
and status inequalities in the South African society undermines social cohesion,
efficiency and economic growth. This definitely also has a negative influence on
family life and individuals. It also influences the economic environment in the
country.

5. Political, governmental and legal forces

Economic forces
Social, cultural and demographic forces
Technological forces
Ecological forces
Global Environment

6. Political, governmental and legal forces: It includes the parameters within which
organizations and interest groups compete for attention, resources and a choice in
overseeing the body of laws and regulations that guide the interactions between
organizations and the environment.
 Factor: The direction and stability of political factors in a country are major
considerations for managers when they have to formulate the strategy of their
organization.
Economic forces: The health of a nation’s economy affects individual
organizations and industries, because economic factors will affect the nature and
direction of the economy in which an organization operates.
Factor: Economic factors have a direct impact on the potential attractiveness of
various strategies and consumption pattersn in the economy, and have significant
and unequal effects on organizations in different industies and in different
locations.
Social, cultural and demographic forces: It is concerned with a society’s attitudes
and cultural values.
Factor: Small, large, profit-making and not-for-profit organizations in all industies
are challenged by the opportunities and threats arising from changes in social,
cultural and demographic variables. These variables shape the way people live,
work, produce and consume.
Technological forces: Technological changes affect many aspects of society.
These effects occur primarily through new products, processes and materials and,
to avoid obsolescence and promote innovation, an organization must be aware of
technological changes that might influence its industry.
Factors: No company or industry today is insulated against emerging technological
developments, and the managers of all organizations need to study the
technological environment and to take it into consideration when doing strategic
planning. No organization can afford to stay behind in technological
developments.
Ecological forces: It refers to the relationship between human beings – and thus
organizations – and the air, soil and water in the physical environment. It refers to
the limited natural resources from which an organization obtains its raw materials.
Forces: The global climate changes will present opportunities as well as threats to
organizations, and management must take the influence of the physical
environment on their organization into serious consideration.
Global environment: In the world we live in today is an international or global
dimension to each of the macro-environments.
Factors: Managers should address these key issues and gather relevant information
to facilitate market and competitor analysis as a basis for strategic planning and
strategic formulation as part of effective international management.

7. Threat of new entrants: It is important to identify new entrants, as they can threaten
the market share of existing competitors by bringing additional production capacity
to the industry. This force thus refers to the possibility that profits of established
organizations in the industry may be reduced by the entrance of new competitor
organizations.
Bargaining power of suppliers: Suppliers are organizations that supply raw
materials, equipment, machinery and associated services. It is thus possible for
suppliers to squeeze the profitability of organizations in an industry to such limits
that they will be unable to recover the cost of the raw material’s input.
 Bargaining power of buyers: Buyers are the customers of the organizations.
Buyers bargain for higher quality, lower prices and better services to reduce their
costs.
Threat of substitute products: If a product or service from another industry can be
used to perform similar functions as a product or service in the industry, it is
considered to be a substitute product or service. Substitute products and services
pose a strong threat to an organization when the switching costs for customers (if
any) are low (it costs nothing in money or effort to switch brands of coffee or
washing powder), the substitute product has a lower price, or its quality and
performance capabilities are equal to or greater than those of the competing
product.
Rivalry among competing organizations: This is the strongest of all the forces.
The organizations in your specific industry are your direct competitors and take
action that will invite competitive responses. The rivalry between these
competitor’s intensifies when one competitor’s actions challenge the others, or
when an opportunity to improve the market position is recognized.

8. Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale

9. It is dominated by a few large organizations and is thus more concentrated than the
industry it sells its products to
No satisfactory substitutes are available for customers to buy
Industry organizations are not important customers for the supplier group because it
sells to several industries.
Suppliers’ goods are critical to buyers’ organizations.
The switching costs for industry organizations to switch to another product or
supplier are high because of the supplier’s effectiveness or perhaps because of the
differentiated products
It poses a credible threat of integrating forward. With forward integration the
supplier becomes its own buyer, therefore other buyers are not important for the
success of the supplier.

15. Suppliers: Suppliers are the individuals and companies that provide an organisatin
with the input resources that the organization needs to produce goods and services.
If an organization is not successful in obtaining the needed input resources in the
correct amount and quality at the right price to achieve its goals, it will not be
successful competing in the market environment. Managers also have to respond to
opportunities and threats that result from changes in the nature, number or type of
any supplier for their organization to prosper.
Distributors or intermediaries: Distributors are organizations that help other
organizations to bridge the gap between the manufacturer and customer by selling
their goods and services to the final customers. Distributors/intermediaries include
wholesalers, retailers, commercial agents and brokers. The changing nature of
 distributors and distribution methods may also bring opportunities and threats for
managers of organizations. Decisions about how to distribute products to
customers can have important effects on organizational performance. The power of
distributor may be weakened if an organization has many options.
Customers: The market for an organisation’s products and services consists of
people who have needs and the financial means to satisfy them. Customers are
those people, individuals and groups who buy the goods and services that an
organization produces.Opportunities and threats arise from changes in the number
and type of customer or changes in customer’s tastes and needs, and an
organisation’s success depends on its response to these changes. When the
management of an organization is able to develop a profile of present and
prospective customers, it improves the ability of the organization to successfully
plan for the needs of the market.
Competitors: Competitors are organizations that produce goods and services
similar to a particular organization;s goods and services and compete for the
patronage of the same customers. Competition boils down to organizations
catering for the same customers. Every organization that endeavours to market a
service or product in the market environment is constantly up against competition.
It is often competitors and not customers who determine the actual quantity of a
particular product to be marketed and what price should be asked for it.

16. Future objectives: Comparison of goals with competitor’s goal. What must be
emphasized in the future/
Current strategy: What are the current strategies of competitors? How does our
strategy compare with their strategies?
Assumptions: What will be the situation of the future – volatile or status quo?
What are the assumptions of competitors?
Capabilities: What are the strengths and weaknesses of the competitors? How do
we compare with competitors?

CHAPTER 5

1. setting goals is easy but achieving them isn't

That's why setting "SMART" goals - Specific, Measurable, Achievable, Realistic and
Timely - is the first step in making your goal a reality.

Make your goal as Specific as possible and express it in positive terms. Do you want to
stop losing money or do you want to start making money? How much money do you want
to make?

How do you Measure success? You'll need a way to evaluate your progress and determine
if you're moving towards your goal. For example, if you want to improve your finances,
then you should have a way of keeping track of income and expenses.
Is your goal Achievable? Consider whether you have the resources necessary to achieve
your goal. If not, you need to determine if you can assemble everything required to
streamline your process. Remove any obstacles before you get started!

Realistic goals are achievable goals, unrealistic goals are just dreams. It's not necessary to
be negative but take time to honestly evaluate whether you're being realistic. Losing 30
pounds in 2 weeks is not impossible but it's not very likely and certainly not healthy.

Make your goal Timely by stating a due date for your goal AND the action steps involved
in achieving it.

2. Competitive advantage is all about activities an organization undertake to gain a

competitive advantage in a particular industry.
Criteria: It must relate to an attribute with value and relevance to the targeted
customer segment. It must be perceived by the customer as a competitive
advantage. It mus be sustainable, i.e. easily imitated by competitors.

3. By being more cost-effective than its competitors, i.e. cost leadership

By adding value to the product or service through differentiation and command
higher prices, i.e. focus
By offering the lowest (best) prices compared to rivals offering products with
comparable attributes, i.e. best-cost strategy

4. Out-manage rivals in the efficiency with which value chain activities are performed
and in controlling the factors that drive the costs of value chain activities.
Revamp the organisation’s overall value chain to eliminate or by-pass some cost-
producing activities.

5. Economies of scale
Experience and learning-curve effects
The percentage of capacity utilization
Technological advances
Improved efficiencies and effectiveness through supply chain management

6. Target market: A broad cross-section of the market

Basis of competitive advantage: Lower overall costs than competitors
Product line: A good basic product with few frills (acceptable quality and limited
selection)
Production emphasis: A continuous search for cost reduction without sacrificing
acceptable quality and essential features
Marketing emphasis: Trying to make a virtue out of product features that lead to
low cost
Keys to sustaining the strategy: Economical prices/good value. Low costs (year
after year) in every area of the business

7. The organization has the ability to reduce costs across the supply chain
Price competition among competitors is vigorous
 The targeted customer market is price sensitive
Competitive products are similar and there is a great degree of product
standardization
Brand loyalty does not play a big role among customers
Buyers have high bargaining power because of higher concentration
New entrants to the industry use introductory low prices to attract buyers and build
a customer base
The market is large enough to provide the organization with economies-of-scale
advantages
Buyers incur low switching costs.

8. Pitfalls: Sometimes organizations stand the risk of being overly aggressive with
their price cutting and ending up with lower profitability. Value-creating activities
that form the basis of this strategy can often be imitated too easily. A degree of
differentiation is often still needed.
Advantages: In cases where high profitability is obtained, the capital reserves that
are accumulated also provide the organization with a greater variety of strategic
alternatives when it comes to defending or expanding the market share of the
organization. Customers who are familiar with the products and services of low-
cost leaders are unlikely to switch to a competing brand, unless the competing
brand has something very different or unique to offer. One of the most important
advantages that cost leaders have is their ability to keep new entrants from entering
the market.

9. Differentiation consists of creating differences in the organisation’s product or

service offering by creating something that is perceived as unique and valued by
customers.
Prestige or brand image
Technology
Innovation
Features
Customer service
Product reliability
A unique taste
Speed and rapid response through activities such as prompt response to customer
complaints, shorter product development cycles, speedy delivery,etc.

10. Good: Differentiation strategy is the best generic strategy to follow when:
Buyer’s preferences are diverse and varied
Fewer competitors follow a similar differentiation approach with less head-on-head
rivalry
There are many ways to differentiate the product or service and many buyers
perceive differences as having value
Technology changes frequently and competition often centres around changing
product features
Higher industry entry barriers result in higher demand for products and less price
sensitivity
Brand loyalty exists
 The differentiated product or service can be designed so that it has wide appeal to
many market sectors
Pitfalls:
Uniqueness that is not valuable
Too much differentiation
Charging too high a premium
A uniqueness that is easily imitated
Dilution of brand identification through product-line esxtensions.

11.
focus generic strategy is based on the choice of a narrow competitive scope within
an industry. The organization targets a specific customer segment or group of
segments to which to provide products or services.
Strategic target
Focus: low cost – A narrow market niche where buyer needs and preferences are
districtively different
Focus: differentiation – A narrow market niche where buyer needs and
preferences are distinctively different
Basis of competitive advangage
Focus: low cost – Lower overall costs that rivals in serving niche members
Focus: differentiation – Attributes that appeal specifically to niche members
Product line
Focus: low cost – Features and attributes tailored to the tastes and requirements of
niche members
Focus: differentiation – Features and attributes tailored to the tastes and
requirements of niche members
Production emphasis
Focus: low cost – A continuous search for cost reduction while incorporating
features and attributes matched to niche member preference
Focus: differentiation – Custom-made products that match the tastes and
requirements of niche members
Marketing emphasis
Low: Communicating attractive features of a budget-priced offering that fits niche
buyers’ expectations
Diff: Communicating how product offering does the best job of meeting niche
buyers’ expectations
Keys to sustaining the strategy
Low: Constant innovation to stay ahead of imitative competitors. A few key
differentiating features
Diff: Commitment to serving the niche better than rivals, do not blur the
organisation’s image by entering other market segments or adding other products to
widen market appeal

12. itfalls: The needs, expectations and characteristics of the market may gradually
shift towards attributes desired by the majority of buyers in the broader market, which will
decrease the profit potential of this segment. Competitors may develop technologies or
innovative products that may redefine the preferences of the nich the organization has been
concentrating on. The segment may become so attractive that it is soon inundated with
competitors, intensifying rivalry and eroding profits.
Best Strategy: A focus strategy is the best generic strategy to follow when,
The target market niche is large enough to be profitable and offers good growth
potential
It provides a way for a smaller organization to avoid direct competition with the
larger organizations that do not deem the segment important to compete in
It is viable for larger organizations to meet the specialized needs of the niche
segment while still maintaining performance in their mainstream markets
The industray has a variety of potentially profitable market segments, and
overcrowding by competeitors is thus less of a risk
Customers are willing to pay a high premium for the perceived value that they
attach to a differentiated (customized) product or service
Customers are brand loyal and are unlikely to shift their loyalty to a competing
brand, regardless of the price they have to pay for the particular product or service.

13.