Strategic management

Chapter #1
Lecture #1
Strategic Management Process:
This process lists what steps the managers should take to create a complete
strategy. It comprises from 7 to 30 steps.
It depends upon;
 Organization culture
 Leadership style
 Experience
It is a two-way process that shows companies may sometimes go to a step or
two back in the process.

1. Vision: what you want to become. It gives the company direction, the
future of business.
Mission: what are we doing. Short statement why an organization exits.
2. External analysis: opportunities & threats
3. Internal analysis: strengths & weaknesses.
 4. Long-term objectives: over a period of 5 years. It is something you want
to do in future.
5. Generate, evaluate & choose: select the best alternative.
6. Implement: chosen strategy into actions action plans.
7. Measure & evaluate: reports on a program’s progress &
accomplishment.
Chapter 1:
Strategic management:
It can be defined as the art & science of formulating, implementing &
evaluating cross functional decisions that enables an organization to acieve its
objects.
It integrates;
 Management
 Marketing
 Finance
 HR
 R&D
Purpose of strategic management:
To exploits & create new & different opportunities for tomorrow.
Terminologies:
 Strategic management: used more often in academia
 Strategic planning: used more often inn business world.
Strategic management refers to;
 Strategy formulation
 Strategy implementation
 Strategy evaluation
Strategic planning refers to;
 Strategy formulation
Brief history;
1950: term strategic planning originates
1960-1970: strategic planning very popular (widely viewed as panacea for all
problems.
1980: strategic planning cast aside
1990-2000 and beyond: revival of strategic planning
Strategic management Process:
Lecture #2
Strategic Formulation:
A business will only succeed if it has the resources required to reach the goals
set in the first step. The process of formulating a strategy to achieve this may
involve identifying which external resources the business needs to succeed,
and which goals must be prioritized.
1. Vision: what you want to become. It gives the company direction, the
future of business.
2. Mission: what are we doing. Short statement why an organization exits.
3. External analysis: opportunities & threats
4. Internal analysis: strengths & weaknesses.
5. Long-term objectives: over a period of 5 years. It is something you want
to do in future.
6. Generate, evaluate & choose: select the best alternative.
Issues in Strategy Formulation:
 Business to enter
 Business to abandon
 Allocation of resources
 Expansion or diversion
 Entering into international markets
 Mergers or joint ventures
 Avoidance of hostile takeover
Strategy implementation:
Since the purpose of strategic management process is to propel an
organization to its objectives, an implementation plan must be put in place
before the process is considered viable. Everyone in the organization must
understand the process and know what their duties and responsibilities are in
order to fit in with the organization’s overall goal.
 Annual objectives: Annual objectives are specific, measurable
statements of what a business is expected to achieve within
an annual period.
 Policies: Policies are designed to guide the behavior of managers in
relation to the pursuit and achievement of strategies and objectives.
Policies are instrument for strategy implementation.
 Motivate employees: Employee motivation is the level of energy,
commitment, and creativity that a company's workers bring to their
jobs.
 Resource allocation: Resource allocation is the process of assigning and
managing assets in a manner that supports an organization's strategic
goals.
Steps in strategy implementation:
 develop a strategy supportive culture.
 Create an effective organizational structure.
 Redirecting marketing efforts.
 Preparing budgets.
 Linking employee’s compensation to organizational performance.
Issues in strategic implementation:
 Action stage of strategic management
 Mobilization of employees and managers to put formulated strategies
into actions.
 Require consensus to pursue the goal.
 Most difficult stage because it requires personal discipline, commitment
& sacrifice.
 Interpersonal skills critical for convincing.
Strategy evaluation:
1. Review external & internal environment:
Internal environmental factors and external environmental factors. Internal
environmental factors are events that occur within an organization. Generally
speaking, internal environmental factors are easier to control than external
environmental factors. Some examples of internal environmental factors are:
  Management changes
 Employee morale
 Culture changes
 Financial changes and/or issues
External environmental factors are events that take place outside of the
organization and are harder to predict and control. External environmental
factors can be more dangerous for an organization given the fact they are
unpredictable, hard to prepare for, and often bewildering. Some examples of
external environmental factors are:
 Changes to the economy
 Threats from competition
 Political factors
 Government regulations
 The industry itself
2. Measure Performance:
Performance measurement is the process of collecting, analyzing and/or
reporting information regarding the performance of an individual, group,
organization, system or component. Definitions of performance measurement
tend to be predicated upon an assumption about why the performance is
being measured.
3. Corrective actions:
Corrective action is an aspect of quality management that aims to rectify a
task, process, product, or even a person's behavior when any of these factors
produce errors or have deviated from an intended plan. Corrective actions can
be thought of as improvements to an organization to eliminate undesirable
effects.
Strategy Evaluation:
Strategy evaluation means collecting information about how well the strategic
plan is progressing. Strategic Evaluation is defined as the process of
determining the effectiveness of a given strategy in achieving the
organizational objectives and taking corrective action wherever required.
 Today’s success does not assure success tomorrow.
 Continuous modification of strategies according to changes in
environment.
  Success leads to new problems (competitor will not leave you alone).
 Smugness can lead to organization disasters.
Lecture #3
Prime task of Strategic Management:
Peter Drucker says the prime task of strategic management is thinking through
the overall mission of a business: “What is our Business?” This leads to the
setting of objectives, the development of strategies, and the making of today’s
decisions for tomorrow’s results.
The strategic management process can be described as an objective, logical,
systematic approach for making major decisions in an organization. It attempts
to organize qualitative and quantitative information in a way that allows
effective decisions to be made under conditions of uncertainty. Intuition is
particular useful for making decisions in situations of great uncertainty.
 Integrating intuition & analysis:
Strategic management process attempts to organize quantitative & qualitative
information under conditions of uncertainty.
Quantitative: facts & figures or graphs
Qualitative: intuitions, feelings & judgement
Intuition: it is based upon;
 Past experiences
 Judgement
 Feeling
Intuition is useful for decision making in conditions of;
 Great uncertainty
 Little precedent
 Highly interrelated variables
 Several plausible alternatives
Intuition & judgement;
 Involve management at all levels
 Influence all analysis
Intuition & analysis:
  Complement each other
 Have synergic effect
 Needs hard & soft data
 Require inputs from all managerial levels
Imagination is more important than knowledge because knowledge is limited
whereas imagination embraces the entire world….. Albert Einstein
Adapting to change:
The strategic-management process is based on the belief that organizations
should continually monitor internal and external events and trends so that
timely changes can be made as needed.
The only constant thing in the world is “Change”
 Globalization, global warming, internet, online social networking rising
food and energy prices.
- Everything is interconnected & interrelated
- Survival is only in Adapting to change
The need to adapt to change leads organizations to key strategic-management
questions, such as
 “What kind of business should we become?”
 “Are we in the right field(s)?”
 “Should we reshape our business?”
 “What new competitors are entering our industry?”
 “What strategies should we pursue?”
 “How are our customers changing?”
 “Are new technologies being developed that could put us out of
business?”
Lecture #4
Key terms in strategic management:
1. Competitive Advantage:
Anything a firm does especially well compared to its rival firms.
Strategic management is all about gaining and maintaining competitive
advantage. This term can be defined as “anything that a firm does especially
well compared to rival firms.”
When a firm can do something that rival firms cannot do, or owns something
that rival firms desire, that can represent a competitive advantage.
For example, in a global economic recession, simply having ample cash on the
firm’s balance sheet can provide a major competitive
advantage. Some cash-rich firms are buying distressed rivals.
 Continually adapting to changes in external trends and events and
internal capabilities, competencies and resources.
 Effectively formulating, implementing and evaluating strategies that
capitalize on those factors.
2. Strategists:
Strategists are the individuals who are most responsible for the success or
failure of an organization.
Strategists have various job titles, such as chief executive officer, president,
owner, chair of the board, executive director, chancellor, dean, or
entrepreneur.
3. Vision statement:
what you want to become. It gives the company direction, the future of
business. First step in strategic planning preceding even development of a
mission statement.
 Our vision is to take care of your vision
4. Mission statement:
Mission statements are “enduring statements of purpose that distinguish one
business from other similar firms. A mission statement identifies the scope of a
firm’s operations in product and market terms.”12 It addresses the basic
question that faces all strategists:
“What is our business?”
A clear mission statement describes the values and priorities of an
organization.
 5. External opportunities & threats:
External opportunities and external threats refer to economic, social, cultural,
demographic, environmental, political, legal, governmental, technological, and
competitive trends and events that could significantly benefit or harm an
organization in the future.
Opportunities and threats are largely beyond the control of a single
organization thus the word external.
A basic tenet of strategic management is that firms need to formulate
strategies to take advantage of external opportunities and to avoid or reduce
the impact of external threats.
For this reason, identifying, monitoring, and evaluating external opportunities
and threats are essential for success.
6. Internal strengths & weaknesses:
Internal strengths and internal weaknesses are an organization’s controllable
activities that are performed especially well or poorly. They arise in the
management, marketing, finance/accounting, production/operations, research
and development, and management information systems activities of a
business. Identifying and evaluating organizational strengths and weaknesses
in the functional areas of a business is an essential strategic management
activity. Organizations strive to pursue strategies that capitalize on internal
strengths and eliminate internal weaknesses.
7. Long-term goals/objectives:
Long-term means more than one year. Objectives are essential for
organizational success because they state direction; aid in evaluation; create
synergy; reveal priorities; focus coordination; and provide a basis for effective
planning, organizing, motivating, and controlling activities. Objectives should
be challenging, measurable, consistent, reasonable, and clear. In a
multidimensional firm, objectives should be established for the overall
company and for each division.
8. Strategies:
Strategies are the means by which long-term objectives will be achieved.
Business strategies may include geographic expansion, diversification,
acquisition, product development, market penetration, retrenchment,
divestiture, liquidation, and joint ventures.
Strategies are potential actions that require top management decisions and
large amounts of the firm’s resources.
9. Annual objectives:
Annual objectives are short-term milestones that organizations must achieve
to reach long-term objectives. Like long-term objectives, annual objectives
should be measurable, quantitative, challenging, realistic, consistent, and
prioritized.
10. Policies:
Policies are the means by which annual objectives will be achieved. Policies
include guidelines, rules, and procedures established to support efforts to
achieve stated objectives.
 Policies are guides to decision making and address repetitive or recurring
situations.
 Policies can be established at the corporate, divisional & functional level
 Policies allow consistency and coordination
 within and between organizational departments.
Lecture #5
Benefits of Strategic Management:
 Proactive vs reactive:
Strategic management allows an organization to be more proactive than
reactive in shaping its own future; it allows an organization to initiate and
influence (rather than just respond to) activities and thus to exert control over
its own destiny.
 Principal benefit:
he principal benefit of strategic management has been to help organizations
formulate better strategies through the use of a more systematic, logical, and
rational approach to strategic choice.
 Communication:
Communication is a key to successful strategic management. Through
involvement in the process, in other words, through dialogue and
participation, managers and employees become committed to supporting the
organization.
 Financial benefits:
Research indicates that organizations using strategic-management concepts
are more profitable and successful than those that do not.17 Businesses using
strategic-management concepts show significant improvement in sales,
profitability, and productivity compared to firms without systematic planning
activities.
 High performing firms:
High-performing firms tend to do systematic planning to prepare for future
fluctuations in their external and internal environments. High-performing firms
seem to make more informed decisions with good anticipation of both short-
and long-term consequences.
 Nonfinancial benefit:
strategic management offers other tangible benefits, such as an enhanced
awareness of external threats, an improved understanding of competitors’
strategies, increased employee productivity, reduced resistance to change, and
a clearer understanding of performance–reward relationships.
Why some firms do NO strategic planning:
 Lack of knowledge or experience in strategic planning: No training in
strategic planning.
 Poor reward structures: When an organization assumes success, it often
fails to reward success. When failure occurs, then the firm may punish.
 Firefighting: An organization can be so deeply embroiled in resolving
crises and firefighting that it reserves no time for planning.
 Waste of time: Some firms see planning as a waste of time because no
marketable product is produced. Time spent on planning is an
investment.
 Too expensive: Some organizations see planning as too expensive in
time and money.
 Laziness: People may not want to put forth the effort needed to
formulate a plan.
  Content with success: Particularly if a firm is successful, individuals may
feel there is no need to plan because things are fine as they stand. But
success today does not guarantee success tomorrow.
 Fear of failure: By not taking action, there is little risk of failure unless a
problem is urgent and pressing. Whenever something worthwhile is
attempted, there is some risk of failure.
 Overconfidence: As managers a mass experience, they may rely less on
formalized planning. Rarely, however, is this appropriate. Being
overconfident or overestimating experience can bring demise.
Forethought is rarely wasted and is often the mark of professionalism.
 Prior bad experience: People may have had a previous bad experience
with planning, that is, cases in which plans have been long,
cumbersome, impractical, or inflexible. Planning, like anything else, can
be done badly.
 Self-interest: When someone has achieved status, privilege, or self-
esteem through effectively using an old system, he or she often sees a
new plan as a threat.
 Fear of the unknown: People may be uncertain of their abilities to learn
new skills, of their aptitude with new systems, or of their ability to take
on new roles.
 Honest difference of opinion: People may sincerely believe the plan is
wrong. They may view the situation from a different viewpoint, or they
may have aspirations for themselves or the organization that are
different from the plan. Different people in different jobs have different
perceptions of a situation.
 Suspicion: Employees may not trust management.
Pitfalls to avoid in strategic planning:
• Using strategic planning to gain control over decisions and resources
• Doing strategic planning only to satisfy accreditation or regulatory
requirements.
• Too hastily moving from mission development to strategy formulation
• Failing to communicate the plan to employees, who continue working in the
dark.
• Top managers making many intuitive decisions that conflict with the formal
plan.
• Top managers not actively supporting the strategic-planning process
• Failing to use plans as a standard for measuring performance
• Delegating planning to a “planner” rather than involving all managers
• Failing to involve key employees in all phases of planning
• Failing to create a collaborative climate supportive of change
• Viewing planning as unnecessary or unimportant
• Becoming so engrossed in current problems that insufficient or no planning is
done.
• Being so formal in planning that flexibility and creativity are stifled.
The business Vision & Mission
Chapter #2
Lecture #6
Vision statement:
 Vision is the art of seeing things invisible…… Jonathan swift
 The very essence of leadership is that you have a vision. You can’t blow
an uncertain trumpet……. Theordore Hesburgh
A vision statement is a document that states the current and future objectives
of an organization. The vision statement is intended as a guide to help the
organization make decisions that align with its philosophy and declared set of
goals.
 What do we want to become?
A vision statement should answer the basic question, “What do we want to
become?” A clear vision provides the foundation for developing a
comprehensive mission statement. Many organizations have both a vision and
mission statement, but the vision statement should be established first and
foremost. The vision statement should be short, preferably one sentence, and
as many managers as possible should have input into developing the
statement.
 Where do you want to take your organization in the future?
  Agreement on the basic vision for which the firm strives to achieve in
the long term is especially important.
For Example:
 Tyson Food’s vision is to be the world’s first choice for protein solution
while maximizing shareholder value.
 General motor’s vision is to be the world leader in transportation
products & related services.
Mission Statement:
Mission statements are “enduring statements of purpose that distinguish one
business from other similar firms. A mission statement identifies the scope of a
firm’s operations in product and market terms.”12 It addresses the basic
question that faces all strategists:
“What is our business?”
A clear mission statement describes the values and priorities of an
organization.
 What is our Business?
Sometimes called a creed statement, a statement of purpose, a statement of
philosophy, a statement of beliefs, a statement of business principles, or a
statement “defining our business,” a mission statement reveals what an
organization wants to be and whom it wants to serve. All organizations have a
reason for being, even if strategists have not consciously transformed this
reason into writing, carefully prepared statements of vision and mission are
widely recognized by both practitioners and academicians as the first step in
strategic management.
For example:
 McDonald’s corporate mission is “to be our customers’ favorite place
and way to eat and drink.” This mission statement highlights the
significance of customers as the business focus, while maintaining the
company as a major influence on their food and beverage purchase
decisions. McDonald’s corporate mission statement has the following
main components:
1. Customers’ favorite place to eat and drink
2. Customers’ favorite way to eat and drink
Mission statements are also called:
 Creed statement
 Statement of purpose
 Statement of philosophy
 Statement of beliefs
 A statement defining our business.
Great benefit can be achieved if an organization;
 Systematically revisits their vision & mission statement
 Treats them as living documents
 Consider them to be an integral part of the firm’s culture.
 Profits & vision are necessary to effectively motivate a workforce
 Shared vision creates a community of interests
Lecture #7
The process of developing vision & mission statement:
In the strategic-management model, clear vision and mission statements
are needed before alternative strategies can be formulated and
implemented. As many managers as possible should be involved in the
process of developing these statements because through involvement,
people become committed to an organization.
Participation by as many managers as possible is important in developing
the mission because through involvement people become committed to an
organization.
 Have managers read related articles
 Have managers prepare a vision & mission statement for the
organization
 Merge the documents into one and distribute
 Gather feedback from managers
 Meet to revise the final document
Benefits of mission statement:
 better financial results
 unanimity of purpose
 resource allocation
 establishment of culture
  focal point of individuals
 establishment of work structure
 basis of assessment and control
 resolution of divergent views
table 2.3:
 Achieve clarity of purpose among all managers and employees.
 Provide a basis for all other strategic planning activities, including the
internal and external
 assessment, establishing objectives, developing strategies, choosing
among alternative
 strategies, devising policies, establishing organizational structure,
allocating resources, and
 evaluating performance.
 Provide direction.
 Provide a focal point for all stakeholders of the firm.
 Resolve divergent views among managers.
 Promote a sense of shared expectations among all managers and
employees.
 Project a sense of worth and intent to all stakeholders.
 Project an organized, motivated organization worthy of support.
 Achieve higher organizational performance.
 Achieve synergy among all managers and employees.
Resolution of Divergent views:
“What is our mission?” is a genuine decision; and a genuine decision must be
based
on divergent views to have a chance to be a right and effective decision.
Developing
a business mission is always a choice between alternatives, each of which rests
on
different assumptions regarding the reality of the business and its
environment. It is
always a high-risk decision.
Considerable disagreement among an organization’s strategists over vision and
mission statements can cause trouble if not resolved.
Utility of Firm’s products to customer:
 Do not offer me things.
 Do not offer me clothes. Offer me attractive looks.
 Do not offer me shoes. Offer me comfort for my feet and the pleasure of
walking.
 Do not offer me a house. Offer me security, comfort, and a place that is
clean and happy.
 Do not offer me books. Offer me hours of pleasure and the benefit of
knowledge.
 Do not offer me CDs. Offer me leisure and the sound of music.
 Do not offer me tools. Offer me the benefits and the pleasure that come
from making
beautiful things.
 Do not offer me furniture. Offer me comfort and the quietness of a cozy
place.
 Do not offer me things. Offer me ideas, emotions, ambience, feelings,
and benefits.
 Please, do not offer me things.
Components of Mission statement:
1. Customers: Who are the firm’s customers?
We believe our first responsibility is to the doctors, nurses, patients, mothers,
and all others who use our products and services.
(Johnson & Johnson).
To earn our customers’ loyalty, we listen to them, anticipate their needs, and
act to create value in their eyes. (Lexmark International)
2. Products or services: What are the firm’s major products or services?
3. Markets: Geographically, where does the firm compete?
4. Technology: Is the firm technologically current?
5. Concern for survival, growth, and profitability: Is the firm committed to
growth
6. and financial soundness?
7. Philosophy: What are the basic beliefs, values, aspirations, and ethical
priorities of
 8. the firm?
7. Self-concept: What is the firm’s distinctive competence or major
competitive
advantage?
8. Concern for public image: Is the firm responsive to social, community,
and
environmental concerns?
9. Concern for employees: Are employees a valuable asset of the firm?
Characteristics of Mission Statement:
 Broad in scope; do not include monetary amounts, numbers,
percentages, ratios, or objectives
 Less than 250 words in length
 Inspiring
 Identify the utility of a firm’s products
 Reveal that the firm is socially responsible
 Reveal that the firm is environmentally responsible
 Include nine components
customers, products or services, markets, technology, concern for
survival/growth/
profits, philosophy, self-concept, concern for public image, concern for
employees
 Reconciliatory
 Enduring
The external Assessment
Chapter #3
Lecture #8
The nature of an External Audit:
The purpose of an external audit is to develop a finite list of opportunities that
could benefit a firm and threats that should be avoided. As the term finite
suggests, the external audit is not aimed at developing an exhaustive list of
every possible factor that could influence the business; rather, it is aimed at
identifying key variables that offer actionable responses. Firms should be able
to respond either offensively or defensively to the factors by formulating
strategies that take advantage of external opportunities or that minimize the
impact of potential threats.
Key external Forces:
(1) economic forces
(2) social, cultural, demographic, and natural environment forces
(3) political, governmental, and legal forces
(4) technological forces
(5) competitive forces.
The process of performing an external Audit:
The process of performing an external audit must involve as many managers
and employees as possible. To perform an external audit, a company first must
gather competitive intelligence and information about economic, social,
cultural, demographic, environmental, political, governmental, legal, and
technological trends. Individuals can be asked to monitor various sources of
information, such as key magazines, trade journals, and newspapers. These
persons can submit periodic scanning reports to a committee of managers
charged with performing the external audit.
(1) important to achieving long-term and annual objectives,
(2) measurable,
(3) applicable to all competing firms,
(4) hierarchical in the sense that some will pertain to the overall company and
others will be more narrowly focused on functional or divisional areas
A final list of the most important key external factors should be communicated
and distributed widely in the organization. Both opportunities and threats can
be key external factors.
The industrial organization view:
The Industrial Organization (I/O) approach to competitive advantage advocates
that external (industry) factors are more important than internal factors in a
firm achieving competitive advantage.
  Competitive advantage is determined largely by competitive positioning
within an industry, according to I/O advocates.
 Managing strategically from the I/O perspective entails firms striving to
compete in attractive industries, avoiding weak or faltering industries,
and gaining a full understanding of key external factor relationships
within that attractive industry.
 I/O research provides important contributions to our understanding of
how to gain competitive advantage.
 I/O theorists contend that external factors in general and the industry in
which a firm chooses to compete has a stronger influence on the firm’s
performance than do the internal functional decisions managers make in
marketing, finance, and the like.
 Firm performance, they contend, is primarily based more on industry
properties, such as economies of scale, barriers to market entry, product
differentiation, the economy, and level of competitiveness than on
internal resources, capabilities, structure, and operations.
 The global economic recession’s impact on both strong and weak firms
has added credence of late to the notion that external forces are more
important than internal. Many thousands of internally strong firms in
2006–2007 disappeared in 2008–2009.
 The I/O view has enhanced our understanding of strategic management.
 It is not a question of whether external or internal factors are more
important in gaining and maintaining competitive advantage. Effective
integration and understanding of both external and internal factors are
the key to securing and keeping a competitive advantage
Lecture #9
Economic Forces:
Economic factors have a direct impact on the potential attractiveness of
various strategies.
For example:
 when interest rates rise, funds needed for capital expansion become
more costly or unavailable. Also, when interest rates rise, discretionary
income declines, and the demand for discretionary goods falls.
  When stock prices increase, the desirability of equity as a source of
capital for market development increases. Also, when the market rises,
consumer and business wealth expand.
Social, culture, demographic & natural environment Forces:
 Social, cultural, demographic, and environmental changes have a major
impact on virtually all products, services, markets, and customers. Small,
large, for-profit, and nonprofit organizations in all industries are being
staggered and challenged by the opportunities and threats arising from
changes in social, cultural, demographic, and environmental variables.
 By 2075, the United States will have no racial or ethnic majority. This
forecast is aggravating tensions over issues such as immigration and
affirmative action. Hawaii, California, and New Mexico already have no
majority race or ethnic group.
 The population of the world surpassed 7.0 billion in 2010; the United
States has just over 310 million people.
Political, government & legal Forces:
 Federal, state, local, and foreign governments are major regulators,
deregulators, subsidizers, employers, and customers of organizations.
Political, governmental, and legal factors, therefore, can represent key
opportunities or threats for both small and large organizations.
 For industries and firms that depend heavily on government contracts or
subsidies, political forecasts can be the most important part of an
external audit. Changes in patent laws, antitrust legislation, tax rates,
and lobbying activities can affect firms significantly.
 The increasing global interdependence among economies, markets,
governments, and organizations makes it imperative that firms consider
the possible impact of political variables on the formulation and
implementation of competitive strategies.
Political, government & legal variables:
 Government regulations or deregulations
 Changes in tax laws
 Special tariffs
 Political action committees
 Voter participation rates
  Number, severity, and location of government
 protests
 Number of patents
 Changes in patent laws
 Environmental protection laws
 Level of defense expenditures
 Legislation on equal employment
 Level of government subsidies
 Antitrust legislation
 Sino-American relationships
 Russian-American relationships
 European-American relationships
 African-American relationships
 Import–export regulations
 Government fiscal and monetary policy changes
 Political conditions in foreign countries
 Special local, state, and federal laws
 Lobbying activities
 Size of government budgets
 World oil, currency, and labor markets
 Location and severity of terrorist activities
 Local, state, and national elections
Technological Forces:
Revolutionary technological changes and discoveries are having a dramatic
impact on organizations. CEO Chris DE Wolfe of Myspace is using technology to
expand the firm’s 1,600-person workforce in 2009 even as the economic
recession deepens.
 The Internet has changed the very nature of opportunities and threats
by altering the life cycles of products, increasing the speed of
distribution, creating new products and services, erasing limitations of
traditional geographic markets, and changing the historical trade-off
between production standardization and flexibility.
 To effectively capitalize on e-commerce, a number of organizations are
establishing two new positions in their firms: chief information officer
 (CIO) and chief technology officer (CTO). This trend reflects the growing
importance of information technology (IT) in strategic management.
 A CIO and CTO work together to ensure that information needed to
formulate, implement, and evaluate strategies is available where and
when it is needed. These individuals are responsible for developing,
maintaining, and updating a company’s information database.
 Technological forces represent major opportunities and threats that
must be considered in formulating strategies. Technological
advancements can dramatically affect organizations’ products, services,
markets, suppliers, distributors, competitors, customers, manufacturing
processes, marketing practices, and competitive position. Technological
advancements can create new markets, result in a proliferation of new
and improved products.
Competitive Forces:
Collecting and evaluating information on competitors is essential for successful
strategy formulation. Identifying major competitors is not always easy because
many firms have divisions that compete in different industries.
Seven characteristics describe the most competitive companies:
1. Market share matters; the 90th share point isn’t as important as the
91st, and nothing is more dangerous than falling to 89.
2. Understand and remember precisely what business you are in.
3. Whether it’s broke or not, fix it—make it better; not just products, but
the whole company, if necessary.
4. Innovate or evaporate; particularly in technology-driven businesses,
nothing quite recedes like success.
5. Acquisition is essential to growth; the most successful purchases are in
niches that add a technology or a related market.
6. People make a difference; tired of hearing it? Too bad.
7. There is no substitute for quality and no greater threat than failing to be
cost competitive on a global basis.
Competitive forces identify rival firms:
 Strengths
 Weaknesses
 Capabilities
 Opportunity
  Threats
 Objectives
 Strategies
Key questions Concerning Competitors:
 Their strengths
 Their weaknesses
 Their objectives & strategies
 Their responses to external variables
 Their vulnerability to our alternative strategies
 Our vulnerability to strategic counterattack
 our products or services positioning
 entry of new firms & exit of old firms.
 sales and profit rankings
 nature of supplier and distributor relationships
 threat of substitute products/services
competitive intelligence:
it is a systematic and ethical process for gathering and analyzing information
about the competition’s activities and general business trends to further a
business’s own goals.
The three basic objectives of a CI program are;
(1) to provide a general understanding of an industry and its competitors,
(2) to identify areas in which competitors are vulnerable and to assess the
impact strategic actions would have on competitors,
(3) to identify potential moves that a competitor might make that would
endanger a firm’s position in the market.
Sources of competitive intelligence:
 internet
 employees
 manager
 suppliers
 distributer
 customers
  creditors
 consultant
 trade journals
 want ads
 newspaper articles
 government filings
 competitors
Market commonality & resource similarity:
Market commonality can be defined as the number and significance of markets
that a firm competes in with rivals.
Resource similarity is the extent to which the type and amount of a firm’s
internal resources are comparable to a rival.
Lecture #10
Porter’s Five-Forces Model:

Rivalry among competing firms:

The intensity of rivalry among competitors in an industry refers to the extent
to which firms within an industry put pressure on one another and limit each
other’s profit potential. If rivalry is fierce, then competitors are trying to steal
profit and market share from one another. As a result, this reduces profit
potential for all firms within the industry. According to Porter’s 5 forces
framework, the intensity of rivalry among firms is one of the main forces that
shape the competitive structure of an industry.
Conditions That Cause High Rivalry Among Competing Firms
1. High number of competing firms
2. Similar size of firms competing
3. Similar capability of firms competing
4. Falling demand for the industry’s products
5. Falling product/service prices in the industry
6. When consumers can switch brands easily
7. When barriers to leaving the market are high
8. When barriers to entering the market are low
9. When fixed costs are high among firms competing
10. When the product is perishable
11. When rivals have excess capacity
12. When consumer demand is falling
13. When rivals have excess inventory
14. When rivals sell similar products/services
15. When mergers are common in the industry
Potential entrance of new customers/threats of new entrance:
New entrants in an industry bring new capacity and the desire to gain market
share. The seriousness of the threat depends on the barriers to enter a certain
industry. The higher these barriers to entry, the smaller the threat for existing
players. Examples of barriers to entry are the need for economies of scale, high
customer loyalty for existing brands, large capital requirements (e.g. large
investments in marketing or R&D), the need for cumulative experience,
government policies, and limited access to distribution channels.
Barriers of entry of competitors:
 Need to gain economics of sale quickly
 Need to gain technology and specialized know-how
  Lack of experience
 Strong customer loyalty
 Strong brand preferences
 Large capital requirements
 Lack of adequate distribution channel
 Government regulatory policies
 Tariffs
 Lack of access to raw materials
 Possession of patents
 Undesirable locations
 Counterattack by entrenched firms
 Potential saturation of the market
Potential development of substitute Products/threats of substitute product:
A substitute product is one that may offer the same or similar benefits to a
company as a product from another industry. The threat of a substitute is the
level of risk that a company faces from replacement by its substitutes. For
more generic, undifferentiated products the threat is always higher that from
more unique products. A company that has several possible substitutes that
can easily be switched to has little control over the prices it sets or how it
chooses to sell the product.
Bargaining power of suppliers:
The Bargaining Power of Suppliers, one of the forces in Porter’s Five Forces
Industry Analysis Framework, is the mirror image of the bargaining power of
buyers and refers to the pressure that suppliers can put on companies by
raising their prices, lowering their quality, or reducing the availability of their
products. This framework is a standard part of business strategy.
The bargaining power of the supplier in an industry affects the competitive
environment and profit potential of the buyers. The buyers are the companies
and the suppliers are those who supply the companies.
The bargaining power of suppliers is one of the forces that shape the
competitive landscape of an industry and help determine the attractiveness of
an industry. The other forces include competitive rivalry, bargaining power of
buyers, the threat of substitutes, and the threat of new entrants.
Bargaining power of consumer:
Buyers have bargaining power when they are strong enough to be able to put
collective pressure on the companies producing a product or a service. This
power is highest when buyers are able to gather together and amount for a
large percentage of the producer’s sales revenue or when there is a number of
suppliers providing the same type of product.
Bargaining power of buyers will be strong and powerful depending on:
 Characteristics of a market and its conditions
 The percentage of sales revenue they provide
Sources of external information:
A wealth of strategic information is available to organizations from both
published and unpublished sources.
Unpublished sources include;
 customer surveys
 market research
 speeches at professional and shareholders’ meetings
 television programs
 interviews
 conversations with stakeholders.
Published sources of strategic information include;
 periodicals
 journals
 reports
 government documents
 abstracts
 books
 directories
 newspapers
 manuals.
The Internet has made it easier for firms to gather, assimilate, and
evaluate information.
Web sites for gathering strategic information
 http://marketwatch.multexinvestor.com
 http://moneycentral.msn.com
 http://finance.yahoo.com
 www.clearstation.com
 https://us.etrade.com/e/t/invest/markets
 www.hoovers.com
Industry analysis: the external factor evaluation matrix:
An External Factor Evaluation (EFE) Matrix allows strategists to summarize and
evaluate;
 economic
 social
 cultural
 demographic
 environmental
 political
 governmental
 legal
 technological
 competitive information.
The Competitive Profile Matrix (CPM):
The Competitive Profile Matrix (CPM) identifies a firm’s major competitors and
its particular strengths and weaknesses in relation to a sample firm’s strategic
position. The weights and total weighted scores in both a CPM and an EFE have
the same meaning. However, critical success factors in a CPM include both
internal and external issues.